STRS Board votes 1/27/11 on pension solvency plan to present to State Legislature

From STRS, January 26, 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 sent 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 ADOPTS PLAN CONTAINING PENSION DESIGN AND CONTRIBUTION CHANGES

The State Teachers Retirement Board took an important step to strengthen the financial condition of the pension fund by approving a plan at its Jan. 27, 2011, meeting that will help ensure STRS Ohio can continue to pay pensions to future generations of teachers. The board's plan is projected to save about $10.9 billion in accrued liabilities and does not include any increase in employer contributions. All of the changes contained in the plan require legislative action by the Ohio General Assembly and the governor to be implemented.

The plan's components increase member contributions; increase age and service requirements for retirement; calculate pensions on a lower, fixed formula; increase the period for determining final average salary; and reduce the annual cost-of-living adjustment (COLA) for current and future retirees and defer the COLA for future retirees. With these changes, teachers would receive 77% of their final average salary with 35 years of service. This plan complies with the Ohio statutory requirement to bring the pension fund to a 30-year funding period. Further, the current 1% employer contribution to STRS Ohio's health care fund continues.

The plan includes the following components:

CHANGE IN ELIGIBILITY FOR RETIREMENT BEGINNING AUG. 1, 2015

• Increases age and service requirements for retirement.

Age and service requirements for retirement would increase to a minimum age 60 with 35 years of service. (Members may currently retire at any age with 30 years.) This change would be phased in based on the following timeline:

• Age 56 with 31 years beginning Aug. 1. 2015, and retiring by July 1, 2017

• Age 57 with 32 years beginning Aug. 1, 2017, and retiring by July 1, 2019

• Age 58 with 33 years beginning Aug. 1, 2019, and retiring by July 1, 2021

• Age 59 with 34 years beginning Aug. 1, 2021, and retiring by July 1, 2023

• Age 60 with 35 years retiring Aug. 1, 2023, and later

Members may still also retire at age 65 with a minimum of five years of service.

Currently, STRS Ohio members may retire early with a reduced benefit at age 55 with 25 years of service. The service requirement for a now actuarially reduced benefit would be increased to 30 years of service. This change would also be phased in based on the following timeline:

• Age 55 with 26 years beginning Aug. 1, 2015, and retiring by July 1, 2017

• Age 55 with 27 years beginning Aug. 1, 2017, and retiring by July 1, 2019

• Age 55 with 28 years beginning Aug. 1, 2019, and retiring by July 1, 2021

• Age 55 with 29 years beginning Aug. 1, 2021, and retiring by July 1, 2023

• Age 55 with 30 years retiring Aug. 1, 2023, and later

Members may also still retire at a minimum age 60 with five years of service, but the benefit would be actuarially reduced beginning Aug. 1, 2015.

This information may also be viewed as a chart at: https://www.strsoh.org/boardnews/bn_current3.html#Chart

CHANGE IN BENEFIT FORMULA BEGINNING AUG. 1, 2015 - New formula would be 2.2% for all years of service.

Teachers retiring with 35 years of service at age 60 or older would receive 77% of their final average salary as a pension.

The current 35-year enhanced benefit formula would be eliminated. Those who have 30 years of service; who are age 55 with 25 years of service; or who are age 60 with five years of service as of July 1, 2015, would receive the greater of:

(a) The benefit as of July 1, 2015, under the current formula; or
(b) The benefit upon retirement under the new formula.

In short, members who are eligible for service retirement would receive no less of a base pension benefit than they could have received on July 1, 2015.

INCREASE IN FINAL AVERAGE SALARY (FAS) YEARS BEGINNING AUG. 1, 2015

• FAS calculation would be based on the five highest years of earnings.

Pension benefits are determined by a member's age, years of service and FAS; the current FAS period is three years.

REDUCTION IN COST-OF-LIVING ADJUSTMENT (COLA) BEGINNING JULY 1, 2012

• Beginning July 1, 2012, current retirees would receive an annual 2% COLA; members retiring Aug. 1, 2012, and later would also receive a 2% COLA, but it will not begin until 60 months after the date of retirement.

Currently, the COLA is 3%; both current and proposed COLAs are a fixed-dollar amount each year, not compounded.

INCREASE IN MEMBER CONTRIBUTIONS BEGINNING JULY 1, 2012

• Increase member contributions by 3%, phased in 1% per year beginning July 1, 2012, through July 1, 2014.

Currently, STRS Ohio members pay 10% of their salary to STRS Ohio in lieu of paying into Social Security. In the pension legislation, the Retirement Board will seek language that gives the board discretion to seek up to 4% total in increased member contributions. To achieve the 30-year funding period, the board's plan calls for only a 3% contribution increase phased in over three years. Authority for up to a 4% increase would give the board flexibility to address future funding experience.

Since the board first took the prudent and proactive step in spring 2009 to address its funding challenge, it has sought feedback from its membership, employers and legislators, noting that no actions would be taken lightly as all actions impact Ohio's public educators. Adoption of the steps contained in this plan by the Ohio Legislature would help ensure STRS Ohio pensions continue to:

• Provide a reasonable and reliable income for retired teachers that they won't outlive.

• Provide a stable source of revenue for local economies and provide tax revenues to support needed government services.

• Save taxpayers billions of dollars in potential public assistance by helping to ensure these pensioners will not have to turn to public assistance, Medicaid or social services in their retirement; and

• Help Ohio's schools, colleges and universities recruit and retain quality educators.

The Jan. 27, 2011, Board News can also be viewed as a PDF by clicking the following link:
https://www.strsoh.org/pdfs/Board_News/Jan_2011-1_27.pdf