Plain Dealer: Public workers' pensions growing

Cleveland Plain Dealer, April 1, 2007

WHO PAYS? PUBLIC PENSIONS

Coming Monday: Double dipping. Public workers' pensions growing

The chasm between haves and have-nots continues to grow Divide with private sector retirees growing faster than ever Private workers supplement benefit while losing their own

John Caniglia and Joan Mazzolini
Plain Dealer Reporters

That bus driver bringing you to work, the garbage collector picking up your weekly trash and the clerk taking your money for a dog license have something you likely lack: a guaranteed retirement.

And you are paying for it.

State and local governments will use your taxes to pump $3.5 billion into public pension funds in Ohio this year, an increase of about 30 percent since 2001. That works out to Ohio's 11 million residents each shelling out $318.

These residents are paying for something they do not receive in their jobs. The chasm separating Ohio's retirees -- those with guaranteed government pensions and those without -- is growing faster than ever.

Ask one of the 14,000 salaried Goodyear Tire & Rubber Co. employees who recently learned their company is phasing out defined benefits, which guaranteed them pension checks for as long as they lived. Instead, they will get 401(k) funds that rise and fall on the whims of the stock market and can run dry long before the workers die.

Or ask Mark Granakis, 57, who spent 32 years working as a pipefitter at LTV Corp. Despite the company's promises over the years that it was putting away money for workers' pensions, bankruptcy freed LTV of the burden.

Granakis' $1,400 a month is 70 percent less than the $4,700 a month he had long expected.

"I had to go back to work because I wanted to eat," Granakis said.

Taxpayers question why government workers make out so much better in their retirement years, even retiring as young as 48. And because most government pensions are based on a worker's best three earning years, workers can inflate their pension checks for decades by stepping up for overtime in those three years.

Then, like Social Security, most public pensions are guaranteed against inflation, with cost-of-living increases for life.

Unlike private sector workers, government employees need not fear that their pension plans will go broke: The funds are guaranteed by the Ohio Constitution, and you, the taxpayers, are the guarantors.

For comparison, private pensions vary, with some companies offering generous plans and others nothing. What's clear, though, is that many companies have abandoned the pension business to be more competitive in the global economy.

The number of private companies providing guaranteed retirement plans - those with specific check amounts for the life of the retiree - tumbled 74 percent from 1985 to 2005, from more than 112,000 to fewer than 29,000.

And taxpayers counting on Social Security regularly read news stories questioning whether that fund will be sound.

Laura Ecklar, a spokeswoman for the State Teachers Retirement System, said the answer is not to criticize the public pension as generous but to elevate the benefits for private sector workers.

"Instead of people worrying about the pensions in the government system, we should look at ways of making all of the pension systems fair," Ecklar said.

But taxpayers do worry about the government pensions. As more baby-boomers retire from the public sector in the next 10 to 20 years, the amounts cities and states pour into public pension plans are expected to soar, to make up for shortfalls in the accounts.

Public versus private:

The pay-outs differ

Last year, Ohio's state and local government retirees earned a median pension of $21,804, according to a Plain Dealer analysis of the U.S. Census Bureau's Current Population Survey. The median for workers in the private sector, with Social Security added in, was $18,390.

Nationally, retired government employees earned a median pension of $24,668; their private counterparts earned about $20,483.

"States like Ohio offer far better plans than anything that is available in the private sector," said E.J. McMahon, a pension expert at the Manhattan Institute in New York, a think-tank that analyzes government policy.

Examples abound, from schools to garages to offices.

A Cleveland elementary school principal earns about $80,000 a year. After 30 years, the principal could retire with about $52,800 a year.

A Cleveland Catholic school principal makes less, about $60,000 a year, and would receive a much smaller retirement check. The package includes a savings account built mainly by the principal, with the school contributing about 2.5 percent of the principal's salary. That's less than the 14 percent that public school districts contribute. The Catholic school principal would also receive Social Security.

A mechanic who works for the Lorain County engineer earns $37,400 a year and builds a pension that would pay him two-thirds of that each year for life. A private mechanic at a garage in Elyria makes about the same, without the guaranteed retirement.

A secretary for Cuyahoga County earns $32,000 a year. Her counterpart at a Beachwood firm earns $40,000 but lacks a guaranteed pension.

Not all government workers come out ahead in retirement. County Prosecutor Bill Mason earns $118,000 this year, overseeing 411 employees. A partner at Jones Day, the international law firm based in Cleveland, earns about $600,000 a year, as well as generous retirement contributions from the firm.

The perks and other benefits attract candidates for public sector jobs. For years, Elyria police Capt. Dennis Will interviewed applicants who said they wanted the public sector jobs, partly because of the pension.

"Some were very frank with us and told us that they were interested in the pension," said Will, now the Lorain County prosecutor. "We heard it often."

The increasing desire for a public pension appears to match the growing angst of taxpayers who pay for it.

The city of Cleveland paid about $106 million last year to the state's Public Employees Retirement System and the police and firefighters pension fund. Cleveland city schools paid more than $64 million to pension funds, records show. Those are tax dollars.

Willoughby-Eastlake schools pay about $7 million a year to pension funds, about 10 percent of the district's $72.8 million budget. To cut costs, officials began offering teachers eligible for retirement $70,000 in incentives to retire, including $40,000 in cash.

A teacher retiring in June would receive $8,000 from the district in January, the first of five yearly payments, said Cliff Reinhardt, the district's treasurer.

Since the program began about three years ago, the district has saved about $1 million a year, replacing the highly paid veteran teachers with cheaper but less experienced teachers.

Like most public schools, Willoughby-Eastlake pays 14 percent of teachers' salaries to the pension fund every year. "Fourteen percent of $70,000 - what a teacher with 30 years could make - is a lot more than 14 percent of $35,000, what a teacher with less experience would make," Reinhardt said. "This works out well for the teachers, and it works out well for us."

Rewarding public employees with better benefits, including pensions, health care, vacation and sick time, became institutionalized decades ago to entice people to jobs that often were lower paying.

Critics, such as McMahon from the Manhattan Institute, claim that union influences created the perks. But all public employees, whether union or not, enjoy the same benefits.

Steve Frates, the president of the Center for Government Analysis in Newport Beach, Calif., said only elected officials can rein in the plans. But elected officials have difficulty being objective about pensions if they receive the benefits, he said.

Proponents of government pensions downplay the contributions from taxpayers.

Keith Brainard, the research director of the National Association of State Retirement Administrators, said employees' contributions and investments - not taxpayers - foot the largest part of the pension fund. Contributions by a government employer make up about 25 percent of the plan's assets. The rest is covered by employee contributions and investment earnings, he said.

Taxpayers on the hook

for the shortfalls

If public pension plans fail, taxpayers would be forced to bail them out.

Ohio's retirement systems are in better financial shape than those in other states. The five pension plans have about $31 billion in unfunded liabilities, the difference between the plan's assets on hand and liabilities to date.

More than half of that is from the State Teachers Retirement System, which is working to reduce its liabilities while maintaining health care for its retirees.

The plan said it has 76 percent of the assets needed to pay all benefits accrued by its members, even though the liabilities are not payable all at once.

States such as Oklahoma, Illinois and Pennsylvania are scrambling to fill holes in some of their public pension funds.

California's Public Employees Retirement System has assets of more than $183 billion and liabilities of more than $210 billion, causing taxpayers to fear that they will have to bail the plan out. In Illinois, the state's teachers' retirement plan has assets of $34 billion and liabilities of $56 billion.

Experts doubt Ohio's plans will struggle that much. But Ohio's cash-strapped school districts, cities and others are increasingly looking for ways to reduce the amount poured into public pension funds.

Dave Davis, The Plain Dealer news research director, contributed to this story