Saturday, January 16, 2010

Get well cards, prayers......
Chuck Angeletti is home recovering from surgery January 13th.
....Chuck Angeletti
....879 Mission Hills Lane
....Columbus, OH 43235-1265
January 19, 2010

Thursday, January 14, 2010

In case you haven't noticed.....drug prices are going up

Limited Drug Competition Is a Prescription for Extreme Price Increases
Given that pharmaceutical companies have been accused of hiking drug prices ahead of the passage of health care reform, perhaps nobody will be surprised to learn that the industry has a history of passing big price bumps on to their customers. Even so, the magnitude will no doubt raise an eyebrow or two: The Government Accountability Office has found that between 2000 and 2008, the prices for 321 different brand-name drugs soared from 100% to more than 2,000%.
The GAO on Monday released a report from December in which federal investigators examined brand-name prescription drugs that had undergone extraordinary price increases equal to 100% or more at a single point in time.
The GAO found that from 2000 to 2008, 416 drug products (which in some cases include multiple dosages of a single drug) had such extraordinary price increases. Most often, these extraordinary price increases ranged from 100% to 499%, but in a few cases, prices were raised by 1,000% or more and in nine cases, the prices soared by over 2,000%. The number of extraordinary price increases each year jumped from 28 in 2000 to 71 in 2008.
It's important to note that the 416 products whose prices rose so rapidly represent just half of 1% of all brand-name pharmaceuticals. However, the list includes some well-known drugs such as Adderall, used to treat ADHD among the non-repackaged brand-name drugs. And among the repackaged drugs are other well-known names, including insomnia drug Lunesta, cholesterol drugs Zocor and Lipitor, antidepressants Effexor, Paxil and Prozac, Abilify for schizophrenia, epilepsy drug Topamax, pain relievers Lyrica and Vicodin and hypertension drug Novarsc.
More than half of the brand-name drug products that had extraordinary price increases were in just three therapeutic classes: central nervous system, including sedatives and antidepressants; anti-infective drugs; and cardiovascular. While the majority of all extraordinary price increases were for drugs priced less than $25 per unit, the GAO notes that a full course of treatment for some of these drugs could total several thousand dollars. The report refers to the case on one rare cancer drug which cost $390 for a standard full course of treatment. "After two extraordinary price increases," the GAO notes, "the full cost of a course of treatment rose to more than $3,000."
Lack of Competition Is a Key Factor
The GAO found several causes for the increases. First, in some cases there was a lack of therapeutically equivalent drugs on the market -- both generics and other brand-name drugs used to treat the same condition -- due to patent protections for new drugs. Similarly, by extending patents for existing drugs that have been modified, and receiving market exclusivity rights, drug manufacturers have been able to limit competition. For example, Abbott Laboratories (ABT) has managed to keep keep TriCor under protection for several decades now.
Second, the size of the market for a given drug can reduce competition. Third, the transfer of the rights to a drug and corporate consolidations among drug companies may result in fewer drug options and contribute to extraordinary price increases.
Fourth, more than half of all extraordinary price increases were for repackaged brand-name drug products, meaning third parties firms, which purchased drugs from manufacturers or wholesalers and resold them in smaller packages to health care providers, were the cause of the price hikes. Finally, unusual events -- such as disruptions in production due to shortages of raw materials -- and other factors may also contribute to some extraordinary price increases.
Overall Drug Prices Are Rising, Too
In response, the Pharmaceutical Research and Manufacturers of America (PhRMA), said in a statement that "the GAO report focuses only on a small number of selected brand medicines rather than the entire prescription drug market." In addition, "Today, prescription medicines account for only 10% of health care spending – the same as it was back in 1960."
But that may be debated. Last year, for example, overall wholesale prices of brand-name drugs rose 9%, even as the Consumer Price Index fell. Another report recently found that consumers paid roughly double in 2006 for prescription drugs compared to what they paid in 1996. And drug companies have certainly been accused of hiking prices in anticipation of the passage of the health care reform plan now being reconciled by the House and Senate. Some drug makers, meanwhile, may also be hiking their prices in anticipation of looming "patent cliffs": Their best-selling drugs will soon be open to generic competition, but their research and development pipelines hold too few promising new drugs to replace the pending lost revenue.
Regardless, the $315 billion pharmaceutical industry will have a hard time finding many sympathetic ears. Senate Democrats and the Obama administration have already agreed to an $80 billion, 10-year pact that would require pharmaceutical firms to pay millions of dollars annually in taxes, and make concessions to help reduce prices for some seniors in Medicare. But since the pact could also limit future concessions from the industry, it has also raised much criticism.
This story was updated on Jan. 13, 2010 to include some of the drugs that have seen prices soar rapidly.

Wednesday, January 13, 2010

Bob Stein responds to John Curry
From Bob Stein, January 13, 2010

Subject: Re: Bob....with all due respect......we've been there and done that one too many times before!

I understand the historical issue and and some of the problems. I don't consider the topic active and a performance bonus may not be the way to get to the goal.

The program you describe seems to have a different goal than what I was thinking about. Also, there appears to have been management and evaluation issues.

I'm simply looking for a way to adjust behavior of senior management in the way described. This is necessary in any enterprise that expects economic success over the long term because markets tend to selectively reward creativity and adjust crowd followers out.



Representative Wachtmann responds to Tom Curtis' letter

From Rep. Lynn Wachtmann, January 13, 2010
Subject: RE: 010610 Rep Lynn Wachtmann, Re State Pension Issues
Thank you for your email. Yes, my comments were accurately reported and yes, they are true.
How many businesses are you aware of that have the generous retirement, heath care and can retire after 30 years, potentially at age 48? Personally, I am aware of none. I simply do not believe taxpayers should be expected to pay higher property taxes to bail out either STRS or any of the other four systems. Most of the private sector has been forced to take pay freezes or cuts in addition to the changes in retirement, not to mention the level of unemployment within the private sector. Expecting public employees to come closer in line with the private sector to add solvency to our systems is very reasonable. All of us in the public sector should be grateful for the generosity of the taxpayers, who are, unmistakably, mostly employed by the private sector. I could go on and on about how our public pension systems were designed when people lived to be only into the late sixties while now, people are living much longer. In fact, the smallest system, SERS, has over 100 people living over the age of 100! The fact is, clearly, if the systems are going to continue to exist, changes need to be made.
Unlike Washington, Ohio cannot and must not pass the bill along to future generations, according to the state’s Constitution. The changes that need to be made to the five systems vary but are all modest when one looks at the whole picture. I do understand change is difficult for most people; however, in the end, we need to ensure the solvency of the systems for future generations. The longer the legislature puts off these needed changes, the more difficult the options become.
All of this being said, I want to be clear that my number one concern is the solvency of the systems and ensuring it is there for the future. I understand some may believe that my comments indicate I do not believe they deserve these benefits. Please allow me to further expound that I have no animosity to any of the public sector employees. On the contrary, I want to make sure the benefits upon which they are relying are secure! Everyone works hard and when one retires, one should be able to rely on the promises made earlier.
I appreciate the work you do and I honestly do admire the responsibilities you have in your profession. I also appreciate you taking the time and initiative to contact me.
[Rep. Wachtmann sent a nearly identical letter John Curry today.]

Tom Curtis to Canton Repository: Taxpayers’ contribution rate for STRS hasn’t changed in more than 25 years

Canton Repository, January 12, 2010
Letter to the Editor
Regarding the Jan. 4 Associated Press stories “Taxpayers are being asked to cover increasing pension costs” and “Health costs burden pensions”:
Over the past week, I have been reading the very negative comments published across the state about the five public pension systems. Though there is much concern to go around, please let me share a few positive realities concerning the State Teachers Retirement System.
The educator pension contribution made by the 600-plus school districts in Ohio is currently at 14 percent, has not changed since 1984 and is the current cap.
The only increases in STRS pension rates since 1984 have been those increases made by the educators themselves. The last increase educators were asked to make by the STRS was in 2003. The educator contribution rate rose from 9.3 percent to 10 percent, which is the current cap.
Employee contribution rate increases have no impact on what the taxpayer is asked to contribute.
The Health Care Stabilization Fund, which subsidizes a portion of the health care benefits received by STRS retirees, is funded by a percentage taken from our 10 percent contribution, not from the 14 percent employer contribution. Subsidies are provided only for the retirees and not their spouses or dependent children, if that applies.
I would think the taxpayer would be very appreciative that the contribution rate has not increased for more than 25 years.
Comparing pension systems is like comparing, as they say, apples and oranges. Yet the press seems to place them all in one basket. That is not right. Each one has a different story.
Educators have always performed their duty and paid into their retirement system faithfully since 1920. We are not the bad guys here. The STRS administration, Wall Street and the banks have led to this huge underfunding problem, not the educators.

Donna and Dean Seaman: Letter to STRS Board

From Donna and Dean Seaman, January 13, 2010
Subject: Board meeting
STRS Board and Mr. Nehf: We must assume you've read all the many articles in the eight big city Ohio newspapers about Ohio's public pension systems. The main point of all those articles was that the public pension systems are a taxpayer burden to Ohio's taxpayers, so much so that in the case of STRS, additional contributions will be asked for from school boards in the future, more taxpayer money, to enable STRS to remain solvent.
With all this notoriety, you, the STRS board, MUST be aware that you are being scrutinized by not only STRS retirees but Ohio's public as well. We are watching your every move!
We are also watching and waiting to see the operating reductions you have long promised! As I write this, President Obama is meeting with officials from four major banks to "scold" them for continuing to pay out enormous bonuses in the face of horrendous losses. Yet the STRS board and Mr. Nehf continue to defend and justify bonuses for the investment staff (though trying to make it more palatable by "deferring" payment). I must again remind you: The STRS investment staff are not Wall Street caliber and do not deserve bonuses!
These are the investment people who have lost the STRS portfolio over $42 billion dollars while excusing the losses as "market driven."
This STRS board must begin to turn things around!
Donna Seaman, 2002 retiree
Dean Seaman, 1986 retiree

Beacon Journal letter to editor - 'It is not fair to even suggest that taxpayers are being cheated'

From John Curry, January 13, 2010
Akron Beacon Journal, January 13, 2010
Public employees pay for pensions
The front-page articles on Jan. 3 about the state employee retirement systems (''Pensions facing scrutiny'') were an attempt to create negative attitudes about public employees. To say that a Sears retiree is ''footing the bill'' for my State Teachers Retirement System income with his taxes is like me claiming that I paid for his Social Security by shopping at Sears.
Of course, some of the money I spent at Sears paid his salary, part of which went to Social Security, just as his tax money pays for bits of the incomes of police officers, firefighters, teachers and city workers, part of which goes to their retirement.
Private sector employees pay 6.2 percent of their salary into Social Security, and their employers match that. People paying into the Social Security system believe their employers' contributions are part of the income that they earned by doing their jobs. Public employees feel the same way about employer contributions.
Public employee retirement systems are fully and completely funded by employee and employer contributions.
So why is the Beacon Journal subjecting public employer contributions for scrutiny? To create controversy?
In the 1990s, the State Teachers Retirement System increased contributions from 21.25 percent to 24 percent.
Teacher contributions went from 9.25 percent to 10 percent, and school board contributions increased from 12 percent to 14 percent.
There was no public outcry. Teachers had smaller paychecks and received smaller annual raises. Nobody hit the panic button.
The controversy seems to come from the belief that the state pension funds provide ''Cadillac'' retirements. This ignores the fact that public employees are required by state law to pay up to 12 percent more of their incomes (24 percent versus 12.4 percent) into these pension funds.
To do this, we received less take-home pay compared to people with similar incomes working for private businesses.
Anyone who puts an extra 10 percent of his or her income into growth investments for 35 years should be able to retire comfortably, and maybe early. Few people do. I might not have, either, had I been given the choice.
The proposed changes in the public retirement systems mostly mean that public employees will have smaller paychecks and smaller raises while working more years until they retire to get less money and pay more for health insurance. That is not quite a tax the articles want readers to believe.
It is fair to report on the problems of the public employee retirement systems and the proposed remedies. It is not fair to even suggest that taxpayers are somehow being cheated.
Thomas A. Shubert
Munroe Falls

RH Jones: A thank you and an admonition for Bill and Larry

From RH Jones, January 13, 2010
Subject: Looks like the OEA is hitting all the local papers..this one was in the Lima News
Bill Leibensperger and Larry M. Lewellen:
Thanks to both of you for your wonderful DB supportive letter sent out all over the state. It was GREAT! My Life Membership has been rewarded.
Presently, retired teachers' uncompounded 3% COLA is being threatened, if the legislators go that route; what will happen to all who are now retired will affect you in your future retirement: As with us, you will not be able to keep up with inflation. Also, every 10 years or thereabouts, the legislature has supplied an ad hoc increase on our base to help us keep up. But, without new seed investment money such as provided in the way of an increased employer/employee contribution, STRS investment staff will not be able to supply, perhaps, even a reduced COLA for you. Also, investment funds need this shot in the arm to keep us with health care Rx, as well. That may not be there for you without this "shot in the arm"either. It seems that the feds are having trouble providing health care for all, so we probably cannot expect anything much from them. By the way, my Medicare has just been increased by $168 per year. This is not "chump change" for an elderly 78-year-old retired Life Member of OEA, OEA-R, NEA, NEA-R and NEOEA whose pension and benefits are far behind active teacher income and benefits. It is way over twice whhat I was paid when actively teaching: and, besides that, you will get the 35/88 retirement formula. This is not pension envy; this is the facts of life.
I wonder, if you do not support us and establish a strong precedent in doing so, how will future actives who retire 15-years down the road get support to keep up with inflation and have a decent HC/Rx?
Robert Hudson Jones, retired teacher OH STRS member

Letter: STRS good deal for Ohio taxpayers
Lima News, January 12, 2010
William W. Leibensperger, Upper Arlington, and Larry M. Lewellen, Gahanna
Defined benefit pensions such as the one provided via the State Teachers Retirement System are the best deal for Ohio taxpayers. According to the National Institute on Retirement Security, defined benefit pensions can provide the same retirement income as defined contribution plans [cash accounts such as a 401(k)] at 46 percent of the cost because of economic efficiencies from pooled investment risk, higher returns and lower fees.
It’s important to understand public employees’ contributions and investment returns fund approximately three-quarters of their lifetime retirement benefit. As for the State Teachers Retirement System, educators are being asked to take responsibility for the lion’s share of the adjustment to adequately fund the pension system.
Educators will be reducing their future benefits, increasing their own contributions and working longer to pay for the needed funding. It is also important to note that public sector retirees do not receive Social Security benefits like most Americans do.
Employers are being asked for a modest increase in their contribution to share in the cost of maintaining a secure retirement plan. Employers would help maintain the solvency of a retirement plan that is an important tool in the recruitment and retention of a high-quality work force. Taxpayers benefit from a high-quality educational system, which is mandatory for the economic success of Ohio.
William W. Leibensperger, of Upper Arlington, and Larry M. Lewellen, of Gahanna, are co-chairs of Healthcare & Pension Advocates for STRS, Columbus.

RH Jones: Dyer also got a golden parachute and then some

From RH Jones, January 13, 2010
Re: Bob....with all due respect......we've been there and done that one too many times before!
John Curry, Bob Stein and all:
If my memory does not fail me, Dyer also got a "Golden Parachute". And by getting an OPERS retirement pension, the incentive bonuses probably went to growing his final average salary in calculating his pension checks.
Also, not mentioned in Stein's message is that the OPERS retirement system is a great part of attraction to become employed at OH STRS. For many of the same reasons of retirement security that helped us to choose to be teachers, they chose to became STRS associates; consequently, even with both teachers and STRS associates (especially the Investment Staff) being highly educated, we all took a lesser salary in return for life long security. That was our free choice.
RHJones, retired teacher OH STRS member

Bob....with all due respect......we've been there and done that one too many times before!

John Curry to Bob Stein, January 13, 2010
In a Jan. 7, 2010 letter to STRS stakeholders Jim and Linda Conard, you conclude with the following P.S.
"PS. I’ve not studied the topic directly but it would seem that it is worth considering a performance incentive plan for the Executive Director. This might be a way to reduce crowd following behavior and increase circumspect risk taking in that position. I would be interested in any research you might find on that topic. Almost all universities maintain their theses and doctoral dissertations on line. Thanks for your help if you should choose to give it. RWS "
Well, Bob, before you became deeply involved in STRS business in the last several years, the former STRS Executive Director (Herb Dyer) was a recipient of exactly what you suggested above...a "performance incentive plan." I did some research (as you suggested above) and found documentation that Herb Dyer was the recipient of bonuses during his late tenure as the Executive Director of STRS. Here, in an excerpt of a Dr. Paul Kostyu article that was published on June 29, 2003, comes proof of that bonus that was given to former (and ousted) Executive Director Dyer. The entire article will be found after the excerpt.
Bob, the whole "bonus thing" is a major factor in the stakeholders' and public's distaste of the whole STRS fiasco. It was one of the major points of contention in Dr. Leone's research paper that exposed the mismanagement, misspending and entitlement mentality that was practiced at STRS. We can not, in good faith, ever go back to performance incentives (bonuses) for an Executive Director again! Just think how the public and the taxpayers would view that.....especially in these trying times.
John Curry
"Dyer also has received annual bonuses for meeting performance goals. His bonus is based on the weighted average of bonuses given to the STRS investment department multiplied by a percentage obtained from his annual evaluation.
In other words, the higher the bonuses paid to the STRS investment staff — whether the portfolio did well or not — the higher Dyer’s bonus.
For example, in 2002 the 110-member investment staff received $3.75 million in incentive bonuses for its work in 2001. The average bonus was $34,100. Dyer got a $41,052 bonus or 120.39 percent times the investment staff average."
...the entire Dr. Kostyu article follows:
STRS bound by costly contract
Canton Repository, June 29, 2003
By PAUL E. KOSTYU Copley Columbus Bureau chief
COLUMBUS -- Demanding that Herbert L. Dyer resign as executive director of the State Teachers Retirement System is one thing. Paying for it is another.
If the STRS board fired Dyer tomorrow, he would walk away with a $533,620 check. Unless the board can prove “malfeasance, misfeasance or nonfeasance,” Dyer gets paid for the rest of his 61/2 -year contract, which ends June 30, 2005.
If he resigns, he gets at least $133,405 because he must give STRS a six-month notice. That does not include pay for any unused sick or vacation time.
His contract gives him an incentive for awarding the STRS investment staff high bonuses regardless of how its investment portfolio does — the more bonuses they get, the more he gets.
Dyer has been under fire for three weeks for directing a pension fund that paid $15 million in performance bonuses and for artwork purchases and travel over three years. That was paid while the system’s investments plummeted by $12.3 billion and health-care contributions by retirees jumped significantly.
Privately, people in and out of the retirement fund are predicting Dyer will go, either on his own or because he will be forced out. One person said Dyer seems “more dejected” with “a different demeanor” than he normally projects.
But those who work with him say he remains in charge, goes about the business of the fund and has not talked about stepping down.
The chairwoman of the board, Deborah Scott of Cincinnati, has repeatedly and succinctly said, “Mr. Dyer is still the executive director.”
Marilyn Gibbs, a retired Plain Local Schools teacher, sent an e-mail June 12 to several people, including four members of the retirement system’s board. She asked, “I wonder if it’s time for someone to ask Mr. Dyer to resign.”
One board member responded.
Joseph Endry, the only member of the board who is elected to represent retirees, wrote back, “Well-written personal contracts are very expensive to break. Be patient.”
Asked to explain his message, Endry said, “It’s not that easy to break contracts. If Mr. Dyer is guilty of anything, it’s doing what the board wants him to do. He didn’t build this building.”
Among the criticisms of the retirement system is the spending on its posh, nearly $95 million headquarters in Columbus.
Dyer joined the teachers retirement system Jan. 1, 1993. He got a new contract in February 1997, and his current contract began Jan. 1, 1999. It was amended in April 2002.
Dyer’s contract calls for his pay to be adjusted annually based on the Consumer Price Index of the previous year or 3.5 percent, whichever is higher. The index has not been above 3.5 percent since 1991. Computations of Dyer’s base salary, however, show that his raises were actually above the 3.5 percent limit set by the contract.
In 2001, his base salary was $236,000 and rose to $256,260 in 2002, a $20,260 or 8.6 percent increase, according to STRS documents. It went up again this year to $266,810, which is a $10,550 or 4.1 percent increase.
Dyer also has received annual bonuses for meeting performance goals. His bonus is based on the weighted average of bonuses given to the STRS investment department multiplied by a percentage obtained from his annual evaluation.
In other words, the higher the bonuses paid to the STRS investment staff — whether the portfolio did well or not — the higher Dyer’s bonus.
For example, in 2002 the 110-member investment staff received $3.75 million in incentive bonuses for its work in 2001. The average bonus was $34,100. Dyer got a $41,052 bonus or 120.39 percent times the investment staff average.
Individuals later convicted of ethics violations and subsequently removed from their positions at STRS:
...Herb Dyer, STRS Executive Director
...Hazel Sidaway, STRS Board member
...Deborah Scott, STRS Board member
...Joe Endry, STRS Board member
...Jack Chapman, STRS Board member
...Eugene Norris, STRS Board member
...Michael Billirakis, STRS Board member and former president of the Ohio Education Association

Tuesday, January 12, 2010

Commentary: Hokum By Another Name

By Rich DeColibus
January 12, 2010

Recently, the newspapers in Ohio ran a concurrent attack on government retirees' pensions. Apparently, most major newspapers in the state were on board. While the papers certainly have wide differences in reporting philosophies, when it came to governmental retirees getting a pension, they were unanimous we were all greedy parasites sucking the public's vital tax juices right out of society. The Columbus Dispatch, for example, pointed out Ohio governmental workers had an average pension $25,736. Private sector workers only received pensions that averaged $13,326 and isn't that just awful? The article went on to mention our private sector worker also got an average of $12,699 dollars from social security, annuities and other like financial instruments, bringing his total to $26,025. Back in the old days, $26,025 was more than $25,736, but I guess the Dispatch uses its own version of math. And honesty.
The articles went on to note, all the public retirement systems in Ohio
(and most other states, if they have one to begin with) are in trouble, mostly attributable to the recent financial recession. This is the real hidden agenda behind the papers' motivation. What is sometimes implied, and sometimes outright stated, is that any increase in the required public employer contribution rates to the retirement systems in order to stabilize them will virtually bankrupt the state's finances (or, at the very least, your local public school system) and is totally underserved by governmental retirees.
Actually, for school systems, school boards haven't seen an increase in the rates they have to contribute for 24 years; they have not, it is fair to say, kept up with inflation. Workers' contributions rates to the pension system (STRS) have gone from 7% in 1969 to 10% in 2009, an increase of 42.9%. Who should have to pony up for the next increase as a matter of fairness? Not the school boards, if the papers have anything to say about it.
Now, I am a retired teacher and my pension is just fine. It is better than a private sector worker making the same salary as I did. It is better for a very simple reason: my contributions and my employer's contributions were invested year after year, not spent on current operating expenses. Let me bore you with numbers. Teachers pay 10% of their salary and school boards pay 14% of that same salary to STRS. "Wow," you say, "that's a huge amount." But, is it really different from the private sector? Private sector employees and employers contribute 15.67% of a given wage to federal governmental taxes (social security and Medicare). And here is where the most gratuitous lying goes on: a few we-hate-public-employees conservative political hacks immediately jumped on the 24% total STRS gets and compared it to the 15.67% private sector employees and employers pay. It is a deliberate and dishonest comparison because almost all employees have a 401(k) they contribute an average of 6% to (and if they don't, whose fault is that?). Most employers match that contribution from about 3% to 6%, depending on the company; let's use 3% as a fairly normal low-end example. Let's see, 15.67% + 6.00% + 3.00% = 24.65%. Oh my gosh, that's more than the 10% + 14% teachers and boards of education pay! How can that be? The papers obviously and clearly implied the exact opposite. Maybe the papers were running their own agenda and the facts ruined their advocacy? If there is some wild injustice here between public and private pensions, I'm not seeing it, But, does that mean private sector employees get the same pension I do? Don't they wish. No, they get considerably less. How much less? A lot less; not necessarily true for all governmental employees (see first paragraph above) but when it comes to teachers, a lot less. Why? STRS, which gets that 10% and 14%, invests it to make it compound over time. The federal government, which gets Social Security taxes, doesn't invest it, it spends it as fast as it come in. It attempts to adjust for inflation with things like the consumer price index (which doesn't include the cost of food or gasoline, not exactly minor items in most household budgets). It's the difference between putting hundreds of dollars a month into a 6% savings account month after month for 30 years and putting hundred of dollars a month in a savings account paying 2% for 30 years. Is it a big difference? Try about $200,000 over 30 years; if the unused portion is reinvested, that's about $10,000 a year for over 30 years, a lot longer than most retirees live. The difference isn't we're unreasonably greedy, the difference is the government doesn't intelligently invest its citizen-workers pension contributions.
What the papers are dead set to prevent is the Ohio General Assembly increasing school boards and other governmental entities' contribution rates to help stabilize Ohio's retirement systems. The newspapers need not have worried. Ohio's budget problems are so massive, whether it would be fair and just for school boards to step up to the plate they have avoided for 24 years, they're not going to because they're mostly broke and likely to continue in that condition. You'd think at least the papers would pay lip service and say something like, "Well, the teachers deserve it, but it can't happen anytime soon," instead of just pandering to the trite anti-government ideology that all government is bad and just absorbs tax dollars for no good purpose.
Rich is a Cleveland retiree and former president of the Cleveland Teachers Union.

Charlie Seipelt: More about STRS tax withholding

Charlie Seipelt to Molly Janczyk, January 12, 2010
Subject: Re: Gary: About STRS Withholding Amounts Important
I don't know who Gary is but I'm glad my call alerted him and others at STRS to the fact that they had a problem with their computer system and it needed to be fixed. What Gary didn't completely explain in his letter is that when you do your taxes the first question they ask is what is your gross pay. Then they ask what is the taxable amount. Well, the taxable amount is that part of your gross retirement minus the amount that is considered pre-taxed from the years you paid into the system (or taxable income). They amortize that portion over what they consider your life expectancy and I'll wager that most people don't understand why (but are happy) they aren't being taxed on their full income as shown on the gross income line. It was about ten years ago that they changed to this revised process from not starting to do the amortizing until after a few years into retirement (five I think) to starting the exclusion from year one. This started about the time I retired so I don't really know that much about the past procedure.
As far as the issue about the different withholding is concerned ......... I see no problem, as that is something from the government tax charts that tend to change each year. STRS cannot be held accountable for that as they only apply the withholding according to the tax laws that are sent to them from the IRS. It's unfortunate STRS doesn't send out some type of notice to remind retirees to expect to see a change coming in our withholding (according to pending Federal Tax Laws) at the start of each calendar year. Since it appears to be a common problem for them to have to field calls each year I would think someone would have come up with that idea some time ago. I would suggest a good time to do it would be to send this notice along with the information about the changes in the health care to help folks prepare for their upcoming financial year. I guess they don't do that as they don't want to be put into the position of predicting what Congress is going to do and the IRS only follows their lead in regard to taxation. Being that we are educators we tend to think of a year as from the time school starts and when it ends (school year) and we often forget that the rest of the world is on the (calendar year) January thru December. Thus, any change in our retirement checks is only seen two times a year and we aren't used to that. The two times are: when we get our COLA (let's hope that continues) and then at the start of each new calendar year when insurance premiums and taxes change.
I just hope other retirees did the same thing my wife and I did when the stimulus issue came about and the withholding changed to make us think we had more spendable income to stimulate the economy. If they didn't make additional withholding plans at that time I'm sure they will see the entire GIFT our Democratic Congress provided a little differently. I'm personally holding my breath waiting to see what the Ohio Legislators will be doing in regard to Ohio Taxation. At the present time Ohio's unbalanced budget makes me very leery as they appear to be looking at anything and everything to tax in their effort to bail us out. But that's another story.
Charlie Seipelt

Chit-chat: 'There are more ways to compensate CEOs and not report it than a camel has fleas'

John Curry, 1/11/10: Rich...I hear what you are saying!
Rich DeColibus, 1/11/10:
This is lawyer heaven. There are more ways to compensate CEOs and not report it than a camel has fleas. Not only are there non-profits, there are also not-for-profits, which is not the same (teacher unions, for example, are not-for-profits). It's difficult to actually compare CEO salaries because there are so many hidden ways to shovel money at CEOs. The best way is to use IRS data since those involved are less inclined to cheat the IRS than anybody else. Frankly, I can't understand all these bloated compensations; the way I figure it, no human being could possibly be worth more than a million to society in general; anything over that is wasted benefit society loses on. The best thing that could happen is for Congress to pass a law which said the stockholders had to approve any salary and other compensation before it became applicable. That's going to happen roughly when the moon falls on the earth.
John Curry, 1/10/10: good idea...I'll pass this one on to Rich...the guru of the Top 10 lists!
Linda Meinelt to John Curry, 1/10/10:
I think we need to come up with a new definition for "non-profit." Let's ask Rich, who does the top 10, to come up with one!
From John Curry, January 10, 2010
Subject: How does $2,900,000 annual salary for a CEO of a "non-profit" sound?
CareSource changes how it reports salaries to IRS, showing CEO earned $2.9M
By Jim DeBrosse, Staff Writer
Dayton Daily News, January 9, 2010

DAYTON — CareSource is the eighth largest Medicaid HMO in the country, and Chief Executive Pamela Morris is paid accordingly. But until its most recent nonprofit IRS filing, it was difficult to determine just how much Morris was being paid.

In 2006, no salaries were reported to the IRS because CareSource’s top executives were compensated through a for-profit arm created to expand the HMO’s business footprint into Michigan. And in 2007, CareSource reported that its top five executives earned a total of $3.2 million from its for-profit arm but did not provide individual compensation totals.

Nonprofits are required to file annually with the Internal Revenue Service. The form — called a 990 — is often the only source the public has on a tax-exempt organization’s financial information.

In its 990 for 2008, CareSource reported individual salaries of its top managers, with Morris earning a total of $2.9 million. That ranked her executive pay as the third lowest among Ohio’s seven major Medicaid plans.

Morris said all CareSource employees were paid through the for-profit arm in 2006 and 2007 because tax counselors advised against splitting pay between nonprofit and for-profit divisions. She also said information on salaries was available through the Ohio Department of Insurance.

“We have complied with all IRS regulations,” she said.

Failing to report executive salaries may have been legal, but it was a poor decision when health care costs are soaring, said Cathy Levine of the Universal Health Care Action Network of Ohio, a consumer advocacy group. “The only way we’re going to get quality, affordable health care for everyone is to have full transparency.”

Morris’ 2008 compensation included $1.5 million in bonuses and incentives and marked a 230 percent increase over her reported pay of $877,000 in 2005. In that time, CareSource grew by 134 percent from total revenues of $770 million to $1.8 billion, IRS filings show.

Ellen Leffak, chairwoman of the CareSource board, said Morris’ pay reflects the salaries of her for-profit competitors, who might have lured her away. “Our chief executive has given us outstanding service” for 24 years, Leffak said.

Bob Stein: Comments and a response to questions from Jim and Linda Conard to the STRS Board

Bob Stein to Kathie Bracy, January 12, 2010
Subject: Re: [Fwd: FW: Common Sense??]
The National Institute of Retirement Security has reports that would help members compose letters to the editor.
The "Pension Economic Footprint" report may be particularly useful because it has state-by-state data sheets. This map is of interest:
I complained to NIRS in a webinar today that they were too willing to accept the "taxpayer funded" argument that seems to be the basis for a lot of criticism of DB plans. I wanted them to acknowledge the fact that the contributions made by employers are part of the total compensation package and not a gift. Even though the contributions come out of the employers' budget they represent pay for services rendered. Had the funds not gone to fund pension benefits they would have been negotiated to be paid to the employees in salary or some other form. Contributions represent employee pay.
The NIRS representative agreed and said there was a report coming out in March that addresses this -- they expect that report to change the debate considerably.
However, even if the employer contributions were a gift, they would still represent more than a 5 to 1 economic return on investment for Ohio.
Bob Stein to Kathie Bracy, January 12, 2010
The use of incentives to avoid crowd following behavior in investments seems to be more useful than is generally considered. There are studies that show this to be true but not much in the way of specific guidance on formulas to indicate optimal incentive levels. The most clear information suggests that, given the relative value of performance enhancement provided by incentives, it is far wiser to err on the high side than the low side.
The attachment from the Conards is for reference.
Bob Stein to Jim and Linda Conard, January 7, 2010
Subject: RE: Common Sense??
Mr. And Mrs. Conard
Thanks for your continued attention to STRS.
The topics you mentioned are discussed at nearly every board meeting or meetings between board members and staff and have a significant impact on more policy than you appear to know. At the last board meeting the board cut simple investment incentives by 15% to 30%. We cut projected (by me using historical data) average incentives by more than 27% in addition to the incentive reductions made in the policy revisions last year. The total reduction is over 50%. I voted for it but I didn’t like it. There was a time when I would have agreed with much of what you contend. My studies have led me in another direction.
I’m sure you will be able to find plenty to be upset about in this email but I urge you to consider the comments carefully. Please remember that there is no reason for a board member who donates significant time and money to assure a retirement to the teachers of the state to risk upsetting even one retiree or member needlessly. These comments are only a trivial summary of my studies on these topics. I can send you references for any of this if you promise to read them.
While your email looks very similar to some from past exchanges, there are some things that need to be clarified:
1. A defined benefit pension fund is different from school systems and most other organizations with which teachers are familiar. Schools, hospitals, libraries, and even defined contribution pension plans (like 401Ks and IRAs) start with a budget and see how much of their mission they can accomplish with that budget. The budget is fixed by taxes or whatever grants or annual contributions are received. The principal method to increase progress toward the mission comes from reallocating the budget. When annual contributions are reduced then the progress toward the mission is cut back in a very short time. All risk is born by the mission on a year-to-year basis. The money stops and the mission ends. This is the world in which your arguments of “common sense” apply.
The mission of a defined benefit pension plan is to provide a lifetime pension benefit based on a specific formula. All risk is born by the pension plan across generations. STRS contributions and the benefits are both fairly fixed. The administrative operating budget is similar enough to other organizations pursuing comparable activities that it is very close to a fixed cost and not actuarially significant to our mission. STRS administrative expenses compare favorably with Medicare and other large benefit organizations. The number of current and future retirees is so large relative to the size of staff that trying to reduce staff payroll below market levels is likely to be impractical from a business standpoint, counterproductive from benefits and service standpoints, and not effective from a budget control standpoint. We are looking at the long-term mission here. For example, I would rather that the executive director would hire a replacement for his secretary that left – leaving the position open saves some money but secretarial time is cheaper than his time and he has other things to do that are critical to the mission, particularly now. The majority of the savings that have not been made, and some that have, are similar to saving money by not buying toothbrushes or not changing the oil in your car – it only looks good for a while.
2. Nationally, payroll contributions to pension funds account for between 10% and 20% of benefits, with investment returns accounting for the remaining 80% to 90%, depending on lifespan etc. Our benefits department tells new retirees that teacher contributions are exhausted after the first three years of retirement – the balance of their retirement is funded by investment profits made during their careers. While pensions were not reduced when investment returns went sour, the only way to maintain or increase benefits going forward is to maintain and improve long-term investment returns. I do not believe the “contingency plan” is a permanent fix because there is no way to continue to raise payroll contributions enough to cover benefits if we can’t get investment returns.
We can and do save money by seeking the lowest bidder for custodial financial services. One certified custodian is pretty much the same as another. However, for investment services we save huge amounts of money by maintaining an internal investment department. The board gets a 200+ page report from an independent agency annually to keep track of investment performance and costs. Our investment department performs slightly better and at slightly less risk than the comparator group with a savings of about $110 million per year. About 80% of the STRS portfolio is managed internally. We are working on responsibly bringing a higher percentage of our portfolio in-house in order to save more. However, recklessly slashing at the investment department is identical to not feeding the goose that lays the golden eggs.
When it comes to investments and investment policy, most any strategy that involves doing what seems obvious is the surest way to lose money. What makes you feel good almost always lightens your wallet. Investments in most financial markets are, for the most part, a zero sum proposition – whatever one group wins in purchasing power another looses. The 8% to 10% APY “free lunch” expected from the stock market is largely discounted against purchasing power losses related to inflation and currency fluctuations. You have probably noticed this in your own budget.
The way a large portfolio wins purchasing power is by first hiring the best possible staff. Performance incentives are used to assure that the staff doesn’t follow the investment crowd too much. They encourage team cooperation and original thinking, which tends to be profitable in this group, and removes the “everybody else lost money” excuse from the equation. Performance incentives also help the fund to be able to reward (as well as recruit and retain) investment staff members that prove useful in extracting money from the markets better than the staffs working for other firms.
You don’t need the absolute best staff people but slightly above most is only OK. Above the vast majority is worth nearly anything you have to pay to get them especially if they work together well as a team. Performance incentives are an investment in providing future pension benefits and not a gift. The National Council on Teacher Retirement states that performance incentives increase investment income to pension funds. Of that increase, NCTR estimates that more than 99% of it is retained by the funds and 1% is paid to staff as performance incentives. The investment managers only get the bonus money if they gain 99 times as much for the fund. That could be considered a 9900% annual return on investment. In studying related topics for most of my investment life and intensively during October and November, in addition to the NCTR conferences, I saw other studies done for hedge funds and for mutual funds that show similar results – not entirely applicable because some of their managers are responsible for raising capital in addition to managing money but the results were very similar. Properly managed performance incentives are the best investment a pension fund or any large portfolio can make. Profit-making investment companies pay incentives because this is true. That said, the way to go if you really want to reduce relative costs in this area is to:
A. Find highly skilled people and pay them a slightly higher than market-level base pay. This is not just about “filling the job”. The senior staff will probably be able to fill the job at nearly any price we set. The quality may have to be compromised or the work load modified. That will be far more expensive in various kinds of performance than anything we could save on the compensation package. There are no training wheels for this.
B. Increase properly managed performance incentives to many multiples of the base pay and assure that the incented behavior is consistent with investment policy.
C. Adopt an investment policy that allows this skilled staff enough freedom to exercise their skills and that is well integrated with the compensation program.
Because of political deference given to “common sense” complaints such as those you offered and because the legislature, media, and board have historically consisted of mostly lawyers, teachers, and businesspeople who are experienced in budget-driven economics rather than investment management we have done none of the above. I believe that this is one of the primary reasons that STRS has not maintained purchasing-power-level returns over its history and is also one of the major sources of its current difficulties.
Staff adjustments are just as necessary in a well designed investment staff structure as in any other employment plan but attempting to punish investment staff en mass for shortcomings in the tools they were allowed to use by board policy is worse than useless. This is what we and some other pension boards have been doing and it is both wrong and fiscally dangerous.
I am unlikely to respond personally in this detail again. I have research that I want to complete before the board meetings this month.
Bob Stein
PS. I’ve not studied the topic directly but it would seem that it is worth considering a performance incentive plan for the Executive Director. This might be a way to reduce crowd following behavior and increase circumspect risk taking in that position. I would be interested in any research you might find on that topic. Almost all universities maintain their theses and doctoral dissertations on line. Thanks for your help if you should choose to give it.

Molly Janczyk and Gary Russell re: STRS Withholding Amounts

From Gary Russell, January 12, 2010
Subject: RE: Gary: About STRS Withholding Amounts Important
Hi Molly,
There are two situations in regards to taxes on the pension checks. The first issue is that with the new tax year, the IRS provides new tax tables that STRS Ohio is to use to withhold federal taxes. You probably noticed that your federal tax withholding increased. While withholding tables are set up by the IRS we get hundreds of calls the first week of January every year questioning why we changed the federal withholding. The answer is always the same in that we are withholding based on new tables provided by the IRS.
The second situation is that we found a glitch with one of the items on our Member Self Service site. There is a link that allows the member to see all of his/her check deductions (View your Payment History) and also a link that retirees can click on to see their federal tax withholding (View your Tax Withholding). Mr. Seipelt’s call alerted us to the fact that the amount shown on the View your Tax Withholding link is incorrect in that it isn’t taking into account the amount of benefit that is tax free. However, the actual amount withheld is correct and is reflected in the View your Payment History link and the retiree’s monthly payment. We are working to get this incorrect data fixed and may remove the View your Tax Withholding link until it is fixed.
I hope this information helps,
From Molly Janczyk, January 12, 2010
Subject: Gary: About STRS Withholding Amounts Important
What's going on with taxes on pensions? I emailed last week but got no response. Are you ok?

STRS announces appointment of new board member by State Treasurer - AT LAST!
Jan. 12, 2010
[STRS press release]

Dr. Daniel J. Martin
On Jan. 8, 2010, Treasurer of State Kevin L. Boyce announced his appointment to the State Teachers Retirement Board. Joining the board is Dr. Daniel J. Martin, who is currently the president of Mount Vernon Nazarene University. Before assuming this position, he served as the vice president for University Advancement at Point Loma Nazarene University in San Diego, as well as in various positions with MidAmerica Nazarene University in Olathe, Kan. He holds two doctorate degrees in higher education from the University of Pennsylvania and The University of Kansas, as well as a law degree and a master's in business administration from The University of Kansas. Martin's four-year term on the board will run through Jan. 7, 2014.
Amended Substitute Senate Bill 133 passed in June 2004 included a provision that enabled the state treasurer to appoint an investment expert to the State Teachers Retirement Board. The 11 members of the board are compensated for expenses only.
STRS Ohio serves as the public pension fund for Ohio's public educators, providing retirement, survivor and disability benefits, as well as optional health care coverage for retirees.
More info:

Monday, January 11, 2010

Lloyd Knudsen: Pension anger

Lloyd Knudsen to John Curry, January 10, 2010
Subject: Pension anger
Isn't it interesting that most of the discussion in all the newspapers about pending legislative reform of our STRS pension program revolves around the asked-for increase in the employer's 14% contribution rate. There is little mention of the proposed COLA decrease for retirees or all the proposed cuts for active teachers.
We retirees who have closely followed STRS's "head-in-the-sand" management style over the years have continually said school employers will NOT agree to up their contribution rate. Taxpayers will NOT stand for sending more of their tax dollars to pay for teacher pensions or healthcare. And, politicians certainly will NOT put their jobs on the line to ask for more money for teachers. So when you read the commentary in the newspapers, teachers are made to look very greedy and self-serving.
So thank you STRS management, staff and STRS Board for proposing and unanimously approving an ORSC plan that had no chance in hell of passing. All it accomplished was to make teachers look like all they care about are themselves. No amount of STRS schmoozing will change that!
Just one retiree's opinion.
Lloyd Knudsen

More positive public service pension letters to the editor of the Toledo Blade.....

From John Curry, January 11, 2010

Pension fosters public service

The Jan. 3 story "Government cutbacks spare public pensions" unfavorably compared the defined pensions of public employees with 401(k)s and other nondefined pension substitutes that have taken their place in the private sector. The story implied that if private sector employees had to take these cutbacks, public ones should too.

Private sector employees have a defined retirement program to fall back on that their public sector brothers and sisters in Ohio and seven other states don't - Social Security.

I have worked for government agencies all my life. Were I to retire without a defined pension, I would not have Social Security to fall back on. It is ironic that The Blade, a stalwart defender of libraries and their funding in Ohio, has published a deeply slanted article that not-so-subtly advocates a retirement system for public employees that would discourage them from pursuing public service.

The Blade seems to have joined others in advocating a race to the bottom for American workers. Your coverage acknowledges that it's hard to draw across-the-board comparisons but tends to lump all public employees in with double-dipping politicians. In the future, The Blade should deal with these issues in a more sensitive and less inflammatory manner.

Linda Koss
Association of Public
Library Employees
UAW Local 5242
East Northgate Parkway

Windfall act hurts public retirees

My husband retired a few years ago after working under Social Security for 16 years and 28 years for the Toledo Board of Education. When he started getting his pension his Social Security was cut by two-thirds. Not everyone who works for public schools comes back and works and also collects a pension, but we are all punished for it.

If I retire at 65 after working for 30 years I will only make $900 per month. Under Social Security I was supposed to get $500, but I will only get two-thirds of that after working under Social Security for 20 years.

If The Blade wants to punish those who go back to work and also receive a large pension, do it just to those who do that. Not everyone can afford to have his or her pension reduced.

Joyce Carter

Leibensperger and Lewellen write letter to the Canton Repository re: STRS

From John Curry, January 11, 2010
Defined-benefit public employees’ pensions save tax money
Letter to the Editor
Canton Repository, January 11, 2010
Regarding the Jan. 4 Associated Press stories “Taxpayers are being asked to cover increasing pension costs” and “Health costs burden pensions”:
Defined-benefit pensions such as the one provided via the State Teachers Retirement System are the best deal for Ohio taxpayers.
According to the National Institute on Retirement Security, defined-benefit pensions can provide the same retirement income as defined contribution plans — cash accounts such as a 401(k) — at 46 percent of the cost due to economic efficiencies from pooled investment risk, higher returns and lower fees.
It’s important for Ohioans to understand that public employees’ own contributions and investment returns fund approximately three-quarters of their lifetime retirement benefit.
As for STRS, educators themselves are being asked to take responsibility for the lion’s share of the adjustment necessary to adequately fund the pension system.
Educators will be reducing their future benefits, increasing their own contributions and working longer to pay for the needed funding. It is also important to note that public-sector retirees do not receive Social Security benefits like most Americans.
Employers are being asked for a modest increase in their contribution to share in the cost of maintaining a secure retirement plan. For this investment, employers will help to maintain the solvency of a retirement plan that is an important tool in their recruitment and retention of a high-quality workforce.
By extension, taxpayers benefit from a high-quality educational system, which is mandatory for the economic success of Ohio.

Charlie Seipelt: Calls to STRS

Charlie Seipelt to John Curry, January 12, 2010
I guess a cutback on the STRS staff has been made at the telephone response desk. Wow! That is a great way to save us money while frustrating the heck out of us again. I tried to contact anyone responsible for the NEW computer setup but was unable to get through to anyone at STRS. First I got a recording that all of their lines were unavailable and I should call back later. After several tries I gave up. An hour later (after lunch time) I called again and was given the message, "Thank you for holding, as a reminder, tax information for 2009 will be mailed to benefit recipients in mid-January." over and over again. Finally, after another hour I actually talked to a live person.
Well, here is what I was able to work out with the representative to make sense out of the pay information that was mailed to us last week. The problem was that after trying to get a full disclosure on our paychecks I found that the entire system was shut down as they were having glitches in the new setup. Now the system is up but there are still glitches (surprise!) The problem on phone lines is that they can only hold so many calls before it kicks out calls coming in. At least that's their story and I'll stick to it. .
After working with the representative we were able to figure out why the tax withholding page didn't match up to the snail mail report that was mailed out. Here's the problem: The system doesn't recognize the fact that the Exclusion Amount listed doesn't exclude it from the Gross Amount paid: thus, the amount of Monthly Withheld and the Calculated Tax amount doesn't correspond with the actual amount shown on the paper received. So, we worked out that once you deduct the Exclusion from the Gross the formula will successfully compute on the built-in schedule (that needs corrected) before anyone will be able to make sense of the whole process. Reread that as it is complicated! Take the Gross Benefit amount, subtract the Exclusion Amount to arrive at the Actual Tax Amount from the Federal Tax Charts. In other words, the formula provided at the web site does not recognize this process.
As an aside; my wife, a former business teacher, suggested we have addition taxes withheld back in May as she foresaw a problem once the new Federal Tax Charts came out. It has recently become evident that she was correct in doing so as the Obama Stimulus Package through the reduced tax formula will be costing most folks more when they start filling out their 1040 for 2009. Good luck! Let's hope they didn't do the "Cash for Clunkers" thing also as that will be coming back to bite them in the A .. when they have to report the capital gain from that program.
At the conclusion of our conversation I suggested: 1) fix the system at the cost to the supplier or programmer, 2) notify all retirees about the problem so they will understand and not jam the phone lines with questions about the glitch in the new (costly) computer system, 3) explain the error online and not by mail so the new process won't cost us even more money while trying to cover up the problems, and 4) not put us on hold for such a long time when we attempt to contact them. Take our phone number and call us back when it's our turn or when they have time to talk to us. The representative told me she was going directly to her supervisor to report the problem (the fix) and hopefully have it taken care of ASAP. We'll see!
Charlie Seipelt
Larry KehresMount Union Collge
Division III
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