Dennis Leone: Board's 'solution' to future pension solvency falling disproportionately on the backs of retirees

From Dennis Leone, October 19, 2010

The STRS Board voted 7-3 a few days ago to revise its STRS pension solvency plan that's going forward for Legislative consideration. A few major changes: Instead of changing the ill-advised 88%/35-year rule at any time in the immediate future, the NEW plan protects teachers by slowly phasing it out by 2023. This is positively ridiculous. The original plan called for its being gone by 2015. In other words, it's okay in the Board's eyes to immediately cut retirees' Cost of Living Adjustment (COLA) with no gradual phase-out, and with no protection for the oldest retirees who have the least. (The Board "promised" to study this, which was pushed by CORE, at some point in the future.)

Also dropped from the action was the original plan to change the 3-year Final Avg Salary (FAS) calculation to a 5-year FAS. The board adopted language that will merely request the Legislature give the board the power to make needed adjustments in the future, which will translate into OEA getting a delay in that area as well. Voting no on the plan were the Governor's rep (Regina Burch), the rep for the Senate President and the House Speaker (Craig Brooks) and retiree rep Bob Stein. All 5 active teachers on the board, along with retiree rep Jim McGreevy (a long-standing OEA clone), and the State Treasurer's rep, pushed it through. The active teachers on the Board succeeded in protecting their colleagues. State Supt Deborah Delisle's replacement for Steve Puckett on the board has not yet started, therefore there was no 11th vote.

While active educators may cheer the new protection they will have (if something similar is adopted by the Legislature), it is NOT in the best interests of retirees in my opinion. In fact, the situation may get worse for retirees. Left in the Board's action was the plan to raise the contribution level of all school boards in Ohio. If the Legislature says no to this, it could very well be that retirees will get hit harder. If the STRS Board truly was sensitive to this, then the action taken a few days ago should have been different. It wasn't. Instead, it was designed to protect the interests of active teachers. It is my opinion that the "solution" to the future pension solvency problem is falling disproportionately on the backs of retirees. Sad.

Dennis Leone
STRS Board Member between 2005 and 2009

Halloween soon will be here....can you identify these two?

Two points if you identify both, One point for only one and....ZERO if you can't recognize either one!


Highlight white space immediately below to see the answers.
Seer: Dennis Leone
Crystal ball: Mike Nehf

Minutes of October 14, 2010 CORE meeting

From CORE, October 17, 2010

President David Parshall opened the October Core meeting in the Sublett Room at 12:15. He asked the 13 in attendance for the approval of the September minutes. Mary Ellen Angeletti moved that they be accepted by acclamation, which they were.

President Parshall informed the members that our CORE treasurer, Herman Fisher, had died unexpectedly this Tuesday, the 12th. According to Mary Ellen, visitation was to be Friday evening, with the funeral on Saturday in Wilmington. In honor of Herm, Nancy Hamant made a motion to donate $50 to the Honor Flight, a suggested recipient; Mary Ellen seconded it. Dave will send a check with the check to the organization in CORE's name. (A sympathy card was circulated during the meeting so that members could inscribe messages to fellow member, Ruby, his widow.) Herman's presence - and pleasant humor - will be missed by those of us who've gotten to know and appreciate him.

President Dave next addressed the sad issue of having someone handle treasurer duties. Since Herm had lived in Wilmington with a post office box there, Dave will ask Donna Thorp to check the box for contents and send those monthly to Dave in Columbus. Since the CORE bank account is in the Wilmington Fifth Third Bank, it will have to be transferred to the Columbus branch in order for Carole DePaola, who has agreed to fill in as treasurer, to access it.

Parshall noted that he has a new computer and if members receive messages they can't open, they need to let him know.

President Dave reminded members to be sure to ask candidates the CORE questions. Once retirees receive comments and answers, Dave asks that we let him know what the responses were.

In new business, our president reminded the membership that the STRS board is going to study the restoration of the 3% COLA for those with pensions that were originally less than $30,000. This affects many of our fellow retirees.

The meeting adjourned at 12:55 after President Parshall announced that the next CORE Meeting will be on November 18th.

Respectfully submitted,
Marie M. Fetters
CORE Secretary

Report on October, 2010 STRS Board meeting

From STRS, October 18, 2010

Last 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 October report follows.

OCTOBER BOARD NEWS

BOARD ADOPTS REVISIONS TO LONG-TERM PENSION REFORM PLAN
At its October 2010 meeting, the State Teachers Retirement Board approved changes to the pension reform plan originally adopted by the board on Sept. 1, 2009. Since then, the Healthcare and Pension Advocates for STRS (HPA), who represent a coalition of member, employer and retiree groups, have suggested some modifications to the plan. After discussing these changes for several months, the board approved modifications in three areas at this month's meeting. With these changes, both the Retirement Board and the major constituency groups are now united in their support of the proposed reform package and can work collectively for its passage in the Ohio General Assembly.

The modifications are as follows:

- Retirement Eligibility The transition period for qualifying for a retirement benefit at 35 years of service from 30 years of service will be phased in based on the following timeline:

30 years of service until 8/1/2015;
31 years of service 8/1/2015 through 7/31/2017;
32 years of service 8/1/2017 through 7/31/2019;
33 years of service 8/1/2019 through 7/31/2021;
34 years of service 8/1/2021 through 7/31/2023;
35 years of service from 8/1/2023 and after.

As in the board's original plan, members will still be able to retire at age 60 with 30 years of service or at age 65 with five years of service, beginning Aug. 1, 2015. Under the revised plan, a member may also retire with 30 years of service under age 60 or at age 60 with five years; however, the pension benefit will be actuarially reduced beginning Aug. 1, 2015.

- COLA (Cost-of-Living Adjustment) Under the revised plan, STRS Ohio members who are retired as of July 1, 2011, will receive an annual 2% COLA. Members retiring after 7/1/2011, will also receive a 2% COLA, but it will not begin for 36 months after the date of retirement.

- FAS (Final Average Salary) Rather than request a change to a five-year FAS calculation from the current three-year calculation, the Retirement Board will now seek statutory authority to set a three-, four- or five-year FAS. This will give the board some discretion in making this change on the proposed implementation date of Aug. 1, 2015, based on the actuarial condition of the pension fund at that time.

The proposed changes to contributions and the benefit formula contained in the board's original plan remain the same. Member and employer contributions would be increased by a total of 5% by July 1, 2020. The member increase would be phased in at 0.5% per year, beginning July 1, 2011, until 2.5% is reached on July 1, 2015. The employer increase would be delayed for five years, when it would be phased in at 0.5% per year, beginning July 1, 2016, until 2.5% is reached on July 1, 2020.

Under the board's plan, the benefit formula would be 2.2% per year for the first 30 years of service; 2.5% per year thereafter, beginning Aug. 1, 2015. With this formula change, the 35-year enhanced benefit is eliminated.

The entire package of changes is projected to save about $8.4 billion in accrued liabilities and would bring the pension fund to a 35.1-year funding period; a slight increase from the 33.4-year funding period that would have resulted from the board's original plan.

The changes contained in the Retirement Board's plan require legislative action. The introduction of any pension legislation is not expected until after the November election.

ANNUAL ACTUARIAL VALUATION REPORT REITERATES NEED FOR PENSION FUNDING CHANGES
At its October meeting, the Retirement Board received the annual actuarial valuation report of STRS Ohio's pension fund from its actuarial consultant, PricewaterhouseCoopers (PwC). This report provides a "snapshot" of the actuarial position of the retirement fund as of July 1, 2010. As expected, the funding period for the pension fund remains "infinite"; the funded ratio declined slightly from 60.0% to 59.1%. The funding period is the number of years required to pay off the pension fund's unfunded actuarial accrued liabilities; the funded ratio is the percentage of assets STRS Ohio has on hand to pay all benefits accrued by STRS Ohio members to date. An infinite funding period means the system will eventually be unable to pay benefits, unless changes are made.

In developing the actuarial valuation, STRS Ohio's actuarial gains and losses for fiscal year 2010 (July 1, 2009-June 30, 2010) were compiled. PwC looked at the system's actual versus expected actuarial experience in several areas, including investment returns, payroll growth, salary increases, retiree mortality, and the number of retirements and other separations from the system, such as account withdrawals -- all of which can either reduce or increase the system's liabilities from one year to the next.

STRS Ohio experienced a net actuarial loss for the fiscal year of $279 million. Investment losses in prior fiscal years were the major reason. The positive investment return for fiscal year 2010 above the assumed rate of 8% generated a gain. However, STRS Ohio uses an approved accounting and actuarial technique called "smoothing" to spread market volatility over four-year periods to make investment returns more of a "trend" rather than a "spike." Consequently, the significant losses in the market value of investments experienced in fiscal year 2009 are still reflected in this year's valuation, resulting in a 6.58% rate of return for actuarial purposes.

The results of this actuarial valuation continue to confirm the need for the reasonable, measured changes contained in the long-term pension reform plan the Retirement Board has proposed to help strengthen the financial condition of the retirement system.

BOARD CONTINUES HEALTH CARE STRATEGIC PLANNING DISCUSSION
At its October meeting, the Retirement Board continued reviewing the STRS Ohio Health Care Program as part of its initial steps toward developing a strategic plan for retiree health care for adoption next spring. As noted in previous STRS Ohio communications, funding for the health care program will be depleted by 2021.

During October's meeting, the board heard a presentation from Brent Greenwood, vice president of Actuarial Consulting for Ingenix Consulting. He reviewed how STRS Ohio's health care program compares to the current marketplace and how the retiree marketplace will change in the future in light of national health care reform.

Across the country, fewer organizations -- both public and private -- are offering retiree health care. For those entities that do still provide coverage, retirees are paying an increasing portion of the total cost through their premiums, deductibles, copayments and coinsurance to keep pace with unrelenting increases in the health care trend rate.

Overall, STRS Ohio's Health Care Program offers career educators comparable or better value in terms of coverage and member premiums at this time because of the premium subsidies to career educators, no underwriting and no age rating. However, federal health care legislation will change the marketplace by 2014, creating new pressures on STRS Ohio's program. The health care legislation calls for enhanced access to coverage through the eventual elimination of all preexisting condition exclusions, limited underwriting and the introduction in 2014 of state-sponsored health care exchanges. As a result, more plan options with lower premiums than STRS Ohio can offer for those under age 65 will likely become available in the marketplace. For those age 65 and older, reduced subsidies for Medicare Advantage plans could lead to higher premiums, while the 10 Medicare defined supplemental plans offered through many insurance carriers may become more attractive.

In previous meetings, it has been noted there are four levers that affect the financial status of the health care program: (1) funding, (2) plan design, (3) eligibility and (4) premium subsidy. Greenwood reiterated this, noting that retiree health care plan costs can generally be reduced in one of two ways: (1) reduction in the cost of coverage per retiree (subsidy/plan design); or (2) reduction in the number of covered retirees (eligibility). In November, the board will begin deliberations centered on the four levers to develop a long-term strategic plan for its health care program.

RETIREMENTS APPROVED
The Retirement Board approved 1,000 active members and 83 inactive members for service retirement benefits.