Saturday, June 23, 2018
Friday, June 22, 2018
What must be done about "the low hanging fruit": Your COLA
From the Ohio STRS Member Only Forum (Facebook). Author or date not given.
Why STRS Can Afford To Restore Retirees COLA
and
Why Ohio Legislators Should Intervene
One of the biggest fears of retirees is that Ohio STRS is having financial difficulties and restoring the COLA benefit will jeopardize the pension. This is not the case. Below is a list of reasons why the Ohio's Legislature must restore the COLA to all retires who retired under Ohio's statutes that stated a COLA shall be paid.
1) We were told that in a Defined Benefit Plan the employer assumes all the risk. A Defined Benefit Plan is like a contact where contribution monies from the teacher and teacher's employer is given to STRS. STRS then exclusively invests the monies for the defined benefit pension plan to provide your pension benefits. Teachers who retired prior to July 2013 met all of their Defined Benefit obligations and STRS Ohio met all their 30 year investment goals (earnings assumptions) over every 30 year funding period. A 3% COLA was built into their actuarial table as a pension benefit along with the base pension payout. It goes without saying this COLA should be paid, as promised, as it was a consistently stated benefit. STRS also offers a Defined Contribution Plan; but in this plan the risk is assumed by the employee's investment selection. All teachers financially harmed by the COLA loss, were a part of the Defined Benefit Plan. Reneging on paying out the earned COLA erodes the underpinnings of Ohio's Defined Benefit Plan. Teachers are learning a lesson that they cannot trust STRS after decades of having to hand over their hard earned monies.
2) STRS Ohio created their own problem but teachers are being asked to take the fall. We understand STRS needs to have enough money to pay your pension and promised benefits. They do this by taking your contribution and your employer's contribution. They then invest the monies over your employment period prior to retiring. If they meet their earnings goal, they'll have enough money. So in order to pay out your pension and benefits they project a rate of return on their investments that they will need over the time period you work. This rate of return is referred to as their earnings assumption rate. The period of time you work prior to retiring is often referred as the funding period. Since the average person used to have to work 30 years to get full retirement benefits, the funding period is a 30 year period. So, STRS has a funded period which is blended with an earning assumption rate estimate (so basically it is what percent do they expect to earn on investments from the collected employee and employer contributions). It becomes easy to see the higher percentage rate STRS earns, the better off the funding is for your pension. Additionally the higher earnings assumption STRS projects, provides STRS with more latitude in increasing pension benefits. However, when STRS lowers earnings assumptions, problems can be created. And this is what STRS did, they lowered their earnings assumption down to 7.45% from 7.75%.
When STRS lowers their earnings assumption even slightly, it creates significant projected liabilities over the 30 year funding period. This is because STRS has billions of dollars (currently 77 billion) to invest. It's important to understand that the earnings assumption is simply a projection. In reality, STRS has always earned over 8% in returns over every 30 year funding period. STRS always earns a higher rate of return than their projected earnings assumption rate over the 30 year funding period. So when STRS lowers their earning assumption rate, they must project billions of dollars of less money in their coffers 30 years out. As a result, STRS must figure out how to make up the artificial deficit on paper.
Since they have very little choice other than to ask the legislators to raise the employers contribution tax rate, they look to you. Retirees became the low fruit and that is why your COLA is unethically being held. This is why current teachers now have to be 60 years old and have at least 35 years of service in order to avoid an actuarially reduced pension.
All this happened because STRS lowered the earnings assumption from 8%, then down to 7.75% and now down to 7.45%. STRS created the 27 billion dollars paper deficit over the 30 year funding period but teachers are taking the hit. The COLA was the low hanging fruit. If STRS restores the COLA to 7.75% it wipes out most of the paper deficit and makes it hard for STRS to argue they can't restore our COLA.
Again, why STRS's actions are unethical: STRS's actions do not match their financial reality. STRS has always earned over 8% on investment returns over a 30 year funding period. Here's a question, why do the investment advisers for the Ohio Police and Fire retirement system project their earnings assumption to be 8.25% while STRS investment advisers project our returns to be 7.45%? Are Ohio's teachers lesser in importance?
3) STRS Ohio has a goal to be 100% funded. This sounds noble, but their goal comes at our expense. Currently STRS is around 75% funded. This means in simplistic terms that without any earnings from investments they can pay out pensions and benefits for approximately 20 years. To put this into perspective Kentucky is 37% funded and in the news, but Kentucky's legislature is allowing current retirees and all current teachers vested with 15 years to go though their state retirement system without any reduction of benefits. Again, all of Kentucky's retirees are not being impacted in any manner.
4) STRS Ohio is taking advantage of you. Our Legislature needs to review their actions and intervene. Recently, STRS requested drastic changes to our pension system, some legal but arguably unethical. Some were arguably illegal. Here is what is illegal: Prior to 1/07/13, ORC Statute 3307.67 states the COLA shall be 3%. This wasn't honored. Ohio's Constitution, Article II Section 28 which addresses Retroactive Laws, states Ohio's General Assembly shall have no power to pass retroactive laws. This means they didn't have power to change your promised COLA benefit after you retired, but they did. Then they gave their legislative power away and allowed STRS to have control over your COLA. Also violated was ORC 3307.14. This provision states in clear terms that if STRS Ohio cannot meet its financial obligations, the burden falls on the employer not the employee. ORC 3307.14 would have to increase the employers contribution to cover our COLA loss if the STRS books clearly demonstrated there was a financial crisis. While perhaps unpopular, increasing the employer contribution would be fair in light of it has been fixed at 14% for 34 years while the employee contribution has increased 100%. Thus the legislators only real decision should be, should they raise the employers tax, or have STRS increase the earnings assumption rate back to 7.75% to undo the paper loss. STRS could have approached the General Assembly with this option but likely don't want to draw negative attention to themselves. Here's what they did that was legal but questionable. STRS sought actions drastically impacting the pension system. As a result retirement requirements now require a teacher to be age 60 with 35 service years for full retirement. Additionally current teachers retiring are not provided any COLA for the first 5 years of retirement. They saved a fortune by doing the aforementioned. All legal, but is this what we want for Ohio's teachers.
5) STRS has paved the road to being 100% funded off the backs of Ohio teachers. Some simple math and common sense reveals STRS did not have to seek the authority to rob retired teachers of their COLA from the legislature.
First, STRS has 77 billion dollars in investments. STRS pays out around 7 billion annually in pensions and benefits, but STRS takes in close to 3.5 billion dollars annually from the employee and employer contributions. If STRS just earns a 5% return on the 77 billion dollars they invest, they'll covers expenses. However, knowing they actually average earning over 8% on their investments over all 30 funding periods, there is a disconnect as to why they project 7.45%. Note, the S&P has averaged 9.8% over all 64 rolling 30 year periods.
Second, let's take a moving forward look at their finances. In the past, a teacher worked and paid into STRS for 30 years in order to obtain their pension and benefits. This teacher likely retired at age 55 and lived to age 80. So STRS collected contributions for 30 years and paid out retirement benefits for 25 years.
Currently, a teacher has to work 35 years to obtain their pension and benefits. This teacher must be at least 60 years of age and have paid into STRS for at least 35 years. So STRS will collect contributions for 35 years, but only pay out pension benefits for 20 years. Additionally, STRS will not pay out any annual COLA benefits during this teacher's first 5 years of retirement. Seems unfair. STRS has drastically reduced their long term liabilities by around 25%. STRS takes in monies 5 years longer yet pays out 5 years less. They will get to their 100% fully funded goal at the expense of Ohio's teachers.
6) Nero fiddled while Rome burned. The average retired teacher's pension in Ohio is less than $50,000 for decades of service. The average promised simple COLA benefit is less than $1,500. Compare that to the salaries of the STRS staff (which pays into PERS). A typical annual salary bonus in the investment department, bonus not salary, can be around $150,000. Here's a thought, STRS bonuses could cover many thousands COLA's. We pay for STRS raises and bonuses while they take away our COLA. Something wrong?
7) Action please! In summary, The State of Ohio has relinquished control of their teacher's COLA to STRS. This action has resulted in retirees promised COLA being lost for what might effectively be a 8 year period for the majority of retirees. By relinquishing control to STRS, the legislature has violated many of their own statutes. This caused great financial hardship to retirees, financial hardship that was arguably unnecessary. That said, when will the legislature address STRS's mismanagement, take back control of the COLA and restore the promised and COLA benefit? Until the legislators, or STRS, can restore retirees COLA and make retirees whole, it is only proper that the Ohio's legislature should take actions to:
A) Freeze all STRS salaries
B) Freeze all STRS bonuses
C) Freeze all STRS hiring
D) Legislatively move all STRS employees from PERS into STRS
E) Review selling STRS assets and real estate
or
F) *Restore the COLA by increasing the Employer's Contribution Rate (ORC 3307.14) or by increasing the Earnings Assumption Rate to reflect accurate historical returns
C) Freeze all STRS hiring
D) Legislatively move all STRS employees from PERS into STRS
E) Review selling STRS assets and real estate
or
F) *Restore the COLA by increasing the Employer's Contribution Rate (ORC 3307.14) or by increasing the Earnings Assumption Rate to reflect accurate historical returns
Representative Bill Seitz to STRS: Never in my wildest dreams did I expect the STRS Board to reduce to zero the retired teachers’ COLA
Below is the text of a letter from State Representative Bill Seitz. No date was given, but it sounds like it was very, very recent.
Columbus Office
Vern Riffe Center
77 S. High Street
14th Floor
Columbus, Ohio 43215-6111
(614) 466-8258
(800) 282-0253
(614) 719-0000 (Fax)
Dear STRS Board of Directors,
I write in support of a growing coalition of STRS retirees to request relief from the harsh decision made by STRS to reduce to zero for at least 5 years the COLA adjustment for all existing and new retirees.
When the Ohio General Assembly enacted pension reform legislation in 2012, we passed what each of the five retirement systems recommended by way of shoring up the fiscal stability of each fund. We admittedly gave the STRS Board, at its request, the complete power to set and adjust COLAs; we did not grant this power to the OPERS system, which did not ask for it. Never in my wildest dreams did I expect the STRS Board to reduce to zero the retired teachers’ COLA – especially after many teachers and administrators retired before the bill’s effective date in order to take advantage of the higher COLA which was offered to those who retired before the effective date. Even Social Security allows an annual modest COLA – and most teachers are precluded from participating in Social Security, or have their eligible benefits reduced or offset by their state pension.
I recognize that there are some retirees who have prospered by reason of prior STRS COLA payments that were in excess of the inflation rate. I also recognize that STRS must act to ensure continued solvency, though recent years’ investment performance and the requirement of 35 years of service should go a long way to achieving that goal.
But what is unreasonable is a zero COLA. I have offered numerous ideas to STRS about how to tackle this problem. None have been favorably responded to. What I find particularly unfair is that OPERS is still paying a fairly decent COLA, and its recent legislative proposal to make only modest reductions in that COLA (to 2.5 % or inflation, whichever is less) failed to receive any favorable legislative action. This signals to me that if STRS is not prepared to offer SOMETHING by way of a COLA, even on a targeted basis to those recent retirees who never really benefited from the COLA’s of the past, or those most in “need”, or those willing to waive health care in return for COLA, then the General Assembly may have the appetite to resolve this inequity by taking back, in whole or in part, its prior authority over COLAs.
Thank you for considering my views and the pleas of the many retirees.
Sincerely,
William J. Seitz
Dean Dennis: Words for the STRS Board June 21, 2018, and a strong admonition from Representative Bill Seitz
Dean Dennis' STRS Address June 21, 2018
My name is Dean Dennis, STRS Chair for the CFT-Retirees Chapter; Spokesperson for Ohio STRS Member Only Forum. (nearly 4,000 members).
I want to share excerpts of an email letter I received.
"Dear STRS Board of Directors,
"I write in support of a growing coalition of STRS retirees, to request relief from the harsh decision made by STRS to reduce to zero, for at least 5 years, the COLA adjustment for all existing and new retirees.
"When the Ohio General Assembly enacted pension reform legislation in 2012, we passed what each of the five retirement systems recommended by way of shoring up the fiscal stability of each fund. We admittedly gave the STRS Board, at its request, the complete power to set and adjust COLAs; Never in my wildest dreams, did I expect the STRS Board to reduce to zero, the retired teachers’ COLA – especially after many teachers and administrators, retired before the bill’s effective date in order to take advantage of the higher COLA ...."
The letter concludes by stating,
" If STRS is not prepared to offer SOMETHING by way of a COLA ....... then the General Assembly may have the appetite to resolve this inequity by taking back, in whole, or in part, its prior authority over COLAs."
Signed:
Representative Bill Seitz,
Ohio House of Representatives Majority Floor Leader
Ohio House of Representatives Majority Floor Leader
Next, STRS has always earned over 8% for every 30 year funding period. However, you vote to adopt a low, 7.45%, earnings assumption rate. This drastically increased the unfunded liability. Because of this, we lose our COLA, but for some reason STRS employees don't lose their six-figure annual bonuses.
Next, the Board voted to make teachers work 5 years longer for full pension benefits. You'll gain 5 additional years of higher payroll salaries than you'd receive from a new, lower-paid teacher. Nevertheless,
You vote to reduce your payroll growth assumption. This further increases the unfunded liability. It was 3.5%, knowing your payroll growth is going to be higher, you vote to reduce your payroll growth assumption to 3%. You then make over 4%. Surprise, surprise. What is going on? Same thing with the earnings assumptions; you project 7.45% over 30 years, knowing you average 8.4%, surprise, surprise again. By the way, where's our COLA?
Lastly, without a COLA, the average teacher's pension could put them near the poverty level before they die. For example, In 1987 the average teacher retired with a monthly pension of $2,400. Today, $2,600, is the threshold for food stamps for a family of two. Ohio's teachers deserve better than to have to worry if they'll end up on government assistance.
When it comes to protecting our dignity, we are cut out of the same cloth as our neighboring teachers in Kentucky and West Virginia. Our members have been patiently waiting on you to do what is right, but our patience is wearing thin. I hope when you listen to us, you hear us too.
Thank you,
Thursday, June 21, 2018
Mike Mulcahy to STRS Board June 21, 2018: STRS is forcing employers to rob taxpayers
Mike Mulcahy’s speech to STRS Board June 21, 2018
STRS is forcing Employers to Rob Taxpayers
1. Previous Retirement Rules (66% of FAS @ 30 years/any age) – Teacher earns $400,000 in the last years before retiring. Qualifies for a $52,800 pension.
2. New Retirement Rules (77% of FAS @ 35 years/if also age 60, teacher who began teaching at age 25) earns $400,000 in last 5 years and $400,000 additional lifetime career earnings over teacher #1, because they must work 5 years longer. Qualifies for a $61,600 pension.
3. New Retirement Rules (85.8% of FAS @ 39 years/if also age 60, teacher who began teaching at age 21) earns $400,000 in last 5 years and a total of $720,000 (9 extra years times $80,000) in lifetime career earnings over teacher #1.Qualifies for a $68,640 pension.
Result:
a) The Ohio Taxpayer additional burden for 5,000 teachers at the top of the salary scale working extra years to reach retirement as compared to a new teacher is $40,000 times 5,000 = $200,000,000 per year.
b) STRS saves Billions in pension funding as all future retirees are guaranteed to receive 5 to 9 fewer years of pension income.
Now let’s look at the teachers with each of the 3 scenarios mentioned.
Teacher #1 lives to be 85 and receives 25 years of pension of $52,800, totaling $1,584,000 with no COLA. Also has 5 more years in retirement than teacher #2 and 9 more years than teacher #3.
Teacher #2 lives to be age 85 and receives 25 years of pension of $61,600, totaling $1,540,000 with no COLA. This means $44,000 less pension income compared to teacher 1 and, had to work 5 more years, which of course means 5 less years in retirement. This teacher also will pay an additional $56,000 to STRS in pension contributions so they have lost $44,000 + $56,000 + $100,000 and 5 years of retirement!
Teacher #3 lives to be age 85 and receives 25 years of pension of $68,640 totaling $1,716,000 with no COLA. Works 9 more years for $132,000 more income. Teacher #3 also paid an additional $78,400 to STRS in pension contributions so they are ahead by only $53,000, but they also lost 9 years of retirement.
Bob Buerkle to STRS Board June 21, 2018: You lied to us!
Bob Buerkle’s speech to the STRS Board June 21, 2018
Where is the Justice in this STRS Building?
Last year STRS made additional retroactive pension system changes, on top of the 2013 changes, that will affect our financial future forever. You should not have been granted so much power over our lives! The actions you have taken if not soon reversed, will greatly diminish our economic value as consumers who, as a class, had beneficial importance in the past.
Your actions have also rendered our previous decisions of when to retire a total disaster. As retirees we should be able to have a “do-over” and make “null and void” the agreement that we had to sign with STRS upon our retirement. You changed the rules on us after the game was over!
I would like Director Nehf to provide me with a written response to the next three questions. First, do you have the power to force our employers to rehire us? Next, can you force the Department of Education to restore our expired non-permanent teaching certifications? Third, if you can’t do those two things for us, and I doubt you can, will STRS provide us with the option to remove the current actuarial transfer value of our remaining original pension reserves so we can invest the money for ourselves?
Teaching is one of the most stressful of all professions, but you have added more and more layers of stress to our lives, both current and future retirees. You lied to all of us, but particularly to the 25,000 people who sought STRS counseling and ended their careers early. You told them they would not receive a COLA for 5 years unless they retired by July 1, 2013. They were told they would receive a 2% COLA every year. Most of these retirees are now in their 6th year of retirement and now are looking at 2022 before they might receive a future COLA. The STRS Employees, IN THIS BUILDING, THAT WE PAY FOR, they receive a 3% COLA after just one year and every year in their retirement.
STRS knows how to take our money, but you don’t seem to know how to deliver the promises you made to us on our money.
Speaking of our money, you now receive 40% more from teachers. Of the 28% of total payroll earnings STRS receives, you are using 17% to achieve a GOAL YOU HAVE SET to reach 100% funding. This is not required by any legislation but you funnel over 2 Billion dollars annually towards your goal, leaving zero for COLA. Two Billion is 10 times the cost of providing a 3% COLA for one year to all 160,000 retirees. By the way, STRS Employees, IN THIS BUILDING, THAT WE PAY FOR, they aren’t forced to pay 40% more in pension contributions like OHIO Teachers are, and when they retire, they receive a 3% COLA every year.
Teachers who had planned years for their retirement date are now forced to work 35 to 39 years or longer before they can retire, and they must also be at least age 60, while the STRS Employees, IN THIS BUILDING, THAT WE PAY FOR, they can retire at any age after just 30 years.
Teachers will also receive lower pensions for life because of Final Average Salary changes, previously 3 years, has been changed to your high 5 years, lowering pensions by about 3%. However, the STRS Employees, IN THIS BUILDING, THAT WE PAY FOR, they still receive pensions based on their high 3 years of earnings. I might add that many of these STRS Employees, IN THIS BUILDING, THAT WE PAY FOR, have final average salaries that exceed $300,000, $400,000 and even $500,000.
A few months ago, I attended an STRS-sponsored meeting in Cincinnati about “Protecting Your Assets and Identity”. Do you understand what an “Oxymoron” is? As it turns out, STRS is the biggest threat to our pension promises on Planet Earth.
Cumulatively, STRS Members who traveled here today drove tens of thousands of miles and spent thousands of dollars of their own money. After today there are 6 business days left in this fiscal year. They want to see you make the most of them, call a special Board Meeting and “Restore Our COLA Now.”
Wednesday, June 20, 2018
News release: Retired teachers to march to STRS headquarters to demand return of their COLA
From the Cincinnati Federation of Teachers - Retired
News Release – June 21, 2018
Retired teachers march to STRS-Ohio headquarters in Columbus to demand that the STRS Board keep their promise to teachers and restore their COLA. Bus departs at 7:30 from Oakley Station.
Contact: Liz Jones, President Cincinnati Federation of Teachers –Retired chapter at ijon48@hotmail.com (513-288-0287)
On Thursday, June 21, 2018, active and retired teachers from all over Ohio will descend on the STRS (State Teachers Retirement System) headquarters at 275 East Broad Street, Columbus, Ohio. These Ohio teachers are demanding a return of their cost-of living adjustment (COLA). STRS froze this benefit for retired teachers AFTER they had retired. These teachers were promised this adjustment to keep up with inflation over their retirement life span. A motor coach and cars full of active and retired Cincinnati teachers plan to travel to the State capital.
An average teacher will lose a monumental sum of retirement funds over this five plus year timespan of the cost-of living-freeze and over $100,000 in thirty plus years of retirement. The Ohio STRS system is one of the strongest funded retirement systems in the country placing second in a study of 162 nationwide using private equity funds.
The Ohio STRS system is well funded and the current $77 Billion fund balance has sufficient reserves to pay 75% of all of the currently earned pension obligations today, even though some of those obligations will not come due for 60 or 70 years. With such a long investment time horizon STRS should easily be able to fund future pensions.
The STRS investments returned 14.29% last year, are up 9.5% this year and have never earned less than an 8% return over all 30 year rolling periods. By comparison, Kentucky's Funded Ratio is only 37%, less than half of the Ohio Funded Ratio. Yet Kentucky DID NOT cut retired teachers pensions or their COLA. Teachers want to know why the STRS Ohio Board took such draconian measures especially since Ohio teachers do not pay into Social Security. However, they do contribute 14% or 2.25 times as much of their salary to STRS retirement as Social Security requires.
In a grassroots effort, over 5200 teachers have signed the "Restore Our COLA" petition in the last 35 days. Members plan to continue travelling to Columbus to demand the STRS Board restore their COLA.
STRS needs to keep their promise to teachers and restore the COLA.
Dan MacDonald: A letter to the STRS Board
June 20, 2018
Sent for June 21st meeting
Dear STRS OH Board Members,
I am Dan MacDonald, an STRS retiree. I retired from Cleveland Heights – University Heights City Schools after 38 years which included 2 years as an Army officer. I will not be able to attend the June 21, 2018 Board meeting, but want to share my Public Participation if I was there. [If someone would read during PP, I’d be proud, but that doesn’t seem to be the process either] I need to first share that on June 22, 2018 I will be celebrating my 50th wedding anniversary with my lovely spouse, Donna, in New York City. On the 21st we will be driving to Yonkers, NY and take the train to NYC in the morning. I really wish I could be in two places at one time.
The STRS budget will probably be the main agenda item on the June table. There is an awakening mass of actives and retirees looking at STRS OH inactions and actions. A new Facebook group, “Ohio STRS Member Only Forum,” already has over 1,900 members in just over 3 weeks. A petition is being circulated and signed under www.restoreourcola.com . I suggest you read it. I am hoping as many actives as retirees will be attending the June meeting. I’ve encouraged actives in northeast Ohio to show up. I have no idea the numbers. I do know that Cincinnati will be represented by CInci retirees. Just as your May vote made a concession to the $29.90 Part B subsidy, so the STRS Budget should reflect that you are hearing your bosses, the actives and retirees. The budget should not be reflecting merit based pay raises. Sacrifices by all should be the tone or maybe for only those eligible for the Performance-Based Incentive Program or maybe just only for the department leadership of STRS OH, Executive Director on down. Make a statement of “listening/hearing” to the actives/retirees.
As to that concession over the subsidy, I am frosting from the thought that nothing would have been brought to the May Board floor if Scott DiMauro had not sent a letter from the Healthcare Pension Advocates. Has another layer of bureaucracy been added to the Board’s thought process? Does now an idea/suggestion have to be pre-approved by HPC to be brought to the Board agenda?
Actives/retirees do not think their organizations are speaking for them. Dr. Rayfield’s suggestion for a pathway/roadway best be seriously considered and become an agenda item soon if not now. You’re not going to be able to control the “talk” much longer. The internet is taking on a life of its own and thoughts and opinions are being shared outside STRS OH Communication center.
In Union,
Dan MacDonald