The Ohio General Assembly is set to vote today to require police officers and firefighters to pay more for their pension, require many public employees to work more years to qualify for full pension benefits and limit cost-of-living increases. But despite that, the major unions support the legislation. And the process has been remarkably free from controversy and partisan bickering.
Most public employees in Stark County will have to work more years to qualify for pension benefits.
By 2015, most police officers and firefighters will have to contribute an additional 2.25 percent of their pay for their pensions.
And most government workers today — unlike current retirees — won’t get annual automatic 3 percent cost-of-living increases in their retirement benefits.
The Ohio General Assembly is expected to vote today to approve these and several other major changes to take effect Jan. 7 for the five pension systems for all state and local public employees.
And in contrast to the rancor last year over Senate Bill 5, legislators are expected to approve the five pension bills by large bipartisan majorities, with the blessing of the unions.
Unions say they’re backing the bills because they fear if they don’t, their members will lose far more in the long term— health insurance coverage in retirement, which the systems aren’t legally required to provide, and possibly the pension benefits. And at least, many retirees and those close to retiring generally will not be affected by the changes, with the exception of cuts in cost-of-living increases and health insurance
Union officials said they’ve analyzed the pension systems’ finances and have confirmed the systems’ claims that under current rules, they will be unable to pay all their pension obligations for the state-mandated 30 years and offer health insurance coverage. Retirees, many of them Baby Boomers, are living longer than past retirees. The pension funds’ investment returns, especially during the 2008 financial crisis, have been disappointing. Contributions have declined or been flat due to layoffs of government workers and workers not getting raises.
And the cost of providing health insurance for retirees and their families have skyrocketed.
“Tough choices have to be made,” said the American Federation of State, County, Municipal Employees Council 8’s political legislative director Robert Davis. “It’s not an easy pill to swallow, but we’re willing to swallow it to sustain a pension system.”
“There’s going to be sacrifices that are going to be made to keep these systems healthy,” said Mike Weinman, the director of government affairs for the Ohio Fraternal Order of Police. “Historically, police officers would retire and they would be dead within four to five years. It’s not happening anymore.”
He said the FOP endorsed the bills in response to a movement among some state legislators to convert the pension systems to a defined contribution system similar to a 401-K plan.
Mark Drum, the state secretary of the Ohio FOP, said without the changes, the Ohio Police and Fire Pension Fund would be unable to pay for health benefits for retirees after 10 years. Health insurance coverage would survive only a few more years for retirees under the Ohio Public Employees Retirement System, he said.
Page 2 of 5 - “Our concern is if legislation wasn’t passed by the end of 2012, it would affect our ability to offer health care,” said Ohio PERS spokeswoman Julie Graham-Price. “And we’d have to terminate two-thirds of the benefits we currently offer.”
PERS says last year it paid $116.5 million in pension benefits and $49.6 million to cover health care costs for 4,707 retirees and beneficiaries in Stark County. More than 9,500 Stark residents paid $41.4 million into PERS.
NOT UNANIMOUS SUPPORT
Bill Adams, the president of the Canton Police Patrolman’s Association, objected to the legislation because Canton police officers by 2015 will have to contribute 12.25 percent of their pay to the Police and Fire Pension Fund, up from the current 10 percent. He said he understands the fund has to be revamped, but he said employers, such as Canton, should shoulder some of the increase.
“I don’t think that it’s fair that it has to be on the backs of the employees,” said Adams. “The employer is bearing no responsibility for this whatsoever.”
Bill Estabrook, the executive director of the Ohio Police and Fire Pension Fund, said legislators would never support an increase in the share for local governments because they believe it would result in higher local taxes.
The bill also bases benefits on an average of five years of pay rather than the current three for many employees, which Adams said will result in lower benefits because an officer may work a lot of overtime shifts in three years.
Adams also dislikes provisions that could allow the fund’s board to increase the contribution rate or change age and service time requirements in 2017 if it’s fiscally justifiable without the approval of the General Assembly.
State Rep. Kirk Schuring, R-Jackson Township, said the effective date of the provisions has been delayed until July. He said that will allow the Ohio Retirement Study Council to recommend by then a fair process by which the board can make those changes.
Bill Dieffenbaugher, the president of AFSCME Local 2937, which represents 293 Canton street workers, sanitation workers and water reclamation workers, says his members haven’t been that concerned about the changes to PERS. Attendance at informational meetings has been sparse. They’re more concerned that PERS may eliminate health care coverage for spouses of retirees.
However, the provision in one bill that locks in a 3-percent annual cost-of-living increase for those in PERS who retire before Jan. 7 has sparked concern among Stark County officials. That’s because it provides many public workers, especially those with the highest salaries, the incentive to retire this year. For those who retire after Jan. 7, the increase, starting in 2019, would be tied to the Consumer Price Index, and it could not exceed three percent.
Stark County Auditor Alan Harold said the county has about 400 employees eligible to retire with full pension benefits. If they all do, the county would have to immediately pay them their accrued vacation and sick time benefits, which could cost $2 million to $4 million.
Page 3 of 5 - However, Graham-Price said if PERS decides this year to eliminate health care coverage for retirees’ spouses by 2015, it would provide a disincentive for many employees to retire.
ROAD TO OVERHAUL
Starting in 2007, the pension systems began lobbying the Ohio General Assembly to allow them to change contribution rates and eligibility requirements to put them on the path to sustainability. But the legislature procrastinated on dealing with this potentially politically volatile issue. PERS claims that the delay cost it $1 million a day, and the Police and Fire fund claims the delay cost it $2 million a day in lost potential investment gains.
In January 2011, Ohio House Speaker William G. Batchelder, R-Medina, appointed Schuring to chair the Health and Aging Subcommittee on Retirement and Pensions and oversee the pension overhaul legislation. The pension systems convinced the State Senate to adopt their proposed pension bills in May, but Schuring refused to be rushed, saying legislators needed a second opinion from an actuary, who didn’t complete his analysis until July.
“I’m not procrastinating,” Schuring said in April. “I’m very methodical on how I do things.”
In the end, the actuary endorsed the bulk of the systems’ proposals. Schuring then held several hearings on the bills in August and this month.
Schuring's subcommittee and the full House Health and Aging Committee unanimously approved the pension bills on Monday, sending them to the House floor.
“There might be short-term pain, but in the long term it’s going to assure the systems are solvent and retirees are getting their benefits,” Schuring said.
Pension Changes for Public Employees
Ohio PERS (which in Stark County has 9,518 contributing members and 4,707 receiving benefits), under Senate Bill 343
Public employees are divided into Group A, whose members will be eligible to retire in five years, Group B, whose members have worked 20 years and/or will be eligible to retire in 10 years. Group C is everyone else.
Currently, those with 30 years of service credit or are age 65 or older with five years of service time are eligible for full benefits. Those with 25 years of service at age 55 or five years of service at age 60 can get reduced benefits. This doesn’t change for Group A employees. To get full benefits, Group B members have to have 32 years of service, 31 years of service by age 52 or five years of service by age 66. The requirements for reduced benefits doesn’t change for Group B. Everyone else needs 32 years of service at age 55 or five years of service at age 67 to get full benefits and 25 years of service at age 57 or five years of service at age 62.
Page 4 of 5 -
Law enforcement officers in PERS, such as Stark County deputies, now qualify for full benefits with 25 years of service at age 48 or 15 years of service at age 62. For Group B, the age requirements are bumped up by two years to ages 50 and 64. For Group C, the age requirements are ages 52 and 64.
Public safety officers in PERS now qualify for full benefits with 25 years of service at age 52 or 15 years of service at age 62 and reduced benefits with 25 years of service at age 48. For Group B, the bill bumps higher the age requirements to ages 54 and 64. For everyone else, it’s ages 56 and 64. The required age for reduced benefits climbs to 52.
For Group C, benefits are based on the average of the highest five years of salary, a change from the current three.
Those retiring before Jan. 7 keep the current, guaranteed 3 percent increase a year in benefits. For those who do not, after January 2019, retirees get only an increase in the consumer price index up to 3 percent.
Starting in 2014, service credit can only be earned if $600 was earned in a month, an increase from $250.
Ohio Police and Fire Pension Fund under Senate Bill 340
Current employee contribution is 10 percent of pay. That increases to 10.75 percent in July, 11.5 percent in July 2014 and 12.25 percent in July 2015.
Currently, members qualify for full benefits with 25 years of service at age 48 or 15 years of service at age 62. For those hired after July, you need 25 years of service at age 52 or 15 years at age 62. Before members couldn’t apply for reduced benefits. Now they can apply at 25 years of service at age 48.
Those with less than 15 years of service by July will earn benefits based on the average of the highest five years of salary, an increase from the current three years.
Retirees, except for those who are totally disabled, will get no cost-of-living increases until they’re age 55 and have gotten benefits for at least one year. Those with at least 15 years of service by July get the automatic 3 percent increase in retirement. Others will get an annual increase tied to the consumer price index that can’t exceed 3 percent.
Page 5 of 5 - Source: Ohio Legislative Service Commission
(An article Thursday will look at the revamping of the State Teachers Retirement System of Ohio and School Employees Retirement System of Ohio under Senate Bills 341 and 342. The legislation also overhauled the State Highway Patrol Retirement System under Senate Bill 345).