Public pensions a 'ticking time bomb' for Ohio budget shortfall

Public pensions a 'ticking time bomb' for Ohio budget shortfall

With the state of Ohio facing a reported $8 billion budget deficit for fiscal years 2012-13, one of the major areas of concern is the rising cost of public pensions.

An in-depth report by Jessica Alaimo for CentralOhio.com (www.newarkadvocate.com) takes a look at the looming problem with guaranteed public pensions.

"Because the average person spends many more years in retirement than in years past, there is a looming question of how to pay for it," Alaimo writes.

…."Public employees still pay a determined amount into one of Ohio's five public pension funds throughout their working careers. Then they are guaranteed a pension for the rest of their life, the amount based on their earnings and years in public service. That guarantee comes at a price. Unless substantial changes are made to Ohio's pension systems, the funds will need to come from somewhere. For taxpayers, that could mean fewer government services, higher taxes or both. For retirees, it could mean working longer before they are eligible to retire, and lower payouts when they do."

The Public Employees Retirement System is seeking to raise the retirement age to 67, or require that employees spend 32 years in public service. An employee's pension is based on his or her highest paid years in public service. The pension systems want to change this to five years to better reflect a worker's salary throughout his or her career, Alaimo says.

"State law dictates each pension fund should plan for the worst. In the event that government shuts down tomorrow, the funds should be able to pay off all outstanding promises within 30 years," according to Alaimo's report. "If a pension fund can't meet that threshold, it must submit a plan to the Legislature on how it will recoup costs. Two of Ohio's pension funds, which cover public employees and school workers other than educators, meet this benchmark. The other three, covering Ohio's teachers, police and fire and highway patrol employees, not only are below the threshold, they also have attained 'infinity' status. That means they never will be able to pay off their existing obligations unless changes are made."

The Buckeye Institute (www.buckeye.org) recently released a report calling for deep cuts to public employee pensions to save the state money. The institute calls for elimination of longevity pay, cost-of-living increases, a lower employer contribution, and a move to a 401(k)-like plan. The moves would save $2 billion in the next two-year state budget alone, the report concludes.

With the state of Ohio facing a reported $8 billion budget deficit for fiscal years 2012-13, one of the major areas of concern is the rising cost of public pensions.

An in-depth report by Jessica Alaimo for CentralOhio.com (www.newarkadvocate.com) takes a look at the looming problem with guaranteed public pensions.

"Because the average person spends many more years in retirement than in years past, there is a looming question of how to pay for it," Alaimo writes.

…."Public employees still pay a determined amount into one of Ohio's five public pension funds throughout their working careers. Then they are guaranteed a pension for the rest of their life, the amount based on their earnings and years in public service. That guarantee comes at a price. Unless substantial changes are made to Ohio's pension systems, the funds will need to come from somewhere. For taxpayers, that could mean fewer government services, higher taxes or both. For retirees, it could mean working longer before they are eligible to retire, and lower payouts when they do."

The Public Employees Retirement System is seeking to raise the retirement age to 67, or require that employees spend 32 years in public service. An employee's pension is based on his or her highest paid years in public service. The pension systems want to change this to five years to better reflect a worker's salary throughout his or her career, Alaimo says.

"State law dictates each pension fund should plan for the worst. In the event that government shuts down tomorrow, the funds should be able to pay off all outstanding promises within 30 years," according to Alaimo's report. "If a pension fund can't meet that threshold, it must submit a plan to the Legislature on how it will recoup costs. Two of Ohio's pension funds, which cover public employees and school workers other than educators, meet this benchmark. The other three, covering Ohio's teachers, police and fire and highway patrol employees, not only are below the threshold, they also have attained 'infinity' status. That means they never will be able to pay off their existing obligations unless changes are made."

The Buckeye Institute (www.buckeyeinstitute.org) recently released a report calling for deep cuts to public employee pensions to save the state money. The institute calls for elimination of longevity pay, cost-of-living increases, a lower employer contribution, and a move to a 401(k)-like plan. The moves would save $2 billion in the next two-year state budget alone, the report concludes.

The public pensions expenses also are a concern for local governments facing their own deficits.