Dayton Daily News: Ohio pensions already cost enough
The August newsletter to Ohio’s teachers from their pension fund is sobering.
As upsetting as the news is, public school teachers still have a great retirement plan. But, clearly, it can’t be as great in the future.
Because of the stock market dive, last year the fund lost almost 22 percent of its value. That’s awful, but the number is low compared to what many individuals lost.
Over the long haul, the system banks on an 8 percent return each year to meet its obligations. Put another way, it will take some really good years to lift up the plan’s finances. And nobody thinks those exceedingly good years are coming soon or in quick succession.
So what to do?
The teachers’ pension fund, as well as Ohio’s other four pension plans, have to report to an oversight body in September how they’re managing their finances to assure that they can cover their liabilities. This week the police and firefighters pension fund said it wants the legislature to increase the rates paid both by workers and local governments.
The teachers’ fund may also ask for more from school districts as well as teachers themselves. There also are changes that would decrease benefits and increase eligibility standards that are on the table, too.
Two big points:
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The legislature can’t increase pension costs for state and local governments and school districts. They’re already generously supporting retirees, and ordering them to pay more is out of the question. Taxpayers kick in a minimum of 14 percent of public employees’ salaries — and 24 percent for firefighters.
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The pension funds are in a bad way because they also provide health care to retirees, a benefit they’re not required to provide. Of course, they’re not going to end that practice, but it’s at the root of the funds’ financial problems.
If President Barack Obama and Congress agree on health care reform, the pension systems quickly could find themselves in much better shape. The point is not that Washington should bail out public employee pension funds; rather, it’s that health care reform does matter even to people who currently have insurance benefits.
Some time back, when Republicans controlled the governor’s office and the legislature, the teachers’ pension fund proposed taking more out of teachers’ pay to cover retirees’ health care and upping the amount school districts pay the fund as well. The idea died quickly.
What’s different today is that Ohio has a Democratic governor and a Democratic House, but the economy is way worse and school district finances are no more stable. Teachers — indeed all public employees — have to find a way out of this bind other than asking taxpayers.
None of the funds is without options.
Many private pension funds don’t provide cost-of-living increases, while the public funds do. The funds could increase the age at which people may start collecting benefits. (The 30-years-and-out practice is an anachronism, what with people living longer and with beneficiaries expecting their pensions will keep rising even after they quit, often in their 50s.)
They could calculate benefits based on, say, a workers’ last five years instead of three. They could simply reduce benefits. Some very long-time public employees get 88 percent of their old salaries in retirement.
They could eliminate the option of double-dipping, which encourages people to start collecting benefits earlier than they otherwise would. That practice milks the system and has become a symbol for what’s wrong with public pensions.
Lawmakers, who have to sign off on benefit changes, need to send a signal now, so there’s no confusion about what has to happen to get the funds back on sound footing.
Changes have to come in the form of reduced benefits — not what the public pays.
posted by Kathie Bracy at 2:54 PM
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