Pension Adviser Gives Council Tour of Other States' Reforms
The Ohio Retirement Study Council's outside consultant on pension reform presented council members Wednesday with an overview of how other states are addressing unfunded liabilities in their own retirement systems. William "Flick" Fornia of PTA/KMS said the income-replacement targets in Ohio's retirement systems are in line with those of other states whose public employees are not enrolled in Social Security -- about a quarter of all states. Retirement eligibility ages also are consistent with other states, but final-average-salary calculations and cost-of-living adjustments are higher than average in Ohio.
Fornia said defined benefit plans, like Ohio's, are the norm for state retirement systems, with only Alaska and Michigan instituting defined contribution plans. West Virginia adopted defined contribution plans in the 1990s only to revert to defined benefit plans after investment returns lagged and the 2000-2001 economic downturn left many workers unable to afford to retire.
However, he noted a move in several states toward some version of a "hybrid" plan. For example, Utah has proposed a system where if the 10 percent employer contribution is insufficient to cover benefits, excess costs are deducted from employee paychecks; but if the 10 percent employer contribution is more than enough to cover benefits, the excess flows into a defined contribution plan.
Fornia described a plan in the Public Employer Retirement Association of Colorado to demonstrate how shared sacrifice is usually a necessary element of pension reform. It included benefit changes for prospective hires, current employees and retirees as well as employer benefit contributions. The proposal would eventually bring the system toward 100 percent funding, whereas lack of action would leave it bankrupt in 2027. He displayed projections to the council showing how abandonment of sacrifices by any one of the four affected groups would merely delay by a few years the onset of bankruptcy, whereas instituting all four was the only way to eventually reduce unfunded liabilities.
In addition to shared sacrifices, he identified a smooth transition that implements changes gradually as desirable to avoid a "rush to the door" by employees, which creates government workforce problems and skews actuarial calculations. After the meeting Wednesday, Sen. Keith Faber (R-Celina), the council chairman, elaborated on the Senate's proposal to give the retirement system boards greater ability to act without legislative approval to head off future funding problems. He said he's contemplating a law change to let the boards reduce benefit levels and extend retirement ages for new hires only, on the basis that setting those expectations at the outset of someone's career is fairer and easier than making changes for current employees or retirees.
Faber said the hope is that the changes will prevent the need for future pension reform legislation. Any attempts to increase benefits, subjecting state government to increased liabilities, would still need legislative approval under the plan.
In other business, the council voted to begin implementing new internal policies devised by a review task force, and to contract with Legislative Information Systems, the technology arm of the General Assembly, for phones, Internet access and an internal network. Bethany Rhodes, the new council executive director, said the council now has an unsecured wireless network and significant analog phone bills, and could save a significant amount of money by switching to the voice-over-IP phone system the Legislature has.
The council also voted to implement its first-ever records retention policy, adopting what Rhodes described as policies substantially similar to those for the House and Senate. "If you don't have a policy, you must keep everything," she said. "So our little office has everything since 1968."
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