From John Curry, September 9, 2009
"And there is a larger issue to consider. Much of the private-sector has moved away from pension plans -- also called defined-benefit plans -- in favor of defined-contribution plans, such as the popular 401(k). Ultimately, the public sector should follow suit."
In its editorial today, the Columbus Dispatch slams public pensions and the defined benefit retirement retirement offered by public pensions. What they didn't tell you is that those who would profit from a 401(K) fund investment are the very same advertisers who purchase ads in the Dispatch to encourage people to invest with their businesses (investment brokers, etc.). So, the Dispatch itself has a "vested interest" in STRS monies and swaying public opinion against the status quo. Of course, their editors don't want to talk about that, do they?
The recession underlines flaws in public pensions, making reform a necessity
Columbus Dispatch, September 9, 2009
Ohio's public-employee pension plans long have provided above-market benefits at a below-market cost to employees. Ohio taxpayers, who bear most of the cost, have accepted this, even though most don't enjoy pensions nearly as generous.
But, now that a stock-market dive has hammered the pensions, restoring them to fiscal health without any changes in benefits or contributions would require a bigger hit than taxpayers should have to take.
Public pension plans should be brought in line with what is typical for private-sector employees, and that's going to mean changing some or all of the plans' key factors: raising contributions by employees; raising retirement ages; basing the annual retirement benefit on a five-year salary average instead of three; ending or reducing cost-of-living adjustments; and eliminating the lump-sum death benefit.
Those who say the "employer contribution" also should rise are wrong; they should remember that the "employer" is taxpayers, who have spent the past year watching their own retirement prospects shrink.
Public employees won't like any of those changes, but they're necessary and fair. Ohio's five major plans all lost close to a quarter of their value or more in the stock slide of the past year.
The Public Employees Retirement System lost 24 percent; the Ohio Police and Fire Pension Fund, 23.4 percent; the Ohio Highway Patrol Retirement System, 30.1 percent; the State Teachers Retirement System, 31.4 percent; and the School Employees Retirement System, 26.1 percent.
The losses aren't unlike what every stock-based fund has suffered. What would be unusual is if public employees faced none of the fallout that private-sector workers have.
Across the U.S., employees have seen cuts to their pension plans and restrictions on payouts. It's the logical consequence of a stock-market drop, because pension plans are designed with the assumption that the market will rise at a steady rate, infinitely. When that pattern is interrupted, the plan has to adjust. Public employees' plans should, too.
Moreover, public pension plans are overdue for adjustment, even without a drop in investment earnings.
The Employee Benefit Research Institute, a nonprofit organization that provides analysis of compensation issues and doesn't advocate particular policies, reported that, in 2007, state and local governments made retirement-savings contributions for employees in an amount equal to 11.6 percent of their employees' wages and salaries. For the private sector, the figure was 5 percent.
Along with the contribution and benefit rates, the retirement ages long taken for granted by teachers and civil servants have no reasonable basis.
Why should, say, an engineer or secretary working for the state be eligible to retire after 30 years, as young as age 48, when someone in a similar private-sector job can't collect full Social Security benefits before age 65?
This never was fair, and in the current financial circumstances, it's unsustainable.
The early retirement age also exacerbates another drain on public pensions: the fact that they offer health-care coverage, even though the law doesn't require it. If public employees worked until the normal retirement age, when they become eligible for Medicare, they wouldn't need health-care coverage from their pension.
And there is a larger issue to consider. Much of the private-sector has moved away from pension plans -- also called defined-benefit plans -- in favor of defined-contribution plans, such as the popular 401(k). Ultimately, the public sector should follow suit.
Politicians, who approve the terms of public pensions, won't be eager to invoke the wrath of public employees by scaling back some of the benefits they've come to take for granted.
But the only alternative is squeezing taxpayers harder, and that's worse.