Report on December STRS Board meeting

From STRS, December 11, 2009

This 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 December report follows.

DECEMBER BOARD NEWS

REP. TODD BOOK TO SHEPHERD HIGH-PROFILE ISSUES

State Rep. Todd Book, who currently serves as the chair of the Ohio Retirement Study Council (the legislative oversight body for the five Ohio pension systems), recently announced he is bowing out of the race in the second congressional district to focus on issues of high visibility at the Statehouse, including public pension issues.

Related to the anticipated legislation focusing on the five pension systems, the State Teachers Retirement Board approved additional proposed changes to pension benefits during its December 2009 meeting. These changes would have minimal or no impact on the current solvency status of STRS Ohio's pension fund. These changes also require legislation to be implemented; there may be an opportunity to include them in the above-mentioned pension legislation. The proposed changes include: increasing the cost for purchasing most types of service credit; tightening up the eligibility requirements to receive disability benefits (new STRS Ohio members only), and limiting the amount of credit given when members return to work following disability (all STRS Ohio members); and tightening up the eligibility requirements to receive survivor benefits (new STRS Ohio members only). The board will consider implementation dates and options for these changes in January.

2009 ANNUAL FINANCIAL STATEMENT AUDIT COMPLETED

Clifton Gunderson reported the results of its audit of the STRS Ohio financial statements for the fiscal year ended June 30, 2009, at the December board meeting. The report noted that the system's financial statements were fairly stated in accordance with generally accepted accounting principles; further, no material weaknesses in internal controls or instances of statutory noncompliance were found. As a result, STRS Ohio received a "clean" audit known as an unqualified opinion, which is the highest level of opinion that an organization can receive.

STRS Ohio's financial statements are included in the Comprehensive Annual Financial Report, which can be accessed through the STRS Ohio Web site (http://www.strsoh.org/pdfs/CAFR2009/2009_CAFR.pdf). Copies of the report can also be requested by calling STRS Ohio's Member Services Center toll-free at 1-888-227-7877. Included in this report is a detailed look at STRS Ohio's investment activities, plus financial, actuarial and statistical information for fiscal year 2009 (July 1, 2008-June 30, 2009).

BOARD REDUCES INVESTMENT COMPENSATION

At its December meeting, the Retirement Board approved two changes to the compensation structure for STRS Ohio Investment Department positions. Compensation for these associates includes both fixed pay (base salary) and variable pay (pay that is "at risk). The variable pay is awarded through the Performance-Based Incentive (PBI) Program. First, the board approved reducing the variable pay by lowering the maximum PBI payouts. Second, the board approved targeting compensation for PBI-eligible associates at the median compensation level of a blended mix of 50% large/leading public funds and 50% private sector firms for comparable investment positions. As an additional frame of reference, the bottom 25th percentile of the private sector (actual total compensation) may be used for positions in which there are insufficient public sector comparisons.

As a result of this board action, total incentive opportunities for this fiscal year will decline by 13% or $2.8 million and total compensation (base salary plus maximum PBI) will be 1% below the median of the blended mix of large/leading public fund and private sector firms.

At previous meetings, the board has already approved these PBI Program changes:

- No incentives will be paid when the total investment fund does not achieve a positive absolute return, beginning this fiscal year.

- Incentives will be reduced by 3% for each billion the total investment fund is below $65 billion at the end of any fiscal year.

- PBIs will be increased by 8% if the total investment fund's absolute return exceeds +8.5% and the net relative return exceeds 60 basis points but less than 100 basis points; or increased by 12% if the total fund's absolute return exceeds +8.5% and the net relative return equals 100 basis points or more.

In addition, the number of eligible associates in the PBI Program has been reduced to 80 from 90.

The internal management of STRS Ohio's investment assets - versus using outside money managers - saved STRS Ohio about $112 million in fees in calendar year 2008 alone.

RETIREMENTS APPROVED The Retirement Board approved 118 active members and 92 inactive members for service retirement benefits.

ADDITIONAL ITEMS REPORTED BY EXECUTIVE DIRECTOR MICHAEL J. NEHF

STaRS IMPLEMENTATION BEGINS THIS MONTH

In 2006, work began at STRS Ohio to replace the pension management computer system known as Legacy. This month, the new STaRS system is being fully implemented for use by associates. This multiyear undertaking involved associates in Information Technology Services, Member Benefits and Finance, plus an outside vendor. The project involved replacing the entire infrastructure of STRS Ohio's pension management system, including benefits processing and payments, employer payroll reporting, call tracking and electronic workflow. It also affects how members and employers interact with STRS Ohio through the use of the Web sites for business purposes (e.g., employer reporting functions) or to access personal account information or other services.

HEALTH CARE OPEN ENROLLMENT ENDS FOR CALENDAR YEAR 2010

The annual health care open-enrollment period ended Nov. 24. The changes made to the STRS Ohio Health Care Program for 2010 generated about 20,000 calls to the Member Services Center. In addition, nearly 9,700 retirees attended one of the 61 Health Care Plan Highlights meetings presented by the Member Education Department around the state. Of the more than 4,800 individuals who completed a survey after the meeting, 98% stated STRS Ohio staff "met or exceeded their expectations" and 41% rated the presentation a "perfect 10."

Preliminary results show that less than 2,000 individuals who had been placed in the new Medicare Advantage Plan - Aetna Medicare Plan (PPO) - "opted out" and enrolled in the Medical Mutual Basic Plan or a regional fully insured plan (AultCare, Paramount or Kaiser Permanente). More than 62,000 benefit recipients and their family members with Medicare Parts A & B remained in the Aetna Medicare Plan. Overall, about 3,500 plan changes were made. Additional open-enrollment results will be available in January.