Report: Ohio STRS a 'Ticking Time Bomb'

June 8, 2007 ( - An educational think tank has released a blisteringly critical report about the Ohio State Teacher Retirement System (STRS), saying the Buckeye State pension system 'faces immense and growing fiscal challenges" and needs an immediate overhaul.

Most worrisome, asserted researchers at the Thomas B. Fordham Institute, is the fact that the current system weakens efforts by school districts to recruit and retain high-quality teachers.

“Ohio’s teacher pension system is a ticking time bomb that, left unattended, will lead to harmful consequences for teachers, school districts, taxpayers and the state,” said Terry Ryan, the Fordham Institute’s vice president for Ohio programs & policy, in a news release. “Of particular concern is the negative impact that the present system already has on school districts’ ability to recruit and retain high-quality teachers. We hope this study prompts state officials to make the necessary reforms.”

Dr. Robert Costrell, professor of education reform and economics at the University of Arkansas and Dr. Michael Podgursky, professor of economics at the University of Missouri called for Buckeye State lawmakers to move the teachers from a defined benefit plan to either a cash balance or a defined contribution plan. Costrell and Podgursky were the study’s authors.

In their own news release , STRS officials fought back, offering responses to the detailed charges leveled by Fordham.

“STRS Ohio is far from obsolete in its pension plan design,” the STRS officials asserted. “In fact, STRS Ohio is one of only a few teacher pension plans in the country that offers three retirement plan options for its members — including a defined contribution plan that has been available to K-12 teachers and higher education faculty since 2001.”

STRS also pointed to data showing that more teachers are working longer – at least in part to be better able to cope with health care costs in retirement. In fiscal year 2006, more than 1,800 educators (32% of the 5,722 retirements) retired with 35 or more years of service.

Among the remaining Fordham allegations was that the STRS system is too expensive to be sustainable, facing $20 billion in unfunded liabilities. “These unfunded liabilities are commitments made to current and retired employees that the program’s current assets cannot cover,” Fordham claimed. The STRS officials said the fund was not seeking any contribution increase for the funding of its pension plan. The majority of STRS Ohio’s income – 75% – comes from investment earnings. Commented STRS: “…we anticipate that our funding period will be close to 30 years. The funded ratio should also improve. “

Meanwhile, Fordham also alleged that Ohio STRS was way too difficult for participants and beneficiaries to understand.

“It lacks transparency,” Fordham complained. “Ohio’s teacher pension system is remarkably complex and opaque. Relatively few people understand its intricacies, which have allowed the system to evolve into a costly and completely irrational structure in pension wealth accumulation that defy any logic with limited public awareness of how the system works and what the implications of its workings are over the long term.”

STRS Ohio responded that its structure was “very transparent.”

“Teachers are very clear on how their pension plan works and what to expect at each stage of their career,” the pension fund contended.

The Fordham report is available here .