Nehf was also talking to the legislators yesterday.......
BILLS HEARD IN THE HOUSE HEALTH AND AGING RETIREMENT AND PENSIONS SUBCOMMITTEE
Rep. Schuring: 614-752-2438
Wed., Feb. 16, 2011
Rep. Schuring: 614-752-2438
Wed., Feb. 16, 2011
HB69 STATE RETIREMENT SYSTEMS (Wachtmann L) Regarding the state retirement systems.
Michael Nehf, executive director of the State Teachers Retirement System, testified that HB69 represents the first time in STRS history that benefit reductions are being sought, but he said the system understands that without changes, the system eventually won't be able to meet its obligations. He said benefit changes are needed because investment experts indicate increasing its 8 percent long-term rate of return was unrealistic, and that the system will not be able to invest its way out of solvency problems.
Nehf noted that the changes STRS seeks include the authority to increase employee contributions by 1 percent annually for three years beginning July 2012, with permissive authority to seek a fourth 1 percent increase. Per the wishes of Republican lawmakers, the plan does not seek employer contribution increases. Terri Bierdeman, STRS' government relations director, said the system largely made up for having to remove a previously proposed employer increase by delaying the start of cost-of-living adjustments until five years after retirement for those retiring after Aug. 1, 2012.
Nehf said the pension system still will need to make additional changes in the future to address solvency concerns related to its health care fund, which is projected to be solvent until at least 2024. While 1 percent of employer contributions go to health care now, it needs to direct 4.3 percent to health care in order to maintain the program long term.
In response to a question from Rep. Schuring, the committee chairman, Nehf said STRS doesn't anticipate making any major changes next year, but expects to present changes to the health care subsidy percentage to its board this week.
Bierdeman said other changes STRS is seeking include the following:
- A phased in transition to making full benefits contingent on being at least 60 years of age with 35 years of service, or 65 years of age with five years of service.
- A phased in transition to making reduced benefits contingent on being least 55 years old with 30 years of service, or 60 years of age with 5 years of service.
- A benefit formula of 2.2 percent of final average salary for all lengths of service starting Aug. 1, 2015, with an option for those who are eligible to retire as of July 1, 2015, to stick with the previous formula if it will offer them higher payments.
- Calculating final average salary from the five highest years of earnings.
- Changing age and service reduction factors.
- Increasing the service requirement for eligibility for disability benefit to 10 years of service, and reducing the time period members can apply for disability to one year after last date of service.
- Making service credit granted upon a member's returning to work from disability status match either return-to-work service up to five years, or the length of the disability, whichever is less.
- Increasing the service requirement for eligibility for survivor benefits to five years, and reducing the time period for survivor benefit eligibility to 12 months after last date of service.
- Changing service purchase credits to make them actuarially neutral.
- Repealing the program allowing employers to set up early retirement programs that include purchasing service credit for their STRS members.
- Numerous other technical changes to alternative benefit calculations, cost-of-living adjustments, Medicare, defined contribution plan and other issues.
Lisa Morris, executive director of the School Employees Retirement System, echoed some of Nehf's comments on the need to act to assure long-term solvency, and the knowledge that investment returns alone can't solve the problem. The bulk of the SERS solvency plan consists of adding two years to the age of service requirements for full and reduced pension benefits for all active members: requiring age 57 and 30 years of service or age 67 and 10 years of service for full benefits; and age 62 with 10 years of service or age 60 with 25 years of service for partial benefits. Along with some other change, the plan aims to allow $43 million more annually to be directed to unfunded liabilities.
While other systems have proposed changes to cost-of-living adjustments and final average salary calculations, Morris said SERS avoided those options because they yield less benefit while causing greater hardship for members. Final average salary changes would only reduce by about $70 the monthly payments average members get, she said, while salary spiking isn't a frequent problem in SERS. On cost-of-living adjustments, she noted SERS uses a simple 3 percent cost-of-living adjustment that is not compounded, and said reducing the adjustments would be especially hard for low-pension retirees, particularly those who retired long ago.
Morris said SERS funds health care differently than the other systems, varying the amount of employer contributions used for health care depending on investment returns, tweaking health plans and premiums to stay within budget on a pay-as-you-go basis.
Other changes sought to address early retirement, disability programs, service credit purchases and lump sum payments upon death.
View testimony here:
posted by Kathie Bracy at 3:04 PM
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