Governor DeWine Signs SERS’ CBBC Into Law
On July 4, 2023, Governor Mike DeWine signed HB33 (the FY2024-FY2025 state budget bill) into law. Contained in that bill are the contents of HB 146, which establishes a SERS contribution based benefit cap (CBBC). HB 146 had passed the House Pensions committee on May 22. The implementation date will be August 1, 2024.
More details on the implementation of the CBBC will be shared in the upcoming months as the SERS Board determines the CBBC factor that is used in calculations. Implementation of a CBBC was discussed during the Board’s 2019-2021 Sustainability Sessions and details can be found at https://www.ohsers.org/about-sers/board-of-trustees/sustainability/.
What is the CBBC?
Typically, an SERS pension is based on a member’s three-year Final Average Salary (FAS). In most cases the accrued contributions and investment earnings are sufficient to fund the benefit. In rare instances, however, when an individual has an FAS substantially higher than the majority of their working career it can result in benefit inflation or “spiking.”
The CBBC was the byproduct of the SERS Board’s sustainability discussions held during May, June, September, and October 2021. Materials that included numerous calculations can be found on our website.
As compensation strategies have evolved, SERS’ Board asked for tools to limit pension spiking in the future. The Board was opposed to changing the three-year Final Average Salary as that would negatively affect everyone, so they opted for the CBBC.
The CBBC would compare a member’s traditional formula benefit to the member’s CBBC benefit, which is based on their total contribution history. The CBBC calculation annuitizes the contributions and then multiplies it by a factor selected by the Board to identify the outer end of the contribution/benefit alignment. A member’s pension would be capped at the lower of the formula benefit or the CBBC benefit. The CBBC will ensure that everyone’s lifetime contributions and investment returns on those contributions will fund their pension benefits.
Will I Be Affected?
Nobody wants their monthly pension to be reduced, but SERS’ sustainability is adversely impacted when everyone else in the System must subsidize the pensions of the handful of members whose lifetime contributions and earnings on those contributions are not enough to fund their own benefits.
SERS’ staff tested the CBBC calculations on 3,270 actual retirees from 2020-2021 and found that only a small percentage of those members would have been affected, and most of those would have had minimal reductions to their monthly pension amounts. Therefore, it is highly unlikely that you will be affected.
In general, only members whose three-year FAS is significantly higher than their career salary history will be affected. The CBBC is not intended to and will not impact benefits that are a product of normal salary growth, promotions, or job changes during a working career.
Anyone who is already retired will not be affected by the CBBC.