STRS report on February, 2010 Board meeting

From STRS, February 22, 2010

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 February report follows.

FEBRUARY BOARD NEWS

PENSION LEGISLATION SPONSORSHIP WILL BE BIPARTISAN The five Ohio retirement systems, including STRS Ohio, are still waiting for the Legislative Service Commission to finish its work in drafting the legislation designed to keep the systems financially strong and sustainable for all current and future public employees. During the February meeting of the State Teachers Retirement Board, Executive Director Michael Nehf reported that STRS Ohio has learned that the bill sponsorship will be bipartisan. House Assistant Minority Leader Louis Blessing (R-Cincinnati) has agreed to co-sponsor the legislation with Ohio Retirement Study Council Chair Rep. Todd Book (D-Portsmouth). It is anticipated that once a bill is introduced, hearings may occur this spring; however, voting on a bill is not expected until after the November election.

On Capitol Hill in Washington, D.C., the focus of legislators and the president appears to be on jobs; financial market regulation and reform; and the growing federal deficit and debt reduction measures. Health care is also on the list; however, congressional staff members are giving passage of health care reform a 50/50 chance this year. Additional information about discussions at the federal level can be found in this February's issue of STRS Ohio's Legislative News, which is posted on the STRS Ohio Web site. (https://www.strsoh.org/quicklinks/legislative.html)

HPA PRESENTS MODIFIED PACKAGE OF PENSION BENEFIT CHANGES At the February board meeting, the Healthcare & Pension Advocates for STRS (HPA) presented an alternative proposal for pension benefit changes to the Retirement Board for its consideration. The HPA proposal does not call for any changes to the proposed member and employer contribution increases nor to the benefit formula change contained in the plan adopted by the board on Sept. 1, 2009.

However, the HPA proposal does call for a phased approach to increasing the number of years of service required for full retirement benefits. In the HPA proposal, the change to 35 years from 30 of required service would be phased in, in two-year increments beginning in 2015 (i.e., 30 years until Aug. 1, 2015; 31 years from August 2015 through July 31, 2017; 32 years from August 2017 through July 31, 2019; 33 years from August 2019 through July 31, 2021; 34 years from August 2021 through July 31, 2023; and 35 years from August 2023 and beyond). Members could also retire early with 30 years of service, but with an actuarial reduction of their benefits.

HPA is also recommending that there be no tiering of the cost-of-living adjustment (COLA). In the HPA proposal, current retirees would receive a 2% COLA, beginning on July 1, 2011. New retirees after that date would also receive a 2% COLA, but it would be deferred for 36 months or until age 60, whichever comes later.

Finally, the HPA proposal would prefer legislation that grants authority to the Retirement Board to adjust the final average salary at three, four or five years, based on the funding status of the system.

In presenting its proposal, the HPA also expressed its commitment to the STRS Ohio Health Care Program by recommending that a contribution to the Health Care Stabilization Fund be set at no less than 1% of employer payroll.

At the March board meeting, STRS Ohio staff will present a report to the board showing the impact of the HPA's proposed changes on the solvency of the pension fund. It was noted that any or all of HPA's changes could be included in the pension legislation through amendments to the bill.

PROJECTED LIFE OF THE HEALTH CARE FUND INCREASES SLIGHTLY, BUT LONG-TERM CHANGES STILL NEEDED A positive return on fund assets, as well as the addition of a Medicare Advantage program and other plan changes, helped to slightly lengthen the solvency period for the Health Care Stabilization Fund as of Jan. 1, 2010. The results of the annual actuarial valuation of the fund show that the projected life of the STRS Ohio Health Care Program now extends through 2021. This reflects an increase of three years from the 2009 valuation.

Costs for the STRS Ohio Health Care Program are paid out of the Health Care Stabilization Fund. Currently, monies for the fund come from premiums charged to STRS Ohio retirees and their dependents who are enrolled in the program, 1% of payroll from employer contributions, Medicare Part D subsidies and investment earnings on these funds. Though the balance in the fund stood at almost $3 billion on Jan. 1, 2010, next year the fund principal will be tapped to cover the shortfall in paying health care costs. Reliance on the principal rapidly depletes the health care fund, leaving only the 1% employer contribution, enrollee premiums and Medicare Part D subsidy to sustain the fund. Without significant changes in premiums, program eligibility or plan design, the program cannot survive in the long term. In the coming months, STRS Ohio staff will present options for the health care program for the board's consideration.

RETIREMENTS APPROVED The Retirement Board approved 175 active members and 125 inactive members for service retirement.

OTHER STRS OHIO NEWS

STRS OHIO RECEIVES STATE AUDITOR'S AWARD STRS Ohio has received the "Making Your Tax Dollars Work" award from the Auditor of State's Office for the second consecutive year. STRS Ohio received the award for the quality of its financial reporting and the absence of audit issues. Less than 5% of the 5,500 entities that the Auditor of State's Office audits each year receive this award.