Bob Buerkle and Dean Dennis to legislators: Can STRS retirees depend on legislative support to restore our promised and earned COLA?

March 26, 2018

Representatives, Dever, Seitz, Ingram, Reece, and Schuring

Undoubtedly, you are aware of House Bill 413 and its controversy, "Ohio lawmakers kill bill to cut PERS benefits:"

http://www.dispatch.com/news/20180322/ohio-lawmakers-kill-bill-to-cut-pers-benefits

As you are aware, retired STRS teachers had their simple COLAs frozen for a year, then reduced from 3% down to 2% for three years. Currently, STRS has suspended the COLA for 5 years and will not review their actions until 2022. All these actions took place and impacted teachers who retired prior to 2012.

Historically, statutory benefits have never been reduced, only enhanced. It was surprising to hear that perhaps many of your legislative peers were unaware they handed over so much control to STRS and are now questioning the actions of STRS. Rightfully so. It's a sad day when Ohio does not honor its Defined Benefit Plan to those whom served Ohio's children. STRS has always promised a COLA benefit and this is easily proven. Just like Social Security recipients who are granted and rely upon their compounded COLA benefit; most of Ohio's retired teachers rely heavily on their promised simple COLA so that they do not fall behind in their golden years. Teachers went into teaching understanding they likely were never going to get rich, but they never excepted to get cheated out of a vital part of their pension.

Out of a sense of fairness, coupled with the fact that there are at least three Ohio's Statutes being violated; can retired teachers count on legislative support to restore their promised and earned COLA benefit?

Please read the attached document for an understanding of the Statutory violations and why you need to intervene with STRS.

Respectfully,

Dean Dennis (Retired CFT/Field Rep and Vice President)

Bob Buerkle (Retired CFT Retirement Chair)
Mary Ronan (Retired CPS Superintendent)

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Text of PDF file attached to the above letter: 

STRS COLA Loss For Retirees Violates Ohio Statutes

Below are three of Ohio's Statutes being violated; these are separate from the Ohio Defined Benefit Plan which is also being violated:

1) ORC 3307.14 (note: §(E),para.2) (also note 3307.30)

2) Ohio Article II, Section 28 (note: at the Federal level, the Takings Clause is also being violated)

3) We retired under this ORC Statute. 3307.67., which was later changed after our retirement date. This change became effective retroactively on 01/07/2013. The prior statute clearly stated that the COLA shall be 3%.

In addition, STRS definitely planned for this promised COLA in their indexed formula calculations. It was also included in their final "Reserve Transfer Calculations" which is completed for all retirees. Legislators need to know that STRS has met their designated earnings assumption over our 30 year funding period, and all 30 year funding periods. As a reminder, retirees also made significant personal contributions to their pension plan. These contributions were put into a plan and retirees were repeatedly assured, STRS assumed all the investment risks. We retired under Ohio's Defined Benefit Plan.

By Ohio statute, we were not permitted any control over monies we contributed towards our pension and benefits. We were not permitted to pay into Ohio's Defined Contribution Plan, or even pay a proportion into Social Security as teachers are permitted in many other states, such as our neighbor Pennsylvania. An advantage, it was thought, was that STRS was setting aside our earned money for our pension benefits.

For clarity, how monies are collected and invested and set aside under our Defined Benefit Plan, are drastically different from Social Security. Our plan is very formula driven to assure our retirement benefit payouts reflect that 100% of those who earned more, also paid in proportionately more. Conversely, Social Security is a socially funded program. Social Security contributions by the individual are significantly less than STRS contributions, STRS contribution are 125% more. Social Security monies also fund other entitlement programs.

Clearly stated, our Ohio STRS Defined Benefit Plan was specifically designed to provide benefits to educators which correlated to their earned salary and service credit. These monies were tied to the STRS indexed retirement formula to assure benefits could be paid. We worked under a Defined Benefit plan of which the employer assumed all the risk. Statutes in Ohio clearly state shortcomings in funding shall be made up by the employer. (See ORC 3307.14.)

That stated, the teacher employee's contributions has risen from 7% to 14%, whereas the employers contribution has remained stagnant over the last 34 year period. If indeed everyone agrees that STRS is truly experiencing a funding shortfall, it is time to look at both ethical and legal options. One option would be to temporarily increase the employer contribution (3307.14). However, perhaps the best option would be to review why STRS has determined they can only earn 7.45% going forward, when they have always earned over 8% for their 30 year unfunded liability periods. More concerns are below.

How can teachers be treated so differently from PERS and Police and Fire? This seems unfair. Is it a STRS management problem? Here are some facts:

a) STRS did not submit a plan to the ORSC. If they had, perhaps it would have revealed they fell below the 30 year legislative recommended funding level because they reduced the earnings assumption. Perhaps legislators would have protected the COLA.

b) STRS states their goal is to get to 100% funding. This is comparable to a mortgage company requiring $250,000 in the bank for a $250,000 loan. The STRS goal is unreasonable if it means they have deny, or steal, promised benefits.

c) While retired teachers are having their COLAs withheld, STRS is still paying huge bonuses to their investment staff, some of which exceed their annual salaries. These bonuses likely average $150,000. Compare that to the average retired teacher's COLA; which is less than $1,500. It's a little immoral that one person's STRS bonuses could fund COLAs for 100 retirees. One hundred retirees who are not now getting the cost-of-living they are depending upon. How can Ohio be allowing these bonuses when STRS claims they can't afford to pay COLAs?

d) STRS reduced the earnings assumption to a level well below their 30 year historical earnings average. This created a fabricated loss which ultimately was used to eliminate our COLA.

e) STRS did not approach Ohio's Legislator to change the 30 year funding recommendation to a 35 year funding recommendation. STRS members must now work 35 years and be at least 60 years of age to retire. By not doing this change, our COLA was impacted.

f) Lastly, STRS Management should be legislatively restricted from pursuing their internal goal of 100% funding unless it can be done after all pension promises are met. This goal is coming at the expense of earned retiree benefits being withheld.

Again, the current COLA problem occurred when STRS recently lowered their earning assumption to 7.45%. This created a paper liability. Yet last fiscal year, STRS earned over 14%. One has to ask, what is the Police and Fire's earnings assumption? Recently, it was 8.15% which is most likely closer to their 30 year rolling unfunded liability period and their actual earnings average.
STRS needs to revisit their lowered earnings assumption rate and use real 30 year return averages. Legislators should not allow STRS to assume they will earn less over the next 30 years than all their other previous 30 year periods. This is unrealistic and makes for inequities across Ohio's pension systems. For informational purposes in the history of the stock market the S&P has recorded sixty-four 30 year periods. For these sixty-four 30 year periods, the S&P has always returned over 8% and has averaged 9.8%. Why are we paying huge bonuses for STRS to average so much less, especially in times when they are withholding our COLAs? That said, if a downward adjust is needed, the STRS adjustments should only impact those who have yet to enter the system; not those who have paid their dues and have already retired. If that can't be accomplished then the Defined Benefit Plan should be scrapped.

In conclusion, it is unethical to punish retired teachers after they have met retirement requirements for promised and stated benefits. They retire, then have their benefits reneged upon. Ohio legislator's sense of ethics seems to be our only recourse. Teachers taught Ohio's children for decades and held up their end of the bargain. They taught Ohio's children about right and wrong, our nation's history, citizenship, why we have laws and they also taught them about the importance of honoring contracts. The question for Ohio's legislators is what lesson is being taught to our retired teachers when benefits are taken away under a Defined Benefit Plan? STRS is robbing us in our golden years; it isn't fair or right and we need help.

Hopefully, retired teachers will be afforded the same consideration afforded to PERS Members regarding House Bill 413. Retired teachers rely on the COLA benefit promise being honored.

Thank you,
Dean Dennis, Bob Buerkle, Mary Ronan