STRS Board Meeting April 24, 2014

Issues at the Statehouse:

At the March 20th STRS meeting, Segal Company recommended that STRS increase the mitigating rate for ARP from 4.5% to 5.5%. The first order of business at today's STRS meeting was scheduled to be a discussion of mitigating rates which the Chair, Dale Price promptly canceled. The reason was that the Ohio House of Representatives has taken up a study of the ARP mitigating rates, and it has now become part of the Amended Substitute House Bill 483. However STRS had wanted a 1% increase in the rate but before the STRS Board took action on this increase, the amendment to place a moratorium on the ARP rate of 4.5% was introduced in the House Finance and Appropriations Committee to express concerns with the amendment, namely:

1) The STRS Board as fiduciaries had a recent recommendation of their consulting actuary (Segal Co.) to increase the mitigating rate to 5.5% and:

2) the study being called for should be conducted by an actuarial firm and the systems for which the mitigating rate is an issue should be consulted (the systems were STRS, OPERS, and SERS). STRS Ohio worked with Rep. Dan Ramos (D_Lorain) to change the language.

Removal of the amendment altogether was ultimately offered as part of a package of amendments and failed along party lines. The bill as amended with the moratorium has moved through the House and will be taken up by the Senate when they return from spring break toward the end of April. The Senate has not yet established a timeline for acting on Am. Sub. H.B. 483 but passage by sometime in May has been mentioned.

The ORSC (Ohio Retirement Study Council) met April 10th and STRS Ohio's 30-year funding plan was presented by Executive Director Mike Nehf with an update to STRS Ohio's 30 year funding plan. He informed the Council that the Retirement Board approved a change that will direct the 1% of employer contributions currently being allocated to the Health Care Fund to the pension fund instead. That, coupled with the smoothing of the projected return on assets this year, is expected to reduce the system's funding period to 32 years. There were no comments or questions from the Council members.

Issues from the STRS Meeting of April 24th, 2014:

John Morrow, CFO of STRS Investment Department, reported a good month for March investments with a +12.4% estimated return for the fund. Alternative Investments led all indices. The market value of the fund is now back to $72 billion dollars. It seems as if everything is rosy in our investments and is on the right track. He reported that the new Fed Chair's (Janet Yellen) comments that the first short term interest rate increase could be "something on the order of around six months" caused an uproar but low interest rates will continue for a long time. He said that domestic equities shrugged off unrest between Russia and Ukraine with the S&P 500 closing March up .8% for the month. The S&P 500 has gained 18.4% on a total return basis for fiscal year 2014. International markets moved slightly higher in March and finished the month with a return of .3% for the STRS Ohio Blended Benchmark.

Greg Nickell, STRS Health Care, reported the first changes for the Health Care programs for January of 2015: 

a) Medical Mutual Plus and Basic plans will have an increase of deductible and coinsurance for both In-Network and Out-of Network plans as well as two in-network primary care visits at $20. each in the Basic Plan. 

b) The Aetna Plan will have a reduction of In-Network copay for primary care physician, specialist physician, deductible, out-of pocket limit but the same 4% coinsurance percentage. Aetna will have an increase in Out-of-Network copays for the above physicians, deductibles, out-of-pocket limit, and coinsurance percentage 6%.

The Express Scripts plan will increase the covered brand name deductible to $200. from $150 as well as implementing a specialty drug tier with a 10% coinsurance and maximum per prescription fill limit of $500. Other health care program changes effective January of 2015 will be:

a) Continue the Health Care Assistance programs at $0 premium with an increase to the emergency room copayment to $150 from $50 and increase the covered brand-name drug copayment to $20 from $15 at retail, and to $40 from $30 for home delivery.

b) Continue Medicare Part B premium reimbursement at 2014 levels for plan years 2015 & 2016.

c) Limit Medicare Part B reimbursement to benefit recipients enrolled in an STRS Ohio Medicare plan.

d) Discontinue subsidies and Medicare Part B premium reimbursement for individuals who become survivors on or after Jan. 1, 2015.

e) Continue the current Delta Dental and Vision Service Plan programs for the next two year period 2015 and 2016.

f) Apply the same 2.2% subsidy multiplier used for the Aetna and Medical Mutual plans to the regional plans based solely upon the costs of the regional plans not to exceed the base plan subsidy.

Health care plan program changes effective January of 2016 will be:

a) Discontinue the Medical Mutual Plus Plan. The Medical Mutual Basic Plan will have an In-Network deductible of $2,500 and out-of- pocket of $4,000.

b) Aetna Plan will have the same In-Network reductions as in 2015 except the deductible will be $150 and will also have Skilled Nursing/Home Health Care of 2%. Out-of-Network will be the same as 2015 except that specialist physicians will be $55. and out-of-pocket will be $2,000, coinsurance will be 8%, and Skilled Nursing/ Home Health Care will be 4%.

c) Express Scripts will change the maximum allowable amount to the 2016 standard Medicare Part D limit

d) Discontinue AultCare, Health Span, and Paramount plans. Now I do not recall any motions or voting on this first peek at proposed changes in our health care program so maybe this first look at HC programs will be subject to change in the future.

A report from the Finance Department followed with explanations from Paul Snyder, the new head of STRS Finance, on the proposed budgets for 2014 and 2015. The components of the budgets are operating expenditures, capital expenditures, and state of Ohio requirements. The budget process involves the departments of Member Benefits, Finance, Investments, and Executive. All of these departments develop individual budgets. The budgets are then presented to the Executive Director and the senior staff. The budget timeline requires a review by the ORSC before adoption by the STRS Retirement Board. Apr. 24--Board Presentation (occurred today)  Apr. 25 -- Budget sent to the ORSC May 8th -- Anticipated presentation to ORSC  June 19th -- Adoption of budget by the Board. The operating budget overview proposed today involved many increases in everything from salaries and wages to repairs and maintenance to supplies and materials to travel/vehicles. Building improvements, computer software, equipment for information processing & maintenance totaled $1,597,500. State of OH requirements amounted to $300,000 for the ORSC with $60,000 for Attorney General reimbursement, and Treasurer check processing fees of $5,000.

A discussion of STRS Ohio Funding followed led by Paul Snyder in which key funding policy components were suggested and by the time they got to the end of the presentation, the Board members had more questions than answers, and they decided to take their time in determining what their funding policy would be. They agreed that this was a very important policy and must be developed after much consideration and discussion. So it will be taken up at a later Board meeting.

The next STRS Board Meeting will be held on May 14th, 15th, and 16th.