Public Pensions are not the Same as Multiemployer Pensions

If you follow Ohio politics closely, you’ve probably seen Ohio senators Sherrod Brown and Rob Portman talking about the need to financially stabilize private multiemployer pension funds. Both Ohio senators serve on the Join Select Committee on Solvency of Multiemployer Pension Plans because nearly 50,000 Ohioans, both working and retired, could lose their private pensions if the worst-funded multiemployer plans run out of money.

While multiemployer pension plans are defined benefit plans like SERS, meaning both are structured to provide lifetime retirement benefits based on age and service, the membership composition, funding, and operation of these plans are significantly different. Public pension plans cover public employees who work for taxpayer funded public employers like schools, government agencies, and public safety, while multiemployer plans cover private sector employees who work for private businesses that provide services like trucking, delivery, skilled trades, and construction.

In many cases, multiemployer plans were created by groups of businesses that employed workers in similar fields and labor unions that supported those workers.

Even though the majority of the approximately 1,400 multiemployer plans are financially solvent, it is estimated that 50-100 could run out of money to pay retirement benefits within 10 years. The reasons for these failures include the loss of employers due to bankruptcies and closures, more retirements and fewer jobs being created in these service industries, lax regulatory oversight of funding and employer withdrawal liability rules, and investment losses of fund resources due to recent economic downturns.

To further complicate the multiemployer bankruptcy crisis is the reality that the Pension Benefit Guaranty Corporation (PBGC), the federal safety net in place to protect workers from losing all of their retirement benefits due to a failed pension plan, could also run out of money in six years. If that happens, workers in failed multiemployer plans will lose all of their retirement benefits.

In contrast, Ohio’s public pension plans are subject to extensive internal and external oversight of their financial operations to prevent a bankruptcy scenario similar to the one multiemployer plans are experiencing. Even though SERS meets all state requirements for funding, the Board has made it a priority to further improve the plan’s funded status. Recently, the Board has changed the way cost-of-living adjustments are calculated and approved a funding policy that dedicates more money to pay off unfunded liabilities until funding reaches certain levels.

The Board’s sustainability initiative is also designed to make sure the benefits SERS provides – pensions, health care, disability, survivor benefits, death benefits, etc. – are still working as they should in relation to the current demographics of the membership. They are also looking for operational efficiencies that could benefit the System financially and monitoring membership and retirement trends that could impact the future financial stability of the System.

Pension systems require regular oversight and maintenance to remain financially solvent and SERS is meeting that challenge.

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