Report on September STRS Board meeting

From STRS, September 17, 2010
Subject: [News] September Board News Details Retirement Board Actions and Discussions

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 September report follows.

SEPTEMBER BOARD NEWS

HILL AND PRICE TAKE SEATS AT BOARD TABLE

Mark Hill and Dale Price began their four-year terms on the State Teachers Retirement Board this September, following their election to the board last spring.

BOARD BEGINS HEALTH CARE STRATEGIC PLANNING DISCUSSION

As noted in previous STRS Ohio communications, funding for the STRS Ohio Health Care Program will be depleted by 2021. At the September 2010 meeting, the Retirement Board and staff began a review of the history and current status of the health care program as the first step in developing a strategic plan for retiree health care for adoption next spring.

When the STRS Ohio Health Care Program began in 1974, health care costs were insignificant compared to today. Just as an example, the limit for lifetime health care benefits for an enrollee was just $20,000. In 2010, the lifetime coverage is $2.5 million and it will be unlimited in 2011. During the last 20 years, STRS Ohio's health care cost trend rate has averaged about 11%. Despite managed care and the significant changes STRS Ohio made to the program in 2004 that significantly increased enrollees' portion of the health care costs, the trend continues to rise, matching what is happening nationally. Staff noted that the balance in the fund that supports the health care program must grow year-after-year just to help offset the yearly health care cost increases.

In the coming months, the board and staff will begin examining the four levers that affect the financial status of the health care program: (1) funding, (2) plan design, (3) eligibility and (4) premium subsidy. However, in light of pension funding issues, it is unlikely employer contributions beyond the current 1% allocation to the health care fund can be increased.

At the October meeting, the board will receive a presentation outlining how STRS Ohio's Health Care Program compares to the current marketplace and how the future retiree marketplace will change in light of national health care reform.

BOARD STILL AWAITING PENSION LEGISLATION

A final comprehensive bill containing the respective board proposals from each of Ohio's statewide pension systems to help address their long-term sustainability has not yet been forwarded to the systems for review.

During its September meeting, the board continued its review of the alternative proposal for pension benefit changes presented earlier this year by the Healthcare & Pension Advocates for STRS (HPA). The board also asked staff to study the possibility of providing further assistance to low-income retirees with at least 30 years of service credit; a report will be provided to the board at its November 2010 meeting. Any changes the board makes in the future to the proposed plan it approved on Sept. 1, 2009, will likely be included as amendments to introduced pension reform legislation. Staff recommends that if STRS Ohio members encounter legislators during this campaign season, encouraging support of the anticipated legislation could prove helpful when a bill is finally presented to the Legislature.

RETIREMENTS APPROVED

The Retirement Board approved 1,546 active members and 251 inactive members for service retirement benefits.

OTHER STRS OHIO NEWS

NEWSPAPER STORIES GENERATE SYSTEM RESPONSE

Several Ohio newspapers recently ran a story about conference-related travel by Ohio's five public pension funds, using data provided by each of the systems. Unfortunately, in the case of STRS Ohio, some important facts were not included. A significant portion of the travel expenses reported by STRS Ohio for the 12-month period was a direct reflection of the responsibilities STRS Ohio investment staff have for the internal management of international investments, real estate and the overall total investment fund, which currently stands at $58 billion. STRS Ohio manages about 80% of its total investments in-house, which is the highest level of internal management among the five Ohio systems. Further, STRS Ohio manages about 88% of its real estate investments in-house and about 59% of its international investments in-house. This internal management saves STRS Ohio approximately $90 to $100 million per year.

STRS Ohio has a stringent travel policy for board and staff that recognizes their collective responsibility to control operating expenditures. However, the board and staff also have a responsibility to maintain a level of knowledge and to conduct the due diligence that enables them to perform as successful fiduciaries of the system. In this time of global economic issues and global investments (including real estate funds), not all of that knowledge can be obtained in Columbus, Ohio.

Some Ohio newspapers have also recently voiced concern about the five Ohio systems declining their request for information from member records. This request was declined as current Ohio law prohibits STRS Ohio from releasing personal history information about individual members, such as their monthly benefit amounts. Further, redacting the names and addresses of STRS Ohio members would not be sufficient to protect their identities if members' personal data maintained by STRS Ohio was made public. STRS Ohio provides a significant amount of member information in aggregate, as well as information regarding its finances and operations, through various reports and third-party reviews. All of this information is readily available to the media.

CEM STUDY CONFIRMS COST SAVINGS OF INTERNAL INVESTMENT MANAGEMENT

For a number of years, STRS Ohio has participated in custom peer group benchmarking studies conduced by CEM Benchmarking Inc. One of these studies compares costs among participating plans' investment programs. The most recent CEM study shows that the savings to STRS Ohio due to the lower cost of its internal management compared to external management fees was $99 million in calendar year 2009.