JANUARY BOARD NEWS

OTHER STRS OHIO NEWS 1/15/2010

RETIREMENT SYSTEMS STRESS VALUE OF DEFINED BENEFIT PLANS
In the past few weeks, Ohio’s major newspapers have written about Ohio’s public pension plans and their future sustainability. Adding to the discussion have been several editorials, as well as “letters to the editor” – both pro and con – regarding the value and funding of the Defined Benefit Plans available to Ohio’s public employees. Before these articles ran, STRS Ohio reiterated its commitment to the Defined Benefit Plan with its members through its Web site and e-mail news service. In addition, the executive directors of the five Ohio systems shared the following message with key legislators.

DEFINED BENEFIT PLANS ARE GOOD FOR THEIR MEMBERS AND GOOD FOR OHIO
For many decades, the public employees of Ohio have been provided with dependable retirement income during economic ups and downs. Public employers have had the ability to recruit and retain workers and budget for a predictable contribution rate. The vast majority of these Ohioans’ retirement security has been provided through the investment returns earned by Ohio’s five public pension plans. The balance is provided by contributions from the members and their employers. At the conclusion of their public service careers, members receive a pension benefit that is paid in lieu of Social Security. Going forward, the public pension plans can continue to provide this valued financial security by making reasonable, measured changes.

The Defined Benefit Plans offered by OPERS, STRS Ohio, SERS, Highway Patrol Retirement System and Ohio Police & Fire have benefited Ohio’s public employees, this state and all taxpayers.

- Defined Benefit Plans provide financial protection for both plan members and taxpayers. Members are provided a lifetime benefit they won’t outlive – a problem now faced by so many whose savings or 401(k) plans have been depleted in this recession and now face the possibility of slipping into poverty in their “golden years,” having to turn to taxpayer-funded public assistance, Medicaid or social services. The state is already struggling to budget the higher level of resources to cover the new people seeking assistance.

- Defined Benefit Plans are both efficient and economical. A 2008 National Institute on Retirement Security (NIRS) report found that a defined benefit pension can deliver the same retirement income at 46% lower costs than an individual defined contribution account due to pooling of investment risk, continual diversification of assets and professional investment management.

- Defined Benefit Plans provide a stable source of revenue for Ohio’s local economies. According to NIRS, in 2006 nearly 360,000 residents of Ohio received a total of $8.41 billion in pension benefits from state and local pension plans, with $8.29 billion paid from plans within the state and the remainder originating from plans in other states.

- Defined Benefit Plans support Ohio workers. NIRS has also reported that retiree expenditures stemming from the pension plan payments in 2006 supported more than 79,000 Ohio jobs that paid $4.3 billion in wages and salaries.

- Defined Benefit Plans support the services provided by local, state and federal governments through the taxes paid on these pensions. In 2006, taxes paid by retirees and beneficiaries in Ohio directly out of pension payments, as well as taxes attributable to direct, indirect and induced expenditures, accounted for $702.5 million in state of Ohio and local tax revenue, according to NIRS.

- Defined Benefit Plans play a critical role in reducing the risk of poverty and hardship among older individuals. Defined benefit pension income saved taxpayers $7.3 billion in public assistance expenditures nationally in 2006 alone because retirees had a regular monthly pension payment that helped sustain them above the poverty level.

The public pension plans in Ohio have a history of remaining sustainable with reasonable, measured changes. Each system has taken the prudent and responsible step to present proposals that recognize the need to look at options, including adjusting benefits that acknowledge the fact that people are living longer. The legislative process is important to provide plan stability for the systems’ members, local economies and all Ohioans.

The starting point for discussions must be the preservation of the Defined Benefit Plan offered by each system. These plans are major economic drivers for the state; are administratively efficient and economical; and provide a stable retirement income for public workers in Ohio, thereby reducing the burden on taxpayers and Social Security.

For further information about NIRS reports, visit http://www.nirsonline.org.

“Public workers under fire for cost of pensions” by James Nash and “Even more cuts in benefits possible for city’s workers” by Barry M. Horstman.

1/9/10 article, “City pensions have 17 years… CONSULTANT LISTS PAINFUL OPTIONS”