Pickups Part II
http://www.zanesvilletimesrecorder.com/article/20100927/NEWS01/9260302
Some local governments have agreed to pay all or some of the pension contributions for certain employees. Sounds sweet? Yes, officials say -- for taxpayers as well as workers.
BY JESSICA ALAIMO AND BRIAN GADD
• Staff Writers • September 27, 2010
ZANESVILLE -- Zanesville taxpayers spent nearly $700,000 in 2009 to make pension pickup contributions for 200 city employees, payments that could have been made entirely by those employees.
Combined with mandatory employer contributions, around 8 percent of the city's revenue goes to the Public Employees
Retirement System and the Ohio Police and Fire Pension Fund every year.Zanesville is far from being the exception. Often as a result of long-standing union agreements, many local entities "pick up," or pay all or some of their employees' contributions to the retirement funds.
The practice is growing: In the past three years, the cities of Coshocton, Lancaster, Chillicothe, Bucyrus, Heath and others have all agreed to new or increased pickup plans, according to an analysis of public records by Central Ohio.com and the Times Recorder.
As a result, many entities pay anywhere from 6 to 12 percent of revenues into the funds.
"It was a novel idea in the 1970s and 1980s because money could be put into the pockets of employees without the normal roll-up costs for worker's compensation and the city's share of pension contributions," wrote fact-finder Paul Gerhart in a recent opinion to the State Employee Relations Board regarding a union dispute in Toledo.
Ohio's five public pension funds themselves view pickups as strictly a local issue with no impact on their financial health.
"The pension funds are going to get their money, regardless of who pays it," said Aristotle Hutras, executive director of the Ohio Retirement Study Council.
But the growth of employers paying employees' shares represents a strict divergence from private sector trends. There, most employers have stopped participating in traditional pension plans, instead favoring personal savings plans such as a 401(k). Many employers have stopped making any contributions on their employees' behalf, said Kathy Keller, communications director for AARP Ohio.
While private sector pensions still exist, they are relics of an earlier age.
In Ohio, more public sector employees were guaranteed a lifetime pension in 2009 than private sector employees. In 1997, the opposite was true, according to the Ohio Retirement Study Council and Pension Benefit Guaranty Corp., the federal agency that insures private pension plans.
"What we're seeing right now with (private) employers is that it's just not there anymore," Keller said. "If you get a job, you're lucky to get health care. You're lucky to get vacation time."
HOW PICKUP PLANS WORK
Unlike the private sector, public employees do not pay into, nor can they collect, Social Security.
Social Security and public pensions are defined benefit plans, meaning recipients are paid a fixed monthly amount from eligibility to death.
Private employees and employers each pay 6.2 percent of employees' wages to Social Security.
The public sector's mandatory employee share is 10 percent and the employer share ranges from 14 percent for most to 24 percent for firefighters.
Pension pickups often are done instead of salary increases.
When one's salary increases, so does everything else that is attached to salary -- for the employer that is unemployment insurance, Medicare and the employer's pension contribution. For the employee, it's Medicare, taxes, and their pension contribution.
"If we had not done that (given a pension pickup), wages would have increased, and that could have hurt our bottom line," said Dale Raines, budget and finance director for the city of Zanesville, which pays pickups for its unions. "So it's kind of a wash."
Employees still pocket more money. Although the base pay is the same, less is withheld from each paycheck.
It also might lead to a smaller pension down the line -- if a wage increase was sacrificed, the final average salary and monthly pension check will be less. This is why the Ohio Education Association would prefer that, if given a choice, its union members take a raise instead of a pickup.
"It's not something we encourage because it's done in lieu of wage hike, and a wage hike would count toward final compensation," said William Leibensperger, vice president of the Ohio OEA.
The city of Zanesville picks up 9 percent of the 10 percent employee contribution for the seven sergeants and lieutenants covered under the Fraternal Order of Police contract, and 8.5 percent for 44 police officers. Members (96 employees) covered by the city's contract with the American Federation of State, County and Municipal Employees have 8 percent of their 10 percent personal contribution picked up.
But corrections officers, police captains, as well as secretaries and records clerks covered under FOP agreements pay their full share. So do 102 unaffiliated city employees.
Firefighters, members of the International Association of Fire Fighters Local 88, have the city pickup 9.5 percent of their 10 percent employee pickup.
Raines said the pension pickups first were offered in the mid- 1980s in lieu of employee raises.
"If we had not done that, wages would have increased, and that could have hurt our bottom line," Raines said. "So it's kind of a wash. And if you take that away from them now, it would be the same as saying their pay would decrease. It would be treated as a pay decrease, if they had to pay more."
He said the pension pickup system hasn't been a problem for the city's finances and is viewed as "a matter of give and take." The city wasn't "being nice" when they offered to pick up part of the contribution.
"It wasn't just a lollipop you hand out to a kid," he said.
He said the only discussion about changing employee benefits was "three contracts ago" with the service workers, but it was just "general discussion" about not extending some benefits to new employees.
County employees pay the full 10 percent share toward their pensions, Human Resources Director Michelle Campbell said.
The only exceptions are Dave Boyer, executive director of the Muskingum County Children's Services Board, and Zanesville-Muskingum County Port Authority Director Mike Jacoby, who both get a full pickup, she said.
The county makes a little more than $5 million in total pension contributions for its employees, or a little less than 6 percent of its revenues. Pickups only amounted to $21,370 in 2009.
Data received from Perry County shows five administrators with the Board of Developmental Disabilities receive a full pickup of the 10 percent employee contribution, while one employee has 8 percent picked up and another 6 percent. Remaining employees pay 8 of the 10 percent.
County employees with child support enforcement, the county home, human services and the sheriff''s office all pay their full share, records show.
SHOULD PICKUPS BE ALLOWED?
Any talk of taking away a pickup almost certainly would cause a backlash from unions. Marianne Steger, director of Health Care and Public Policy for Ohio's American Federation of State and Municipal Employees, said this would have the same effect as a pay cut.
"The problem with giving up pickups now is that people gave up wage increases to get them," she said.
Some entities are addressing the pick-up costs by ending the benefit for new hires. The city of Coshocton did that this past year, saving the city about $20,000, Auditor Sherry Kirkpatrick said.
Rep. Lynn Wachtmann, R-Napoleon, a member of the Ohio Retirement Study Council, thinks pickups should be abolished.
"Public workers should be thankful they are in such a generous system, but taxpayers shouldn't be on the hook for it," Wachtmann said. "No public employee should be financially pillaging the taxpayers."
posted by Kathie Bracy at 4:12 PM
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