Nancy Hamant points out a major inequity to the STRS board today...why are retirees burdened with 80% of the bailout costs?
STRS MEETING--AUGUST 12, 2010
TO: STRS EXECUTIVE DIRECTOR, STRS BOARD CHAIR, and STRS BOARD MEMBERS
FROM: NANCY B. HAMANT, 28.6 YEAR STRS MEMBER, WARREN COUNTY
Thank you for the opportunity to speak to you regarding a matter of deep concern to all STRS members, the proposed changes to the STRS Pension Plan presented to the Ohio Retirement Study Council (ORSC). On Sunday, June 20, 2010, the Cincinnati Enquirer, one of eight Ohio newspapers, ran multiple articles regarding Ohio Pensions, the pensions' unfunded liabilities, double-dipping and overly generous pension calculations. In one of the articles "Is 'double dipping' a good practice?" (Page F5), an STRS spokesperson was cited concerning long term solutions. The following is the citation from the article (excerpt attached):
"wants lawmakers to require public employees to work at least 35 years to age 60 with 30 years service or face significant cuts. STRS wants to eliminate the 11.5 percent enhancement, which means an educator will have to work as many as 39 years to reach a similar payout. The plan also reduces from 3 percent to 2 percent the cost of living adjustment--a provision that offers a sense of long-term security to retiring early.
STRS estimates that pushing retirement to 35 years and eliminating the 11.5 percent bump will each remove nearly $1 billion from the $40 billion in unfunded liabilities. The COLA reduction would be huge cutting another $8 billion."
The changes amount to $10 billion:
$1,000,000,000--Active teachers work to 35 years
$1,000,000,000--Active teachers have 11.5% bump eliminated
$8,000,000,000--Retired teachers have COLA reduced
STRS membership--approximately 300,000 Active teachers; approximately 100,000 Retirees.
SO, 100,000 RETIREES (25% OF STRS MEMBERS) WILL BAIL OUT THE STRS PENSION IN THE AMOUNT OF $8,000,000,000 (80% OF THE BAIL OUT)! ACTIVE TEACHERS WILL PAY THE STRS PENSION $2,000,000,000 (20% OF THE BAIL OUT)! DO THE MATH.
$8,000,000,000 ÷ 100,000 = $80,000 PER RETIREE
$2,000,000,000 ÷ 300,000 = $ 6,666 PER ACTIVE TEACHER
HOW CAN THIS BE? RETIREES HAVE LITTLE FINANCIAL FLEXIBILITY! THEY HAVE WORKED FOR AND ARE GRATEFUL FOR THEIR PENSIONS, BUT WITH MAJOR COLA REDUCTIONS MANY RETIREES WILL BE FINANCIALLY DOOMED. ACTIVES STILL HAVE THE HOPE OF ANNUAL RAISES AND SERVICE STEP INCREASES. RETIREES CAN ONLY LOOK FORWARD TO THE NON-COMPOUNDED COLA.
NO DOUBT AN STRS FIX IS NEEDED BUT NOT IN SUCH AN INEQUITABLE WAY! STRS RETIREES ARE THE LEAST ABLE TO AFFORD IT BUT ARE BEING ASKED TO CARRY THE MAJOR BURDEN OF SAVING THE STRS PENSION FUND!
Additional questions about STRS Pension Reforms:
STRS Board Did you have access to actuarial studies for each of the reforms considered? Did you have actuarial studies to consider about other areas of reform? Were actuarial studies provided before your vote?
ORTA Did you know that STRS retirees would be paying for 80% of the reform while they are only 25% of STRS membership? What is ORTA going to do to change this totally inequitable solution?
OEA How can you justify an STRS pension solution that has active teachers paying 20% of the rescue thereby penalizing the least fiscally able STRS retirees? When I look at the costs of the bailout, it is unbelievable that OEA would expect 25% of its members (retirees have been dues paying OEA members) to pay 80% of the solution. -What will OEA do to change this inequity and to support a more reasonable solution?
Nancy B. Hamant
Maineville, OH
Maineville, OH
Below is the article to which Nancy Hamant refers to in her speech above:
Should Ohio's pension system be reformed?
By DENNIS J. WILLARD
THE AKRON BEACON JOURNAL
Jun 20, 2010
THE AKRON BEACON JOURNAL
Jun 20, 2010
The Ohio pension system enables superintendents to double-dip in two ways.
Many superintendents would not retire as young as 52 without a guaranteed job.
In addition, early retirement is possible because all five state pension systems provide health care benefits. If this benefit were not available, retirees would have to wait until age 65 to retire with Medicare.
When the Ohio legislature created State Teachers Retirement System in 1920, health care was not part of the package. In 1973, STRS and the four other state pension plans convinced state lawmakers that they could afford to offer health care, but it is not a mandated benefit.
Before the stock market collapse in 2008, the fund managers were warning that health care could not be continued in its current form. Then, losses on the markets hurt the pension accounts, too. STRS in particular found itself in a long-term solvency crisis.
All five pension plans want state lawmakers to tap taxpayers for more money by gradually increasing the contributions by a combined 5 percent of payroll from employees beginning in 2011 and employers in 2016. Five additional percentage points is effectively a 21 percent tax increase for the funds.
STRS, as part of the long-term solution, wants lawmakers to require public employees to work at least 35 years or to age 60 and 30 years service or face significant benefit cuts.
This comes a decade after STRS and the other funds said too many employees were retiring after 30 years, placing a financial burden upon the system. As a solution, STRS in 2000 convinced lawmakers to bump benefits by 11.5 percent for those who worked 35 years.
FLAWED PLAN
The plan was flawed because it opened the door to thousands of teachers retiring early. By 2004, in its annual report, STRS warned of trouble. Among the long-term causes were rising health care costs, early retirements occurring at a rate faster than projected and the continuing trend of members living longer.
STRS wants to eliminate the 11.5 percent enhancement, which means an educator will have to work as many as 39 years to reach a similar payout. The plan also would reduce from 3 to 2 percent the cost of living adjustment (COLA) — a provision that offers a sense of long-term security to retiring early.
STRS estimates that pushing retirement to 35 years and eliminating the 11.5 percent bump
each will remove nearly $1 billion from the $40 billion in unfunded liabilities. The COLA reduction would be huge, cutting $8 billion more.
All of these measures are designed to strongly encourage STRS members to pay into the system longer before they begin to withdraw funds in retirement.
But that fix understates the gravity of STRS’ trouble. In 2006 — two years before the market crash — STRS called for the 5 percent increase in contributions for a different reason: To cover shortfalls in the health-care account.
Laura Ecklar, an STRS spokeswoman, said the proposal developed before the “great recession,” would have generated $500 million annually for the health care fund.
Ecklar said STRS has dropped that proposal. The new plan addresses only pensions.
“The board recognizes that a separate solution will be needed for the health care fund. In fact, this fall the board will begin a strategic planning process to evaluate its options for the health care fund,” Ecklar said.
Ecklar acknowledged that delaying retirement eligibility would reduce health care costs by shortening the time period before Medicare begins to provide coverage at age 65, but that’s not good enough.
“Unfortunately, the health care fund has only about 11 years of solvency left,” she said. “Changing the retirement age is not the solution to the health care fund’s solvency. Pension fund solvency and health care fund solvency are two separate issues that will require different solutions.”
WHY RETIREMENT SYSTEM?
Even as lawmakers and fund managers are examining plans to ensure the pensions are financially sound beyond the next 30 years, some question the purpose of a retirement system.
Connie Yingling, a Mason school board member, voted to rehire Superintendent Kevin Bright after news spread in the community that he was a candidate for a top job at a district near Columbus.
Yingling believes a pension’s purpose is to provide an income for employees after they stop working. She said if the employee has fulfilled the retirement requirements set forth by the fund, then they are entitled to the money.
“If the rules allow someone to qualify for those benefits before they actually stop working, then you can debate the rules, but the original purpose still stands,” Yingling said.
Former board member Jennifer Miller was the lone vote against rehiring Bright after he retired. She lost a bid for re-election last year.
Miller believes the rules should be reconsidered for collecting a pension while working.
“I think that law probably needs to be reconsidered. I think too many administrators and teachers are taking advantage,” Miller said.
posted by Kathie Bracy at 4:20 PM
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