Report on March 2011 STRS Board meeting

From STRS, March 18, 2011
Subject: [News] March Board News Details Retirement Board Actions and Discussions

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 March report follows.

MARCH BOARD NEWS

PENSION PLANS DISCUSSED IN HOUSE AND SENATE COMMITTEES AND NOW INCLUDED IN PROPOSED STATE BUDGET
Legislation based on plans forwarded to the General Assembly from the five statewide public pension plans has been the focus of hearings in a subcommittee in the Ohio House of Representatives. House Bill 69, sponsored by Rep. Lynn Wachtmann, was assigned to the Health and Aging Subcommittee on Retirement and Pensions after its first hearing. Wachtmann, who is chair of the House Health and Aging Committee, sent the legislation to the subcommittee that is pursuing an aggressive hearing schedule under the direction of Chair Kirk Schuring.

To date, all five systems have presented testimony on the board-approved changes to their respective plans. In the case of STRS Ohio, the language in the current bill actually refers to the plan adopted by the Retirement Board in fall 2009. However, language is expected to be amended with the more recently adopted board recommendations from January 2011. Since the bill's introduction on Feb. 1, nine hearings have been held and an additional five are scheduled.

The pace in the Senate on pension legislation has been slower. Sen. Keith Faber delivered sponsor testimony on Senate Bill 3 on Feb. 24 to the Senate Government Oversight and Reform Committee. The following week, the directors of the five systems provided overviews of their systems for the committee, but did not delve into detail on their respective board plans for long-term sustainability, leaving that for a subsequent committee hearing.

In his testimony, STRS Ohio Executive Director Michael Nehf indicated the system's typical new retiree is age 59 with 30 or more years of service. He said the large majority of members contribute to or receive pensions from STRS Ohio's Defined Benefit Plan. He also said the system isn't in "immediate crisis," but noted that without changes, STRS Ohio would eventually be unable to pay pensions. He explained to the committee that a shift to a defined contribution plan isn't a viable solution, in part, because diverting contributions from new teachers to a different plan would actually cost existing members and employers more to make up for the lost contributions. Regardless of the plan design for the future, the existing unfunded liabilities must be funded. In a follow-up comment, Sen. Bill Seitz, who chairs the committee, said that moving to a defined contribution plan for STRS Ohio or the other systems would be like "trying to put the toothpaste back in the tube."

The committee currently does not have plans to hear S.B. 3 again until later in March as the Legislative Service Commission is in the process of drafting a substitute version of the bill.

Further complicating the current pension reform discussion is a proposal contained in Gov. John Kasich's state budget that would shift employer/employee contributions for the five pension systems. Employers would pay two percent less based on payroll and employees would pay two percent more. Requiring employers to pay less is being recommended as a way to help offset the proposed cutbacks in state funding to state and local governments.

For STRS Ohio, this could mean an increase in member contributions to 12% from the current 10%, and a decrease in employer contributions to 12% from 14%. However, no details have been received as yet regarding this change, including how it would relate to the already proposed 3% increase in member contributions that STRS Ohio included in its January pension reform plan.

It is anticipated that this proposed contribution change and its potential impact on the five systems' respective plans, plus the feasibility of moving public employees into defined contribution plans, will be discussed in the committees and by the Ohio Retirement Study Council (ORSC). This month, Sen. Keith Faber was elected chair of the ORSC, which is the legislative oversight committee for the five pension systems. Wachtmann was elected vice chair.

STRS Ohio members are encouraged to visit the STRS Ohio Web site frequently for updates on pension legislation (https://www.strsoh.org). Hearing schedules and contact information for legislators can also be found there.

BOARD CONTINUES DISCUSSION ABOUT POSSIBLE 2012 HEALTH CARE PROGRAM CHANGES
At its February meeting, the State Teachers Retirement Board further reviewed proposed changes to the STRS Ohio Health Care Program for 2012. The first change would be an adjustment to the premium subsidy methodology by reducing the "years of service" multiplier to 2.1% from the current 2.5%, phased in over 2012 through 2015. For 2012, the multiplier would be 2.4%. As an example: a benefit recipient with 30 or more years of service currently pays 25% of the premium cost; STRS Ohio pays 75% (30 years x 2.5% = 75%). If the multiplier goes to 2.4%, STRS Ohio would pay 72% of the premium cost (30 years x 2.4% = 72%) and the benefit recipient's portion would be 28%. It is anticipated that this change could preserve an additional $20 million in the health care fund in 2012.

The second change the board is considering affects future premiums for the AultCare, Kaiser and Paramount health care plans. Currently, the benefit recipients enrolled in these plans are actually receiving a higher subsidy than the 75% maximum because the plans' costs are cheaper. Under the proposal presented to the board, the subsidies applied to these premiums would be capped at 75% and would be based on the respective plan's full cost. This will result in a lower premium subsidy for the approximately 6,600 benefit recipients enrolled in these plans.

The board will be asked to take a vote on these proposed changes at its April 2011 meeting.

ELECTION BALLOTS MAIL ON APRIL 1
The 2011 Retirement Board election packet will mail on April 1. It will include information about the two candidates - Taiyia (Tai) L. Hayden and Martin A. Miller - who are running for the one contributing member seat on the board, as well as instructions for casting votes using the Internet, phone or mail. Those eligible to vote in this election include all STRS Ohio contributing members, individuals who have contributions on deposit at STRS Ohio and disability benefit recipients. The deadline for voting is May 2. Results of the election will be announced following certification of the election results by the board of tellers on May 7.

PENSION PROPOSAL ONLINE CALCULATOR AVAILABLE FOR MEMBERS
A new calculator is now on the STRS Ohio Web site to enable members to estimate service retirement benefits based on the Retirement Board's January 2011 pension plan proposal. This calculator is not tied to the member's personal account; however, the member can enter a retirement date, birthdate, years of service at retirement and final average salary and get an estimate that reflects the phase-in period and a close estimate of the actuarial early retirement reductions. The STRS Ohio home page now includes an information box at the top of the page for pension legislation tools that includes the benefit calculator, frequently asked questions and the January proposal. The new calculator can be accessed at: https://www.strsoh.org/v3prdcalc/app?service=external/Client:NonSecureCalcPSCOptions

RETIREMENTS APPROVED
The Retirement Board approved 160 active members and 106 inactive members for service retirement benefits.