Thursday, January 7, 2010

Ohio public employees face a triple whammy

1. On Sunday, the Columbus Dispatch wrote an investigative piece about the costs of the five Ohio public employee retirement plans. The piece was factual, but was slanted in favor of scrapping defined-benefit plans in favor of defined-contribution plans similar to 401(k).

2. Tuesday morning, radio station WOSU (National Public Radio) reported that many public employees cannot collect their full public employee pensions because of Federal rules related to Social Security. The end result, primarily affecting non-teaching school employees, is a pension that pays less than survival level.

3. Also on Tuesday, Fox News reported that the Senate version of the health care bill (the one that no one but the Congress and the President want) will impose an income tax on recipients of "Cadillac" health plans – those costing employers more than $27,000 a year. While promoted as taxing health plans for high-level executives in the private sector, half of those this provision would tax make less than $100,000 per year, many of whom happen to be public employees.

Disclaimer: I am a public employee. I benefit from the health coverage, and my retirement is largely (though not entirely) dependent on my public employee retirement plan. I agree that the existing pension and health care plans are unsustainable, but a few facts are not being brought out.

Public employees in Ohio and several other states do not pay into, nor will they receive Social Security related to their public employment. I do not think it is unreasonable to expect the state to contribute the 6.2% rate that private employers are required to pay into Social Security. In addition to Social Security, private employers who have 401(k) plans typically contribute up to 3-5% of the employee's salary into those plans. This means that the combined employer contribution for employees who fully support their 401(k)s typically falls between 9.2% and 11.2%. Employees in the private sector also pay 6.2% of their salary into Social Security.

The problem is, Ohio's public employee plans receive 14-29.5% in taxpayer contributions, while employees pay 10-12% from their salaries. (State employer contributions higher than 14% are limited to pensions for law enforcement and firemen).

The Retirement Study Committee should consider gradually reducing the state contribution for non-police and fire employees from existing levels to 10%. Another change they might consider is to offer an incentive, in the form of a higher benefit, for those who will delay retirement until age 70, as Social Security now does. Otherwise, I agree with their recommendations as cited in the Dispatch. Obviously, these proposals will reduce the benefits, but sooner or later, they will be reduced anyway. The question is, do we want to reduce benefits in a controlled manner now, or wait for the system to collapse when the state has no money left?

As for medical insurance, I personally have no problem with going to a plan more like the old major medical plans, with higher deductibles and copayments, but such plans would work serious hardships for employees making less than $40,000 per year.

Whenever state employee numbers or compensation becomes a political issue, the General Assembly gets the temptation to cut staff levels so much that the agencies' ability to carry out public services is handicapped; and compensation to a point where state and local governments are no longer able to compete with private enterprise for the best people.

I am sure that these suggestions will not go down well with some of my peers; and certainly not with AFSCME or SEIU; but for the state, it's about the only place left to cut back without starting another round of staff reductions.

Then again, if Gov. Strickland and the General Assembly were to see the light on what the feds are doing to state governments, maybe we could ease the pain to both state employees and the taxpayers.

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