Potential Ohio State Retirement System (STRS) Pension Change
Pensions were originally set up to reward loyal employees
for the fruits of their labor and were once viewed as guarantees. However, since the most recent economic
downturn, many pensions that were once viewed as invincible are now being
questioned about their solvency. Due to
uncertainties pensions are proposing dramatic changes that will impact current
and retired employees.
In particular, the State Teachers Retirement System of Ohio has
proposed several changes to insure they remain solvent. The current system allows for educators to
retire after 30 years of service with unreduced benefits, which they are
looking to increase the eligibility to retire without unreduced benefits to 35
years of service. They are also looking
to increase the employee and employer contributions to the system by 2.5% of
employees’ annual income, which employees currently contribute 10% towards STRS
and employers contribute 14% of employees’ annual income. Another possible change is to increase the
final average salary from the three highest years to the five highest years of
service. In addition, they are looking
to reduce the incentive for employees to work more than 30 years by making the
annual increase a flat 2.5% instead of increasing 1% thereafter, which
decreases the percentage to 78.5% from 88.5% with 35 years of service.
Additionally, they
are not only looking to change existing employees but possibly retired
employees. For example they are looking
to decrease the cost of living adjustment, which is currently 3% simple
inflation and they are looking to reduce it to 2% over a phase in period. In addition, even though health care has not
been discussed to be reduced or eliminated for retired employees, it is a
concern that many current and retired employees worry about since it is an
elective benefit.
These proposed changes are a reflection of the financial
stress on current pension plans. In
order for these systems to remain viable and solvent the systems are going to
have to make fundamental changes that will have a direct impact on current and
retired employees. Also, these systems
could pass part of the burden onto employers which may indirectly be passed off
to consumers or tax payers.