Wednesday, February 06, 2013

Dennis Leone: More concerns in addition to the Board's use of flawed assumptions

Dennis Leone to Kathie Bracy, February 6, 2013
Your posting reminds of 3 things I forgot (which were in addition to my consternation over the flawed assumptions the board insisted on using):

1. The Board’s original plan did NOT lock the 14% contribution rate of active teachers at any year in the future. The board merely wanted “authority” to raise it 14% if it desired, which clearly meant that OEA would have had the opportunity to stop it. I really blew my stack on that one. The approved plan one year later, as you know, has the 14% locked in.
2. The Final Average Salary calculation would have stayed at 3 years in the old plan. You will see below that I demanded that it be 5 years, which – by the way – STRS used in the late 1970s and early 1980s. The final plan has 5 years.
3. The other thing I pushed for, which I had completely forgot, was that I recommended that retirees of the future have NO COLA – which 12 other states currently are doing. THIS IS A PERMANENT SOLUTION TO OUR PENSION SOLVENCY. The final plan forbids retirees from getting a COLA for 5 years. My point always has been that active teachers do not even know they are slated to get a COLA, they are not planning on it, and they won’t miss something they never had……..not to mention that their pension income will far exceed current retirees when they retiree. ABOLISHING THE COLA FOR FUTURE RETIREES IS THE PERMANENT SOLUTION FOR OUR PENSION SOLVENCY THE FUTURE. Boy, OEA sure hates this idea. Screw current retirees, but protect, protect, protect future retirees who are currently active teachers.
STRS Board to meet February 13-14, 2013

Details here

Tuesday, February 05, 2013

Wondering why Dennis Leone's adversaries do NOT want to see him re-elected to the STRS Board? You might find the answers here.

Dennis Leone (2/6/2013): (Click) More concerns in addition to the Board's use of flawed assumptions

Dennis Leone: Some words of truth and reality to the STRS Board (or why some people don't want him elected to the STRS Board)

Dr. Leone wrote his discourse (below) to the STRS Board in January 2011, just a few months before his original Statehouse testimony on HB 69, the first pension solvency bill. Could it be that his testimony (and his very public criticism of the flawed STRS assumptions) was a factor in the Ohio Retirement Study Council's insisting on having an outside consultant, as well as being a factor in the Board's adjusting both of the assumptions downward in its revised plan several months later? Or was it merely coincidence? What do you think?
No doubt this summarizes why Dennis Leone's adversaries do NOT want to see him on the STRS Board again.


Dr. Dennis Leone to STRS Board and Executive Director Michael Nehf: Upcoming STRS Board Decision: Truth and Reality
January 24, 2011

Upcoming STRS Board Decision: Truth and Reality

Perhaps, since the STRS Board has learned that an increased employer contribution is simply not in the cards (no real surprise there), an opportunity now exists for the Board to correct some mistakes that it made with its first attempt to adopt a pension solvency plan last October.

Of course, the STRS Board almost never admits that it makes a mistake.  Since I began researching Board actions in 2002, and while I served as an STRS Board member between 2005 and 2009, I can recall only twice when such an admission was made. The first was former STRS Board member Michael Billirakis (a former OEA president), who admitted publicly in 2004 that the Board should never have spent $875,000 on sculptures.  In 2005, new STRS Executive Director Damon Asbury also made an astonishing admission in public:  “The Board and the staff have fallen out-of-touch with the membership.”

It is interesting that such a statement was made in 2005, because 6 years later the same problem has re-surfaced.   The current Board is disconnected from retirees like it was in the early 2000s, and this is a fact irrespective of:  (A) How the Board interprets its own self-serving member surveys; (B) What the Board hears from an STRS cheerleading club called ORTA; and (C) What it is told by a look-the-other-way union called OEA.

The Truth:
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 Reality:
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.
Dennis Leone
STRS Board Member, 2005-2009

STRS asset value as of 11/30/12

From Mario Iacone, February 6, 2013
CURRENT ASSET VALUE as of 11/30/2012
.....65.7 Billion
.....Down 0.5 Billion
.....Current Fiscal Year
ASSET VALUE as of 11/30/2012
.....65 Billion
.....approx 80 Billion
LOW ASSET VALUE...early 2009
.....approx 47 Billion
.....approx 66.2 Billion
approx 14 Billion BELOW 2007 HIGH and
approx 19 Billion ABOVE 2009 LOW

Sound familiar, STRSers?

From John Curry, February 4, 2013

"One factor that could temper enthusiasm for early retirement: prices. While retirees will have guaranteed access to health benefits, they may find that buying a benefit package becomes increasingly expensive when an employer isn’t kicking in a contribution."

Note from John...of course, STRS retirees found this out in 2003 when STRS trashed spousal subsidy ( wasn't "phased out" but dropped immediately). Of course, OPERS continued on for another decade with their spousal subsidy, didn't they? Then again...OPERS wasn't run by an OEA dominated board who catered to active teachers rather than retired educators. Of course, retired educators didn't pay OEA dues either, did they? Then again, a wholesale conviction of OPERS board members and their Executive Director for ethics violations didn't occur either, did it?

Everybody’s working for the…health care benefits

Posted by Sarah Kliff on February 4, 2013 at 8:49 am

The Employee Benefits Research Institute recently surveyed workers and retirees on how health-care benefits factored into the timing of their retirement. The short answer is: a lot.

Three-quarters of retirees said they worked longer than they would have otherwise to maintain access to their health plan. A majority of current workers agreed with a statement that said they “planned to work longer than you would like in order to continue receiving health insurance through your employer.”

[Click image to enlarge]

Study author Paul Fronstin argues that the health-care law will change all that: It will end denials of coverage for preexisting conditions and subsidize health insurance for low- and middle-income Americans.

“It completely changes the playing field,” he says. “If everything goes as planned, you’ve got guaranteed issue next year. You don’t need the employer to fill the gap.”

Another question in Fronstin’s survey found that more than a quarter of Americans say they would consider an earlier retirement date, should they have guaranteed access to health benefits. That number has slowly ticked upward, from 15 percent in 2003, over the past decade.

One factor that could temper enthusiasm for early retirement: prices. While retirees will have guaranteed access to health benefits, they may find that buying a benefit package becomes increasingly expensive when an employer isn’t kicking in a contribution.

The Affordable Care Act does include some provisions aimed at reining in prices; insurers cannot charge older Americans more than three times as much as they charge younger subscribers. For those earning less than 400 percent of the federal poverty line — about $45,000 for an individual — their premium will be capped as a percentage of their income.

Even in a post-Obamacare world, there will still be trade-offs to be made in leaving the employer-sponsored insurance market

STRS Board to meet February 13-14, 2013

From STRS, February 6, 2013


The State Teachers Retirement Board and Committee meetings currently scheduled at the STRS Ohio offices, 275 East Broad Street, Columbus, Ohio 43215, are as follows:

Wednesday, February 13, 2013

8:30 a.m. Disability Review Panel and Final Average Salary Committee (Disability Reviews and Final Average Salary Committee will be conducted in Executive Session)

Thursday, February 14, 2013

9 a.m. Retirement Board Meeting
Larry KehresMount Union Collge
Division III
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