Dayton Daily News: Public pension plans criticized for 'double-dipping,' more

By Lynn Hulsey, Staff Writer
Dayton Daily News
Sunday, April 01, 2007

DAYTON -- Montgomery County has become a poster child for those wishing to reform public employee pension laws that allow a practice some call "double-dipping."

When Greater Dayton RTA Executive Director Minnie Fells Johnson quietly retired and returned to work without a board vote in 2003, the legislature passed a law requiring a public hearing before top appointed officials could retire, begin collecting their pensions and return to the same job.

A year later, controversy erupted after County Coroner James Davis stood for re-election without telling voters he intended to retire and return to work. That led the secretary of state to order that all local board of elections members be notified of an elected official's retirement plans.

State legislators are now looking at ways to make the retire/rehire practice less financially lucrative, and once again a Montgomery County example is providing the push. Joe Szoke, executive director of the Montgomery County Board of Alcohol, Drug Addiction and Mental Health Services, was the highest paid employee in the county last year, thanks to the large payouts he received when he was allowed to retire and be rehired.

Szoke, 59, took in $288,625, including $137,280 in payouts for unused sick leave and vacation. Last month, after weeks of controversy, he returned $13,123 in leave pay that exceeded board policy.

Szoke collects his pension and salary, which was reduced by $30,000 annually when he returned to his old job, and he's covered under the county health care plan. Once he retires for good and turns 65, he gets access to a money purchase annuity account invested by the county until he leaves, according to Ohio Public Employee Retirement System rules.

"I think it's horrible," said State Rep. Michelle Schneider, R-Madeira, "I think it's gaming the system and we have to fix it. It is not the way the system was supposed to work."

Schneider is working on a bill that would eliminate the retirement annuity for those who retire and are rehired under any of the state's public pension systems. The retire/rehire option has grown in popularity since 1991 when state law changed and required the annuity.

"They would still be able to get their pension and their salary, but they wouldn't be able to get more taxpayer money toward their pension," Schneider said of the bill.

She isn't the only lawmaker questioning the perks of public employment.

"I think it's time we look at it," said State Rep. Tom Roberts, D-Trotwood.

Schneider said legislators are considering raising public employees' retirement age, which OPERS officials say now averages about 55. And there is talk of changing rules that allow state and local government employees to retire with full pension benefits after 30 years, regardless of their age.

"You have to look at it, not in terms of whether you think it's right or wrong, but is it sustainable?" said House Speaker Jon Husted, R-Kettering. "In some circumstances you could be retired longer than you worked."

Although OPERS is healthy now, with $77.6 billion in assets, the declining average age of retirements "really puts a lot of stress and strain" on the system, said Tom Sherman, government relations officer for OPERS.

State and local government employers typically pay 13.85 percent of an employee's wages into the pension system and the employee pays 9.5 percent, although Sherman said many governments also pay the employee portion. If a person retires and is rehired, the same amounts go into the annuity fund.

By comparison, private employers and employees each pay 6.2 percent into Social Security.

Sherman said 11,402 people now working in OPERS-covered jobs are retired from another covered job. And another 1,160 are drawing their pensions and the annuity.

Pension payments are based on years of service and a percentage of the average of the highest three years of pay. If employees retire after 30 years they get 66 percent of their pay, a figure that hits 100 percent after 44 years, Sherman said.

In addition, health care coverage premiums are covered for those who retire after 30 years and retirees pay only about 10 percent of their health care costs, Sherman said. Once they become eligible for Medicare, OPERS pays their premiums and is the secondary payer on medical bills, he said.

Husted said legislators may take a hard look at some of the public employee benefits mandated by state law, such as 15 sick days a year and the requirement that they be paid for accumulated unused sick leave and vacation pay. "Here again we get into issues that are supposed to be safety nets, not a benefits package," he said.

County Administrator Deborah Feldman said the pay for unused leave is a trade-off: It is difficult to find someone to replace employees when they miss work, so it is helpful if they don't use all their leave time. And because the county offers no disability leave, workers are encouraged to save up their sick days.

Experts say being paid for not using sick leave is virtually unheard of in the private sector and pay for unused vacation is also rare. "A standard practice is use it or lose it," said Tracy Miller, a management/leadership lecturer at the University of Dayton.

Some specialized private-sector jobs, such as attorneys and engineers, do earn considerably more than those in the public sector. And, of course, a company's chief executive officer or chief financial officer typically is better compensated than a comparable position in government.

But, on average, public employees do better, and the greatest compensation disparity is in retirement plans. That gap is increasing, too, as private companies abandon their defined benefit pension plans and set up plans like 401ks that shift the investment risk to the employee, said Adam Meyers, vice president and director of benefits for Hay Group Corp., which specializes in compensation consulting.

Feldman said it is important for the public sector to attract the best employees, which means government must be competitive. At the same time, she acknowledged the financial burden on taxpayers.

"I think the real question is: Does this compensation package make sense in today's world with the tremendous pressures on all governments?" she said.