The combined effects of pension reform legislation and positive investment performance have resulted in a tremendous improvement in OP&F’s long-term funding status, according to the annual actuarial valuation presented to the Board of Trustees on Oct. 22.

OP&F experienced excellent investment returns in 2012 (14.9 percent) and we are again well above our expected rate of return for 2013. This investment performance, coupled with the provisions in pension reform legislation, was essential in reducing the funding period.

The valuation, which measures OP&F’s assets and liabilities as of Jan. 1, 2013, indicated a funding period of 47 years (meaning it would take 47 years to pay off all unfunded liabilities). This is a significant accomplishment and shows great strides in our long-term financial standing. OP&F remains on solid financial footing. Our unfunded liabilities have never impaired our ability to pay benefits and we are able to pay all of our obligations going forward.

While the progress on OP&F’s long-term funding is substantial it still falls short of what is required. State law requires that public pension systems meet a 30-year funding requirement, and if they do not meet this requirement, they must submit a plan demonstrating how it will get to this threshold. Therefore, the OP&F Board now must develop a 30-year plan as required under state law.

When originally proposed by the OP&F Board in 2011, the funding proposals adopted would have been enough to reach 30 years. However, delays in adopting the legislation meant the unfunded liabilities continued to increase. When the legislation was signed into law in September 2012, OP&F recognized that the provisions would still leave the pension fund out of compliance in terms of meeting the 30-year funding requirement.

OP&F uses an actuarial smoothing technique to determine the funding period, meaning that investment returns are spread out over four years to lessen volatility of periods when returns are above or below the expected rate. Unfortunately, this means that for purposes of the annual valuation, we are not yet able to reflect all of the strong investment gains in 2012 and 2013.

Throughout this process, OP&F will keep membership and constituent organizations informed on further developments. When the board adopts a a new 30-year plan, we will share it with you so that you can fully understand what we are doing and why we are doing it.