Linda Meinelt asks Mike Nehf re: cost cutting at STRS
Subject: Fw: Springfield News-Sunday
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Today, 01-08-2010, I have a “Letter to the Editor” in the Akron Beacon Journal, Pg. A8, entitled: “Teachers pensions are well earned”.
The purpose of this email is to alert on our web all who may have read it that the editor left out -- and that is the editor’s privilege to do so -- where I wrote our COLA is only on each individuals’ base, and it does not compound each year.
With that not in, we will probably get some flak from those uninformed individuals who may envy this 3%. Also, I would like to remind folks that Social Security for many, with the exception of this year and next that for many, long years Social Security awarded compounded COLAs twice per year.
By the way, believe me, I am not being a crybaby; but, I am complaining. However, having a very modest OH STRS monthly check, with President Obama’s new Medicare program (Which was approved by Congress); I am now hit with a new $14 per month increase!
My case in point: I did work and paid into it for 20 years, but one must work thirty to be eligible as a primary recipient. Now, realistically, at age 78, I am not likely to be hired for employment. And, I would get hurt with the Ronald Reagan’s GPO/WEP anyway. My wife, having worked 30 years, does get an extremely modest check and has no Medicare increase, and I thank whomever for that; however, but with me being her spouse, I am fortunately eligible for Medicare, and unfortunately get the $14 cost increase.
As a registered Democrat, may I ask: Is the Democratic Party for the common man? If so, why did I get this $14 cost increase that amounts to $168 per year? And, I wonder also, will my Democratic Ohio Governor help me maintain my non-compounded 3% COLA so that I can pay for an increasingly even greater cost of living? Or perhaps, should I be looking for a third political party? Neither the GOP nor the Dems, so far, have not been much help to this retired teacher.
RHJones, a common man who just happens to be a retired Ohio teacher.
Letter in the Beacon Journal, 1/8/10:
Teachers' pensions are well earned
I can only speak as a retired Akron teacher. I must say that ''pension envy'' is not good for Akron, or Ohio.
We teachers taught students to read, and we taught them basic skills to serve in the private sector. When comparing pensions, there are too many variations between private and public employment for envy to be a factor.
For instance, in the private sector, there are numerous wealthy individuals who do not even need a pension.
During the Great Depression, when I attended the Lincoln Elementary School, the wonderful teachers there taught students who have become highly productive citizens. In my class, two classmates earned millions in the real estate business, one was a highly successful automobile dealer, two became medical doctors, one became a lawyer and another became a judge.
One became an Army lieutenant colonel, and one even became Akron's police chief. There are too many who became outstanding citizens to mention in this letter.
Those wonderful educators who taught us are on pension now, and some are in nursing homes. We ex-students know they certainly earned their pensions. Fortunately for Akron's citizens, they do have a pension, limited health care and prescription insurance and a cost-of-living allowance.
If they were not offered this modest pension, they might have chosen another profession. Then we would all have been losers.
Once again, to all those truly wonderful educators who taught my classmates and me, I give my deepest, heartfelt thanks.
Robert H. Jones
The work of Ohio's eight largest newspapers, published Sunday, makes the need for action clear. The "Good as Gold" package of stories produced by the Ohio News Organization outlined the stark realities of the state's public-pension systems.
Already, local governments spend $4.1 billion per year to pay for pensions, yet some public-pension systems are headed for insolvency and want taxpayers to contribute more.
The four major systems include more than 708,000 current state employees, teachers, police and firefighters, plus about 631,000 who no longer are in those jobs but still have money in the system. The plans pay benefits to about 384,000 retirees and beneficiaries. Collectively, they suffered $32 billion in investment losses in 2008, with the largest hit, $22.8 billion, from the Public Employees Retirement System.
These changes could raise the taxpayers' tab for public pensions to $5 billion per year.
The council also recommends asking more of public employees, such as higher contributions from them as well as later retirement ages and slightly reduced payouts, but public employees will fight those remedies.
They should understand that workers throughout the private sector already are facing those very measures.
Moreover, most private-sector workers rely on defined-contribution plans, in which the eventual retirement payout depends on how well their investments perform over the years. Public pensions, also known as defined-benefit plans, guarantee a set amount of income to retirees. Public pensions now face shortfalls because their investments have not grown enough to support promised pension payouts.
Of course public employees prefer the security of a defined-benefit pension, but it's unfair to expect taxpayers to make up the difference when economic conditions don't support such guarantees. Especially when most taxpayers do not enjoy such security themselves. At some point, public pensions should move to the defined-contribution model.
Another factor squeezing public plans stems from the plans' voluntary decisions in the 1970s to provide health-care coverage for retirees too young to qualify for Medicare. The pensions have no legal obligation to pay for health care, but public-pension managers say they're determined to maintain it, even though the cost is becoming crippling.
But if public employees weren't allowed to retire so much earlier than everyone else, they wouldn't need pension-provided health care.
To cover increasing health costs, public pension plans have dramatically increased retirees' health-care premiums, so much that some retirees have gone back to work in other jobs in order to get affordable health-care coverage.
The public-pension model no longer is sustainable. In an earlier time, the relatively rich public benefits -- some employees paid little or nothing toward their pensions, and some could retire as young as 48 -- were justified by the idea that government workers were paid less than private-sector employees. But that hasn't been the case for a long time, and yet the generous pensions remain.
Expecting hard-pressed taxpayers to shell out more to prop up the status quo is unreasonable and politically dangerous. Reform is overdue.
From Mario Iacone, January 7, 2010
The recent public pension articles are one sided and not totally accurate regarding PUBLIC PENSION COSTS vs PRIVATE SECTOR COSTS.
For example this excerpt from one of the articles in the Springfield News-Sun.
"The contribution to STRS is 24 percent of an employee’s salary — 10 percent
from the employee and 14 percent from the board — compared to 15.65 percent,
including Medicare, in the private sector, he said
“It’s almost double so you would think that perhaps the message for STRS and
all five Ohio public pension systems is live within your means,” Mohr said."
The comparison is distorted in two ways:
First, almost double is quite a stretch as 15.65 doubled would be 31.3
percent. That is a lot more than 24 percent.
Second, the private sector amount is only for Social Security and Medicare
contributions. It does not take into account the additional cost of private sector entities for Defined Benefit company pension plans and/or matching contributions to employee 401K plans which would raise private sector contributions well above 15.65%.
Furthermore, I am not well versed on private sector costs, but, I would speculate that private sector entities incur additional costs that are not incurred by public sector employers due to the structure of the public pension plans.
Ohio lawmakers must act quickly to ensure that modest steps will be enough to bolster the state's retirement systems
Published on Tuesday, Jan 05, 2010
Thus, the theme emerged in the reporting: Local officials wonder how they can afford to bolster pension funds. Soon, state lawmakers will have the task of devising the rescue plan. None of the five largest public pension plans faces an immediate crisis. Rather, each must act to ensure that it meets the requirement of having enough money to cover obligations for 30 years. As it is, the State Teachers Retirement System and the Ohio Police & Fire Pension Fund fall short of complying with the standard.
One temptation may be to follow the path of private pensions. As the reporting revealing, in the 1970s, 71 percent of private pensions were defined-benefit plans. Today, the share is 24 percent, companies moving employees into 401(k)s or defined contribution programs. Such an approach would save money in the public sector. It also would be unwise.
Defined benefit plans are efficient and effective, if properly managed. It is true that the pay of public employees now matches roughly the private sector. But that isn't the whole story. Teachers remain underpaid, in view of their responsibility and contribution. A strong pension serves as a necessary component in bringing promising men and women into the classroom. Firefighters and police officers take uncommon risks on the job, guaranteed pensions serving as appropriate compensation.
Remember, too, that public workers in Ohio do not pay into the Social Security system, and thus do not receive the program's benefits.
All of this isn't an argument for doing nothing. The state must move to ensure the financial stability of the funds. It might begin by addressing what annoys many Ohioans, the practice of ''double-dipping,'' retiring from a public job and then returning to the position, collecting a pension check and a pay check. In addition, sound health-care reform could make a considerable difference, health costs becoming an increasing burden for pension plans.
And here resides further reason for shrinking the size of overgrown local government.
Most telling, modest steps taken now can reap big rewards in the long run — without harming current or soon-to-be retirees. The eligibility requirements involving age and years of service could be adjusted gradually. Similar changes could be made to the benefit formula, say, basing the ''final average salary'' on additional years. Done smartly, Ohio can meet the needs of financially pressed communities and those who have devoted their working lives to public service. Act now, and any pain will be minimized.
At a time when budget cuts are forcing Ohio schools to lay off teachers and cities to raise taxes, eliminate jobs or both, one expense government leaders have not cut is pensions for their workers. The pension cost to local governments in Ohio now stands at $4.1 billion a year. If current trends continue, pension costs will grow by $604 million to $768 million during the next five years, according to a Dispatch computer analysis. The costs are directly related to the size of government payrolls, which continue to grow across Ohio.
On top of that, two of the five public-pension systems are asking taxpayers to dig deeper to cover funding shortfalls, potentially adding $400 million to the tally by 2020. All told, the taxpayer tab easily could top $5 billion a year by the middle of the decade.
Those tax dollars will help ensure that retired teachers, police officers, state workers and other government employees receive retirement benefits that many of their private-sector counterparts can only envy -- although direct comparisons are difficult.
Retirement incomes for the most experienced government employees top out at 88 percent of their active-duty pay. Unlike most private-sector workers, whose retirement is driven by the strength of the stock market and 401(k) plans, government employees' pensions are guaranteed.
In addition to higher average retirement incomes, government retirees in Ohio also enjoy government-sponsored health care, can retire as young as 48 for police officers and firefighters, and have the opportunity to "retire" and collect a full pension while going back to work, often at full pay for doing the same job. Such "double-dippers" were paid more than $741 million by the State Teachers Retirement System last year and $240 million by the Public Employees Retirement System, records show.
In Toledo, even the mayor is a double-dipper.
Since starting his current term in January 2006, Mayor Carty Finkbeiner has drawn his annual salary of $136,000 in addition to a state pension he qualified for after two decades in elected and unelected positions. He leaves office Monday.
Because he already is receiving a Public Employees Retirement System pension, Toledo taxpayers have paid $75,221 into an annuity as an additional retirement fund for Finkbeiner. Some are questioning whether the budgets of local governments can handle higher premiums, given that libraries, schools and cities are receiving less tax revenue.
Increases in pension costs will mean cuts elsewhere, warned John Mahoney, executive director of the Ohio Municipal League, which represents cities.
"I can't pay that and still employ 1,700 police officers," he said. "I can't do it. The money's just not there."
For decades, nearly all government workers have been in traditional pension plans that pay fixed amounts at retirement -- usually calculated as a percentage of their highest annual salaries multiplied by years of service.
At the same time, private employers have moved away from such defined-benefit plans. In 1974, 71 percent of private retirement-plan assets were in defined-benefit plans. By 2008, that number had decreased to 24 percent, according to the nonpartisan Employee Benefit Research Institute, although some private employers still offer a combination of defined-benefit and 401(k)-type plans. Despite that historic shift in the private sector, many government leaders say the public pensions are all but untouchable.
"The goal should be to continue the defined-benefit plan," said state Rep. Todd Book, a Portsmouth Democrat who leads the Ohio Retirement Study Council. "It's good for the employees of the state. It's also good for the economy of the state. You have retirees pouring billions of dollars into the economy."
But with pension-plan investments faltering in a rough economy and costs increasing because Ohio's pension funds also pay for retirees' health care -- a benefit not mandated by state law -- taxpayers might have to pour millions more into the retirement systems just to keep them afloat.
The State Teachers Retirement System and the Ohio Police & Fire Pension Fund currently are in violation of state law requiring them to have enough money to cover their pension obligations for 30 years. Thus, they are asking school districts, cities, counties and other local units of government to contribute more toward employee retirements. (They are asking more of the employees, too.)
Under the proposed changes, a full 29 percent of teacher salaries -- 16.5 percent from school districts and 12.5 percent from teachers -- would go toward pensions. And 37 percent of police and fire employee salaries -- 25 percent from municipalities and 12 percent from employees -- would be earmarked for retirement income.
The increase doesn't sit well with some private-sector retirees, who have watched their own plans all but vanish.
"I think it's ridiculous," said Larry Rausch, 71, of Lancaster, who retired from a sales job at Sears in 1998, before the owner of Kmart bought the retailer and slashed retirement benefits.
"I don't know how they can expect guys like me to pay their retirement."
Many government retirees say pensions are part of their compact with their employers and, by extension, the public.
"We're trying to get away from calling it taxpayer money to calling it deferred compensation," said David Parshall, a retired Southwest Licking Schools science and math educator who heads a statewide group of retired teachers.
Donna Seaman, who retired in 2002 from a 30-year career as a teacher and elementary principal in Shelby City Schools in northern Richland County, sees both sides of the issue. School districts are hard-pressed to absorb increases in retirement costs without harming educational quality, yet teachers have come to rely on their pensions, said Seaman, whose daughter is a teacher.
"I don't expect that they will be able to have the same comfortable retirement that we have now -- not that it's that comfortable," she said. "I'm very concerned about the stability of the system."
In some parts of Ohio, cities and schools pick up part or all of their employees' share of retirement costs, increasing the cost to taxpayers.
Columbus, for example, absorbs the full 10 percent city-employee share of retirements -- at a cost of $43 million a year to the city. Faced with a budget crunch, Columbus officials are attempting to scale back that benefit.
Cities and the state might not have a clear path to reduce retirement benefits, however. In late December, a group of retired Cincinnati employees sued to block the city from reducing health benefits.
Cincinnati, which maintains a municipal pension system separate from the state's, said that even its reduced health benefits would be better than those of most private employers.
The requests for more money from local governments by the State Teachers Retirement System and the Ohio Police & Fire Pension Fund are expected to go before state lawmakers early this year.
But there's already resistance to sacrificing textbooks, police cars and staffing levels today for the long-term security of retirees tomorrow. For some, it's politically unpalatable to benefit government pensions by heaping additional taxes onto people who have seen their own private-sector retirement plans slashed.
"Does the public-sector pension plan meet the expectations of the taxpayers who pay the bills?" asked Sen. Keith L. Faber, R-Celina, also a member of the Ohio Retirement Study Council. "I think it's very difficult to ask the taxpayers to pay more money to support the systems."
Rep. Lynn Wachtmann, a Napoleon Republican who also is on the panel, dismissed as outdated the argument that government employees deserve better retirement packages than their private-sector peers because they earn less pay.
"The taxpayers of Ohio who are footing the bill for all of this in the end need to realize how generous the public-pension systems -- all of them -- are compared to private-sector retirement plans," Wachtmann said. "Most of our private-sector employers would go bankrupt if they had to pay the kind of money into employee retirements that our public-sector employers do."
Wachtmann is one of nine voting members of the Retirement Study Council, which is composed of three state senators, three representatives and three appointees of the governor. It considers changes to the state's five public-pension systems and makes recommendations to the legislature.
So far, the panel is not discussing the idea of following the private sector into 401(k)-type plans. But Tom Ash, lobbyist for the Buckeye Association of School Administrators, said the idea is being floated informally in some circles. He labels it a non-starter.
"Our goal is going to be to preserve the defined-benefit plan because, as a matter of public policy, we think it makes sense," Ash said. "How do we do that is the question."
House Speaker Armond Budish, D-Beachwood, acknowledged that the pension systems have "significant issues" with funding but said the state should strive to protect benefits for retirees.
Few local government officials are chafing at how much they already contribute to employee pensions, but they're not thrilled with the prospect of an increase.
For example, Parma Superintendent Sarah Zatik said her school district could ill afford raising payments for retirees. The largest suburban system in the Cleveland area has cut $6.5 million from its $150 million budget and slashed 50 high-school teachers since voters rejected four tax-increase requests in a row, most recently in November.
But underscoring the political sensitivity of the issue, Zatik wouldn't say whether existing retirement costs are too high. If she backs the pension plans, a district spokesman explained, the district would take heat from residents angry about the costs. If she suggests trimming the plans, she would alienate teachers already facing cuts.
The Municipal League's Mahoney said his group will fight the proposed increases in pension costs.
"They want to take both police and fire up to 25 percent of payroll," he said. "In these times, well, good luck with that. There will be a prolonged and interesting discussion about all the changes everyone is talking about."
Indeed, politically powerful labor unions representing government workers figure to be influential players in the debate. They reject the idea of a fundamental crisis in the pension funds, saying the funding shortfalls can be remedied with a few tweaks -- raising retirement ages here, boosting contributions from employers and employees there -- and by counting on investment markets to rebound.
Ohio pension systems are relying on year-over-year investment growth of 7.5 percent to 8.5 percent.
"All classes of investors suffered during the market decline of 2008 -- the largest downturn in 70 years," five unions representing the majority of government workers in Ohio said in a joint statement. "The long-term strategy and design of our retirement systems smoothes gains and losses over a longer period of time, so (defined-benefit) plans are better able to reduce volatility. The same cannot be said of (defined-contribution) plans."
But the assumption of average 8 percent investment growth -- without which the pensions might have to come back and ask for more tax money or slash benefits -- seems overly rosy, said Leo Kolivakis, a pension consultant and writer.
"They're trying to inflate their way out of this problem," Kolivakis said.
AFSCME Ohio Council 8, OCSEA AFSCME Local 11, the Ohio Education Association, the Ohio Federation of Teachers and Service Employees International Union District 1199 say it would be folly for government employers to follow the lead of private companies into less-secure 401(k)-type retirement plans.
The unions cited statistics from the National Institute on Retirement Security that 357,234 retired government workers in Ohio received a total of $8.41 billion in benefits from state and local pension plans in 2006, with most of that sum going back into the state's economy via purchases of medications, cars and other products and services.
"These dollars are vital to fuel Ohio's economic engine," the unions said.
That argument is less persuasive among private employers. In 1996, investments in 401(k)-type defined-contribution plans overtook traditional pensions, and the trend has accelerated since then, according to the Employee Benefit Research Institute.
The consulting firm Watson Wyatt reported in October that the value of retirement benefits as a proportion of income had declined from 7.8 percent in 2002 to 6.9 percent in 2008 among the 183 corporations it surveyed. Much of that decline was attributed to companies switching from guaranteed pensions to defined-contribution plans.
In contrast, retirement benefits account for at least 14 percent of payroll for all of Ohio's locally funded public pensions -- topping out at 24 percent for firefighters in the Ohio Police & Fire Pension Fund.
Book and other defenders of public pensions say that government employees trade lower wages for more generous retirement plans.
But that's not necessarily the case. According to U.S. Labor Department statistics, there is virtually no difference between private-sector and public-sector pay in Ohio.
But there is a difference in the willingness of private employers to take on the risk of having to bail out pension plans if investments go sour or costs increase sharply, said Alan Glickstein, a senior retirement consultant for Watson Wyatt.
Still, traditional pension plans actually generate more bang per investment buck because of the economies of scale of handling billions of dollars in retirement assets for tens of thousands of retirees, Glickstein said. Traditional pensions can offer the same level of benefits at 30 percent less cost than 401(k)-type plans, he said.
"It's almost impossible for a pension plan to be less efficient," Glickstein said.
Leaders of all five state pension systems say they're committed to maintaining retiree health care and full pension benefits over the long haul, even if some of the terms become less generous.
Michael Nehf, head of the State Teachers Retirement System, said keeping pensions for teachers is "extremely important." The alternative is welfare for some of his retirees.
The other major school pension system is taking a different approach. The School Employees Retirement System, which represents nonteaching employees such as bus drivers and cooks, is not asking school districts to contribute more toward its employees' retirements, which average $879 a month -- far lower than their counterparts in the other state pension systems and below the federal poverty level. Some of the nonteaching employees are part-time workers.
Forcing school districts to boost their contributions invariably would mean cutbacks elsewhere, such as eliminating busing, said James Winfree, executive director of the School Employees Retirement System.
"We understand the financial stress that school districts are under," he said.
Dispatch reporter Doug Caruso, (Cleveland) Plain Dealer reporter Patrick O'Donnell, and (Toledo) Blade reporter Tom Troy contributed to this story. Dispatch Public Affairs Editor Darrel Rowland performed the data analysis.