Molly Janczyk and Damon Asbury re: Proposed Medicare Advantage and budget increase

From Molly Janczyk, May 23, 2007
Subject: Damon: Proposed Medicare Advantage; budget increase

Thank you for your response which I will share. I do believe our investment staff has hugely enhanced our status and is the way to lowering liability if the market remains productive.

I understand from other emails that smoothing and diversification are ways to protect our assests along with careful monitoring and pulling from investments in which we are overextended or investing where we are underextended depending on the outlook. I read the minutes monthly and see all these tactics exhibited.

I appreciate your timely answers as I am attempting to get info prior to publishing ques. and issues so as not to cause further concern among retirees. Then folks can engage in meaningful debate and exchange of ideas having some basis for discussion.

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From Damon Asbury, May 23, 2007
Subject: RE: Proposed Medicare Advantage; budget increase

Molly:

With respect to the Medicare Advantage plan:

STRS Ohio is still in the very early stages of this project and therefore not in position to answer your questions fully at this time. The Health Care staff presented the concept at the May board meeting and received a go-ahead from the Board to further explore this additional plan as an option for 2008. Many details of the plan will need to be worked out during the summer. Staff will present the plan recommendations and premiums for a voluntary Medicare Advantage program in August. Obviously, they will continue to explore the various advantages and disadvantages prior to the presentation as they would want to be in position to give members full and accurate information prior to their selection of an Advantage plan.

With respect to the questions regarding compensation and staffing in the Investment area:

Most of the compensation increase proposed in the Fiscal 2008 budget is a direct result of the compensation plan for investment associates approved by the Board in March 2006 by an 11 to 0 vote. Because the STRS Ohio investment staff is performing substantially above the benchmark for fiscal 2007, the budget anticipates that we will need the maximum payout of the performance incentive component of the investment staff compensation plan. Even though investment staff earn their incentive for performance during fiscal year 2007, which ends on June 30, 2007, the actual payments which will be made in August 2007, which is in the fiscal year 2008 budget year.

In addition, we have been operating the real estate section at lower than normal staffing levels. We received authorization from the Board to add three new positions this year (Fiscal 2007) and have requested 3 additional positions for real estate in Fiscal 2008. We have also requested 3 other new junior analyst positions in investments (one in global equities, one in domestic equities and one in fixed income) for Fiscal 2008.

The Board's investment consultant, the Russell Investment Group, is conducting a review of all sections of investments over the next 18 months. They have completed the Fixed Income Review already and one recommendation was to add staff in this group, which is the area in which we are best staffed. This indicates that we have very lean staffing levels in the entire investment area.

With the Board's directive to attempt to try to maintain investment compensation at the low quartile of private money managers, many of our 86 investment professionals who are currently significantly below the targeted 25th percentile of the market range will likely be recommended for one-time salary adjustments to reach that level. As you know, the investment staff has added value to the fund well in excess of $350 million this year and their cost to the system is estimated to be at least $100 million less than it would cost to manage the assets with external money managers.

Damon

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Molly Janczyk to Damon Asbury, May 21, 2007
Subject: Proposed Medicare Advantage; budget increase

1. Please read the Suddenly Senior article on Medicare Advantage Plans titled 'Who gets the Advantage?' on www.kathiebracy.blogspot.com The article seems to address low income and poverty only but please compare how the present Medicare recipients would be better off combining original Medicare with STRS supplemental resulting in what STRS states would be lower premiums, easier claims, etc.

1. Is this article from Suddenly Sr. outlining a program comparable to what STRS is considering?

2. Why does the Suddenly Sr. article state premiums could be higher?

3. Do those described in the article from Suddenly Sr. have a STRS type supplemental plan combined with original Medicare to create the Medicare Advantage Plan? Are there any cases where folks would be worse off with this new coverage in 2008 or beyond? Is this Advantage Plan hiding any detriments to recipients?

Please address this issue as rumors and make for concerns. We do have some very low income retirees and we need to know if they are protected as well as those better off equally.

2. The 12% or 14% requested budget increase to pay for addt'l investment staff. Am I correct is saying no one person receives a 12% or 14% increase in income but that it is requested to cover addt'l investment staff. Please further explain why addt'l staff is needed. I realize we do most investing in house.

3. Are we replacing staff OR is the 12-14% requested for higher attracting salaries spread over several investment staff? We are doing very well and so questions arise as to necessity and how it betters conditions for retirees.

-Why will this increase returns for retirees or better the status at STRS?

Please explain how?

-What is the case against hiring new investment staff?

I understand that STRS is stating we need the best and brightest to continue our high returns help lower unfunded liability in a few years. STRS investment staff has been doing an incredible job. What we also need to consider or have addressed is retiree concerns that once again we are riding a wave and will probably do so for a bit. But, the market will drop at some point and I understand our diversity and smoothing is to protect us but we want to ensure we never again, if possible, endure what STRS called ' a perfect storm' with HC costs escalating virtually overnight and markets tumbling. We have read precautions on this matter presented by STRS. But, what is different NOW from what occured BACK THEN? HOW ARE WE BETTER OFF PROTECTION WISE??????? Retirees cannot survive another untenable devastation. A potential crisis is always around the corner.

Thank you. I just want to understand this better as I missed some points on these 2 issues.

Molly J.