meanwhile, many of the public pensions are a time bomb. I was a public employee for a hot minute years ago and get an annual pension benefits statement. It is comical how 'rich' my payout will be for my minuscule tenure as a State employee. People wonder why 'Act 10' was such a big deal in WI for so many years, Unsustainable. ERISA applying to public pensions.....a little too late for that, I'm afraid.
This could be a thread all by itself but I'll dive in a bit here.
First I want to say a couple things:
A LOT of private sector folks complain about Public Sector Pensions and I get it but I can see both sides of this issue. When I graduated from Ohio State I had an offer from an Accounting Firm at about $35k/yr and an offer from the State at about $28k/yr. The major advantage of the State job was that it was in OPERS which meant (at the time) 30-and-out. To a 22 year old that meant a pension at age 52. I'm now 49 but they changed up the rules a few years ago so now I need 32 years AND a minimum age of 57. In retrospect . . .
It sucks when they change the rules on you midway. Ohio *should* have recognized and fixed their Pension issue decades ago and if they had, then back in 1997 I would have been able to make an accurate comparison between private and public sector work.
Some of the crazy things that used to exist in OPERS:
Until a few years ago you only had to make $250/mo in pensionable salary to earn a full month's credit. On top of that, your eventual pension benefit was based on your highest three years so if you earned $250/mo for 27 years at some PT gig (like City Council or once-a-month acting judge) then got an actual FT public job for a mere three years you got the same pension as if you'd worked 30 years as a FT employee.
Shortly after I got out of school I met a City Service Director at a nearby city who was in his early 40's and about to retire. He had started working for the City in the summer when he was 14. Then he worked at the Rec Center when school was in session and went back to FT/Seasonal employment in the summers. By the time he graduated from HS at 18 he already had four years of OPERS credit and then he worked FT for the City from HS Graduation on. He hit retirement eligibility at the ripe old age of . . . 44.
A few years ago Ohio made some changes to make the system more sustainable and realistic. These changes eliminated the worst of the pervious loopholes. Among them:
- Retirement is now based on the highest 5 years rather than 3
- There is an "anti-spiking" formula that is applied that effectively cracks down on the situation I described above where some PT employee for most of their career works FT for a few years at the end and retires with a full pension.
- There is now a minimum age so a guy like the Service Director in the example above can't retire until 57 rather than 44.
When Detroit went bankrupt a while back the real reason for the bankruptcy was their pensions. In Michigan, unlike Ohio, the pensions are handled locally. Thus, a retired Detroit Cop, Firefighter, or maintenance worker is covered by a pension owned and managed by the City of Detroit. On the contrary, a retired Cleveland Cop, Firefighter, or maintenance worker is covered by a pension owned and managed by the State of Ohio.
The Detroit bankruptcy caused some ripples so now local cities have to report unfunded pension liability. In the case of Ohio, the unfunded liability for the entire state is determined at the State level then that amount is divvied up among all the participants. For most Cities in Ohio this is by far the largest liability on their Financial Statements. That is odd since the local City has no control over it and it isn't really their liability but nonetheless that is how it is handled.
I absolutely do NOT think that it is too late to force ERISA compliance on Public Sector Pensions but there would obviously have to be a phase-in period. The same thing was done when private sector pensions were brought under ERISA. You could take 20 years:
- Year 1, Pension must be 5% funded
- Year 2, Pension must be 10% funded
- . . .
- Year 19, Pension must be 95% funded
- Year 20, Pension must be 100% funded
One carrot/stick at least for the states exempt from SS would be to make the exemption conditional on being fully funded.
The feds should do this and the sooner the better because eventually they are going to be asked to bail out irresponsible states like Illinois and California. That is going to be a political minefield. I sympathize with both sides:
- It isn't the fault of Chicago Cop that his state wasn't responsible enough to fund his pension and he legitimately earned that pension and should get it.
- OTOH, it isn't fair to the states that either don't have public pensions or managed them responsibly to take money from them to bail out states that managed theirs based on unicorns and ferries. Ie, my Ohio Taxes already paid to fund Ohio's Pensions, I shouldn't now have my Federal Taxes used to bail out Illinois' Pensions.
