Friday, October 16, 2009

Gee, he must be awfully busy these days.....

John Curry to Mike Nehf, October 16, 2009
Subject: Which is it, Mike? (third request- and one month later)
Many retirees want to see your answer to the question below. Please answer.
Thank you.
See original letter here (also the $64 question which has been put several times now to the evasive executive director of your pension system):

Linda Meinelt to Mike Nehf and STRS Board: Where are the cuts?

From Linda Meinelt, October 16, 2009
Subject: Concerns
As I read the minutes from the last Board meeting, once again I see a repeat of all the proposed changes to bring the fund to less than "infinity" by making changes to the stakeholders either through increased contributions, reductions in COLA, increases in insurance premiums and deductibles, etc.
What concerns me is what I don't see and that is:
What is being done by Mr. Nehf and the STRS Bd. to control the daily costs of operating STRS? Has there been a reduction in staff? Has the cost of health insurance increased for employees? Why did the Board vote to continue bonuses for Investment staff when we are "bleeding money?"
Perhaps one of these days, we will receive answers to these questions.
Until that time, I will continue to ask questions and urge others to do the same. It is our retirement that is at risk, not that of the STRS employees -- they are covered by PERS (which is fiscally sound)!
Linda Meinelt
Worthington, OH

Tom Curtis to ORSC: Changes needed at STRS

From Tom Curtis, October 16, 2009
Subject: 101509 STRS Change In Management & Reduction In Force
Dear ORSC Member,
Members of the ORSC need to be reminded that the STRS management, largely responsible for the losses suffered by the system, has made few if any, real reductions in expenditures and staff.
Many stakeholders of the STRS have presented various scenarios that would have reduced both the risk and unfunded liability for the system, only to be ignored.
The STRS has lost in excess of $42 billion dollars this decade. This is greater then all of the other four pension systems combined. The STRS has a larger staff then any of the other four. The STRS board has paid bonuses to investment staff totaling far more then all of the other four. This is ridiculous and must be stopped!
It is my hope as a stakeholder of the STRS, that the ORSC will also find reason to mandate changes in management and staffing within the STRS. If this were not done, how would you expect any change to be forthcoming?
The shortfalls being considered should not all come from the backs of the stakeholders!
Performance is paramount at this point, both yours and theirs.
Sincerely, Thomas Curtis
North Canton, OH
P.S. I have been actively involved in the attempted reform of the STRS since 2003. I would be more then willing to talk with each and/or everyone of you concerning the many issues that have caused this collapse in value of the retirement system to which I belong.

Report from STRS on October Board meeting

From STRS, October 16, 2009
This week, the State Teachers Retirement Board held its monthly meeting. Following the regularly scheduled meetings, a report titled "Board News" is posted on the STRS Ohio Web site, as well as mailed to a number of members and education organization representatives who have requested it. As a member of STRS Ohio with an e-mail address on file, you will also receive this report each month. The October report follows.
At its October 2009 meeting, the State Teachers Retirement Board received its first look at the annual actuarial valuation report of STRS Ohio's pension fund from its actuarial consultant, PricewaterhouseCoopers (PwC). This report provides a "snapshot" of the actuarial position of the retirement fund as of July 1, 2009. As expected, the PwC report confirmed the data shared much earlier in the year with the Retirement Board and STRS Ohio members during the board's long-range planning discussions. Since July 1, 2008, the funding period for the pension fund has increased to "infinity" from 41.2 years and the funded ratio decreased to 60% from 79.1%.
In developing this actuarial valuation, STRS Ohio's actuarial gains and losses for fiscal year 2009 (July 1, 2008-June 30, 2009) were compiled. PwC looked at the system's experience in several areas, including investment returns, payroll growth, salary increases, retiree mortality, and the number of retirements and other "separations" from the system, such as account withdrawals -- all of which can either reduce or increase the system's liabilities from one year to the next.
STRS Ohio experienced a net actuarial loss for the fiscal year of more than $17 billion -- due almost entirely to the significant decline in the value of STRS Ohio's investment assets as a result of the global recession. Consequently, the system's unfunded accrued liabilities more than doubled to $36.6 billion from $18.2 billion.
The fact that the pension unfunded liabilities are at "infinity" -- meaning the system can never pay off its liabilities unless changes are made -- prompted the Retirement Board to begin developing a long-range plan to strengthen the financial condition of the retirement system last March. The plan adopted by the board on Sept. 1 calls for an increase in contributions; an increase in final average salary years; a change in eligibility for retirement; a change in the benefit formula; and a reduction in the annual cost-of-living adjustment. STRS Ohio staff projects the proposed changes would save almost $9 billion in accrued liabilities and would bring the pension fund to a 33.4-year funding period from its current status of infinity, assuming the proposed timeline for the changes can be implemented.
On Sept. 9, Executive Director Michael Nehf presented STRS Ohio's plan to the Ohio Retirement Study Council (ORSC); Ohio's four other public pension systems -- Ohio Public Employees Retirement System, School Employees Retirement System, Ohio Police & Fire Pension Fund and Highway Patrol Retirement System -- also presented their plans for strengthening their funds. The ORSC is the legislative oversight body for the five systems.
At the ORSC's October meeting, the council members reviewed a comparison chart detailing each system's proposals by category (e.g., retirement eligibility, final average salary and contributions). Most of the changes that each system is proposing require legislation. Rep. Todd Book, who chairs the ORSC, noted that he expects legislation to be drafted over the next several months and introduced by the end of 2009 or the beginning of 2010.
The Retirement Board has chosen Callan Associates Inc. to serve as its investment consultant for general investment matters and all asset classes other than alternatives (i.e., private equity investments, hedge funds, etc). For the alternatives component of STRS Ohio's investment fund, the board has chosen Cliffwater LLC as its investment consultant. The board will be entering into contracts with each firm extending through June 30, 2012. Callan and Cliffwater are replacing Russell Investment Group, which notified the board in summer 2008 that it would not be renewing its contract with STRS Ohio due to changes in Russell's new business model.
During the search for new investment consultants, the board and staff spent considerable time contacting and interviewing current Callan clients. The board was impressed with the expertise of the Callan staff and its track record of satisfaction among those clients. Callan has extensive experience in working with public pension funds. Because of the board's long-term plan to increase its exposure to alternatives, the board also wanted a consultant with specific expertise in that area. As with Callan, the board and staff contacted and interviewed many Cliffwater clients, who indicated Cliffwater was instrumental in adding value to their portfolios.
The Retirement Board approved 335 active members and 121 inactive members for service retirement benefits.
The Member Education staff will again present meetings around the state this fall to help members with their health care plan decisions. The first year for these meetings was 2007, when 1,008 retirees attended one of 25 sessions. In 2008, the attendance doubled. Through the end of this September, more than 6,000 enrollees have reserved a seat at one of 51 sessions being offered. Due to the introduction of the Aetna Medicare Plan (PPO) and the changes to the Express Scripts prescription drug coverage, staff expected increased interest in the meetings this year. Sessions were increased to 51 with nearly 10,000 seats available. Representatives from the Health Care Services Department and Express Scripts, as well as other health care vendors, will also attend to help answer enrollee questions. Open-enrollment packets will begin mailing Oct. 23; this year, open enrollment will run from Nov. 1-24.
In spring 2010, a Retirement Board election will be held for two contributing member seats currently held by Conni Ramser and Mark Meuser. The individuals elected will serve from Sept. 1, 2010, through Aug. 31, 2014. The election process begins in November 2009, when individuals interested in running for one of these seats can request petitions from STRS Ohio, beginning Nov. 13, 2009. Those eligible to run for these two seats are STRS Ohio members who are presently contributing to STRS Ohio or those who have contributions on deposit with STRS Ohio (inactive members). STRS Ohio retirees who are reemployed in an STRS Ohio-covered position are not eligible for nomination. The deadline for returning petitions is Feb. 26, 2010. STRS Ohio members will receive their ballots and voting information in April; they will have through May 3 to cast their votes by mail, phone or Internet. Petition forms can be obtained from STRS Ohio by calling toll-free 1-888-227-7877.

This says it all about the future of STRS Investments. How can we win?

The Pension Fund Manager's Impossible Task
By Charles Smith, October 15, 2009
Pensions fund managers must seek above-average returns even as asset classes move together.
Pensions funds both public and private have suffered huge losses and are underfunded. Fund managers face an impossible task: finding long-term returns of 8% per year in a world in which most asset classes now move in tandem.
The plight of pension plans has been in the news recently; here is Mish's blunt appraisal: Five Major Pension Problems - One Simple Solution.
How did pension funds manage to over-promise benefits while losing a third of their value? The standard explanation is that the politicos in charge of awarding the benefits to public employees drank the "this time it's different" Kool-Aid in the late 1990s stock market bubble. Convinced that 10% per annum returns were "the new normal," authorities raised the benefits being promised to distribute all that endless "free money."
Alas, the 10% per year returns have slipped to -30% declines, and most observers think funds will be fortunate to book 3% returns on average, not the 8% they need to pay their promised benefits.
That shortfall dooms the plans to insolvency, as the only "bagholder" left to fill the gap is the local taxpayer, 10% of whom have lost their jobs, 8% of whom have seen their hours or wages cut and one-third of whom have seen their house equity vanish to zero or below. They will likely not be thrilled to face gigantic increases in local taxes to fund pension fund shortfalls.
In the good old days, fund managers could rotate out of one asset class into another to preserve absolute returns. When bonds weakened, stocks rose. When paper assets fell then real estate and commodities rose, and so on. Asset classes did not move in lockstep, enabling the canny manager to exit one class and move the money into some other asset class which would outperform.
That sort of rotation still works within equities, various types of commercial paper and commodities, but in the overall view all asset classes began moving in lockstep some time ago.
The Great Bull market in equities ran parallel with the Great Bull market in bonds, real estate, commodities, shipping and precious metals from about 1995 to 2000. Stocks dipped into recession, and money flowed into real estate in 2001-2003, and then it was off to the races in all asset classes once again. Oil rose, gold rose, real estate rose, bonds rose, U.S. stocks rose and international stocks rose.
Then in 2007 all asset classes except precious metals and bonds tanked together. (Bonds topped out at the peak of the 2008 financial panic, while gold and silver have suffered dizzying dips on their climb.)
One explanation of this parallel movement in asset classes is that with interest rates dropping (boosting bonds' value) and governments creating rivers of money, there was so much credit and leverage available that there was enough money to boost all assets, regardless of fundamentals such as earnings and return on investment.
While the world waited for inflation to kick in from this vast expansion of money supply, what happened instead was the money chased returns, inflating a bubble in all asset classes.
So where does a pension fund manager go for outperformance now? A reinflated global equity bubble totally dependent on governmental "quantitative easing"? A bond market which assumes near-zero interest rates forever? A precious metals market too small to absorb all the capital seeking long-term "safe" returns? An imploded, overbuilt global real estate market? A commodities market which soars and plummets by turns?
Going short may well be the "safest" bet around, but it's hard to buy large enough short positions to protect tens of billions of dollars in restless assets.
Yes, fund managers can buy U.S. Treasuries--since trillions of dollars of T-bills will be coming on the auction block for years to come--but the short-term returns are pathetic and the long-term returns only positive if deflation boosts the enemic coupon rate.
Meanwhile, the "clock" is ticking. Every year that the fund nets 4% instead of 8%, the gap between what was promised and what is funded widens.
Suppose some "unforseen event" occurs and global interest rates start rising. (After all, Australia just raised rates.) Then the value of all those bonds paying 1% and 2% plummet fast and plummet hard. So much for the "safety" of bonds.
Rising interest rates would also gut equities and gold, as investors would be attracted to the higher real returns and the lower risks.
Since pension funds have already lost 30%, what's to keep them from losing another 30%? Absolutely nothing, if all asset classes except cash earning interest fall together.
Can interest rates stay near-zero forever? Does anything stay the same forever? Here is my forecast for rising interest rates: No Easy Money: The case for raising interest rates.
We cannot know much of the future, but we can know that pension funds which over-promised benefits and expected 8% real returns forever will go broke.

Thursday, October 15, 2009

Ohio Retirement Study Council report details changes to the five pension systems as envisioned by the Council

October 15, 2009
Go to this link from the ORSC website to see what may be in store for you:

A perspective on the 401(k) from Time

Retiree Robert Shively spends his days on the golf course. For many, that would be a dream come true, but not quite in the way Shively does it. The 68-year-old is the cart mechanic at the Niagara Falls Country Club.

Two and a half decades ago, his then employer, Occidental Petroleum Corp., cut its traditional defined pension plan in favor of a 401(k)-type system. So instead of getting a guaranteed pension check of $1,308 a month for his 36 years as a full-time, salaried employee, the former chemical-factory worker receives $225 a month from his 13 years as an hourly employee, plus $180.16 a month from a profit-sharing plan Oxy had for salaried employees until 1994. He also has $70,000 left of the money he saved from his tax-deferred 401(k). On the days he works, Shively rises at 5 a.m. to get to the golf course. He mostly enjoys the job. But on tournament mornings, he has to be at the course at 4 a.m. A few years ago the country club switched from gas to electric carts, some of which have four 84-lb. batteries each. Every year, Shively and another worker have to lift out all the batteries and store them for winter. "Your body aches all over," he says. (See 10 perfect jobs for the recession — and after.)

This isn't how retirement was supposed to be.

If you have even peeked at your account statements in the past year, it's painfully obvious that something is wrong with the way we save. The tax-deferred 401(k) plan, and others like it, such as the 403(b) and the IRA, have become our nation's go-to retirement piggy bank. Invented nearly 30 years ago as an executive perk — one more way to dodge Uncle Sam — the 401(k) was never meant to replace the employer-guaranteed pension fund, supplemented by Social Security, as the cornerstone of our nation's retirement system. But propelled by a combination of companies looking to cut costs and consumers who wanted control of their retirement destiny, that's exactly what happened.

The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves. In the past two years, that has become all too clear. From the end of 2007 to the end of March 2009, the average 401(k) balance fell 31%, according to Fidelity. The accounts have rebounded, along with the rest of the market, but that's little help for those who retired — or were forced to — during the recession. In a system in which one year's gains build on the next, the disaster of 2008 will dent retirement savings long after the recession ends.

In what must seem like a cruel joke to many, the accounts proved the most dangerous for those closest to retirement. During the market downturn, the 401(k)s of 55-to-65-year-olds lost a quarter more than those of their 35-to-45-year-old colleagues. That's because in your early years, your 401(k)'s growth is driven mostly by contributions. You control your own destiny. But the longer you hold a 401(k), the more market-exposed it becomes. It's a twist that breaks the most basic rule of financial planning. (See 10 ways Twitter will change American business.)

The Society of Professional Asset-Managers and Record Keepers says nearly 73 million Americans, or just under 50% of our working population, now have a 401(k). And collectively we pour more than $200 billion into these accounts each year. But retire rich? Don't bet on it. The average 401(k) has a balance of $45,519. That's not retirement. That's two years of college. Even worse, 46% of all 401(k) accounts have less than $10,000. Today, just 21% of all U.S. workers are covered by traditional pensions, and the number shrinks every year. "The time may have come to consider returning 401(k) plans to their original position as a third tier of retirement planning, behind pensions and Social Security," says Alicia Munnell, who heads the Center for Retirement Research at Boston College. "They should not be the thing we rely on for retirement security." And the government seems to agree. This summer, the Government Accountability Office concluded, "If no action is taken, a considerable number of Americans face the prospect of a reduced standard of living in retirement." That's what is known as an understatement.

The 401(k)'s defenders say bad markets don't make the accounts a bad idea — and that it's still too soon to tell whether they work. Many companies adopted them less than 20 years ago. Even then, most firms (including mine) still provided pension plans to their workers. So boomers retiring now were never focused on piling money into 401(k)s. In order for the plans to succeed, workers have to stash savings regularly for about 30 years. Most accounts haven't been around that long.

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One exception is Occidental Petroleum. In 1983 the energy and chemicals giant, then No. 14 on the Fortune 500, became the first large company to toss its pension and switch to a defined-contribution 401(k)-type system. That was at least a decade before most other large companies made a similar switch, which makes the experience of Oxy Pete and its employees an ideal window on the 401(k).

We talked to nearly two dozen former Occidental employees. All of them are alumni of the company's chemicals division and worked in a Niagara Falls plant. Not all are 401(k) disaster stories, and most had good things to say about Oxy Pete. Some said they were very happy with their 401(k). Jim Maul, 70, has two cars and a boat and travels regularly. (See 10 big recession surprises.)

But all the people who shared their financials with us would have been better off in a pension. And nearly all of them, save possibly Maul, do not have the resources they need to live another 20 years in financial comfort. "It's the biggest scam ever put over on the American people," says Dennis O'Neil, a former human-resources executive who worked for Occidental for 29 years.

The idea that we could ever save enough to pay for 30 years of leisure is a relatively recent invention. An entire profession, financial planning, is dedicated to telling people they can, and must, pay for their own retirement. A 401(k) is usually a central part of those plans. Even for people who don't have enough money to send their kids to college or buy a home, building their 401(k), they are told, is their first priority. It's not terrible advice. The accounts grow tax-free, though you have to pay Uncle Sam's levy when you cash out. Unlike health coverage, you don't lose your 401(k) when you lose your job. And once you set the account up — a minor task at most companies — it's automatic, making it an easy, thought-free way to save. Indeed, Americans have more saved specifically for retirement than ever before. But the past year has shown that even with our added savings, we are at much greater risk today of our bank accounts running empty than when employer-guaranteed pensions were the norm. By Munnell's calculations, 44% of all Americans are in danger of going broke in their postwork years.

A Brief History of the 401(k)
Congress was trying to close a loophole on executive bonuses when it created the 401(k). Most companies intended 401(k)s — which were originally called salary-reduction plans but then renamed for the portion of the tax code that makes them possible — to be a perk for highly paid executives, not a pension replacement. That's because lower-paid employees probably could not afford to defer a portion of their paychecks. So companies held on to their pension systems even as they added 401(k)s, which by law they had to make available to all employees. When the market took off in the 1980s, the rank and file clamored to get in. (Read why older workers are happier.)

With a 401(k), contributions came out of your pay but were not taxed, and you had control of them. Contributions could be added or suspended. Best of all, when you left your company, your 401(k) traveled with you, removing a penalty for switching jobs that had been built into the pension system. On the corporate end, a change in accounting rules made the growing cost of pensions more apparent to shareholders. Cutting the pension was a guaranteed way to improve the bottom line. The rise of the 401(k) began.

Around the same time, Occidental was having problems. In the late 1960s the company bought Hooker Chemical Co. in a effort to diversify. But in the 1970s, allegations surfaced that toxic waste that Hooker dumped into the ground during the 1940s and early '50s was causing severe health problems in Niagara's Love Canal neighborhood. Oxy Pete needed cash to shore up this and other problems, and its CEO, Armand Hammer — flamboyant, powerful and ultimately corrupt — came up with a solution: raid the retirement kitty. Amazingly, this was legal at the time, and Hammer wasn't alone in doing it.

High interest rates in the inflationary 1970s produced solid returns for Oxy's bond-heavy pension fund — so much so that Oxy's accountants figured the plan was overfunded by $600 million. For Oxy to get at that cash, pension laws required it to close its fund and start again. It did so with a far cheaper option: the employee-funded 401(k). The company made it clear that with the high interest rates at the time, Oxy employees could see their 401(k) account balances soar with little risk. Few doubted it — Oxy, like most other big companies of that era, had always taken care of its own.

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At first, Occidental's union workers were not allowed into the plan. So when Ernie Lucantonio was offered a supervisor job in the fire-retardant division at Occidental, part of the reason he took it was to get into the 401(k). "The 401(k) forced you to save money, because you couldn't touch it," says Lucantonio. "I was making good money, but I wasn't saving anything. I had three kids going to college. So the 401(k) forced me to save, which I needed." (See pictures of the college dorm's evolution.)

After 34 years, he left Oxy in 2005. Lucantonio, 61, is proud of what he has been able to afford in retirement. He and his wife bought a cabin in New York's hilly Southern Tier. "It's even got ceramic tile in the kitchen," he says. He would like to spend more time there, but like many other former Occidental employees we talked to, he's had to unretire into a new job. He is a real estate agent.

If Occidental had stuck with its pension plan, Lucantonio might not have to work. When he retired, he had a salary of nearly $80,000. That means he would have received a pension check of about $3,100 a month. It would be nice if 401(k)s could produce a guaranteed check as pensions do. But most 401(k)s don't generate enough income, and Lucantonio's is no different. He retired from Occidental with $350,000 in his 401(k). That's a hefty sum, but he can withdraw just 4% of it annually, or about $1,200 a month, to limit the chances of outliving his money. That's 60% less than what the traditional pension would have paid him.

Dennis O'Neil plays the part of a former HR executive well. You can find O'Neil, who left Oxy on disability a few years ago, on a golf course, clad in picture-perfect golden-years attire: a black Izod shirt with white shorts, faux-alligator-skin cleats, Ray-Bans, a gold shamrock hanging from a gold chain on his neck and a black baseball cap. But O'Neil's retirement outlook is growing darker every day. He once made a six-figure salary, but the 63-year-old is fairly certain that his savings won't be able to sustain him for very much longer. He has some $500,000 left in his 401(k) and spends about $75,000 a year. At this rate, he worries he will tap out his retirement savings within the next decade. (See 10 things to buy during the recession.)

Unless, as O'Neil's thinking goes, he can make something happen in the stock market. So he spends much of his day watching CNBC. "Right now, I want to know which area of the economy is going to recover first. Will it be retail? Commodities? Energy?" says O'Neil. Playing the market is probably the wrong thing to do, but he got divorced eight years ago, depleting a good portion of his savings, and his medical bills are likely to go up soon. O'Neil is going blind from histoplasmosis. These days he has to golf with a friend. He would like to buy a house in Florida before he loses his eyesight completely, but he just can't afford it.

Under Occidental's old pension plan, he would have gotten a monthly check of about $2,200. More important, he wouldn't have to spend much of his remaining eyesight squinting at CNBC, wondering how he will afford the rest of his life. The pension check would have been guaranteed until he died. "I'm a pretty optimistic guy, but I'm still worried," says O'Neil. "Ten years from now, where am I going to be after I burn through the cash?"

Where 401(k)s Go Wrong
In theory, 401(k)s should provide much more of a retirement cushion than they do. A 2007 study from the National Bureau of Economic Research (NBER) estimated that, on the basis of historical returns, by 2040 the average 401(k) of a near retiree would grow to an inflation-adjusted $451,944. That money, spread over 30 years, could replace at least 50% of the average retiree's income. Add Social Security and even highly paid workers will probably earn more than 80% of their preretirement income. "The only reason these accounts haven't lived up to their potential is that they haven't gotten enough time," says James Poterba, president of the NBER, who co-authored the study. (See 25 people to blame for the financial crisis.)

In practice, 401(k)s haven't been nearly so rewarding. When Boston College's Munnell looked at the returns 401(k)s have actually produced compared with the projections, the difference was sobering. The average 55-to-64-year-old should have a 401(k) balance of $320,000. In fact, at the end of 2007, the average 401(k) of a near retiree held just $78,000 — and that was before the market meltdown.

Why don't these accounts amount to much? Munnell found a number of reasons. Some people don't contribute as much as they should — essentially ignoring free money from company matches and tax relief. And, as the original engineers of the 401(k) suspected, the less you earn, the less you are likely or able to contribute. For most employees, the maximum contribution to a 401(k) is $16,000 annually. She found that just 5% of people earning $80,000 to $100,000 maxed out, compared with 30% of those making $100,000 or more.

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Additionally, to get the hypothetical higher returns over time and avoid investing disasters, you have to hold a diversified portfolio of stocks and bonds. Many of us don't. Munnell found that 14% of workers held no stocks at all, leading to weaker-than-average returns. On the opposite end, more than a quarter of all 401(k)s were 100% stocks, exposing those accounts to big losses when the market dropped.

Earlier this year, mutual-fund company T. Rowe Price tried to determine the optimum retiree portfolio — the mix of stocks and bonds that would produce the highest returns without the risk of the nest egg running out. To do this, the analysts ran something called a Monte Carlo simulation, which mimics the real-life ups and downs of the market. Most of the time, the market goes up slightly. But some years — ka-pow! — stocks and bonds do spectacularly poorly. What T. Rowe Price found should frustrate anyone who has spent time wondering if 25% of a portfolio should be in international bonds or small-cap stocks. No portfolio is 100% safe from disaster. (See pictures of the stock market crash of 1929.)

Trying to boost returns by adding stocks can make matters worse. Even if you withdraw a mere 4% a year from your 401(k) and have an ultraconservative portfolio of 80% bonds and 20% stocks, you still have a chance of outliving your retirement account. Swap the bonds for stocks, and the chance of outliving your money actually rises. In reality, most of us don't have nearly enough in our 401(k) to live off just 4%. At a 6% withdrawal rate, hypothetical retirees in more than a third of the Monte Carlo simulations crapped out.

Saving more, another common prescription for fixing the 401(k), has its downside too. That's because of another unpleasant quirk of the 401(k), which was mentioned earlier: the older you are, the riskier a 401(k) gets. That's because contributions make up a very big part of the account's growth in the early years. Later on, once the account has grown, it is much more sensitive to market drops.

Imagine a worker who earns $100,000 a year for 30 years. Each year she puts 5% of her income into her 401(k). Through most of her working life, the market does pretty well, boosting her diversified portfolio 5% a year on average. When she retires, our worker will have $332,194 in her account. Now imagine a second, thriftier worker contributing 7.5% of his salary, or $2,500 more a year, to his 401(k). But in this scenario, the market does a 2008 in the last year before he retires, and his account drops 30%. Result? Even after saving 50% more a year for 30 years, worker No. 2 ends up with a balance of $327,194 — $5,000 less than the first worker.

The 401(k) Alternative
So what can be done to fix our retirement-savings mess? Most of the proposed fixes to our retirement plans have to do with getting people to save more or invest better. The most popular solution is the so-called automatic 401(k). Under that plan, all workers would be enrolled in 401(k)s when they're eligible. Companies would establish default settings to boost returns and make the portfolios safer as workers near retirement. People who worked for companies that didn't offer 401(k)s would be automatically enrolled in savings accounts. In other words, make inertia work for employees, not against them. However, a number of economists and policy experts think that while those changes would help, upgrading the 401(k) alone won't save the nation's retirement-savings problem. (See pictures of the recession of 1958.)

Here's why: Remember, the biggest factor in whether the 401(k) works as designed has to do with when you retire. If the market rises that year, you're fine. If you retired last year, you're toast. And the chances of your becoming a victim of this huge flaw in the 401(k) plan are pretty high. The market fell in four of the nine years since the beginning of the decade. That means anyone retiring this decade had a nearly 50% chance of leaving work in a down market. In fact, your chances of retiring into a down market are even greater than that: forced retirements spike in recessions just as the stock market is tanking.

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The solution: a new type of insurance. Retirement savings, it turns out, are exactly the type of asset we need insurance for. We need insurance to protect against risks we can't predict (when the market collapses) and can't afford to recover from on our own. "People tend to meld savings and insurance in their mind, but they are not substitutes," says Nancy Altman, a former Harvard professor and the author of The Battle for Social Security. "It's fine to have a savings plan as a supplement but not as the main retirement protection for everyone." She says the best way to guarantee a replacement for people's wages in retirement is by pooling risk, and the way to do that is through insurance.

Altman is not alone. Teresa Ghilarducci, an economics professor at the New School, has proposed a plan in which the government would divert 5% of everyone's wages. In return, you would be guaranteed in retirement a check for 26% of your final salary every year until you died. Altman would also like to expand Social Security to pay an additional 20% of workers' final pay. It's unlikely Congress would go for that at the moment.

But guaranteed accounts don't have to be run by the government. The ERISA Industry Committee (ERIC), a group that represents the nation's largest employers, has proposed a system of exchanges that would allow individuals the ability to buy a guaranteed retirement account on their own. Some government regulation would be needed, but it would be a private plan.

What the ERIC plan and others like it are essentially proposing is a form of retirement insurance. So instead of putting 6% of your salary into a 401(k) or some other investment account, each pay period you would send 6% of your check to a retirement-insurance provider. The policy would work similarly to a traditional pension in that it would provide a guaranteed monthly check equal to about a quarter of your final pay, from when you quit working until you die. Some employers might even be willing to pay the annual premium as a perk. If not, employees would pay for it much as they currently fund their own 401(k)s. But the policy would be portable. Contribute for 30 years and you would be guaranteed income in retirement, no matter how many employers you worked for. Combine your retirement-insurance check with the money you get from Social Security, which can equal as much as 50% of final pay, and presto: you have something approaching retirement security. (See the best business deals of 2008.)

Would it be feasible, politically or otherwise, to get people to dispense with their 401(k)s? Corporations, for one, are not the least bit interested in taking on pensions again — the cost would be enormous, and the expense makes them less competitive globally. "There are people in the Obama Administration who are supportive of some kind of guaranteed system," says Dean Baker of the Center for Economic and Policy Research. "People should not have to shoulder the risk of a bad turn in the market."

Nonetheless, a government-run system is not in the cards. "I think there is broad political support for the government administering some sort of retirement plan," says Christian Weller, a senior fellow at the liberal-leaning Center for American Progress. "But even if health-care reform is passed, the debate over the public option has made a similar solution for retirement less likely."

But many policy experts say some type of change to our retirement-savings system is coming. First of all, given the market carnage, there is some backing for the idea — not to mention anger and disappointment among retirees who can't really retire. Recent opinion polls show that people would be willing to give up the flexibility of a 401(k) for a guaranteed return. What's more, the fact that ERIC supports a guaranteed plan is encouraging. "Whether the 401(k) is a perfect plan or even the right plan is something that is being questioned in Congress," says Democratic Representative George Miller of California, chairman of the House Education and Labor Committee. "When you have seen the market's ability to create bubbles, you've got to ask whether the people trying to save for retirement should have to ride that risk." (See pictures of the top 10 scared stock traders.)

Back at the golf course, Shively is not the only former Occidental employee toiling away in his retirement. There are three other former Oxy Pete workers among the staff. All would be better off today — and probably playing the course as opposed to working it — had Occidental stuck to its pension system. Still, Shively says he is not mad at his former employer. And so far, he hasn't found working in retirement to be too bad. Let's hope we all think the same.

— With reporting by Christopher Maag / Niagara Falls,8599,1929119,00.html

STRS stakeholders' worst fears (mandatory defined contributions retirements) are being seriously discussed in Kansas!

From RH Jones, October 15, 2009
To all:
The problem with public employee Defined Contribution (401K) type pension plans, as opposed to our Defined Benefit (DB) plan is that the 401K is not guaranteed. And, if all new hires have to pay into the 401K, rather than the DB, this means that: Since no new hires would be paying into the fund, the current retired members are left stranded until the DB runs out of funds, and consequently expires -- perhaps before we do; also, if you are already retired under a 401K, there could never be funds for a COLA, 13th check, or any other "catch up" to inflation benefits; and, being retired, if there is an economic downturn, you also lose. Only the extreme far-right politicians gain treasure from the private for profit companies offering the for their profit 401K pension plans
All public employees lose; therefore, nationwide, we need to join hands, in union, to defeat any politician who would back such a heartless plan. Let the extremist far-right stand in front of ninety tough city eight graders for "study" hall at the last period of the day like I did, and try to get them to study; Or to be the Police/fire and Highway Patrol that risk their lives every second of their duties; Or to be the Public Nurse who has to go into the worst neighborhoods to tend to the sick; Or the highway worker who works out in traffic breathing vehicular fumes when it is 90 F, while the pavement is boiling; Or the public building janitor that works to remove filth, while breathing harmful dust, and asbestos particles. Together, we can defeat the hard headed extremists who think that public employees are timid and would fold at the least little threat. Au contraire, we will not yield. We will vote you out of office. And our jails are beginning to fill with those moneyed extremists who are wrecking retirement system investments. In this information age, the dishonest can no longer get away with it. And that is a fact, not my opinion,
RHJones, retired STRS teacher member
Economist, panel's chairman push 401(k)-style pensions for Kansas teachers, government workers
Associated Press
October 13, 2009
TOPEKA, KAN. — A university economist and a key legislator who wants Kansas to have 401(k)-style pensions for its new teachers and government workers said Tuesday that such a plan can be started quickly.
The economist, Art Hall, told the House Appropriations Committee that starting such a plan would lessen long-term funding problems for the Kansas Public Employees Retirement System. Committee Chairman Kevin Yoder backs the idea.
"I think there are a lot of legislators interested," said Yoder, an Overland Park Republican.
Hall is executive director of the Center for Applied Economics at the University of Kansas, which raised eyebrows across state government with a recent report describing KPERS as "bankrupt." Several committee Democrats took him to task for the description, saying it unnecessarily frightened some seniors.
Hall acknowledged — as KPERS officials have said — that current retirees' pensions aren't in danger in the near-term. But at the end of last year, KPERS projected the gap between its income and expenses over the next 25 years at $8.3 billion.
He told the committee the state faces pouring increasing amounts of money into KPERS unless it moves away from guaranteeing teachers and government workers benefits, based on their years of service and salaries.
Hall also noted that the state's higher education system has its own 401(k)-style plan, which could be expanded or copied under KPERS management.
"The state already has the infrastructure necessary," Hall said. "You simply have to decide to do it."
But Gov. Mark Parkinson has expressed skepticism, and many fellow Democrats in the Legislature oppose it, as do public employee unions. They note that 401(k)-style plans put the financial risk on employees, whose projected benefits fluctuate with the financial markets — a point driven home when the economy slumped last year.
"I have a lot of people — friends, associates — who say, 'Hey, I'm going to have to work another 10 years,'" said Rep. Bill Feuerborn, of Garnett, the committee's ranking Democrat.
Officials believe the state legally can't force current KPERS members to switch to a 401(k)-style plan. But Hall said having new workers join such a plan would eliminate future liabilities for the state — and free up resources to deal with the problems facing the existing system.
Eventually, all teachers and workers would have 401(k)-style plans and, Hall said, future legislators "really won't have much an issue to deal with."
As for describing KPERS as "bankrupt," Hall noted that the center's report was assessing the pension system's long-term finances and noting it wouldn't be able to meet all of its obligations over time. Hall said he ran softer language by colleagues, who questioned whether it was clear.
"I'm terribly sorry if I frightened any widow or other elderly person, but technically, we are absolutely correct," Hall said.
Feuerborn replied: "Maybe you should have gone to a nursing home and ran that word by them."

More get well cards, notes urged for John Lazares

John has been in and out of the hospital I don't know how many times in the last few weeks. Twice recently he was rushed there in an ambulance, but is currently home again (as of October 13). He's had complications (103° fevers, etc.) because the stent for his kidney stone surgery was inserted wrong. He's had to have two more surgeries since, to correct it. He's had a tremendous amount of pain through it all. I'm sure he would appreciate cards and notes from people.
.....John Lazares
.....8133 Devonshire Pl.
.....Maineville, OH 45039
Kathie Bracy 10/15/09

Wednesday, October 14, 2009

Donna and Dean Seaman to Nehf & Board: What surprises will you have for us this month?

From Donna Seaman, October 14, 2009
Subject: Board meeting
STRS board members and Mr. Nehf: Well what unpleasant surprises do you have in store for retirees at this month's board meeting? When, if ever, can we expect you to begin, even with small baby steps, to consider the impact your decisions have on retirees?
In the past several years, and more importantly, in the past several months, your decisions have eliminated our 13th check, proposed a reduction in COLA, changed and reduced our health benefits and coverage, continued to spend, spend, spend internally. while losing $42 billion of our funds.. And the most insulting, inappropriate and egregious decision of all: pay bonuses/performance based incentives to investment staff -- totally unjustified and undeserved!
I remind you, once again, that your focus and responsibility is to Ohio's retired teachers. You are not to favor STRS employees and STRS operating expenses in your decisions! You are legally and ethically bound to work for retirees! You should require Mr. Nehf to begin those promised staff cuts!
Please keep this in mind as you go forward with your decisions.
Donna Seaman, 2002 retiree
Dean Seaman, 1986 retiree
(These opinions are our own and do not represent those of any group.)'s STRS investments crew doing lately?

From John Curry, October 14, 2009
[Click image to enlarge]

Well, according to the Ohio Retirement Study Council's report that was released today, not so good. How does next to last (4 out of 5) sound?
The attachment is the summary page of investment performance by all state retirement systems ending 6/30/09. If you wish to access this page (and others) click on the ORSC's website link below:
In this attached page please follow the "2 quarters" and the "1 Yr." columns down to see how STRS fared in comparison with the "other" state retirement systems. Looks like to me that our outlandish bonuses didn't mean a whole lot, did they?
Let's look at the last 2 quarters "Total Return" figures (ranked by the best performers to the worst performers):
#1 Highway Patrol 5.97
#2 Police & Fire 3.99
#3 PERS 3.05
#4 STRS 2.76
#5 SERS 1.06
Let's look at the last year (1 Yr. column) "Total Return" figures (ranked by the best performers to the worst performers):
#1 Highway Patrol -18.33
#2 PERS -19.34
#3 Police & Fire -20.48
#4 STRS -21.66
#5 SERS -21.81
Keep in mind that only PERS and STRS have "in house" investors and, at STRS, we paid dearly for our investment associates' bonuses, didn't we? Being next to the basement for the last 2 quarters and last year brings no Kudos from this benefits recipient!
Let's watch some folks at STRS try to spin this one! You'll probably hear the "five year excuse" which is:
"You know, we have to take a look at the long term figures."
What they won't say is that short term figures soon (over time) turn into long term figures, don't they?

Tuesday, October 13, 2009

RH Jones re: Critical ORSC meeting October 14

From RH Jones, October 13, 2009
Subject: Re: the ORSC meeting tomorrow is open to public
To all:
Tomorrow’s, Oct. 14, 9:00 am, meeting of the Ohio retirement Study Council (ORSC) is open to the public. For details go to Kathie Bracy’s Blog:
It is very important for us STRS retirees and active members to attend. Our future pension system depends on the outcome of this critical meeting -- In college you learned that crisis (krisis) is Greek for decision. Decisions tomorrow will be made by Ohio Reps and other officials which may, or may not, be allowed by the U.S. Constitution. And, in being sure they follow this U.S. Constitution, we need to be aware that any of their decisions follow our needs, rather than favoring the powers who brought us to this crisis to begin with.
That’s my opinion,
RHJones, a STRS retired teacher member

MarketWatch: Public pensioners have taxpayers as a backstop; Although government plans have taken a hit, benefits mostly secure

MarketWatch, Sept. 23, 2009
Public pensioners have taxpayers as a backstop
Although government plans have taken a hit, benefits mostly secure
By Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) -- When it comes to retirement security, it pays to have something that is good enough for government work.
While private-sector workers can only hope their 401(k)s and IRAs recoup their big losses of the last year, government employees are at less financial risk because their pensions are generally guaranteed by law -- with taxpayers on the hook for benefits.
[Click image to enlarge]

[Click here to view video]
That doesn't mean the financial crisis hasn't taken a toll on the pension plans of state and local government workers. Funding levels for public pension plans have dropped, and are expected to fall even further as more investment losses are recognized, experts said.
"What plans have working for them is they are long-term propositions, there's time to make up for losses. But it is naïve to think that costs haven't increased because of the cycle we've been through -- there are long-run consequences," Foresti said. See MarketWatch's complete coverage of Retirement in Peril.
A pension plan's funding ratio measures assets to liabilities. For fiscal 2008, Wilshire estimated that the funding ratio for state retirement systems fell to 84% from 96% in the prior year. For 2009, Foresti expects a level of less than 80%. But experts say retirees and already-vested workers can rely on plans to honor promises.
"Current employees are guaranteed benefits by contract law and many state constitutions mandate that benefits cannot be changed," said Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County, and Municipal Employees. "Current workers would challenge any attempt to illegally deny them benefits that they expect and deserve."
There are about 7.5 million beneficiaries receiving payouts from state and local retirement systems, another 14.4 million employees who are system members, and 4.2 former employees and others who have retained retirement credits, according to 2007 Census data. Among the two primary types of federal retirement -- the Civil Service Retirement System and the Federal Employees Retirement System -- there are about 1.86 million annuitants, and 610,000 survivor annuitants, as of Oct. 1, 2008, according to the U.S. Office of Personnel Management.
Newer employees may take a hit
While those who have retired or are vested can feel reasonably secure, the news may be less optimistic for newer workers, experts said. Newer public workers face smaller benefits as more governments establish tiered benefits systems, said Keith Brainard, research director of the National Association of State Retirement Administrators.
"It's more typical to see benefit changes made to new hires, and that's a way to reduce the cost of the plan," Brainard said. "We are likely to continue to see those develop."
Foresti agreed: "As different states or municipalities are looking at their particular situation, what their tax base looks like, there is going to be some pressure to change what's in the benefits package."
A retirement system could even convert from a defined-benefit to a defined- contribution plan, Ferlauto said.
"That would put security at risk," Ferlauto said. "For people who are not vested, or more likely for new employees, the terms of the contract could change in a way that would make them a lot less secure."
According to a report from the National Conference of State Legislatures, this year's "principal theme" in pension legislation "was the need to make future pension costs manageable in the light of states' straitened fiscal circumstances and the enormous losses most retirement trust funds have experienced."
The report said:
•Few benefit increases were enacted
•There were various forms of reductions in states
•Some states enacted early retirement incentives to reduce work forces
•Some states revised benefit packages for future employees to require longer service or higher ages for retirement, discourage early retirement even with reduced benefits, limit future cost-of-living adjustments, and tighten standards for disability retirement.
"For the most part benefits cannot be rolled back for current retirees or employees, so changes would affect new employees," Ferlauto said. "Most changes would involve increasing the employee contributions into the system, or raising the retirement age, which is happening in a number of places."
Beth Almeida, executive director of the National Institute on Retirement Security, said public pensions were "in really good shape" before the crisis hit, but some administrators are reviewing plans.
"They had plenty of money to pay for benefits for decades," Almeida said. "That said, there is a process going on where states and localities are taking a look at their pension programs, and making sure that the plans are sustainable for the next 50 years."
Despite the market's volatility, there have been some cool heads, she added.
"What we are really seeing around the country are not knee-jerk reactions to dramatic events. You are seeing a more deliberative reaction," Almeida said. "The public pensions have been through market cycles before. They know that they are going to have some good times and some bad times."
Pressure on taxpayers
While many workers are protected by pension contracts, taxpayers may be forced to foot more of the bill in the near- and long-term -- or watch some government services get eroded -- as investments gone awry exert even more pressure on pension systems. According to the report from the National Conference of State Legislatures, states such as Nebraska and New Mexico have increased contribution rates for "a number of state-sponsored retirement plans for both employers and existing employees."
"The bad news for stakeholders, like taxpayers, are the costs of meeting benefits in the future," Foresti said. "You'd expect those to be higher now. The shortfall needs to be filled in in the form of higher contributions. It's not reasonable to assume that investment returns are going to take care of everything."
Contributions to public pension systems typically come from three groups: employers, employees, and investment returns.
"Given this shared funding model, it's logical that recovering from recent investment losses may require shared sacrifice," Almeida said. "This may mean re-examining contributions coming into the system or benefits coming out of the system."
Healthy pensions need to achieve a certain return over the long run to keep costs at a reasonable level for taxpayers.
"Because of the booming stock market in years past some government employees thought that they could bypass regular contributions into the pension systems," Ferlauto said. "For states that properly paid their annual contributions we expect little long-term impact on tax rates, for states that avoided contributions when they should have been made there is a need for more tax dollars, but that is to make up for dollars that should have gone into the systems."
While a fully-funded plan is not necessary to pay promised benefits for many years, such a goal helps smooth taxpayers' expenses over time, Brainard said.
"If you are extremely underfunded, the cost of carrying that can be large and burden future taxpayers," Brainard said. "Full funding is not conservative. It is appropriate. It helps to promote intergenerational equity."
Robert Wylie, executive director of the South Dakota Retirement System, said his state has a conservative investment approach to ensure that benefits don't grow faster than assets. However, administrators may have to slow down benefit increases -- an option that many other plans don't have, he said.
"It might be in a few pieces so that not one group is feeling all of the pain," Wylie said.
Ruth Mantell is a MarketWatch reporter based in Washington.

Monday, October 12, 2009

Meredythe Flynn: Doctors turning down new Medicare patients

From Molly Janczyk, October 12, 2009
Subject: Greg Nickell: The new Medicare plan
Greg, What can you tell us about this dismal situation?
From Meredythe Flynn, October 12, 2009
Subject: The new Medicare plan
I work full time and will not be able to attend STRS or CORE meetings until I have more time. I just want to share the Medicare Advantage saga as handled by Aetna. The total represents only 2 of us who are trying to find new internists. I have made 22 calls to those people who recommend their doctor as great: only 1 accepts a new Medicare patient. The first question asked is "What insurance do you have?" The answer has been "We are not accepting any more Medicare patients." My friend has the same batting average.
Anyone over 65 has been sold out. If we get no medical treatment, think of the savings for Aetna. What a perfect deal for STRS if we somehow quit this and get our own if such a thing is possible. I now recognize without any effort whatsoever to be nice or understanding that they are all rotten to the core.
Meredythe A. Flynn

RH Jones: Cost of living higher in some counties

From RH Jones, October 12, 2009
Subject: Cost of Living(COL) is higher in some counties than others!
To all:
Personally, I agree with everything Don Gastchell wrote about to the Chair of the ORSC Todd Book EXCEPT rewarding Southern Ohio Counties with the average COLA at the expense of those of us who live in areas such as N.E. Ohio, Columbus, or other big cities. Our COL is higher than S.E..Ohio. For instance, property taxes for schools and city services is higher. Also, we have to pay more for homes and services. To be fair, a higher median than $35,000 needs to be considered for those of us who taught, and live, in areas where our COL is higher. The national index spells this out.
My personal conclusions,
Robert Hudson Jones, retired Akron Teacher

Don Gatchell: Letter to Representative Todd Book and recommendations for the ORSC and Kevin Boyce

From Don Gatchell, October 12, 2009
Ross County Retired Teachers Association
1251 Betty Lane
Chillicothe OH 45601-1911
The Honorable Todd Book
Chairman, ORSC and
Representative, 89th House District, Ohio
Dear Chairman Book:
I am writing to you concerning the task that the ORSC has to review the Long-Term Contingency Plan submitted by the STRS and recommend new legislation to the Ohio General Assembly. As president of the Ross County RTA, I have conferred with many retired educators to reach the conclusions that I will highlight. Retirees do want the defined benefit plan to continue. We do feel that we have earned a secure retirement, that we have made sacrifices during our retirement years and now it is time that others put forth the necessary effort to see that our pensions and benefits are secure in the future. Retirees do know about the function of the ORSC and we do appreciate the work that the committee does to support us.
We believe that the STRS Long-Term Contingency Plan needs to be carefully reviewed, but represents good work by Michael Nehf, his staff and the STRS Board. Because of the high increases in teacher salaries over the last few years, we understand that they may have to make some sacrifices to insure the long-term solvency of the pension fund. Those of us who have been retired ten or more years have already made financial sacrifices. We lost the 13th check and the subsidy for the health insurance premium of our spouses. Our health insurance premiums have risen 95%. Hopefully, our benefits and pension will not be further battered in the near future. Our hope is that the long-term contingency plan for stabilization of the pension fund be “retiree-friendly” without being unfair to active teachers, school boards or the public, the tax-payers. I have some suggestions for amending the current plan based on consultations with other retirees throughout Ohio.
First, the COLA is a topic of contention. One way to handle this issue is to simply provide a COLA to only those retirees receiving below the median annual pension amount (c. $35, 000) . These are the retirees who truly need additional money to make ends meet. Some of the older retirees receive less than $1,000 per month. Do not provide a COLA to those receiving above the median dollar amount since they do not need that additional money immediately. In future years, active teachers will retire with a higher FAS (Final Average Salary) which will cause the pension average to rise so additional retirees will become eligible for the COLA. Therefore, as the years go by and the amount of a retiree’s pension loses some value and sinks below the median pension amount, he/she will become eligible for the COLA. In other words, the income trigger for the COLA would “float” upward as the median income increases over the years. Using this simple formula rather than a set dollar amount absolves the legislature of the constant duty to change the wording of COLA legislation. STRS should be charged with the duty of calculating the median pension every two years and adjusting the COLA of newly eligible retirees accordingly. A COLA of 3.5 % would seem to be appropriate and affordable for STRS based on the formula and by requiring that an individual be retired at least 5 years before being eligible for the COLA.
Second, the recommended increase in contributions from active teachers and school boards needs review. It would seem appropriate that the annual contribution % by teachers should increase more than the % by school boards. School boards already contribute 14% while active teachers only contribute 10%. Rather than the contingency plan promoting the same increase for both entities (2.5%), the actives should pay an additional phased-in 2.5 % and the school boards should not pay any more at this time. School boards are finding it difficult to fund current expenses due to the after-effects of the “economic meltdown”. If they have to go to the voters to fund an increased obligation to STRS, it would not be very popular with the public and could bring problems. Also, this issue related to school boards can be revisited in two years when the economy improves.
Third, the health insurance benefit, though not guaranteed by statute, was guaranteed in writing by the STRS staff who spoke to retirees in our “exit-interview” before we left the active ranks of teaching. A pension without a reasonable health insurance benefit is pretty empty. Our health insurance premiums have risen 95% over the last ten years, a hefty increase by any calculation. Some of us who are married and chose the better policy pay about $1,000/month or have almost $12,000 taken out of our modest pensions each year. I do think we pay more than our fair share. STRS needs to join with other large groups to help lower the cost of insurance especially the premiums of retirees. Also, the plan by STRS to join in the so-called Medicare Advantage Plan needs to be reviewed by ORSC because it seems to be more of an advantage for the insurance companies than it does for either STRS or retired teachers.
Fourth, the STRS investment staff seems to require a great deal of money to perform no better than other state pension funds that spend less money to arrange investments. In fact, the STRS staffers were given bonus payments (PBI) even though the pension fund lost substantial money. We retirees who invest successfully ourselves would like an independent review of the STRS investment program to answer some questions we have. Is it possible to do a better job with many fewer employees? Would it be better to hire an outside firm that has a history of excellent investment performance, e.g. Russell or Pimco or Fidelity, to improve the investment income while decreasing both risk and costs?
Finally, State Treasurer Kevin Boyce must appoint a voting member to the STRS Board. He has the statutory obligation to appoint an investment expert to the board. Kevin Boyce has waited too long to make a decision while this seat on the board remains vacant month after month. If ever STRS needed an investment expert on the board, it is now! I recommend that ORSC suggest to Mr. Boyce that Dr. Tom Hall be appointed as soon as possible. He is an active university educator who is interested in the position and who is an expert on investing. Dr. Hall is professor of economics at Miami University of Ohio, understands what a fiduciary responsibility is and has the best interests of the public, STRS and retirees in mind. He can be contacted at ph# 513-529-2862 or .
My wish is that the ORSC will assist the STRS Staff and Board in paying attention to their sworn fiduciary duty of preserving a stable defined-benefit pension fund for retired teachers. Please review my comments and let me know what you think about the chance the ORSC might consider my ideas. If you would like to speak to me in person, my contact information is listed below.
Donald C. Gatchell
President, Ross County Retired Teachers Association

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