Thursday, December 03, 2009

Report on November 2009 STRS Board meeting

From STRS, November 23, 2009

Last 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 November report follows.


DRAFT PENSION LEGISLATION UNDER REVIEW Following the September 2009 presentations to the Ohio Retirement Study Council (ORSC) by the five retirement systems, the recommendations were forwarded by Rep. Todd Book's office to the Legislative Service Commission (LSC) to be drafted into legislation. In November, STRS Ohio staff received a copy of draft bill language pertaining to Ohio Revised Code, Section 3307, which are the statutes governing STRS Ohio. Staff is in the process of reviewing the language drafted by LSC to ensure it correctly interprets the proposed contribution and pension plan changes unanimously adopted by the State Teachers Retirement Board on Sept. 1. In the meantime, STRS Ohio Executive Director Mike Nehf and Governmental Relations staff are also meeting with Ohio legislators, explaining to them the proposed plan, why the changes need to be made and the consequences if these recommendations or something close to them are not adopted by the Legislature. It is anticipated that a comprehensive piece of legislation that brings together all five systems' recommendations will be available later this year or in the early part of 2010.

BOARD REVIEWS RECOMMENDATIONS FOR INVESTMENT COMPENSATION Earlier this year, at its September 2009 meeting, the State Teachers Retirement Board asked the compensation consulting firm, McLagan, to conduct a compensation analysis of STRS Ohio Investment Department positions, given the recent economic crisis. The board also asked for a recommendation regarding an appropriate mix between base pay and incentive pay to use for total compensation, based on reviewing public and private sector data. A compensation structure for investment associates that includes both fixed and variable pay (pay that is "at risk") is a commonly accepted practice in both large public funds and in private sector firms. At STRS Ohio, this variable pay is awarded through the Performance-Based Incentive (PBI) Program.
At the November board meeting, McLagan presented its report that included a recommendation calling for a reduction in incentive pay for eligible Investment Department associates by lowering maximum PBI payouts. Further, STRS Ohio staff recommended 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. Currently, total compensation for STRS Ohio's investment associates is targeted at the lower 25th percentile of the private sector market.

If the proposed changes are approved by the board at its December meeting, total incentive opportunities for fiscal year 2010 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 changes to the PBI Program going forward:

- No incentives will be paid when the total investment fund does not achieve a positive absolute return.
- 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 individuals 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.

RETIREMENTS APPROVED The Retirement Board approved 267 active members and 212 inactive members for service retirement benefits.


HEALTH CARE OPEN ENROLLMENT CONTINUES THROUGH NOV. 24 The annual health care open-enrollment period is under way through Nov. 24. The changes being made to the STRS Ohio Health Care Program for 2010 generated a record number of calls to the Member Services Center and sold-out attendance at the 60 Health Care Highlights meetings. Much of the activity is connected to the new Medicare Advantage plan, Aetna Medicare Plan (PPO). To help enrollees understand the eligibility and coverage details of the new plan - as well as other changes occurring in the health care program - a series of "frequently asked questions" has been added to the STRS Ohio Web site ( Since their posting, there have been more than 2,700 visits to this portion of the Web site.

SWITCH TO GENERIC MEDICATIONS IS SAVING MONEY FOR STRS OHIO MEMBERS AND THE HEALTH CARE FUND The Low-Cost Generic (LCG) Drug Program implemented in June is already generating significant savings. Under this program, enrollees in the Medical Mutual, Aetna and Paramount health care plans can receive a 90-day supply of more than 200 generic medications for just a $9 copayment through Express Scripts home delivery. From June through September 2009, more than 26,000 prescription drug claims were processed at mail service under the LCG Plan. Program enrollees saved $271,000 in copayments and $404,000 was retained in the Health Care Stabilization Fund.

Call4Generic was also implemented by Express Scripts for STRS Ohio in July 2009. This program encourages the use of generic medications through targeted outreach by Express Scripts. Individuals and their prescribing physicians are identified through claims review of medication classes, in which a brand-name medication was filled that has a clinically appropriate generic. If the enrollee and physician agree to the switch from a brand to the generic, a prescription is obtained from the physician. For the period of July through September 2009, the conversion rate to generic drugs was 12.1%. This has resulted in copayment savings of $270,000 for health care program enrollees and the additional retention of $740,000 in the health care fund.
The greatest reduction in prescription drug costs can be realized through increased use of generic drugs. These two programs have contributed to an increase to 61.3% from 56.4% generic utilization at mail service, and an overall increase in generic utilization to 65.1% from 63.5% for the period of July through September 2009, as compared to March through May 2009.

RETIREMENT BOARD ELECTION PROCESS BEGINS THIS MONTH On Nov. 13, notices were sent to all STRS Ohio reporting employers and other interested parties about the upcoming Retirement Board election for two contributing member seats. In addition, information is posted on the STRS Ohio Web site. Individuals interested in running for one of these seats can request petitions from STRS Ohio by calling toll-free 1-888-227-7877. The deadline for returning petitions is Feb. 26, 2010.
Larry KehresMount Union Collge
Division III
web page counter
Vermont Teddy Bear Company