Jim McGreevy's report on June 2006 STRS Board meeting

I attended the June Board meeting of the State Teachers Retirement System. What follows are my notes from the meeting. You can read official information about STRS meetings on the STRS website (http://www.strsoh.org/) and check out commentary on STRS actions and issues at http://strswatch.blogspot.com/.

- Jim McGreevy

STRS Board Meeting

June 15 – 16, 2006

Summary

Budget Approval –

The Board voted to approve the Operating Budget. The budget had several areas of savings over previous budgets and all Board members agreed that much progress had been made in holding expenses in line.

Ad Hoc Committee –

This committee was created to study ideas Board Member Dennis Leone raised in May concerning a maximum amount that Exec. Dir. Damon Asbury could spend without approval from the Board, and a requirement to provide full documentation to all Board members when a contract or legal settlement is to be voted on by the Board. Ultimately, STRS Vice Chair Conni Ramser moved to set the “threshold amount” for automatic Board review at $100,000 and that motion was approved on a split vote. The “document review” idea has been tabled until the August meeting.

Member Benefits Report (Pension Benefits) –

The Board approved a new policy to allow for benefit recipients to name multiple beneficiaries. This was in part prompted by legislation (Sub. H.B. 98) that requires such arrangements as a result of court-ordered dispositions of property as a result of a divorce and other legal considerations. All Board members voted “Aye.”

The Board voted to continue to provide survivor beneficiaries who have reached age 65 by January 1, 2008, with the Medicare Part B subsidy they are currently receiving. All other surviving beneficiaries will only receive the subsidy for five years, mirroring other similar subsidies in this section of the STRS regulations.

Member Benefits Report (Health Care) –

Following a presentation by staff on potential changes in the STRS health care plans, the Board adopted the following changes for 2007:

1. Cover preventive services at 100% not subject to the deductible or coinsurance in the Basic Plan.
2. Increase Plus and Basic Plans’ outpatient alcoholism treatment annual limit to $1,000 from $550.
3. Expand coverage for Plus and Basic Plans’ nutritional counseling to include single conditions that can be impacted by changes in diet such as obesity, diabetes, hypertension and kidney disease.
4. Increase Tier 2 co-payments from $25 to $30 at retail.
5. Increase mail-service co-payments to 2.5 times retail.
6. Increase Plus Plan annual out-of pocket maximum to $2,000 from $1,500 per enrollee.
7. Increase annual prescription drug benefit for the Basic Plan to $5,000 from $3,100 per enrollee and exempt generic drugs from the maximum annual benefit.

These changes were adopted in order to save an estimated $16.5 million in gross health care costs.

Election of Vice Chair –

The retirement of Chairman Robert Brown on July 1, 2006, prompted the need to elect a vice chair. Conni Ramser, currently vice chair, automatically moves up to the chair position. A secret ballot election was held and it was announced that Jeff Chapman had been elected.

Special Health Care Committee –

This is a committee composed of the STRS Board, key staff, and representatives of the Health Care Advocates group who have spent the past three years crafting a proposal to provide funding for retiree health care. It was reported that:

1. the Ohio Legislative Commission is drafting the bill to permit STRS to increase the STRS contribution rate 2.5% for both active teachers and their employers to provide a dedicated revenue stream to be used only for retiree health care (the HCA proposal)
2. the general reaction of legislators has been positive although everyone is cautious about touching the health care issue prior to the election. Virtually all legislators appreciate the detail and study the proposal represents and that it has been reviewed by STRS members who have expressed support in a variety of surveys and meetings.
3. Damon Asbury has met with a couple of school boards on the HCA proposal. He believes the message is starting to resonate with local boards that they are already paying for a portion of this health care with long-tenured teachers at the top of the pay scale hanging on for additional years. Asbury doesn’t expect OSBA to reverse their official opposition but that a strategy to weaken that opposition among individual boards might lead to less resistance in the legislature.
4. a “focus-group” activity to assess member reaction to possible future health care plan changes was held recently. Over 100 retired members from seven central Ohio counties were brought in and asked to react to possible changes in the Plus Plan and Basic Plan offerings. Among the most popular were increases in coverage for preventive measures.

Executive Director’s Report –

Damon Asbury presented his written monthly report noting there was nothing very exceptional about it.

Board Member Professional Development –

There was a very emotional discussion surrounding the issue of Board member professional development. Dennis Leone remains very critical of Board members traveling out-of-state to professional development seminars and conventions. Several other Board members took the position that all Board members have a fiduciary duty to educate themselves and stay current on issues facing pension systems and that it often requires traveling to an out-of-state location. Such travel is not cheap, but necessary to competently fulfill the duties of an STRS Board member in protecting the system members’ funds. The exchanges among Board members during this part of the meeting were heated.

Investment Staff Report –

The STRS investment staff presented a comprehensive review of their forecasts and investment strategies for the coming year. The Russell Group, investment consultants to STRS, largely concurred with the investment staff, and presented their investment plan strategies, largely echoing the internal staff’s ideas.

It was noted that the month of May was a lousy one for STRS investments, the total assets declining from an annualized return of 16.8% to 13.4% largely due to a broad decline in the stock market in May. Staff stated that this was not unexpected and not a major concern but was part of the up-and-down nature of the market.

A new, three-year contract with the Russell Group was approved on a unanimous vote.