CHICAGO - Pension reform enacted in 2013 has helped Ohio offset some of the stress tied to falling pension funding ratios, according to Moody's Investors Service.
Moody's said the Aa1-rated state's relatively recent pension changes have given Ohio more financial flexibility to deal with investment losses and translated into less budget pressure for both state and local governments.
"Four large plans encompass nearly all public pension liabilities in Ohio," Moody's analysts wrote in the report, "Reform Flexibility in Ohio Lessens Pension Stress," published Thursday.
"Declines in the funded status for these plans have not directly translated to increased budget pressure for the state and its local governments, however," Moody's wrote. "Instead, broad statewide reforms have relied on legal flexibility to reduce benefit levels and increase employee contributions."
The Buckeye State has seen serious declines in its pension plans since 2008. Its largest system, Ohio Public Employees Retirement System, which accounts for 96% of state employees, fell to a funded ratio of 77% in 2011 from 96% in 2007.
Together the systems had a combined funded status of 67% in 2011, down from 87% in 2008.
Legislators began to debate changes to the systems as early as 2011. In 2012, an independent review of the pension funds commissioned by lawmakers warned that the funds would go broke without changes.
Signed into law by Gov. John Kasich in early 2013, the reforms increased employee contributions, reduced cost-of-living adjustments and increased retirement ages.
The state also opted to increase allocations to pension funding at the expense of pre-funding retiree health care benefits. Ohio is one of the few states that has regularly funded its retiree health care benefit liability. As of 2012, it was one of only seven states that had funded more than 25% of its OPEB liability, according to Pew Center on the States.
Ohio also annually determines the number of years in which each of its five plans' unfunded liability can be amortized under current contributions. If it would take more than 30 years to fund the plan under the current rates, the system's officials are required to submit plans to the Ohio Retirement Study Council for adjusting contributions or benefits to meet the 30-year funding target.
The state's final say in setting contributions and benefits is crucial to maintaining control and flexibility, Moody's said.
"The state has demonstrated through its recent reforms that it can enact substantial benefit changes, including those that affect cost-of-living adjustments (COLAs) for current retiree," the report said. "These changes lowered actuarially accrued liabilities."
Ohio has five pension plans, which both the state and local governments participate in, which have a total unfunded pension liability of $6.6 billion.