From STRS: Contribution shift proposal may reemerge in conference committee discussions

From STRS, June 15, 2011

Members who have been following communications from STRS Ohio during the past few months know that the system has continually expressed its concern about one component of Gov. John Kasich's proposed state budget that was first presented in March. This component called for a shift in employer/employee contributions from the five statewide pension systems. Employers would pay 2% less based on payroll and employees would pay 2% more. 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%. Requiring employers to pay less was recommended as a way to help offset the cutbacks in state funding to state and local governments.

STRS Ohio Executive Director Michael Nehf, as well as constituency groups and individual STRS Ohio members, voiced their concern with legislators about this budget bill language. In subsequent action, the contribution change was removed from Substitute House Bill 153 (the budget bill) by the House of Representatives before it was sent to the Senate. The Senate also chose to omit this language.

However, other differences between the House and Senate versions of the budget bill mean it now goes to a conference committee composed of three House members and three Senate members. They will hash out the differences and, later in June, each chamber will vote on the conference committee report. Following that, the bill will be sent to the governor.

Media reports suggest that the contribution shift to 12%/12% may come up again in the conference committee. STRS Ohio continues to voice its concern, noting the following:

- The State Teachers Retirement Board has spent the past two years forming a reasonable plan to help strengthen the financial condition of the pension fund. This plan maintains the current level of employer contributions at 14% and also calls for increasing the member rate to a total of 13%. This contribution structure, plus other changes, bring the pension fund to the statutorily required 30-year funding period.

- A shift in contribution rates to 12%/12% would mean the board's plan no longer meets the 30-year funding requirement. The Retirement Board and Legislature would be faced with making additional reductions in benefits for current and future teachers, as well as retirees. The board's proposed plan already requires current and future educators to work longer and contribute more for a lesser benefit in retirement, plus provides a smaller cost-of-living adjustment for all retirees.

- The 12%/12% proposal plus the additional 3% from members contained in the board's plan - a 50% increase for members - still leaves the pension fund short of reaching the 30-year funding requirement by one-half year due to the fact that member contributions are 100% refundable and may have accrued interest attached.

As noted above, both the House and Senate chose to omit the contribution language from the budget bill, recognizing that this shift would adversely affect system funding. STRS Ohio is grateful for this action, but is also mindful that the language could reappear during conference committee meetings. The executive director and other staff are sharing their concerns with the committee members and the governor. STRS Ohio continues to advocate that any discussion of contributions should be held within the context of the pension reform legislation proposed by the five Ohio statewide public pensions systems and contained in House Bill 69 and Senate Bill 3. STRS Ohio members who would like to share an opinion on this topic should contact the members of the conference committee as soon as possible. Their contact information can be found at the following link: https://www.strsoh.org/legislation/Conf_Comm_contacts.html