Molly Janczyk to Mike Nehf and STRS Board: STRS Pension fund guarantee?

From Molly Janczyk, November 3, 2008
Subject: Mr. Nehf and STRS Board: STRS Pension fund guarantee?

By law, STRS is obligated to administer pension to its contributors who meet requirements. ORC: 3307.58-3307.60

State laws treat this as a contractual right. However, the State of Ohio does not guarantee STRS pensions.

Thus, the language that STRS can meet its long term obligations and guarantees pensions based on its liquidity over time with constant incoming funding for ongoing present retirees. This is why the ORSC strongly backs the 30 yr. unfunded liability (think of it as a debt or mortgage of sorts). If we are at 47 yrs unfunded liability, we cannot pay off in the next 30 yrs. and instead of having a 30 yr mortgage, you are at a 47 yr. mortgage. If you are at infinity, you can never pay off.

30 yrs. is the target for all pension systems by ORSC decree. This keeps a rolling pay in and pay out healthy pension system. This is why, STRS and HCA decided not to pay ANY discretionary item until the 30 yr. unfunded liability is met along with an 80% funding ration.

My understanding is that is why the OF&P places its next generation of retirees in jeopardy with infinity liability figures. It takes care of today but does not consider a decade from now.

Of course, this is very sticky for retirees who have lost all their tiny benefits like 13th checks with no hope of return and endure hugely untenable health care increases with only simple 3% COLAS to meet higher annual costs. These COLAS do not come close to covering the enormous increases and so retirees lose more money each year.

That brings us to bonuses: We, as I did say to the Dispatch reporter as well, are very much appreciate our investment team and KNOW that they brought us back after a 2000 collapse. We did not object to their bonuses for doing so and recognized that they were talented and we needed to keep these individuals. We appreciate and laud their work on our behalf as we do all the STRS staff that are so responsive to us and caring in their approach. I personally have been treated with the highest degree of professional and approachable actions by STRS staff.

What is the problem: Again, STRS shareholders are hit when we could never recover from 'the burden of saving STRS health care heaped onto our backs due to no long term planning for a steady stream of revenue to the HCSF relying too heavily on the stock market.' (The late OFT President: Tom Mooney:2002/2003: I still have his letter which he allowed me to use in 2/03).

Just as with AIG, it is so terribly insensitive to shareholders to rub lavishness in their faces. We DO need the best and brightest-NO DOUBT! We do recognize they lost less that we could have. But, the bottom line is perspective and appearance to those for whom you work and owe your job as their would be no job without us.

The STRS pension system according the ORC is dictated to 'work solely on behalf of benefit recipients and their beneficiaries with prudence.' There are many ways to interpret those words, of course, depending on whether you are an investor or recipient.

Prudence: In times of extreme hardship for shareholders, it seems prudent to adjust a bit downward. For those making huge sums by our standards, that would go a long way to build trust. It is not unheard of for top officials not to take a raise or decrease their bonus amount due to the suffering of and insult to shareholders. AIG acknowledged the poor taste of going ahead with its lavish treatment even though the reward was for past performance. Of course, that is ONLY because they were in the media.

It seems prudent to look to this fiscal year and perhaps lower incentives based on this market or delay such lofty ones until we are back on track. I surely don't know the ultimate answer. But, I do know it is insulting to those who cut back or stop meds and treatments to buy food. I do know it is exquisitely painful to learn of such wealth in the face of trying to get by and save your home, ability to buy needed items, etc.

STRS has stated the average run for a talented investment employee is 2 yrs. They don't stay anyway though OPERS states it does not have the same departure problem. STRS says it save us huge amounts by doing in house and that this is the approved strategy. I have no reason to deny that and believe that to be true.

It is stated we would not know the bonus amount if most work was done out of house.

**QUESTION: Why not? Would it not have to be reported to the ORSC as outlay of money? I don't understand that.

Did the investment staff earn those bonuses? Pretty big in times of loss. It is also good business practice to earn bonuses when money is earned and not when money is lost. However, in bad markets, where does that leave us? The benchmarks and it is said that these investment staff met or went beyond the benchmark set.

It is and always will be a timely and sensitive issue. The question is: CAN WE NOT COME TO SOME DEGREE OF ACCEPTABILITY FOR ALL SIDES? We hear these investment staff are laughing and bragging about said bonuses. Harsh to hear. We are suffering and the message is: "Too bad! We got ours!"

Surely somewhere in the corporate minded though public pension status there is room for some degree of sensitivity to your shareholders and compromise can be approved. We are simple folks and we do not get it. We do not get what appears to be greed in the face of trauma. We do not get that taking pride in a job well done while looking at your 'class of benefit recipients' and determining appropriate for the times merit is not responsible and prudent.

You give us nothing to ease our pain? You find no new ways to help us a bit. Nothing out of the box is considered for us:

1. % of pension goes to health care instead of a set premium no matter if the recipient gets $600 a month or $5000. Grossly unfair.

2. Joining nationally with educator pension funds to offset costs. Is this not possible?

3. Reward career educators with lower sliding scale costs: premium, out of pockets and RX to keep educators in the contributing pool longer and not taking out until older.
30 yr. lower all costs down to 15 yr. higher costs.

Many of the 15 yr. educators had other jobs contributing to pension or could afford to stay home and have spouses to offset costs. This would be ONLY NEW RETIREES 5 OR MORE YEARS OUT AND ALL CURRENT RETIREES MAINTAIN SAME BENEFITS AS NOW HAVE.

4. Raise the retirement age as Soc Sec did with advance notice. Anyone 5 years out: 31 years for full retirement.
6 years out: 32 years ; if that seems harsh: 10 yrs out: 32 years.

5. Make the 35 yrs rule more equitable for any 5 or more years out. Create increasing %'s vs. a straight 88%.

There are many ways to create money and many ways to work numbers. We can all take the same numbers and make different scenarios and cases for our points.

My point is: Sensitivity to a generation of retirees who has been hit again and again and again with no relief in sight ever. Be us for a bit and live in our shoes. We are pencil marks on a piece of paper as I told Herb Dyer. We are suffering extreme out of pockets; we have all gone back to work if possible to pay for HC. We have had our retirements robbed from us. Now OEA, STRS and HCA are fighting for HB315. WHERE WERE THEY ALL THIS TIME WHEN SECURING FUNDING FOR HC WOULD HAVE OFFSET THIS DEVASTATION?? In fact, OEA and Dyer stated in the early 90's it was not necessary and Dyer said he wanted out of the HC business while OPERS was more prudent and long term thinking taking incremental steps that STRS should have been copying.

I paid a ridiculously low RX and premium cost in '99 when I retired. We were told we would never have to worry about HC as STRS had HC second to none. AFTER THE FACT of retiring , we were heaped upon going up 800% in costs on simple 3% COLAS. We have used our personal funds, sold homes, stopped meds, cut back on medical visits and treatments if we have them at all, gotten second and third jobs.

Put US up to the investment staff and ask what they might give up for us for a change. Ask yourselves at the top if you cannot cut a bonus or raise for needy retiree funding. It is NOT this amount won't affect change. A few hundred to a thousand for a needy retiree goes for a year of help. Make US your charity! Create a charitable fund for needy retirees. One bonus would help hundreds.

Be creative; find ways to help STRS shareholders by creating and giving to a new fund: HELP NEEDY RETIREES WITH HC FUND along with the assistance program!

It CAN be done.

Molly J.