Don Gatchell: Letter to Representative Todd Book and recommendations for the ORSC and Kevin Boyce

From Don Gatchell, October 12, 2009

Ross County Retired Teachers Association
1251 Betty Lane
Chillicothe OH 45601-1911

The Honorable Todd Book
Chairman, ORSC and
Representative, 89th House District, Ohio

Dear Chairman Book:

I am writing to you concerning the task that the ORSC has to review the Long-Term Contingency Plan submitted by the STRS and recommend new legislation to the Ohio General Assembly. As president of the Ross County RTA, I have conferred with many retired educators to reach the conclusions that I will highlight. Retirees do want the defined benefit plan to continue. We do feel that we have earned a secure retirement, that we have made sacrifices during our retirement years and now it is time that others put forth the necessary effort to see that our pensions and benefits are secure in the future. Retirees do know about the function of the ORSC and we do appreciate the work that the committee does to support us.

We believe that the STRS Long-Term Contingency Plan needs to be carefully reviewed, but represents good work by Michael Nehf, his staff and the STRS Board. Because of the high increases in teacher salaries over the last few years, we understand that they may have to make some sacrifices to insure the long-term solvency of the pension fund. Those of us who have been retired ten or more years have already made financial sacrifices. We lost the 13th check and the subsidy for the health insurance premium of our spouses. Our health insurance premiums have risen 95%. Hopefully, our benefits and pension will not be further battered in the near future. Our hope is that the long-term contingency plan for stabilization of the pension fund be “retiree-friendly” without being unfair to active teachers, school boards or the public, the tax-payers. I have some suggestions for amending the current plan based on consultations with other retirees throughout Ohio.

First, the COLA is a topic of contention. One way to handle this issue is to simply provide a COLA to only those retirees receiving below the median annual pension amount (c. $35, 000) . These are the retirees who truly need additional money to make ends meet. Some of the older retirees receive less than $1,000 per month. Do not provide a COLA to those receiving above the median dollar amount since they do not need that additional money immediately. In future years, active teachers will retire with a higher FAS (Final Average Salary) which will cause the pension average to rise so additional retirees will become eligible for the COLA. Therefore, as the years go by and the amount of a retiree’s pension loses some value and sinks below the median pension amount, he/she will become eligible for the COLA. In other words, the income trigger for the COLA would “float” upward as the median income increases over the years. Using this simple formula rather than a set dollar amount absolves the legislature of the constant duty to change the wording of COLA legislation. STRS should be charged with the duty of calculating the median pension every two years and adjusting the COLA of newly eligible retirees accordingly. A COLA of 3.5 % would seem to be appropriate and affordable for STRS based on the formula and by requiring that an individual be retired at least 5 years before being eligible for the COLA.

Second, the recommended increase in contributions from active teachers and school boards needs review. It would seem appropriate that the annual contribution % by teachers should increase more than the % by school boards. School boards already contribute 14% while active teachers only contribute 10%. Rather than the contingency plan promoting the same increase for both entities (2.5%), the actives should pay an additional phased-in 2.5 % and the school boards should not pay any more at this time. School boards are finding it difficult to fund current expenses due to the after-effects of the “economic meltdown”. If they have to go to the voters to fund an increased obligation to STRS, it would not be very popular with the public and could bring problems. Also, this issue related to school boards can be revisited in two years when the economy improves.

Third, the health insurance benefit, though not guaranteed by statute, was guaranteed in writing by the STRS staff who spoke to retirees in our “exit-interview” before we left the active ranks of teaching. A pension without a reasonable health insurance benefit is pretty empty. Our health insurance premiums have risen 95% over the last ten years, a hefty increase by any calculation. Some of us who are married and chose the better policy pay about $1,000/month or have almost $12,000 taken out of our modest pensions each year. I do think we pay more than our fair share. STRS needs to join with other large groups to help lower the cost of insurance especially the premiums of retirees. Also, the plan by STRS to join in the so-called Medicare Advantage Plan needs to be reviewed by ORSC because it seems to be more of an advantage for the insurance companies than it does for either STRS or retired teachers.

Fourth, the STRS investment staff seems to require a great deal of money to perform no better than other state pension funds that spend less money to arrange investments. In fact, the STRS staffers were given bonus payments (PBI) even though the pension fund lost substantial money. We retirees who invest successfully ourselves would like an independent review of the STRS investment program to answer some questions we have. Is it possible to do a better job with many fewer employees? Would it be better to hire an outside firm that has a history of excellent investment performance, e.g. Russell or Pimco or Fidelity, to improve the investment income while decreasing both risk and costs?

Finally, State Treasurer Kevin Boyce must appoint a voting member to the STRS Board. He has the statutory obligation to appoint an investment expert to the board. Kevin Boyce has waited too long to make a decision while this seat on the board remains vacant month after month. If ever STRS needed an investment expert on the board, it is now! I recommend that ORSC suggest to Mr. Boyce that Dr. Tom Hall be appointed as soon as possible. He is an active university educator who is interested in the position and who is an expert on investing. Dr. Hall is professor of economics at Miami University of Ohio, understands what a fiduciary responsibility is and has the best interests of the public, STRS and retirees in mind. He can be contacted at ph# 513-529-2862 or hallte@muohio.edu .

My wish is that the ORSC will assist the STRS Staff and Board in paying attention to their sworn fiduciary duty of preserving a stable defined-benefit pension fund for retired teachers. Please review my comments and let me know what you think about the chance the ORSC might consider my ideas. If you would like to speak to me in person, my contact information is listed below.

Sincerely,
Donald C. Gatchell
President, Ross County Retired Teachers Association
testguy@horizonview.net
#740-775-0512