Pension Legislation Update

From STRS, May 13, 2011

ORSC ANNOUNCES PLANS TO HIRE ACTUARY AND POLICY ADVISOR TO REVIEW PENSION LEGISLATION

During the May 12, 2011, meeting of the Ohio Retirement Study Council (ORSC), Sen. Keith Faber, who chairs the committee, announced that he is creating a subcommittee to develop a request for proposal for an independent actuary and policy advisor in regard to pension reform issues. This consulting expert will be asked to help the ORSC members analyze the plans the five public pension systems have developed to strengthen the solvency of their pension funds and other potential retirement-related changes. Faber noted he wants someone who can advise on reform trends in other states and the private sector.

Through media reports, Faber indicated the Senate is not likely to proceed with any pension legislation until this review is completed. It is expected that this process will take pension reform discussions into the fall. The members of the ORSC subcommittee, which will be chaired by Rep Kirk Schuring, are Sen. Scott Oelslager, Rep. Dan Ramos and Lora Miller, who was recently appointed by the governor to the ORSC.

As a result of this latest development, it is likely that committee hearings on House Bill 69 and Senate Bill 3, which were introduced to carry pension legislation, will not be resumed until after the ORSC study is done. However, STRS Ohio members are encouraged to keep sharing their opinions with their legislators — particularly on the topic of preserving defined benefit pensions for future retirees versus moving public educators into defined contribution plans. As recently as May 8, the Columbus Dispatch ran a guest column supporting the movement of public pensions to 401(k) plans. (The response sent by STRS Ohio Executive Director Michael Nehf can be found on the STRS Ohio Web site at: https://www.strsoh.org/default.htm#Response.)

As STRS Ohio has noted in many of its communications to members, the pensions Ohio’s public educators earn:

- Provide retired teachers a reasonable and reliable pension they won’t outlive.

- Save taxpayers billions of additional dollars in potential public assistance expenditures now spent to help individuals whose savings accounts, such as
401(k) plans, do not provide enough to keep them out of poverty in retirement.

-Provide a stable source of revenue, including tax revenue, for Ohio’s local economies.

- Are both efficient and economical, as a defined benefit pension can deliver the same retirement income at almost half the cost of a defined contribution savings accounts due to pooling of investment risk, continual diversification of assets and professional investment management.

- Help Ohio’s schools, colleges and universities recruit and retain quality educators.

With legislators spending more time in their home districts during the summer, STRS Ohio members have an opportunity to talk face-to-face with their representatives and senators about the importance of preserving pensions. Phone calls, letters and e-mails are also effective. Although there is a lag in the pension discussion at the Statehouse, it is still important to stress the importance of changes being approved in a timely manner that preserve pensions for all STRS Ohio members.

ADDITIONAL ITEM OF NOTE

When Gov. John Kasich presented his proposed state budget in March, it included a shift in employer/employee contributions for the five statewide pension systems. Employers would pay 2% less based on payroll and employees would pay 2% more. Requiring employers to pay less was 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, STRS Ohio is already proposing a 3% increase in member contributions and no change in the 14% employer contribution in its January 2011 plan as a way to help the pension fund meet the 30-year funding requirement.

A 12%-12% contribution arrangement, without additional contributions, puts the pension fund at a 45.6-year funding period, assuming the other changes the board has proposed are made. Implementing the board’s plan without any changes in contributions puts the fund at a similar funding period. To achieve a 30-year funding period, the board’s plan needs 3% additional member contributions plus the 14% from employers. The 12%-12% proposal plus an additional 3% from members — a 50% increase — results in a funding period of 30.5 years. In short, a reduction in employer contributions means employees would pay even more or benefit cuts would have to be more significant to achieve a 30-year funding period.

STRS Ohio Executive Director Michael Nehf and other system associates, as well as many STRS Ohio members, voiced their concerns with legislators about this budget bill language. In subsequent action, the contribution change was removed from Substitute House Bill 153 before it was sent to the Senate Finance Committee for hearings in that chamber.

However, Sen. Keith Faber, who is a member of the Finance Committee, has been quoted by the media as saying the Senate will be giving strong consideration to restoring the contribution shift in the budget bill. Executive Director Michael Nehf reiterated STRS Ohio’s position during the May 12 committee meeting, advocating that any discussion of contributions should be held within the context of the pension reform package proposed by the five Ohio statewide public pension systems. This would help allow any proposed changes to STRS Ohio’s plan to be discussed and their actuarial impact analyzed in conjunction with the other plan components. STRS Ohio members who have an opinion on this topic should contact the members of the Senate Finance Committee. Contact information can be found on the STRS Ohio Web site at: https://www.strsoh.org/legislation/Finance_contacts.html.