Ohio Public Pension System: Traditional Funding Ratios are Not Enough for Pension Funds

Ohio’s public pension system comprises five state-level plans that have actuarial funding ratios ranging between 67 and 84 percent. Pension plan funding levels are a proxy for the ability of a pension plan to fund its promised benefit payments without additional resources. Volatile and uncertain investment returns mean that even a fully funded pension plan has less than a 50 percent chance of having sufficient assets to fund all accrued future benefit payments, so the likelihood that Ohio’s pension plans can meet their obligations is even less. In this study, we determine the likelihood that Ohio’s major public pension plans will be able to make their accrued, promised future payments using only each plan’s current stock of assets—without future contributions, which are intended to fund benefits that accrue later. Furthermore, we calculate the amount of assets the pension plans would need to increase the likelihood of being able to fund future benefit payments and the effect this has for potential “overfunding.” Overall, we show that traditional funding ratios may be a misleading indicator of a pension plan’s ability to use current assets to pay future benefits.