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Published: Sunday, 1/10/2010

Curb pension costs

Many private-sector workers, in Toledo and across Ohio, have watched the value of their retirement plans plummet because of the dismal economy. As taxpayers, they are suffering the effects of cutbacks by deficit-plagued state and local governments, layoffs of teachers and other public employees, and higher taxes in return for eroded public services.

So the suggestion that they should pay even more to subsidize rapidly growing costs of pension and health care benefits for retired public employees, now and in the future, is not likely to attract a sympathetic hearing. Unless public employers and officials begin today to curb the costs of their pension systems, those expenses are likely to divert money from essential services or require ruinous tax hikes. A big, quick rebound in the stock market and broader economy that would bail out public systems just isn't in the cards.

An investigation of the state's pension policies by The Blade and other Ohio newspapers concludes that state taxpayers face a bill of as much as $768 million by 2013 to cover increased pension expenses for government retirees. By that year, the total cost to taxpayers of public pensions is projected at $4.75 billion -- more than $400 for every man, woman and child in Ohio.

The old trade-off was that public employees accepted lower pay than they could command in private jobs in return for more-generous benefits. But that pay disparity is mostly gone.

It's unrealistic to contemplate cutting pension benefits for current retirees, especially since government retirees in Ohio do not collect Social Security. Even though politicians and public employers often made lavish pension commitments in far better times than these, those promises must be kept.

Similarly, although no state law or contract mandates health benefits for retired public employees, taking away such coverage in these hard times would be cruel.

But public employers can - and must - look at strategies, however politically painful, to contain future pension costs. It surely should not be unthinkable that public agencies look at converting "defined benefit" plans for employees, which guarantee a fixed level of benefits however calamitous the economy, to the same kind of "defined contribution" plans, such as 401(k) accounts, that now cover most private-sector workers. Of course, public employee unions and their political allies would resist such a debate.

Still, even some unions that defend the current system propose such things as requiring workers to contribute more to their pension plans and raising the age at which they can retire with full benefits. Those measures are worth exploring.

At the same time, there must be reasonable limits, if not an outright ban, on "double dipping" - the ability of some employees to collect full pensions from previous public jobs while they continue to work in the public sector.

The Toledo City Council and Mayor Mike Bell need to revisit the agreement the city made in the 1990s to pick up, and shift to taxpayers, pension costs previously borne by municipal workers. As the city confronts a projected $40 million budget deficit, this year's $13.9 million cost to taxpayers of the pension pickup seems an expense the city no longer can afford.

Advocates of the current system assert that retired public employees, generally middle-class, invest their benefit payments in Ohio's economy. But when those payments are largely based on involuntary transfers, through taxes, from working-class and low-income households and hard-pressed private-sector retirees, the case for maintaining the status quo is less compelling.

No area of government spending can be considered sacrosanct. Public pensions will have to become less generous, as private pensions already have. The only question now is whether that process will be orderly or destructive.



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