We gathered most of the related information here in an easy to understand format. Please also use our handy and simple calculator to see how much money is at stake for you personally.
What is the Mitigating Rate?
Whose retirement contributions are subject to the Mitigating Rate?
Who sets the mitigating rate?
What are we doing?
What has been the financial impact to me personally?
How much money has been diverted from our retirement accounts?
What is the legal background to the mitigating rate?
What are the historical levels of the mitigating rate?
In 1997 state law was changed to allow public employees to choose between the state pension system and an alternative retirement plan (ARP). Faculty can choose to have their retirement contributions (paycheck deduction plus university match) allocated to the State Teachers’ Retirement System (STRS) or to a state-‐‑approved ARP private vendor such as TIAA-‐‑CREF and Fidelity Investments. Furthermore, in 2001 STRS started to offer its own version of the ARP1. Non civil-‐‑service staff contribute to the Ohio Public Employees Retirement System (OPERS) or the ARP.
Like all Defined Benefit pension plans, STRS and OPERS pay out defined benefits to retirees, and depend on continuing contributions from employees to meet those obligations. ARP is what we call a Defined Contribution Plan (DC) where you only know how much you put into the system but your pension depends in a large degree on your investment success. When the ARP was set up in 1997, it meant that fewer individuals would pay into STRS and OPERS. To pass the law, the legislature included the concept of mitigation in ORC 3305.06(D), which states that "Each public institution of higher education employing an electing employee shall contribute on behalf of that employee to the state retirement system that otherwise applies to the electing employee's position a percentage of the electing employee's compensation to mitigate any negative financial impact of the alternative retirement program on the state retirement system." Thus, the state mandated that anyone contributing to the ARP1 could have a portion of the institutional match (not the paycheck deduction) reallocated to the state systems. That portion is called the mitigating rate.
Only individuals contributing to an ARP are subject to the Mitigating Rate; those in the STRS defined contribution and combined plans also pay a Mitigating Rate1. The amount deducted from your paycheck goes in its entirety to your retirement fund, but the institutional match for your contributions is docked by the mitigating rate. Our current information is that 20-30% of Faculty contribute to an ARP. Over 3000 OSU Staff signed up to the ARP plan and are therefore also subject to the Mitigating Rate.
By ORC 3305.06(D), The Ohio Retirement Study Council has sole authority to set the mitigating rate. The Council has three members of the state Senate, three members of the House, three members appointed by the Governor, and five ex officio members. They are mandated by law to conduct a review every three years of the various retirement funds, to commission an independent audit, and to make recommendations on a variety of issues affecting the state pension systems, including the mitigating rate. Its most recent report was issued on December 8, 2014.
We are studying the issue thoroughly, with the goals of 1) having the mitigation rate abolished for all who direct their retirement contributions to an ARP and 2) receiving clear, consistent communication from the University concerning our retirement contributions.
We believe the mitigating rate is fundamentally unfair because it differentially affects the retirement funds of a subset of faculty and staff. Furthermore, we believe its underlying premise, that STRS and OPERS are harmed by the defined-‐‑contribution plans, to be flawed. See Fact Sheet #3 for an analysis.
We have been contacting legislators, retirement experts, and university officials to collect information and to identify avenues of redress.
That depends on your salary history and how long you have been employed at Ohio State. For a faculty member who was hired in 2005 at an annual salary of $75,000 and who received 3% increments every year thereafter, the total amount sent to STRS instead of the ARP has been $36,557.06 to date. A rough estimate is that your retirement account would be 20% greater were there no mitigating rate.
We do not have exact numbers for OSU faculty and staff. However, the total amount diverted to date across all institutions of higher education in Ohio is $208 million.
In 1997 the mitigating rate was established in section 3305.06 of the Ohio State Revised Code (OSRC). Section B of that law states:
"Each public institution of higher education employing an electing employee shall contribute a percentage of the employee’s compensation to the provide of the investment option the employee has selected. This percentage shall be equal to the percentage that the public institution of higher education would otherwise contribute on behalf of that employee to the state retirement system that would otherwise cover that employee’s position, less the percentage contributed by the public institution of higher education under division (D) of this section."
Section (D) continues:
"Each public institution of higher education employing an electing employee shall contribute on behalf of that employee to the state retirement system that otherwise applies to the electing employees’ position a percentage of the electing employee’s compensation to mitigate any negative financial impact of the alternative retirement program on the state retirement system."
Originally section 3305.06 of the OSRC stipulated the mitigation rate for faculty would be 6% of the salary. The Ohio Retirement Study Council is mandated by ORSC 171.03-04 to review all aspects of the state retirement systems every three years, and gives them sole authority to set the mitigating rates. The most recent review with its binding recommendations on mitigation rates was published on December 8, 2014.
It is important to underscore that the mitigation rates apply only to the University match of our own contributions to our retirement funds. Furthermore, it is important for you to understand that Ohio State contributes more than is statutorily required; in the current year, faculty members contribute 12.0% of their salary to a retirement program, and the University provides 14.0% as an overmatch.
The schedule below shows how the University contribution to ARP accounts has varied since its inception.
|Time Frame||Employee contribution to ARP1||University contribution to ARP1||University Contribution to STRS instead of to ARP - Mitigating Rate|
|Feb 5, 1999 – June 30, 1999||9.3%||8.0%||6.0%|
|July 1, 1999 – Sept 5, 2001||9.3%||8.24%||6.0%|
|Sept 5, 2001 – Sept 30, 2001||9.3%||10.3%||3.7%|
|Oct 1, 2001 – June 30, 2003||9.3%||10.5%||3.5%|
|July 1, 2003 – June 30, 2013||10.0%||10.5%||3.5%|
|July 1, 2013 – June 30, 2014||11.0%||9.5%||4.5%|
|July 1, 2014 -‐‑ present||12.0%||9.5%||4.5%|
Please note two important details:
1) Throughout this entire time frame, the University contributed 14% to STRS for faculty enrolled in the STRS defined-benefit plan.
2) Staff enrolled in the ARP have been subject to entirely different mitigating rates that are sent to OPERS, and they have always been lower. Recently the OPERS mitigating rate is 0.77% but starting on July 1, 2017 it has been dramatically increased to 2.44%
1.To avoid confusion, we use “ARP” to include all defined contribution plans. Thus the private vendor plans offered by OSU, as well as the STRS defined contribution and combined plans, all are subsumed within the ARP for our purposes. Herein we use STRS to denote the defined benefit plan offered by the State Teachers Retirement System.