A new study released this week shows a number of states, including Ohio, are facing a $1 trillion funding shortfall in public sector retirement benefits. We hope state officials won't look to more taxes as the only way of making up this massive funding shortage.
Most employers in the private sector discontinued their defined-benefit pension plans long ago. Those were the plans that supplied the monthly retirement checks our parents and grandparents received that contained a set dollar amount based on years of service, highest annual salary and the age of the worker at retirement. These plans became very expensive for employers, so they were dumped in favor of defined-contribution plans. In defined-contribution plans, also sometimes known as 401(k)s or annuities, the employee helps bring down the employer's retirement plan costs by contributing to the plan. Since 1978, the number of defined-benefit pensions has declined dramatically, and according to the U.S. Bureau of Labor Statistics, only 21 percent of workers in the private sector are covered by defined-benefit pension plans today.
Both types of pension plans have advantages and disadvantages, but the advantage of a defined-contribution plan is that it is usually portable, meaning a worker can take it with him if he moves from job to job, and it makes the worker an active participant in his own retirement planning.
A recent analysis conducted by the Columbus Dispatch for a group of Ohio newspapers revealed that the taxpayer annual costs for Ohio's five public retirement plans already tops $4 billion. And now these plans want taxpayers to give more.
The State Teachers Retirement System wants taxpayers to increase their stipend from 14 percent to 16.5 percent over the next six years. Firefighters want cities to increase their share from 24 percent to 25 percent in 2013 and police want the city contribution to increase from 19.5 percent to 25 percent by 2013.
So what's wrong with this picture? Why are the taxpayers, who are in fact the employers of the public sector, being asked to ante up more money to pay for a benefit that only 21 percent of those in the private sector enjoy?
Instead of bowing to pressure to increase the taxpayer contributions to these retirement funds Ohio legislators should revamp the entire public sector retirement system and bring it in line with the 21st Century way of conducting business.