December 9, 2005
WORK ON HEALTH CARE FUNDING PROPOSAL TO CONTINUE
During its December meeting, the Health Care Committee of the Retirement Board received a report of the results of the STRS Ohio and Health Care Advocates for STRS (HCA) Health Care Member Education and Engagement Campaign. This campaign had two goals: (1) educate active members about the economic realities of health care costs and (2) gauge support for a possible legislative initiative that would increase member and employer contributions to provide a dedicated revenue stream for the STRS Ohio Health Care Program.
During the past two months, more than 10,000 STRS Ohio members have been actively engaged in the campaign. A significant amount of data was collected and analyzed from the 7,100 postcard surveys, 595 online surveys and 713 meeting surveys returned to STRS Ohio. In addition, another 1,052 active members participated in telephone surveys. The data showed that the information shared by STRS Ohio and the HCA increased members¹ recognition of the need to save for health care. Secondly, member feedback indicated there is majority support for creating a dedicated revenue stream for health care through the increase of member and employer contributions over a five-year period.
Based on the results of the campaign, and with continued support by the membership represented by the HCA, the board committee instructed STRS Ohio staff to begin drafting a legislative proposal plus a plan for continued member education and engagement.
BOARD RECEIVES RESULTS OF ASSOCIATE COMPENSATION AND BENEFITS REVIEW
Earlier this year, the Retirement Board authorized the executive director to contract with Aon/McLagan to conduct a study to review and advise on the competitiveness of the compensation and benefits that STRS Ohio provides to its associates. The study was to provide an objective, third-party review of the system¹s total compensation and benefits package that is provided to recruit, motivate and retain associates.
In presenting the results of its study to the board during the December meeting, representatives from Aon/McLagan first explained the methodology behind their findings, noting the following data was used for comparison:
• Investment Associates -- 17 leading public pension funds and approximately 200 private sector financial service firms, plus a 50%/50% blend of the two benchmarks as a third point of reference.
• Non-Investment Associates -- Competitive compensation data from compensation studies that reflect pay rates for the Columbus area, plus national compensation pay rates with applied geographical differential.
• Benefits -- 10 central Ohio companies/organizations (50%/50% mix of public and private employers) plus national employee benefits surveys.
For STRS Ohio Investment associates, the desired pay positioning for total pay (salary plus Performance-Based Incentive [PBI] Awards) is the 25th percentile of private firms, while salaries should be at the 75th percentile of other leading public funds. The report showed that total pay for Investment associates actually falls:
• Below the 25th percentile of private sector firms;
• Approximates the 75th percentile of public funds; and
• Equals the 25th percentile of the public/private blend.
For STRS Ohio¹s nonInvestment associates, the desired pay positioning for total pay (salary only as non-Investment associates are ineligible for PBIs) is midway between the median and 75th percentile of the comparison groups.
The report showed that total pay for non-Investment associates approximates the market median. However, pay generally becomes less competitive for higher-level positions when compared to both base salaries and total cash compensation offered in the market.
STRS Ohio has also stated that it wants to maintain a strong benefits program, but not an industry-leading program. The report data shows that:
• The benefits program meets the desired positioning for all STRS Ohio associates. It falls between prevalent and above-average practices.
• The structure of the overall package of benefits is reasonably positioned and serves as an important anchor in the total compensation and benefits program.
At January¹s Retirement Board meeting, Aon/McLagan representatives will be present to review their recommendations in greater detail. The staff will also provide information about cost implications to the board.
BOARD AUTHORIZES PURCHASE OF NEW PENSION SYSTEM MANAGEMENT SOFTWARE
For the past 12 months, a team of associates from STRS Ohio¹s Information Technology Services, Member Benefits and Finance areas has focused its attention on the system¹s pension management computer system, known as Legacy. This system has been in existence for 12 years, but has become obsolescent, complex and increasingly expensive to operate. Consequently, it was determined that the best and most cost-effective solution for STRS Ohio was to replace the system. After extensive review and evaluation of several options, the staff recommended -- and the Retirement Board concurred -- that the Legacy system should be replaced with the Vitech V3 system. This system will manage all benefits processing and payments and employer payroll reporting for STRS Ohio, as well as the call tracking system that monitors STRS Ohio¹s Member Services Center and the electronic workflow system that is used to manage thousands of member documents. While upfront costs will be incurred by STRS Ohio to purchase and implement the Vitech V3 system over the next three years, it is expected that the system will ultimately result in less annual operating costs to STRS Ohio due to the need for fewer staff and outside consultants to support the system. Over the next three years, STRS Ohio will pay Vitech $13.2 million for the purchase of its software and implementation of the system. Up to an additional $6.3 million will be spent for additional project elements including hardware, other supportive software, maintenance fees and staff training. The new system will be up and running by October 2008.
NEW INTEREST RATE ADOPTED FOR ACCOUNT WITHDRAWALS
The Retirement Board approved changing the annual interest rate paid on member withdrawals to 2% for members with less than three years of service credit and to 3% for members with three or more years of service credit, effective Jan.1, 2006, through Dec. 31, 2006. These changes put STRS Ohio¹s rates more in line with market interest rates that have declined significantly since the percentage rates for member withdrawals were last changed in 1998.
RETIREMENT, INVESTMENT TRANSACTIONS APPROVED
The Retirement Board approved the following retirements and investment transactions:
• 24 disability retirements were granted.
• 71 active members were approved for service retirement; 60 inactive retirements were approved.
• In November, fixed-income purchases totaled $864.8 million, domestic equity purchases totaled $608.6 million and real estate purchases totaled $22.2 million.
ADDITIONAL ITEMS REPORTED AT THE MEETING BY EXECUTIVE DIRECTOR DAMON ASBURY
Retirement system legislation on committee schedule
H.B. 272 remains under review of the House Financial Institutions, Real Estate and Securities Committee as amendments to the bill are drafted. The bill had originally pertained solely to the Ohio Public Employees Retirement System. Once the committee adopts the amendments, the bill will contain provisions relating to all five public retirement systems. Changes being sought by STRS Ohio include administrative changes, as well as changes suggested by Ohio Retirement Study Council staff and approved by the Council relative to medical savings accounts and reemployed retiree health care. The bill is being sponsored by Rep. Michelle Schneider (R-Madiera).
Medical Mutual Health Advocacy Program Pilot discussed with HCA
Staff and representatives from the Health Care Advocates for STRS (HCA) met with Medical Mutual to discuss results of the first phases of the Health Advocacy Pilot, a wellness initiative underwritten by Medical Mutual. The pilot population includes about 1,600 STRS Ohio Medical Mutual enrollees who reside in Cuyahoga County. Using the combination of a health risk assessment tool and health screenings, the pilot is designed to help enrollees identify their risks for certain diseases and make lifestyle and behavior choices to improve their health. Staff and the HCA representatives discussed possible next steps of the pilot, which entails Medical Mutual undertaking interventions to assist pilot participants in making lifestyle and behavior changes.