Some recent proposals in the Ohio General assembly suggested that Ohio move toward defined contribution plans and away from defined benefit plans similar to STRS. The fact that these discussions were not successful does not make them less dangerous to the retirement future of educators and all public employees. These proposals will undoubtedly return because they offer significant cost savings to the state and the pension plans at the expense of educators and other public employees.
In the broadest terms, a defined BENEFIT plan promises a specific benefit at the beginning of the employees retirement. STRS is primarily a defined benefit plan. You put your money and while you're working and you receive a retirement benefit based on your earnings at the end of your career. The custodian is responsible for assuring that sufficient funds are available to pay the benefits promised under the plan.
A defined CONTRIBUTION plan defines rules under which you will contribute to the plan and you accept the value of your account at the beginning of your retirement. The custodian is only required to assure that the contributions are made and has no responsibility for investing the funds wisely or assuring that sufficient funds are available for a secure retirement.
The custodian of a defined contribution plan has no responsibility for paying specific benefits. This shifts all the investment risk from the plan custodian to the individual members. It also shortens the investment time frame from an institutional scale to an individual scale. For instance, when a defined BENEFIT plan suffers significant losses similar to those suffered by STRS in the past several years, it is possible for it to allow its members to retire on schedule and to continue to pay benefits while it attempts to recover the losses. If a defined CONTRIBUTION plan were to suffer similar losses members’ retirement plans would be significantly altered. Benefits available would be reduced to the point that retirements would be delayed if they were possible at all. Members who were planning to retire this year might be forced to work another 5 or 10 years by the financial situation in which they would find themselves.
