Dave Speas to Laura Ecklar: Current retirees have born the greatest burden; COLA helps but doesn't go far enough as it is

Dave Speas to Laura Ecklar, July 9, 2009
Subject: Fw: Response to E-Mail

Laura, Thank you for your email. I am aware that this is a difficult time and have first hand knowledge of this type of situation. It is important for the board and ORSC to understand that current retirees have born the greatest burden in past emergencies. If they are going to reduce the COLA it should be done with a grandfather clause for current recipients and phased out or reduced for newer retirees.

It is important for the organization to take into consideration the hardships of older retirees who did not have the opportunity to work 35 years or plan for the loss of full medical care. I know whatever is done will be pounded, argued about, costed out many ways, and many compromises made. However, the current retirees deserve to be looked at as the ones who have paid the dearest price so far and the COLA based on their original retirement number helps but does not give them the opportunity to "gain ground" on their living expenses.

I am 70 and God has given me the health to hold a second job. Many are not in that position and I feel guilty sometimes when I look at an over 10% unemployment rate in Ohio and that I may be keeping some young man or woman from supporting their family. No matter what cuts are made, I want the board to understand that I feel this one item is a frightful price to ask older retirees to pay once again.

I will share this with our Clark County retirees and with others who are interested in this situation that we find ourselves in right now. I am praying that the wisdom of all involved will come to a conclusion that will protect those who cannot change their situation and make the system solvent for my son and all who will retire in the future. I know the difficulty first hand and do not under estimate the hard job the current board faces. I wish you all in the system the wisdom and the fortitude to be fair and equitable and success in saving STRS.

Please share my concerns and hope with the board and Mr. Nehf.

Dave

From Laura Ecklar, July 9, 2009
Subject: Response to E-Mail

Dear Dave,

Our executive director, Michael Nehf, has asked that I respond to your e-mail on his behalf. As always, we appreciate you sharing your viewpoints and concerns with us. As you noted, you have a unique perspective because of your former role as a board member and your involvement with retired educators.

As you know the Retirement Board is reviewing a number of options affecting future pension plan design and/or contributions. The downturn in the global financial markets has significantly reduced the value of STRS Ohio’s investment funds. Changing economic and demographic trends are also impacting the system’s pension fund. For example, life expectancies for our members have increased, but age and service requirements for retirement have not changed since 1976, resulting in benefits being paid for longer periods of time. Additionally, steady growth in the benefit formula, plus ad hoc improvements to already granted retiree pension benefits have increased the system’s liabilities over the years. Consequently, as we look long-term, we see that the reduced level of STRS Ohio’s investment assets, combined with future expected investment earnings and contributions, leave a shortfall in the funding of STRS Ohio benefits. Simply stated, the system will eventually be unable to pay members’ earned benefits unless changes are made.

In looking at its options, the Retirement Board has said “everything is on the table.” Changes under consideration that would impact current and future teachers include:

• Increasing contributions,

• Raising the minimum retirement age,

• Increasing the number of years used to calculate final average salary,

• Changing the COLA, and

• Changing the formula for calculating pensions.

A change to the COLA would also affect current retirees; however, a change in the COLA going forward has a much greater monetary impact on future retirees than current retirees. I would also like to make one additional point to ensure there is no confusion: any change to the COLA would not impact past COLAs that have already been added to a benefit.

STRS Ohio staff has been presenting sample scenarios to the board at its monthly meetings that are designed to give some sense of the cumulative effect various combinations of changes can have. The board’s goal is to reduce the liabilities of the pension fund and also possibly allow additional contributions to go toward the health care fund, which, as you noted, is also very important to many of our retirees.

This is a challenging period for public pension plans around the country, as it is for STRS Ohio and its members. There are no easy solutions. For probably the first time in its 89-year history, STRS Ohio is talking about reducing benefits. Future retirees could end up paying more in contributions for a longer period for a lesser pension benefit; current retirees’ pensions won’t change, but future COLAs could be reduced. However, as you know, Dave, from being a former board member, the board and staff are fiduciaries of the system and must do what is needed to ensure the long-term solvency of STRS Ohio. No decisions have yet been made and additional scenarios are being reviewed by staff for presentation to the board in August.

As always, thank you for writing, Dave. Your position will be shared with the board.

Laura Ecklar
Director, Communication Services