Tuesday, March 21, 2017

Bob Buerkle on the STRS funding crisis

From Bob Buerkle, March 21, 2017 
Written by Bob Buerkle in January, 2017
 I've been following the latest discussions at STRS about their funding since last spring.  Everything that they have been proposing is going to be so costly that there is no chance that STRS can be under 30 years of funding unless they steal more money from the retirees again. 
First it was to try to manipulate numbers wherever necessary in order to be able to claim that the Health Care Fund, (which isn't even a pension plan requirement), could be solvent for 65 years. If this becomes a reality, which it should not, then the health care cost sharing will be reversed from 20 years ago. Retirees will pony up 90% of the cost and STRS will kick in the other 10%.  SOLUTION: Drop this 65 year plan.  Since STRS is phasing in the age 60 with 35 years requirement, the health care plan will only be necessary for 0-5 years before retirees must go on Medicare.  This compares with up to 15 years of pre-Medicare coverage that STRS provided in the past.  
Next it was actuarial psycho-babel known as "Closed Funding" so they could possibly survive another "once-in-a-100-years" Great Recession.  I think the chances of this happening again in this century are about as likely as seeing Halley's Comet again in the next 20 years.  This is an impossible goal to achieve without more pension benefit take backs in the future.  SOLUTION:  Take appropriate action if another Great Recession ever does return.  Penalizing retirees for something that may never happen again is not in the best interests of our pension recipients.  If our STRS investment experts could lose less money than the general market during large pullbacks that would be most helpful.  Better yet, invest 10% of our money in Government Bonds and everything else in Warren Buffett's Berkshire Hathaway stock which has returned over 20% per year for 50 years, including all the ensuing recessions.  Just investing in the S&P 500 Index would also have satisfied all of our actuarial needs. 
Most recently STRS now wants to lower the earnings assumption from 7.75% to 7.5% or even as low as 7%.  Such a change would immediately propel the STRS funding ratio close to or at infinity again.  By doing this the STRS Management and Board can say "we now have to drop the COLA again" so they can right the STRS Ship.  SOLUTION: Leave the earnings assumption alone.  They already reduced it from 8% to 7.75% which cost us about 15 more years tacked on to our funding period and eliminated our COLA for a year, followed by a one-third reduction for as long as it might take for humans to populate another planet.
I believe the following statements are all accurate.
Retirees are the ones paying for STRS Investment mistakes
No usual and ongoing demographic changes caused this problem
The 3% simple COLA did not cause this problem
No service formula benefits of any kind caused this problem, including the 88.5% for 35 years
The combined effect of all of the above did not cause this problem
Bob Buerkle
Larry KehresMount Union Collge
Division III
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