Pros and Cons of the Double Dip

From John Curry, June 25, 2010

From Dennis Leone, June 25, 2010
Subject: Re: Fw: Double dip.....another view

For the record, I agree with all that Bob Buerkle has written below. Also for the record, his #3 -- regarding rehired retirees NOT having STRS health insurance -- WAS adopted by the STRS Board (my motion) on a split vote in 2008.

Dennis Leone

From Bob Buerkle, June 25, 2010
Subject: Re: Fw: CORE member Mary Jordan re. Nehf to newspapers.........

John,

Please forward Mary Jordan and Kathie Bracy (for her blog) my explanation of how re-employed retirees are cost neutral to STRS. Actually, it is a funding enhancement for STRS.

Here's how.

1. STRS collects a total of 24% of earnings from the combination of employer and employee contributions. Since 7/1/2005 STRS only gives the re-employed retiree 5% of the 14% from the employer contributions. STRS keeps 1% for the Health Care Stabilization Fund and 8% to pay down the unfunded liability of the system. The unfunded debt has been created by improved benefit formulas over the decades, but, to a much greater extent, the 2008-2009 investment losses of around 35 billion. So the 8% that STRS gets to keep without any benefit to be provided to the re-employed retiree can be used to pay down STRS Debt.

2. Most full-time re-employed retirees earn less than they once did before they retired but they still make 70 to 90% more than a beginning teacher. This means that the total STRS contributions would be nearly double those of a beginning teacher. Remember also that re-employed retirees do not receive a defined benefit pension based on their re-employment time. They can convert their account value to an IRA or they can let the STRS get over on them with a terrible Money Purchase payout. This is free money for STRS. If it was not a good deal for them they would have complained long and hard to prevent the practice years ago.

3. As long as a re-employed retiree is working for a school district that provides health care for their employees, STRS is not their primary health care provider. This saves STRS around $8000 or more per re-employed retiree.

4. Anyone who retires one day and begins again the next day, like Ravenna Superintendent, Tim Calfee, forfeits their first two months of Pension Benefits. In Calfee's case his gift would benefit STRS by about a $16,000 for breaking the two month waiting rule.

All of this being said, I'm sure many young education graduates are being hurt by the rehiring of retirees. The total number being affected is relatively small though because 70% of the STRS re-employed are only working part time. Maybe they are teaching one or two classes and there really is no need to hire a full time beginning teacher in those positions.

Hope this clarifies why, at the very least, hiring retirees is better than cost neutral for STRS.

Bob Buerkle

From Mary Jordan, June 24, 2010
Subject: Re: Nehf to newspapers.........

If an employee wanted to retire, he would actually retire and no longer be in an educational position. To retire then rehire means the person is receiving a retirement check up to ten or more years than he otherwise would have. How can Nehf say that is not having a negative effect on the STRS retirement funds, especially when the ones doing it the most are retiring from often six digit salaries therefore giving them a MUCH higher retirement check than most all teachers receive.
Mary Jordan

From John Curry, June 24, 2010
Subject: Nehf to newspapers.........

https://www.strsoh.org/whatsnew/news46.html

STRS Ohio Responds to Newspaper Articles About Reemployed Retirees

On June 20, Ohio’s major daily newspapers ran a series of stories about reemployed retirees — educators who continue teaching after retirement. STRS Ohio provided much of the data used in these articles and had many conversations with reporters to try to put this information in context. Following publication of these articles, STRS Ohio responded with a letter to the editor of each newspaper. A copy of this letter appears below.

To the Editor:

In response to your articles about reemployed retirees, we at STRS Ohio agree that pension reform is needed and educators must work longer. In the past, as the Ohio Legislature has made changes to the rules governing reemployed retirees, STRS Ohio has made adjustments to help ensure that reemployed retirees do not negatively impact the pension fund or the separate health care fund. These past reforms include no longer providing primary health care coverage to rehired retirees, and also making the payout after a second retirement cost neutral to the system. Reemployed retirees and their employers also pay the same amount in contributions as do non-retirees. More recently, our Retirement Board took the responsible step as system fiduciaries and adopted a plan in September 2009 that proposes a number of changes to pension plan design for Ohio’s public educators. One of the plan’s major components increases the service required for retirement to 35 years. We look forward to our proposed pension plan changes being included in future legislation and will continue to work with the Ohio Retirement Study Council, other legislators and all stakeholder groups to bring about changes that will help ensure the sustainability of STRS Ohio for Ohio taxpayers who have chosen public education as their career.

Michael J. Nehf, Executive Director
State Teachers Retirement System of Ohio
275 E. Broad St.
Columbus, OH 43215-3771
(614) 227-4005