STRS Board News for April 2010

From STRS, April 16, 2010

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 April report follows.

APRIL BOARD NEWS

PENSION LEGISLATION NOT LIKELY UNTIL FALL The bill that will contain proposed changes for all five Ohio pension systems, including STRS Ohio, still has not been introduced. Consequently, the Ohio Retirement Study Council (ORSC), which is the legislative oversight body for the five systems, has not provided an analysis. Because of the politics surrounding the November elections, it is becoming more and more unlikely a bill will be introduced before November.

At the April 2010 State Teachers Retirement Board meeting, additional discussion was held regarding the alternative proposal for pension benefit changes presented earlier this year by the Healthcare & Pension Advocates for STRS (HPA). The HPA proposal calls for a longer phase-in of additional service required for full retirement benefits and provides for a different cost-of-living adjustment (COLA) than the plan approved by the Retirement Board last September. The HPA reported that it continues to support a 2% COLA for current retirees, beginning on July 1, 2011. It also continues to support a 2% COLA for new retirees after that date, with a deferral for 36 months from the date of retirement, but with no minimum age requirement. The longer phase-in, coupled with this COLA scenario, would result in a funding period of 35.1 years for the pension fund versus the board-approved plan that brings the funding period to 33.4 years. During the discussion, staff reminded the board that additional plan design changes may be necessary if economic and demographic assumptions are not met, and any plan components are removed or weakened and/or implementation dates change during the legislative process. There was consensus that the board will consider taking action on the HPA proposal at its May meeting.

PROPOSED OPERATING BUDGET FOR FISCAL YEAR 2011 REFLECTS 2.1% INCREASE At its April meeting, the Retirement Board received its first look at the proposed system budgets for fiscal year 2011 (July 1, 2010-June 30, 2011). The proposed operating budget totals $89,773,600, which represents a 2.1% increase over this year's operating budget. No merit or cost-of-living salary increases are included in the budget, effectively freezing salaries for most associates at July 2008 levels. The budget also supports 592 full- and part-time employees, which is in alignment with the current head-count freeze that calls for 605 or fewer associates. Payment of expected Performance-Based Incentives (PBIs) to eligible Investment Department associates for fiscal year 2010 performance, plus expected payment of the first half of the deferred PBI payments for fiscal year 2009 performance, are included in the budget. (The deferred payments will only be paid if the market value of STRS Ohio's investment assets remain at $60 billion or higher as of June 30, 2010; as of Marc h 31, 2010, the value stood at $60.9 billion.) Aside from potential incentive payments to eligible investment associates and accompanying fringe benefits, all other major spending categories in the proposed operating budget are lower when compared to last year's budget.

The proposed capital budget for fiscal year 2011 totals $2,101,000. Additionally, the system expects to spend $580,000 in contract payments for the STaRS system that has replaced STRS Ohio's former obsolete pension management computer system. The Retirement Board will be asked to approve the budgets at its June meeting.

BOARD APPROVES HEALTH CARE PROGRAM CHANGES FOR 2010 AND 2011 During April's meeting, the board approved a new program for STRS Ohio Health Care Program enrollees who receive their prescription drugs through Express Scripts. (These are individuals who are covered under the Aetna, Medical Mutual and Paramount health care plans.) The program, known as Select Home Delivery, encourages individuals who are filling prescriptions for maintenance medications at retail pharmacies to move to home delivery. This move will lower the individual's copayments plus reduce expenditures from STRS Ohio's Health Care Stabilization Fund, which supports the health care program.

Express Scripts will use a series of letters and phone calls to explain the advantages of home delivery and encourage the enrollee to make the transition. For those that wish to move their prescription to home delivery, they can direct Express Scripts to contact their physician to obtain a new prescription for home delivery through Express Scripts' "concierge service." Also, the first copayment for a generic maintenance medication moved to home delivery will be free up to a total of $50 per enrollee. There will be no change in copayments and enrollees will not experience any penalties if they choose to continue filling their maintenance prescriptions at retail. If just 50% of the eligible prescriptions move to home delivery, enrollees will save $3.1 million in copayments and the health care fund would retain an additional $4.7 million. The Select Home Delivery Program will begin this summer.

Looking ahead, the board also approved the following for the STRS Ohio Health Care Program in calendar year 2011:

- Implement a Medicare Part D prescription drug plan (PDP) through Express Scripts. Currently, STRS Ohio participates in a Medicare Part D subsidy program. This change should increase the subsidy amount to STRS Ohio by $6.3 million. In addition, many Express Scripts enrollees will benefit from less restrictive requirements for step therapy and prior authorization, 90-day supply at retail and some formulary adjustments. Eligible enrollees will receive additional information this fall.

- Change the family in-network annual deductible for the AultCare plans (available in select Canton, Ohio, ZIP codes) to $1,600 from $1,200, beginning Jan. 1, 2011. These plans will then match the single-to-family annual deductible ratio of all other STRS Ohio health care plans.

- Continue the Health Care Assistance Program with the same coverage level, eligibility requirements and $0 monthly premium.

- Continue the 2010 premium reimbursement amounts for Medicare Part B. The maximum amount of reimbursement from STRS Ohio remains at $52.83 per month for the 30-year retiree; the minimum amount of reimbursement is $29.90 per month.

Finally, the board approved Prudential as the carrier for the Long-Term Care (LTC) Program. Since November 1988, STRS Ohio has offered a long-term care plan through Aetna. However, Aetna is exiting this market as of Dec. 31, 2010. The almost 12,000 individuals currently enrolled in the program will have the option to stay with Aetna via a trust or transfer to the Prudential long-term care plan. Detailed information, including premiums and coverage options, will be mailed to all affected STRS Ohio members in June 2010; additional information and assistance with making a choice will be provided through Prudential's Web site and a customer service center. Open enrollment for new long-term care program enrollees - both active and retired STRS Ohio members - will be held in February 2011.

In the coming months, members will receive more detailed information about the STRS Ohio Health Care Program changes approved at this April meeting through newsletters, the Web site, e-mail news service and direct mail, including the health care program open-enrollment materials sent to members in the fall.

IMPACT OF NATIONAL HEALTH CARE LEGISLATION ON STRS OHIO STILL TO BE DETERMINED With a piece of legislation as massive as the health care reform bill that recently passed in Washington, STRS Ohio and many others will be analyzing its content for some time. All attention will now be on the regulatory process and how the administrative authorities interpret and implement the numerous reforms. Although the bill's full effect will not be felt for several years, some clarifying regulations are expected to be developed during the next 180 days. Some areas where staff believes there is a strong likelihood that adjustments to the STRS Ohio Health Care Program will be necessary include: elimination of lifetime limits for coverage; increasing dependent children's eligibility for coverage to age 26; and eliminating any out-of-pocket costs for preventive services in the Medical Mutual Plus Plan. STRS Ohio may also be able to apply for participation in the early retiree (age 55-64) reinsurance program for the years 2010 through 2013. However, until regulations are fi nalized, nothing is for certain. STRS Ohio will continue to use its newsletters, e-mail news service and Web site to keep health care program enrollees informed of any changes affecting them.

RETIREMENTS APPROVED The Retirement Board approved 123 active members and 83 inactive members for service retirement benefits.

NO CHANGE TO SERVICE CREDIT RULE FOR PARTIAL YEARS OF TEACHING In January 2010, the Retirement Board was asked to consider a change that would require STRS Ohio members to work 180 days to receive a full year of credit. Currently, members who are employed on a full-time contract can receive a full year of service credit by (a) working 120 full-time contract days, or (b) completing two full-time quarters. However, upon further research, staff has determined that 120 days for a full year of service was chosen in 1971 to be consistent with other sections of Ohio law affecting teachers. As a result, staff has determined that the existing service credit rule should stay in effect.