Hard choices can protect pensions
Middletownjournal.com, May 26, 2009
When alarms were ringing in 2007 about the sustainability of Ohio’s five public employee pension funds, nobody listened.
That year, despite newspaper stories around the state and expert reports calling for fundamental change, nothing significant happened. The boards that manage the pensions, and the legislators who make the rules for them, looked at a rising stock market and decided things would work out.
Welcome to 2009, when that logic no longer applies.
After a steep stock market dive, the value of the investments controlled by the funds has crashed, losing a combined $63.6 billion. The threat today is whether the funds will be able to pay their obligations going forward.
Hard decisions about benefits and required contributions that were put off before have to be faced now. The stock market crisis is forcing changes that should be obvious to everybody.
By any measure, public or private, Ohio’s pension programs for teachers, school support staff, police and firefighters, government workers and state troopers are tremendously generous.
Workers commonly retire in their 50s (or, for firefighters, as early as age 48) with the pension fund often doling out two-thirds of their salary for life (or, for teachers with 35 years, 88 percent of their final average pay).
In many cases, these retirees served the public in difficult or physically demanding jobs. A firefighter certainly leaves the job having experienced more wear and tear than an office worker. In other cases — teachers, for instance — the generous retirement is seen as a part of the bargain that promises quality people secure retirements in exchange for enduring challenges and stress that many people won’t put up with.
People in these jobs don’t want to have their benefits reduced. Yet, without change, the entire system is at risk.
Among the ideas the funds are considering:
Raising retirement ages. Even relatively small alterations, like raising the minimum age for firefighters by four years to 52, could make a big difference. Some funds — the teachers’ plan — don’t even have a minimum age.
Raising contribution rates. Employers (using tax dollars) already pay high percentages toward retirement — between 14 and 26.5 percent of each worker’s pay. With state and local governments hurting, they can’t be asked to pay more. But in some plans, it would be reasonable to ask employees to kick in more.
Reducing benefits. Moves like calculating employees’ final pay as an average of the last five years worked instead of the last three years, could really cut costs and wouldn’t profoundly hurt workers. Some plans also are considering recommending a lower cost-of-living raise each year — perhaps 2 percent instead of 3 percent.
Revising health care plans. None of the plans has to offer health insurance to their members, but they traditionally have provided it. Some already have made cuts in these benefits. More may be on the way, especially if national health care changes aren’t adopted.
By phasing in any new rules, workers who are close to retirement should be able to plan and prepare accordingly.
But even if the pension boards propose these sorts of changes, legislators will have to enact them. They haven’t exactly flocked to the front of the line to make these fixes.
For the past two years, the police and fire pension fund, for instance, proposed good changes, but could not find a lawmaker to sponsor them. Elected officials don’t like to anger police officers, firefighters and teachers.
The moment calls for political courage. The opportunity is here not just for tweaks and polishing, but for overhauling the pension plans in ways that would secure retirement for people who perform some of our most important public services.
Fix it now and they won’t have to wonder if the money really will be there when they retire.
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John
posted by Kathie Bracy at 12:08 PM
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