Angeletti report: Day 2 of 2006 STRS Board Retreat

From Mary Ellen Angeletti

February 3, 2006

(Written 2/2/06)

Damon Asbury introduced the day's agenda which was devoted to assumptions that guide the STRS mission and protect the sovereignty of the system. He introduced Terri Bierdeman who is the Director of Governmental Relations for STRS. Bierdeman led the STRS Board through a document labeled as an Environmental Scan whose purpose was to tell the Board where we are in the world today, to give a lay of the land across the country, and offer some possible opportunities open to the Board.

Terri set out goals for this exercise as:

1. providing the Board with information to aid in policy decision-making and

2. enabling staff to carry out those decisions by receiving input and direction from the Board members on their expectations and concerns.

She began with STRS Ohio and related that STRS members were extremely satisfied and willing to contribute more. This is a big plus for STRS and a valuable resource.

There is some concern as to whether members will continue to support a health care revenue stream when they hear about the 35 year enhancement. Gossip is a real problem with the prevalence of the Internet and incorrect info. with perceptions of benefits and changes getting spread fast and is a challenge to counter.

She shared an update concerning health care meetings which have occurred with legislators (in Oct.-Dec.), with leadership (Senate Pres.,Speaker, Gov.), ORSC, Ohio Eight, and Alliance for Adequate School Funding. She said that the good thing was that they weren't thrown out of any of the offices, which is a positive.

All seem to support employees contributing more to HC but many oppose employers contributing more. She feels that there is a possibility of legislation passing BUT not this year. Both Bierdeman and Lazares blamed term limits for some of the current lack of support.

The unfunded liability of all retirement systems has to be recognized and dealt with. Senator Husted didn't see anything happening this year. Health care came up in the conversation and Husted said STRS should not be in health care. So STRS has some work to do to sell their idea of a revenue stream for health care to the representatives.

Of course, Brandt of OSBA says that STRS does not need any more money. . . just cut costs. STRS must counter the influence of the OSBA. More meetings are planned for the month of Feb. with the HCA, legislators, and target audiences (school bd. members, STRS retirees, PTA, & other educational coalition groups, & editorial boards).

An actuarial report (Buck) evaluating health care will be presented at the Feb. STRS Board meeting. Final decisions will be needed in March. It seems possible to introduce the legislation for an additional revenue stream for health care this year, then spend the winter educating legislators, and then possibly have something on the table to consider.

If this does not pan out, then are the employees (teachers) going to be willing to pay the entire amount? STRS will have to decide what to do. Bierdeman feels that the legislators will not want the demise of the teachers in their laps so they will be inclined to perhaps take action on down the road.

Brown said he did not want to delay the effort to get the legislation through until 2007. He prefers this year. Lazares added that retirees can help with influencing the legislators. Brown asked if the legislation failed, what other solutions are there? Billirakis said that there are no other solutions. He said that the longer we wait, the bigger the price tag will be. If all else fails, then Billirakis said STRS may have to cut benefits and that is an ugly option.

Flannagan volunteered that her school union has interviewed campaign candidates in the past and asked them questions. Her union never endorses candidates but simply wants to know the candidate's thinking. Brown said that STRS has been pre-empted from discussing what to do if the legislative effort fails. Asbury said this is why there is a need for contingency planning. STRS can't put their head in the sand.

Knoesel reminded Bd. members that change can be affected within STRS by returning the 1% donated to health care back to the pensions. Assuming an 8% return, it would take three years to accomplish this. Bierdeman suggested using the strength of STRS member support. . .keep members on STRS side and educate them even more.

Again term limits of legislators was mentioned as part of the problem. . . current legislators have no historical memory. Bierdeman said that Speaker Husted likes to use the media to test ideas. She feels that no Democrat will oppose HC and increased contributions but GOP may or may not. Even a Republican sponsor for our STRS HC funding will NOT guarantee passage.

Lazares warned of COAST, a grass roots group opposed to any tax increases, which is very active in southwest Ohio. Husted has mentioned privatizing workman's comp. Some vendor groups are pushing defined contribution plans. The economy in the state of Ohio is bad with the loss of manufacturing jobs and a shrinking tax base.

Damon volunteered that the legislature cannot make STRS do anything to get to 30 year unfunded liability. They could threaten STRS authority, or they could change laws to make STRS jump through more hoops. Damon says STRS wants to show legislators that we are acting responsibly until it is clear that we are against a wall.

Taft focused on education in his state of the state address. A supply of quality teachers will be needed to improve education in Ohio. Health care for active teachers & retirees is an important benefit in attracting these teachers. However, Cols. Schools will be laying off 200 teachers this summer. Is this short or long term?

Charter schools are growing (271) which offer lower salaries and high turnover. Vouchers are increasing. Husted is pushing both vouchers and charters. There is opportunity in all of this climate for STRS to educate legislators but funding support is not 100%. Is the STRS plan better than a DC plan? Is there another plan? All of these currents affect the present climate in Ohio.

On the national scene, Bush is a lame duck president. The economy has a deficit ($10,000 is spent every second of time). GM and Wal-Mart are two corporations which are walking away from benefits and dumping risk. Will Medicare D be tweaked more? Social Security reform has been put on the back burner.

At the national level, STRS must maintain membership and be active in the Roundtable. Lobbyists are a strength for STRS due to the vacuum of term limits. Many campaign chairs are lobbyists. Then there are terrorist events to consider.

Most all states are facing the same problems. Bierdeman used the Fire and Police Union in Colorado for an example of what other systems in other states are dealing with and trying. This system has old members pitted against young members with distinct ideology differences among members. Members under the age of 45 have a limited tier of health care benefits. There is tiering of new members with significant changes in formulas, eligibility, and benefits. The chief lobbyist has quit.

There is a ballot initiative on reform in the offing. There is danger on the horizon to everyone. Alaska has a defined contribution plan for new hires. Meyer suggested that someone keep a tally of ideas on changes made in other states.

In summary, Bierdeman reminded Bd. members that the world has changed, that environment affects outcomes, that there is not enough money for everything, there are tough choices ahead, not everyone will be happy, the system solvency is a concern, trade offs will have to be made, the Board bears the fiduciary duty to make decisions in the best interest of the membership, and the Board cannot abdicate the decisions to others.

Following a break, the Board members were asked to read a document titled "Determining the Foundation Blocks for Pension Benefits and Funding" and do an assignment in small groups and make a report following lunch. There were 11 items listed on this document which Board members were to discuss, evaluate, modify, include pros and cons, add additional actions to be taken, prioritize, and then report back.

There were also listings under the title "Existing Guiding Principles for Pension Retirement Design" and "Existing Guiding Principles for Health Care" which earlier STRS Boards had composed. I do not know if the Board members were asked to do anything with these last two documents as I had to leave at noon.

Before this exercise began, Buser and Fisher said that they felt that the principles were too general. Knoesel said that the principles guide options for the benefits staff to explore. "You are a new STRS Board and staff needs your input", Knoesel said. Damon offered that Boards are policy makers providing a general guide for the STRS staff. Then the staff develops the Board's specific recommendations. The Board however makes the final decision.

Leone expressed his desire to have the staff make recommendations for everything that they could think of that could be done to insure the solvency of the pension fund. I was not able to attend the afternoon session of the Retreat today so I cannot share anything about it.

Perhaps others who attended will pick up the slack and send us details on that session.