Mary Ellen Angeletti's report on STRS February Board meeting

From Mary Ellen Angeletti, February 16, 2007
Subject: STRS/CORE Meeting, Fri., Feb. 16th

At the morning STRS meeting, Kim Nichol of Buck Consultants presented a review of the actuarial valuation of retiree health care benefits from the beginning of such plans in l974 to the present. The current information shared was very scary. Based on the plan in place now in 2007, the HCSF [Health Care Stabilization Fund] is projected to be solvent until 2021 assuming a 5.5% investment return and solvent until 2025 assuming 8.0% investment return. Many factors can impact a solvency period such as investment return, health care trend rates, enrollment rates, & contribution strategy. BUT as health care costs rise each year (thus the amount of principal needed increases each year), the HCSF balance will be depleted by 2025 with a shortfall of $481 million. Once principal is used as a funding source, the HCSF is rapidly depleted. As principal declines, the level of investment earnings also declines. Some alternative scenarios were touched on (raising the minimum age for subsidy, a switch to PERS eligibility structure, etc.) but Craig Brooks requested four or five additional & substantial scenarios rather than simple tweaking. Kim added that Medicare will run out in 2018.

Steve Mitchell presented his report from the Investment Dept.

Following lunch, Laura Ecklar reviewed the revised Board Member Travel & Expenses policy which includes ALL the revisions which Dr. Leone has been trying to accomplish. The motion passed unanimously. Dr. Leone then asked Dr. Asbury if the STRS staff would also follow the lead of the STRS Board and consider adopting a similar travel & expense policy, and Dr. Asbury assured him that it was going to be considered by staff. . . that they had been waiting until the final policy was determined by the Bd. Then Dr. Leone asked if the vendors doing business with STRS staff would also be held to the new higher standard of expenses & travel, and again Dr. Asbury assured him that this would certainly be the case.

Public Speaks portion of the STRS meeting followed Ms. Ecklar's report. There were three speakers.

1. Mary E. Angeletti requested that the Board try to maintain consistent STRS meeting dates to accommodate retired members' attendance at the meetings. Later Ms. Ramser spoke to this issue explaining that she (the Chair) was the one who set the meeting dates and times and that this month's meeting was set for Friday to accommodate her own teaching schedule. She promised to try to maintain the usual third Thursday as the STRS meeting date.

2. James Warner spoke to the Bd. for the very first time questioning the outrageous costs which Medical Mutual & STRS are paying for DME (Durable Medical Equipment). He held up a leg support as an example and shared that it had cost $400.00. He held up a finger splint which had cost $125.00. He tried to investigate why these items were so outrageously priced but said that he "got the brush-off from Medical Mutual as well as STRS". He ended up talking to the manufacturer of the items and learned that the cost to produce the leg support was $48.75 and the cost to produce the finger splint was $22.95. The difference was "money down the drain" he said. He quoted a procurement official at Medical Mutual who agreed that the price was not right and who stated that "they had to go along with the higher price due to Medicare." Mr. Warner reminded the Board that this is NOT cost containment. He volunteered that he thought that STRS would be going together with other pension systems to get the very lowest prices possible. His point is that the retired teachers are part of a large network of teachers who could go together and achieve lower costs for us. (Following his speech, Dr. Leone requested that the STRS staff look into Mr. Warner's cost complaints and get back to the Board and to Mr. Warner.)

3. Jim N. Reed praised Ms. Hayden, Mr. Brooks and Mr. Johnson for being independent thinkers on the STRS Board and for their support of Dr. Leone and John Lazares. His speech emphasized the hardships being experienced by the retired teachers especially the very elderly. He reminded the Board members that retired teachers had been PROMISED full and affordable health care. Promises were made to them by the STRS Board at that time and now the financially frail retirees cannot take care of themselves. These are dignified, graceful retirees who cannot pay to have lunch at the Retired Teacher Association meetings or who are forced to use the Emergency Rooms of hospitals. Mr. Reed said, "Yes, corporate America has had entitlement problems but educators expect better. One entitlement expense made at STRS is detrimental and could have made a difference to a retired teacher in financial need. He said, "WHAT A SHAME!"

The Executive Director's report followed the Public Speaks. It was interesting that Dr. Asbury reported on a possible collaboration on projects with other retirement systems (OPERS & PO&F) for 2007 and 2008. Exploring competitive bids for various health care services will be discussed.

We left prior to a scheduled review of Board Policies.

Glenna Barr will be sending out minutes from today's CORE meeting.

Mary Ellen Angeletti