Report on April 2012 STRS board meeting (read it and weep, folks)

From STRS, April 20, 2012 

April Board News 

Retirement Board Amends Plan to Strengthen the Financial Condition of the Pension Fund; Pension Design and Contribution Changes Approved 

The State Teachers Retirement Board voted to amend its plan to further strengthen the financial condition of the pension fund at its April meeting and hopes to see legislative action on its pension reform plan in the coming months. The board's plan is projected to save about $13.3 billion in accrued liabilities, maintains a 1% employer contribution to STRS Ohio's health care fund and does not include any increase in employer contributions. 

The board vote followed several months of discussion and study — including conducting an asset-liability study and a three-year actuarial experience review. All changes contained in the plan require legislative action by the Ohio General Assembly and the governor to be implemented. Components of the plan include: 

• Increase in member contributions effective July 1, 2013 

Member contributions would increase by 4%, phased in 1% per year beginning July 1, 2013, through July 1, 2016.

These tables are also available on
the STRS Ohio website.

(Click images to enlarge.)

• Change in eligibility for retirement, effective Aug. 1, 2015 

Service credit requirements for retirement with an unreduced benefit would increase to 35 years of service by Aug 1, 2023, and a minimum age 60 requirement would be added beginning Aug. 1, 2026. Members may still also retire at age 65 with a minimum of five years of service credit.

The service credit requirement for an actuarially reduced benefit would be phased in beginning Aug. 1, 2015, gradually increasing to 30 years of service by Aug. 1, 2023. Members may also still retire at a minimum age 60 with five years of service, but the benefit would be actuarially reduced beginning Aug. 1, 2015. 

• Increase in final average salary (FAS) years effective Aug. 1, 2015 

FAS calculation would be based on the five highest years of earnings. 

• Changes to the cost-of-living adjustment (COLA), effective in fiscal year 2013 

All retirees as of July 1, 2013, would not receive a COLA increase on their next anniversary; effective July 1, 2014, the COLA would be 2%. Members retiring Aug. 1, 2013, or later would also receive a 2% COLA, but it would not begin until 60 months after the date of retirement. 

• Change in benefit formula, effective Aug. 1, 2015 

The new formula would be 2.2% for all years of service. Members who are eligible to retire on July 1, 2015, would maintain retirement eligibility, and the benefit would be the greater of the benefit calculated under the new benefit formula or the benefit the member could have received had the member retired on July 1, 2015. 

STRS Ohio staff reviewed all of the elements in the proposed plan with the Healthcare and Pension Advocates for STRS (HPA), a constituent group made up of various stakeholders representing active members, retirees and employers. HPA representatives voiced support for the plan at the April board meeting. Constituent support is considered vital to the legislative effort, as Ohio Senate leaders told STRS Ohio they want to see broad support for the system's reform plan before taking action. 

The newly adopted plan changes would result in a funding period of 32.8 years based on STRS Ohio's July 1, 2011, valuation. The Ohio Revised Code calls for the state retirement plans to have a funding period of no more than 30 years, or the system must submit a plan to get to the 30-year target. If STRS Ohio meets its actuarial projections, it is expected to meet the 30-year funding period at its next valuation. 

The board also agreed to support a change in Ohio statute to give the Retirement Board authority to adjust benefits in the future as necessary to maintain compliance with the 30-year funding requirement in the Ohio Revised Code. 

Retirements Approved 

The Retirement Board approved 200 active members and 105 inactive members for retirement. 

Board Approves Health Care Program Changes 

At the March 2012 Retirement Board meeting, STRS Ohio Member Benefits staff presented several recommendations for plan changes designed to extend the life of the Health Care Stabilization Fund. At its April meeting, the Retirement Board took action that will affect STRS Ohio Health Care Program enrollees. These changes will be detailed in upcoming newsletters, STRS Ohio News for Benefit Recipients, in May and July. The changes are expected to save about $31 million annually. Below is a summary of the changes for the Medical Mutual Plus and Basic Plans and the Aetna Medicare Plan (PPO). Changes for 2013 for the Kaiser, AultCare and Paramount plans will be reviewed in May. 

Changes for 2012

• Moving the non-Medicare enrollees to Express Scripts' National Network beginning June 1, 2012 — this will impact fewer than 250 enrollees who would need to change their pharmacy. 

• Moving Medicare enrollees to Express Scripts' National Network — this move will take place as soon as allowed by the Centers of Medicare & Medicaid Services (no earlier than June 2012). 

Changes for 2013 

• Reducing the subsidy multiplier by 0.1%, to 2.3% per year of service — a retiree with 30 years or more of service will receive a subsidy in 2013 of 69% of the total cost of the plan. The 2012 subsidy for a retiree with 30 years of service is 72%. This table is also available on the STRS Ohio website. 

• Increasing annual Basic and Plus Plans' deductibles and out-of-pocket limits — sets new amounts for the Medical Mutual Basic Plan, the Medical Mutual Plus Plan (see charts to the right) and the STRS Ohio Prescription Drug Program. 

• Adding urgent care and emergency room copayment per occurrence to the Basic and Plus Plans — $35 for urgent care and $50 for emergency room copayment per occurrence, then subject to deductible and coinsurance (emergency room copayments waived if admitted). This is consistent with the Aetna Medicare Plan (PPO). 

• Increasing physician copayments under the Aetna Medicare Plan (PPO) — increases physician office copayment to $20 and implements a $40 out-of-network physician copayment in Ohio. 

• Combining Tier 3 and Tier 4 drugs as non-preferred brand-name drugs with 100% coinsurance. In addition, about 120 drugs would move to Tier 3 from Tier 2. This change encourages the use of generic drugs. 

• Revising proton pump inhibitor (PPI) program — discontinues the separate PPI copayment program, adds home delivery for over-the-counter PPI medications and moves all brand PPIs to Tier 3 (except Nexium for Medicare enrollees only). 

• Revised Prescription Drug Program deductible and out-of-pocket maximum — will be indexed to standard Medicare Part D coverage levels. 

The board also voted to continue the Health Care Premium Assistance Program for 2013 and to continue Medicare Part B premium reimbursements at the 2012 amounts. Details on these programs will be included in the 2013 health care open-enrollment materials. 

Proposed Operating Budget for Fiscal Year 2013 Calls for Slight Increase 

The Finance Department presented proposed system budgets for the 2013 fiscal year (July 1, 2012–June 30, 2013) during the April board meeting. The proposed operating budget totals $90,513,400, an increase of 0.9% over the current year's budget. The current head count of 592 full- and part-time associates is not being increased in the coming year. The budget also provides funds for several new initiatives, including a health care audit, additional investment research and quotation system services and improvements to the member self-service section of STRS Ohio's website. The proposed capital budget for fiscal year 2013 totals $1,845,700. The board will be asked to approve the budgets at its June meeting.