A Not-so-pretty Picture of Ohio Retirement Systems....STRS in Particular
From John Curry, May 3, 2009
State pension plans ponder hard choices
The protracted economic downturn has chewed up nearly a quarter of the value of Ohio’s five public pension plans, forcing their leaders to more seriously consider unpopular options such as dialing back cost-of-living increases and even raising retirement ages.
Those who run the pension plans, which cover 1.7 million working and retired public employees and their beneficiaries, stress that they’re trying to ride out the financial crisis without resorting to doomsday measures such as requiring police and firefighters to stay on the job longer.
Still, the downturn is causing pension executives to take a harder look at cost-saving ideas that were on the table even in better times. The pensions already were struggling with sharp increases in health-care costs and retirements in the baby boomer generation.
“We’re at the tail end of a critical review and everything is on the table,” said William Estabrook, executive director of the Ohio Police & Fire Pension System. “Some of it has a really sour taste, some of it has a bitter taste and some of it just has a taste.”
He said the most unpalatable option would be to raise retirement ages, which currently are 48 years for police and firefighters with 25 years of service. The safety forces are eligible for retirement earlier than civilians because of the demanding physical nature of their jobs.
The middle-of-the-road option would be to require police and firefighters to contribute more toward their retirement, while asking the same of their employers.
The least onerous option would be to stay the course: squeezing efficiencies out of health-care plans while tweaking investments to generate higher returns.
All five of Ohio’s public pension systems are scrutinizing their books with an eye toward long-term solvency. The Ohio Retirement Study Council, which helps oversee the systems, has asked their leaders to spell out options during the past two weeks.
On April 8, the Retirement Study Council received a sobering report on the state of the five pension plans. A consultant, Evaluation Associates, said the global economic recovery might not begin until next year and might be sluggish.
“This economic outlook may exacerbate the funding challenges for the plans,” the consultant wrote.
The State Employees Retirement System, State Teachers Retirement System, Police & Fire Pension System, School Employees Retirement System and Highway Patrol Retirement System all are fundamentally healthy, said Aristotle Hutras, executive director of the Ohio Retirement Study Council.
The current planning is intended to make sure they stay that way.
In April, the board of the State Teachers Retirement System reviewed scenarios that, individually or collectively, could save millions of dollars.
They included an overall 4 percent increase in contributions, raising the minimum retirement age to 60 from the current 30 years of service (regardless of age), calculating final average salary based on five years instead of the current three, and reducing the cost-ofliving adjustment for retirees to 2 percent along with delaying its start until the retiree is age 65.
Under Ohio law, pension systems are required to balance their income and expenditures so that they are able to pay current liabilities for pension benefits within 30 years.
The State Teachers Retirement System will need at least 47 years to pay its liabilities — a situation that forces its leaders to evaluate measures to get its income and expenditures back into balance.
“None of these (options) singularly gets us back to the 30-year funding period,” said Laura Ecklar, spokeswoman for the teachers’ pension fund. “Our board will have to decide how quickly we want to get back to the 30-year funding period and what measures we want to take to get there.”
Although the state pension systems have lost a quarter of their value in the past year, no one appears to be panicking.
Private retirement plans are feeling similar, if not greater, pressure. Officials of the state’s public pension systems said there’s no serious discussion of switching from their defined-benefit model to the defined-contribution model that is prevalent in the private sector.
“Our members are fairly confident in our retirement systems,” said William Winegarner, executive director of Ohio Public Employee Retirees Inc., an advocacy group of nearly 55,000 retired government workers.
“Like everyone else, they’re concerned about the economy but they’re thankful that they have a defined-benefit program. They’re very much opposed to anything like a defined-contribution program that would leave them out in the cold in times like these.”
Click image to enlarge.
[NOTE: There is an error on this graph. The middle one (third one over) should be labeled "OPERS".]
Note from John:
[NOTE: There is an error on this graph. The middle one (third one over) should be labeled "OPERS".]Note from John:
The graph below is based on figures released from STRS. It gives a much better picture of STRS's progress than does the Dispatch's mini-graph (above). Note that STRS did peak at over 80 Billion dollars in October of 2007. The latest STRS figure has not yet been placed on this graph...it was 47.6 Billion as of April 30, 2009. The first sentence in the Dispatch's article above says, " The protracted economic downturn has chewed up nearly a quarter of the value of Ohio’s five public pension plans, forcing their leaders to more seriously consider unpopular options such as dialing back cost-of-living increases and even raising retirement ages."
Mr. Nash might want to sharpen up his pencil a bit should he talk about Ohio STRS in particular as "nearly a quarter," in the case of Ohio STRS, really equates to 40.5%. There's a whole lot of difference between "nearly a quarter," (25% in my book) and a 40.5% drop (80.0 billion - 47.6 Billion) especially when we're talking Billions of dollars! In these tough times a 25% loss is a lot better than a 41% loss, isn't it?
Click image to enlarge.
Click image to enlarge.
posted by Kathie Bracy at 9:48 AM
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