It’s time to care and do what is right. We need urgent reforms to ensure that the pension system is sustainable and fair for all parties involved.
By Dean Dennis, Founder
STRS Ohio Watchdogs
This letter addresses Senate Bill 69, sponsored by Senator Mark Romanchuk, Chairman of the Ohio Retirement Study Council (ORSC). The bill states, “To declare the General Assembly's intent to enact legislation to reform the law governing the state's public retirement systems.” Currently, the bill appears to be placeholder legislation.
The Ohio Retirement for Teachers Association has a single suggestion for legislation. This suggestion relies on the ORSC supporting the recommendations in Ohio Auditor Keith Faber’s report, released on December 29, 2022. Mainly, pension investments need more transparency. Non-disclosure agreements must address the removal of trade secret provisions that shield investment decisions from scrutiny.
Additionally, Auditor Faber stated, “That means fully disclosing how these funds are being invested and the returns or losses on those investments.” These suggestions should be applied to Ohio’s five pension plans for better clarity and accountability.
The STRS pension system pays out approximately $7.6 billion in benefits. About half of these benefits come from Employee and Employer Contributions, while investment returns must make up the other half. Depending on annual investment returns of $3.8 billion is risky and jeopardizes the long-term health of the pension system. This gap between known revenue and known expenses impacts the ability to pay basic elements of a public pension system.
In 2012, after a market downturn, legislation was submitted to the ORSC. This aimed to reduce benefits promised to members. The intention was to save the pension $11 billion. The legislation also included a 40% increase in the employee contribution. An increase in the employer contribution was initially part of the plan. However, it was later withdrawn, leading to an additional 2% increase in the employee contribution.
It is worth mentioning that the employer contribution has not increased in 41 years. This prolonged period of stagnant employer contributions conflicts with Ohio laws. In a defined benefit plan, Ohio collects funds from members and invests them for their future. They are supposed to assume all risks, while financial shortfalls should fall on the employer, not the employee. This is outlined in Ohio’s codes, as noted in ORC 3307.14(E).
Currently, STRS retirees are not guaranteed inflation protection. They cannot sacrifice anything more to help alleviate the pension’s cash flow problems. The issue is clear: Ohio is not responsibly funding the STRS pension system. Boston College highlighted this issue in their research, identifying Ohio STRS as the only pension plan in the United States with a negative Normal Cost.
In non-Social Security States, the Employer Contribution rate averages 30%. In contrast, Ohio’s rate remains frozen at 14%.
The ORSC acknowledges the STRS investment staff for being in the top percentile of investment performance. However, they face scrutiny from members and the press. They are often seen as an outlier, unable to pay retirees a simple 2% COLA, reduced 13 years ago from a 3% COLA. A significant issue is the continued underfunding of the STRS pension by the State.
STRS consultants, Meketa and Global Governance Advisors, state that STRS’s biggest issue is not performance-related but legislative. Crowe, STRS’s independent auditor, suggests the pension fund's status is vulnerable. This vulnerability arises from market fluctuations and “a fixed employer contribution rate at the statutory maximum.”
External sources indicate that STRS Ohio might be the only pension system without a variable employer contribution rate, which is drastically underfunded. This situation is alarming. In non-Social Security states, retirees rely on the State for a COLA, but Ohio’s employer contribution rate lags by 100%.
Ohio's fiscal budget is currently being addressed. Legislators must tackle this ongoing issue, which has generated negative news stories for over a decade. The public will be watching closely. STRS Ohio members exceed half a million, potentially reaching millions when including family members. Legislators need to understand that any increase in the employer contribution rate will ultimately return to Ohio’s economy and aid its recovery.
It is crucial for the legislature to recognize the importance of addressing these pension challenges. Ohio’s teachers deserve better support. The financial security of their pensions directly impacts the stability of the teaching workforce and the quality of education in Ohio. Failure to act jeopardizes not only the educators but also the future of students in our communities.
It’s time to care and do what is right. We need urgent reforms to ensure that the pension system is sustainable and fair for all parties involved.
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STRS Ohio Board member Rudy Fichtenbaum and former Board member Wade Steen are incurring legal fees defending themselves against a lawsuit brought against them by A.G. Dave Yost. ORTA will use donations from the Pension Defense Fund to assist them, if necessary, in paying their legal expenses. They have volunteered their time to support Ohio's teachers. Now it's time for us to show our support for them! *Make a donation today to the ORTA Pension Defense Fund