Don Gatchell and Dennis Leone re: Confusion over Kasich's Proposal

From Dennis Leone, March 19, 2011
Subject: Re: Confusion over Kasich's Proposal

Don --

I do not feel you misspoke. The gov may not even be fully aware that proposed HB 69 has different provisions for all 5 pension systems in terms of active member contributions. I took the comments in the Dispatch the same way you did......which are that irrespective of whatever plan moves forward for a final legislative vote, the gov wants the employers' contribution reduced by 2%.

So truthfully, this is not an issue of whether the active members contribute 13% or 15%. The real issue here is that a 2% increase of the active members' 10% contribution rate does NOT offset a corresponding 2% reduction of the employers' 14% contribution rate (which I believe is what the ORSC's Aristotle Hutras was trying to say in the Dispatch). Either the new gov does not understand this reality, or he simply does not care.

If, for example, the current active members' 10% contributions for 175,000 members total $1 billion per year for STRS, the employer contributions would total $1.4 billion per year. In other words, the pension fund would LOSE a minimum $400 million PER YEAR, and this would trigger a subsequent REDUCTION in our pensions. Does this explain it? A 2% reduction of the employers' contribution rate could only be offset by a 2.4% increase in the active members' contribution rate. And, yes, this would be in addition to the 3% planned increase in the revised STRS Board plan.

There is one additional future downside to what the gov is now proposing: As you know, the STRS Board plan also seeks the authority (rather than a legislative mandate) that would permit the STRS Board to independently raise the active members' contribution rate an additional 1% at some point in the future "if needed." In my testimony on 3-9-11, I said that this 1% should be legislatively mandated because of my strong belief that the STRS Board will not be able to handle the certain OEA/OFT opposition to such a thing happening.

If the gov's idea results in active members paying 5% more instead of 3% more, then there is absolutely no way the STRS Board will ever kick in the additional 1%.......even though it positively will be needed at some point for pension solvency reasons.

The gov's 2% desire will not eliminate the need for the board at some point in the future to implement the additional 1%. It simply will not happen if the gov gets his plan due to STRS Board politics. The 6 non-teachers on the STRS Board won't have the guts to do it. Remember the motion 3 months ago by the STRS teacher board members to repeal the planned 3% increase in active contributions failed by a 5-5 tie vote.

Dennis Leone

Don Gatchell to John Curry and Dennis Leone, March 19, 2011
Subject: Confusion over Kasich's Proposal

John & Dennis, I am confused over Gov Kasich's proposal for the STRS pension fund. Is he proposing that teachers contribute ONLY 2% additional to the fund or 2% in addition to the 3% proposed in HB#69, for a total of 5%?

I feel I misspoke in an earlier e-mail. No wonder ORSC's Hutras commented that if Kasich's proposal will decrease the contribution by Boards by 2% and only increase active teachers' contribution by 2%, that yields a ''sum zero'' increase or no increase. I suppose he wants to bankrupt STRS to force all to a "defined contribution plan" like a risky 401-K. Straighten me out, gents.

Thanks,
Don Gatchell