Ohio's five retirement pension funds set sails for stormy seas ahead to keep promises made to fund members

From John Curry, October 11, 2009

"One glaring example of the severity of the problem comes from Ohio's teachers pension system. The State Teachers Retirement System (STRS) reported that it would take 41 years for its investments to catch up with the costs of meeting its obligations to retirees -- and that was before the worst of the financial crisis."

STRS reported last fiscal year that its valued plummeted 31 percent. The worried word used in its most recent annual report, on how long it would now take for its investments to put the fund back on track, was "Infinity."

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Ohio pension funds set sail for stormy seas with adjustments to age, rates, health care

October 11, 2:29 PM
Columbus Government Examiner
John Michael Spinelli
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Ohio's five retirement pension funds set sails for stormy seas ahead to keep promises made to fund members

COLUMBUS, Ohio: Responding in much the same way pension funds from other states are girding to keep alive the promises they've made to their active and retired public service workers, Ohio's five retirement pension funds have all adopted some form of belt-tightening, including upping the age for retirement, increasing contribution rates by individuals and employers and generally ascribing to policy changes that will comply with fund regulations that reach decades into the future to assure compliance with state-mandated performance standards.

The effects of the Great Recession, which officially came of age in the fall of 2007, have done considerable damage to Ohio's five retirement pension funds -- highway patrol, police and fire, teachers, public and service workers -- who are adjusting their policies to reflect the fact that changes must be made if these funds, which state law says must have 30-year funding plans in place, are to remain the bedrock of retirement, as their active and retired members have invested their full faith and credit in.

According to an analysis by Pricewaterhouse Coopers, reported on in the Sunday Washington Post, public pension funds within 15 years will have less half the money they need to pay pension benefits. And to some analysts, that day could come within the next decade.

WaPo staff writer David Cho says the upheaval on Wall Street has "deluged public pension systems with losses that government officials and consultants increasingly say are insurmountable unless pension managers fundamentally rethink how they pay out benefits or make money or both."
With the loss of $1 trillion in the markets, state and local governments are facing what Cho said is "a devil's choice: Either slash retirement benefits or pursue high-return investments that come with high risk."

"The amount that needs to be made up is enormous," Peter Austin, executive director of BNY Mellon Pension Services, told Cho. Austin said pension funds, both public and corporate, are "forced to continue their allocation in these high-return asset classes because that's their only hope." But according to other experts, the funding gap "has become so great that no investment strategy can close it and that taxpayers will have to cover the massive bill."

In Ohio, where state law mandates that the five retirement pension funds have a 30-year funding plan, maneuvers designed to keep active and retired members believing in them are underway now.
Those changes to business as usual are coming in the form of increasing employee and individual contribution rates, decreasing COLA or Cost of Living Adjustments and increasing the eligibility age for them by -- in one case by seven years -- and generally upping the normal retirement age (depending on years of service) and increasing from three to five the years used to calculate a Final Average Salary that payouts are then based on.

One of the most important adjustments taking place is with the provision of health care. Ohio law mandates pension fund payouts but permits, to the extent possible by each of the funds themselves, the availability of health care. In other words, when the good times are rolling, health care can be offered to the fund's members. But when the fund is down, as is the case now, offering health care is a luxury that can be withdrawn to make ends meet.
One glaring example of the severity of the problem comes from Ohio's teachers pension system. The State Teachers Retirement System (STRS) reported that it would take 41 years for its investments to catch up with the costs of meeting its obligations to retirees -- and that was before the worst of the financial crisis.

STRS reported last fiscal year that its valued plummeted 31 percent. The worried word used in its most recent annual report, on how long it would now take for its investments to put the fund back on track, was "Infinity."

Trying to help out, Ohio Attorney General Richard Cordray is trying to reclaim $84.7 million for Ohio pension funds in a battle over bonus money with Bank of America.