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Ohio Scores Poorly On State Pensions


A new study from an economically conservative think tank ranks Ohio 7th nationally in terms of fiscal health – but it includes a stat that has Ohio almost dead last in the nation. Ohio Public Radio's Karen Kasler reports.  

The study from the Mercatus Center at George Mason University finds Ohio does well in some areas – for instance, it’s 4th in cash solvency, for having seven times the cash it would need to cover short term spending. But it doesn’t do as well in one key area – its five public employee pension funds, which the study ranked at 48th in the nation. There’s about $200 billion dollars in those funds, and they have an unfunded liability of about $59 billion. Senior research fellow Eileen Norcross said the national average is just under $20 billion. And anyway, she recalculated that number and said, “My estimate of the pension liability is far larger. I would say the market value of Ohio’s unfunded liability for its pension system is about $247 billion – far larger than the state’s number.”

Norcross says she runs the numbers as if the liabilities were a bond and guaranteed to be paid, which results in a lower rate of return. That’s not fair, said Lisa Morris, the executive director of SERS, the School Employees Retirement Fund – which paid out nearly $1.2 billion to more than 72,600 benefit recipients last fiscal year. “We are a large, global investor – we’re not just invested in bonds,” said Morris. “And in fact over the 30 year period, our return has been over 9.3%.”

Morris and other supporters of the pension systems point out that in Ohio, they are trust funds and aren’t part of the state’s overall general revenue fund, and that while beneficiaries do get health care coverage, it’s not guaranteed by law as it is in other states and could be modified if the systems run into financial problems.  And backers also note that the pension systems underwent reforms in 2012 that included increasing employee contributions, raising retirement eligibility and restricting cost of living increases. Rep. Kirk Schuring is a Republican of Canton and serve s on the Ohio Retirement Study Council, and compares the pension system to a mortgage – it’s an long term obligation that can reasonably be paid for over time. “Those who don’t believe in the 30 year amortization period are operating under some type of Armageddon theory where under their theory one day all the members within our retirements systems would suddenly retire, even though statutorily, they’re not eligible and at the same time, all the contributions would cease to be flowing into the systems,” Schuring said. “And that’s just not going to happen.”

But a bigger question that is raised by this and other studies could be about the future of pension funds, and whether states should continue to use them for retired police officers, teachers and other public employees.  Greg Lawson is with the conservative think tank the Buckeye Institute, and has long said public pension systems have inherent flaws that expose taxpayers to unneeded risk. “It’s the very structure of these pensions, which are defined benefit pensions, which are basically nonexistent in the private sector anymore because businesses realize they couldn’t really fund these things so we have shifted to these things like the 401(k) and IRAs,” said Lawson. “But the public sector has not done that.”

Aristotle Hutras used to head up the Ohio Retirement Study Council, and says taxpayers get a better deal with defined contribution plans because they have fiduciary standards that aren’t subject to the whims of the trustees who decide on investments. And he says those plans ensure that economic downturns like the Great Recession a few years ago won’t devastate retired public employees and the state as a whole. “If those funds had been eroded like the rest of them at 40% in 2008, aren’t they going to be on some public dole at the end of the day?” said Hutras. “It’s ‘pay me now or pay me later’, and it’s much smarter to pay me now.”

A few states, such as Illinois and California, have well-documented troubled pension funds. But supporters of Ohio’s much smaller public employee retirement system say it’s nothing like those. 

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