Molly Janczyk: Conversation with Gary Russell

From Molly Janczyk, November 11, 2009
Subject: FW: Reality: ORC: Reduced pensions, changing law, investments, benefits for actives and retirees
I just got off the phone with Gary Russell from STRS: Director of Member Services. He was so knowledgeable and profoundly helped me understand many current concerns. 888-227-7877; russellg@strsoh.org

Gary agreed to be included on this email for accuracy and went into great depth to ensure that I understood his comments. He was more than wonderful, approachable and wishing to be interactive and presented multiple sides of the discussion which assisted me greatly in understanding the position of actives and retirees.

1. Can the ORC be changed to allow reductions in current pensions? YES.

BUT, I learned being vested has layers. At 5 years , you are vested but not a current recipient of benefits.

Current recipients of retirement benefits have the greatest protections. Nothing can happen to our benefits short of beyond worse case scenarios. Even then, COLAS could be eliminated to keep current benefits coming. Eliminating COLAS would bring the unfunded liability down to 30 yrs. NOW. For me, that is a no brainer: nothing vs. current benefits. I can adjust the $80 clear a month far easier than no pension check at all. But, again, lots of options would come before this. And this is most likely the worst case scenario.

PLEASE READ THIS CAREFULLY:

We are at infinity for unfunded liability. This means STRS will stop paying IF NO CHANGES are made such as increased contributions, changes in COLAS, increases of ages for retirements, etc. IF legislators do not vote for changes, money will run out.

Without employer increases but with employee increases, we will drop to approx. 45 yrs unfunded liability. (Think of it as a mortgage debit). If no employer or employee contributions are increased, we stay at infinity. Actives are lobbying legislators who depend on their votes. Retirees lobby their legislators who depend on their votes regarding COLAS. Again, if COLAS are eliminated, STRS is immediately at 30 yrs. unfunded liability.

Realistically, employer increases may not happen because taxpayer ARE NOT SYMPATHETIC to public employees who can retire at early 52 with full benefits. Taxpayers are overwhelmingly private employees and have seen their benefits drop or be eliminated altogether, 401K's drastically reduced or eliminated.

Gary said, unless you live in a hole: "Taxpayer outlook toward public benefits is at its lowest ever." They are calling and writing their legislators.

STRS feels eliminating COLAS altogether is a hardship on retirees and is attempting to give legislators several options as you have seen outlined by increasing age for retirement, eliminating the 35 yr rule, and asking for increased contributions.

Actives are calling STRS with these comments:

1. Actives don't feel health care is important feeling they will never benefit from it. Forget the 1% to health care and direct it to pensions as we will never see HC anyway.

"The worst retirees will ever see is better than the best we will ever see for healthcare."

2. We will never have 3% COLAS which retirees had for a long time and variable COLAS before that.

We will only have 1.5% ever IF we even get COLAS.

3. We will always have to pay for our spousal HC premiums and retirees had some years of nearly nothing with graduated increases we will never see IF we even still have HC.

4. Retiring with higher salaries is proportionate to the times when more money is needed as we will be paying for our healthcare or higher costs for it.

5. Current retirees could retire at 52, we will have to go much longer for full benefits.

6. They got 13th cks for a long time and we will never see extra checks.

Retirees write and call not to reduce their benefits but without changes, STRS will stay at infinity and stop paying. STRS cannot pay without changes. Actives will be under these pending changes.

II: Investments: Risks

Current retirees have what they do because of high risk investments. We wouldn't have the benefits we do now if we hadn't had high returns and low risk. Pension systems nationally are similarly dependent if looked at long term and similar in size and need for pay out as STRS. Protections: None

Either cut more benefits NOW then proposed in COLAS, age of retirements, etc. OR keep 8% projections now and cut later if needed. If we stay at infinity (ability to pay pensions), STRS will stop paying eventually. Some feel legislature will save us but again, they answer to taxpayers who do not have sympathy for us. They retire under much reduced benefits of Soc. Sec. and have lost all or much of their investments, pensions, etc.

IF STRS comes upon better times and unfunded liability shrinks much below 30 yrs, STRS will have a choice to :

1. not be so dependent on risk of the market and slowly over time reduce its projection to 7%

OR

2. increase contributions to the Health Care fund

Can't have both low risk or moderate risk and high returns to meet liability-ability to pay pensions long term.

We are at less than 10 yrs for health care funding dependent on 8% returns.

We have benefits now from 8% projections.

IF we lowered the projection now to even 7%, the impact would probably be to further lower or elim. COLAS and/or the 2.2% would have to be lowered so less per month through legislation.

We cannot simply shoot out reductions without serious ramifications.

Question to Gary:

Do you feel it will ever come to lowering current retirees' pensions: "No, but STRS that STRS cannot pay without changes which neither retirees nor actives want and without a projected 8% return."

Molly Janczyk
STRS Retiree