Saturday, February 02, 2008

Yep -- it fell on deaf ears, Dennis. They turned right around and did it again -- they rubber-stamped Damon. Real bright, guys!

Take note, some STRS Board members, as you continue to "abdicate duties to the staff." Why even have an STRS Board if critical decisions are left solely to the Administration at STRS? Rubber stamps are easily obtained, aren't they? John

Dennis Leone to Jim N. Reed, February 2, 2008
Subject: Being Inquisitive and Ultimately Responsible for "Everything"
Thank you Jim. More interesting for me, although it may have fallen on deaf ears, is the fact that one the board’s featured speakers – Attorney Ian Lanoff from Washington D.C. – publicly said to the board (also on page 15 of the board packet) and that the board “cannot abdicate its duties to the staff” and the board is “ultimately responsible for everything.” John Lazares and I have been trying to say this for years. Lanoff and another presenter named Ed Gaydos told the board that “board governance issues” and board policies need to be a top priority for the board, especially since a new executive director is due to be hired. Gary Hudepohl, who runs the executive director search firm, said the same thing board in his presentation and also described the board in his report as being “inexperienced.” After I left the meeting about an hour early for a previous engagement on the second day of the retreat, the board voted to give Damon authority to represent the board “in all matters pertaining to personnel and expenses.” John Lazares’ request that the board wait until I was present for discussion was completely ignored. Makes me wonder why I am on the board. All the talk about showing respect, working together, and fostering collaboration is just that – talk.
Dennis Leone
From Jim N. Reed, February 2, 2008
Subject: Fwd: "Each trustee should be inquisitive..."
Dennis, this certainly must lend itself to your sense of gratifying validation and it certainly gives your supporters a great sense of satisfaction. This affirmation of your tactics as a champion of retirees on the STRS Board is a clear-cut victory for all of us! It is a treat at the retreat.
Fellow Board members who have too often ignorantly vilified you must take note of this applause for an inquisitive nature.
I suppose they could spin it and accuse you and John of turning the Board meetings into a replica of the Spanish Inquisition. (I could suggest some victims for the rack.)
Thank you, as always, for being an inspirational leader and tireless advocate for Ohio's retired educators.
Jim N. Reed

Labels: , ,

Page 15 of Board Retreat packet, section on Board Governance and Responsibility
Summary -- Exercising Prudence
...• Trustees must use all personal skills they have
...• If trustees are not experts, they are to carefully hire, monitor, and evaluate the experts they rely on. Require degree of education to properly do so.
...• Delegation by trustees to experts is allowed: abdication by trustees is not
...• The ultimate responsibility for everything rests with trustees


From a former Board member: the Board made an effort to help all members

Steve Buser to Molly Janczyk, February 2, 2008
Subject: RE: Buck: HB190:
Dear Molly,
I think your recollection of the Buck study is pretty accurate. Of course, this (my recollection) is coming from someone who is increasingly memory challenged.
In addition, while I was not on the Board when STRS made the changes, and while I might have voted to do things differently here or there, I think the Board at least made an effort to help all members. So even if they screwed up a bit, at least they were headed in the right direction - more or less. And this is coming from another STRS member who retired with only 30 years rather than with 35.
Steve Buser

Friday, February 01, 2008

Too bad we didn't know this before

Sounds like there are some pretty nice jobs out there that pay very well and don't require a college degree. A editor with writes:
You've heard the clichés: money doesn't buy happiness, you should do what you love, blah, blah, blah. But survey after survey shows that pay is the No. 1 motivating factor for work.
It's a fact of life that not all jobs are going to pay six figures and have a million benefits. Like teachers and firefighters, many jobs that are essential to our day-to-day lives don't pay a hefty salary. [A list of the lowest paying jobs follows, then the high paying jobs that don't require a Bachelor's Degree.]

25 Highest Paying Jobs -- No Bachelor's Degree Required


Sandy Knoesel responds to Shirlee's question......or does she?

The question: Did STRS ever get full reimbursement for the upfront costs paid to Advance/Caremark for Medicare B meds and supplies that retirees ordered?
From Sandy Knoesel, February 1, 2008
Subject: RE: question
Dear Mrs. Zerkel:
STRS Ohio receives a quarterly report of Medicare Part B claims coordinated through the mail order pharmacy. This report is reconciled by the Health Care finance staff against the quarterly payments deposited into the Health Care Stabilization Fund for the STRS Ohio portion of the Part B reimbursement received from Medicare. The enrollee’s portion is credited to his/her account.
It is important to remember that prescription drugs are covered by Medicare Part B only if they meet specified criteria such as a specific diagnosis. Not all drugs submitted will ultimately be covered even though they are on the list of potential covered drugs/supplies.
Caremark will continue to process claims for six months for claims incurred in 2007; consequently, STRS Ohio will not receive the final payment and reports from Caremark until sometime during the third quarter of 2008. Therefore, we have not received “full reimbursement” at this time.
Sandy Knoesel
From Shirlee Zerkel, February 1, 2008
Ms. Knoesel's answer is not a real answer. She is good at beating around the bush! This email does not answer whether STRS got full payment for approved Medicare B supplies for previous years from Caremark. She is just speaking for 2007. Approved Medicare B meds and supplies was what my question was about. It was such a complicated and odd process that Caremark and STRS used; one that allowed for many mistakes to happen. If they can do it the correct way now in a manner of weeks since Jan. 1, what was wrong with doing it the correct way years ago when I complained?










Molly Janczyk, Day 2 of Board Retreat: Severance and Legal Fees

From Molly Janczyk, February 1, 2008
Subject: Severance and Legal Fees: Retreat: Day 2: Thurs. 1/31/08
Mary Ellen Angeletti provided you with phenomenal minutes of the entire day. I am simply going to address Severance and Legal Fees in a discussion manner.
Presenter: STRS Human Resources Director: Andy Marfurt Leader in discussions: STRS ITS: Greg Taylor
Leone: How was money saved providing severance to laid off workers if it was planned?
Ans.: STRS reduced staff ahead of schedule. IT market was not as good as expected. Some thru attrition, some laid off.
STRS has approved Retention Severance.
(Damon: No objection when presented to Board until after the severance was paid).
Leone: We weren't told of all the inclusions.
STRS Staff: Retention severance if offered as an inducement for staff to stay until the end of a project: Typical length of time may vary from 6-16 yrs. This helps keep staff till the project is completed vs. their going out looking for other jobs knowing their position at STRS will be terminated at end of project for which hired.
Employees know their job will end and we decided on this incentive as is common in the workplace. We looked at what is typical and some companies offer incentives of 50-100% of salary for severance packages. Retention severance is less expensive than retention inducement. We offer a reasonable less expensive retention severance at 1/2 cost of some packages.
Without severance, workers seek employment stability elsewhere and if we have 5-10 or more leave prior to project completion, STRS cannot afford the reduced productivity, etc.
Severance keeps STRS out of law suits. ALL workers must sign the severance agreement stating they will not sue STRS in order to receive the package. If such staff is part of a protected class such as age, discrimination, etc., they can sue for wrongful termination if there were no signed severance agreement. A said worker who has been at STRS for 6 yrs. may be terminated over a worker there for 3 yrs. and state it is wrongful: WHY THEM?
Andy said he had been involved in 100's of lawsuits prior to severance and since severance agreements, they have been 0.
Lazares stated all must be terminated legally and if this type of severance was standard. Yes, he was told. We are at the very low end of severance packages as some have severance for 2 months work.
Why don't the other pension systems have severance? STRS is considered cutting edge and the other systems do not lay off, reduce staff as STRS does.
Lazares pointed out several times, not to be argumentative but to explain, that educators have no knowledge of such procedures receiving 0 if fired and STRS must understand this.
Meuser, Cervantes and Ramser talked of advance knowledge for educators knowing in April each year if they are renewed.
Meuser: Educators' severance is sick leave up to a certain cap.
Lazares continued with educators can be laid off anytime with 0. I have a Board member who had 29 yrs and was laid off and couldn't find a job due to his senority. Educators are hurt by senority where private business values it.
Ramser: Severance is not a benefit but part of the litigation strategy to motivate workers to stay and prevent wrongful litigation. It protects our assets.
Meuser: This is a business not a school.
Andy: It protects our system data.
Greg: I talked to Board about reducing staff and need for severance. Damon confirmed pre-serverance info sent to the Board and they were asked if any objections. Then, Greg met with workers beginning 7/20 and they started signing agreements. Severance paid 8/1/07.
Leone: Not about HC, part time workers and cash for unused sick/vac days.
Damon: Health care benefits are only continued during severance period. Sick and vacation is a check issues but does not accrue during severance period. Part-time employees pay 30-50% of their premiums.
Lazares required knowing in advance WHO was being terminated before he would agree.
Ramser felt she didn't need to know each person-just how it impacts the system; supposed to be long term thinkers; question why very short term workers needed-not planned well enough?; Severance is for terminating to save money and protect assets.
Lazares: shouldn't we know about people which is the most important asset and that not threatened by the system and anything to do with money is our business.
Lazares questioned WHY staff wanted one person: a new Exec Direc. to have the power to terminate and may have a prejudice against a worker over a Board of 11 which would be safer for them. (My point all along)
Mary Ann Cervantes: We WILL be notified of any variance.
Leone: The Exec.Direc. can do as he wants.
Option 1 states that the :
'Board approves the Severance Policy. The Exec. Direc. is authorized to offer severance, pursuant to policy for future reductions in force without requiring Board approval: Procedure would be:
...• Human Resources, Dept. Head, Exec Direc. review proposed reductions and
...• Exec. Direc. provide BOARD the information in Exec. Session
...• Reduction takes place in compliance with approved policy'
Bill Neville (STRS Legal Head) said IF something seemed wrong in what was provided to the Board (Lazares' requirement), a motion could be made at that time.
Option 2 needed Board approval for each termination case.
Tai asked to reframe option 1 and option 2.
Craig Brooks summarized each option succinctly to move ahead with a vote.
The Board approved Option 1 with Brooks, Puckett (needs to be Board approved with Exec Direc and Board working together) and Leone voting no and wishing for Board approval in each case.
Ramser: I voted no due to last sentence in original sentence: Unless otherwise required by law, no associate legal fees will be paid without Board approval. Now it is written to my satisfaction and so, I call for a vote.
New Proposed Legal Fee Policy:
"If an STRS 'requests' (changed from 'required' due to appearance that STRS staff required to seek counsel: Leone wished change provided by Dave Parshall : CORE pres.) legal representation for matters arising due to his or her employment by STRS Oh., the associate shall first request assistance from the General Counsel (STRS Legal Head: Bill Neville). In the event the STRS Ohio Legal Dept. 'will not' (changed from unable: Leone: you are always able) provide representation, the associate shall seek representation from the Ohio Attorney General pursuant to ORC Section 109.361. Unless otherwise required by law, in no event will STRS Ohio pay fees for attorneys retained outside this process without Board approval.
Lazares was the motivator to settle this issue. He asked what words would it take to settle as we are so close? (In Mooney style!) That is when the determined words were changed and the amended policy approved!

Molly Janczyk: Day 1 of STRS Board retreat

From Molly Janczyk, February 1, 2008
Subject: Retreat: 1/30/08
I was unable to attend Wed. but rec'd a binder with presentations when I attended on Thurs. 1/31/08.
I found some items of interest:
Presenter: Ian Lanoff: Groom Law Grp.
...• Trustees (Board members) are held to higher standards (morals) than those of the market place
...• Basic fiduciary rules in STRS Ohio legislation derived from ERISA: Fed. Employee Retirement Income Security Act of '74
...• Tilte I of ERISA does not apply to STRS since STRS Ohio is maintained pursuant to plans under Section 401(a) of the Internal Revenue Code (the Code) but certain provisions of Title II of ERISA 401(a)(2) apply including 'exclusive benefit rule.'
**The 'Prudent Expert' Rule:
Ohio Revised Code (ORC): 3307 gives the Board its authority, requires the Board and other STRS fiduciaries to exercise thier duties "with care, skill, prudence, and diligence under that circumstances then prevailing that a prudent person acting in like capacity familiar with these matters would use.": This is called the Prudent Expert Rule.
Thus, when making investment decisions for STRS funds, a fiduciary is help to the standards of a prudent individual with experience managing assets.
The fiduciary:
...• has the duty to seek independent advice when he lacks to expertise
...• may rely on independent experts but NOT blindly do so as the fiduciary in NOT relieved of obligation to exercise his or her OWN judgment in decisions.
...• is not required to become an expert in the field but MUST take steps to ensure reliance on expert advice is reasonably justified.
...• must be educated to level appropriate evaluation of hired expert advice
...• Investigate expert's qualifications; read necessary recommendations and understand it
...• This standard requires fiduciaries to EXERCISE THEIR OWN JUDGEMENT in rejecting expert advice
...• If they determine expert is qualified, then they must at least consider the advice
...• Advice of hired/consulted expert might be rejected if incomplete or contradicted by advice of other experts.
...• Investment experts on Board and ALL Board members must use all personal skills they have and CAREFULLY HIRE, MONITOR AND EVALUATE THE EXPERTS UPON WHOM THEY RELY.
(*Require the proper level of education for Board members to be able to do so).
...• Delegation to experts is allowed; ABDICATION IS NOT
"....investing funds solely in the interest of the members and beneficiaries and for the exclusive purposes of providing them with benefits and defraying reasonable administrative expenses."
The U. S. Supreme Court concluded that while performing trust business fiduciaries may wear only ONE hat: one of Trustee and MAY NOT wear a second hat as UNION REP or employer that appointed them.
Union may expect higher retirement benefits for special groups.
...• owes a group of union members, participating employers, legislature, Governor, taxpayers.
...• may mislead membership
...• forgets who they represent when communicating with media
.....The Stanford Institutional Investors' Forum
.....Committee on Fund Governance
.....Best Practice Principles (31 pages in PDF)
.....(Click here for HTML version)
Presenter: Ian Lanoff
Groom Law Grp:
A. Agony and Ecstasy of Board Service:
...• $76 billion in assets
...• 450,000 members
...• 600 Staff
...• Invests $365 million daily
...• $4.5 billion in benefits paid annually
...• Meets with 18,000 members annually
...• Processes 45,000 retirement estimates annually
...• 26 Board meeting days per yr.
Governance Structure:
...1. Board
...2. Exec. Direc.
...3. Staff
Board Roles:
...1. Long term strategy: sustainable fiduciary plan, welfare of ALL members, 1-3 yr. objectives
...2. Exec Direc (oversight of Exec. Direc.)
...3. Oversight: policy and metrics
Exec. Direc. Roles:
...1. Manage operations
...2. Representative to shareholders
...3. Link bet/ Board and Staff
Staff Roles:
...1. Execute daily operation
...2. Monitor legislative, economic and professional issues
...3. Advise Exec. Direc and Board
***GOVERNANCE ROLE CANNOT BE DELEGATED: IT COMES WITH THE JOB AND IS THE JOB The Board, Exec. Direc and Staff have clearly defined roles and are highly dependent on one another. Success is determined by how well they interact
Practice Break Out Grp Sessions: Instructions:
...• Get out as many ideas as possible to 80% agreement
...• Do not judge, evaluate, repeat or debate an idea
Assignment for Break Out Groups:
...• Interdependence of board, exec. direc. and staff roles:
...• List 3 important things needed from one another such as:
.... timely info, involvement in deliberations, efficiency, quick response, clear decisions.
...• Loyalty to membership
...• Inquisitive
...• Willing to devote time and attention
...• Civil and constructive in debate
...• Cooperative in solving problems
With enough info provided to:
...• Ask intelligent questions, participate in discussion and vote responsibly

...• Basic understanding of modern day portfolio theory
...• Diversification principles
...• Basic financial analysis
...• Fundamental accounting principles
...• Basic features of STRS Ohio benefit programs

...• Welfare of membership as whole and fiduciary soundness of assets
...• Identify priority topics to which Board should devote time over next 12 mo.

Buck Consultants and SB 190

From Molly Janczyk, February 1, 2008
Subject: Buck: SB 190

Buck did a 5 yr research of SB 190 in 2005. It has not been 5 yrs since then when a new report is due, I believe. A new consulting firm would be directed to do one if one is to be done.

I am not stating a position just what I recall. I do a thorough ques. and ans. re: the report down to yes or no ques. and ans. which I also sent out just now.

According to the report and STRS and Stephen Buser who ordered the research:

ALL: Both actives and ALL retirees benefited from the bill pretty equitably in dollars spent.

Retirees benefited by upping the percent of FAS from 2.1% to 2.2% retro to '99. The older retirees rec'd a increase in their pensions to meet 85% of inflation. (The wording may not be exact on that but they got an increase to meet inflation).

The 35 yr rule became an incentive for actives and it was found thus far (2005) to have saved STRS money by keeping educators in active status longer and not withdrawing pensions but paying into the system. Also, if actives worked for 35 yrs. they were closer to Medicare with STRS not fully responsible for their HC in retirement as many years cutting expenses to STRS.

The unfunded liability was upped due to this bill at the time but has now dropped below 30 yrs ago again. Unfunded liability was examined if the bill in total was eliminated which would ha
ve plunged the liability in 2005 back down close to 30 yrs; if only the retiree portion was eliminated and if only the active 35 yr. rule was eliminated. Both the latter scenarios did not drop liability in what was considered significant as either portion: for the retiree enhancement or the active enhancement were basically equitable within a range.

It was determined that the bill did not cost STRS and indeed saved money. The savings were not overly significant as it had only been a bill for 5 yrs and a new study in 2010 would be more significant.

All agreed at the time (Board members) that it would not be fair to anyone to eliminate one part or the other: retiree enhancements or active enhancements because one group would be targeted and not the other who also rec'd benefit. My enhancement was = to about $146 per month an
d I sure wouldn't want to lose it. To target only one group would certainly cause the other grp. to be targeted as well.

It is a choice to work 35 yrs. It is a choice most retirees could not make due to being retired before the bill. Just as salaries have skyrocketed since my active days, so due benefits change to entice quality educators in a more expensive world with families to support. Is it fair? When I started working I made $6900 annually. Now, is much different. The world changes, salaries change, perks are added. I wanted to be part of the '98 buyout but missed it by one year. After the fact, I was included in a lifetime benefit increase of 0.1% to my pension.

ALL careers increase perks and salaries , etc. Salaries soar, incentives to stay increase. I
think that is life. Others find it grossly unfair.

To change SB 190 in totality or to target one grp. is unfair to me and would cost me e
ither way. Did I benefit as much as a 35 yr. career educator now does? NO! Would we have stayed if we had known of the 35 yr. rule? Of course, many of us would. Opportunity missed due to a changing policy. That will always happen and today's benefactors will feel the same about tomorrow's changes and salary increases missed by them.

I am copying STRS, OEA, Buser for accuracy.

From Nancy Hamant, February 1, 2008

CORE members have consistently requested that actuarial data be run and provided regarding the impact of SB 190 that approved of the 35 year -- 88% calculation of pension benefits for those retiring after 1999. It is unconscionable that Buck Associates did not include this data! Why was it not calculated and included in the presentation? How can the Board make any decisions without this important piece of information? It is as if this is "highly secret" -- and to be withheld from the membership!

Nancy Hamant

Molly Janczyk: Background on SB 190

From Molly Janczyk, February 1, 2008
Subject: SB 190: Benefits: Retirees; Actives: 85% rule
Ques. arise re: HB 190 periodically. A revisit to SB 190 following Buck Consultants Research after 5 yrs.: 2005 Another report is not due until 2010
Steve, (Steve Buser: former Investment Appointee to the STRS Board by the State Treasurer) Copying you for accuracy.
(Molly Janczyk to Steve Buser)
Date: Tue, 24 Jan 2006
Subject: RE: 85% rule
SB 190 raised every retiree out there to 2.1% and then included in the SB 190 nearly $1 Billion dollars for enhancements for those retirees, more dollars were set aside to bring them up to 85% of their original purchasing power at retirement.
YES. And future COLAs will continue to increase the benefit, as is the case for younger retirees.
Does that mean that some of those older retirees are above 2.1% then?
YES. Of course, every retiree is above his or her 2.1% rule after their first COLA. SB 190 got every retire to at least 2.1% and then gave some a second bump if even the new amount had fallen too far behind inflation.
Your retiree example below earned $1000 at retirement. They were taken to 2.1% by SB 190 and still needed $200 to make it = 85% of their original buying power when they retired compared to today.
YES. If the new 2.1% rule had got them to or beyond 85%, there was no additional increase.

That additional $200 was factored in to SB 190 funds and so that retiree is now above the 2.1%.
Was that a permanent change for always? YES. And future COLAs will continue to increase the benefit for them, as for younger retirees.
That amount of $1700 is permanent for your example, CORRECT___YES___.
SB 190 did this type of scenario for every retiree out there, CORRECT____YES____?
Please respond yes or no and if no , why with the most elemental language.
Thank you for having the patience of JOB with me.

No problem as to patience. This has been a tricky issue for all of us. I am glad that SB 190 tried to do something positive and significant for all groups. However, the complexity of the changes made it hard to sort out everything.

If the above is true, then every retiree out there should knew they rec'd a substantial bump in '99 or 2000 and if they don't recall, verify it with STRS or compare your stubs.
YES. I will even ask STRS staff how hard or expensive it would be to include a summary of the changes in benefit for each retiree in one of the next STRS mailings. If it is too costly, I might vote against this, but if the cost is reasonable, I think it might help with understanding.
Steve Buser to Molly Janczyk, January 24, 2006
Subject: 85% rule
You might already have this example from an earlier email. If not, consider the case of a member who retired many years ago with initial retirement benefit of $1000 per month. Assume that in the years since the member retired, prices have doubled for most goods. That retiree would need twice as much money today, or $2000 per month, just to be in a position equivalent to when he or she retired. Unfortunately, STRS COLAs are relatively new and even when they have been granted, they have not always kept pace with inflation. So let's assume that the current benefit for the retired member is only $1500 per month. $1500 is only 75% of $2000. The retiree would need 85% of $2000, or $1700 per month, to get back to 85% of the original purchasing power of the benefit. Hence, under the 85% rule SB 190 would have increased the benefit by $200 in order to get the benefit from $1500 per month to $1700 per month.
Hope that helps.
At 10:41 AM 01/24/2006, you [Molly] wrote: I know it was addressed, I don't understand it. Could you give an ex. using an older retiree calculation getting them back to 85% and if it didn't gave them what extra amount?
Steve Buser to Molly Janczyk, January 24, 2006
Subject: Re: Steve Buser: SB 190: STRS BOARD: 35 Yr. Incentive plan
The 85% rule is addressed in prior emails. As for the question of 2.1% versus 2.2%, it is my understanding is that ALL members who retired before SB 190 took effect (not sure of the precise date) had their benefit recalculated using the 2.1% rule. Only those who retired after SB 190 took effect got the additional increase up to 2.2%. However, if the new rule of 2.1% for existing retirees did not get a retiree back to at least 85% of the amount he or she needed based on price increases since retirement, then SB 190 provided an additional increase, as discussed in earlier emails.
Given that SB 190 reduced some benefit gaps but did not provide full parity, it my hope that the board will be able to reconsider the issue of equity, along with differences in contribution rates that members have paid over time, to see if the over all pattern of changes to benefits that STRS have provided over time, including but not limited to SB 190, has been equitable across groups. However, to head off potential speculation, I do not know anyone who is thinking in terms of taking back benefits for anyone. I think the hope is that if we identify a group of members that are not get their fair share we can make some type of favorable adjustment - if and when we get the broader financial picture for STRS under better control.
At 11:08 PM 01/23/2006, [Molly] wrote:

1. What does the provision for older retirees increasing their benefit to at least 85% of original purchasing power mean?
2. How specifically did it help all retirees who retired '98 and earlier back to 70's, 80's and 90's ? Did it raise all to 2.1% and '99 and beyond to 2.2%?
Steve Buser to Molly Janczyk, January 23, 2006
Subject: Re: Steve Buser: SB190: STRS BOARD: 35 Yr. Incentive plan
I think you have done a pretty good job summarizing a highly complex issue. You might want to add a qualifier noting that, at the risk of muddying the water even further, there were couple of other enhancements to benefits that also added to the cost of SB 190 .
First, there was a provision for older retirees that increased their benefit to at least 85% of their original purchasing power. Note that when some older members retired there was not COLA and/or COLAs did not always keep pace with inflation. For actives, in addition to the specific rule for 35 years, SB 190 also increased the incremental rate from 2.2% per year to 2.5% for year 31, 2.6% for year 32, and so on. Of course, these incremental increase probably also deserve part of the credit for the changing pattern of retirements - along with increasing HC costs, as you mention. As a result, I am not sure if it is even possible to provide air tight precise answers, or even clear estimates, of the various component effects of SB 190.
One of the few conclusions I have heard that I regard as reasonably reliable is that when SB 190 was considered, STRS thought the net long term cost would be roughly $2.3 billion. That estimate appears to be holding up for SB 190 as a whole. STRS also thought that the amount of the total benefit would be shared roughly 50-50 by members who had already retired and members who had not yet retired (along with future teachers who had not even been hired yet). This split also appear to be at least close to what was expected.
With the benefit of hindsight, I think SB was too aggressive in total. If STRS had limited the increases to, say, half of the actual amount in SB 190, STRS would have been in a better position to weather the financial storm of 2000-01. Given that we cannot go back in time, I would prefer to try to increase investment returns, beyond the current target rate of 8%. In addition, rather than scale back benefits to any group, I would like to encourage staff to try to figure out ways of measuring the relative effects of things like SB 190 across various groups of members. If we can identify groups that got far less than there fair share of the $2.3 billion increase in benefits, or who are currently receiving far less than their fair share in terms of total pension benefit for any reason
(not necessarily SB 190), then I would favor making adjustments as needed to at least blunt the inequities. Based on my reading of your latter points below, I think you and I are in agreement on this point.
As for the specific quote you asked about, "I thought you were quoted as saying if the 35 yr incentive was to make money for STRS, actives would have to pay much more into system.", I do not recall saying it. Unfortunately, as you have not doubt noted, I tend to talk a lot. So who knows what I might have said. But if I did say it, I would not want to try to defend it. In fact, subject to various ambiguities, including your observations about HC premiums, I would still bet (although not very much money) that STRS is saving a modest amount from the incentive program. Yet "modest amount" is the key word. The absolute costs are large as are the absolute savings. But the difference, while difficult to measure with any precision, is likely to be small.
One way to think about the incentive program is to note that Social Security also has an incentive program. In fact, SS increases the pension benefit by 6 to 7% for every year a potential retiree delays retirement. Over a 5 year period, the incentive amounts to an increase of roughly 40% in the pension benefit! Yet SS still thinks it save more by not having to pay anything for the 5 years. Of course, the Feds might even be more confused than we are on this issue.
P.S. As an STRS member myself, and on behalf of other STRS members, I want to thank you for trying to sort this out for others and for your reporting efforts more generally.
At 12:22 PM 01/23/2006, [Molly] wrote: Dear Steve, Here is my attempt to clarify SB190 based on your email below and attendees present at the presentation on this Friday. Thank you for your patience in helping me understand this and for enduring my frustration on this matter. Any STRS Board Member: Please correct/add anything in error or missing.
1. SB 190 costs $2.3 Billion to implement. This included nearly $1 Billion for enhancements for the older retirees who retired on a formula of less than 2.1% by increasing their benefit formula up to 2.1%. For new retirees and actives , it increased their benefit formula to 2.2% rather than 2.1% with the basis being they paid more into the system. There is not parity for some who may have paid 9.3% and still receive the 2.1% as SB 190 passed in 2000 but was retroactive to 1999. For ex., Some who retired in the 90's probably paid 9.3% in contributions but receive the 2.1%.
The remaining cost of the bill went to the 35 yr. enhancement for actives. Had the bill never been implemented, STRS would receive the savings regardless and without the costs for those working for 35 yrs.
However, Buser is saying the bill has shown that more are waiting to retire due to the bill and it is based on those numbers how much the bill saves the system. The critical number is: THOSE WHO ARE WORKING LONGER BECAUSE OF SB190 and not because they would have anyway. To date, the study shows more are waiting to retire. This takes into account: salaries, actives paying into the system and not withdrawing pensions from it as well as STRS not paying for their HC.
The question is: Would they wait anyway because a wrench was thrown in since the passage of the bill being the soaring health care costs to retirees. Which is keeping actives in the system: Delay of paying retiree health costs and keeping their own less expensive health care or the 35 yr. enhancement. I think it is reasonable to assume BOTH.
The choice for healthy individuals is work 5 more yrs and receive better pensions to help offset HC costs or retire and go back to work with STRS HC costs. I would pick the first had it been available and I had known what was to come. But many of us did not know. Is it sour grapes or reality that we did not have this choice. For me, both. However, I do realize changes and improvements occur or we'd all be stuck back in the early ages of education. The ones who retired decades ago don't make the same pensions as newer retirees but made less and paid less into. This is not the problem for me. The only problem for me is: Does it help or hurt the system and is it equitable, NOT EQUAL, but equitable: if it helps, did it also help retirees, etc. If it helps, it helps all. If it hurts, it hurts all.
To date, the savings of $300 Million seem insignificant, however, since that is the number the former OEA dominated Board Members lavished on themselves including the palace, cars, gas, dinners, play, drinks, parties, luxury hotel rooms and trips, etc. This amount would not pay for 1 month of HC at $1.2 Million per day.
Buser does not feel the study gives a breakdown of the 35 yr enhancement as it has been mixed with other future savings and expenses and not precise to the 35 yr incentive.
2. Unfunded Liability: All areas of SB 190, including the enhancements for older retirees and newer retirees has cost $500 Million to date and will cost $500 Million to continue for the lifetime of those retirees who benefited. That affected the unfunded liability and then the increased benefits for 35 yr retirees affected the unfunded liability.
This bill was presented in a time a very low unfunded liability and high market gains as a way to give back to membership. Then the market fell and together with the costs of SB 190 as well as other areas the unfunded liability shot up. From other attendees at Friday's meeting and handouts:
If SB 190 HAD NEVER been implemented which included the enhancements to all retirees and incentive for actives, the unfunded liability would be 37.7 yrs. now.
If SB 190 were stopped AND THAT MEANS THE INCREASED FORMULA ENHANCEMENT FOR RETIREES UP TO 2.1% and 2.2% as well were reversed, the unfunded liability would drop to 39 yrs.
The entire bill was factored in.
The question was:
Does the 35 yr enhancement cost or save the system. It seems it earned $300,000 Million to date. Will it continue to earn or cost?
The answer is: It depends on who in the future would have worked for 35 yrs anyway with STRS receiving the benefits anyway and how many will go 35 yrs. strictly because of the incentive?
The study has no crystal ball and how can that be measured for the future as it tangles with high retirees HC costs.
Do we want yet another study and how could it be measured?
If it doesn't cost us, then ......we would be putting a price on trying to determine former board members motives and future STRS membership motivations. Is it worth it?
If STRS ever gets ahead again, retirees want compounded COLAS and 13th cks.
At $400 per ck for 100,000 retirees, 13th ck costs $40,000,000 annually.
Compounded COLAS x's 100,000 at $30,000 pension average = $900 for simple and then $27 addt'l for the next year. At $30 per retiree x's 100,000 = $3,000,000 for one year.
I thought you were quoted as saying if the 35 yr incentive was to make money for STRS , actives would have to pay much more into system. Is this what you said?
Of course, if contributions are increased, actives would pay much more into system and make this entire incentive more equitable and it seems they are willing.
I hope this is a fair summary and takes all factors into consideration.
COMMENTS AND CORRECTIONS WELCOME! WE WANT TO UNDERSTAND! I have no wish to forward anything but facts and statements based on facts.

Steve Buser to Molly Janczyk, January 22, 2006
Subject: Re: Damon: STRS BOARD::35 Yr. incentive plan: two questions
1. The 35 year rule save a lot of money for STRS ONLY for members who would otherwise retire early. For members who would work until 35 years even without the incentive, STRS would have gotten the savings without having to pay an incentive for it. Hence. for there is no gain, only cost. Based on the results for the first few years, it looks like members are delaying retirement in sufficient numbers for the savings from these members to exceed the costs for members who would have worked 35 years anyway without the incentive. As for confusion on this and other points, I am in the same boat as you. I was expecting a clearer answers. Unfortunately the actuary apparently interpreted the assignment differently than I did.
2. The effect on the unfunded liability is proportionate to the savings in #1). I.e. there would appear to be a net reduction, or improvement, in the unfunded liability as a result of the 35 year rule, as distinct from the total effect of SB 190 which was negative. Unfortunately the report did not isolate the effect of the 35 year rule, so I cannot even estimate the magnitude. But I assume it is relatively small given that the total effect of SB 190 is negative on the unfunded liability and the funding period.
3. Yes. SB 190 actually provided older retirees with a number of benefits. It retroactively increased the benefit formula for anyone who had retired based on a rule of less than 2.1% times years of service times FAS. However, as you note, for new retirees the rule is 2.2% rather than 2.1%. So SB 190 did not establish parity. In addition, SB 190 increased the benefit for any retiree whose benefit had fallen to less than 85% of its original purchasing power by virtue of the absence of COLAs and limits on COLAs for a number of years. Thus, while SB 190 narrowed some gaps in the benefit structure for older versus younger retirees, it did not eliminate gaps. On the other hand, younger retirees and current actives contribute to STRS at higher rates. Hence, some will say that at least part of the difference in benefit structure is appropriate based on differences in contributions.
4. As noted above, the gain from the 35 year rule is significant ONLY for those who would otherwise have retired earlier. Given the offsetting effect of losses from members who would have worked 35 years anyway, I do not think the net effect would be "dramatic". Nevertheless, the net effect is favorable rather than unfavorable as many have assumed.
5. With respect to 13th checks, I will have to double check. However, I think the cumulative effect of the various rounds of 13th checks amounted to $100s of millions. So I'm not sure I would agree that the effect has been small. - That does not mean 13th checks are bad. The checks help members in the amount of the payments. I am all for such help as long as the effort does not place at greater risk the pensions of actives, or the funding of HC. Unfortunately, that is why I cannot support 13th checks currently.
6. As for the other items on your list, I agree that there are many things that were not considered in the actuarial report. I too would like to see more careful and more detailed analysis of such issues. I think the Board and Damon agree that we need to develop an in house capability for analyzing such issues. We currently use an external actuary who is not based in Columbus. As a result, communication appears to be lacking.

At 08:09 PM 01/22/2006, [Molly] wrote: Dear Steve, I am confused. This is general and I simply want to know:
1. Does the 35 yr incentive save us money or does it cost us money? It sounds like you are saying it saves tons.

2. Has the 35 yr incentive affected the unfunded liability? What is the effect?
I realize retirees and actives benefited from the raise in % per yr to 2.2% That was equitable IF IT AFFECTED ALL RETIREES? Did older retirees get an increase?
This sounds like it did in your explanation.
3. Did every retiree get an increase to 2.2% or just those retroactive to '99 which was my impression? I retired in '99 and was to get 2.1% but got 2.2% instead and a ck to make up for the retro part. What did older retirees get?
4. ARE YOU SAYING THE SYSTEM GAINS DRAMATICALLY FROM THE ENHANCEMENT ALONE?What impact did and will the 35 yr enhancement have on STRS? Please do not tell me the study did not find out because that is beyond the pale! That is the question we wanted answered. How many STRS board members and HOW MANY Consultants does it take to get a simple answer?
Do we gain or do we lose from the 35 yr. incentive ONLY! I know the retiree part to bring up retirees cost just under the figure you stated. WHO ALL BENEFITTED FROM THAT?
13th cks. were a few hundred a year; a grain of sand, now removed, compared to the 35yr incentive far too late for retirees.
WHAT DO RETIREES GET? No compounded COLA No tiny 13th cks No affordable HC IF not single No consideration of all the items we wished looked at last 4 yrs:
-20 yr minimum retirement for ALL NEW RETIREES ; 30 yrs. full retirement
-NO HC for those under 20 yrs.; subsidy only for NEW RETIREES with 20 yrs. NEW ONLY. Those currently with 15 or more to stay as is.
-Sliding scale of ALL costs beginning at 20 yrs. pays most for copays, premiums, RX's, out of pockets or to least for career teachers of 30 yrs or more.

Name one thing that has been done ONLY FOR RETIREES until this year keeping increases at 3% and RX's a bit less facing catastrophic care only in 2007.
I want some definitive answers. The answers are all over the place with attendees interpreting the info. Give it to us straight and easy.
It does or doesn't help the system.

Steve Buser to Molly Janczyk, January 22, 2006
Subject: Re: Damon: STRS BOARD::35 Yr. incentive plan: two questions
I am not Damon, but here is my take on the questions below regarding the effects of the 35 year incentive rule.
First, as a general response, I think that people who listened to the actuarial report on the effects of SB 190 might have differing impressions of the specific effects of the 35 year incentive, per se. In large part this ambiguity is due to the fact that the actuarial report did not focus on the 35 year incentive but instead examined the combined effect of all changes that were made in SB 190.
For example, SB 190 included a retroactive increase in pension benefit for anyone who had retired prior to the bill's enactment and had been paid using a benefit formula less than 2.1 times years of service. This change had nothing to do with the new 35 year rule. Yet, as a result of this aspect of SB 190, the actuary estimates that STRS has already paid out over $500 million in additional retirement benefits to members who had retired prior to SB 190. The amount of enhanced benefits is estimated to approximately double, to roughly $1 billion, over the remaining lives of those receiving the enhanced benefit.
As for the 35 year rule per se, that specific part of SB 190 increased the retirement benefit from 77% of FAS (2.2% times 35 years) to 88% of FAS for anyone retiring after SB 190 with 35 years of service. There is clearly a cost to the STRS system for anyone who would have worked for 35 years even without the incentive. However, there is a substantial savings for STRS for any member who would have retired with only 30 years without the incentive, but now works until 35 years. Note that for 30 years of service, the retirement benefit would have been 66% of FAS (2.2% times 30 years). Thus, if the member continues to work rather than retire and draw a benefit, STRS saves the amount of the potential pension for
5 additional years. If we assume that potential salary increases and retirement COLAs have roughly offsetting effects, the up front savings for STRS is 330% of FAS (5 years times 66% per year). Thus, even if we ignore the fact that STRS would earn additional money by investing the up front savings, the principle alone covers 30 years worth of incentive payments (330% divided by 11%, which is the difference between a 35 year benefit of 88% versus a 35 year benefit of 77% of FAS).
The net effect of the 35 year incentive program (question #1 below) thus depends on the number of members who will retire with 35 years now but who would have retired with fewer years without the incentive. The actuary reported that STRS experience to date indicates that the 35 year incentive appears to have had a significant impact on the pattern of retirements. The estimate of the amount saved from deferred retirements in excess of increased payments for retirees with 35 years is nearly $300 million thus far. Unfortunately, the projection of future amounts appears to have been mixed with other types of future savings and future expenses associated with SB 190. Accordingly I do not think we have a precise estimate of the complete net effect of the 35 year incentive change, per se.
It is my impression that the specific results you have identified for the unfunded liability and for the funding period combine all aspects of SB 190, including the increase in payments for those who retired prior to SB 190. Clearly, the unfunded liability would be smaller and the funding period would be shorter, if SB 190 had not provided retroactive increases in benefits for existing retirees and had not increased benefits for future retirees in addition to the specific 35 year incentive. However, at the time SB 190 was enacted, the financial condition of STRS was much stronger, and benefit enhancements were regarded as a form of "dividends" to members, as were 13th checks for existing retirees.
With the benefit of hindsight, we now know the financial condition was more fragile than STRS and legislators had been assuming. In addition, I think many now wonder if the general pattern of benefit enhancements was appropriate. I.e. the dividend might have been too large for some groups and too small for others. However, if and when we are lucky enough to find ourselves in a similar situation - much lower unfunded liability and a funding period that is small (much lower than 30 years) and shrinking fast, I suspect that STRS might again turn to the legislature and ask permission to offer a dividend to STRS members. My hope is that by then STRS will have a better way to measure the impact of potential changes on different groups of members. To the extent we can identify historical inequities, I hope we can address them. In addition, once the issue of past inequities is properly addressed, I hope we can find ways of avoiding similar inequities in any future enhancements of benefits.
I regret that these observations do not directly answer your specific questions. Unfortunately I am not sure if STRS has more precise answers to provide at this point.

At 12:46 PM 01/22/2006, [Molly] wrote: Thank you, Barb.
DAMON: STRS BOARD: I too wish a compete and clear summary of the report to support or correct any info rec'd from attendees for a full and specific message to be forwarded to membership.
Taking into account contributions into the system by those working 35 yrs and actives not withdrawing for 5 add'tl years minus their salaries, does this plan:
1. MONETARILY: -cost the system; if so, how much -earn for the system; if so, how much -is is a wash or neither costs nor earns
2. AFFECT UNFUNDED LIABILITY: -detrimentally and by how many years; for ex., if stopped, my understanding is the unfunded liability would immediately go down to
39 yrs. and if never implemented the unfunded liability would currently be 37 years roughly.
-with rate of return pays for the plan: completely, partially ________%, not at all.
3. Summary: The 35 yr. incentive effect on the pension system is________.

4. OEA would like us to believe that seeking legislation to increase contributions from actives will be DEAD, KILLED (according to Billirakis to CORE and Bill L. in his speech on Thurs to the Board, 1/19/06) if the 35 yr enhancement is changed.
DOES THE STRS BOARD AND ACTIVE MEMBERSHIP AS A WHOLE BELIEVE THIS ? I find it difficult to accept that actives would hurt themselves in retaliation for the STRS doing what is necessary to help all membership; their duty by law: ORC:3307.15.
These are 2 different issues entirely. I am not going to try to stop legislation which would help me because:
* the former OEA dominated STRS Board hurt me by increasing my HC costs to an unaffordable level as a result of soaring costs affecting the system, market drops and the former OEA ACTIVE MEMBERS on the OEA dominated board riding a high market trend and not protecting membership long ago by fighting for secure health care benefits for retirees.
*This former OEA dominated STRS Board knew health care costs would be prohibitive and did nothing to save it for us. STRS and OEA decided in the early 90's NOT to guarantee HC for membership when a legislative proposal was discussed back then and arguing LSD's wouldn't support it. NOW, OEA says they CAN muster support and be prepared for opponents.
*The former OEA dominated Board DID NOT plan for a rainy day and as most of them personally said to me: "WE WERE RIDING THE MARKET AND THE MONEY SPENT (misused , skimmed funds for perks) WOULDN'T PAY FOR HC" True. But, instead of partying, they COULD have begun to increase premiums back in the 90's in a manner that would have offset the untenable premiums today which have destroyed many retirees. Instead, they rode the wave, rewarded themselves as some of them said they 'deserved such (perks) for all the work they did.' THEY could have worked diligently to find a stream of revenue, NOT relied solely on the market and planned long term and OPERS has done.
*The former OEA dominated Board created this 35 yr enhancement which rewarded THEMSELVES with little thought of long term effects. They are gone except for Mike Billirakis and enjoying this additional perk caring little about current actives facing a pension plan unable to pay for this incentive long term or that if it is continued, caring little about the actives who may have to pay much more than they do to continue this perk.
Some board members wondered WHY the former board created such a slanted, 2 class system. FOR THEMSELVES WAS THE ANSWER to them.
The problems the former OEA dominated Board brought upon us with short sighted thinking make it mandatory to examine all areas of past practices and no matter who was currently on this board, this would still have been examined for its long tem effects.
It is time to be responsible and consider all retirees, current and the generations to come. WHAT IS IN THE BEST INTEREST OF ALL?
It matters not to me if the plan is saved or eliminated. It matters only how it affects the system for everyone, not just those who will benefit NOW or in a few years BUT THOSE YOUNG EDUCATORS TO COME! WILL IT ENHANCE AND HELP PROTECT THEIR FUTURE RETIREMENT OR CAUSE IT STRAIN?
THAT is the question, the former seemingly short term minded, self serving OEA BOARD MEMBERS DID NOT GUARANTEE! THEY GUARANTEED MORE BENEFITS FOR THEMSELVES.
It is impossible to continue a plan if it benefits only one group of retirees. The law states all membership must be protected. If it rewards one group without harm to others, that is different.
My personal thinking is that a fair and equitable system rewards according to steps, years of service as Soc. Sec. does. For each add'tl year, addit'l % of salary. The 35 yr enhancement does not show that actives would not stay that long if able due to increased HC costs for retirees vs. a better HC plan and costs for actives or actives simply wishing to work longer.
The above is my opinion based on 4 years involvement in STRS matters.
Thank you.
Molly J.
Barbara Garwood to Damon Asbury, January 22, 2006
Subject: two questions
Hello Damon,
Several months have passed since we have communicated, but I am now back to remind you about a commitment you made to me some months ago. Also, I have a grievous concern and would appreciate your responding to a question on a new topic.
First, let me raise the issue we have discussed in the past. STRS adopted a plan some time ago. It was the plan to raise the percentage of money a retiree would receive if he/she worked 35 years or longer. You told me you would report the results of a study about whether that strategy is saving STRS money. The report was presented to the STRS Board on 1/20. Will you forward the information to me as promised? I would appreciate your summary of the report as well as a full copy of the report sent to me by U.S. mail. My home address is: [xxx].
Second, The STRS Board members recently voted on an item assuming that the full facts were presented to them. However, the minutes indicated that information pertinent to the item were NOT included. That is either deceitful and unethical or sheer incompetence. Any agenda item must presented thoroughly, completely, and impartially. The Board members can then debate the item with full knowledge.
My question, Damon, is why you did not clarify to the Board members that some information was missing before the vote? You are the Executive Director and are intimately involved with setting the agenda AND preparing the paperwork to explain an agenda item. If there is a contract to be considered, you are the responsible party for presenting the FULL contract to the Board members. Again, why did you not explain the agenda item fully at the Board meeting? Why did the Secretary have information to include in the minutes that the Board members did not hear?
I look forward to your response on these two items. I thank you, as always, for your consideration and quick reply.
Barbara Garwood, Ph.D.

Legislators, keep your fingers out of our pie!

From John Curry, February 1, 2008
Maybe with the exception of Ohio SERS jobs, public service jobs in Ohio as well as the rest of the United States are once again in demand. When economic times are good the rush to be a government employee is not on the top of most people's potential "wannabe" list, is it? Now, the table has turned once again. Of course, many in top management will tell you that now the "times are good" least they are good if you are the CEO of Exxon or Pfizer, aren't they? Then all depends upon whose ox is gored, doesn't it?
Those of us in the public sector will now, more than ever, have to be alert to those politicians who see our billions of hard earned dollars invested in our pension systems and who will only be more than eager to help us decide how to manage our monies while they attempt to help their campaign donors with a piece of our pie! I wonder how many "alternative investment" bills (schemes) will fill the hoppers of the 50 state legislatures in the near future.....dozens I'll bet! The USA Today article below indicates how valuable a public service job really is in today's troubled economic times. Let's safeguard our pie!
State, local government workers see pay gains
By Dennis Cauchon, USA TODAY
State and local government workers are enjoying major gains in compensation, pushing the value of their average wages and benefits far ahead of private workers, a USA TODAY analysis of federal data shows. The gap is widening every year, rising by an average $1.02 an hour last year and $2.45 an hour over the past three years. The better pay and benefits for public employees come as private-sector workers face stagnant wages and rising unemployment.
State and local government workers now earn an average of $39.50 per hour in total compensation, reports the Bureau of Labor Statistics (BLS). Private workers earn an average of $26.09 an hour.
Benefits are a big reason for the gap.
Companies have trimmed pension benefits and asked employees to pay a greater share of medical costs.
Few governments have imposed similar cuts on teachers, snowplow drivers, lawyers and other civil servants.
From 2000 to 2007, public employees enjoyed a 16% increase in compensation after adjusting for inflation compared with 11% for private workers.
The nation has 20 million state and local government employees. About 116 million people work in the private sector. The 2.7 million federal workers are not included in the BLS compensation data.
Traditional pensions and medical coverage for retirees are among the benefits making it more lucrative to work in government, says Ken McDonnell, program director of the non-partisan Employee Benefit Research Institute of Washington, D.C.
State and local governments have more than $1 trillion in unfunded liabilities for pensions and retirement medical benefits for public employees. A few governments are discussing how to cut costs:
• Rhode Island. Gov. Donald Carcieri, a Republican, wants to limit benefits and increase hours for state workers.
• Ohio. Gov. Ted Strickland, a Democrat, plans to sign legislation next week that will reduce the value of retiree medical benefits for newly hired school employees, excluding teachers. The law would push back early retirement ages for bus drivers, custodians and other school workers.
• California. The Orange County Board of Supervisors voted Tuesday to sue to repeal pension increases granted earlier to sheriff's deputies.
"If there's a benefit gap, it's because the private sector is going the wrong way by cutting benefits," says Paul McKenna, research director of the Oregon Public Employees Union.

Mary Ellen Angeletti: Report on Day 2 of STRS Board retreat

STRS Retreat, Day 2, Jan. 31, 2008
I was unable to attend the first day of the STRS Retreat due to the fact that my husband and I were captives in our home for 18 hours without electricity due to the wild winds the night of Jan. 29th. Several trees were blown down across state route 315 making the route impassable and knocking down the electric lines supplying 300 homes where we live. Now if we only had had the strength to manually pull open the overhead garage door, we might have been able to attend and enjoy the warmth of the STRS building! The first day agenda dealt mainly with Board governance, responsibility, governance structure & roles, competencies & personal attributes, and delegation. Any member may contact STRS to request that the CD recordings of Day 1 and Day 2 of the Retreat be sent to them. These audio CDs give complete coverage of the Retreat.
The second day began with a review of the first day's discussions presented by Ed Gaydos, a retiree from Limited Brands and Anheuser-Busch who has developed non-profit board training curriculum for executives.
Next came Gary Hudepohl and Debbie Roche, members of the Executive Director search firm of Hudepohl and Associates, who reported on their progress to date. They discussed the common themes of their interviews with the individual STRS Board members. They told why potential executive directors would want the job at the helm of STRS Ohio:
1. It is one of the three top jobs in the country.
2. The size of STRS Oh. is a big plus.
3. STRS Oh. has an experienced leadership team and a CIO who is achieving good returns.
4. STRS Oh. is experiencing good relations with the Ohio legislature.
5. Central Ohio is a desirable location.
Why would potential executive directors NOT want the job: The Board's governance issues. It is united in its mission BUT there are minuses:
1. Execution is a problem
2. Strategy, how to define oversight
3. Policies inhibit
4. Need more flexibility
5. Must find a way to be respectful of other's opinions
6. Must have a public face that supports the system
Mr. Hudepohl suggested that the Board members are really not far apart in their thinking, that they differ on opinions of oversight. He said that they need to find agreement on oversight, to agree that the Bd. wants an Exec. Director to lead the Bd., and then come together in an unanimous selection of the next Executive Director. They need to embrace the new leader and give him the authority to run the system. The Bd. needs to implement appropriate governance.
The next Executive Director must be well credentialed and run a large complex organization with experience in public pensions and with working with educators. He must lead the Bd. through decisions and be an advocate for defined benefit plans. He must know how to leverage STRS "size" to influence outcomes. He must be a visionary who can chart the course for the system, can ask the "tough" questions, and has the energy to lead change. He must be respectful of people and inspire & motivate people to perform at high levels. He must be strong, experienced, and confident and able to say "NO". Mr. Hudepohl said that the main quality is one who can bring the Bd. members together for the best interests of the members despite personal differences, always focusing on principle.
So far, the search firm:
1. Has drafted a position profile (which will be reviewed by the Board)
2. Has targeted whom send applications to
3. Has prepared a posting advertising the position: Postings to be placed in the Columbus Dispatch on February 17-18
4. Has actively recruited, starting phone calls on 1/14 and will continue until approximately 2/22 to 2/29. Mr. Hudepohl has talked to the top five prospects; he will hold phone interviews with them, followed by personal interviews. The STRS Bd. will be the ultimate authority on who is hired.
5. Has evaluated applicants through interviews
6. Will recommend candidates between 3/28 & 3/31
7. Will arrange for interviews with key people at STRS Ohio
8. Has targeted late March or early April for hiring of the new Executive Director
Craig Brooks offered, "We have good people, we trust management, we just need some tweaking."
Dennis Leone said, "A 10 to 0 vote would be great! Any Executive Director candidate will know the history of STRS and will know that if the Board is struggling with governance issues, it is because credibility has been "improved" but not "restored".
Mark Meuser added that 90% of the STRS member surveys indicate that STRS has improved so the past is the past and has been put behind us."
Someone said, "If the right leader is hired, he will know STRS past history and lead the Board."
Mr. Hudepohl added that an independent third party would talk to people NOT listed as references by the applicants including staff, board members, etc. He also mentioned that training would be provided for the new Executive Director. He expects there to be three to six candidates for the job. It was suggested that the search team have the candidates bring in examples of how they have handled governance issues with other boards.
After a break, Janet Cranna and Marco Ruffini of Buck Consultants presented the four year experience review of the actuarial assumptions of the system. Actuarial assumptions are used to project member benefits (projected service & salary), when & why members terminate employment (retirement, disability, death, termination before retirement), and when benefits begin and end (retirement, disability, death after retirement). Interesting highlights of the ensuing technical discussion was that our population of teachers has gone down, there has been loss of payroll growth & experience, there have been fewer retirements than expected, delayed retirements are good for the system, people are living longer, and fewer people are dying than was expected. Buck suggested some assumption changes effective July 1, 2008 for pension valuation and Jan. 1, 2009 for health care valuation. These assumption changes have to do with lowering rates used regarding mortality, modifying the rates of vested termination, lowering the rates of non-vested termination, adopting an updated mortality table for service retirements, adopting an updated mortality table for service retirements for males, modifying the female rates for mortality experience for disability retirements, and since mortality is expected to improve 1% to 2% of rates each year in the future, updating the retiree mortality table projected to 2010 by setting back (adjusting the fit) 3 years for males and 2 years for females. They also recommend setting back female disability mortality rates by five years. Assumptions of investment returns remained appropriate as did economic assumption components. The overwhelming factor to changing the ratios is that people are living longer. . this factor has the most impact.
{The question I had after this discussion is the lack of consideration regarding the impact on the system of members living longer in retirement who had the highest benefit (35 years = 88%). I do not see how this factor cannot hurt the pension system. I do not understand why Buck did not consider this data and run it out to see the effect it would have.}
Next on the agenda was discussion of STRS Ohio associate severance policy. Following lengthy discussion, the Board voted for the details in Option 1 in which they (the Board) approved the current severance policy. The Executive Director is then authorized to offer severance, pursuant to the policy, for future reductions-in-force without requiring additional Board approval. The vote was 6 for the motion and 3 against.
The payment of STRS associate legal fees was next discussed, and it was voted unanimously that if a STRS Ohio associate requested legal representation for matters arising due to his or her employment by STRS Ohio, the associate shall first request assistance from the General Counsel. In the event the STRS Ohio Legal Department would not provide representation, the associate shall seek representation from the Ohio Attorney General pursuant to Ohio Revised Code Section 109.361. Unless otherwise required by law, in no event will STRS Ohio pay fees for attorneys retained outside this process without the Retirement Board approval.
The next issue considered was an authorization resolution for administrative officers in all matters related to personnel and current expenses. The Board voted to accept the original resolution and eliminated the changes contained in the substitute motion.
The last issue considered was a motion to approve the annual adjustment of the STRS Ohio Salary Structure reflecting a 2.9% increase over the previous salary structure, with an effective date of Jan. 1, 2008. There was discussion regarding whether the 2.9% increase was in line with the other pension systems. When it was determined that it was, the motion then passed unanimously .
Respectfully submitted,
Mary E. Angeletti, CORE
Larry KehresMount Union Collge
Division III
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