STRS Board Meeting March 20, 2014

Issues from the STRS Meeting of Mar. 20th, 2014 

The new head of the STRS Investment Department, John Morrow reported positive returns of +11.6% estimated for February. All indices were positive and the total fund value was $72.8 billion dollars. The early report for the month of March was volatile especially last week caused by negativity to the Russia/ Ukraine situation. This week shows improvement since the sanctions by the U.S. turned out to be placed on Russian individuals only.

Following the Investment Department report, Mike Nehf, Executive Director of STRS presented a review of previous Board discussions of STRS Ohio funding. He mentioned that at the Board Retreat in January a lengthy discussion was held on the 30-year amortization of the pension unfunded liability and possible solutions were considered. At the February STRS Board meeting, he reviewed further funding discussions that occurred and shared a letter of support from the Health Pension Advocates (HPA) which indicated their approval of the health care funding change (directing the future l% employer contribution from the Health Care Fund to the pension fund beginning July 1st, 2014).

This health care plan was approved by the STRS Board and instructed Mr. Nehf to present the plan to the Ohio Retirement Study Council (ORSC). There was agreement to continue to hold discussions with stakeholders and to study the impact of the health care funding change and to also explore a possible mitigating rate change to the Defined Contribution program.  At the March 7th STRS Ohio meeting, background was provided on the history of heath care funding as well as the history of the Defined Contribution program mitigating rate. The staff was directed to include these matters on the March 20th Board meeting. So today, it was shared that by directing future 1% employer contributions from the Health Care Fund to the pension fund beginning July 1, 2014 would reduce the unfunded liability of the pension fund by 4 years from 40.1 years to 36.1 years. It would also reduce the Health Care Fund's solvency to 20 years.

Another point mentioned regarding the Health Care Fund was that it was always an optional benefit whereas the Pension Fund benefited all STRS members. Today the Board approved unanimously to discontinue the current allocation to the Health Care Fund of 1% of the employer contribution beginning July 1st, 2014. Board member, Craig Brooks, added that in the future, the 1% will be considered to be replaced to the Health Care Fund.

The Board's actuarial consultant, the Segal Company recommended increasing the mitigating rate from 4.5% to 5.5% for the Defined Contribution program effective July 1st, 2014 which would mitigate the negative financial impact on the Defined Benefit Plan.  This has to do with the Defined Benefit plan and the Defined Contribution plan offered to universities which are known as the Alternative Retirement Plans (ARP). The legislature recognized the need for a portion of the employer contribution to be used to mitigate the negative impact of future faculty no longer participating in STRS (the mitigation rate is based on the 1997 benefit design). When the motion for these changes to the Defined Contribution program was about to be voted on today,  Board member, Mark Hill moved to postpone the proposed motion on mitigating rates to the April STRS Board meeting. The vote to postpone the vote was passed by 6 members voting for the postponement and 3 members voting not to postpone (Price, Stein, & Hayden). The reason cited by Mr. Hill was to give time for the HPA (the Health Pension Advocates) to further discuss the motion with the UAAL (the universities' union).  The head of the UAAL attended the March 7th STRS meeting and spoke of their disapproval of changing the mitigating rates. Craig Brooks also requested that the STRS staff conduct a study capping the COLA and to have it available by the April STRS Board meeting.

Nick Treneff, the STRS Communication Department, announced that no election would be held this March since there were no petitions received for the two contributing member positions of the STRS Board. Thus, Dale Price and Mark Hill were re-elected to their present positions on the Board.

Sandy Knoesel, Member Benefits Department, and Greg Nickell, Health Care Dept. shared that recent complaints regarding Express Scripts have been addressed with the assignment of 10 to 15 more staff to help reduce the amount of work necessary for an appeal whether by phone or by online. Doctors will now be able to go online to complete an appeal. There were questions regarding the Aetna Medicare Advantage plan and whether the current plan would be affected by Obamacare. Mr. Nickell said that the plan has not been affected since it is still the most successful health care plan.

The next STRS Board meeting will be April 23rd, 24th and 25th.