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Who will take over EGCC’s unfunded pension liabilities?

Dissolving a community college is not as simple as closing its doors, as the employees of Eastern Gateway Community College will soon find out. One of the big questions that deserves a near-immediate answer is “What happens to EGCC’s unfunded pension liabilities?”

Some EGCC employees currently participate in one of two different public pension plans: the State Teachers’ Retirement System (STRS) and the School Employees Retirement System (SERS). Each year, both EGCC employees and EGCC make contributions to these plans, both at minimum required levels.

Pensions are “defined benefit” retirement plans. They provide payments to qualified retirees based on a known formula. The defined benefit plan pays the monthly retirement benefit regardless of how much the employee and employer contributed for as long as the beneficiary lives. In Ohio, public pensions can – but don’t have to – provide health care benefits to their participants as well. From the outset, the cost of providing pension benefits is unknown.

The plan manages the plan’s assets based on assumptions that may or may not prove to be right. (One of those very basic assumptions is that participating institutions are going to continue to exist.) When plan managers estimate incorrectly, the pension plan may end up with more liabilities than it has assets to cover. When that happens, these “unfunded liabilities” get distributed to the participating institutions. Entities carry those liabilities on their books and may be called upon to pay additional funds into the pensions if necessary.

Right now, Ohio’s public pensions have only about 75%-80% of the money they need to cover their pension liabilities. EGCC may dissolve, but EGCC’s retirees and its employees who are vested in these plans aren’t going to dissolve. Pension plans depend upon ongoing payments to meet their obligations.

Unfunded pension liabilities represent promises

So, who is going to manage EGCC’s portion of its unfunded pension liabilities? As I wrote yesterday, fairly or not, Ohio law requires the county to take over EGCC’s debts. Does this include EGCC’s unfunded pension liabilities? If not, who has responsibility for these unfunded pension benefits, which may continue to grow for years or decades?

EGCC’s retirees, and its current and former employees who are vested in a public need to understand what their options and responsibilities are. They need to know who will be guaranteeing their current or future retirement benefits. The public also needs to know, because ultimately, the public will be responsible for making good on the state’s promise to its retirees.

The sad part here, of course, is that this could have been avoided if the EGCC trustees had just done their jobs. Community college trustees are given exceptional authority. EGCC demonstrates why it is absolutely necessary to hold trustees accountable for their decisions. In Ohio, community college trustees are appointed. People have no say in who makes decisions for their community colleges. In Michigan, we elect community college trustees, and we have the means to hold them accountable for their decisions.

Photo Credit: Marco Verch, via Flickr