Saturday, July 01, 2017

Bob Buerkle on the new STRS pension contract: You are stuck with it until you die

How is our Implied STRS Pension Contract determined?
1. Years of service – was 30 years at any age before 08/01/15 @ 2.2% per year.  30 x 2.2 = 66% of FAS
2. FAS was your highest 3 years (now highest 5 years).  Ex. 73,75 and $77,000 = a FAS of $75,000
3. 66% X $75,000 = a $50,000 pension
4. To provide the resources needed to pay the lifetime benefits of this contract with retirees the STRS Actuary has prepared a chart known as the “Reserve Transfer Calculation Chart”. 
Following this process creates your “Pension Formula” that STRS is then supposed to use and set aside the proper reserves to guarantee you a lifetime annuity for your “Pension Contract amount,” including an annual COLA. The age at which you start retirement is also part of the “Reserve Transfer Calculation Chart.”
STRS has reneged on its Defined Benefit Pension Contract with retirees.
STRS has eliminated the COLA, a key component of the Pension Formula. Without the COLA a retiree who lives to normal life expectancy will receive only about 65% of the lifetime payments they were promised at retirement.
STRS has lowered the “Earnings Assumption Rate” from 8% to 7.75% first and now down to 7.45%. The lowering of the assumption rate has, on paper, increased the debt of the STRS by over 20 Billion dollars and pushed the funding period from under 30 years to infinity. In order to bring the system back into legislative compliance the STRS has eliminated the COLA for all retirees as of 07/01/17. Over the prior 4 years retirees had no COLA for one year and three years at a 2% COLA. This means the average STRS Retiree has been shortchanged over $8,000 already during this 4 year period. Without any COLA, this amount will balloon to over $800,000 during the average retiree’s lifetime. 
As if this wasn’t bad enough, the STRS Board approved a 2015 policy change to become 100% funded over the next 30 years. This will cost many, many billions of dollars more. This unnecessary cost will also be stolen from the COLA’s of current teachers and retirees. This action would be like a bank saying they would fund your $250,000 home loan as long as you can show them that you have $250,000 in your bank account. Ridiculous.
Final Comments
In closing I ask you this question, “Would you have selected teaching as a career if you knew that your starting salary was always going to remain the same throughout your career?” The situation that STRS has created for retirees today is no different except that you are locked into your retirement contract and you can’t avoid it or walk away from it. Even though STRS has changed the provisions of your retirement contract without your approval and with no way to be made whole, you are stuck with it until you die. 
By Bob Buerkle 
Cincinnati Retiree
July 1, 2017
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