April Board News from STRS

From STRS, April 18, 2008

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 April report follows.

APRIL BOARD NEWS

PROPOSED BUDGETS FOR 2008-2009 PRESENTED TO RETIREMENT BOARD At its April 17 meeting, the State Teachers Retirement Board reviewed the proposed system budgets for the 2009 fiscal year (July 1, 2008-June 30, 2009). The proposed operating budget totals $99,537,200, which represents a $3.5 million, or 3.7%, increase over the current year budget. The proposed capital budget for fiscal 2009 totals $2,242,500. Additionally, the system expects to spend $4,883,100 on the project that is under way to replace STRS Ohio's obsolete pension management computer system.

Overall, the budgets for fiscal year 2009 continue to:

• Make system operations in all areas as efficient as possible, without jeopardizing delivery of pension benefits and services and health care coverage to members; adversely impacting investment operations; or failing to meet fiduciary responsibilities or legal requirements.

• Provide an appropriate compensation and benefits package and work environment to attract, retain and engage highly motivated associates.

• Comply with all Board Policies.

• Address Retirement Board priorities; and

• Demonstrate and communicate to members that STRS Ohio is managing operating expenses prudently.

In building the budget each year for presentation to the Retirement Board, staff looks at both needed increases, as well as opportunities for cost savings. Like any service organization, the majority of STRS Ohio's operating budget goes toward expenditures for salaries and benefits. To ensure that STRS Ohio can attract and retain qualified investment professionals, it provides a cash compensation package to these associates that includes a base salary plus a Performance-Based Incentive (PBI) component. The PBI enables eligible Investment associates to receive an additional percentage of their base salary, depending on both total investment fund performance and their individual goals. STRS Ohio associates internally manage a significant portion of the system's assets -- about 80% -- versus using outside money managers. Third-party studies have shown that this practice is extremely cost-effective for STRS Ohio. Just as an example, internal management saved STRS Ohio $88.4 million in fees in calendar year 2006 alone.
The goal of the Retirement Board is to maintain the total compensation (base salary plus PBI) for eligible Investment associates at the 25th percentile of private market levels. Thus, the 2009 fiscal year budget includes a 4% merit and promotional increase for eligible associates, plus an additional adjustment to Investment associate compensation to maintain the 25th percentile level. Merit and promotional increases are awarded based on each individual associate's performance. STRS Ohio associates do not receive step increases nor annual cost-of-living increases.

Other factors contributing to the fiscal 2009 budget include: higher postage and fuel costs; additional planned field counseling for active members; new software purchases; due diligence travel; costs related to conducting two board elections; building maintenance; and increases in existing contracts for such items as copier service and maintenance and professional service contracts. Five new associate positions are included in the budget, but due to other personnel changes during this fiscal year, the total staff size will decrease to 628 full- and part-time associates from 637.

The fiscal 2009 budget also reflects significant decreases in such areas as actuary fees, contract services for the Information Technology Services Department, custodial banking fees, disaster recovery, consulting services and outside printing.

The Retirement Board will be asked to approve the budgets at its June meeting.

MEMBER SURVEY RESULTS PRESENTED Dr. Marty Saperstein of Saperstein Associates presented the results of the annual telephone surveys of STRS Ohio active and retired members that were conducted from Feb. 26 through March 10, 2008. The research measures the membership's perceptions and attitudes about a number of issues. The results were also compared to surveys conducted in the previous four years.

In summarizing the results, Saperstein noted that almost all members have positive impressions of STRS Ohio overall. These impressions extend to the Retirement Board and pension benefits and are caused primarily by three factors: (1) excellent service to members, (2) good investment returns and (3) improved communications. Health care continues to be an issue of concern among retirees and, to a lesser extent, among active members. Retirees are primarily concerned about cost, while actives want more information about health care.

The research also showed that majority support among actives and retirees continues for House Bill 315, which would create an ongoing, dedicated revenue stream for the STRS Ohio Health Care Program.

Looking to the future, STRS Ohio members reiterated that the Retirement Board should continue to focus its attention on preserving health care coverage; managing investments and expenses responsibly; and maintaining or improving pension benefits.

Additional details about the survey results will be included in the next edition of the STRS Ohio newsletters.

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

• 105 active members were approved for service retirement; 71 inactive retirements were approved.

• In March, fixed-income purchases totaled $639 million, domestic equity purchases totaled $623 million and real estate purchases totaled $94.7 million.

ADDITIONAL ITEMS REPORTED AT THE MEETING BY EXECUTIVE DIRECTOR DAMON ASBURY

STRS OHIO ACHIEVES NO. 1 SPOT IN CEM ANNUAL BENCHMARK SURVEY STRS Ohio holds the No. 1 spot among 74 leading global pension systems for its service to members. STRS Ohio has been the highest-rated system in service levels for eight of the 10 years of the benchmarking survey conducted by CEM and rated second for the other two years. The benchmarking survey includes 38 U.S. systems as well as systems from Canada, Australia and the Netherlands. STRS Ohio's service level score was 87 compared to a median score of 73 for all systems. Service level is based on a weighted score of 15 different activities, such as paying annuity pensions, benefits counseling and member calls.

STRS Ohio's counseling services and member contacts through the call center received the highest score among the 74 participants. These two categories account for about one-third of the weighted score. In fact, the average wait time for callers and call abandon rate account for 10% of the score. Mass communications, which includes member education programs, Web sites, newsletters and member statements, rated third among all participants and accounts for another 21% of the score. These three areas -- counseling, call center and mass communication -- make up about 55% of the score and drove STRS Ohio's top rating.

HOUSE BILL 315 AND HOUSE BILL 270 RECEIVING ATTENTION Rep. Scott Oelslager (R-North Canton), the sponsor of H.B. 315, has scheduled a meeting with key stakeholders interested in the legislation. H.B. 315 is the bill creating a dedicated revenue stream for the STRS Ohio Health Care Program. The proposal would increase contributions from active STRS Ohio members and their employers by a total of 5% of salaries, with the increases phased in over a five-year period. STRS Ohio and other advocate groups anticipate a series of meetings with interested parties over the course of the spring and summer. The bill was introduced in September 2007.

Legislation designed to prevent active members from returning to their former positions immediately following retirement is likely to be on the agenda of the House Financial Institutions, Real Estate and Securities Committee this spring, according to the sponsor of H.B. 270, Rep. Michelle Schneider (R-Madiera). STRS Ohio has not taken a position on the primary purpose of the legislation. However, the system is seeking several amendments to the bill, mostly technical in nature. The Ohio School Boards Association and the Ohio Association of School Business Officials have testified in opposition to the bill. H.B. 270 has been reviewed by the Ohio Retirement Study Council, which recommended its passage to the Legislature.

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