Leon Knore reports on special 1/27/11 STRS Board meeting

From Leon Knore, January 27, 2011

About 10:30 this morning, January 27, 2011, the STRS Board approved the latest proposal to submit to the legislature for long-term fiduciary and financial stability. This latest proposal replaces the plan submitted by STRS to the legislature back in September, 2009.

Mr. Stein moved, seconded by Mr. McGreevy, that following verification of staff’s calculations by PricewaterhouseCoopers (PwC), the Retirement Board hereby rescinds its long-term fiduciary and financial contingency plan adopted on Sept. 1, 2009, and amended on Oct. 15, 2010, and adopts a plan substantially in conformity with staff’s recommendation presented to the Retirement Board on January 26, 2011 and with the material terms detailed below and directs the Executive Director to submit the verified plan to the Ohio Legislature.

1. Contribution Rate: Additional 3% employee contribution -- for a total of 13% employee contributions -- with a three-year phase-in, plus legislative language authorizing the Board to seek up to a total of 14% employee contributions effective July 1, 2012.

My understanding is that the contribution rate of each active educator which is presently 10% of their pay will be increased to 11% as of July 1, 2012, to 12% as of July 1, 2013, and to 13% as of July 1, 2014. STRS is also asking the legislature to authorize an additional 1% for the future after 2014 if needed. Boards of Education (employers) already contribute the equivalent of 14% of each teacher’s salary to STRS.

The unknown and important influential factor for STRS is that the number of active STRS contributing members has been declining during the past seven years; however, payrolls have continued to increase. Payroll growth, however, has only averaged 2.65% in the past seven years while STRS has assumed that the growth would be 4%.

2. Retirement Eligibility: Phased-in retirement with a minimum age of 60 years and 35 years of service, over the period of Aug. 1, 2015 to Aug. 1, 2023.

Active STRS members may retire at any age and receive “full benefits” with 30 years of service before August 1, 2015. However the new plan for “full benefits” would require the retiring member to be (a) age 56 with 31 years of service as of August 1, 2015, (b) age 57 with 32 years of service as of August 1, 2017, (c) age 58 with 33 years of service as of August 1, 2019, (d) age 59 with 34 years of service as of August 1, 2021, and (e) age 60 with 35 years of service as of August 1, 2023.

3. Final Average Salary (FAS): Five-year FAS effective August 1, 2015.

4. Cost-of-Living Adjustment (COLA): 2% COLA for all retirees effective July 1, 2012; 60-month deferral for new retirees effective August 1, 2012.

The 60 month deferral means that any STRS member retiring after August 1, 2011 will not be eligible for any COLA for five years. (August 1, 2017 at the earliest)

5. Retirement Formula: 2.2 % for all years of service (35 years of service represents 77% of FAS) effective August 1, 2015.

The motion was approved with board members Correthers, Hayden, and Myers voting no.

What is not in the proposal is important such as health care increases or decreases, defined benefit vs. defined contribution plans, retire/rehire policies, or employer pickup of employees’ contributions, or minimum pensions.

Note: the non-black print is/are my comments, not that of STRS.

--Leon Knore