Molly Janczyk: Arguments starting a war over whose enhancements are rolled back: SB 190

From: Molly Janczyk
Sent: Friday, January 27, 2006
Subject: Arguments: starting a war over whose enhancements are rolled back:SB190

If I were an active and heard rumblings that retirees wished to roll back my enhancements from SB190 this is what I would say:

If we rollback the entire SB190 , unfunded liability would be at 39+ yrs. vs. the 41+ years if it were only rolled back for actives.

Yet, it is the actives who are contributing keeping pensions solvent and from contributions for actives comes the HC Fund.

IF actives continue to work longer, we are not withdrawing, continuing to contribute and not taking STRS HC but keeping employer HC. This helps the unfunded liability as well by not draining funds. Retirees from 53-65 are the drain with health conditions costing the system and no contributions to help pay for it. We pay those contributions and may be paying them up to 12.5% willingly over contributions retirees did pay at much lower %'s.

It makes no sense to rollback incentives to keep actives wroking and paying longer with no drain to STRS or the unfunded liability/

What would keep us working longer for no reward?

IF I were an active, that is what I'd say.

Think of things to present such as increasing age for retirement incrementally, etc. to offset costs. But it scares me to go after actives in place incentives cause they will go after mine.

Let's be careful suggesting actives be rolled back as they will fight that with more numbers and power than retirees and we may find ourselves rolled back as well. NO ONE wants to have enhancements in place taken away!

The 35 yr plan adds 3.1 yr. to the unfunded liability. Retirees enhancements added 4 yrs.

All active enhancement adds 13.9 yrs. but, we cannot suggest we take away from them without them working diligently to take away from us. NO ONE has suggested this and Leone has said he would hate to take away something in place affecting anyone.

IF changes were made, it would have to be grandfathered far down the road beyond a point where peoples' lives are altered drastically as ours were. Anyone near retirement or retired should not be affected. Perhaps consideration for changes 6-10 out could be considered with less consequence. Anyone who has already embarked on their final 5 yrs having made the committment to go 35 should be untouched. They made financial decisions which alter their lives.

I would be devastated if my enhancement would be rolled back. We all made decisions based on what we were promised and given. We were catastrophically destroyed by being told after the fact of increasing health care costs and I wouldn't want to be in the category of one who did that to someone else. With 6 or more yrs. out from 35 yrs. , decisions can still be made.

IF the unfunded liability were to be ADVERSELY affected by educators retiring before 35 yrs. due to paying them pensions and HC premiums and HC costs, what have we saved. This study says it is resulting in more working 35 yrs, saving HC costs, pensions and earning contributions and % for an additional 5 yrs. bringing retirees closer to Medicare as well.

I don't want to engage in a war over whose enhancements are rolled back. WE MAY LOSE!

I received the copy of the report from Buck Consultants in the mail yesterday. The following was reported regarding the affect of SB190 on the unfunded liabilty. I am trying my best to get facts out to you and I think we need be very careful passing info without the rest of the story. We all complain about words taken out of the entire context and they may be misleading.

Yes, the bill had an impact on the unfunded liability but that is not the whole story. To change the bill, would affect every retirees' enhancement and roll them back to where they were before the bill and before constant
3% COLAS.

I will send another email with issues I still don't understand but regarding the:

UNFUNDED LIABILITY:

From the report:

-If SB190 was never enacted, active members would not have delayed retirement so the Health Care Stabilization Fund (HCSF) would be lower by $95.6 Million (As Tom Mooney pointed out, STRS would be paying for health care sooner if those actives retired at 30yrs. plus they would not be 5 yrs or more closer to Medicare taking monetary respopnsibility).

-Thus far, Health Care Stabilization Fund (HCSF) solvency period has risen one year as a result of SB190 from 2018 to 2019.

-Estimated health care savings due to SB190 with interest as of 1/05: $.096 Billion

-Unfunded Liability:
*Current: 55.5 years

Retirees:

*Unfunded liability: 51.5: If the RETIREE Portion ONLY of SB190 was stopped and we were rolled back as if it had never been enacted as of fiscal year: 7/05: Actives would keep SB190 enhancements.

Impact:

RETIREES: THIS MEANS THAT ALL ENHANCEMENTS RECEIVED BY RETIREES WOULD BE ROLLED BACK TO WHAT THEY RECEIVED PRIOR TO SB190. If you were under the 2.1% formula, you would go back to the formula of your original retirement and lose the 85% purchasing power rule. Those who retired at 2.2% would be rolled back to 2.1%. COLAS would go back to base benefit plus any ad hoc increases without SB190 vs. the now stable 3% COLAS. COLAS used to flucuate. We would lose the constant 3% COLA. You would lose the increased formula of 2.5% for 31 yrs, 2.6% for 32 years etc.

ACTIVES:
*Unfunded liability: 52.4: If ONLY ACTIVE 35 yr. BENEFIT were stopped as of fiscal yr. 7/05:

*Unfunded liability: 41.6: If SB190 was rolled back for ACTIVES only and we kept the retiree enhancements.

Impact: ACTIVES: WOULD LOSE THE 35 YR BENEFIT and go back to the 2.1% at retirement vs. the now 2.2%.; further decrease the benefit formula for members retiring with 35 yrs.;

*Unfunded liability: 37.7: had SB190 NEVER been enacted

*Unfunded liability: 39.1: if the ENTIRE SB190 was stopped 7/05 for ACTIVES AND RETIREES AND WE WERE ALL ROLLED BACK TO STATUS PRIOR TO SB190.

SUMMARY:

No action requested; information only.

SB190 was expected to cost $2.3Billion -$.9Billion for 115,394 retirees' (includes 19,033 rehires). -$1.4Billion for 176,692 actives' enhancements +120,176 inactives prob. included in this cost = 296,868 actives/inactives.

-Costs for benefits for SB190 should be approx 50/50 for cost for benefit/enhancements received.

-After 5 yrs., the impact still remains at $2.3Billion.

-Events have occurred since SB190 was enacted that have also affected the system's acutarial funding such as the prolonged and significant market downturn.

Financial impact of SB190 is an unfunded accrued liability as reported: $2.3Billion and valuation interest rates were increased from 7 and 1/2 % to 7 and 3/4% and is now the 8% expected returns or returns needed. So, they set sights higher for returns to meet costs.

Unfunded liability in '99 was 16.3 years and 2000 was 23.1 yrs. The market and expectations were high and liability very low so the STRS Board decided to give back funds to retirees and actives with the enhancements of SB190 relying heavily on continued market trends.

The increase due to SB190 was in unfunded accrued liability was the $2.3Billion and this was expected to be decreased by $1.3 billion when they rose the expectation of return to 7 and 3/4% . Further reduction of $2.1Billion was expected due to actuarial gains. THAT DID NOT HAPPEN due to market downturn and losses.

Due to real market returns, unfunded liability went from 23.1 yr in 2000 to 55.5 yrs in 2005.

Market returns in 2003 were 1.8% and now have gone up 17.2 % in 2004 and
11.9% in 2005 with actuarial returns of 1.6%, 9.4%, 5.7% respectively.

(I hope someone knows what that means).

All together rising health care costs, market downturn just when SB190 was enacted all increased the unfunded liability to 55.5 yrs vs. the trends that made money flow and keep unfunded liability low with affrodable HC costs. That is what they mean by the 'perfect strom.'

The concern is:

-55.5 yrs and how to get it down Many worry about the crunch now for investors to outperform/overperform to make up for losses. I hear as much as 70% of our money is in stocks: the most saving and the most losing of investments. We now fully depend on this riskier venture which makes many worry about our pension fund as well.

*******

THE RETREAT will present opportunities for further discussion on pension benefits and funding.

I have spent hours and days trying to understand this report and SB190. I hope our board members are spending the necessary time to understand every point before them or they are gravely negligent on behalf of the membership. Our lives are in their hands and rely on their COMPREHENSIVE understanding of all issues. Abstain if understanding is not complete.