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Ohio Public Sector Retirement Plans: DB vs. DC, PLOP, and DROP

Learn about Ohio public sector retirement plans, defined benefit vs. defined contribution, PLOP, DROP, and how to calculate benefits for teachers and firefighters. Helpful resources and homework included.

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Ohio Public Sector Retirement Plans: DB vs. DC, PLOP, and DROP

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  1. Public Sector Plans Sherry S. Chan, ASA, MAAA Chief Actuary State Teachers Retirement System of Ohio

  2. Introductions • Sherry • OSU • Towers Perrin, MetLife, STRS Ohio • Students • Why actuarial science? • What kind of actuary?

  3. What is a Public Sector Plan? • Plan for government employees • State and local employees • Military employees/Armed forces • Federal civil servants • Teachers • Uniformed Officers

  4. Ohio Public Sector Plans

  5. Defined Benefit vs. Defined Contribution • Defined Benefit (DB) • Benefits are defined • e.g. 1% of Final Salary times Years of Service • Contributions to fund benefits are not defined • Defined Contribution (DC) • Contributions to fund benefits are defined • Benefits upon retirement are not defined • Function of contribution, investment earnings, management fees, etc.

  6. Benefit Features of Public Plans • Employee contributions are common • Can’t reduce future DB accruals for current employees • Often provide subsidized early retirement benefits • Service caps are common • Most provide automatic or ad hoc COLAs • Longer vesting schedules • Some allow members to purchase service credits • Some not subject to Social Security • Less stringent regulations • PLOP • DROP

  7. PLOP • Partial Lump-Sum Option Plan • Designed as an extra benefit to retirees • How it works • Allows participants to take an amount equal to “x” times the monthly single life annuity benefit in a lump sum at retirement • Monthly benefits still begin at retirement date and are payable for life, but are reduced to reflect the amount taken in a lump sum

  8. STRS PLOP Homework • www.strsoh.org • Publications • Under “Brochure Series,” find PLOP • Complete worksheet on p.5 of 11, assuming: • Kindergarten teacher Mrs. Taylor started teaching immediately after obtaining her masters degree in child education and will retire upon reaching 30 years of service at age 55. • Final average salary for Mrs. Taylor is $75,000. She incurred a 80% replacement ratio so her final annual retirement benefit is $60,000. • Mrs. Taylor fell in love with a foreclosure home on a golf resort in Florida costing only $189,500. Mrs. Taylor wants to pay for this house in full using as much as possible from her PLOP. • Mrs. Taylor wants to receive remaining retirement benefits in the form of a single life annuity to help pay for green fees and monthly resort fees.

  9. DROP • Deferred Retirement Option Plan • Designed to keep experienced employees who are eligible to retire early • How it works • Benefit frozen on elected DROP date • Payments accumulate in a tax-qualified fund accumulating interest • Member receives LS balance on their actual retirement date • Member doesn’t continue to accrue benefits while on DROP

  10. OP&F DROP Homework • www.op-f.org • Members • DROP Information • Member’s Guide to DROP • Calculate Fireman Taylor’s DROP benefit chart, assuming: • Mr. Taylor became a fireman right out of high school at age 18 and will retire with unreduced benefits at age 48. • Mr. Taylor’s final average annual salary immediately before DROP election is $45,000 and will incur a 2.5% annual salary growth during the 8 years he will be in DROP.

  11. Questions? ChanS@strsoh.org

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