Rudy Fichtenbaum points out some highly unpleasant truths about STRS that are still relevant today in his 2017 letter to HPA

Excerpts from a 2017 Letter to HPA [Healthcare and Pension Advocates for STRS] 

From Rudy Fichtenbaum

October 23, 2022

In 2017 I wrote a letter to the members of HPA, a group of STRS "stakeholders." At the time I represented AAUP at HPA meetings. The entire letter is 9 pages long but in this post I will just present a few excerpts that seem like they could have been written yesterday.

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Mike Nehf’s email Sent: Tue, Feb 7, 2017 1:20 pm with the Subject: FW: Keeping You Informed Is a Top Priority — STRS Ohio Board News states "We’re taking every step to help members learn about what is taking place at STRS Ohio. Let me know if you have suggestions or how we can help your member organizations best understand.”

If his goal is help members learn what is taking place at STRS Ohio, then he should level with them in the Newsletter. Here is an excerpt of two key sentences in the latest STRS Newsletter:

“In preparation for upcoming discussions about benefit plan design changes, the board began reviewing its options to reduce liabilities. Models of possible plan design changes indicate that the cost-of-living adjustment (COLA) is the best means possible to preserve the fiscal integrity of the pension fund because it by far has the biggest impact on liabilities.”

“Models of possible plan design changes indicate that the cost-of-living adjustment....”

Apparently the STRS staff doesn’t have the guts to tell people that they are recommending that the Board consider cutting, suspending or eliminating the COLA. I spoke with Mike Nehf after our February 9, 2017 meeting about this issue, and he claimed that he can’t tell people that they plan on cutting or eliminating the COLA because the Board has not decided. He said that he could just convey to people what the Board was discussing. So, I asked him if the Board was discussing an increase in the COLA, and he said no. So, I told him then there are only two things the Board could be discussing with respect to the COLA, 1) not changing it or 2) reducing or eliminating it. The first option is not an adjustment. The only possible adjustment is a cut or elimination of the COLA. The real reason not to say anything now is that it has the potential to cause a firestorm with members. Therefore, it seems clear to me that helping “members learn about what is taking place at STRS Ohio” is not at all the real objective. Instead, it appears to be delaying a candid report about what is taking place until after the decision in made, when it would be too late for members to pressure the Board not to cut the COLA.

So, the real problem is that no one is leveling with our members. It is clear that the staff is recommending that STRS eliminate the COLA. It is also clear this step alone will not solve the problem of the unfunded liability. Part of the problem is self-inflicted by moving to a closed funding period. The closed funding period forces the Board to make more cuts every time investment returns underperform the assumed rate of return.

The elephant in the room is that no one is talking about demanding that employers increase their contributions, even though STRS, according to Mike Nehf, is in the 25th percentile for employer contributions. Current employees are paying 3.5% above the normal cost and so they have nothing left to give. Recent retirees have given up 5 years of COLAs and other retirees have taken a 1% reduction in COLA. Now they will soon be asked to give up the entire COLA, which means that in 20 years if inflation is 2%, their pension will lose about a third of its value.

No one seems to want to raise the issue of additional employer contributions because they believe that the Legislature and Governor would not entertain such an idea. It is true that if HPA keeps meeting and a group of 15 or so leaders from stakeholder organizations sit in a room and keep talking to each other, the likelihood of legislative action is slim. But if we mobilize retirees and active employees and start having them call legislators, lobby, testify, and demonstrate as well as knocking on doors and talking to friends and relatives, there is a chance that we can change the political dynamic. This is not a partisan issue. Believe it or not there are lots of active teachers, college faculty and university faculty who vote Republican. There are lots of retirees who vote Republican. And the point that will not be lost, even on Republican legislators, is that these people, both active members and retired members, do vote. If we do not chart a new course for HPA then it will become irrelevant. When it comes to cutting pension benefits, the days of consensus are over. The retirees will not agree to the elimination of the COLA, and active members will not accept more contributions and further cuts to pension benefits.

Dr. Rudy Fichtenbaum is Professor Emeritus of Economics at Wright State University and an elected member of the STRS Ohio Board, filling a retiree seat since September 2021. He is outspoken in his advocacy for STRS stakeholders, pushing for reform of STRS Ohio on behalf of both active and retired teachers.