Kasich and other supporters of Senate Bill 5/Issue 2 claim that it gives local communities the tools they need to control costs. They like to use the banning of pension pick-ups as an example, primarily because this is one of the few parts of the bill that tends to poll well.
Politifact does a good job of describing pension pick-ups:
Many public workers contribute 10 percent of their salary toward their pension while the employer contributes 14 percent of the a worker’s salary. Some unions, however, have negotiated deals where the employer pays a portion of the employee contribution. If an employer agreed to pay 2 percent of the worker share, for example, it would pay 16 percent of the worker’s salary and the worker would pay 8 percent.
Senate Bill 5 prohibits the practice, known as a “pension pick-up.”
Here’s the thing about pension pick-ups though: management tends to like this option while unions often don’t.
That’s because pension pick-ups provide managers an alternative to salary increases, which can add additional costs to already tight budgets. Paying an employee more in salary means the medicare contribution goes up along with the unemployment insurance costs. Picking up a portion of an employee’s pension doesn’t have this impact and can actually end up costing the employer less. In other words, pension-pickups are a useful tool used by local communities to help control their costs.
The Chillicothe Gazette highlighted some local examples in which mayors and local finance directors were happy and thankful to have the option to trade pension pick-ups for increased wages.
When one’s salary increases, so does everything else that is attached to salary. For the employer, that is unemployment insurance, Medicare and the employer’s pension contribution. For the employee, it’s Medicare, taxes and their pension contribution.
“If we had not done that (given a pension pickup), wages would have increased, and that could have hurt our bottom line,” said Dale Raines, budget and finance director for the city of Zanesville, which pays pickups for its unions. “So it’s kind of a wash.”
Employees still pocket more money. Though the base pay is the same, less is withheld from each paycheck.
It also might lead to a smaller pension down the line — if a wage increase was sacrificed, the final average salary and monthly pension check will be less. This is why the Ohio Education Association would prefer that, if given a choice, its union members take a raise instead of a pickup.
“It’s not something we encourage because it’s done in lieu of wage hike, and a wage hike would count toward final compensation,” said William Leibensperger, vice president of the Ohio OEA.
Mayor Joe Sulzer said some of the pickup was negotiated years ago, and additional pickup was given in recent years as a way to avoid costly salary increases.
“In a way, it’s cheaper than pay raises, because … the more they get paid, the more we have to pay into their pension,” Sulzer said.
He said when the city decided to agree to union negotiating strategies asking the city to pick up a portion of the employee share, they looked over the cost savings with City Auditor Bill Morrissey.
“We made the decision based on figures of savings provided by the auditor,” Sulzer said. “And when they retire, they get the same benefits as everyone else.”
Kasich and SB5’s other supporters claim the would-be-law offers local communities more options. They claim it gives local officials more tools to help manage their costs. And in their ads they tout the elimination of pension pick-ups as of their primary examples.
But many local officials – people who actually bargain with unions on behalf of these local communities – seem to think that pension pick-ups are actually important and useful when bargaining with public employee unions. Pension pick-ups are a tool that can often save local communities money.
And yet SB5 outright bans cities from using pension pick-ups as a way to control their costs.
Kasich claims SB5 provides local communities tools to control their costs when it actually takes many of these tools away, tying the hands of local officials, limiting their options and hurting their ability to control costs as they see fit.