Questions and answers re: contribution caps

From Molly Janczyk, February 26, 2008
Subject: Contribution Caps

I think we must remember NOT to put out figures unless and until we have researched and know why. These questions went to Damon and his answers follow: Any ques. re: this : contact Damon directly: asburyd@strsoh.org I feel stating things out of context confuses and misleads and entirety is mandatory. The persons below merely asked the questions which is always welcome.

Damon:

Membership has asked why OPERS can increase contributions from employers and STRS cannot. Is this because OPERS was not at the top of its cap of 14%? It was related to me that OPERS was at 14%. Please explain.

From Damon Asbury (date?):

Molly -- yes, OPERS has just now reached the 14% for employers of non-uniformed members. As noted, they still have a higher contribution level for uniformed members, as do Ohio Police and Fire and State Highway Patrol due to the ability of police and fire officers to retire at an earlier age.

Damon

Regarding contributions to Health Care from employer contributions: 401 (h) Account Limitations: 401 (h) of the IRS Code permits the system to fund for retiree HC benefits as long as funding of those benefits is subordinate to funding retirement benefits. In order for funding of retiree health benefits to be subordinate, the contribution rate allocated to HC must be limited to 1/3 of the contribution rate allocated to the pension cost. To the extent that historical HC contributions have been less than 1/3 of pension normal cost, a catch up contribution can be made.' STRS:

1/3 of pension normal cost rate: (divided by 3) 4.94%

4.94% is what STRS could contribute IF it were at 85% funding and 30 yrs or less unfunded liability as decided by all HCA and ORSC. Due to recent losses of market funds, (I believe it is the cause) unfunded liability is again over 30 yrs and we have not met funding ratio in these past 8 yrs either. Therefore, all discretionary benefits are tabled by Board, ORSC, HCA decision. STRS, therefore, continues to divert only 1% of the employer contribution to HC.

IF the market were to stabilize for a longer period of time and look long term stable, the unfunded liability stay below 30 yrs and 85% be met for funded ration, then STRS possible could again contribute more to HC depending on Board approval.

When you see OPERS contribute more to HC, remember, THEY DID NOT GO BELOW 30 yrs unfunded liability and have nearly double the contributing membership with workers active longer and closer to Medicare so they are not withdrawing pensions for as long as teachers, and contributing to OPERS longer. Educators can retire at 52, draw on pension and not contribute any further drawing on HC longer while costing money from HC until 65 yrs old.

These random numbers are never as easy as they sound and each system is different in membership and where they stand on unfunded liability, funding ration and long term planning. OPERS planned ahead better than STRS on incrementally increasing HC but has tiers of paying premiums and levels of coverage.

We have to look at ALL variables before saying a system does this but another system does not.

From Molly Janczyk, February 26, 2008
Subject: FW: 2 Questions from Dennis to Damon are responded to by Damon

Dennis Leone to Damon Asbury (date?)
Subject: Question About 14%

Damon – some retirees are asking me when the cap of 14% (for the employer contribution rate) was actually put in place. Could I possibly have the year and the precise language that speaks to this maximum. I assume it also says that a rate higher than 14% requires legislative approval. Was the 10% cap for active members put in place at the same time?

Dennis Leone

Here is Response #2.

Dennis Leone

Damon Asbury to Dennis Leone, February 25, 2008
Subject: RE: Question About 14%

Dennis – here is the language and the date of the change:

HB 268, effective 1976 increased those rates to 10% and 14% respectively:

“Section 3307.53…The rate per cent of contribution shall be fixed by the actuary on the basis of his evaluation of the liabilities of the state teachers retirement system, not to exceed FOURTEEN per cent, and shall be approved by the state teachers retirement board. The state teachers retirement board may raise the rate per cent of the contribution to fourteen per cent of the earnable compensation of all members.”

The OPERS employer contribution rates are capped in statute at 14% for state and local and 18.1% for law enforcement.

Damon