Jim N. Reed: Perspective on STRS Board proposal to ORSC

From Jim N. Reed, September 3, 2009
Subject: STRS Board Proposal to Ohio Retirement Study Council

Kathie, I may be missing something as I attempt to digest the recommendations of the STRS Board to the ORSC as to the direction our retirement system must take to "recover" its equilibrium following the disastrous loss of more than 40% of our assets during the last two years.

The recent proposals might be described as, according to "The Columbus Dispatch", "Pension Pain." The reporter continues, "Now to make up for lost ground, the state's public workers might have to contribute more, and retirees could see benefits cut." This has forced the pension systems "to consider painful changes such as cutting the benefits of retirees and requiring those still working to pay more."

Among the proposals are:

a) Increase employee and employer contributions

b) Increase the minimum retirement age

c) Increase the number of years used to calculate the final average salary (FAS)

d) Eliminate, reduce or delay annual cost-of-living adjustments (COLA)

Anyone notice the conspicuous absence of cost-cutting within STRS? The silence is deafening.

I do not subscribe to the opine of those who say this is a "No Fault" collision between retired and active educators and their retirement system.

A decade ago it was obvious the system was being surely paralyzed by the decisions of unethical Board members and its Executive Director (according to judicial findings).

More recently, the decisions being made by investment staff were obviously suspect to say the least even though they were being rewarded for less loss by an insane PBI policy and a continuation of a salary scale of which most educators are totally unfamiliar.

Most indigestible are recent comments coming from STRS spokespeople, Board members and the ORSC as they attempt to justify these recommendations for a recovery policy. Also hard to swallow are missing comments, recommendations that seem too conveniently ignored or withheld.

Ms. Ecklar, STRS spokeswoman, offered, "But there are only certain levers (to strengthen the plan) you can look at: investment returns, contributions and pension plan design." Oh, really. Only these? Why has it apparently escaped the attention of STRS management that an internal cost saving strategy would go a long way in restoring some lost assets and restoring some faith and trust from their employers (active and retired educators) in a once honorable retirement system?

Board member Ms. Ramser patronizes, "I hope all our members understand we love them dearly. But sometimes when you love someone a whole bunch, you make them angry." Oh, really! Having participated in several Board meetings over the past five years I have seen very little in the way of genuine concern and understanding for retirees from too many out-of-touch, unqualified Board members. Condescending and patronizing rebuttal have too often been the order of the day.

Assuring anyone who "enters our profession 20 to 30 years down the road" that the pension will be available is a sorry recruiting mechanism. Most current and retired educators chose their careers based on a passion to share a particular brand of knowledge with young people. Being an integral part of those young peoples' formative years was no a less driving force for their vocational choice.

Certainly, the professional educator must look to providing financial security for his/her family. Most of us recognized financial independence was not on our teaching path but it was not unreasonable to expect a secure, affordable retirement, especially in light of the excellent pension plan described to us as prospective career educators. As we neared retirement we were counseled by STRS staff to consider our retirement secure and that healthcare was the essence of that promise.

With what has happened at STRS in the past decade does Ms. Ramser really believe there will continue to be a trusting reservoir of prospective educators anxiously awaiting to enter a profession that has witnessed so many broken promises to its retirees?

Could the students in Ohio's classrooms be the biggest losers in this quagmire of mistrust?

Mr. Hutras, the Executive Director of the ORSC, admonishes, "They're trying to sustain a post-retirement healthcare component and without that, they wouldn't be in the situation they are in now." That's quite a wake-up call for all of those retirees who were promised secure and affordable healthcare as they neared retirement and used it as a gauge for making a life-altering decision after three or more decades in public service. (It's not as if no one had attempted to alert the STRS Board and Executive Director more than a decade ago that retiree healthcare was in jeopardy without some insight and foresight.)

Mr. Hutras goes on to describe healthcare as the "elephant in the room" no one wants to talk about. Oh, really! Retirees have been talking about it since the late '90's when we lost the spousal subsidy and saw our premiums skyrocket and benefits nose-dive. Knowledgeable retirees talked plenty about healthcare but their anxiety fell on deaf ears stuffed with arrogance and entitlement.

STRS-literates and educated Board members Dr. Dennis Leone and Mr. John Lazares warned of the indiscriminate spending but their prognostications were stifled by a continuing influx of OEA-endorsed and trained Board who became mere rubber stamps for the misguided directions of management. Dr. Leone and Mr. Lazares, in spite of their diligence in researching and publishing factual representations of what was actually going on inside STRS (using STRS's own numbers to corroborate the allegations of mismanagement), were branded as "malcontents" in the early years of forced transparency and then up-dated to "dissidents." Interested parties need only to look at the policy reforms generated by these two bulldogs of oversight during their terms on the Board.

And finally a couple of conclusions which seem self-evident. STRS will never reach its potential as long as the decision-makers (Board and Executive Director) lack a real understanding of how the average retiree feels about being disenfranchised once they leave the active ranks, left with few adjustments they can make in post-retirement to recover from the misinformation many used to measure their irreversible retirement decision.

STRS will never be as successful and secure as it might as long as the staff (our employees) has no genuine investment in STRS. As members of PERS they enjoy a litany of perks that are beyond familiarity of most STRS members. The investment decisions they make have little bearing on their own families' security unless one considers the reduction or delay of a six-figure bonus or a salary that eclipses that of the governor.

As long as ORC 3307.15 is viewed as only an ordinance that must be legally complied with and absent a sense of being a guideline to the ethical treatment of some 440,000 STRS members and their beneficiaries, stakeholders will continue to be at the mercy of decision-makers who may "love them dearly" but not even know who they are. Educators, active and retired, seek not sympathy. Fairness and justice do not seem unreasonable.

Jim N. Reed
1998 Retiree

Legislative update on pension systems

From Dennis Leone, September 3, 2009
Subject: Legislative Update

OPERS Outlines Its Approach to 30-Year Funding Directive from ORSC

Ohio's five public pension systems, including Ohio Public Employees Retirement System (OPERS), have been asked by the Ohio Retirement Study Council (ORSC) to look at options that could help contain costs and strengthen their funds in light of the recent economic downturn to reach or keep within the 30-year funding requirements. Those steps are to be presented at ORSC's next meeting on Wednesday, Sept. 9.

Unlike the State Teachers Retirement System (STRS) which approved a multifaceted plan Tuesday, OPERS said in a statement that it remains "within the 30-year funding requirement" due to its "long history of being proactive in managing our investments and liabilities, including work we began last year on numerous initiatives. We looked at the demographics of our plan and the needs of our membership and recommended changes including service purchases, retirement age, minimum earnable salary and the disability program."

OPERS went on to note in a news release that as a fiduciary, it is "always looking for efficiencies and ways to improve operations. Proactive, insightful planning and tough decisions by the OPERS Board of Trustees allow the fund to weather market volatility to ensure long-term solvency. Each year, the OPERS board reviews the benefits offered and makes incremental changes, as necessary, to support the fund for our members."

OPERS said that the following changes in recent years have allowed the system to remain within a 30-year funding requirement:

- Implementing the Health Care Preservation Plan and its tiered benefits which are tied to years of service.

- Developed separate investment strategies for the pension and health care funds, with a designated Health Care Trust Fund.

- Approving accounting changes to ensure that OPERS is within the statutorily mandated 30-year funding level.

- Proposing to increase the cost of purchasing service credit to reflect its true cost (pending legislation).

- Proposing statutory changes to increase the minimum earnable salary required to earn full-time service credit (pending legislation).

- Approving proposed statutory changes to the system's disability program (pending legislation).

OPERS went on to note that, "Each system has a unique population and benefit structure, and OPERS' board has evaluated options, as requested by ORSC, and considered what changes should be made. The OPERS board has discussed the following possible plan design change options, and will continue to evaluate plan design change options at its upcoming meetings." Those options include the following:

- Age and Service Eligibility - add two years to the current plan.

- Benefit Formula - maintain the current 2.2 percent x Final Average Salary (FAS) but increase the timeframe that the multiplier increases to 2.5 percent from 30 years of service to 35.

- Final Average Salary (FAS) - increase base FAS from the three highest years of earnings to the five highest years.

- Cost of Living Adjustment (COLA) - Maintain current 3 percent simple COLA except in years when the Consumer Price Index is less than 3 percent.

- Contribution Rate - No change in the current contribution rates - members (10 percent) and employers (14 percent).

Here's what the Ohio Police and Fire Retirement System will send to the Ohio Retirement Study Council:

August 28, 2009
http://www.op-f.org/news/default.asp?id=08282009

Funding recommendations approved, will be presented to O.R.S. on Sept. 9

During its August meeting the OP&F Board of Trustees approved a plan to dramatically improve the system’s long-term funding status. The plan will be presented to the Ohio Retirement Study Council (ORSC) on Sept. 9 and includes a wide range of contribution and benefit recommendations.

Most of the recommendations require legislative action before they can be implemented. As part of the Board’s approval, a stipulation was included stating that OP&F would implement the discretionary items in the plan only after legislation is passed enacting the statutory recommendations.

The Board unanimously supports the recommendations and will present the plan to the ORSC with the anticipation that legislation will be introduced and passed to implement the changes.

Ohio requires each public retirement system to be able to pay off all its obligations within a 30-year period. Each system will be presenting funding recommendations to the ORSC on how to improve its funding status or comply with the requirement. Investment losses from 2008 have limited or prevented the ability of systems to meet this requirement.

In December 2008, the ORSC asked OP&F to begin a comprehensive review of all elements of the retirement system and present a proposal to reach the state’s mandated 30-year funding requirement.
It is important to realize that despite the actions by the Board, OP&F remains financially sound and is fully able to pay all of its obligations for many years to come. These recommendations are being made to correct OP&F’s long-term funding expectations.
The following recommendations are included in the plan to be presented to the ORSC on Sept. 9:
Items requiring legislation by the Ohio General Assembly:

• Increase the active member contribution rate from 10% to 12%
• Increase the police employer contribution rate from 19.5% to 24% (so police and fire employer rates are equal)
• Increase the normal service retirement age to age 52 for new hires
• Delay the Cost-of-Living Adjustment (COLA) until age 55 (with the exception of beneficiaries)
• Increase the police and fire employer contribution rate an additional 1%(to 25%).
• Change the minimum period for participating in the Deferred Retirement Option Plan (DROP) to 5 years (from the current 3 years) for all new participants

Items to be implemented following legislation enacting all items above

• Redefine “average annual salary” to mean the highest average annual salary for a member during any 5 years of contributions (from the current 3 years)
• Reduce the DROP interest credit rate from 5% to 3%.
• Reallocate 1.5% of the 6.75% of the employer contribution rate currently allocated to fund OP&F’s retiree health care plan.
• For new retirees, the subsidy for the health care plan premiums will be tied to years of service

Sondra doesn't buy it!

Sondra Stratton to STRS, September 3, 2009
Subject: RE: list of staff losses

This is just not enough! We need to see a reduction in staff not a freeze and we need to see the staff giving up just as we have hod to!!! All we get from you is the same old crap!!!! We didn't buy it the first time and never will. Why don't you try co-operating with retirees and their wishes??? That would sure be a refreshing act on your part! GEESH!!!!!!!!!!!!! 

Take care!!
Sondra Stratton 

STRS to Sondra, September 3, 2009
Subject: RE: list of staff losses

Dear Ms. Stratton:

Contributing significantly to the reduced operating expenditures at STRS Ohio are: (1) the current associate head count freeze; (2) associate salary freeze effective through June 30, 2010, and (3) lower Performance-Based Incentive (PBI) Program payments to eligible Investment Department associates due to the suspension of this year's PBI program beyond Jan. 31, 2009.

STRS Ohio

Sondra Stratton to STRS, September 1, 2009
Subject: list of staff losses

I, like Thomas Curtis, want to see a detailed list of significant things that employees have to lose. Without a list from them, this process is not finished!!!! 

Let's spread the pain around!!! Like anything they give up or have taken from then will matter!! With their salaries, it will truly be a drop in the bucket therefore nearly no pain. However, they need to feel the pain to understand. If the STRS staff/employees were worth their salt, the would not have to be asked but would voluntarily turn in a list for themselves. I believe this is called greedy and selfish.

Waiting for that significant list!

Take care!!
Sondra Stratton

September 17 CORE meeting announced

From CORE, September 3, 2009

CORE (Concerned Ohio Retired Educators) will hold its September Annual Membership Meeting on Thursday, September 17th at the STRS Building at 275 East Broad Street in Columbus. Parking is free in the STRS parking garage behind the building. We encourage you to also attend the STRS meeting which usually begins around 9:00 a.m. on Thursday in the meeting room on the 6th floor but this beginning time varies from month to month. For this reason, we encourage you to check the STRS website (www.strsoh.org) to confirm the time. CORE meeting attendees leave the STRS meeting around 11:30 to go to the cafeteria room behind the Sublett Room on the second floor of the STRS building where the CORE meeting begins promptly at 11:45.

The CORE Annual Membership Meeting provides an opportunity for members to pay the $10.00 dues for 2009-2010 and update their personal data, as well as for new members to sign up. We will also be discussing where CORE will go from here. . . goals, etc. We need members' input. If you have suggestions for the Sept. CORE meeting agenda, please send your ideas to John Curry at curryjo@watchtv.net. We will also be discussing the Ohio Retirement Study Council's Sept. 9th meeting. At this meeting, the ORSC will be reviewing the five plans submitted by Ohio's public pension funds in order to deal with their 30-year funding liability.

Registration form for CORE membership: http://www.concernedohio.org/CORE_Membership.pdf

The Dispatch covers more of yesterday's STRS board meeting

Proposal calls for teachers, districts to up pension tithes

Columbus Dispatch, September 2, 2009 3:18 AM
By Steve Wartenberg

A road map for long-term financial stability was unanimously approved yesterday by the State Teachers Retirement System's board of directors, but several steps must be taken before it can be put into place.

The plan comes with a cost: It would increase the sum current teachers and their employers pay into the pension fund, and it would reduce some benefits for retirees.

"I hope all our members understand we love them dearly," said board member Constance Ramser. "But sometimes when you love someone a whole bunch, you make them angry."

Still, the board's decisions "will make sure the pension is available to anyone who enters our profession 20 to 30 years down the road," she said.

The teachers pension fund is one of Ohio's five public pension funds that will appear before the Ohio Retirement Study Council on Sept. 9 to present plans to address shortfalls.

The retirement council, which advises the General Assembly, then will work with the legislature, which must approve changes in the pension plans.

The State Teachers Retirement System's total assets stood at $76.8 billion on June 30, 2007, but because of market declines, the total had dropped to $52.7 billion on June 30 of this year -- the end of the system's fiscal year. The stock market has risen since, and these assets had increased to $56.7 billion by Aug. 31.

If the board's proposed changes are adopted, the pension fund's liabilities would fall $9 billion to $85.5 billion. This would reduce its 30-year funding liability to 33.4 years.

Under Ohio law, public pensions must balance their income and expenditures so that they can pay current liabilities for pension benefits within a 30-year period. Although 33.4 years doesn't meet that standard, it's an improvement from "infinity," the most recent estimate.

Several current teachers and retirees attended yesterday's meeting, and most seemed to reluctantly agree that something had to be done.

"There had to be some changes to keep the system solvent," said Ryan Holderman, a retiree from Lebanon, in southwestern Ohio, who attended the meeting.

His concern was the change in the cost-of-living adjustment. It has been 3 percent a year, but starting in 2011, it would fall to 2 percent for current members and 1.5 percent for those who retire on or after July 1 of that year.

"We have close to 8,000 retirees who taught for 30 or more years and draw less than $30,000 a year," Holderman said. "And they're really dependent on that yearly cost-of-living adjustment."

The board also voted to phase in an increase in employee contributions starting in 2011 from the current 10 percent to 12.5 percent,and employer contributions starting in 2016 from 14 percent to 16.5 percent.

The plan would push back the age at which members can retire with full benefits and alter the way in which a teacher's final average salary is calculated.

"I think their plan is fair," said Melissa Cropper, a teacher in Georgetown, in southern Ohio, adding that her biggest concerns are the changes about when a member can retire with full benefits.

"But when you look at it from a systems point of view rather than an individual view, the changes had to be made," she said.

Several board members said they reluctantly voted in favor of the plan but said the changes are necessary and had to be approved before the Sept. 9 meeting with state officials.

"We feel we've been rushed into this, but that's the way it is," said board chairman Mark Meuser.

Kevin Griffin, a teacher in the Dublin school district, fears the cuts could scare off would-be teachers.

"I'm already concerned there's so little reason for kids today to want to become teachers," he said. "And if we keep on bashing salaries and reducing benefits, why would any kid want to become a teacher?"

swartenberg@dispatch.com

http://www.dispatchpolitics.com/live/content/local_news/stories/2009/09/02/copy/teachers_pension_redo_.ART_ART_09-02-09_A1_PNEUNJ6.html?adsec=politics&sid=101

RH Jones re: Final STRS plan

From RH Jones, September 2, 2009
Subject: Fw: 090109 CORE ALERT - Final STRS Plan

To all:

We can not sit still and let the Ohio Retirement Study Council (ORSC) cut our Cost of Living Adjustment (COLA) down to 2% on 7/1/2011 already. The active-dominated STRS board has hurt those who built the OEA and OFT during our employed years. As a result of the Sept. 1 (on Monday of this week) Board voting, I am saddened by the negative votes of OEA endorsed STRS Board Member, Conni Ramser, OFT-endorsed STRS Board Member, Steve Puckett and even our CORE endorsed Retired Representative on the Board, Jim McGreevy. How can they do this to their elder brothers and sister teachers! I understand, as Dennis Leone predicted, it was a unanimous Board decision. And, please notice that they cut us in 2011 and the active teachers' first cut is not until 2015! Their "Contribution Component" is not until 2020!

Please read the brief synopsis of the Thomas Curtis e-mail to me below. We MUST contact the State Reprehensive on the ORSC. Here they are: Rep. Todd Book, Chair, Senator Kirk Schuring Vice-chair, Sen. Keith Faber, Sen Sue Morano, Rep Dan Dodd and Rep Lynn Wachtmann.

Tell them we can no longer support them and will never, EVER, vote for them any any of office, now, or in the future, if they vote yes to take our promised benefit COLA from 3% down to 2%. We will not stand for this! We have given up enough already!

Robert Hudson Jones, retired teacher STRS member

From Tom Curtis, 9/1/09
CORE ALERT

September 1, 2009
The STRS Board met today, Tuesday, September 1st in order to reach consensus on a final plan to present to the Ohio Retirement Study Council (ORSC) by the deadline of September 9th. The plan which was moved by Conni Ramser and seconded by Steve Puckett was passed unanimously. The only change from the final plan to the plan recommended on August 21st affected only the COLA. The plan follows:
CONTRIBUTION COMPONENT: Increase member and employer contributions by a total of 5% by 7/1/2020. Ultimately, members would contribute 12.5%; employers would contribute 16.5%.
FAS COMPONENT: Base final average salary (FAS) on five highest years of earnings, beginning 8/1/2015.
RETIREMENT ELIGIBILITY COMPONENT: Beginning 8/1/2015, members may retire and receive an unreduced benefit at : any age with 35 years; age 60 with 30 years; or age 65 with 5 years. Members may retire earlier with an actuarially reduced benefit at: age 55 with 30 years, or age 60 with 5 years. Members who meet age and service eligibility for service retirement as of 7/1/2015 under the current rule retain their eligibility.
BENEFIT FORMULA COMPONENT: Benefit formula is 2.2% per year for first 30 years; 2.5% per year thereafter, beginning 8/1/2015. The 35-year enhanced benefit is no longer needed to encourage teachers to work longer and is eliminated. Those who have 30 years of service; who are age 55 with 25 years of service; or who are age 60 with 5 years of service as of 7/1/ 2015 receive the greater of: (a) The benefit as of 7/1/2015 under the current formula; OR (b) The benefit upon retirement under the new formula.

COLA COMPONENT: Beginning 7/1/2011, current retirees receive an annual 2% COLA. Members retiring on July 1, 2011, or later receive a 1.5% each year.
STRSoh.org will post more details. Please be reminded that this is only a proposal to the Ohio Retirement Study Council. The ORSC will likely make the final decision as to what will actually be written into a bill that would cause the final changes to become law. That process is often lengthy and time consuming.

Tom Curtis to Mike Nehf: Third request

From Tom Curtis, August 21, 2009
Subject: 082109 Curtis To Nehf, STRS Staff Cost Reductions

Hello Mike,

Now that we the stakeholders have seen what recommendations you and the board are recommending to the ORSC, it is time to see what reductions you will be making concerning the STRS staff.

In a recent email, you indicated to me that all of the possible cuts I had recommended were being considered.

So, what cuts have you and the board authorized for the staff? Please be specific and include the dates when they will take place.

I look forward to a timely response.

Tom Curtis - 1998 retiree

Pregnancy test: Either you are or you aren't

John Curry to Larry Lewellen, September 1, 2009
Subject: Re: Fiduciary?

Larry,

In answer to your question, "who would be responsible and accountable for the success of this system?" My answer is:

...any person who:

(1) Exercises any discretionary authority or control with respect to the management of the system, or with respect to the management or disposition of its assets;
(2) Renders investment advice for a fee, direct or indirect, with respect to money or property of the system;
(3) Has any discretionary authority or responsibility in the administration of the system.

Being a "fiduciary" for STRS is like taking a pregnancy test ........either you are or you are not.

You are not. Neither is the OEA's Bill Leibensperger.

Neither HPA nor their officers have any legal liability for the decisions made by the "legal" fiduciaries of STRS. That is the major difference....the legal responsibility.

John

From Larry Lewellen, August 31, 2009
Subject: RE: Fiduciary?

John,

Thank you for asking. My statement may or may not meet a strict legal test.

My response is based upon the fact that the HPA consists of the collection of employers, employee organizations, and retiree associations. The employers pay all of the employer costs and have a continued responsibility for the welfare of employees on into retirement. Employee organizations bargain for all bargainable conditions, including retirement benefits, and represent the vast majority of the employees who pay the employee costs. The retiree associations have a strong responsibility for representation of retirees.

If not the STRS Board and leaders, and the HPA, who would be responsible and accountable for the success of this system?

Larry

From John Curry, August 31, 2009
Subject: Fiduciary?

Mr. Lewellen,

In your recent presentation to the STRS Board at the August meeting you said, and I quote, "We want access to affordable healthcare, and that needs to be defined...and the decision making should be in the hands of the system's fiduciaries which are the STRS leadership and the Healthcare and Pension Advocates." These words can be heard in the STRS furnished recording (CD #1) of the August 2009 STRS Board meeting.

My question is as follows:

Since when has the HPA become a "fiduciary" for the State Teachers Retirement System of Ohio?

The Ohio Revised Code defines "fiduciaries" as the term applies to STRS. Here is what the ORC says:

3307.01 (K) 1, 2, & 3

(K) “Fiduciary” means a person who does any of the following:

(1) Exercises any discretionary authority or control with respect to the management of the system, or with respect to the management or disposition of its assets;
(2) Renders investment advice for a fee, direct or indirect, with respect to money or property of the system;
(3) Has any discretionary authority or responsibility in the administration of the system.

Would you please tell me how HPA qualifies as a fiduciary of STRS under these definitions?

Thank you,
John Curry
An STRS benefits recipient

Let's see.....just where is STRS on this comparison?

From John Curry, September 1, 2009
Click image to enlarge.

Columbus Dispatch, September 1, 2009
Pension pain

When the economy sank, so did Ohio's five public pension funds. Now, to make up lost ground, the state's public workers might have to contribute more, and retirees could see benefits cut.

Tuesday, September 1, 2009

By Steve Wartenberg
THE COLUMBUS DISPATCH

Ohio's five public pension systems have lost billions since the end of 2007, forcing them to consider painful changes, such as cutting the benefits of retirees and requiring those still working to pay more. These changes, if implemented, aren't expected to go over well with the state's 1.7 million working and retired public employees and their beneficiaries.

"Nobody wants to have less tomorrow than they have today," said William Estabrook, executive director of the Ohio Police & Fire Pension Fund.

"But we're not going to invest our way out of this, and the two key components are contributions and benefits."

The State Teachers Retirement System lost $24.1 billion from the end of its 2007 fiscal year through June 30, while the Ohio Public Employees Retirement System's assets declined $19.4 billion from the end of 2007 through July 31.

As a result, the five public pension funds will appear before the Ohio Retirement Study Council on Sept. 9 to discuss the changes proposed by their boards.

"We have requested they come to us with a plan for how they will deal with their 30-year funding liability," said Aristotle Hutras, executive director of the council, which helps state officials oversee the pension funds.

"We're taking a pre-emptive measure," he said. "Everybody knows it's not going to be any better in the next evaluation, and this is the prudent thing to do."

Under Ohio law, public pensions must balance their income and expenditures so that they can pay current liabilities for pension benefits within a 30-year period. Hutras calls it the equivalent of paying off a mortgage.

For example, the State Teachers Retirement System reported on July 1, 2008, that this would take 41.2 years, well over the required length of time. Its estimate on July 1 of this year was "infinity."

Changes the pension funds could recommend to the Ohio Retirement Study Council include:

• Increase employee and employer contributions.
• Increase the minimum retirement age.
• Increase the number of years used to calculate the final average salary from three to five.
• Eliminate, reduce or delay annual cost-of-living adjustments.
• Eliminate the lump-sum death benefit.

Spreading out the losses between contributors and beneficiaries is the fairest thing to do, said Andrew Karolyi, a former professor at Ohio State University's Fisher College of Business, now at Cornell University.

"It makes everyone mad, but not as mad as if one of the groups was singled out and had to take the brunt of it," he said.

The problem with the pension funds' 30-year liability is connected to their total assets, which dropped sharply because of major declines in the stock market.

The Dow Jones industrial average plunged 33.8 percent in 2008 and even further during the first few months of this year before the recovery began.

The State Teachers Retirement System's assets were $52.7 billion on June 30, the end of its fiscal year -- a 31.4 percent drop from the

$76.8 billion total at the end of its fiscal year 2007.

"Our board is looking at plans to strengthen the plan," said spokeswoman Laura Ecklar. "But there are only certain levers you can look at: investment returns, contributions, then the pension-plan design."

In a recent letter to members, the pension system said it is considering raising the contribution of current teachers from 10 percent to 14 percent and instituting a minimum retirement age of 60.

The State Teachers Retirement Board will hold a special meeting this morning to discuss its "long-term fiduciary and financial contingency planning."

Another way to measure the strength of a pension fund is its funded ratio, which are assets relative to actuarial liabilities.

The State Teachers Retirement System's funded ratio dropped to 57.9 percent on July 1, down from 79.1 percent a year earlier.

"I would start to worry when it gets down into the 70s and 60s," Karolyi said.

The rising cost of health care is another problem for the systems, Hutras said.

"They're all trying to sustain a post-retirement health-care component and without that, they wouldn't be in the situation they are in now," he said, calling this the "elephant in the room" nobody wants to talk about.

Any contribution or benefit changes recommended by the five pension funds' boards must be approved by the legislature, Hutras said.

"The only thing they have the authority to do themselves is change the eligibility for health care" or their premiums, he said.

In recent weeks, a surging stock market has helped the funds regain some losses.

The Highway Patrol Retirement System's assets dropped 31 percent in 2008 to $576 million, but were up by 8.5 percent to $625 million on July 1.

This is still well below the fund's $834 million total at the end of 2007.

"Yes, there is some concern," said Richard Curtis, executive director of the Highway Patrol Retirement System. "We had a significantly negative year in 2008, as every other public pension fund in the country did."

He called it a once-in-a-lifetime event that will take years to overcome.

"Our system is designed to operate in perpetuity at an 8 percent return," he said, "and when you have a negative year like we had, you can't estimate how long it will take to recover."

swartenberg@dispatch.com

http://www.dispatchpolitics.com/live/content/local_news/stories/2009/09/01/copy/PENSION_FUNDS.ART_ART_09-01-09_A1_HPEUC9M.html?adsec=politics&sid=101

Results of special STRS Board meeting, September 1, 2009

From STRS, September 1, 2009

Today, the State Teachers Retirement Board held a special meeting. Following board 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 whenever it is issued.

RETIREMENT BOARD ADOPTS PLAN FOR PENSION DESIGN AND CONTRIBUTION CHANGES
Following many months of discussion and after receiving significant input from STRS Ohio members, the State Teachers Retirement Board unanimously approved a multifaceted plan today to strengthen the financial condition of the retirement system. In approving the plan, board members cited the difficulty in making the decision, noting that these changes impact all STRS Ohio members. The plan includes an increase in contributions; an increase in final average salary years; a change in eligibility for retirement; a change in the benefit formula; and a reduction in the annual cost-of-living adjustment.

STRS Ohio, along with Ohio's four other public pension systems, will present their plans to the Ohio Retirement Study Council (ORSC) on Sept. 9 for either maintaining or returning to a 30-year funding period. The ORSC is expected to weigh in on the plans and then work with the systems to draft a bill. Once legislation is introduced, the normal legislative process begins. The proposed changes require legislative action by the Ohio General Assembly and the governor, as all the requested changes require changes in existing statute.

Before the market downturn, STRS Ohio had a funding period of 41.2 years, exceeding state statute's 30-year maximum funding period. Factors, such as members living longer, caused a reduction in available funds to pay off accrued liabilities over time. The unprecedented decline in the global markets and the accompanying recession, along with the projected gradual economic recovery, significantly accelerated the need for STRS Ohio to make changes. Without these changes, STRS Ohio would eventually be unable to pay future benefits. This plan enables the Retirement Board and staff to meet their fiduciary responsibility to help ensure the long-term solvency of STRS Ohio for future generations of teachers.

STRS Ohio staff projects that these changes would save $8.99 billion in future liabilities and would bring the pension fund to a 33.4-year funding period from its current status of infinity. Further, the current 1% employer contribution to the health care fund continues.

INCREASE IN CONTRIBUTIONS

- Increase member contributions by 0.5% per year beginning July 1, 2011, to a total of 2.5% on July 1, 2015.

- Increase employer contributions by 0.5% per year beginning July 1, 2016, to a total of 2.5% on July 1, 2020.

Currently, STRS Ohio members pay 10% of their salary to STRS Ohio and employers pay 14% of total teacher payroll in lieu of paying into Social Security. This plan component increases member and employer contributions by a total of 5% by July 1, 2020. The member increase would be phased in at 0.5% per year, beginning July 1, 2011, until 2.5% is reached on July 1, 2015. The employer increase would be delayed for five years, when it would be phased in at 0.5% per year, beginning July 1, 2016, until 2.5% is reached on July 1, 2020. Ultimately, STRS Ohio members would contribute 12.5% and employers would contribute 16.5%. This phased approach allows time for the economy to improve and also helps employers with budgeting.

INCREASE IN FINAL AVERAGE SALARY (FAS) YEARS

- FAS calculation to be based on five highest years of earnings beginning Aug. 1, 2015.

Pension benefits are determined by a member's age, years of service and FAS. Under the recommended plan, the FAS would be based on the five highest years of earnings versus the current three years, beginning Aug. 1, 2015.

CHANGE IN ELIGIBILITY FOR RETIREMENT

- Increase years of service required for retirement, beginning Aug. 1, 2015.

The recommended change increases the number of years required to be eligible for retirement. Beginning Aug. 1, 2015, members can retire at any age with 35 years of service; at age 60 with 30 years of service; or at age 65 with five years of service. (Members may retire earlier with an actuarially reduced benefit at age 55 with 30 years or at age 60 with five years.) Members who meet age and service eligibility for service retirement as of July 1, 2015, under the existing rule retain their eligibility.

CHANGE IN BENEFIT FORMULA

- New formula would be 2.2% per year for the first 30 years of service; 2.5% per year thereafter, beginning Aug. 1, 2015.

The 35-year enhanced benefit is no longer needed to encourage teachers to work longer and is eliminated. Those who have 30 years of service; who are age 55 with 25 years of service; or who are age 60 with five years of service as of July 1, 2015, receive the greater of:

(a) The benefit as of July 1, 2015, under the current formula; or

(b) The benefit upon retirement under the new formula.

In short, members who are eligible for service retirement will receive no less of a base pension benefit than they could have received on July 1, 2015. Under the new formula, at the end of a 35-year career, teachers would receive 78.5% of their final average salary; teachers who retire at age 60 with 38 years would receive 86% of final average salary.

REDUCTION IN COST-OF-LIVING ADJUSTMENT (COLA)

- Beginning July 1, 2011, current retirees would receive an annual 2% COLA; members retiring on July 1, 2011, or later would receive a 1.5% COLA each year.

Currently, the COLA is 3%. Without a change in the COLA, a viable Defined Benefit Plan cannot be sustained.

Overall, this plan accomplishes the following:

- Preserves the Defined Benefit Plan for Ohio's public educators. STRS Ohio members do not have to worry about outliving their benefits. These pension benefits can continue to support local economies (more than $3.6 billion in benefits are paid to Ohio residents alone); the taxes paid on these benefits can also continue to support local, state and federal governments. A viable Defined Benefit Plan also reduces the likelihood that STRS Ohio members will have to turn to public assistance, Medicaid or social services in retirement, thus relieving taxpayers of future obligations.

- Continues to offer a retirement plan that will help Ohio's public schools, colleges and universities recruit and retain quality educators.

- Allows for current and future active members, retirees and employers to collectively contribute to a solution.

- Provides a transition period for those teachers who are close to retirement, while recognizing that those further out from retirement have more time to plan for their future financial security.

- Allows members to continue to control their retirement decisions and not be "forced" out. This mitigates a potential "stampede" of members who want to retire before changes go into effect, thus preserving retirement patterns for STRS Ohio and protecting employers from veteran teachers leaving all at once.

- Preserves all past cost-of-living adjustments (COLAs) and ad hoc increases for current retirees.

- Allows retirees' pensions to continue to grow in the future, but at a slower rate.

The board will continue to annually review the actuarial valuations of the pension fund and the health care fund to monitor both funds' progress over time.

The board will also continue working with constituent groups as discussions continue with the Legislature. In addition, STRS Ohio will be scheduling meetings around the state to provide additional information to active and retired educators. Progress reports on the legislation will also be provided. Future STRS Ohio newsletters will provide more information.

Molly Janczyk and Greg Nickell re: Medicare Advantage

(Best read from bottom up)

From Molly Janczyk, August 31, 2009
Subject: RE: Greg Nickell: STRS: A GAO document that should be read by every STRS retiree who soon (if they're 65) will be defaulted into a Medicare Advantage program:

Thank you Greg. I very much appreciate your timely explanations.

From Greg Nickell, August 31, 2009
Subject: RE: Greg Nickell: STRS: A GAO document that should be read by every STRS retiree who soon (if they're 65) will be defaulted into a Medicare Advantage program:

Ms. Jancyzk:

I can tell you that:

· A higher percentage of premium dollars will be paid toward claims expense than what is expressed in this article as it is guaranteed through the contract we hold with Aetna;

· This plan has an annual out-of-pocket maximum which traditional Medicare does not offer and many of the plans discussed in the article did not offer. By plan design, no person could pay higher maximum annual out-of-pocket expenses for covered services under the Medicare Advantage Aetna Medicare Plan (PPO) than they would under the Plus Plan as the Aetna Medicare Plan (PPO) has a $500 lower total out-of-pocket annual maximum -- $1,500 Aetna Medicare Plan (PPO) versus $2,000 under the Plus Plan. This is the amount when you add the medical deductible, copayments and coinsurance together applicable to each plan);

· Everyone will pay less for preventive services than the Plus Plan because they are covered at 100% not subject to deductible under the Aetna Medicare Plan (PPO);

· Access to fitness centers is covered under the Aetna Medicare Plan (PPO) and are not covered under the current Plus or Basic Plans;

· There will be care management services available that do not exist under the Plus Plan like disease management, depression case management, dementia care management and management for social service issues;

· Every person who enrolls in the Aetna Medicare Plan (PPO) will save premium dollars every month over what they would pay otherwise under the Plus Plan; and,

· There is no difference in coverage for someone using a PPO provider versus a non-PPO provider so long as the provider accepts Medicare assignment. A provider accepting Medicare assignment is the same criteria used currently under today’s Medicare Plus and Basic Plans.

(I provided much of the list above to Mr. Curry to hopefully reduce some of the time it will take him to develop his questions.)

The report does not distinguish between individual plans and a group plan like the STRS Ohio Plan. This is an important difference in my mind. STRS Ohio had Aetna construct the plan based upon the current Plus Plan as opposed to an individual purchasing a plan based upon something the individual read or as a result of speaking to someone “selling” the individual plan. When someone purchases an individual plan it is likely they do not fully understand how the plan works in any great detail compared to the time and effort STRS Ohio staff puts toward building this plan to be based around the current Plus Plan. Aetna also totally understands the provisions in the Plus Plan as they are currently administering this program.

Ms. Janczyk, your last point regarding the impact of changes being discussed in Washington and President Obama’s talk of reducing funding to the Medicare Advantage program is also an important point. STRS Ohio staff discussed this at some length with Aetna during the contracting phase. Aetna provided their plan on how they believe this change in funding will develop along with how they intend to remain competitive to arrangements like our current Plus and Basic Plans even with the reduction in funding.

If this does not address your questions or concerns, please let me know what remains unanswered.

Sincerely,
Greg Nickell
Director, Health Care Services
State Teachers Retirement System of Ohio

From Molly Janczyk, August 31, 2009
Subject: FW: Greg Nickell: STRS: A GAO document that should be read by every STRS retiree who soon (if they're 65) will be defaulted into a Medicare Advantage program:

Greg,

1. I would like you to address any negatives in the report as to how it relates to STRS Medicare Advantage.

I think you understand the general concerns. So us reading this report doesn't make a case for the Medicare Adv. plus

2. The impact to us with Obama wanting to discontinue/reduce funding to Medicare Advantage Plans

From Greg Nickell, August 31, 2009
NickellG@strsoh.org
Subject: RE: Greg Nickell: STRS: A GAO document that should be read by every STRS retiree who soon (if they're 65) will be defaulted into a Medicare Advantage program:

Ms. Jancyzk:

Do you have specific concerns about this report so I make sure I address them in my response?

From Molly Janczyk, August 30, 2009
Subject: Greg Nickell: STRS: A GAO document that should be read by every STRS retiree who soon (if they're 65) will be defaulted into a Medicare Advantage program:

Greg,

Please read and respond. Thank you.

Molly J.

http://www.gao.gov/new.items/d08522t.pdf

John Curry to Larry Lewellen: HPA a fiduciary?

From John Curry, August 31, 2009
Subject: Fiduciary?

Mr. Lewellen,

In your recent presentation to the STRS Board at the August meeting you said, and I quote, "We want access to affordable healthcare, and that needs to be defined...and the decision making should be in the hands of the system's fiduciaries which are the STRS leadership and the Healthcare and Pension Advocates." These words can be heard in the STRS-furnished recording (CD #1) of the August 2009 STRS Board meeting.

My question is as follows:

Since when has the HPA become a "fiduciary" for the State Teachers Retirement System of Ohio?

The Ohio Revised Code defines "fiduciaries" as the term applies to STRS. Here is what the ORC says:

3307.01 (K) 1, 2, & 3

(K) “Fiduciary” means a person who does any of the following:

(1) Exercises any discretionary authority or control with respect to the management of the system, or with respect to the management or disposition of its assets;
(2) Renders investment advice for a fee, direct or indirect, with respect to money or property of the system;
(3) Has any discretionary authority or responsibility in the administration of the system.

Would you please tell me how HPA qualifies as a fiduciary of STRS under these definitions?

Thank you,
John Curry
An STRS benefits recipient

GAO testimony on Medicare Advantage

Since many STRS retirees may have Medicare Advantage forced on them, it may be to your *advantage* to read this.

Higher Spending Relative to Medicare Fee-for-Service May Not Ensure Lower Out-of-Pocket Costs for Beneficiaries

http://www.gao.gov/new.items/d08522t.pdf

NY Times article: Health Care Fit for Animals

August 27, 2009
OP-ED COLUMNIST NY Times

HEALTH CARE FIT FOR ANIMALS

By Nicholas D. Kristof

Nicholas D. Kristof

Opponents suggest that a “government takeover” of health care will be a milestone on the road to “socialized medicine,” and when he hears those terms, Wendell Potter cringes. He’s embarrassed that opponents are using a playbook that he helped devise.

“Over the years I helped craft this messaging and deliver it,” he noted.

Mr. Potter was an executive in the health insurance industry for nearly 20 years before his conscience got the better of him. He served as head of corporate communications for Humana and then for Cigna.

He flew in corporate jets to industry meetings to plan how to block health reform, he says. He rode in limousines to confabs to concoct messaging to scare the public about reform. But in his heart, he began to have doubts as the business model for insurance evolved in recent years from spreading risk to dumping the risky.
Wendell Potter

Then in 2007 Mr. Potter attended a premiere of “Sicko,” Michael Moore’s excoriating film about the American health care system. Mr. Potter was taking notes so that he could prepare a propaganda counterblast — but he found himself agreeing with a great deal of the film.

A month later, Mr. Potter was back home in Tennessee, visiting his parents, and dropped in on a three-day charity program at a county fairgrounds to provide medical care for patients who could not afford doctors. Long lines of people were waiting in the rain, and patients were being examined and treated in public in stalls intended for livestock.

“It was a life-changing event to witness that,” he remembered. Increasingly, he found himself despising himself for helping block health reforms. “It sounds hokey, but I would look in the mirror and think, how did I get into this?”

Mr. Potter loved his office, his executive salary, his bonus, his stock options. “How can I walk away from a job that pays me so well?” he wondered. But at the age of 56, he announced his retirement and left Cigna last year.

This year, he went public with his concerns, testifying before a Senate committee investigating the insurance industry.

“I knew that once I did that my life would be different,” he said. “I wouldn’t be getting any more calls from recruiters for the health industry. It was the scariest thing I have done in my life. But it was the right thing to do.”

Mr. Potter says he liked his colleagues and bosses in the insurance industry, and respected them. They are not evil. But he adds that they are removed from the consequences of their decisions, as he was, and are obsessed with sustaining the company’s stock price — which means paying fewer medical bills.

One way to do that is to deny requests for expensive procedures. A second is “rescission” — seizing upon a technicality to cancel the policy of someone who has been paying premiums and finally gets cancer or some other expensive disease. A Congressional investigation into rescission found that three insurers, including Blue Cross of California, used this technique to cancel more than 20,000 policies over five years, saving the companies $300 million in claims.

As The Los Angeles Times has reported, insurers encourage this approach through performance evaluations. One Blue Cross employee earned a perfect evaluation score after dropping thousands of policyholders who faced nearly $10 million in medical expenses.

Mr. Potter notes that a third tactic is for insurers to raise premiums for a small business astronomically after an employee is found to have an illness that will be very expensive to treat. That forces the business to drop coverage for all its employees or go elsewhere.

All this is monstrous, and it negates the entire point of insurance, which is to spread risk.

The insurers are open to one kind of reform — universal coverage through mandates and subsidies, so as to give them more customers and more profits. But they don’t want the reforms that will most help patients, such as a public insurance option, enforced competition and tighter regulation.

Mr. Potter argues that much tougher regulation is essential. He also believes that a robust public option is an essential part of any health reform, to compete with for-profit insurers and keep them honest.

As a nation, we’re at a turning point. Universal health coverage has been proposed for nearly a century in the United States. It was in an early draft of Social Security.

Yet each time, it has been defeated in part by fear-mongering industry lobbyists. That may happen this time as well — unless the Obama administration and Congress defeat these manipulative special interests. What’s un-American isn’t a greater government role in health care but an existing system in which Americans without insurance get health care, if at all, in livestock pens.

http://www.nytimes.com/2009/08/27/opinion/27kristof.html

Dayton Daily News: Ohio pensions already cost enough

From John Curry, August 30, 2009

If you wish to add your comment re. the article, just click on the link immediately below, scroll to near the bottom and be my guest! If we don't speak out re. our future, nobody else will!

John

http://www.daytondailynews.com/o/content/shared-gen/blogs/dayton/opinion/entries/2009/08/29/editorial_ohio_pensions_alread.html

Editorial: Ohio pensions already cost enough

By the Dayton Daily News | Saturday, August 29, 2009, 12:01 AM

The August newsletter to Ohio’s teachers from their pension fund is sobering.

As upsetting as the news is, public school teachers still have a great retirement plan. But, clearly, it can’t be as great in the future.

Because of the stock market dive, last year the fund lost almost 22 percent of its value. That’s awful, but the number is low compared to what many individuals lost.

Over the long haul, the system banks on an 8 percent return each year to meet its obligations. Put another way, it will take some really good years to lift up the plan’s finances. And nobody thinks those exceedingly good years are coming soon or in quick succession.

So what to do?

The teachers’ pension fund, as well as Ohio’s other four pension plans, have to report to an oversight body in September how they’re managing their finances to assure that they can cover their liabilities. This week the police and firefighters pension fund said it wants the legislature to increase the rates paid both by workers and local governments.

The teachers’ fund may also ask for more from school districts as well as teachers themselves. There also are changes that would decrease benefits and increase eligibility standards that are on the table, too.

Two big points:

• The legislature can’t increase pension costs for state and local governments and school districts. They’re already generously supporting retirees, and ordering them to pay more is out of the question. Taxpayers kick in a minimum of 14 percent of public employees’ salaries — and 24 percent for firefighters.

• The pension funds are in a bad way because they also provide health care to retirees, a benefit they’re not required to provide. Of course, they’re not going to end that practice, but it’s at the root of the funds’ financial problems.

If President Barack Obama and Congress agree on health care reform, the pension systems quickly could find themselves in much better shape. The point is not that Washington should bail out public employee pension funds; rather, it’s that health care reform does matter even to people who currently have insurance benefits.

Some time back, when Republicans controlled the governor’s office and the legislature, the teachers’ pension fund proposed taking more out of teachers’ pay to cover retirees’ health care and upping the amount school districts pay the fund as well. The idea died quickly.

What’s different today is that Ohio has a Democratic governor and a Democratic House, but the economy is way worse and school district finances are no more stable. Teachers — indeed all public employees — have to find a way out of this bind other than asking taxpayers.

None of the funds is without options.

Many private pension funds don’t provide cost-of-living increases, while the public funds do. The funds could increase the age at which people may start collecting benefits. (The 30-years-and-out practice is an anachronism, what with people living longer and with beneficiaries expecting their pensions will keep rising even after they quit, often in their 50s.)

They could calculate benefits based on, say, a workers’ last five years instead of three. They could simply reduce benefits. Some very long-time public employees get 88 percent of their old salaries in retirement.

They could eliminate the option of double-dipping, which encourages people to start collecting benefits earlier than they otherwise would. That practice milks the system and has become a symbol for what’s wrong with public pensions.

Lawmakers, who have to sign off on benefit changes, need to send a signal now, so there’s no confusion about what has to happen to get the funds back on sound footing.

Changes have to come in the form of reduced benefits — not what the public pays.