In its response last week to our report, Taxpayers on the Hook: Taxpayer Contribution Rates for Ohio Government Pensions Outpace National Averages, STRS focuses on nitpicking details while ignoring the painfully obvious fiscal reality: STRS is a failing retirement system.
Our full response, which addresses STRS’ criticisms, cuts through the jargon and addresses STRS’ dire fiscal situation head on. Highlights from our response include the following.
1. STRS is plum broke. With only 59 cents for every dollar that it owes, STRS has left a $38.7 billion hole that in the end, taxpayers are held accountable to
fill. STRS’ own executive director was quoted saying, “If no changes are made we will eventually be unable to pay benefits.”
2. STRS has called for greater taxpayer contributions to close its funding gap. In a 2009 meeting with the Ohio Retirement Study Council, STRS argued that taxpayers should boost their contribution from 14 percent to 16.5 percent of each public employee’s salary. Save for the outcome of the 2010 election, it is very likely that Ohio taxpayers would be bailing out STRS through higher taxes.
3. Unlike STRS, we do not consider Social Security to be a sound retirement investment. While STRS argues that since it does not contribute to Social Security on behalf of its members, it contributes less toward employee retirement than other states. The truth is that Social Security is a poor investment that actually produces negative rates of return for many individuals. Therefore, we excluded it from our analysis. Social Security is a raw deal for many individuals and Ohio’s public employees are far better off by not participating in it.
4. STRS has created a retirement system that is lavishly generous compared to what most private sector Ohioans possess. While most private sector Ohioans can expect a 6.2 percent Social Security contribution and a 4.0 percent 401(k) contribution from their employer, STRS employees receive a 14 percent contribution with automatic three percent Cost of Living Adjustments for every year of their retirement.
The bottom line is that while STRS can play games criticizing outside analysis, it cannot avoid the crushing reality of runaway unfunded liabilities and higher taxes. It is time to have an honest debate about the future of Ohio’s retirement systems. It’s a debate that Ohioans cannot afford not to have.
Your very uninformed- point 1 , a problem was identified 2 + years ago that is why the reforms were proposed- the General Assembly lead by republicans are the ones that have both delayed action and at the national level lead to the loses that created the problem.
2. false- calls for an increase by members of 2.5 percent
3. social security isn’t an investment- its an insurance policy – apples to oranges- strs all things considered is doing well
4. strs didn’t create the retirement program -they administer it
5. you hate teachers- so you want to hurt then any way you can-
public service is a great calling- those who serve are not the problem- and should not be punished for poor economic decisions made by republicans at the state and national levels
This is from the Columbus Dispatch,
“Under the proposed changes, a full 29 percent of teacher salaries 16.5 percent from school districts and 12.5 percent from teachers — would go toward pensions. And 37 percent of police and fire employee salaries 25 percent from municipalities and 12 percent from employees would be earmarked for retirement income.”
That is a proposal for a 2.5% increase in employer, ie. taxpayer, contribution to the pensions for teachers. Yes, the proposal included an increase by workers, but it most certainly included one for the taxpayers. The claim is clearly true.
STRS admits it cannot fund itself without change. STRS’ own CAFR (Comprehensive Annual Financial Report) in 2010 said,
“In just one year, from July 2008 to July 2009, STRS Ohio’s unfunded liability more than doubled to $36.5 billion and the funding period became “infinite.” The funding period remains at infinity at July 1, 2010, and the unfunded liability is now $38.8 billion.”
Does that sound like a system that is doing well, all things considered?
Clearly the recession impacted the fund, but the point is that every time there is a downturn, pensions are going to encounter similar issues. The problem with public pensions is that it requires taxpayers that are already suffering their own losses with investments to not only deal with that, but now, pay more to shore up the pensions of public workers. Its a double-hit, pure and simple.
As to Social Security and the comparison to a pension, the concept is to compare a return on investment that those paying into the different systems receive. In this, it is demonstrable that Social Security is not as good of an investment as the pensions, yet the very fact that public workers in Ohio do not pay into Social Security is often referred to in such a way as to make it seem they are missing out, when, by objective observances, they are making out.
Even a full blown transition from a defined benefit to a defined contribution plan for workers will still leave public workers with a very strong retirement that will likely still exceed that of many in the private sector. Calls to do that does not amount to “hating” teachers, it is simply a sober response to a complex issue of affordability and economic competitiveness.
As to poor economic decisions by Republicans, there is plenty of bipartisan blame to go around for a variety of decisions that contributed to the recent economic woes. This includes policymakers, certain private sector actors and many individuals who made unwise decisions. To argue it is solely the responsibility of one party is to give an amount of power to one group that simply does not exist.