Dennis Leone responds to STRS report on Segal Company pension valuation error

January 14, 2014

[View STRS report here]

When Mike Nehf claims that the Board consultant’s 4 year error will not ultimately adversely affect retiree benefits, he is speaking of our regular pension. He is not saying that errors like this one won’t adversely affect the ability of STRS to provide retirees with a COLA in the future. I continue to believe that the STRS Staff and the Board will target a complete elimination of our COLA, and that such will coincide with the year (2018) that recent retirees are supposed to receive their first COLA (after their 5 year wait).

Retirees from 2013 likely will be told in 2018 that insufficient funds exist for them, after all, to receive a COLA they have never received in the first place, and this likely will be the “perfect” time (out of “fairness”) for the Board to completely eliminate our COLA as well. What needs to change – but won’t –  is the Board’s overly generous 13 year phase-in for the new age 60 requirement, which likely was part of the final Board-adopted plan to appease OEA. The Board-adopted plan protects a current 47-year-old active teacher, but it does not provide a similar protection for current retirees by grandfathering or phasing in COLA reductions.

It deserves noting that the Board also has approved an ill-advised consultant’s projection that the Payroll Growth Assumption of active members will increase from the current annual projection of 3.5% (which is way too high) to an even higher 4.0% in 2018. This silly projection was approved even though the actual average annual payroll growth since 2005 has been a dismal 1.33%. Absent spectacular stock market returns, this fact – along with the fact that the total number of active teachers has been dropping in recent years – may contribute to a future decision to eliminate our COLA.

Dennis Leone
STRS Board Member between 2005 and 2009