1 Million Ohio Public Employees Face Pension Cuts As Another Ponzi Teeters On The Brink
Sep 21, 2017
We’ve written frequently of late about the pension crisis in Kentucky where pensioners are facing potentially catastrophic benefit cuts as their politicians finally admit that they’ve been sold a fantasy for decades (see: Pension Consultant Offers Dire Outlook For Kentucky: Freeze Pension And Slash Benefits Or Else).
Unfortunately, Kentucky is not unique as there is a never-ending stream of similar pension failures popping up daily all around the country. The latest such example comes to us from Ohio as the Dayton Daily News notes that the Ohio Public Employees Retirement System (OPERS) has been forced to consider COLA cuts for its 1 million pensioners in order to keep the fund solvent.
Ohio’s biggest public pension system is considering cutting the cost of living allowances for its 1-million members as a way to shore up the long-term finances of the fund.
Ohio Public Employees Retirement System trustees on Wednesday discussed options that could affect all current and future retirees, including tying the cost of living allowance to inflation and capping it and delaying the onset of the COLA for new retirees.
No decision has been made and trustees will discuss the options again in October. So far, some 72,000 members responded to an OPERS survey about possible changes. OPERS spokesman Todd Hutchins said 70 percent of retirees responding to the survey report that they prefer that the COLA be capped, rather than frozen.
So how bad is OPERS? Per the latest valuation, Ohio taxpayers are on the hook for a roughly $20 billion underfunding. Ironically, the fund ended 2016 with the highest underfunding in it’s history, after being nearly fully funded in 2007, despite a 275% surge in the S&P off the lows in 2009. Perhaps someone can explain to us how these pensions stand a chance of ever again being fully funded if they can’t even manage to improve their balance sheet during one of the biggest equity bubbles in history?
Be that as it may, like all pensions the OPERS underfunding is only as good as the garbage assumptions used to calculate it. As the following table shows, a mere 1% reduction in OPERS’ discount rate would result in a $12 billion increase in the fund’s net liability.
Ironically, even OPERS’ own financial report pegs its “Weighted Average Long-Term Expected Real Rate of Return” at just 5.66%.
Not surprisingly, OPERS is just one of many Ohio public pensions currently facing cuts.
OPERS is the latest of the five public pensions systems in Ohio to consider benefit cuts.
The State Teachers Retirement System of Ohio in April voted to indefinitely suspend the COLA for retired teachers. Trustees said they weren’t certain that the cut would be enough to shore up the finances of the $72-billion fund.
Ohio Police & Fire Pension Fund is expected to hire a consultant to help restructure its health care benefits. OP&F announced in May it would switch in January 2019 to issuing stipends to each retiree, who can then use the money to purchase coverage.
School Employees Retirement System, which covers janitors, bus drivers and cafeteria workers, is taking steps to link its cost of living allowance to inflation, cap it at 2.5 percent, and delay its onset for new retirees.
Meanwhile, by protesting earlier this week Ohio employees demonstrated that they’re still in the “Shock and Denial” phase of dealing with the news that their pensions were always just a clever little fairy tale told to earn their votes. Luckily, “Anger and Bargaining” is only 2 steps away in the 7-step process…