Ohio State’s Teachers’ Retirement System recently voted to give investment staff millions of dollars in new bonuses — a misguided move that Ohio retirees and taxpayers will rightly regret as they go. they struggle to keep pace with record inflation.
Bounty advocates might argue that the pension fund has “beat” or “outperformed” its peers. But fund managers still managed to lose $3 billion last year, and “outperformed” is Wall Street lingo which simply means other investors did even worse. None of these so-called accomplishments deserve a pat on the back, let alone a staff bonus.
However, this most recent STRS vote is just a symptom of a much bigger disease that policymakers in Ohio refuse to address. Public state pensions are an untenable relic of the 20th century. They cannot meet the 21st century demands of the taxpayers who fund them or the retirees who rely on them.
As the Buckeye Institute warned more than a decade ago, Ohio’s public pension funds are an ongoing financial liability for hard-working Ohio taxpayers. Funds often create disincentives through their deferred benefit structures and long service time requirements for public employees to leave public employment and take advantage of more rewarding opportunities in the private sector that would help ease the financial burden of pensions. and taxpayers.
Unfortunately, although the Ohio General Assembly temporarily bolstered Ohio pensions 10 years ago, policymakers never took the toughest steps to sufficiently account for the fact that the expectation of life of retirees continues to increase. Longer life expectancies are a good thing, of course, but they affect pension schemes by expanding defined-benefit pension liabilities, which now exceed what pension funds collect and can afford to pay in the long run. .
The legislative changes were intended to ease some of the pressure by raising the retirement age for pension eligibility, changing the calculation of benefits, and allowing pension funds to adjust for increases in the cost of living ( as did the STRS). But these short-term solutions will not permanently close funding gaps, as promised benefits exceed current contributions. Ohio taxpayers will be called upon to make up the difference as the state’s public pensions hemorrhage in cash – an unacceptable ‘solution’ that is already playing out with calls to increase taxpayer funding for the Ohio pension fund. Ohio Police and Fire Department.
In addition to these prior legislative adjustments, Ohio should seek a long-term solution for its public pensions by moving from a defined benefit system to a defined contribution system.
Although current retirees should continue to receive their pensions under the existing defined benefit structure, Ohio should give future public sector retirees an automatic investment account similar to private sector retirement accounts. Under a defined contribution system, the employer and employee would contribute a set percentage of the employee’s income to fund future retirement benefits.
Defined contributions must match existing legal requirements for each pension scheme, such as 14% for employers and employees for the STRS, but long-term pension costs will cease to be borne by taxpayers as benefits will be paid on the employee’s own account. Additionally, a defined-contribution pension system would make pensions more portable like private-sector retirement accounts, so that employees can take their pension contributions and investment earnings with them if they change jobs.
The recent vote to reward STRS pension fund managers with hefty bonuses — despite fund losses — underscores the need to reform Ohio’s public pensions to protect taxpayers and retirees from an outdated and unsustainable system. Taxpayers should not bear the rising, long-term costs of underfunded pensions, and public pensioners should not be forced to choose between their retirement funds and pursuing career opportunities in the private sector.
Only fundamental changes to Ohio’s retirement system will make those fixes, but those overdue changes need to be made.
Greg R. Lawson is a researcher at the Buckeye Institute. His column does not necessarily reflect the opinion of The Lima News editorial board or AIM Media, owner of The Lima News.
