A recent piece in the Dayton Daily News alludes to the pension reform in Ohio slowing down to a snail's pace due to efforts to have outside analysis done on the pension systems' plans for reform. Let's hope this isn't true. There are reforms that can be undertaken that will solve our pension problems and avoid future taxpayer funded bailouts.
In the fact, the Buckeye Institute even submitted written testimony to the ORSC regarding the wisdom of this move.
However, there is no need to sit back and wait before exploring the types of reforms that will really deal with the long-term problems associated with
The Daily News story quotes ORSC Chair State Senator Keith Faber (R- Celina),
"' 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.'"
While the pension funds dispute the term "ponzi scheme," there is more than a kernel of truth to calling them exactly that.
As Buckeye Institute President Matt Mayer indicated in a May Columbus Dispatch op-ed, pensions require future workers to pay for their pension,
"A move to 401(k) plans for new workers raises two issues: First, like any Ponzi scheme, those workers already in the system need the contributions of future workers to fund their pensions. These pyramids always collapse, and those last in always get left holding an empty bag. New workers and taxpayers shouldn't be exposed to such risk."
As long as pensions are funded in this way, there will always be the chance that taxpayers will end up on the hook as pensions become underfunded through poor planning, political malfeasance or bad economic circumstances.
The pensions will say this is an apocalyptic scenario that has never happened and is unlikely to happen.
That is not true. It has happened already in a sense. The pension funds have already increases the employer, in other words the taxpayer, contribution from 11 percent to 14 percent. While there had already been built in statutory authority for an up to 14 percent match, thus not requiring a legislative change, this does not alter the practical reality that taxpayers are paying more for every single state worker than they used to.
That may not exactly qualify as a bailout, but it is certainly traveling a pretty similar path.
Also, it has to be pointed out that the best-funded pension, OPERS, admits that they are only funded at the 78 percent or so level. By definition that is not "fully funded" even if it technically actuarially sound.
Finally, the pensions keep assuming an 8 percent return on investment. While there likely would be years where that happens, or is somewhat exceeded, with all of the national and international economic turmoil, it seems a bit on the pollyannaish side.
The bottom line is that changing the pension system towards a 401(k) like system will eventually eliminate this prospect. The private sector has already done this in large measure. From a public policy perspective, it makes little sense why the public sector remains unwilling to change. Then again, when a particular benefit on offer is particularly good, few willingly choose to lose it.
For all these reasons Sen. Faber is on the money when it comes to reform. So here's to hoping that things aren't just relegated to the backburner because of an outside study.
I find this preoccupation with whatever the Buckeye Institute says as gospel pretty pathehetic. I have said it elsewhere and I will say it again, the information they put out cannot be trusted. They do not care about accuracy as they have so bluntly told me and have no interest in correcting any errors. They told me to find out for myself since they had my salary higher for several years than I had ever earned.
To continue to demand that a solid performer like the Ohio Pension systems to capitualte and become anemic like many private systems is also counterintuitive. Why would anyone give up a system that works for them for one that is clearly substandard. This is so because the 401K defined contribution style pension provides less than 1/2 of the benefits of a traditional defined benefits package and the only group making out are the companies that force it on employees as they typically reduce how much they put in reducing even further the employees' pension.
A few facts: 1.Public employee pensions in Ohio are modest. the
average annual beenfit for an OPERs retiree is
$22,078, OR $1840 a month.
2. the average OPERS member makes only $35,848 a year.
3. For every $1 of taxpayer contribution, OPERS
returns $3.06 to Ohio's economy.
4. Over the past 30 years, OPERS average annual
investment return is 8.99%. While it may have
suffered like everyone's portolio, this already
takes into account the bad years of 2008-10.
This system will need some tweaking but wholesale change is doesn't need. Remember,2/3 of a retiree's pension comew from their own money and the investment returns of OPERS--Only 1/3 is actually taxpayer's money. That means approximately only $7285 of taxpayer money goes toward the average retiree in OHio.That is not what I call a whopping amount of money.