Damschroder | How to protect your state pension

“What can we do?” The question hung in the air, voiced with emotion ranging from curiosity to anger when I met last week with members of Sandusky County PERI (Public Employee Retirees, Inc.). Local public employee retirees wanted more detail on the multiple columns I have written in this space detailing the high fees their pension administrators are paying and the low returns on investment they are accepting. They wanted to take my measure and see why I dispute the claims of strong pensions made in rebuttals to my columns by leaders of three Ohio public pension funds.

The retirees badly want to believe their pension leaders, but they all realize the Ohio public workforce is now paying more into the retirement system for benefits that are less generous than they were several years ago. Good old Sandusky County common sense tells them multi-billion dollar benefit cuts and contribution increases that add billions to the investment pool over the years are not indications of financial strength.

If Sandusky County PERI members doubt the claims from Columbus that the pension system is “rock solid,” what can this small group do? Here are four suggestions:

1. Know the Numbers: The facts revealed in the very recent Ohio Comprehensive Annual Financial Report (CAFR) provide the basis to ask tough questions. The 2016 CAFR shows all Ohio public pension funds ended fiscal 2016 with less money than they started with in fiscal 2015. The Ohio pension funds went from $194.2 billion to $185.1 billion in a year. Because two-thirds of the money to pay the retirement benefits to future generations of PERI members must be generated by earnings on investments, this is a signal that Ohio leaders are misrepresenting the financial status of Ohio’s pensions. The state’s required accounting shows the unfunded liability for these pensions increased by 40 percent in 2016, while pensions leaders were proclaiming their financial strength in columns and letters submitted to The News-Messenger.

2. Know the Implications: Ohio’s pensions assume that the massive power of compound interest will work for their members and provide the funds to secure their retirement. But anyone who’s ever carried a credit card balance knows compound interest can work against you, too. Ohio’s market-lagging investment returns are falling way behind the future obligation that is incurred each year, meaning despite contribution increases and benefit cuts, the gap is growing — fast.

3. Know the Risks: Ohio pension funds are quick to tell you the big number on the dollars they control and the dollars they pay. The funds are huge — combined they total more than 30 percent of Ohio gross state product. The $15 billion they paid in benefits last year carries the same impact as a payroll for that amount would, but if the money pipeline should run dry the people collecting the pensions have little chance of replacing the dollars by getting a job. Ohio’s pensions are shifting quickly out of hedge funds, eliminating $20 billion from that asset category, but the pensions have more than $22 billion in real estate and more than $19 billion in venture capital. A recent change by the Government Accounting Standards Board GASB-72 requires the state to shine some light on the dark alternative investment values, and the early results are brutal. Ohio shows real estate assets with a fair market value of $9.2 billion that are valued at only $1.2 billion in the active market for identical assets, causing Ohio to declare $8 billion in real estate value that is based on significant unobservable inputs. Venture capital investments with a fair market price of $1.4 billion show $794 million of unobservable inputs, as quoted prices for identical assets are valued at just $657 million. Reading between the lines, Ohio has huge dollars invested in assets that are currently worth less than the original purchase price.

4. Hold Leaders Accountable: The people who hold top positions in Ohio’s retirement funds and the political leaders who are responsible for all of the operational parameters of these funds are misleading PERI members about the funds' status and results of their stewardship. Strong pensions don’t cut benefits and increase contributions when they are meeting investment return objectives. Ohio’s retirement funds have increased their risks and decreased their returns which would normally be cause for immediate termination.

If Urban Meyer turned in the results Ohio retirement fund leadership has posted, Buckeye fans would run him out of town. PERI members should be just as tough on the people managing the largest pool of public money in all of Ohio.

John Damschroder, a Fremont native who worked in Gov. George Voinovich’s administration, writes about business and economic development in Sandusky County.