Dave Parshall: Report on special STRS board meeting May 15, 2012

From Dave Parshall, May 20, 2012

CORE Members and Supporters;

On Tuesday, May 15, 2012 the STRS Board held a special public board meeting to finalize the wording of the section of the STRS plan submitted to the Senate that would give the board power in the future to make adjustments to member contribution formula, age and service retirement eligibility, and our COLA.

On behalf of CORE I attended this meeting. This was a poorly attended meeting [by observers] and lasted less than a half hour.

Mr. Nehf (STRS Director) gave a presentation to the board of what the changes in the language would be and what it might mean in future years. There were no handouts made available, so I can only share my notes.

1.Member Contributions are capped at 14%, but after 2016 changes can be made to lower the percentage of contributions.

2. Age and service retirement eligibility can also be lowered but also raised.

3. The COLA is capped at 2%, but can be lowered after 2016. Mr. Nehf mentioned a lowering to 1.75% or to 1%. if needed.

4. None of the above changes can be made unless the annual actuarial report clearly shows that this would not affect the stability of the fund and would be in compliance with the Boards duties as a fiduciary of the fund.

After hearing the above possible changes, I became concerned. CORE members remember past boards that were not always ethical brokers. While I don’t think the current board would be implicit in any future actions that would favor actives over current retirees, I can see a possible scenario that once and if the Senate Bill becomes law. Down the road once attention is on other matters, things might change. A future board could lower the 14% active contribution rate and pay for it by lowering our COLA. In short, only negative changes can happen to retirees and only positive changes can happen to active members. Our COLA can never be changed without action of the legislature. Because of my concern, I decided it was a necessity to read the related sections in Senate Bill 342 as passed.

With help from Mr. Nehf and Terri Bierdeman, I was able to locate the related sections of Senate Bill 342 as passed. They saved me a long read with a hand lens. I can report the actual wording regarding the granting of the board new was different from those passed by the Board on the 15th. Below is the actual wording; you can decide for yourself:

Sec. 3307.67, Line 3424

(A) Except as provided in divisions (D) and (E) of this section the state teachers retirement board shall annually increase each allowance or benefit payable under the STRS defined benefit plan. Through July 31, 2013, the increase shall be three per cent. On and after August 1, 2013, the increase shall be two per cent. No alliance or benefit shall exceed the limit as annually determined pursuant to section 415 of the “Internal Revenue Code of 1986”, 100 Stat. 20085, 26 U.S. C.A. 415, as amended and regulations adopted pursuant thereto but before August 1, 2013. The limit may be adjusted in accordance with the rules adopted by the board.

Line 3477

(E) The board may adjust the increase payable under this section if the board’s actuary, in its annual actuarial valuation required by section 3307.51 of the Revised Code or in other evaluation conducted under that section, determines that an adjustment does not materially impair the fiscal integrity of the retirement system or is necessary to preserve the fiscal integrity of the system.

You can read all the sections online via Google at “Legislative Detail: OH Senate Bill 342” Click on the link that comes up, then the word "Texts" (near the top); then "Engrossed". http://legiscan.com/gaits/text/644476
All sections are as follows:

1. Sec.3307.26 Members contributions

2. Sec.3307. 58 Age and Service Retirement Eligibility

3. Sec.3307.67 COLA

Of course, all of this could change in the House version.

Dave Parshall, CORE