The Patriot Corner

For the last several months, the State of Ohio has been torn apart by discussion of SB5. Many of you are probably asking yourselves why it has been such a big issue. The answers to that question are many, the smokescreen of misinformation that has been widely spread on the issue has been difficult to navigate through and the passions on both sides are running at a fever pitch. I would urge each of you to look carefully at the facts before casting your vote and not be misled by advertising on either side. If you believe in smaller, less intrusive government, you will most likely vote for issue 2, otherwise, you won’t.

One issue that has not been discussed thoroughly during this debate is the issue of pension plans. This is a hidden cost to taxpayers that potentially could be reduced by voting for Issue 2. Most public sector employees in Ohio are covered under PERS or a similar defined benefits plan. The majority of private sector employees have had some type of defined contribution plan for many years if they have had any plan at all. So what’s the difference? Defined benefit plans, as the name implies, tell you how much you will receive each year. Defined contribution plans do not. The differences over a few years can be quite significant. Let’s look at a real world example and see what the difference really is.

So let’s take an employee, call her Ms. X. Our Ms. X worked for 31 years and 10 months and contributed a total amount of $27,968 towards her retirement at age 58. Under the defined benefit plan that Ms. X worked under, she receives an annual pension of $95,839. This pension also includes a 2.5 percent annual inflation rider but we won’t use that in our calculations.

Calculating the same level of contribution under a defined contribution plan payable as an immediate annuity at the time of retirement, the number is significantly less. The value of the investment, accounting for an 8 percent annual rate of return, would be $111,258. This would be distributed using a standard mortality table at the rate of $7,116 annually.  Quite a difference in annual distribution, isn’t it?

So let’s assume Ms X lives for 20 years after retirement. With a defined benefits plan, the payout would be $1,916,780. Under the defined contributions plan it would be $142,320. The difference is an unfunded liability of $1,774,660 for one employee. Multiply this type of scenario across the many thousands of employees that are and have been covered under the public sector employee defined benefit pension plans. Is it any wonder why the City, County and State are headed to bankruptcy? This is an unsustainable system and needs to be corrected immediately or we are all going to suffer the consequences.

For this and many other reasons, I believe Issue 2 is a good tool that will help us begin to restore sanity to our government by giving us an opportunity to control some of these costs. I hope you will join me in voting Yes on Issue 2.