Dean Dennis to STRS Board 9/20/18: LISTEN TO US. RESTORE OUR COLA

My name is Dean Dennis, I am the STRS Chair for the CFT-Retirees Chapter, and the spokesperson for the Ohio STRS Member Only Forum. I worked for Cincinnati Public Schools for 35 years. 

I want to discuss early 2017 when Segal made recommendations to the trustees. The recommendations included:

1) Lowering the STRS investment return assumption 

2) Adopting updated mortality tables

3) Reducing the payroll growth assumption and inflation projection 

These actions, which you adopted, increased STRS's liabilities nearly $11.5 billion. This in turn extended the funding period well beyond the 30 years. Prior to these adopted actions, STRS was well within the 30 year funding period. It also cost us our COLA. I want to discuss each of these actions, then offer suggestions. 

First, you lowered the investment return assumption to 7.45% from 7.75%. Prior to that, it was at 8%. Although Segal made this recommendation, if consideration was given to STRS's historical 30 year earning returns, why did you comply? Has STRS ever reported less than 8% for any 30 year funding period? 

Here are the last four reported 30 year period earning returns: Fiscal Y2015 - 9.09%, Fiscal Y2016 - 8.4%, Fiscal Y2017- 8.39%, Fiscal Y2018- 8.59%. 

Why are you assuming an earning assumption rate of 7.45% when your current 30 year return is 8.59%? This is more than a 100 basis point gap between actual data verses a guess into the future. When this discrepancy is applied over a 30 year funding period, it projects a significant, but not justifiable, liability. 

Incidentally, the current 30 year funding period, which earned 8.59%, takes into account the recession of the early 2000's and the 2008 - 9 financial collapse, the second largest financial disaster since the Great Depression.

Why not adopt a 30 year rolling average and simply subtract 50 basis points from the average, as a margin of safety, for our earnings assumption rate? A formula based on historical earnings makes more sense than guessing the future. If you were to do this, our earning assumption would be near 8% and we'd have our COLA. 

Second, the mortality tables. My understanding is, one of the newer "best practices" of actuaries is to adopt the age of the younger employees (the generational approach) and apply that mortality factor to liability assumptions. 

This stricter approach in essence skews the liability of older retirees. Withholding, retirees' COLA because of this accounting procedure seems unfair. However, equally unfair is making current teachers work until at least age 60 and have at least 35 years of service, and also withholding their COLA for 5 years. 

Third, you reduced the payroll growth assumption from 3.5% to 3%, yet it actually increased by 4.1%. Can you understand why many members feel your adopted assumptions benefits STRS administration's goals at the expense of STRS active and retired teachers? 

Before May of 2022, when you stated you will revisit the COLA, a teacher earning a $1,000 COLA will have lost $23,000. Even if the COLA is restored July 1, of 2022, they will lose an additional $6,000 a year for every year thereafter in addition to the $23,000 loss. 

One can see if they were to live only 10 years beyond 2022, their financial loss will be $83,000. As elected Board members are you aware of how your newly adopted assumptions are impacting us? 
Here are some suggestions:

1) Seek changing the 30 year funding period to 35 years to match the new career length requirement. This will decrease the liability period.

2) As already mentioned, look at what you actually are earning over the legislatively set 30 (or 35) year funding period and make the earning assumption rate 50 basis points less. Adopting an earning assumption rate that is 75 to 100 basis points below actual earnings severely punishes those who you are supposed to be looking out for.

3) Seek an increase in the employer contribution. By statute, ORC 3307.14 states that if STRS Ohio cannot meet its financial obligations, the burden falls on the employer, not the employee. While Ohio teachers contribution rates are now the highest in the United States for any teacher, for the past 35 years the employer contribution rate hasn't risen a penny. 

Were you aware that Ohio's employers have been receiving roughly a billion dollars annually from Worker Compensation surplus rebates. One prominent Republican legislator has suggested this revenue could be used to justify increasing the employer contribution and be an approach to helping restore our COLA. 

It's time is to start advocating for us. We're getting hammered. 

Lastly, we have two new board members, we hope this Board adopts a new culture; one that looks out for its members. We know by the Board's past actions that they listen to STRS management. We hope the Board can show us, through their actions that they will listen to us, and hear us. 

Please hear this, The Ohio General Assembly gave you the authority to adjust the COLA, not suspend or eliminate the COLA. Listen to us; restore our COLA.