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.