Report on February 2011 STRS Board meeting

From STRS, February 18, 2011

This 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 February report follows.

FEBRUARY BOARD NEWS

NEW MEMBER JOINS STATE TEACHERS RETIREMENT BOARD

John Childs took a seat at the board table during the Feb. 17, 2011, meeting of the State Teachers Retirement Board. He has been appointed as the representative of Dr. Deborah Delisle, Superintendent of Public Instruction. Childs is the executive director of the Office of Fiscal Services for the Ohio Department of Education (ODE). This office is responsible for the management of ODE’s $12.5 billion budget, monitoring and financial oversight of programs, and financial reporting. Before joining ODE in 2001, Childs served as deputy director of the Ohio Environmental Protection Agency. He is a graduate of The Ohio State University, where he received a bachelor’s degree in economics and a master’s in public administration. He is a current board member and past president of the Association of Educational Federal Finance Administrators.

PENSION LEGISLATION INTRODUCED, STRS OHIO STAFF PROVIDE TESTIMONY

Legislation to bring the five statewide retirement systems back to secure long-term financial stability was introduced in the Ohio House of Representatives on Feb. 1, 2011. Rep. Lynn Wachtmann introduced House Bill 69, which has been assigned to the House Health and Aging Committee that is chaired by Wachtmann. A Health and Aging Subcommittee on Retirement and Pensions, chaired by Rep. Kurt Schuring, has begun hearings on the bill.

On Feb. 16, 2011, Michael Nehf, executive director of STRS Ohio, and Terri Bierdeman, director of Governmental Relations for STRS Ohio, presented testimony in support of House Bill 69 during a subcommittee meeting. During his comments, Nehf reviewed the components contained in the plan approved by the Retirement Board at its Jan. 27, 2011, meeting, noting that most of the January’s plan components are not currently in House Bill 69, but should be included as amendments. The January 2011 plan maintains the current 14% employer contribution and brings the pension fund to a 30-year funding period by saving about $10.9 billion in accrued liabilities.

In his remarks, Nehf said “When the board began to proactively discuss future changes to strengthen the solvency of the pension fund in early 2009, it openly recognized and acknowledged that few would be happy with the needed changes. Current and future teachers will be contributing more and working longer for a lesser benefit in retirement; current retirees’ pensions will continue to grow, but at a slower rate due to a reduced cost-of-living adjustment. However, STRS Ohio members will continue to have the financial security provided by a reasonable and reliable pension.”

Schuring has issued a hearing schedule for H.B. 69 that includes opportunities for proponent/opponent/interested party testimony during both day and evening sessions. The members of the subcommittee are: Reps. Bruce Goodwin, Bob Hagan, Richard Hollington, Todd McKenney, Dan Ramos and Wachtmann. The hearing schedule is posted on the STRS Ohio Web site (https://www.strsoh.org/pdfs/hearing_schedule.pdf), along with STRS Ohio’s testimony (https://www.strsoh.org/pdfs/Nehftestimony2162011.pdf) and accompanying materials (https://www.strsoh.org/pdfs/STRSOH_Pension_Hearings_211.pdf) presented at the Feb. 16 hearing. It is Schuring’s plan to have the pension legislation with amendments to the full House floor for a vote in April.

A second placeholder bill addressing pension reform, Senate Bill 3, was also introduced on Feb. 1 by Sen. Keith Faber. At this time, the only language that it contains calls for changes to the Ohio Revised Code “… to modernize, update, and improve the actuarial soundness of the Public Employees Retirement System, Ohio Police & Fire Pension Fund, State Teachers Retirement System, School Employees Retirement System, and State Highway Patrol Retirement System.”

STRS Ohio will continue to use all its communication channels to keep STRS Ohio members and other system stakeholders informed of the progress of any pension legislation.

HEALTH CARE FUND STATUS IMPROVES, BUT LONG-TERM CHANGES STILL NEEDED

The move to a Medicare Part D Prescription Drug Plan via Express Scripts and a positive return on fund assets helped to lengthen the solvency period for the Health Care Stabilization Fund as of Jan. 1, 2011. The results of the annual actuarial valuation of the fund conducted by PricewaterhouseCoopers (PwC) show that the projected life of the STRS Ohio Health Care Program now extends to 2024 — an increase of three years from the previous valuation.

Costs for the health care program are paid out of the Health Care Stabilization Fund. Currently, monies for the fund come primarily from premiums charged to STRS Ohio retirees and their family members who are enrolled in the program, 1% of payroll from employer contributions, Medicare Part D subsidies and investment earnings on these funds. The balance in the fund as of Jan. 1, 2011, was $3.1 billion.

While the solvency of the health care program improved, both PwC staff and STRS Ohio staff noted that the health care fund is projected to become insolvent without significant changes to the program in the future. As discussed at previous board meetings, changes in coverage features, program eligibility and/or premium subsidies will be needed.

Looking to the future, staff noted that the uncertainty regarding federal health care reform, as well as STRS Ohio’s own pension legislation, makes long-term planning difficult at this time. Staff recommends there be a “bridge” to future strategic decisions through a single 2012 program change that would minimize disruption to program enrollees while helping to preserve the balance in the health care fund. This change could be an adjustment to the premium subsidy methodology by reducing the “years of service” multiplier to 2.1% from 2.5%, phased in over 2012 through 2015. The board will continue discussing this option at its March meeting, as well as other program options it asked staff to research.

RETIREMENTS APPROVED

The Retirement Board approved 194 active members and 161 inactive members for retirement.

MEDICAL MUTUAL LAUNCHES EDUCATIONAL CAMPAIGN FOR DIABETIC ENROLLEES

One of the most prevalent diseases among enrollees in the STRS Ohio Health Care Program is diabetes. To help these enrollees better manage their condition, Medical Mutual is starting an educational outreach campaign. Each quarter, diabetic enrollees in a Medical Mutual health plan will receive a mailing that contains information, nutrition tips, product coupons and recipes that encourage healthy eating and lifestyle habits. The first mailing will be sent in mid-February to about 3,330 enrollees.

The February Board News can also be viewed as a PDF by clicking the following link: https://www.strsoh.org/pdfs/Board_News/Feb_2011.pdf