Dr. K.W. Fluke's address to the STRS Board, June 18, 2009
Impact of Inflation to Senior STRS Retirees
With the present stimulus activities in Washington, it is only a matter of time until inflation is noted. With the STRS Board considering various scenarios, it is timely to review what has been the experience of the senior retiree for the past twenty years.
There are only three ways that STRS has provided inflationary help:
1) The Ad Hoc raise has not been presented since 1986. That Ad Hoc with changes was capped at 85%. The active members of STRS received at this time a provision for 35 years+ which could in a ffew years provide 100% of the final average. For example, regarding salaries the retirees of many years ago might have had $40,000 and the person in the same category of teaching receives $80,000 today. See copy 2000-2001 STRS report which emphasizes the importance of inflation protection via the Ad Hoc.
2) There has not been a 13th Check in approximately 10 years. If we can give bonuses to investors and we recognize the market has been down and senior investors have lost individual investment money and are at an age that they cannot recoup this, it seems that instead of investor bonuses STRS should use part of this money toward the reintroduction of 13th checks. We are aware that STRS received lawsuit monies that could have been re-legislated to go toward a 13th check.
3) There has been 3% Cost-of-Living for the past 20 years. This was locked in by STRS in 2000-2001. The U.S. Department of Labor has indicated a 3.1% Cost-of-Living for each of the past 20 years. At a STRS April 30th, 2009 Investment Merrill meeting in Akron, Ohio, the presenter indicated a 3.1% Cost-of-Living. Currently, there is a difference in the CPI for seniors in comparison to the general CPI. See materials attached which show extremely high CPI for senior housing (nursing home, home care), and health costs. Health costs escalate with age. Government statistics indicate the average life expectancy of males at 75 years, females 80 years.
The Kiplinger Letter, dated June 12, 2009, indicates a rise in inflationary rates. This was not evident in previous monthly publications. Various economists have recognized that our financial climate is signaling imminent inflation. The cost of an ounce of gold is nearing $1000 and usually increases with inflation. I have watched this inflation scenario for over 20 years as the Legislative Chair of the Summit County Retired Teachers (SCRTA).
Please do not lower inflationary protections such as the 3% Cost-of-Living.
Legislative updates
Substitute Senate Bill 190 passes Senate
Sub. S.B. 190, containing one of the most significant benefit improvement packages in STRS Ohio's history, cleared the first chamber on Feb. 16, passing in the Ohio Senate 26-0 with four abstentions.
Sen. Louis Blessing (R-Cincinnati) introduced S.B. 190 in October. The Senate Ways and Means Committee heard sponsor and proponent testimony on Oct. 12. Proponent testimony was given by the Ohio Education Association, Ohio Federation of Teachers, Ohio Retired Teachers Association, Buckeye Association of School Administrators and Ohio Association of School Business Officials. The Ohio Retirement Study Council reviewed the bill for several months and on Feb. 9 recommended approval by the General Assembly.
Sub. S.B. 190 now goes to the House of Representatives, where it will be carried by Rep. Dale Van Vyven (R-Sharonville), chair of the House Health, Retirement and Aging Committee. The State Teachers Retirement Board remains hopeful of the bill's passage by the end of May or June.
The bill includes three primary benefit enhancements:
• For retirees -- an inflation protection component. All benefits would be recalculated using the current 2.1% formula. Any benefit that still falls below 85% of the purchasing power of the original benefit would be increased to that level.
• For future retirees -- the benefit formula would be increased from 2.1% to 2.2% for all service. For teachers with 35 or more years of contributing service the formula for the first 30 years would be changed to 2.5%. Service over 30 years would be calculated under current law.
With the present stimulus activities in Washington, it is only a matter of time until inflation is noted. With the STRS Board considering various scenarios, it is timely to review what has been the experience of the senior retiree for the past twenty years.
There are only three ways that STRS has provided inflationary help:
1) The Ad Hoc raise has not been presented since 1986. That Ad Hoc with changes was capped at 85%. The active members of STRS received at this time a provision for 35 years+ which could in a ffew years provide 100% of the final average. For example, regarding salaries the retirees of many years ago might have had $40,000 and the person in the same category of teaching receives $80,000 today. See copy 2000-2001 STRS report which emphasizes the importance of inflation protection via the Ad Hoc.
2) There has not been a 13th Check in approximately 10 years. If we can give bonuses to investors and we recognize the market has been down and senior investors have lost individual investment money and are at an age that they cannot recoup this, it seems that instead of investor bonuses STRS should use part of this money toward the reintroduction of 13th checks. We are aware that STRS received lawsuit monies that could have been re-legislated to go toward a 13th check.
3) There has been 3% Cost-of-Living for the past 20 years. This was locked in by STRS in 2000-2001. The U.S. Department of Labor has indicated a 3.1% Cost-of-Living for each of the past 20 years. At a STRS April 30th, 2009 Investment Merrill meeting in Akron, Ohio, the presenter indicated a 3.1% Cost-of-Living. Currently, there is a difference in the CPI for seniors in comparison to the general CPI. See materials attached which show extremely high CPI for senior housing (nursing home, home care), and health costs. Health costs escalate with age. Government statistics indicate the average life expectancy of males at 75 years, females 80 years.
The Kiplinger Letter, dated June 12, 2009, indicates a rise in inflationary rates. This was not evident in previous monthly publications. Various economists have recognized that our financial climate is signaling imminent inflation. The cost of an ounce of gold is nearing $1000 and usually increases with inflation. I have watched this inflation scenario for over 20 years as the Legislative Chair of the Summit County Retired Teachers (SCRTA).
Please do not lower inflationary protections such as the 3% Cost-of-Living.
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From STRS, February 25, 2000Legislative updates
Substitute Senate Bill 190 passes Senate
Sub. S.B. 190, containing one of the most significant benefit improvement packages in STRS Ohio's history, cleared the first chamber on Feb. 16, passing in the Ohio Senate 26-0 with four abstentions.
Sen. Louis Blessing (R-Cincinnati) introduced S.B. 190 in October. The Senate Ways and Means Committee heard sponsor and proponent testimony on Oct. 12. Proponent testimony was given by the Ohio Education Association, Ohio Federation of Teachers, Ohio Retired Teachers Association, Buckeye Association of School Administrators and Ohio Association of School Business Officials. The Ohio Retirement Study Council reviewed the bill for several months and on Feb. 9 recommended approval by the General Assembly.
Sub. S.B. 190 now goes to the House of Representatives, where it will be carried by Rep. Dale Van Vyven (R-Sharonville), chair of the House Health, Retirement and Aging Committee. The State Teachers Retirement Board remains hopeful of the bill's passage by the end of May or June.
The bill includes three primary benefit enhancements:
• For retirees -- an inflation protection component. All benefits would be recalculated using the current 2.1% formula. Any benefit that still falls below 85% of the purchasing power of the original benefit would be increased to that level.
• For future retirees -- the benefit formula would be increased from 2.1% to 2.2% for all service. For teachers with 35 or more years of contributing service the formula for the first 30 years would be changed to 2.5%. Service over 30 years would be calculated under current law.
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(Click images to enlarge.)
posted by Kathie Bracy at 11:21 PM
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