STRS June Board News

From STRS, June 22, 2009
Subject: [News] June Board News Details Retirement Board Actions and Discussions

Last 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; CERVANTES RECOGNIZED FOR SERVICE During its June meeting, the State Teachers Retirement Board elected Tim Myers as its vice chair for the coming year. According to Board Policies, Mark Meuser, who is currently serving as vice chair, automatically moves into the position of chair. Normally, both Myers and Meuser would be moving into these leadership positions on Sept. 1, 2009. However, Mary Ann Quilter Cervantes, the current board chair, has announced her retirement from her position in the Oregon City Schools, effective June 30, 2009, and thus is resigning from the Retirement Board. As a result, both Meuser and Myers will assume their new responsibilities on July 1.

During the board meeting, a resolution recognizing Cervantes' service to the board was presented. The board expressed its appreciation for her valuable and dedicated service to STRS Ohio since being elected to the board in 2005.

RETIREMENT BOARD ADOPTS ANNUAL INVESTMENT PLAN The board voted to accept the Annual Investment Plan for fiscal year 2010 (July 1, 2009-June 30, 2010). The plan details staff's investment strategy for each asset class comprising the system's investment fund.

STRS Ohio staff expects continued declines in economic activity over the remainder of fiscal year 2009. However, sluggish economic growth should return in the first half of fiscal year 2010, before giving way to a more sustainable growth pattern in the second half. A continued drawdown in the supply of new and existing homes should stop the home price decline. When home prices finally stabilize, it should set in motion a chain of events that could lead to further easing in key interest rate spreads, that then would improve the flow of credit and unleash the full force of the fiscal and monetary policy stimulus. Overall, STRS Ohio expects its total investment fund return to be slightly below the system's actuarial assumed rate of return of 8%. The Fiscal 2010 Investment Plan can be accessed on the STRS Ohio Web site (http://www.strsoh.org/pdfs/Invest_Plan_09-10.pdf) or obtained by calling STRS Ohio's Member Services Center toll-free at 1-888-227-7877.

FISCAL YEAR 2010 BUDGETS ADOPTED The Retirement Board adopted the proposed budgets for fiscal year 2010 (July 1, 2009-June 30, 2010). The adopted operating budget totals $87,920,000, which represents a $10.9 million, or 11% decrease, over the current year budget and is the lowest operating budget in four years. It also represents a 2.3% reduction ($2.1 million) from projected expenditures for this current year. The approved capital budget for fiscal year 2010 totals $1,418,900. Additionally, the system expects to spend $2,755,000 on the project that is under way to replace STRS Ohio's obsolete pension management computer system.

LONG-TERM CONTINGENCY PLANNING DISCUSSION CONTINUES The downturn in the global financial markets has significantly reduced the value of STRS Ohio's investment funds. As of May 31, 2009, the preliminary value of STRS Ohio's investment assets stands at $53.4 billion, down from $70.4 billion at the start of the fiscal year on July 1, 2008. Further, changing economic and demographic trends, such as STRS Ohio members living longer, continue to impact the system's pension fund. Consequently, STRS Ohio will eventually be unable to pay members' earned benefits unless changes are made.

The challenge the Retirement Board faces is assembling a combination of changes that will restore the pension fund to a 30-year funding period in a reasonable amount of time, while also allowing additional employer contributions to go to the Health Care Stabilization Fund and extend the life of the STRS Ohio Health Care Program. In June, the Retirement Board continued to discuss available options for addressing future liabilities. For its August meeting, the board asked staff to run some additional models that would contain the following options:

- An increase in member/employer contributions of 5%, phased in over a five-year or 10-year period. The board also asked that models be run with only a 2.5% contribution increase.

- Eligibility for retirement at age 60 with 30 years (with an actuarial reduction in the pension benefit for retirement earlier than age 60) or with 34 or 35 years of service, regardless of age.

- A retirement formula that would provide 2.2% for the first 33 years and some additional percentage for subsequent years that would provide 88.5% of final average salary at 38 years of service.

- Final average salary based on five years.

- A 3% cost-of-living adjustment (COLA) for three years, then 1.5% annually for those who are age 65 or older.

The board also asked staff to model the impact of delaying some changes to three years versus delaying them for five years, as well as look at provisions for helping lower income retirees with 25 or more years of service (similar to how the Health Care Assistance Program is structured).

STRS Ohio, as well as the four other public pension systems in Ohio, must present their board-approved plans for ensuring the long-term solvency of their systems to the Ohio Retirement Study Council at its Sept. 9 meeting. (The ORSC is the legislative oversight body for the five systems.) In late May, the ORSC staff presented a list of options for the systems to evaluate -- most of which are already being looked at by STRS Ohio.

HEALTH CARE PROGRAM CHANGES APPROVED FOR 2010 During its June meeting, the Retirement Board approved several changes to the STRS Ohio Health Care Program, as well as approved premiums for all health care plans for calendar year 2010.

Beginning on Jan. 1, 2010, Medical Mutual will be the only administrator for STRS Ohio's self-insured Plus and Basic plans; Aetna will no longer be used. Results of an extensive review process conducted in conjunction with the Ohio Public Employees Retirement System (OPERS), School Employees Retirement System (SERS) and Highway Patrol Retirement System (HPRS) showed that Medical Mutual's significantly lower administrative fees and better provider discounts could save $8.7 million for the STRS Ohio Health Care Program. Further, Aetna's continually higher premiums for non-Medicare enrollees compared to Medical Mutual was resulting in fewer and fewer STRS Ohio members choosing an Aetna-administered plan before reaching age 65. Individuals residing in the Cleveland, Canton and Toledo areas will continue to have the option of enrolling in the fully insured plans offered in their respective areas (AultCare -- Canton area, Kaiser Permanente -- Cleveland area and Paramount -- Toledo area), as well as the Medical Mutual options noted previously. STRS Ohio's initial contract with Medical Mutual will extend to Jan. 1, 2015. Express Scripts will continue to provide prescription drug coverage.

For 2010, STRS Ohio will also provide a new STRS Ohio-designed Medicare Advantage Plan through Aetna. STRS Ohio benefit recipients who have both Medicare Parts A & B and are currently enrolled in the Aetna or Medical Mutual Plus or Basic plans will be automatically enrolled in the Medicare Advantage Plan. They also will have the option of selecting the Medical Mutual Basic Plan.

Medicare Advantage Plans have been used successfully the last two years by both OPERS and SERS members. The Aetna Medicare Advantage Plan that STRS Ohio is offering provides a number of benefits to its enrollees including:

- Lower premiums and a $1500 maximum in out-of-pocket costs [This $1,500 includes all copayments, the $500 deductible and coinsurance.]

- Low office copayments of $15

- Ability to see any physician who accepts Medicare

- Unlimited lifetime maximum coverage

- Administrative simplicity (no claims coordination required)

- Preventive services covered at 100%

- Value-based prescription program for diabetics

- Gym memberships

- Care management resources (including help for dementia and depression, as well as social service issues)

- Discounts for eyewear and hearing aids

- Vision and hearing screenings

To provide an idea of the premium savings to STRS Ohio enrollees, the monthly premiums for a 30-year retiree in the Aetna Medicare Advantage Plan in 2010 will be $58, compared to the 2009 Medical Mutual Plus Plan monthly premium of $73. The spouse premium under the Aetna Medicare Advantage Plan will be $231 in 2010 versus $336 per month in 2009 in the Medical Mutual Plus Plan. Overall, this change to a Medicare Advantage Plan could result in premium savings of $24.6 million for STRS Ohio benefit recipients and their family members, as well as $25.9 million less from the Health Care Stabilization Fund, if all Medicare Parts A & B enrollees stay in the Medicare Advantage Plan.

Individuals who prefer the Basic Plan can "opt out" of the Medicare Advantage Plan and choose the Medical Mutual Basic Plan or one of the regional options if applicable (AultCare, Kaiser Permanente or Paramount) during this fall's open enrollment.

The Medical Mutual Medicare Plus Plan option will only be available for Medicare Part A-only and Medicare Part B-only enrollees; non-U.S. residents; and "split family" accounts (accounts where the health care plan participants include both Medicare and non-Medicare enrollees).

Additional information about the 2010 STRS Ohio Health Care Program will be provided in upcoming newsletters and on the STRS Ohio Web site, as well as through personalized mailings sent to all STRS Ohio benefit recipients in October. Premiums for all plans for 2010 will be posted on the Web site by June 26. This year's health care plan open-enrollment period will run from Nov. 1-24, 2009.

RETIREMENTS APPROVED The Retirement Board approved 438 active members and 96 inactive members for service retirement benefits.