By Jon Cassidy | Ohio Watchdog
COLUMBUS — Local governments statewide would need to increase their pension contributions for police and firefighters by more than 50 percent if they ever hope to pay off $7.3 billion in debts that threaten the solvency of the public safety retirement system.
The amount they’re paying toward those debts would need to quintuple to get the municipalities back on track, according to a new study.
However, local governments do not have the authority to set pension contribution rates, which state law has set at 19.5 percent for police officers and 24 percent for firefighters. That percentage is a surcharge on salary that employers must pay into the Ohio Police & Fire Pension Fund.
According to a report presented to the Ohio Retirement Study Council last month by three independent actuaries, almost the entire contribution goes to cover health care and the eventual cost of the benefits earned in a given year. That leaves a contribution of just 2.55 percent going toward $7.3 billion in unfunded liability for pensions and retiree health care.
At that rate, the debt would be paid off … never, according to the actuaries at KMS and Pension Trustee Advisors.
“Since 2003, the OP&F funding period has been infinite, meaning at the current contribution rates, the system would not be able to pay off its unfunded liability,” the actuaries wrote. “The true 30-year amortization cost would be 14.15 (percent) of pay for amortizing the unfunded liability.”
Repaying the debt on a 30-year schedule would bring the employer contribution rate to 33.2 percent for both police and fire (with employees kicking in another 10 percent). Sound accounting would set a repayment schedule of 12 to 15 years.
Statewide, Ohio has some $87 billion in unfunded liability growing at an annual rate of around 8 percent. Like other debt, pension debt can cause insolvency if allowed to spiral out of control. Unlike other states, where taxpayers bear all the burden, public workers in Ohio would pay some of the price if retirement systems collapse, according to the report.
The OP&F Pension Fund has current liabilities of $15.4 billion against assets of $10.7 billion, although the figure is somewhat misleading, as the pension funds still haven’t fully written off their losses from the 2008 market collapse.
OP&F also has assets of $717 million against liabilities of $2.6 billion in its retiree health care fund.
That harsh reality hasn’t impressed the directors of OP&F and the Ohio Highway Patrol Retirement System, both of whom told a hearing of the Ohio House Health and Aging Subcommittee on Retirement and Pensions that retirement ages for public safety workers shouldn’t be raised from 52 to 57.
“The Board of Trustees continues to firmly believe that 52 is a reasonable minimum retirement age,” said William Estabrook, director of the OP&F Pension Fund, in a statement quoted by The Columbus Dispatch. “To increase the minimum age any further would dangerously test the ability of our members to perform their jobs. Being a police officer or firefighter remains physically and mentally demanding and requires extreme tolerance, physical exposure and agility.”
Under a plan awaiting approval by the state Assembly, police employer contribution rates would increase from 19.5 percent to 24 percent, and employee contributions would go up to 12.25 percent. A controversial program that provides public safety retirees with lump sum million-dollar payouts would be discontinued for new hires.
Those changes would reduce pension costs by around 7 percent; they need to be cut by 12 percent to get the fund on a 30-year path to solvency, according to the report.