Pension reforms loom for 1.7M Ohio members

Dayton Daily News

COLUMBUS

The looming changes to Ohio’s four largest public- employee retirement funds represent the most sweeping pension overhaul in state history and the first time that 1.7 million members of the systems would see significant cuts to their pension benefits.

Retirees will see their cost-of-living allowances cut, and workers will be told to put in more years, pay more money into the system and accept a lesser benefit at the end of a long career, if the bills become law.

The Ohio General Assembly is scheduled to take up the reforms this week, and final votes are possible in the Senate.

Pension officials, who have been begging lawmakers to take action for nearly three years, say the changes are needed to shore up their finances for the long haul and to allow them to avert drastic cutbacks in health- care benefits for current and future retirees.

Stock market losses, people living longer, generous benefits and crushing health-care costs are driving the need for reforms. Without changes, the systems eventually would run out of money to issue monthly pension checks.

And more immediately, without changes, Ohio Public Employees Retirement System would slash its annual spending on retiree health care to $500 million.

The spending cuts, from $1.6 billion, would begin in 2014, said OPERS Executive Director Karen Carraher.

“No one is extremely happy with all the changes, especially those affecting them. However, most retirees understand the STRS’ financial situation. And they are accepting and supporting the proposed plan,” said Ann Hanning, executive director of the Ohio Retired Teachers Association, which has 30,000 members.

“We know that some things must change and the sooner, the better for all members of the system.”

The bills would require active teachers to contribute 14 percent of their pretax income to the retirement plan, up from the current 10 percent.

A teacher making $60,000 would have to plan for $2,400 per year less once the change was fully phased in.

“Are they thrilled about it? Probably not,” said Centerville High School math teacher Brian Cayot, who leads the district’s teachers’ union. “But they understand that it’s a necessary evil in order to have your retirement there at the end.”

Cayot said some teachers are frustrated by a proposal that would push retirement eligibility back at least five years, to age 60 after 35 years of service.

But he said many teachers just want the state to come up with a system and stick to it so they can make a plan, after years of varying proposals have left them guessing.

Ohio Senate President Tom Niehaus, R-New Richmond, and Senate Minority Leader Eric Kearney, D-Cincinnati, introduced four pension-reforms bills, one for each of the four largest systems. Niehaus said he hopes the bills will go to the Senate floor for votes this week.

The bills are likely to stall in the Ohio House where key members are urging their colleagues to wait for a consultant’s report to double-check the numbers and changes being pitched by the pension boards. State Rep. J. Kirk Schuring, R-Canton, a member of the Ohio Retirement Study Council, said, “I think we should do something this year. Hopefully, we’ll be on the same page and on the same path sometime later this year.”

Lawmakers are scheduled to recess from June through the November election. The House may take up pension reform after lawmakers return in November.

Like most states, Ohio’s public pensions are defined benefit systems. The pension benefit is based on age, years of service, final average salary and it is guaranteed, regardless of how well invested contributions performed over the course of the worker’s career. Defined contribution plans, such as 401(k) funds, are more common in the private sector. The employer and worker contribute to a fund over the years but the amount in the retirement nest egg when the career ends isn’t guaranteed.

Public employees in Ohio do not participate in Social Security.

Some fiscal conservatives are disappointed that lawmakers aren’t pushing for a switch to a defined contribution plan or a mandatory hybrid between the two types of plans.

“By many measures, the retirement benefits received by government workers in Ohio, on average, are more generous than those received in the private sector,’ said Andrew Schwiebert of the Buckeye Institute, a conservative public policy think tank. He told state senators that Ohio could save $3.3 billion during 30 years by establishing a defined-contribution plan.

Ohio’s proposed changes are in step with reforms recently adopted by other states. According to the National Conference of State Legislatures, 41 states have enacted significant pension reforms in the past two years. Those changes have included:

Boosting employee contribution rates.

Increasing age and service requirements.

Stretching out the final average salary calculation.

Adjusting cost of living allowances, according to NCSL.

“Legislatures around the country have been acting (on pension reform proposals.) Ohio is one of the few states that hasn’t acted yet,” said Keith Brainard, research director for the National Association of State Retirement Administrators.