Dispatch editorial on state pension plans, May 7, 2009

Editorial: Headed for trouble

State's public pension plans must change contributions, retirement age to survive

Columbus Dispatch, May 7, 2009

Just about everyone's retirement plans, public and private, have taken a beating in this economic crisis. That should force government leaders to face a truth they've long avoided: Public employees' pension plans, typically with generous defined benefits and retirement ages bordering on the absurd, can't continue business as usual.

Even if the past year's stock-market swoon hadn't erased nearly a fourth of the value of these funds, Ohio's five public pension systems would have to consider changes to ensure the funds' long-term solvency. The current stress only makes crystal-clear that the terms have to change, even if those changes apply only to new hires.

The Ohio Retirement Study Council, which helps oversee the state's five public pension funds, deserves thanks for encouraging the systems to assess their fiscal health and recommend options. And fund executives and boards should consider all those options, however unpalatable they may be.

Retirement age is an obvious place to start. Many public employees can retire with full pensions after 25 to 30 years of service, even, in the case of police and firefighters, if they're only 48 years old. But why should that be? Almost no one in the private sector can retire with full benefits at 48. Moreover, most retirees that young will live and collect benefits for decades -- in some cases, for more years than they worked and paid into the fund.

Government workers are no more entitled to such largess than the privately employed taxpayers who share its cost.

Also, these public pension funds, as currently structured, will grow increasingly burdensome on the Ohioans whose taxes provide the pension contributions of public agencies and who pay the salaries of public employees, who contribute a percentage of their salaries to the pension plans.

Even though Ohio law requires public pension funds to have enough assets to be able to pay off their current liabilities within 30 years, the State Teachers Retirement System would need at least 47 years to satisfy its current obligations, putting it far out of compliance with state law.

The STRS board is considering changes, including increasing employees' contribution rate, reducing and delaying cost-of-living raises for retirees, calculating lower final average salaries and establishing a minimum retirement age of 60, instead of allowing it after 30 years of service, regardless of age.

All the pension systems will have to consider steps like these if they are to remain viable.

Ultimately, these plans must face the possibility that the defined-benefit pension, which is fading out of use in the private sector, might have to give way to the sorts of defined-contribution plans becoming more prevalent in the private sector.

Public employees, of course, don't want to give up defined-benefit plans. The erosion of so many people's 401(k) plans in the past year illustrates perfectly the risk that people in defined-contribution plans bear.

But the unhealthy fiscal state of the STRS plan is telling. And without reform, public pensions will remain a growing burden on taxpayers.