The Blade Editorial: Pension bailout sought
The Toledo Blade
By Blade Editorial Board Oct 23, 2023 9:00 PM ET
The Ohio public pension funds, covering 2.28 million current and retired workers, are looking for an extra billion dollars a year from taxpayers. Ohio lawmakers who back that request without massive reforms in the pension systems richly deserve to hear “you’re fired” from voters. The state’s largest pension fund, the Ohio Public Employees Retirement System, is out for a 28.5 percent increase in contributions from employers. The State Teachers Retirement System seeks a 22.2 percent hike. The Ohio Police & Fire Pension Fund wants 26 percent more. Local governments and school systems get their money from taxpayers. If Ohio lawmakers support these pension contribution increases they are actually setting the stage for either big tax hikes or huge spending cuts for local cities, counties, and schools. Not so coincidentally, these funds sent nearly a billion dollars to Wall Street in asset management fees last year. The high investment costs haven’t produced for the pensions. Passive index investments would have outperformed the Ohio pension’s portfolio by more than 1 percent annually at a small fraction of the cost. But, using a low-cost index portfolio would not provide performance bonuses for the state pension investment staff and so unsurprisingly the pension funds resist that reform. Ohio’s pensions are so woefully managed they paid employees millions in performance bonuses on 2022 results that showed a combined fund loss of $32 billion. Because 30 percent of Ohio’s pension assets are in alternative investments valued by fund managers who provided assessments far out of step with public markets, the actual losses were almost certainly billions more. Ohio is one of just seven states where public employees do not pay into Social Security. The state pension funds are the sole means of retirement income for millions of Ohioans, so they must be shielded from the systemic failure of state management. Gov. Mike DeWine exhibited malpractice-level malfeasance as Attorney General in allowing legally required actuarial and fiduciary audits of the pension funds to extend years beyond their statutory deadline. When the OPERS fiduciary audit was conducted in 2019, it showed the pension paid alternative asset managers significantly higher fees than peer group pensions, adding $223.4 million a year to expenses. In disregard of Ohio law, the audit was done by Aon Hewitt, despite the fact that Aon Hewitt was also the OPERS alternative investment adviser, a clear conflict with the requirement for an “independent auditor.” Conveniently for Aon Hewitt and OPERS, there was no explanation for the excessive fees. Nor did the Ohio General Assembly or Governor DeWine make any effort to force an explanation or compliance with the law. Now the pensions need money and since the costs will come through local government and school districts the mismanagement by state government will not be easily connected to the spending cuts or tax hikes that result. In 2012, Ohio lawmakers and then-Gov. John Kasich made government workers pay more and work longer for their pensions. Now the only fair option is to seek more from local governments who are the employers and the local taxpayers. But this wouldn’t be an issue if the pensions matched the returns any consumer can get in a market index fund for a small management fee. Lawmakers dodged the key issue of high costs and low returns then and proposed legislation would do so again. Support for a pension solvency solution without major investment reform is ample reason to end the career of any politician who votes to make it happen.