On the heels of sweeping public pension reform in Rhode Island, the Ohio Public Employees Retirement System (OPERS) is circling the wagons as inevitable public pension reform approaches. OPERS has clearly drawn its line in the sand: a full-throated defense of the defined-benefit system, and nothing less.
It’s a position that is increasingly at odds with ongoing reforms in other states. In both Rhode Island and California, legislation has either been enacted or proposed that would create mandatory “hybrid” retirement systems that combine elements of both defined-benefit and defined-contribution systems.
Of all the reforms implemented in the Rhode Island legislation, the hybrid system is the most profound in scope and effective in terms of cost-savings. As Fitch Ratings stated, “Approval of broad pension reform by the Rhode Island legislature increases financial stability for the state and may set a precedent for other states.” The measure slashed Rhode Island’s unfunded pension liability by 41 percent while reducing the financial burden on taxpayers.
Apparently OPERS wants none of it. In a recent release, OPERS attempts to downplay the Rhode Island reforms as being a solution “unique” to Rhode Island’s pension problems and that similar reforms are unnecessary in Ohio.
But with $18.9 billion in unfunded liabilities and only 76 cents for every dollar it owes, how can a hybrid system not be on the table?
It all boils down to two very different arguments.
On one hand, OPERS believes that minimal adjustments to the retirement age, final average salary calculations, benefit formulas, and cost-of-living-adjustments will be enough to save OPERS. The status quo defined-benefit system remains intact and no structural changes are necessary.
The Buckeye Institute, like those in California and Rhode Island, argue that defined-benefit plans cost too much, produce gold-plated pension packages, and leave taxpayers on the hook. Real reform includes elements of defined-contribution systems; anything less is just a Band-Aid fix for a hemorrhaging fiscal nightmare.
The defined-benefit system, now largely extinct in the private-sector, is tremendously costly. Currently, Ohio taxpayers must contribute 14 percent of each government employees’ salary to OPERS. The average private-sector Ohioan can expect only a 10.2 percent employer contribution (6.2 percent Social Security, 4.0 percent 401(k)).
These taxpayer dollars fuel starting annual pension payouts of nearly $40,000 for career government employees, placing OPERS retirees in the top 43 percent of all Ohio income earners. If every Ohioan had a similar pension, it would cost Ohio taxpayers $123 billion per year.
Finally, the burden to provide these pensions rests squarely on the shoulders of taxpayers. Government employees face no risk while it is entirely up to the taxpayer to bailout pension shortfalls.
Make no mistake, OPERS pension administrators are zealous advocates for a fiscally unsustainable pension system that has produced pensions benefits beyond what taxpayers are willing and able to provide for. We believe that forward-thinking reforms are necessary to change Ohio’s fiscal trajectory, not just tinkering with the status quo.
OPERS is clearly out-of-step with the solutions that other states are enacting to solve identical problems. It is up to Ohio legislators to look beyond OPERS’s status quo rhetoric and enact defined-contribution reforms that make Ohio both a leader in public pension reform and fiscal responsibility.