OPERS worked to keep harmful UBIT changes out of tax reform legislation

As the tax reform legislation wound its way through Congress late last year, there was a debate over whether to include a change to a little-known provision known as the unrelated business income tax (UBIT). Specifically, there were those who believed that currently tax-exempt state and local retirement systems, like OPERS, should be subject to the tax. As you can imagine, OPERS was concerned at the prospect of an additional tax on our investment activities and worked with other public retirement systems throughout the country to convince Congress the proposed UBIT change should not be included in the final legislation.

This tax, had it been included, would have impacted our investments in asset classes such as private equity, real estate and securities lending, and resulted in additional administrative costs as we would have had to assess and report the UBIT and possibly restructure many of our investments to account for the new tax. Because OPERS maintains significant investments in the affected asset classes, this tax could have detrimentally impacted our mission to provide secure retirement benefits to our members.

OPERS, like other public retirement systems, is under continual pressure to meet its actuarial assumptions, including investment returns, member longevity and wage growth. Despite the current historic bull market, we must prudently plan for the future by periodically revisiting our benefit structure to ensure we remain strong. At best, subjecting public plans to this new tax would have resulted in a drag on investment returns, thereby reducing the likelihood these plans would achieve their assumed investment returns.

We reminded members of the Ohio congressional delegation that OPERS has already made or contemplated benefit changes in recent years to stabilize and improve our financial position and urged them to oppose any efforts to extend the UBIT to state and local retirement systems. Fortunately, we found receptive audiences among the members of the Ohio delegation. We are especially grateful to now former Ohio Congressmen Pat Tiberi (R-Westerville) and Jim Renacci (R-Wadsworth), who served on the House Committee on Ways & Means and were very responsive to our concerns. Additionally, a special thanks goes out to Sen. Rob Portman (R-Cincinnati), who served on the conference committee that assembled the final bill and helped ensure the tax provision was not part of the final package. Without the assistance of the entire Ohio congressional delegation, it is likely the proposed UBIT extension would have been added to the final tax reform legislation.

We appreciate being able to work with all members of the Ohio congressional delegation during this process and look forward to continuing to educate Congress and their staff about how important legislative issues like tax reform affect OPERS and it members.

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