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Columbus
Dispatch...
Pondering
pensions
December 6, 2011
Next
head of Retirement Study Council
will face some very tough issues.
Reform
of Ohio’s public pensions is
proceeding slowly; legislation proposing needed fixes to make the funds
more
fiscally sound has waited for more than two years, while changing
economic and
budget conditions have further affected the problem.
Lawmakers
in June called for an
independent review of proposed changes. That was supposed to be
complete by the
end of the year but is just beginning, with a consultant chosen Nov. 16.
Amid
this unfinished business, the
Ohio Retirement Study Council, a well-regarded state agency charged
with evaluating
and reporting to the legislature on the pension plans’ soundness, is
entering a
transition. Aristotle Hutras, who has led the council since its
founding 22
years ago, will become a pensioner himself, retiring at year’s end.
Hutras
helped build a new agency into
a reliable resource for lawmakers, who have to make pension-related
decisions
with billion-dollar consequences. The council provides them the
information
they need to understand the fiscal health of the pensions and
implications of
different pension-policy options.
His
years of experience and his
institutional memory will be missed (as will his bonhomie and wit).
That
makes the matter of his
replacement an important one. The next director should have experience
and deep
understanding of the dynamics of public retirement systems.
In
the years ahead, significant change
is likely in the public pensions.
One
of the new director’s first
priorities will be to see to it that the independent review of proposed
pensions changes proceeds as quickly as possible. Changes in basic
terms, such
as employee contributions, retirement ages and payouts, are essential,
and
every month’s delay in enacting them delays the day when the funds will
be on
firmer fiscal ground.
Pension
reform is part of a needed and
overdue realignment of public-employee compensation. Allowing people to
retire
much earlier than the typical private-sector minimum age of 65 — in
some cases,
as young as 48 — inflates the lifetime payout required of public
pensions.
Early
retirement eligibility also
means people retire before they’re eligible for Medicare, which has led
public
pensions to provide health-insurance benefits — an increasingly
expensive perk
that isn’t required by law, but has become entrenched.
Public
pensions also remain fixed on
the defined-benefit model, in which a certain payout is guaranteed
regardless
of whether contributions and investments have appreciated enough to
cover the
cost. This creates a major financial risk when stock-market performance
falters.
Most
private companies have responded
to this risk by moving to defined-contribution plans, in which
employees have
some choice in investment decisions, and their retirement payouts
reflect the
performance of those investments.
Of
course, public employees prefer the
security of defined-benefit pensions, but the risk to which they expose
taxpayers — who likely would have to cover the shortfall if pension
funds don’t
earn enough to cover their promised payouts — is politically untenable
when few
private-sector taxpayers enjoy such a retirement guarantee.
These
are big challenges and lawmakers
will need an experienced adviser as they deal with them.
Read
this and other articles at the
Columbus Dispatch
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