Friday, June 16, 2017

Suzanne Laird's speech to STRS Board June 16, 2017

Note: This was Suzanne's first visit ever to an STRS Board meeting; she wrote her speech on the spur of the moment shortly before the Public Speaks portion of the afternoon session, with just moments to spare. No doubt she spoke for many of the newer retirees in situations similar to hers. Kudos to Suzanne for having the courage to speak out! Let's hope we hear more from her in the future! KB
Good afternoon, My name is Suzanne Laird, I retired in 2013 with 30 years experience. The reason I retired with “only” 30 years is because I was promised  a cost of living increase each year after 2014. It was on this advice, your advice, that I made my decision. Now, that promise has been rescinded, with no recourse for me and all others placed in that situation.
This morning, I heard the discussion on healthcare. I'm sorry the gentleman who presented did not stick around, but I'm glad several board members asked for examples of how these proposed changes might affect teachers. [Later, we found that Gary Russell, the presenter, was still in the room.] Please allow me to share my experience:
When I was making my decision to enter this profession of teaching, part of that decision was based upon receiving decent healthcare in my retirement years. As a Non-Medicare retiree, my portion of the premium, deducted from my STRS pension check, is $417.20 each month. I have my pay stub with me here today as proof. To offset that cost, I must substitute teach 5-6 days each month. I will not reach the age of Medicare eligibility for 6 more years. Without the COLA and with the looming threat of rising premiums (never mind co-pays and deductibles) I will be forced to continue to substitute at least 10 or more days out of the 20-25 work days each month.
As I walked away from the microphone, I sang “Happy Retirement to me” to the tune of “Happy Birthday."

Thursday, June 15, 2017

Bob Buerkle's speech to STRS Board June 15, 2017

STRS has always used the More Conservative Entry Age Normal (EAN) Actuarial System

Under EAN, the total Normal Cost for the plan is the sum of each individual’s Normal Cost. The Actuarial Liability for the plan is the sum of each individual’s Actuarial Liability. This Entry Age Normal methodology is well established.  EAN is based on sound principles that came originally from level premium whole life insurance pricing and reserving--way back in the 19th century. 

Entry Age Normal is a great invention that prevents plan sponsors from claiming that pension costs are rising faster than pay--and therefore they have to cut benefits or get rid of the plan.  

Projected Unit Credit is another actuarial invention designed to secure the proper funding to deliver on promised pension benefits.

What's the difference between the Projected Unit Credit method and the Entry Age Normal method? Both methods create a distinction between past service liability, and current normal cost, as a part of the total projected liability. Stated one way, the EAN method is a level cost over all years, while the PUC method changes the cost as the person gets older.

As life insurance actuaries understand, Projected Unit Credit (PUC) is like Annual Renewable Term (ART) Life Insurance, where the premium costs go up every year. Entry Age Normal (EAN) is more like whole life, where the premiums are levelized, higher than Annual Renewable Term in the early years and lower thereafter. The projected benefit with salary increases makes the relationship more complicated, but if the actual increases match actuarial expectations, then Entry Age Normal can be determined to be a level percent of salary. If the premiums are level, the insurance company, or STRS in our case, would also hold a higher reserve in the early career years that can be invested longer. 

The problem at STRS is that they changed the Earnings Assumption rate to less than the 8% level in 2013 even though it had been fine for a decade, and reduced it to 7.45% on 04/20/17.  Our pension COLA benefit has been eliminated because of this action. Why do this when the 8% average earned by STRS has always exceeded 8% over past thirty consecutive year periods? 

The OP&F plan still uses an earnings assumption rate of over 8%; why don’t we? If they also reduced their earnings assumption to 7.45% they would have to cut their COLA and make other drastic pension changes, but they chose not to.

The current 30 year STRS investment return average is still over 8% and that includes several recessions. The one in 2001 was bad but the 2008 recession was the worst in a century and unlikely to be repeated in our life time. 

With STRS cutting our COLA they are taking an unnecessary step towards “Ultra Conservatism” and denying the true facts which are that no benefits would need to be cut and none would be in danger of default, if the investment returns continue to exceed the 8% level that they are actually averaging, and are projected to average, over the next 30 years. This was even confirmed recently by Callan Associates, STRS’ own investment advisers.   

Bob Buerkle’s STRS speech on June 15, 2017

Wednesday, June 14, 2017

COLA issues: some recent links worth checking out

Union Protests Cuts to Retired School Employee Pensions at Statehouse:
STRS Pension Board Votes to Eliminate Cost-of-Living Increases for Ohio Teachers:

Tuesday, June 13, 2017

A look at Ohio's five state pension systems

Ohio pension funds cutting back
By Alan Johnson
The Columbus Dispatch
June 12, 2017
Information from a chart posted with the article:
Ohio's public-employee retirement funds 
Here are facts and figures on Ohio's public-employee retirement funds, which cover more than 1.7 million people.
School Employees Retirement System; founded 1937; covers 200,820 active and retired non-teaching school employees; assets $12.3 billion; 2016 payout $1.1 billion in pensions, plus $196 million in health care
Ohio Police & Fire Pension Fund; founded 1965; covers 27,000 active, 30,000 retirees, beneficiaries; assets $15.1 billion; 2016 payout 1.2 billion in pensions, plus $223.5 million in health care
State Teachers Retirement System; founded 1920; covers 480,515 active and retired teachers; assets $74 billion; 2016 payout $7.1 billion in pensions, plus $677 million in health care
Ohio Public Employees Retirement System; founded 1935; covers 1 million active, retired members, beneficiaries; assets $90.6 billion; 2016 payout $5.6 billion in pensions, plus $1.2 billion in health care
Ohio Highway Patrol Retirement Fund; founded 1941; covers 3,200 active, retired and beneficiaries; assets $850 million; 2016 payout $59.9 million in pensions, $14.7 million in health care
Sources: Ohio retirement systems
*     *     *
Public-employee pension funds are big business in Ohio, providing a safety net for 1.75 million people.
There’s a lot riding on them.
Collectively, Ohio’s five public pension funds have $192 billion in assets and last year paid out more than $15 billion in pension benefits and $1.1 billion in healthcare benefits. They are not required by law to provide health insurance, but all five do. Whether they will in the future is uncertain.
Although the funds have been mostly reliable and financially sound for decades, recent economic downturns, soaring healthcare and prescription-drug costs, and the increased longevity of retirees have taken a toll. Several of the funds are reducing or eliminating cost-of-living adjustments, cutting subsidies and increasing health-care premiums.
The five funds are the Ohio Public Employees Retirement System (public workers); State Teachers Retirement System (teachers); School Employees Retirement System (school-bus drivers, cafeteria workers, janitors, secretaries); Ohio Police & Fire Pension Fund (municipal police officers and firefighters); and the Highway Patrol Retirement System (state troopers). The Ohio General Assembly has oversight of all five through the Ohio Retirement Study Council.
The big question: How long can the pension funds hold out financially in this economic climate? A study released in December by the Mercatus Center at George Mason University painted a gloomy picture.
“Ohio’s four largest public pension plans are severely underfunded based on traditional metrics of pension solvency, and they are only guaranteed to be able to finance their promised obligations for roughly the next decade without additional taxpayer contributions,” economists Erick Elder and David Mitchell wrote.
“However, the funding ratio does not take into consideration the investment risk associated with pension-plan assets; even if Ohio’s pensions were fully funded today, they would still only have a fifty-fifty chance of being able to fulfill their promises in the year 2045.”
The School Employees Retirement System
Members of this pension fund are the lowest-paid of the five, averaging about $24,000 a year, and the fund is under fire from members and the Ohio Association of Public School Employees, a labor union, because of proposed changes in cost-of-living adjustments.
Retirees receive a 3 percent COLA one year after retirement, but fund administrators propose eliminating the COLA from 2018 to 2020 and then capping it at 2.5 percent thereafter. Retirees would get no COLA until their fourth anniversary.
About 200 union members marched last week from the Statehouse to the fund headquarters at 300 E. Broad St. in protest. Some said they are worried that the proposed COLA changes signal bigger problems.
“The fear people have is not having a pension,” said OAPSE President JoAnn Johntony, 76, head custodian in the Girard City Schools in Trumbull County, where she has worked for 50 years. “To try to solve these problems on the backs of school employees is wrong.
“We have to live and pay bills like everybody else,” Johntony said. ‘They’re not seeing the human side of this. They’re not seeing how this affects our daily lives.”
Lois Carson, 57, the union’s vice president and a secretary in the Columbus school district, said she will live on her late husband’s small pension and her pension when she retires.
“I will probably be moving in with my kids to survive,” she said. “I’m very scared about it.”
Facing increases in healthcare costs, SERS retirees will be making less in retirement benefits than they did 30 years ago, Carson said.
The fund must get legislative approval for the COLA changes. Bills are pending in both the Ohio House and Senate. Administrators say the changes are needed to stabilize the fund and continue to provide healthcare benefits that otherwise probably would run out in less than a decade.
The Ohio Retirement Study Council recommended last week that the legislature approve the COLA adjustment for the school-employees fund.
Ohio Public Employees Retirement System
With 1 million active members and retirees, this is the largest public pension fund in Ohio and the 12th-largest public retirement system in the nation. It affects about 1 in 12 Ohioans and has 3,680 public employers in the system.
Changes began in 2012 when the General Assembly approved cost-cutting measures.
OPERS spokesman Todd Hutchins said the changes keep the health-care package intact “for the foreseeable future.” Hutchins said the fund is 80 percent funded for the future, falling within the 30-year requirement under state law for paying off pension liabilities.
Some of the changes, however, will make it harder for younger retirees and spouses of retirees. New retirees will pay about $219.33 in monthly health premiums, more than six times what retires paid last year. The fund is also ending both premium payments and reimbursement of some Medicare expenses for the spouses of members.
Ohio Police & Fire Pension Fund
The fund provides pension, disability and optional health-care benefits to full-time police officers and firefighters and their dependents.
“We continue to meet the state requirements as far as our funding level. That’s something we have to look at every year,” spokesman David Graham said. “We must be able to pay off our unfunded liabilities in a 30-year period, and we’re at 29 years.”
But changes are coming for fund members as trustees begin the process of providing stipends to retirees to seek their own health-care coverage rather than providing health insurance for them.
John Gallagher, the fund’s executive director, told The Dispatch, “Our investment returns in 2016 were excellent, with a net 10.9 percent return for the year. Our current challenge is finding a way to sustain a healthcare option for our retired population. While it is not a requirement that we provide a health-care plan, we realize it is a vital part of a secure retirement.”
State Teachers Retirement System
Like other public employees, retired teachers face big changes in their benefits. As of July 1, the system will temporarily eliminate all new cost-of-living increases in pensions to “preserve the fiscal integrity of the system.” Spokesman Nick Treneff said the situation will be re-evaluated in five years.
The system previously reduced the annual increase to 2 percent from 3 percent.
Treneff said the decision to eliminate the COLA resulted from three factors: lower-than-expected returns on investments, a larger-than-expected payout in pension benefits, and new mortality statistics showing that retirees are living longer, thus increasing the fund’s financial liability.
“Health care isn’t a requirement, but we know members value it,” Treneff said “To have good coverage is essential to the life of retirees. We don’t divert any money to health care from employee contributions.”
Ohio Highway Patrol Retirement Fund
With 3,200 members, the fund is by far the smallest pension system, and it has had to increase health-care premiums annually to remain in the black.
Like the other funds, the patrol system is struggling to meeting costs, said Mark Atkeson, the executive director. “Health-care costs have skyrocketed. The collapse of 2008-2009 set everything back, and we’re not completely recovered from that.”
Last week, the retirement study council approved removing a provision allowing patrol members to retire at age 48 with unreduced benefits; it also approved some reductions in off-duty disability and survivor benefits. The changes need the approval of the legislature.
Although those adjustments will help, the system’s health-care fund is projected to run out of money in less than a decade, Atkeson said.

Members of the Ohio Association of Public School Employees, a labor union for non-teaching workers, march outside the Statehouse on Wednesday in protest of proposed changes in cost-of-living increases in their pension benefits provided under the School Employees Retirement System. [Tom Dodge/Dispatch]

Monday, June 12, 2017

Here's one we missed in February: Teacher pension update points to problems

Teacher pension update points to problems
John Damschroder, Columnist
Published Feb. 21, 2017
John Damschroder
In a classic late Friday afternoon bad news dump, the State Teachers Retirement System of Ohio announced plans to cut its investment return assumptions from the 7.75 percent annual projection currently used. The teachers now join the Ohio Public Employee Retirement System and the Ohio School Employees Retirement System in trimming a half percent from investment return assumptions. (
The combined holdings of these Ohio public pension funds is $170 billion, so the half-percent adjustment means the state acknowledges an $850 million additional annual increase to the unfunded liability of the retirement systems.
Ohio is not alone in recognizing the futility of the financial assumptions they’ve failed to meet for a decade. But unlike most states, Ohio is maxed out on pension contributions unless the legislature changes the law and forces municipalities and school districts to pay much more to cut the increased deficit.
That’s not what’s going to happen. Instead, STRS, which increased teacher pension pay-ins from 10 percent to 14 percent of salary, is going to close an additional $11.5 billion gap between assets and obligations over the next 30 years, by “changing the benefit design plan.” That is how bureaucrats announce they are going to cut benefits. This follows a 2012 pension reform plan that cut $18 billion from state liabilities by charging employees more and delivering less.
The politicians and bureaucrats are crafting a storyline that blames increased life spans of retirees for the problem, with STRS's Friday announcement saying a new study recommends "adopting updated mortality tables that account for increasing lifespans among benefit recipients." But our public employment retirees don’t need to feel guilty for ducking death on the state’s timetable. The real problem is an asset allocation strategy that has been an abject failure.
Ohio’s emergence as the largest source of alternative investment funding has made Wall Street wizards rich on annual fees that totaled $734 million last year alone. STRS and OPERS both earned less than 1 percent last year and ended the year with less money than they started with. To compound the irresponsibility, leadership of both retirement systems wrote to this newspaper professing financial strength, while these sub-par results were known to them but still unknown to us.
How different things could have been if Ohio had not changed state law to allow the exotic investments that first brought losses to the Ohio Bureau of Workers Compensation and have now inflicted a much bigger calamity upon the entire state retirement system. Relying upon a 60-40 stock-to-bond investment fund, Ohio would have earned 8.63 percent last year and would have returned an annualized 10.67 percent over the last eight years. Going aggressive with a broad-based stock-only program like the S&P 500 would have returned 11.96 percent last year and 14.88 percent annualized for the last eight years.

Sunday, June 11, 2017

STRS...this guy has got your number!

New U.S. Census data show Ohio's pension woes
John Damschroder, June 6, 2017
In Ohio, 458,372 people receive their income and health insurance from a state pension system suffering from the twin calamities of too little compounding and candor.
Regular readers of this column know that the top executive of three of Ohio’s pension system’s wrote to this newspaper insisting that there is no problem, although no one was so bold as to match Gov. John Kasich’s absurd claim, made on national TV no less, that Ohio pensions, unlike most in the United States, are “rock solid.”
The newly released U.S. Census Bureau data on public pension plans reveal what an outlier Ohio would be if the claims of financial strength made by the governor and pension leaders were actually true. Sadly, Ohio is not outperforming the nation, it is simply making performance claims that are contradicted for the second consecutive year by the facts reported to the federal government.
The Ohio pension data reveal that payments to the retirees in the system total nearly $7.5 billion more than the payroll extractions from public employees and state and local government, plus the earnings on more than $178 billion in assets. At the same time, the future pension obligation for Ohio grew by nearly $7 billion, putting Ohio more than $14 billion in the red last year, while proclaiming either unique strength or no problems.
In truth, Ohio has a very big problem, compounded by the political determination not to recognize that fact, lest the implications of the issue cause the 1,311,351 citizens with a claim on the assets to awaken with fear and anger over a brewing crisis.
Between 2014 and 2016 Ohio’s pension obligations grew by $17 billion while the state's pension assets fell by more than $6 billion. In three years the state pensions have added $23 billion to a liability that currently stands at just under 10 percent of the state’s gross domestic product and assumes future investment earnings that the retirement systems have not been able to achieve.
Moreover, these performance failures have occurred during strong markets.  The pension leaders tell us the $734 million they paid in outside management fees for 2015 provide protection in a down market. I fear that hypothesis will be tested soon with results that make our current situation seem like the good old days.
Ohio has altered the payout formulas and increased the pay-in rates to keep the liability from growing. But charging workers and their employers more for less doesn’t solve the problem when investment earnings lag the market as has been the case for Ohio.
The state pensions are the functional equivalent of a company with $15.7 billion payroll that is deeply cash-flow negative. In the campaigns for state office that are currently taking shape, this issue needs to be forced into the debate. More than 1.3 million Ohioans are directly affected, and the income they keep or lose is a huge factor in the state's economic ecosystem just as it would be if a huge employer suddenly cut its payroll.
John Damschroder, a Fremont resident who worked in Gov. George Voinovich’s administration, writes about business and economic development in Sandusky County.
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