STRS Ohio, the state faculty retirement system under which I live, sought to strengthen the financial standing of the retirement pension system without imposing any costs on the institutions. The proposal, under Governor John Kasich’s guidelines, was that all increases in funding and reductions in benefits would coming directly from the participants. Some of the highlights, according to the STRS, are the following:
- Member contributions from 2013 to 2016 will increase from 10 to 14 percent of salary, and stay there.
- One skipped Cost-of-living adjustment (COLA) for current retirees, and no COLA for future retirees (after 2023) until 5 years after retirement date
- Now need 35 years of service for full benefit
I have a humanities PhD, and in my particular situation a few details about how long, on average, it takes humanities PhDs to finish degrees are relevant.
- Earliest age to start PhD (21)
- Average time to PhD, 11.8 years
- Average age to achieve tenure, 39.5 years (pg. 12)
Assuming a 5- or 6-year tenure track appointment, most professors start working at a faculty position at approximately 34 or 35 years old. Supposing they start working in Ohio today, they must work 35 years before receiving full retirement benefits. If they retire at 70, they can receive full benefits with no cost-of-living adjustment for the first five years. And then, at ripe old age of 75, they can start receiving COLA adjustments.
I’m an English professor and not so good at math, but I’m beginning to realize that the real heavy lifting is not being done by any of this shaving around the edges: the actuarial tables that define life expectancy have real teeth. So here’s the key fact: life expectancy today in the United States, according to CDC, is 78.5 yrs. Eight years after retirement begins, you can expect, on average, to have received three cost-of-living adjustments—by then on average you can be expected to be dead.
Of course, individual lives may vary. Take mine. I started a PhD program late in life, at 33. I went through PhD program in a hurry, 4 years. After two years in a post-doc, I started a tenure-track position in Ohio at ripe old age of 39. And if tenure case goes well, I can hope to earn tenure at 45. By the time that I could retire with full benefits, I can expect to be 74. In the revised plan, I will contribute 11 percent of salary to retirement system for 7 years and an average of 14 percent of salary to STRS for 28 years. If my employer match contributes 14 percent for 35 years total contributions between myself and employer will be about 10 times my average salary. So I’m pretty close to the ideal employee for the new benefit regime in Ohio. Under this reform it is now reasonable to suppose I and my employer will make more in contributions than I will receive in benefits, because I’m almost guaranteed be dead before the break-even point. Since I can be expected to die within 4.8 years or reaching retirement age, there’s little doubt that I will be contribute more into the system (in real dollars) that I will receive from it. I’m just guessing, but I suspect I could expect the same results if I could opt out (I cannot) and put my annual contribution in a safe deposit box. There is one caveat here. Should I die well under average number of years, a degree of financial protection will extend to my spouse.
Meanwhile, my Ohio treasurer refers one to some exorbitant estimates of Ohio’s liability. When Buckeye Institute is accessed from the Ohio Treasurer site, it offers a projection of pension liability for me. You can look me and my salary up. According to their estimate, the estimated liability for me is $783,000. How do they get that figure? Well, they assume a lifetime expectancy of 18 years in retirement. That will be correct should I live until 92, 14 years longer than actual life expectancy for me. They calculate how much higher Ohio pension estimates are than Social Security by assuming person could retire at 65 for social security but will retire with big fat pension instead at 60. In other words, Buckeye Institute just makes shit up to over-inflate the projected pension liability.
Currently, employees have a choice at time of hire whether to join the STRS defined-benefit or a 401k-style defined contribution system. If we assume future faculty hires can do math, anyone who starts working after age 38, most folks with PhDs, will have to make a choice. The math in favor of defined benefit was reasonably close when I started. One was taking a guess about market performance. The changed after I was locked into system.
Provided that Ohio limits new hiring and provides an opt-out choice to all future employees, I suspect that the defined-benefit plan will be dead within two decades–unless the next generation of employees is filled with do-good liberals who would be happy to harm their own persons. The main factor redefining STRS pension plan is mostly silent, life expectancy: the most recently enacted pension reform has almost without question destroyed the Ohio pension system for public employees. I’m inclined to believe that reduced faculty hiring and diminished pension benefit will kill it.
I’m not a trained actuary. I’m an English major. But that’s what the writing on the wall looks like from my perspective. That’s why I think of pension reform as the death benefit. I’ve a fairly good chance to die before I could benefit, which is now the plan for Ohio pension reform, I suppose.