June Board News from STRS

From STRS. June 23, 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 June report follows.

JUNE BOARD NEWS

RETIREMENT BOARD CHAIR, VICE CHAIR NAMED During its June 2008 meeting, the State Teachers Retirement Board elected Mark Meuser as its vice chair for the coming year. Meuser was elected in May 2006 to a contributing member seat on the board. According to Board Policies, Mary Ann Quilter Cervantes, who is currently serving as vice chair, automatically moves into the position of chair. Cervantes and Meuser will assume these leadership positions on Sept. 1, 2008.

EXECUTIVE DIRECTOR DAMON ASBURY RECOGNIZED FOR SERVICE During June's Board meeting, resolutions from the Ohio House of Representatives and the Senate were presented to Executive Director Damon Asbury in honor of his service to STRS Ohio. In addition, the Retirement Board presented a resolution to him, noting that during his tenure as the system's eighth executive director, STRS Ohio investment assets reached new levels; the pension fund's actuarial condition improved significantly; the system's service levels ranked above all others; an expanded and diverse Retirement Board was created; and House Bill 315 was introduced to create a dedicated revenue stream for retiree health care.

As announced on June 19, Michael (Mike) J. Nehf has been chosen by the Retirement Board to succeed Asbury. Nehf, who is currently the executive director of the Employees' Retirement System of Georgia, will begin at STRS Ohio on July 1.

RETIREMENT BOARD ACCEPTS ANNUAL INVESTMENT PLAN The Retirement Board voted to accept an Annual Investment Plan for fiscal year 2009 (July 1, 2008-June 30, 2009) following a presentation by members of the system's Investment Department and input from Russell Investments, the board's investment consultant. The plan details staff's investment strategy for each asset class (liquidity reserves, fixed income, domestic and international equities, real estate and alternative investments).

STRS Ohio staff expects the U.S. economy to rebound to more normal levels in the second half of fiscal year 2009, and core inflation (excluding food and energy) to remain moderate. Domestic and international equities are expected to post "slightly above normal" returns, due in part to moderate valuations at the beginning of the fiscal year as well as improved economic and profit forecasts. Staff also forecasts "slightly above normal" returns for fixed income investments, as the worst of the credit crisis appears to be over. Returns for real estate are expected to be "below normal" following several years of excellent returns.

Overall, STRS Ohio expects its total fund to return approximately 7.4% in fiscal year 2009, slightly below the system's actuarial assumed rate of return of 8%.

FISCAL YEAR 2008 BUDGETS ADOPTED The Retirement Board adopted the proposed budgets for fiscal year 2009 (July 1, 2008-June 30, 2009). The adopted operating budget totals $714,700 less than the one originally presented to the board in April, due to staffing changes in STRS Ohio's Information Technology Services Department. The approved operating budget now stands at $98,822,500, which represents a 2.9% increase over the current year's operating budget. The adopted capital budget for fiscal year 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.

NEW MEDICARE COORDINATION OF BENEFITS PROGRAM OFFERS $O COPAYMENTS Beginning Aug. 1, 2008, the STRS Ohio Health Care Program will offer a $0 copayment for designated Medicare Part B-covered drugs and supplies that are coordinated with Medicare. At its June meeting, the Retirement Board approved this program change for individuals who receive their prescription drugs through Express Scripts (enrollees in the Aetna, Medical Mutual and Paramount health care plans). The $0 copayment will apply to Medicare Part B drugs and supplies that are dispensed by a participating Medicare retail pharmacy or through Express Scripts' Medicare Part B mail-order pharmacy, NationsHealth.

Select medications in the following therapeutic classes are eligible for coordination under Medicare Part B: diabetic testing supplies; respiratory medications and nebulizers; and immunosuppressive, oral anticancer and oral antiemetic medications. When a pharmacy claim for one of these eligible drugs or supplies is coordinated with Medicare Part B, it means that the claim is submitted to Medicare first for primary payment and then to Express Scripts for secondary payment. This process is known as coordination of benefits.

Detailed information about this new program will be mailed to all eligible health care plan enrollees within the next few weeks.

BOARD ADDRESSES HEALTH CARE PROGRAM FOR SURVIVORS AND BENEFICIARIES For several meetings, the Retirement Board has discussed the impending changes that will affect STRS Ohio Health Care Program premiums for a number of survivors and beneficiaries in 2009.

Beginning on Jan. 1, 2004, subsidies for survivors and beneficiaries toward their health care plan premium were limited to five years, based on the deceased member's years of service at the date of death. At the end of this five-year period, these individuals are still eligible to participate in the health care program, but their premium increases to the applicable non-subsidized benefit recipient rate. Survivors and beneficiaries whose benefits began before Jan. 1, 2004, were also given the five-year period, which ends on Jan. 1, 2009. About 6,700 of the current 8,000 survivors and beneficiaries will be impacted by this change next year.

Recognizing that premiums will increase significantly for some of these survivors and beneficiaries on Jan. 1, 2009, the Retirement Board approved the expansion of the Health Care Assistance Plan (HCAP) at its June meeting to create a safety net for the low-income enrollees in this group. Beginning Jan. 1, 2009, those eligible for the program will include all survivors and beneficiaries of retired teachers with 25 years or more of service, and all survivors of disabled teachers or active teachers -- regardless of the deceased member's years of service. Eligibility for the program is based on an annual family income limit of $23,800 and a household liquid asset limit of $23,800. The HCAP offers a $0 monthly premium for the eligible survivor or beneficiary. The board also approved the continuation of the current premium program with a five-year subsidy period for survivors and beneficiaries. Recognizing the importance of not adding additional costs to the health care program, t he board noted that it will assure the cost-neutrality of expanding HCAP to additional participants as part of the health care strategic planning process that begins this fall.

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

• 654 active members were approved for service retirement; 103 inactive retirements were approved.

• In May, fixed-income purchases totaled $559 million, domestic equity purchases totaled $482 million and real estate purchases totaled $41 million.

ADDITIONAL ITEMS REPORTED AT THE MEETING BY EXECUTIVE DIRECTOR DAMON ASBURY

MANDATE PUT ON OHIO POLICE & FIRE PENSION FUND FOR A DIVESTITURE POLICY After more than a year of wrangling over divestiture of investment in companies doing business in Iran and Sudan, the debate may be coming to an end at the Statehouse. In June 2007, the five retirement system directors reached an agreement with Speaker of the House Jon Husted to ask their respective retirement boards to consider a voluntary policy of divestment while maintaining their first duty to the membership of the systems. In exchange for the policies, House leaders agreed to delay legislation that would have mandated divestment. The only public employee retirement system that resisted the call for a voluntary policy was the Ohio Police & Fire Pension Fund (OP&F). With the General Assembly's acceptance of the Conference Committee Report on the capital appropriations and budget correction bill this June, OP&F will be required to develop a policy for the divestment of holdings in certain companies with business ties to Iran or Sudan. While the divestment itself is still voluntary and subject to fiduciary duty, the parameters for OP&F are more detailed and less flexible than what the other systems had to deal with when creating their own policies. The provision in the capital bill is still subject to a line-item veto from Gov. Ted Strickland, but STRS Ohio is not aware of any discussion indicating he won't let the measure stand.

STRS OHIO RECEIVES CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association has awarded its Certificate of Achievement for Excellence in Financial Reporting to STRS Ohio for the 2007 Comprehensive Annual Financial Report. This is the 18th consecutive year STRS Ohio has received this national recognition.

PLEASE NOTE: In the Friday, June 20, 2008, e-mail version of Board News, there was a typographical error in the listing of the current 2008 premium for a spouse (non-Medicare) enrolled in Aetna's Basic Plan. The current monthly premium is $388, not $338. [Correction has been made in this blog. KBB]