Keith Faber calls Ohio's public pensions a "Ponzi scheme!"

From John Curry, August 8, 2011

Faber said, “I call it the pension Ponzi scheme. I mean, (the pension funds) all anticipate that they’ll have new members coming in to pay the liabilities of the old members. Well, I think that’s bad public policy. In the long term I think you need public policy that essentially says ‘My contributions over my career are going to be what pays for my retirement.’ And I want to make sure that we set up a system that does that — my contributions plus a reasonable investment return.”

Note from John....hey, Keith, you forgot about mentioning contributions from MY EMPLOYER. That was a Freudian slip, wasn't it, or do you also wish to eliminate the employers from any monetary responsibility for public servants' retirements?

http://www.journal-news.com/news/hamilton-news/ohio-pension-reform-in-limbo-as-legislature-waits-to-address-changes-1225078.html?printArticle=y

Ohio pension reform in limbo as legislature waits to address changes

By Laura A. Bischoff, Columbus Bureau
Journal News, August 7, 2011

COLUMBUS — Here is advice for the 1.7 million Ohioans in the state’s five public pension systems who have been waiting for nearly two years to get the final word on what changes will be mandated by lawmakers to shore up the retirement funds: Don’t hold your breath.

The Ohio Retirement Study Council, a bipartisan group that vets all pension legislation and oversees the systems, is seeking a second opinion from an actuarial firm about what changes should be made. This means lawmakers aren’t likely to take up the pension reform bill until after the first of the year.

Nearly two years ago, the pension boards submitted new funding plans to the General Assembly that call for employees working longer for less-generous pension benefits. The proposals do not call for taxpayers to pay more.

“The pension boards have presented a remedy to the solvency issue to the Legislature. Only the Legislature can make the appropriate changes with respect to the pension funding and benefits. That’s where we are now,” said ORSC Executive Director Aristotle Hutras.

The ORSC, chaired by state Sen. Keith Faber, R-Celina, wants to double check those proposals. Faber said he believes some of their key assumptions — such as an 8 percent annual return on investments — are too rosy.

The Ohio Public Employees Retirement System, the largest in the state, averaged annual investment returns of 8.99 percent during the past 30 years, but only 5 percent over the last decade.

Dropping the assumed rate of return even one percentage point for the systems would make their liabilities balloon and bolster the argument of those who want Ohio to switch from the current defined benefit plan to a defined contribution plan.

Defined benefit plans invest employer and employee contributions over the worker’s career and use the money to pay a pension based on years of service and final average pay. The benefit is guaranteed, even if investment returns lag.

Defined contribution plans operate like a 401(k) fund where a set amount of money is invested with no guarantee about how much will be available when the worker retires.

Faber said he is open to discussing such a switch.

“Do I think we ought to study that as a long-term modifier? Yes, particularly if the plan assumptions are going to become more difficult to achieve,” Faber said.

Faber said, “I call it the pension Ponzi scheme. I mean, (the pension funds) all anticipate that they’ll have new members coming in to pay the liabilities of the old members. Well, I think that’s bad public policy. In the long term I think you need public policy that essentially says ‘My contributions over my career are going to be what pays for my retirement.’ And I want to make sure that we set up a system that does that — my contributions plus a reasonable investment return.”

Ohio Police & Fire Pension Fund Director Bill Estabrook, a former Dayton city manager, says it’s reckless, naive or ill advised for Ohio leaders to use negative terms such as Ponzi scheme when discussing the multibillion dollar pension funds. He said such terms do “very little to strengthen and demonstrate solid and understandable reasons for pension reform to the pension fund membership and the general public.”

Pension systems will pay for study

Bids from actuary firms are due Aug. 25. It is unclear how long the study will take or how much it’ll cost, but the pension systems will have to pay the tab.

Collectively, the funds say they spend nearly $4 million a year on legally mandated actuarial reports, fiduciary and performance audits, reviews and contributions to pay for the ORSC.

Preparing the latest funding plan for the Legislature cost the State Teachers Retirement System roughly $260,000, said Nick Treneff, STRS spokesman.

Meanwhile, with change looming, long-time government workers are weighing retirement now rather than when benefits may be less generous. OPERS reported an 18 percent increase in retirements and a 35 percent increase in inquiries this year over last year.

But there is no rush among lawmakers to pass a pension reform bill.

As far back as 2003, the Ohio Police & Fire Pension Fund submitted a reform plan but lawmakers failed to act. As a matter of fact, OP&F submitted six more plans in the subsequent years, and again, there was no action by lawmakers.

Gov. John Kasich told reporters last month that the retirement systems should not expect a bailout. “These pension funds aren’t going to be bailed out. We’d like to fix it. But we’ve got to have them working with us on this,” the governor said.

Last week, Kasich implied that some parties aren’t willing to make changes.

“Parties decide they don’t want to sit at the table. It’s pretty hard to get pension reform and I’ll just leave it there,” Kasich said. “These funds are in trouble. They’re in trouble. The taxpayers aren’t going to bail them out. I mean, this is why we are trying to do Senate Bill 5, frankly, to try to stabilize the situation out here and everybody has got to work together.”

Senate Bill 5, the collective bargaining reform law, only addresses the issue of employers picking up all or part of employee pension contributions.

Kasich’s statements chafe pension fund directors. Estabrook fired off a two-page letter to Kasich, calling the governor’s comments in July “reckless and unstudied.”

“We are neither seeking nor requesting any additional taxpayer assistance. I might also advise that this is the sixth consecutive 30-year plan submitted to the ORSC and none of them have been acted upon,” Estabrook wrote.

Contact this reporter at (614) 224-1624 or lbischoff@DaytonDailyNews.com.