Friday, August 17, 2012

Report on August 2012 STRS board meeting

From STRS, Aug. 17, 2012
August Board News
STRS Ohio Presents Pension Reform Proposal to House Subcommittee

At the August meeting of the State Teachers Retirement Board, executive director Michael Nehf provided an update on the status of pension legislation that is pending before the Ohio House of Representatives. Nehf told the board that the House Health and Aging Subcommittee on Retirement and Pensions held several hearings on pension bills during the summer. On Aug. 8, Nehf presented STRS Ohio's pension reform proposal to the subcommittee and responded to questions from its members.

Nehf told the subcommittee that STRS Ohio's changes are necessary to preserve the pension fund and acknowledged that the board-approved plan has the support of the Healthcare and Pension Advocates for STRS — a coalition that is comprised of groups of active members, retirees and employers. The STRS Ohio plan increases age and service requirements for retirement; calculates pensions on a lower, fixed formula; increases the period for determining final average salary; increases member contributions to the system; reduces the cost-of-living adjustment (COLA); defers the COLA for future retirees; and calls for no COLA to be added in fiscal year 2014.

Now that all five statewide pension systems have made presentations to the subcommittee, this body is hearing testimony from proponents, opponents and interested parties. House leadership has indicated that it plans to hold additional hearings in August and early September and expects to take action on the bills in September.

Operating Expenses Come in Below Budget

Final figures for fiscal year 2012 (July 1, 2011–June 30, 2012) show that STRS Ohio's total operating expenditures were approximately $3.4 million less than budgeted for the year. Less than expected expenditures for salaries, custodial banking fees and data processing equipment accounted for much of the savings.

STRS Ohio Total Fund Returns 2.3% For Fiscal Year 2012

Final fiscal year calculations show the State Teachers Retirement System of Ohio's Total Fund earned +2.3% for the year ending June 30, 2012. This result follows last fiscal year's 22.6% return that was the highest in nearly three decades. Investment staff indicated in its Investment Plan for fiscal year 2012 that returns were likely to come in below the system's actuarial assumed rate. The Total Fund's return over the past three years is 12.5%.

STRS Ohio's Total Fund return beat its performance benchmark by 0.29%, meaning the system's active management of the funds — rather than relying on index funds — added approximately $95 million in value after all investment costs during the fiscal year. STRS Ohio's Total Fund return has exceeded its benchmark in nine of the past 10 years. At fiscal year end, STRS Ohio's assets stood at $63.8 billion, an overall decrease of $2.4 billion when benefit payments of nearly $5.8 billion and contributions are accounted for.

STRS Ohio's Strong Service Scores Improve in CEM Benchmarking Study

CEM Benchmarking, a leading global research company, reported the results of its annual pension administration report for fiscal year 2011 at the August Retirement Board meeting. CEM measures the performance of public pension plans and uses comparative analysis among peer groups to rank the service level of the plans. STRS Ohio again scored in the top quartile of CEM's universe for service and improved its overall score from the 2010 study.

The report noted that STRS Ohio's total cost per member for the services evaluated is above the peer average; however, STRS Ohio's costs are trending lower, while peers' costs are trending higher.

Centers For Medicare and Medicaid Services (CMS) Notifications Impact STRS Ohio's Health Care Program For 2013

Following the Retirement Board's adoption of the 2013 health care program changes in April, STRS Ohio was notified of regulations and interpretive decisions by CMS that will impact the 2013 Aetna Medicare Plan (PPO) and Express Scripts' prescription drug plan.

CMS now requires all PPO Medicare Advantage plans to charge individuals residing in a network service area the annual deductible for all out-of-network services (except for preventive, emergency, urgent care and emergency transport services) before both copayments and claims payments by the plan. To comply with the new regulation, the board approved the following changes to the 2013 Aetna Medicare Plan (PPO):
• To apply the $500 annual deductible to out-of-network services, except those noted above, to enrollees who reside in a network service area in all states; and

• To charge a $40 copayment after the annual $500 deductible is met for all out-of-network physician office visits to enrollees who reside in a network service area in all states.
About 5,000 Aetna enrollees reside outside a network service area and will continue to receive services under the in-network coverage levels.

Also, Express Scripts Inc. learned in July that Medicare Part D programs could not offer Tier 3 and Tier 4 drugs at 100% coinsurance. To comply with this CMS interpretation, the board approved the following change to the 2013 Express Scripts Plan:
• To discontinue coverage of the 2012 Tier 3 and Tier 4 drugs, with enrollees paying 100% of the retail cost.
Retirements Approved

The Retirement Board approved 2,681 active members and 239 inactive members for service retirement benefits.
Larry KehresMount Union Collge
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