CORE Meeting (Damon/CORE meeting)

CORE Meeting (Damon/CORE meeting)

Feb. 22, 2007

1. What is the percent of cost compared to net investment assets for STRS? We would like a comparison to the other 4 Ohio Systems and also a comparison to other teacher retirement systems. (Maybe not all, but a sampling of those that are about the same size as STRS, i.e. Michigan, Indiana, Illinois, Pennsylvania, Wisconsin, etc.)

Answer: Based upon data submitted to the Ohio Retirement Study Council, the ratio of Total Investment Expenses (internal costs, external manager costs, brokerage commissions, etc.) to Total Investment Assets is listed below. One can see that the more internally managed funds (STRS Ohio and OPERS) are much more cost efficient than the externally managed funds (Ohio Police & Fire and Ohio Highway Patrol). In addition, STRS Ohio’s ratio is slightly higher than OPERS primarily due to our much larger exposure to Alternative Investments (nearly three times more) than OPERS. Alternative Investment Managers are very expensive compared to traditional assets; however, returns (after fees) should be superior in the long run. We cannot quickly get data on other Midwestern funds.

STRS OPERS OP&F OHWP SERS Total Investment Expenses/ Total Investment Assets 0.25% 0.19% 0.35% 0.47% n/a

2. According to a recent survey regarding pension funds that was published on the Internet, the pension fund should Never have expenses in excess of 1.7%. They recommended that the total expenses should be around 1.5%. This information should include all salaries, fringe benefits, child care, food service, utilities, board expenses, publications, etc. It should be a total bottom line ratio.

Answer: Without having the actual survey to respond to, we cannot answer this question. If the individual who asked this question could refer us to the Internet article, we will be happy to respond.

3. My husband and I attended the Retiree Health Care Series at STRS last Wed. (Feb. 7^th) and sat through a two hour review explaining the different health carre plans offered currently. At no time was there a mention of any reimbursement to the retiree if he/she participated in a Weight Watchers Program. Yet in today’s Columbus Dispatch (Feb. 12^th) on the front page, there is a lengthy article describing that this benefit is available to Medical Mutual of Ohio Participants with reimbursements of up to $150.00. If this program is not offered to STRS participants who have chosen Medical Mutual, then why isn’t it? If it is offered through STRS Medical Mutual, then why was it not explained at their Retiree Health Care Benefit Series last week?

Answer: STRS Ohio first learned of Medical Mutual’s (MMO) Weight Watchers benefit through the news release presented in the Columbus Dispatch on Feb. 12, 2007. Since STRS Ohio is a self-funded plan that uses Medical Mutual only as a claims administrator, it wasn’t clear that our retirees would be eligible for the new benefit. We have since talked to Medical Mutual and Medical Mutual will offer a special reimbursement incentive when members attend Weight Watchers local meetings in their communities (available only in participating areas in the United States).

In short, members who complete a 33-week session may receive a $50 reimbursement, and members who complete the 18-week session may receive a $75 reimbursement. The maximum reimbursement is $150 within a 12-month period. Members must submit a reimbursement form provided by MMO. Reimbursement will be processed and funded by MMO and sent directly to the member in the form of a check. The reimbursement is for attendance/completion of the program – independent of weight loss.

Sessions with a start date before Jan. 29, 2007, are NOT eligible for reimbursement.

Brochures and EOB (Explanations of Benefits) stuffers are being developed to promote the program to the members.

4. Alaska’s PERS and STRS combined unfunded liability is about $10 billion. Alaska wants to eliminate this problem for the Following reasons:

a. Having an unsecured “debt” handing over us could be detrimental to our credit-worthiness.

b. Alaska’s public employees and educators have provided decades of quality service to the people of Alaska. An adequate retirement package was an important part of the contract – implied or otherwise – through which those services were rendered.

c. Alaska’s constitution provides that public employees will have a retirement system, a clause that was included in the original document by the constitutional convention. They know that a quality retirement benefit [is necessary] to attract and keep quality workers.

d. The Alaska legislature knew that the responsible course of action is to begin whittling away at the $10 billion unfunded liability.

Taking action today to solve Alaska’s $110 billion dollar problem is the prudent thing to do. Since STRS’ unfunded liability is more than twice the $10 billion that Alaska has with PERS and STRS, what are we doing to solve our unfunded liability? What is STRS’ plan to solve this problem?

Answer: According to their published 2006 financial reports, the combined unfunded pension liability for Alaska Public Employees Retirement System and Alaska Teachers Retirement System is $4.1 billion. However, the combined actuarial value of assets is only $7.3 billion. The funded ratio is 65.7% for Alaska PERS and 60.9$ for Alaska Teachers Retirement. Both funds are in significantly worse funding condition than STRS Ohio.

On July 1, 2006, the defined benefit plans offered by these two systems were closed to additional enrollments; defined contribution plans were created for new hires. Consequently, in September 2006 the Alaska Retirement Management Board set the employer contribution rate for the Alaska PERS at 39.76% and the employer contribution rate for Alaska Teachers Retirement at $4.03% to amortize the entire UAAL over 25 years. (It had to be set this high because there will be no future payroll growth.) The governor of the state recommended that the state appropriate $1 billion from surplus to soften the blow of the increased contribution rates. We are not aware that any action has been taken on that recommendation.

Regarding STRS Ohio, the funding status made excellent progress during the 2005-06 fiscal year, primarily as a result of high investment returns. total unfunded liability decreased to $19.4 billion from $20.1 billion, the first decrease in the total dollar unfunded liability in more than 20 years. The amortization period for the unfunded liability decreased more than eight years, to 47.2 years from 55.5 years, and the funded ration improved to 76% from 74%. The existence of an unfunded liability does not indicate a weak pension plan as long as funds are available to pay off the liability over time.

Because the market value of assets is smoothed for actuarial purposes, STRS Ohio has more than $4 billion in deferred investment gains that will help improve pension funding in future years. Current projections show that the funding period could return to 30 years or less as early as 2008 or 2009.

Our March 2006 report to the Ohio Retirement Study Council (ORSC) on reducing the amortization period for unfunded pension liabilities to 30 years or less is publicly available on the STRS Ohio Web site at www.strsoh.org. In March 2007, we will be presenting an updated report to the ORSC that reflects the funding progress made this past year.