Study: Ohio pensions need extra funding l Dayton, Ohio news

Ohio’s public pension system needs attention and extra funding — and sooner rather than later, according to a new study.

But representatives of the state’s pensions emphatically disagree.

They say the pension systems have been good stewards of employee and taxpayer funds for decades and that there is no crisis.

The state’s pensions are “solid” for only the next decade, according to a study recently conducted by the Mercatus Center at George Mason University in Fairfax, Va.

After that, matters get dicey, the study claims.

“The probability that Ohio’s pension plans will have enough assets to pay retirees the full amount they’ve been promised drops sharply” after a decade, according to a summary of the study. “Two decades from now, the odds are about that of a coin flip for the state’s largest plan, and worse for three others.”

“The bottom line is, the state needs to act now,” one of the study’s authors, David Mitchell, said in an interview. “Dealing with it now will be painful, but dealing with it later will be very painful.”

According to the study, if no extra funding is made, there is only a 50-50 chance that the Ohio Public Employee Retirement System — Ohio’s largest public pension — will have enough to pay retirees by 2037. The odds of that fall to 29 percent by 2047 and 22 percent in 2057, the study said.

Todd Hutchins a spokesman the Ohio Public Employee Retirement System, disagreed. He said the Mercatus Center “has a long history of disparaging public pension funds.” He said Ohio pension fund managers eye investment returns with a horizon of decades, not just years.

The study treats public pension plans as closed by “ignoring” future contributions and benefit accruals, Hutchins said.

The Ohio Public Employee Retirement System forecasts an additional $170 billion in member and employer contributions over the next 30 years, he said.

“We are good stewards of the money, and this is our mission,” Hutchins said.

“Every year we conduct our own independent evaluation of our own solvency, and we track our performance,” he added. “We are regularly audited.”

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‘Far worse shape’

The Mercatus research also said Ohio’s pensions for police, firefighters and educators “are in far worse shape” than the Ohio Public Employee Retirement System.

The Ohio Police and Fire Pension Fund has a “25 percent probability of solvency” in 2037, and only 11 percent in 2047, the study says.

With the Ohio State Teachers Retirement System, there is 33 percent probability of solvency in 2037, and just 15 percent in 2047, the study claims.

And with the Ohio School Employees Retirement System, there is just a 28 percent probability of solvency in 2037, 13 percent in 2047.

David Graham, a spokesman for the state’s Police and Fire Pension Fund, disagreed. “I can tell you we meet all of Ohio’s funding requirements for funding. Our funding picture is solid. There is no question about solvency.”

He said that should be the case “for generations to come.”

“There are studies that come out here and there,” he added. “It all depends on the factors people use to make these calculations.”

Graham said no one said from George Mason University contacted him or anyone else at the pension fund, to his knowledge.

Tim Barbour, a spokesman for the Ohio Schools Employee Retirement System, said the study perpetuates the “myth” that pension systems need to be 100 percent funded at all times.

But that’s not true, he said. Pension system liabilities come due gradually, over stretches of time, he said.

“According to our actuaries, we’re doing fine,” Barbour said.

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Messages seeking comment were left with a representative of the Ohio State Teachers Retirement System and for State Sen. Bill Beagle, R-Tipp City, chair of the Ohio Retirement Study Council.

Mitchell said he and fellow study author Erick Elder looked at the historical distribution of stock market returns. They ran some 10,000 computer simulations, considering “every possible combination” of market performance and other factors to arrive at a picture of possible outcomes, said Mitchell, an associate professor of economics with University of Central Arkansas and director of the Arkansas Center for Research in Economics.

“It’s very easy to have a series of bad years” in stock market performance, Mitchell said. “And they often come with these weird streaks.”

He said risks facing the Ohio pension system hold true even after governmental passage of pension reforms in 2012.

In those reforms, many public employees shouldered higher pension contribution requirements and older retirement-age expectations.

Mitchell noted that Ohio public employees are not part of the U.S. Social Security system.

“In Ohio, what do they have to fall back on, what are they supposed to do?” Mitchell said.

The state cannot assume decent stock market performance and should put more direct money into its pensions. That will have to be a cost shared by taxpayers and system participants, he said.

“Probably you’re going to have to share the burden a little bit,” Mitchell said. “It’s so much easier to do now than in 20 years.”

This is a problem for other states, as well, not just Ohio, he added.

“I don’t think that there’s any state that’s really figured this out yet,” Mitchell said.

The research and an "interactive pension solvency timeline" can be found at www.mercatus.org/ohiopensions.

Ohio Public Employees Retirement System

Assets: $74.9 billion as of March 31, 2016

Members: More than 1 million past and present workers

State Teachers Retirement System of Ohio

Assets: $76.2 billion

Members: 484,500

Ohio Police and Fire Pension Fund

Assets: $14.27 billion as of Nov. 30, 2016