From STRS: January Board News Details Retirement Board Actions and Discussions

From STRS

January 23, 2006

Last week, the State Teachers Retirement Board held several committee meetings, as well as its monthly meeting. Following the regularly scheduled meetings, a report titled "Board News" is posted on the STRS Ohio Web site, as well as mailed to a number of members and education organization representatives who have requested it. As a registrant of the STRS Ohio news e-mail list, you will also receive this report each month. The January report follows.

JANUARY BOARD NEWS

BOARD TO VOTE IN FEBRUARY ON CHANGES TO DISABILITY APPEAL PROCESS; MEMBER INPUT INVITED For several months, the State Teachers Retirement Board has been reviewing the Disability Program available to STRS Ohio's members. At the January Retirement Board meeting, staff presented several recommendations designed to streamline the disability application process. These measures would enable members to receive decisions on their applications sooner than the current process allows.

As it stands now, members have two opportunities to appeal during the application process. Upon a recommendation from the Medical Review Board to deny disability benefits, they may appeal to the Retirement Board's Disability Committee BEFORE the recommendation is acted on by the full board. Members can also request an appeal through the adjudication process AFTER the Retirement Board acts to deny disability benefits
(this appeal opportunity is required by law).

STRS Ohio staff presented the following reasons for eliminating the appeal not required by statute:

- Removing the appeal will shorten the disability application process for members.

- At least five medical doctors have reviewed the medical information before the recommendation to deny is made.

- Eliminating the appeal matches the procedure at the Ohio Public Employees Retirement System and the School Employees Retirement System.

In addition to eliminating the optional appeal, staff also recommended that a three-member Board Review Panel hear the personal appeals of members who are denied disability benefits by the Retirement Board. The board is also considering using a hearing officer for the appeal process. However, paper case summaries will still be available to every board member for review prior to any action.

The Retirement Board will vote in February on these recommendations. If approved, the new process will begin July 1, 2006. Members are invited to share any comments they have about the proposed new procedures via e-mail through ContactUs@strsoh.org or by calling our Member Services Center toll-free at 1-888-227-7877.

REVIEW OF SENATE BILL 190 COMPLETED During its January meeting, the Retirement Board received a report from the system's actuary, Buck Consultants, regarding the financial impact on STRS Ohio of the benefit enhancements that were made to BOTH active and retired members under Senate Bill 190, which was signed into law in April 2000, (retroactive to July 1, 1999). For a number of months, board members have been gathering information about the system to further their understanding about critical pension and health care funding issues. The recently completed Asset/Liability Study and the actuarial valuation report received in November 2005 are two examples; this report is a third.

During the board's discussion of S.B. 190, it was noted that the system's unfunded accrued liability would be smaller and the funding period would be shorter if S.B. 190 had not provided retroactive increases in pension benefits for existing retirees and had not increased benefits for future retirees. However, at the time S.B. 190 was enacted, the financial condition of STRS Ohio was much stronger. Based on a review of the five years of experience since the bill was enacted, the actual cash flow and actuarial impact of the legislation on the pension fund basically matches what was predicted. However, other events have occurred that have also affected the system's actuarial funding, such as the prolonged and significant investment market downturn that occurred from 2000-2003. During the board's discussion, rumors regarding the possible rollback of the 35-year benefit contained in S.B. 190 were also addressed. The board noted that there are no plans at this time to eliminate the enhanced pension benefit formula for 35 years of contributing service.

DISCUSSION ON RESULTS OF ASSOCIATE COMPENSATION AND BENEFITS REVIEW CONTINUED TO FEBRUARY A lengthy discussion of the results and recommendations contained in the recently completed Aon/McLagan study was held at the January board meeting. Aon/McLagan was asked to provide an objective, third-party review of the competitiveness of the total compensation and benefits package STRS Ohio provides to recruit, motivate and retain associates. Board members reviewed possible pay adjustments for non-Investment and Investment associates, as well as changes to the Performance-Based Incentive Plan that currently is in place for eligible Investment associates. The board will continue its discussion at the February meeting.

RETIREMENT, INVESTMENT TRANSACTIONS APPROVED The Retirement Board approved the following retirements and investment transactions:

- 38 disability retirements were granted.

- 140 active members were approved for service retirement; 46 inactive retirements were approved.

- In December, fixed-income purchases totaled $324 million, domestic equity purchases totaled $1.196 billion and real estate purchases totaled $10.5 million.

ADDITIONAL ITEMS REPORTED AT THE MEETING BY EXECUTIVE DIRECTOR DAMON ASBURY

ORSC PUTS PRESSURE ON OHIO POLICE & FIRE PENSION FUND At the Jan. 18 meeting of the Ohio Retirement Study Council (ORSC), a report was delivered by Milliman Consultants and Actuaries on the adequacy of contribution rates for the Ohio Police & Fire Pension Fund. This system's funding period is currently infinite and its funded ratio is 80.9%. The members of ORSC expressed serious concerns about the funding period and pressed the fund's executive director, William Estabrook, to urge his Retirement Board to come back with a specific written plan for addressing this. That board is meeting in retreat in April to put together a strategic plan.

Sen. Lynn Wachtmann directed Estabrook to propose the following package to his board: extend the years of service necessary for full benefits from 25 years to 30 years; eliminate the automatic 3% cost-of-living adjustment (COLA) and return to a COLA based on actual CPI inflation; cap the Medicare Part B reimbursement; and increase the employee contribution rate cap. He was also asked to present a written report on his system's plan to get back to a 30-year funding period at the April ORSC meeting.

STRS Ohio will be presenting its 30-year funding plan in March to the ORSC, as the system's current funding period stands at 55.5 years. The State Teachers Retirement Board will be discussing this report at its February retreat.

FINAL 2006 HEALTH CARE OPEN-ENROLLMENT RESULTS PROVIDED Following completion of open enrollment, the STRS Ohio Health Care Program is beginning the new year with 112,310 individuals enrolled in a health care plan -- a slight increase over the same period last year. Aetna continues to maintain the largest number of enrolled accounts followed closely by Medical Mutual. Members choosing the self-insured plans account for 93% of enrollment. Enrollment in the Basic Plan jumped by 729 accounts, with more than 5,100 accounts enrolled in the Aetna or Medical Mutual Basic Plans.

New recipients enrolling in an STRS Ohio health care plan totaled 453, while 206 benefit recipients terminated coverage effective Dec. 31,
2005. In addition, 266 dependents terminated coverage on accounts where the benefit recipient continued his/her coverage through STRS Ohio.

Enrollment in the Health Care Assistance Program remains steady with 94 participants. Of the total enrollment, 63 individuals are disability recipients while 31 are service retirement recipients. The program is designed to help qualified benefit recipients who need financial assistance in paying for their STRS Ohio-administered health care plan. The program provides participants with hospital/medical and prescription drug coverage for no monthly premium.