December Board News Details Retirement Board Actions and Discussions

From STRS, December 15, 2006

This week, the State Teachers Retirement Board held 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 member of STRS Ohio with an e-mail address on file, you will also receive this report each month. The December report follows.

DECEMBER BOARD NEWS

HEALTH CARE FUNDING LEGISLATION INTRODUCED Rep. Scott Oelslager (R-Canton) introduced the STRS Ohio-proposed health care bill on Dec. 14. House Bill 707 carries with it the support of the Health Care Advocates for STRS -- a coalition of major management, professional and retiree organizations representing Ohio's public K-12 and higher education teachers. This member-driven initiative calls for increasing public teachers' contributions to STRS Ohio by 2.5% and their employers' contributions by 2.5% of teacher payroll to create an ongoing, dedicated revenue stream for the STRS Ohio Health Care Program. These increases would be phased in over a five-year period, in .5% increments.

Given the short amount of time remaining in the current General Assembly, the bill will probably need to be reintroduced at the start of the 127th General Assembly that convenes in January. However, the introduction is a positive move forward that will set the stage for continued dialogue about this important initiative before the Legislature. We are grateful to Rep. Oelslager for agreeing to sponsor the bill and support continued health care for Ohio's current and future retired educators.

CHANGES TO OHIO REVISED CODE APPROVED BY BOARD; LEGISLATION WILL BE PURSUED IN EARLY 2007 STRS Ohio staff presented a package of changes to Chapter 3307 of the Ohio Revised Code that had previously been sought through House Bill 272. Most of these changes were presented to the Retirement Board in October 2005 and included in the bill. However, during this year, most items related to STRS Ohio were removed. As a result, STRS Ohio will now pursue its technical corrections legislation in early 2007. The changes that will be contained in the draft legislation include the following:

- Change the "default" to the members' current plan for those members who have the final retirement plan selection option in their fifth year of membership; in addition, change this final election window to 90 days from 180 days.

- Restrict qualifying credit for service retirement, disability retirement and survivor benefits to service earned through public employment in Ohio. Current law makes it possible for a member to qualify for service retirement or disability benefits with as little as
1.25 years of Ohio public employment when combined with out-of-state and military service purchases.

- Clarify the appropriate reemployment penalty for retirees who work the first two months of retirement.

- Develop a procedure to stagger the terms of the two retired member seats on the Retirement Board. Currently, both seats have identical terms.

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

- 158 active members were approved for service retirement; 32 inactive retirements were approved.

- In November, fixed-income purchases totaled $457 million, domestic equity purchases totaled $1.2 billion and real estate purchases totaled $34 million.

ADDITIONAL ITEMS REPORTED AT THE MEETING BY EXECUTIVE DIRECTOR DAMON ASBURY

FIDUCIARY PERFORMANCE AUDIT OF STRS OHIO COMPLETED Independent Fiduciary Services, Inc. (IFS) presented the results of its fiduciary performance audit of STRS Ohio on Dec. 13 to the Ohio Retirement Study Council (ORSC). IFS was chosen by the ORSC to review the system's investment and management practices, as well as those of the Ohio Police & Fire Pension Fund. The project began in July 2004.

In the executive summary that accompanied the detailed report about STRS Ohio, IFS noted that " . . . the results of this review demonstrate that STRS is generally in line with best practices with regard to much of its overall governance, administration and management of its investment program." Further, the report noted that "... STRS governance policies and rules are impressively comprehensive and they cover all of the significant aspects of governance a sophisticated public pension fund requires."

Included in the 338-page audit are 85 recommendations that STRS Ohio staff are currently reviewing. Topics covered include: investment management structure and costs, asset allocation, investment accounting, and STRS Ohio's organizational structure and resources, as well as statutory provisions and administrative rules that govern the system's operations.

As part of staff's initial review, it has been noted that many of the audit's recommendations have already been incorporated into STRS Ohio policies and procedures developed since the initial work on this audit was conducted. A full report detailing STRS Ohio staff's analysis of each recommendation and suggested next steps will be presented to the Retirement Board at its January 2007 meeting. OP&F and STRS Ohio will also be making a report to the ORSC at its February 2007 meeting.

TWO SENIOR STAFF MEMBERS PARTICIPATE IN NATIONAL HEALTH CARE MEETING Sandy Knoesel, deputy executive director -- Member Benefits, and Terri Bierdeman, director of Governmental Relations, recently represented STRS Ohio at the second annual national conference of the Public Sector Health Care Roundtable, an organization that the retirement system has been instrumental in establishing. During the three-day conference held in Alexandria, Va., participants heard presentations by numerous speakers on health care-related issues, including Michael Leavitt, secretary of the U.S. Department of Health and Human Services. Leavitt outlined his path for health care reform and drew an analogy to cell phones, banks and airlines -- industries in which different companies compete for customers, but use the same systems. If this is to happen with health care -- and it must, he said, if quality is to be improved and costs reined in -- national consistency must be established in four areas: (1) electronic records, (2) standards of quality, (3) pricing information, and (4) incentives that reward good performance. Leavitt encouraged Roundtable members to pursue the four goals.

ORSC REVIEWS SYSTEMS' INVESTMENT PERFORMANCE Evaluation Associates presented its semiannual comparative study of the performance of all five Ohio pension funds on Dec. 13 to the Ohio Retirement Study Council. The report reflected the investment performance of the systems over the 10-year period of July 1, 1996, through June 30, 2006. For the entire 10-year period, STRS Ohio returns exceeded the assumed actuarial rate of return and matched the benchmark over the same time period. STRS Ohio had the highest absolute total fund return for the one- and three-year periods.