Brown County: Todd Book reports on teachers' retirements

From John Curry, October 23, 2009

newsdemocrat.com, October 23, 2009

Book reports on teachers’ retirements

GEORGETOWN - State Representative Todd Book and representative for the Ohio Federation of Teachers, Darold Johnson, visited Georgetown Junior and Senior High School Monday, Oct. 19 to discuss proposed changes to the state’s five public retirement systems.

The discussion focused mainly on the three systems that effect schools but data was provided for the police, fire, and highway patrol systems.

Book serves on the Retirement Study Council which oversees the five retirement systems. The study council asked the boards overseeing the five systems to submit suggested changes that would bring them into compliance. Book said the General Assembly will begin drafting legislation to make the recommended changes in three to four months. At that time they will begin discussing the changes.

“It’s our job to look over the system and make sure that when there’s changes that need to happen they are good changes and properly vetted,” Book said. “We want these systems to succeed. We want our retirement systems to be safe and we want people to get their checks when they retire.”

Book said all five systems are required to reach their funding requirements within a 30 year period according to state and federal law. Johnson said the 30 year requirement is designed so that a public employee, such as a teacher, works for 30 years and pays into the system for that length of time and on average they receive 30 years worth of benefits after they retire, so the system becomes self funding.

Currently two of the five systems are meeting their 30 year funding requirements. The Public Employees Retirement System and the School Employees Retirement System are fully funded. The State Teachers Retirement System is currently so far behind that without continuous new enrollment they would not be able to receive enough funds to meet their obligations.

“With these changes it brings (STRS) from infinity to 39 years,” Book said. “We’re still not quite there yet (fully funded) but we’re closer.”

The changes being considered would be made to contributions, retirement eligibility requirements, benefit accrual rates, Final Average Salary, Cost Of Living Adjustments, health care benefits, purchased service credit, and the mitigation rate for participants in a direct contribution plan. The PERS Board, which Book said has a history of proactively making changes, also made recommendations for changes in the part-time/full-time service credit, disability modifications, membership determination, retroactive benefits, and inter-system transfers.

The Ohio Police and Fire Pension Fund Board also had suggestions for Deferred Retirement Option Plan changes.

PERS and SERS made no recommendations for contribution changes. The STRS is asking for an employee contribution increase from 10 percent to 12.5 percent phased in at half a percent beginning July 1, 2011. They are asking for an employer contribution increase from 14 percent to 16.5 percent phased in at half a percent beginning July 1, 2016.

“If you increase the employee contributions enough we’ll be able to fix the problem but we realize that’s not very politically attractive at all right now, to raise the employee or employer costs,” Book said. “We asked the boards to give us some ideas, and that’s what they gave us.”

Suggested eligibility requirement changes for PERS are increasing the retirement age from 65 to 67 with five years of service and from 30 to 32 years of service for full benefits at any age. Early retirement eligibility age will be increased from 60 to 62 with five years of service and from 55 to 57 with 25 years of service with reduced benefits.

The changes for STRS are increasing normal retirement from 30 to 35 years of service at any age and 30 years of service after the age of 60. The STRS Board is suggesting increasing early retirement from 25 to 30 years of service with reduced benefits.

The SERS Board is recommending increasing normal retirement age from 65 to 67 with 10 years of service and from 55 to 57 with 30 years of service. Early retirement eligibility would not change.

SERS is not proposing any changes in their Final Average Salary calculation. PERS and STRS are recommending increasing the FAS from three years to five years. The PERS Board is also recommending limiting any increase in the average to 10 percent per year.

“Some of the problems we see with the three year average is you have the potential for people to spike, which means they may have been making a certain amount for 25 or so years of their work life and all of the sudden they get in a better position,” Book said. “Their retirement is going to be based on the (higher) figure and somebody’s got to pick up that difference and normally it’s everybody else in the system that does that. So going to a five year FAS as opposed to three will hopefully avoid some of those spiking problems.”

The PERS and STRS Boards are recommending changes to the Cost Of Living Adjustment. Book said COLA, which was introduced less than 10 years ago, is the biggest drain on the retirement system. The SERS Board is not proposing any changes.

The PERS Board is proposing that their COLA should be the actual change in the Consumer Price Index for Urban Wage Earners and Clerical Workers or three percent, which ever is lower. The change would be for future retirees only.

The STRS Board is recommending that their COLA should be reduced from three percent to two percent for current retirees and to 1.5 percent for future retirees.

Book said he is concerned that the STRS recommendations will cause teachers enrolled in the program to rush towards retirement, which is something the council and the boards want to avoid.

“We’ll definitely have to look at that and massage that because it doesn’t jive with their stated goal not to have this forced retirement,” Book said.

The second biggest drain on the retirement systems, health care benefits, are also reviewed. The STRS Board recommended no changes. The PERS Board is recommending reducing allocations to health care benefits from seven percent to 5.5 percent in 2009 and to four percent in 2010. The SERS Board is proposing reducing allocations to retiree health care benefits from 4.16 percent to 0.31 percent excluding the employer health care surcharge of 1.5 percent.

The GEVS teacher’s union president, Melissa Cropper, pointed out that passing a federally funded health care system would take the burden off of the state retirement system and allow the boards to reach their funding requirements much more quickly.

Book said the only portion of the recommendations that would absolutely be included in the final bill is changes in the purchased service credit. The PSC allows public employees to purchase retirement years they have procured in the private sector or the military and transfer those into their public retirement plan. Book said every elected official can purchase 35 percent of their earned years at about 27 cents per dollar. Every retirement system in the state has a similar policy. Book said the new legislation will require that time be purchased at a one to one ratio, meaning they will have to pay for 100 percent of the liability they are purchasing.