Report on special STRS Board meeting January 21, 2011

From STRS, January 21, 2011

This week, the State Teachers Retirement Board held a special meeting. Following 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 January report follows.

JANUARY BOARD NEWS

RETIREMENT BOARD WILL CONTINUE DISCUSSION ON PENSION PLAN CHANGES AT ANNUAL RETREAT

During its special meeting on Jan. 21, 2011, the State Teachers Retirement Board continued its discussion about potential changes to its pension plan design to strengthen the financial condition of the pension fund. Feedback from the Statehouse had indicated that any final pension legislation for STRS Ohio should not include an increase in employer contributions. Further, the plan must also result in a funding period for the pension fund that does not exceed 30 years. The plan adopted by the board in October 2010 brought the funding period down to 35.1 years with the inclusion of an additional 2.5% in employer contributions - and to only 46.1 years without the additional employer contributions.

The board reopened its discussion about possible pension plan changes at its regularly scheduled meeting on Jan. 13; then continued that discussion today. After reviewing several scenarios' impact on the funding period, the board asked for additional options to review during the board's annual retreat at STRS Ohio scheduled for Jan. 26 and 27. The meeting on Wednesday, Jan. 26, will begin at 1 p.m.

The components contained in these scenarios include member contributions, age and service requirements for retirement eligibility, benefit formula, final average salary (FAS) period, and the cost-of-living adjustment (COLA), as well as the impact of moving the 1% employer contribution currently going toward the STRS Ohio Health Care Program to the pension fund. Changes affecting only new hires, including moving them into a defined contribution plan, would not be enough to move the pension fund from its infinite funding period. Consequently, the board's goal is to come up with a combination of changes affecting both active and retired teachers that results in a funding period of 30 years or less.

The 30-year funding period is a "measuring stick" used by the Ohio Legislature to assess the solvency of Ohio's public pension funds. The funding period refers to the number of years required to "pay off" a pension fund's unfunded liabilities. In layman's terms, this would be similar to a home mortgage. A lender doesn't expect the homebuyer to have all of the money up front for a 30-year mortgage, but it does expect the buyer to have a plan to pay it off over the course of the mortgage. Similarly, STRS Ohio's plan must result in its ability to "pay off" its unfunded accrued liabilities over no more than 30 years.