Dennis Leone: STRS Update #2

STRS Update #2

By Dennis Leone, Board Member

May 31, 2006

I did not intend, when I wrote my STRS Update #1 three months ago, to prepare another one so quickly. Several important things, however, occurred at the STRS Board meeting on Friday, May 19, 2006, that I knew would be of interest to many:

Health Insurance for Rehired Retirees: Three months ago, the Board voted 10-1 to support proposed House Bill 272, which included a provision to prohibit full-time rehired retirees from utilizing STRS health insurance. The Board vote included a reasonable request for a phase-in (a three-year waiting period) before rehired retirees who are currently using STRS health insurance would be dropped. Board member Mary Ann Flannagan voted no, not because she opposed the prohibition, but because she said she preferred a four-year waiting period instead of a three-year waiting period. Recently, legislators proposing HB 272 determined that pension boards have the power to implement such changes on their own, so the language about rehired retirees’ health insurance was dropped from the bill. (The sponsor even told me personally she did want lawmakers to become the scapegoat for something the STRS Board should be deciding.) On May 19, I informed my fellow board members that I felt our proposed legislation to increase contributions 5.0% would be enhanced if lawmakers saw that we were “taking care of business in our own shop” and decided – on our own – to prohibit full-time rehired retires from utilizing STRS health insurance. For reasons I cannot explain, my fellow Board members (except John Lazares) now have no interest in considering such a Board action while our proposed 5.0% contribution increase is still on the front burner. Also, Board members Mary Ann Flannagan and Conni Ramser both said they now oppose the prohibition of STRS health insurance for rehired retirees. In a nutshell, the matter of rehired retirees utilizing STRS health insurance has been tabled, with no future discussions scheduled. I told my fellow Board members that I felt that failing to act was gutless on the Board’s part.

Motion Requiring Board Votes on Expenditures in Excess of $50,000: I made such a motion, which was seconded by John Lazares – not as a statement of distrust regarding the STRS staff – but because I disagree with the fact that huge dollar amounts have been spent in recent months (like a $300,000 legal bill) without Board discussion and without a formal Board vote. Appointed Board member Judith Fisher made a substitute motion to trash my proposal, which was seconded by appointed Board member Geoff Meyers, and instead, proposed formal Board votes only for expenditures in excess of $1 million. This passed 7-3-1 (with Bob Brown, John Lazares, and myself voting no, and Stephen Buser abstaining). After a break, the Board then voted 8-2 (Meyers was absent) to reconsider the Fisher motion that passed and refer it to committee. The reconsideration came up, not because some Board members now want my motion or a lower amount, but because some Board members believe that perhaps their personal liability will increase if they have any greater oversight on such expenditures. In other words, this matter may get worse. John Lazares and I did our best to inform our fellow Board members that we feel it is our fiduciary responsibility to be provide oversight on pension system expenditures.

Motion Prohibiting Board Votes on Settlement Agreements and/or Vendor Contracts Unless the Board Has Said Documents Prior to the Vote: If I ever thought something should be a no-brainer, it was THIS motion, which I made, and which John Lazares seconded. The motion failed 8-2 (with Lazares and myself voting no) and was referred to committee for future consideration. I made this motion because in recent months the Board approved a costly settlement agreement (regarding non-investment staff bonuses) and a costly Vitech contract (for needed IT services at STRS) – but in both cases – no document was in front of the Board when the vote was taken. John Lazares and I have tried to explain that as a public board, it is our obligation to know what the terms are of things like settlement agreements and large vendor contracts prior to the Board vote. I am not suggesting that ALL vendor contracts (like a Pepsi contract for the STRS cafeteria) come to the Board for a vote. I am saying, however, that when the staff places an agreement and/or a contract on the agenda for Board approval, how can we be expected to vote on it if we don’t have the necessary documents in front of us? While I have been asked to serve on a three-member Board member committee to discuss this matter further, and will do so, I do not see myself compromising on this issue. I am very, very disappointed with my fellow Board members regarding this matter. Maybe it will come up again as a vote. I don’t know.

Actions to Reduce STRS Staff Fringe Benefits: For the past eight months, I have voted no on all monthly expenditure reports of the STRS executive director because I disagree with so many of the fringe benefits that staff members receive. On May 19, the Board voted to reduce six staff benefits that should streamline the STRS operating budget by approximately $410,00 per year as described below:

• EDUCATIONAL ASSISTANCE – The Board voted 10-0 (Meyers was absent) to reduce the maximum amount staff members can receive per year for college courses from $7,000 to $5,250, to require 12 months of employment before a staff member can become eligible for a reimbursement, to require employees to pay 50% if they do not receive an A or a B, to prohibit an STRS reimbursement of any kind if the employees fails the course, to require employees to pay back STRS for courses if they leave STRS within 12 months after a course was reimbursed to them, and to implement a lifetime maximum benefit for employees who take courses. While I almost voted no because I feel the new amount is still too high, I voted yes because the $5,250 now matches that of other pension systems in Ohio. Gone is a ridiculous policy we had – in place for who knows how long – that gave employees a 50% reimbursement even if they failed the course they were taking. The Board action should reduce expenditures by approximately $30,000 per year.

• TOTAL SICK LEAVE ACCUMULATION -- The Board voted 8-2 to limit total sick leave accumulation to 1,000 work hours (133 days), to freeze the sick leave of 54 employees who are currently above that total, to provide no sick leave separation cash for employees hired after July 1, 2006 if they quit, and to freeze the potential sick leave separation cash for current employees should they resign in the future. While John Lazares and I liked all of the provisions adopted, we voted no on the motion because we feel that no employee should receive total sick leave cash unless it is part of a retirement severance. The practice at STRS is almost unheard of in public school districts. I am quite pleased with the other reductions approved, all of which I have been pushing for over the past two years.

• ANNUAL SICK LEAVE ACCRUAL AND PAYOUTS -- The Board voted to reduce annual sick leave accrual from 18 days to 15 days and to reduce the annual cash payout of unused sick leave from nine days to five days. While I am pleased that this will reduce expenditures $195,000 per year, I was the only Board member to vote no because I am completely opposed to employees being able to cash in – on an annual basis – unused sick leave (even if it is “only” five days per year). I like the annual sick leave accrual dropping from 18 days to 15 days.

• CASH PAYMENT WHEN EMPLOYEES ADOPT A CHILD – The Board voted 10-0 (with Meyers absent) to abolish this weird policy effective 12-31-06, but not without a great deal of discussion on whether public agencies have an ethical role to help solve societal adoption issues. I objected to the Board even having a discussion like this because Board members are supposed to be the caretakers of pension money.

• SERVICE AWARDS – I have been calling this program the 13^th check for STRS employees. It provides an additional check of $100-$200 per year to employees for no real reason, other than they work at STRS. I made a motion to drop the program completely, which was seconded by Lazares. This failed 7-2. A second motion passed 7-2 (with Lazares and myself voting no because we wanted deeper cuts) to reduce the “award” to $75 per year and make it eligible for hourly, non-managerial employees only. While Lazares and I agree the new policy is an improvement, and we are happy that it will reduce expenditures approximately $64,700 per year, we stated our opposition because of our strong feelings about what has happened to retirees. Board member Jeff Chapman stated that he voted yes because he felt it was a like a teacher’s year-to-year step increase.

• HEALTH INSURANCE AVAILABILITY FOR PART-TIME STRS STAFF -- The Board voted 9-0 (with Brown and Meyers absent) to change current policy that provided part-time STRS employees the same health insurance plan that full-time employees received, even if they worked only 20 hours per week.. (The plan required all said employees to pay 19% of the total premium costs.) Now, part-time employees who work between 20 hours and 29.9 hours per week will have to pay 50% of the total premium cost (instead of just 19%), and employees who work between 30 hours and 37.4 hours per week will have to pay 30% of the total premium costs. I nearly voted no on this item because I still feel “full-time” should be defined as 40 hours per week instead of 37.5 hours per week. I voted yes because the new policy is a big improvement and because it should reduce expenditures between $50,000 and $100,000 per year.

The above represents “the rest of the story” regarding the 5-19-06 STRS Board meeting.