1. The Board’s decision last October NOT to separate each item for voting
purposes was ill-advised and just plain wrong. Decisions pertaining to the
solvency of a pension fund affecting hundreds of thousands of members deserve
separate votes on each issue so the membership can see precisely where the
voting Board members stand.
It also was ill-advised to permit an OEA-driven group (which calls itself
HPA) to be able to place its desired plan on a formal board meeting agenda for
action. This forced Board members to specifically vote yes or no on a plan
developed by an outside group. I wonder if the board will allow a group called
CORE (Concerned Ohio Retired Educators) to have a formal agenda item that will
force the board to vote on a plan that will better protect the oldest retirees
who have the least. No, I don’t think that will happen.
The truth is that no board – not a school board, not a college board, not a
corporate board – allows an outside group to put something on a formal board
meeting agenda that will force the board to specifically vote on it yes or no.
Discussion items from outsiders are fair game, but certainly not items requiring
a vote.
2. The Board’s action last October pertaining to a member’s Final Average
Salary (FAS ) calculation was extremely inappropriate. To refresh your memory,
instead of the Board's specifically voting to raise the FAS calculation from 3
years to 5 years, the Board decided to request language from the Legislature
that will permit the Board to alter (without legislative approval) the FAS
calculation in future years. This was a meaningless action on the Board’s
part. All it did was give OEA more time to push for a delay in the activation
date for any such change.
The Board’s upcoming new plan needs to specifically change the 3-year FAS
to a 5-year FAS, and the activation date needs to be immediate (2011) instead of
phased-in. Don’t dare tell me, as Jim McGreevy told retiree Molly Ganz in a
10-18-10 email, that “the (implementation) delays are an attempt to treat
teachers nearing retirement in a way that is fair to them as individuals.” What
did I just read, from an elected retiree rep on the Board? Has the Board always
treated retirees fairly?
Never mind that the current Board supports an immediate cut in retirees’
COLA and that previous boards immediately dropped retirees’ benefits (like
spousal health insurance) with no warning what-so-ever and no phase-in period at
all. It is a stunning insult to all retirees for the Board think it’s okay to
have phase-in periods for changes affecting teachers at the same time the Board
is seeking an immediate cut in the COLA. It also is an insult for the Board for
look the other way about prior injustices imposed on retirees with an attitude
of “Oh well, we're not responsible for what previous boards did.”
3. The famous “drops in the bucket” position of former Board member Jack
Chapman is once again alive and well with the current STRS Board. For those
board members who lack STRS history, Mr. Chapman -- in response to retirees who
were outraged over their pension money being spent on parties, booze, multiple
board trips to Honolulu, and giant bonus checks going to 300 non-investment
staff members at STRS – said publicly that such were merely financial “drops in
the bucket” for a pension system that has billions in assets. (Chapman, like
Billirakis and former Executive Director Herb Dyer, was later convicted in court
on state ethics violations.)
Current board members apparently believe that since changes like the needed
FAS alternation noted above represent a “drop in the bucket” that such aren't as
important and can be put off. Not doing what is right because it represents
only a “drop in the bucket” in terms of savings is another insult to retirees.
4. The Board also refuses to have STRS employees live by the same health
insurance decisions it imposes on retirees. The cost savings to STRS, some Board
members insist, would be so minimal that it wouldn’t significantly impact the
system’s solvency.
As well, the Board is stuck in a fantasy land belief that in order to
“attract and keep the best and the brightest” employees, top drawer benefits
must be offered. This is pure nonsense and unrealistic. Freezing wages and
causing STRS employees to pay more for their benefits often was one the most
difficult tasks I had when I served on the board. There were times that motions
I made -- like freezing wages and bonuses in years STRS lost money in the stock
market -- died for the lack of a second. It was only until legions of retirees
(mostly associated with CORE) complained loudly that anything changed and such
actions occurred.
5. The Board is making a huge mistake if a decision is made NOT to stop all
COLA payments for new teachers who become part of our pension system after
7-1-11. It does not matter if this will not, in the eyes of board members,
produce enough cash savings to correct the solvency problem. It is simply the
right thing to do financially. Funny, isn’t it, that so many other states are
moving in this direction, irrespective of whether it represents a “drop in the
bucket.”
In fact, I will take this argument one step further. If our Legislature,
in its infinite wisdom, does something horrible like eliminate the COLA entirely
for all current retirees, the STRS Board has no one to blame but itself for such
a mess. Why? Ultimately, our future solvency problem could be largely
corrected by eliminating the COLA for all future new retirees.
Oh no, active members on the board like Tim Myers would say. Not us. Don't
“take away” something, some Board members believe, that active teachers feel
they are entitled to receiving. Never mind that current active teachers have
never received a COLA. It wouldn't be fair if current retirees receive a COLA in
the future (some board members and OEA will argue) if new retirees do not get to
receive the same COLA.
6. Some Board members think it’s their business to point out that 8 or 10
retirees are currently working (at least part time). This, they think, makes a
COLA not as imperative. Board member Jim McGreevy wrote recently: “I do not buy
into the notion that pre-1999 retirees are more needy that post
1999-retirees.” Really, Jim? What planet have you been living on? No Board
member seems to acknowledge that active educators, unlike retirees, are in
position currently to build up their future retirement.
Board member Tim Myers also recently came up with a ridiculous idea to
eliminate the 1% set-aside dollar amount that exists for health insurance. This
is the same Tim Myers, who at my last board meeting in 2009, made a formal
motion to stop any and all discussion of the bonus check question. The motion
failed, but other OEA teachers on the Board were quick in their attempt to
support what Myers recommended.
7. At the same time, the Board majority seems to be obsessed with cutting
current retirees’ COLA, and to do so immediately. The Board majority also seems
to be committed to keeping the active teachers' increase, phased in, at 2.5%.
This is extremely shortsighted on the Board’s part. The active teacher
contribution rate must be increased at a level of not less than 3.0%, and it
needs to be increased immediately.
It also is silly for Board members to believe that because a phased-in 2.5%
increase would cause an immediate 0.5% increase in 2011 for active members, this
makes their situation equal to that of retirees. Furthermore, the ill-advised
88%/35 year benefit – which never should have happened in 2000 – needs to go,
and it needs to go now. It will defy logic if the Board adopts a plan to
immediately cut current retirees’ COLA at the same time it slowly phases out the
sacred 88%/35 year benefit. This benefit needs to be eliminated now.
The day may come, unfortunately, when our lawmakers review and understand
the attached document entitled “Factors Driving STRS Planning Assumptions.” The
revelation of what the charts say may not occur for several years.
When it does happen, they will realize -- and it will be painfully obvious
-- that more should have been done in 2011 by the STRS Board to correct the
future solvency problems, like changing the FAS from 3 years to 5 years
immediately, like increasing active teacher contributions by at least 3.0%
immediately, like dropping the 88%-35 year benefit immediately, and like
eliminating the COLA for new teachers (and even, perhaps, for all future new
retirees) immediately. Why do I write this?
1. STRS Investment Returns – For everything to work (and for our unfunded
liability to get below 30 years), STRS is counting on receiving a + 8.0% return
on its stock market returns per year. The attached chart shows that over the
past 9 years, the average return has been + 5.01% per year. The chart also
shows that for the past 7 years, our average return has been + 5.44% per year.
At one recent STRS Board meeting, the Board was advised by a paid
consultant that it might be wise to lower this revenue assumption to + 7.5%. The
Board hasn't done this. It makes me feel that the Board wants to pretend that a
+ 8.0% assumption is realistic. It is not. Does anyone really think we will
receive an average stock market return of + 8.0% for the next 30 years? Isn't
going to happen! Is there anyone who does not believe there will be external
events that will cause the stock market to drop significantly again?
2. Active Member Payroll Growth – In this category, STRS is banking on
receiving increased revenue that assumes an average payroll growth of 4.0% per
year in the future. Prior to 2009, the STRS Board even used an assumption of
4.5% in this category.
What are the facts? For the past 9 years, the payroll growth of active
members has been an average of 3.31% per year, and – worse yet – the payroll
growth for the past 7 years has been a dismal 2.65% average per year. Yet we
are banking on receiving at least an average of 4.0% per year. Isn’t going to
happen.
Hundreds of school districts are currently freezing base raises and are
permitting only “step” increases of about 2.0% to occur. Some school districts,
like the Cincinnati City Schools, also have recently eliminated the automatic
“step” increases that teachers expect to receive. Times are changing, and the
STRS Board’s thought process needs to change too.
3. Total STRS Active Members – Between 1927 and 2003, the number of active
members in STRS increased consistently each year. Something happened in 2004
that no one wants to talk about. The active membership started declining, from
its peak of 179,944 in 2003 to 173,327 in 2008. In that five-year time span,
active membership at STRS dropped by 6,617 persons. In 2009 and 2010, the
active membership at STRS climbed by 2,515, causing some Board members to think
that this category is on the rebound.
The board needs to made aware of the fact that the slight rebound of the
past 2 years likely will be short-lived. To begin with, the increase of 2,515
likely was driven by increased numbers of charter school teachers (who are
generally paid less than their public school counterparts), by part-time public
school employees, and by university employees.
There is nothing to suggest that the number of public school active members
will be increasing in the immediate future. The opposite is true.. In fact, the
Ohio Department of Education is acknowledging for first time that there is an
overall decline in the number of public school students in Ohio.
4. Total STRS Retiree Members – This is the one category where things are
extremely consistent. In the past 9 years, the number of STRS retirees has grown
by 27,803. The data shows that yearly, the number of new retirees increases
about 3,475. There is no reason to believe this will change.
The scary part of this picture is the fact that in 2003, there were 108,294
retirees and 179,944 active members, which meant that retirees represented 37.6%
of the combined total. In 2010, retirees represented 43.1% of the combined
total. This trend, assuming that it continues (and there is little to suggest
that it won't) is a recipe for future significant financial decline at STRS. If
these two charts ever meet, and the number of retirees starts surpassing the
number of actives, we are in big trouble.
In March of 2007, after the Board and STRS staff published reports
announcing that “pensions are secure” and that the desired 30-year unfunded
liability likely would be achieved by 2009, I published my disagreement and
opposition to such statements. My comments were met with distaste by my fellow
board members and staff. Even OEA president Patricia Frost-Brooks later
criticized me publicly at a Board meeting for not being an STRS team player.
Ten months before the collapse of the stock market, I wrote:
My point simply is this: Absent a continuation of great investment
returns, we will not be able to offset the realities – if they continue – of the
other three areas (active member payroll growth, total active membership, and
total retiree membership) shown above. I am hopeful my fellow board members
will be agreeable to approve a contingency plan to minimize the negative impact
of a significant stock market downturn.
The Board didn't want to hear this. Recently, Board member Jim McGreevy
even wrote: “We were happy to accept the pre-2008 reality was sustainable.”
Someone needs to ask Jim who he means by the word “we.” The bottom line, it
appears, is that what the Board pretends to be reality becomes reality, even
when it later proves to be massively flawed.
McGreevy also recently wrote: “Individuals who are retired, to this point
in time, contributed to the unfunded liability by not making adequate
contributions.” That’s right, Jim, blame retirees, not the decision makers –
the STRS Board and the STRS Staff.
It is interesting that recently, Board member Bob Stein wrote: “I know we
would be dealing with a more sympathetic executive and Legislature if educators
and other public employees had been more attentive and active.” Wow, what a
statement! Is that the responsibility of Susie Smith, a 25-year-old teacher, or
her union leaders and the OEA-dominated STRS Board?
CORE tried, Bob, month after month at Board meetings, to wake people up.
Had you been there, you'd know. I tried too, Bob, in early 2007, ten months
before the stock market downturn, but no one wanted to listen – not my fellow
STRS Board members, not the STRS staff, not ORTA, and not OEA. It was more
convenient to pretend that things were getting better, even when the facts (see
the attached charts) suggested a different story.
Things can be fixed now, but not until the STRS Board understands how
important it is for the final plan to increase the 3-year FAS to a 5-year FAS
immediately, to increase the active contribution by at least 3.0% immediately,
to dump the 88%/35-year benefit immediately, and to eliminate the COLA for newly
hired teachers (and possibly for ALL future new retirees) immediately. The
future and the realities of the 4 attached charts mandate that the final Board
plan contain these elements.
