On the subject of Pension Plans where it is "too late" to use
@847badgerfan 's words:
The article that he linked suggested that funding of <40% is basically destined to insolvency. That seems about right to me.
Using Ohio as the example simply because it is the one I am most familiar with, Ohio has multiple state-wide pension plans:
- STRS, State Teachers Retirement System is for certified employees of Ohio's Schools.
- SERS, School Employees Retirement System is for non-certified employees of Ohio's Schools. This includes relatively low-pay janitorial staff and maintenance but also some higher paid non-education employees like School Treasurers, Business Managers, Legal Counsel, etc.
- OPF, Ohio Police and Fire is for Police and FT firemen*.
- OHPRS, Ohio Highway Patrol Retirement System for members of Ohio's Highway Patrol (this is by far the smallest)
- OPERS, Ohio Public Employees Retirement System, this is the catch-all. Membership is literally statutorily defined as any public employee in Ohio who is not covered by one of the other four nor specifically exempted is required to be in OPERS.
OPERS is around 70-80% funded depending on who you ask. If ERISA suddenly applied to OPERS with a reasonable phase-in (such as what I outlined) it wouldn't be catastrophic. Current contributions are:
- 14% employer
- 10% employee
- 24% total
According to Moody's, the "tread water contribution" would be a little under 30%. So if OPERS had to be fully funded in 36 years, they could probably raise the contributions by 3% each (employee and employer) and tweak the benefits a little and get there. That would increase payroll costs for all of Ohio's Cities, Counties, Townships, Park Districts, Transit Authorities, Housing Authorities, etc by about 3%. As per above, that is an increase that we'd feel but it wouldn't be completely catastrophic.
Where you run into trouble is in a systems like (from
@847badgerfan 's link):
- 18.8% funded, Chicago Fire
- 20.7% Chicago Municipal
- 21.7% Kentucky State Employees
- 25.5% Chicago Police
- 30.1% New Jersey State Employees
- 32% Arizona Elected Officials
- 32.9% New Jersey State Police, Fire
- 36.4% Indiana Teachers (pre-1996)
- 39.3% New Jersey Teachers
- 39.9% Chicago Laborers
I think the problem here is that in order to solve the problem you would have to enact humongous increases in contributions, not 3% like my estimate for OPERS above but probably on order of magnitude larger. At that point you are likely to create a downward spiral. Allow me to explain:
In my City one of the functions that public employees handle is trash collection. The City owns the Trash trucks and the guys who drive the trucks and sling the trash are Municipal Employees and thus covered by OPERS. We are continually asked about privatizing. Ideologically we have some on the right who basically always think we should privatize and some on the left who basically think we should never privatize. I'm a pragmatist in the middle. At the present time I'm opposed to privatizing and I've more-or-less led the opposition to several privatization efforts because our trash rates are LOWER than several surrounding Cities that have private trash haulers. I'm opposed to privatization but my opposition is conditioned on our public employees being able to do the job cheaper or at least for a rate competitive with private haulers. If the City contribution to OPERS increased to 17% instead of 14% it would only minimally impact that calculation. However, if the City contribution to OPERS suddenly increased to 44% then it would instantly become MUCH cheaper to contract out Trash Hauling. For that matter, a whole lot of what my City does would be cheaper to contract out if OPERS contributions went up by 30%.
That downward spiral is because if your 30% increase pushes half of your workforce out of the system then you need EVEN HIGHER contributions from the remaining workers to balance the books.
I obviously haven't gone to the effort to calculate things exactly but my assumption is that for plans in the 40-60% funding range, this would be difficult but probably attainable so long as you had a sufficiently long phase-in period. That is why I suggested 36 years above. For plans above 60% funding, they'd be fine, just normal-ish increases. For plans below 40% funding, they realistically couldn't fix the problem with contribution increases. They would have to be bailed out by the State/City/whatever or liquidated.
*If you want to know, I'll explain it.
