How well are Ohio public pensions funded?

Cities and states across the country have been in the news lately for pensions on the brink of bankruptcy. Because of a new rule implemented last year, state and local governments now have to report their full pension debt on their balance sheets. The Chicago-based nonprofit Truth in Accounting (TIA) recently surveyed 237 municipal pension plans across the country, in addition to state pension systems in all 50 states, and found disturbing news based on the data being reported for 2015. How do Ohio’s state and local pensions stack up?

The organization points out in their annual “Financial State of the State” report that because of the new accounting rule, Ohio’s “reported pension debt grew from $28.2 million in 2014 to $5 billion in 2015. However, the state is still hiding $3.5 billion of pension debt from taxpayers.” Overall, Ohio has only $48.2 billion of assets available to pay its bills, which total $67.3 billion. This has resulted in a taxpayer burden of -$5,000, ranking Ohio 25th out of the 50 states in taxpayer debt.

The new pension data show that the Ohio state retirement systems are on average 82 percent funded, earning them a C grade. The retirement system in Ohio “with the largest amount of promised benefits is the State Teachers Retirement System. In the private sector this system's funding status would be considered "endangered" because it has less than 73 cents set aside to pay for every dollar of pension benefits promised.” The Cincinnati Retirement System is much worse at only 52 percent funded, with only $1.5 billion of assets on hand to pay for $2.9 billion in promised benefits. It received a grade of D. (For a full explanation of the SDL grading scale see its pension methodology).

Thanks to the new reporting rules, the truth is coming out about how states have been underreporting their future debt and not funding their pensions systems adequately. However, even the new reporting standard issued by GASB does not require the cost of promised retiree health care benefits to be reported. TIA’s study found 72 percent of these benefits were not included in 2015 reports. This could be compared to someone putting aside money to pay the mortgage, but not enough to pay credit card bills as well.

The newly collected data from TIA are available at its State Data Lab (SDL) where you can search by state for statistics on state and local pensions, which are graded from A to F based on how well-funded they are. Terry Savage noted recently in an article in the Huffington Post, that of the 237 plans studied for the 100 largest cities in the country, “29 received an ‘F’ grade, reflecting a funding ratio of less than 35 percent. Those plans cover many thousands of workers who cannot possibly be paid their full promised pensions, absent a huge tax increase (which would also come out of their pockets as workers).”

Cincinnati ‘s underfunded pension system is bad, but not quite as bad as some in other large cities. The city of Chicago has the highest unfunded pension liabilities in the country at $62 billion and is less than 35 percent funded. When state or local funds cannot meet their pension obligations, there is no backstop, such as private companies have in the Pension Benefit Guaranty Corporation, which pays out a percentage of promised pension payments if a company goes bankrupt. If the states’ government pension systems can’t pay their bills, taxpayers are on the hook--including the pensioners who are owed benefits.