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Dennis Leone: Comments on Bob Buerkle's 4/20/17 speech to STRS Board

Dennis Leone to Bob Buerkle
April 21, 2017

Thank you Bob.  You gave a great, accurate speech……….AFTER the vote.  Amazing.  The STRS Board decision is PERMANENT, irrespective of what anyone might think. I recall saying and writing in 2013 that the so-called 5-year temporary freeze on the COLA for new retirees beginning that year was a sham, and that the COLA would be completely eliminated for them by 2018 – which is when 2013 retirees were due to begin receiving it –  because Board members would cleverly take the posture of “Oh well, they’ve never received a COLA anyway, so what’s the big deal.”

I hope to attend the next STRS Board meeting, and start my chain of frequent public records’ requests pertaining to staff salaries at STRS.  I wish to know if ANY employee will get a raise now from pension system money, and I will howl if it happens.  If raises are given, this will trigger letters from me to lawmakers, and believe me when I say that it will get their attention.  Also, here is an unintended consequence of the STRS Board’s decision, and something that no one on the STRS Board even thought about it:  With retirees now with an absolute fixed income that is FROZEN, retirees  will be less likely to vote for ANY school levies, especially those that hit property taxes.  Without knowing it, the STRS Board has hurt itself, which in turn, hurts retirees long term.  Had the STRS staff and Board members listened in 2006 and 2007 to repeated warnings that their payroll growth assumptions, year and year, were horribly overestimated, and had the 2012 legislative changes adopted by the Board occurred five or six years earlier as they should have been, we all would be in a lot better shape today. 

The Board’s decision to eliminate the COLA also gave the finger to the oldest retirees who have the least.  No one the STRS Board gives a damn about my 88-year-old mother-in-law, whose COLA was the only way she hoped to cover increased costs for things like car insurance.  At a minimum, the Board could have done something to protect the COLA of our oldest retirees who have the least.  I may be wrong, but I suspect that all 11 STRS Board members have their health insurance through their employer or through their wife’s employer.  I doubt that any of them are paying the full freight as many retirees are, and as I did when I served on the board in 2005-2009.  The STRS Board is out-of-touch again, as it was throughout the 1990’s and during the early 2000’s.  Sad.  I guess we all should be happy that the current STRS Board and staff aren’t using pension money for booze, parties, $1,000 dinners, bonus checks for 500 employees, and lavish trips to vacation resorts like the Board and staff did years ago.  I saved a 2002 letter that former STRS Executive Director Herb Dyer sent to a retiree:  Dyer wrote “the pension system’s money is the Board’s money to spend as they see fit,” and “perhaps retirees should go out to dinner less often.”  A few weeks after that, when the letter was shared with the Ohio General Assembly, there were 101 lawmakers who called for Mr. Dyer’s resignation.  How quickly we forget.

Dennis Leone

Question: How do you pronounce "Buerkle"?

Answer: Like "Berkley". Now you know.

April 20, 2017 STRS Board Speech by Bob Buerkle, former CFT Retirement Chair

Wharton’s Insurance and Risk Management professor Kent Smetters notes that “Federal law prohibits firms from taking away pension benefits already earned” but companies are free to change their policy for future years at any time.  

“Many insurance company annuities enable you to plan for inflation by offering a cost-of-living adjustment”.  When you purchase a COLA contract rider you can elect to have your income increase annually by a selected percentage, typically from 1-5%.  (From Fidelity Investments Newsletter, March, 2017) 

If any insurance company reneged on their promised annuity payments, including those with COLA’s, Lieutenant Governor Mary Taylor, Director of the Ohio Department of Insurance, would come down on them like the “Ohio Blizzard of 1978”. “The publicity and fallout would be massive and certainly lead to the downfall and takeover of any insurance company, not only in Ohio but in any state, where such a company defaulted on their promised contractual benefit payments” says Bob Buerkle, former Cincinnati Federation of Teachers Retirement Chair and Insurance and Annuity licensed since 1985.
In 2002 Ohio Legislators passed a law requiring STRS to annually pay a 3% simple COLA each year.  This was the law.  The effect of the law appears in Ohio Revised Code and STRS regulation 3307.67 prior to 01/07/2013.  Effective on that date the law changed going forward to a 2% COLA after a one year freeze for retirees prior to 08/01/2013 and no COLA for 5 years for new retirees after that date.  Laws can be prospectively changed so that they can be effective for future retirees who sign pension contracts after that date.  That is not what happened to STRS Retirees who had retired under the old COLA law. They lost their contractually promised 3% COLA retroactively.  

Here's what retirees and current teachers have learned about STRS.  When you make investments that lose money, we lose benefits!  STRS balances its pension obligations by stealing our money from the contract benefits that we were promised at retirement.  This should never happen in a defined benefit plan.

What STRS proposed in 2012, was to retroactively change previously guaranteed pension contracts, that included a 3% simple COLA.  This was also done in such a way that it altered the Defined Benefit Contracts that retirees had selected and changed us to a quasi type of Defined Benefit/ Defined Contribution structure that allows STRS to place the risk of losses on the backs of the DB Pensioners, as if we were DC plan members. 

“Social Security is an awesome annuity” says Wharton’s professor Kent Smetters.  That’s because of two main features. First, Social Security will increase your age 66 base annuity benefit by 32% if you delay your first check to age 70, or 4 years beyond full retirement age of 66.  (This increase is 50% greater than the old 22.5% STRS formula enhancement for delaying your pension for 5 years).  The other main reason the Social Security benefit is awesome is because it provides a guaranteed and compounded COLA.  Therefore, inflation should never be able to reduce your original pension purchasing power. It also means you don't have to find a job in your 80’s.  

Since STRS members pay 125% more than Social Security workers, what valid reason can this Board give for the ruination of our pension system beyond losing our money?