(FROM the SERS newsletter)
On December 1, 2011, Rep. Rex Damschroder of Fremont introduced H.B. 388, which proposes suspending the retirement benefit of public retirement system retirees who return to public employment.
The intent of the bill was to address so-called "double-dipping," the term used when public employees retire, begin receiving a pension, and then return to public employment to collect both a pension and a paycheck.
The bill proposes deferring a reemployed retiree's pension into an account maintained by the retirement system during the time the person is reemployed. This would prevent a reemployed retiree from receiving a pension and a paycheck at the same time. Once the person retires from public service, the deferred pension money that accumulates in the account while the person was reemployed would be refunded either as a lump sum or monthly annuity.
Friday, March 2, 2012
Monday, February 27, 2012
February Board News
(The text below is reprinted from the news release by STRS on 2/20/12.)
Pension Legislation Could Move in Ohio Senate
STRS Ohio's director of governmental relations Terri Bierdeman reported to the board that Ohio Senate leaders are open to moving pension legislation before its summer break. Senate leaders met with representatives from each of the five public pension systems separately to share this new development and to discuss how best to proceed. The legislators would like pension plan design changes to include a smoother transition to new retirement eligibility rules than what was originally proposed by the systems. Any change in this regard, along with any delay in STRS Ohio's proposed July 1, 2012, implementation date, would cause STRS Ohio's plan to fall outside the 30-year amortization period that has been considered a key element of the system's pension reform plan. The board may consider other benefit changes to balance this cost.
The Senate leaders also called for broad constituent support for the pension reform plan. The retirement systems are developing strategies for communicating the plan design changes to their memberships and how to make it easy for members to show their support for the needed reforms. STRS Ohio will continue to use its website, newsletters and eUPDATE email news service to keep members informed about these upcoming efforts.
Callan Associates Provides Asset-Liability Study Update; Retirement Board Approves New Asset Mix
At the State Teachers Retirement Board's February meeting, the Retirement Board selected a new asset mix for the system's total fund with a slightly higher risk-return portfolio. The new asset mix is designed to potentially achieve higher returns during the next five to 10 years. Callan Associates, the Retirement Board's investment consultant, said it could support the new target mix if the board's proposed pension reform plan changes are adopted in the near future. Below are the current and new asset mix targets.
Callan projects that the new asset mix could earn a return in excess of 8% over the long term (30-year projection), though in the short term (five to 10 years), the mix is projected to return about 7.6%. Callan reported to the board that if the proposed pension reform plan changes are not implemented in a prompt manner, a more conservative portfolio would be recommended to meet the system's liquidity needs to pay benefits.
The Retirement Board asked Callan to conduct the asset-liability study in August 2011 to help determine reasonable risk and return expectations. Asset-liability studies are typically conducted every three to five years to acknowledge change and uncertainty in the capital markets and to confirm an investment policy to meet return and risk objectives in relation to funding, accounting and policy goals. STRS Ohio's Investment staff will begin to develop acceptable target ranges for each asset class and will incorporate the newly approved asset mix target in its Investment Plan before implementing the changes.
PricewaterhouseCoopers Presents Actuarial Experience Review
Sheldon Gamzon of PricewaterhouseCoopers (PwC), the board's actuarial consultant, delivered the results of PwC's three-year experience review covering the period July 1, 2008–June 30, 2011.
An experience review is typically conducted every three to five years. In December 2011, the board requested this project so it could have up-to-date analysis as it continues discussion of STRS Ohio's financial condition. The project evaluates the economic and demographic assumptions about future experience that are used to calculate pension liabilities. The actuaries compared what actually happened during the three-year period versus what was expected to happen in the areas of mortality, service retirements, withdrawals, inflation, investment returns, salary growth and payroll growth.
Based on this review, PwC is recommending adjustments to mortality, service retirement, inflation, expected investment returns and salary growth assumptions. The Retirement Board will consider these recommendations at a meeting scheduled for March 2.
Health Care Valuation Shows Improvement in Funding Status
Plan changes to lower subsidy levels and additional savings due to changes in the structure of the prescription drug plan led to an improved financial picture for the Health Care Stabilization Fund as of Jan. 1, 2012. STRS Ohio's actuarial consultant, PricewaterhouseCoopers (PwC), presented the results of the annual actuarial valuation of the fund, showing the projected life of the STRS Ohio Health Care Program now extends to 2039 — an increase of about 15 years from last year's valuation. While the solvency of the health care program improved, the Health Care Stabilization Fund is projected to become insolvent without further changes to the program in the future. Changes in coverage features, program eligibility and/or premium subsidies will be needed.
Costs for the health care program are paid out of the Health Care Stabilization Fund. Currently, monies for the fund come primarily from premiums charged to STRS Ohio retirees and their family members who are enrolled in the program, 1% of payroll from employer contributions, government reimbursements and investment earnings on these funds. The balance in the fund as of Jan. 1, 2012, was $2.96 billion.
In December, the Retirement Board directed STRS Ohio staff to begin working on a strategic plan with the primary goals of establishing Medicare as the health care program's cornerstone, achieving 30 years of solvency by 2016 and extending the forecasted solvency to 65 or more years by 2025.
Retirements Approved
The Retirement Board approved 172 active members and 109 inactive members for retirement.
Other STRS Ohio News
Pension Trustee Advisors Updates Ohio Retirement Study Council on Pension Reform Review; Will Study SERS, OPERS Proposals First
On Feb. 8, Flick Fornia of Pension Trustee Advisors (PTA) gave the Ohio Retirement Study Council (ORSC) an update regarding his firm's study of pension reform plans. He said due to the more modest nature of their plan revisions, PTA was asked to study the School Employees Retirement System (SERS) plan and the Ohio Public Employees Retirement System (OPERS) plan ahead of the other systems.
Fornia said he has interviewed each of the Council members, including the five Ohio retirement system executive directors, and some common elements emerged, including a desire to maintain defined benefit plans, the need to avoid any further risk to employers and a desire to see the health care needs addressed. Fornia plans to continue to collect information from each system and has set up additional meetings with the executive directors.
Council member Seth Morgan challenged Fornia to develop creative, aggressive solutions and present them to the Council in addition to evaluating the current plans before the legislature. Fornia said PTA is trying to balance the need to be able to measure the system's 30-year amortization plans with some Council members' desires for "out-of-the-box" thinking. He said his firm's final report for all five systems should be completed by July 11, 2012.
ORSC Hires New Director
Also at the Feb. 8 meeting, the ORSC hired Bethany Rhodes as the new director for the Council. Rhodes replaces Aristotle Hutras, who retired in December after serving as director for 22 years. Rhodes has been deputy legal counsel for the House Republican Caucus and was formerly an aide to Rep. Lynn Wachtmann (R-Napoleon), a long-time ORSC member who has served as both chair and vice-chair on the Council.
Pension Legislation Could Move in Ohio Senate
STRS Ohio's director of governmental relations Terri Bierdeman reported to the board that Ohio Senate leaders are open to moving pension legislation before its summer break. Senate leaders met with representatives from each of the five public pension systems separately to share this new development and to discuss how best to proceed. The legislators would like pension plan design changes to include a smoother transition to new retirement eligibility rules than what was originally proposed by the systems. Any change in this regard, along with any delay in STRS Ohio's proposed July 1, 2012, implementation date, would cause STRS Ohio's plan to fall outside the 30-year amortization period that has been considered a key element of the system's pension reform plan. The board may consider other benefit changes to balance this cost.
The Senate leaders also called for broad constituent support for the pension reform plan. The retirement systems are developing strategies for communicating the plan design changes to their memberships and how to make it easy for members to show their support for the needed reforms. STRS Ohio will continue to use its website, newsletters and eUPDATE email news service to keep members informed about these upcoming efforts.
Callan Associates Provides Asset-Liability Study Update; Retirement Board Approves New Asset Mix
At the State Teachers Retirement Board's February meeting, the Retirement Board selected a new asset mix for the system's total fund with a slightly higher risk-return portfolio. The new asset mix is designed to potentially achieve higher returns during the next five to 10 years. Callan Associates, the Retirement Board's investment consultant, said it could support the new target mix if the board's proposed pension reform plan changes are adopted in the near future. Below are the current and new asset mix targets.
Callan projects that the new asset mix could earn a return in excess of 8% over the long term (30-year projection), though in the short term (five to 10 years), the mix is projected to return about 7.6%. Callan reported to the board that if the proposed pension reform plan changes are not implemented in a prompt manner, a more conservative portfolio would be recommended to meet the system's liquidity needs to pay benefits.
The Retirement Board asked Callan to conduct the asset-liability study in August 2011 to help determine reasonable risk and return expectations. Asset-liability studies are typically conducted every three to five years to acknowledge change and uncertainty in the capital markets and to confirm an investment policy to meet return and risk objectives in relation to funding, accounting and policy goals. STRS Ohio's Investment staff will begin to develop acceptable target ranges for each asset class and will incorporate the newly approved asset mix target in its Investment Plan before implementing the changes.
PricewaterhouseCoopers Presents Actuarial Experience Review
Sheldon Gamzon of PricewaterhouseCoopers (PwC), the board's actuarial consultant, delivered the results of PwC's three-year experience review covering the period July 1, 2008–June 30, 2011.
An experience review is typically conducted every three to five years. In December 2011, the board requested this project so it could have up-to-date analysis as it continues discussion of STRS Ohio's financial condition. The project evaluates the economic and demographic assumptions about future experience that are used to calculate pension liabilities. The actuaries compared what actually happened during the three-year period versus what was expected to happen in the areas of mortality, service retirements, withdrawals, inflation, investment returns, salary growth and payroll growth.
Based on this review, PwC is recommending adjustments to mortality, service retirement, inflation, expected investment returns and salary growth assumptions. The Retirement Board will consider these recommendations at a meeting scheduled for March 2.
Health Care Valuation Shows Improvement in Funding Status
Plan changes to lower subsidy levels and additional savings due to changes in the structure of the prescription drug plan led to an improved financial picture for the Health Care Stabilization Fund as of Jan. 1, 2012. STRS Ohio's actuarial consultant, PricewaterhouseCoopers (PwC), presented the results of the annual actuarial valuation of the fund, showing the projected life of the STRS Ohio Health Care Program now extends to 2039 — an increase of about 15 years from last year's valuation. While the solvency of the health care program improved, the Health Care Stabilization Fund is projected to become insolvent without further changes to the program in the future. Changes in coverage features, program eligibility and/or premium subsidies will be needed.
Costs for the health care program are paid out of the Health Care Stabilization Fund. Currently, monies for the fund come primarily from premiums charged to STRS Ohio retirees and their family members who are enrolled in the program, 1% of payroll from employer contributions, government reimbursements and investment earnings on these funds. The balance in the fund as of Jan. 1, 2012, was $2.96 billion.
In December, the Retirement Board directed STRS Ohio staff to begin working on a strategic plan with the primary goals of establishing Medicare as the health care program's cornerstone, achieving 30 years of solvency by 2016 and extending the forecasted solvency to 65 or more years by 2025.
Retirements Approved
The Retirement Board approved 172 active members and 109 inactive members for retirement.
Other STRS Ohio News
Pension Trustee Advisors Updates Ohio Retirement Study Council on Pension Reform Review; Will Study SERS, OPERS Proposals First
On Feb. 8, Flick Fornia of Pension Trustee Advisors (PTA) gave the Ohio Retirement Study Council (ORSC) an update regarding his firm's study of pension reform plans. He said due to the more modest nature of their plan revisions, PTA was asked to study the School Employees Retirement System (SERS) plan and the Ohio Public Employees Retirement System (OPERS) plan ahead of the other systems.
Fornia said he has interviewed each of the Council members, including the five Ohio retirement system executive directors, and some common elements emerged, including a desire to maintain defined benefit plans, the need to avoid any further risk to employers and a desire to see the health care needs addressed. Fornia plans to continue to collect information from each system and has set up additional meetings with the executive directors.
Council member Seth Morgan challenged Fornia to develop creative, aggressive solutions and present them to the Council in addition to evaluating the current plans before the legislature. Fornia said PTA is trying to balance the need to be able to measure the system's 30-year amortization plans with some Council members' desires for "out-of-the-box" thinking. He said his firm's final report for all five systems should be completed by July 11, 2012.
ORSC Hires New Director
Also at the Feb. 8 meeting, the ORSC hired Bethany Rhodes as the new director for the Council. Rhodes replaces Aristotle Hutras, who retired in December after serving as director for 22 years. Rhodes has been deputy legal counsel for the House Republican Caucus and was formerly an aide to Rep. Lynn Wachtmann (R-Napoleon), a long-time ORSC member who has served as both chair and vice-chair on the Council.
Tuesday, February 7, 2012
January Board News
(The text below is reprinted from the news release by STRS on 1/23/12.)
Callan Associates Updates Retirement Board on Asset-Liability Study
At the January meeting of the State Teachers Retirement Board, the board's investment consultant, Callan Associates, provided additional research that the board requested in December as part of its asset-liability study. The study will help the board determine the optimal portfolio allocation for the system's assets. Last month, Callan presented five potential asset mixes for the board to review, along with the projected short- to medium-term rates of return for those mixes. At that time, the Retirement Board asked Callan to provide information on two additional asset mixes. The board will discuss these results further at its February meeting.
The preliminary results of the asset-liability study showed that STRS Ohio's current investment policy target would be challenged to achieve an 8% return during the next five to 10 years; however, based on historical data, Callan believes STRS Ohio could expect to generate an 8% to 8.5% return over a 30-year horizon. The study also confirmed that without benefit changes that STRS Ohio is currently seeking through S.B. 3 and H.B. 69, the system will eventually be unable to pay benefits. Unless the proposed changes are fully implemented soon, Callan recommends reducing the risk in the investment portfolio to meet the liquidity needs to pay benefits.
2011 Member Survey Results Presented
Results of membership surveys conducted in December 2011 show that most STRS Ohio members — active and retired — continue to have positive overall impressions of the system and the Retirement Board, and most still consider their pension an excellent or good value.
These were just a few of the findings from the annual membership surveys presented at the board's January 2012 meeting by Dr. Marty Saperstein. His Columbus-based research firm, Saperstein Associates, conducted the survey for the ninth consecutive year. The phone surveys involved 602 randomly selected participants (300 active members and 302 retirees) with surveys averaging about 20 minutes in length.
This year's survey results also showed the following:
- About two out of five active members plan to teach longer than they originally thought, and the most common reason cited for this is proposed pension benefit changes.
- About 73% of retirees consider the amount they pay for health insurance through STRS Ohio an excellent or good value.
- Most members are satisfied with system communications, including email updates. There is interest in web-based communication and services and a continued need for communication about proposed pension legislation.
- Nine out of 10 retiree households have at least one source of income in addition to STRS Ohio. On average, STRS Ohio provides 63% of retirees' income.
Retirements Approved
The Retirement Board approved 197 active members and 174 inactive members for retirement.
Other STRS Ohio News
STRS Ohio Working with Pension Trustee Advisors on Pension Reform
In December, Pension Trustee Advisors (PTA), an independent actuarial firm hired by the Ohio Retirement Study Council (ORSC) to study pension reform, sent a lengthy request for background data to all five Ohio public retirement systems. PTA requested the information as part of its work to review the pension reform plans that the retirement systems proposed — currently in Senate Bill 3 and House Bill 69. By the mid-January deadline, STRS Ohio had responded with nearly all of the data requested. Any outstanding items are being addressed. The information provided included board reports and policies, copies of our current and past Comprehensive Annual Financial Reports, 30-year funding plans, health care plan information and additional studies and research.
Call Center Service Levels Increase for Calendar Year 2011
Service levels increased significantly in the Member Services Center (MSC) during 2011. The average wait time for a representative dropped to 29 seconds compared to 85 seconds in 2010, and the abandon rate dropped to 1.9% compared to 6.5% in 2010.
Helping to increase the service level was the drop in call volume from 322,000 in 2010 to 319,000 in 2011. Call activity increased regarding counseling services, service retirement and account withdrawal, while the call volume relating to health care dropped due to an off year for dental and vision open enrollment.
The MSC has eliminated the call menu for incoming calls. Members no longer need to select from a menu of three choices when calling STRS Ohio; instead, they will hear a live person answer their call. In the past, a menu system was used to help direct calls to the appropriate staff; however, member service representatives are now trained on all STRS Ohio benefits and can take any incoming call. This change will eliminate confusion for members, as well as reduce repeat calls when members hang up and try a different option during peak calling periods in hopes of getting a faster response.
Health Care Plans' Total Enrollment Unchanged by Annual Open Enrollment
Following a successful open-enrollment period in November, the STRS Ohio Health Care Program is beginning 2012 with about the same number of enrollees as December 2011. There were 807 new enrollees and 1,080 terminations for a net decrease of 273 (0.2% decrease in total enrollment). More than 12,000 plan changes were recorded between November 2011 and January 2012. More than two-thirds of these changes (8,174) were Medical Mutual Plus Plan Medicare B only members who STRS Ohio proactively moved (i.e., the enrollee did not need to do anything additional) to the Aetna Medicare Plan (PPO). Total enrollment in the STRS Ohio Health Care Program as of Jan. 1, 2012, stands at 122,540.
Tax Reporting Season Includes New Feature for Benefit Recipients
The year-end tax reporting process for 2011 is under way — generating 161,634 Form 1099R tax statements that show slightly more than $5.7 billion in distributions and $810 million in federal and Ohio taxes withheld. Tax statements began mailing to benefit recipients on Jan. 17. Tax statements for QEBA excess benefit recipients (35) and non-resident aliens (approximately 175) are also part of this mailing.
Beginning Feb. 1, a new feature on the STRS Ohio member website will allow benefit recipients online access to reprint their 1099R forms for 2011. Copies of 2010 and earlier tax statements will continue to be available by request from our Member Services Center.
Wednesday, December 14, 2011
December Board News
(The text below is reprinted from the news release by STRS on 12/9/11.)
Callan Associates Presents Preliminary Results of Asset-Liability Study; Retirement Board Requests Actuarial Experience Review
At the December meeting of the State Teachers Retirement Board, the board's investment consultant, Callan Associates, shared its preliminary findings from the asset-liability study that began in August. Asset-liability studies take into account an investor's risk tolerance, investment goals and cash flow needs paired with capital market expectations to determine the optimal portfolio allocation into broad asset classes.
As reported in last month's Board News, Callan concluded that STRS Ohio's current investment policy target would be challenged to achieve an 8% return during the next five to 10 years; however, based on historical data, Callan said STRS Ohio could expect to generate an 8% to 8.5% return over a 30-year horizon. Callan created a liability model for the system and ran simulations of various asset allocation mixes to project expected return rates and how that growth meets the expected growth in the system's liabilities. The preliminary results of the study confirm that without the benefit changes that STRS Ohio is currently seeking through S.B. 3 and H.B. 69, the system will eventually be unable to pay benefits. Unless the proposed plan changes are fully implemented soon, Callan recommends reducing the risk in the investment portfolio to meet liquidity needs to pay benefits.
The asset-liability study and annual actuarial valuation (received last month) are two important tools for the Retirement Board to assess the financial health of the pension fund. During the December meeting, the board voted to request one additional study — an actuarial experience review. This study assesses all of the pension fund's actuarial assumptions to determine if any adjustments are necessary. Data presented by the board's actuarial consultant in November indicated that assumptions used for payroll growth and individual teacher salary growth are higher than what has been experienced during the past several years.
An experience review is typically conducted every five years — STRS Ohio's last review was in fiscal year 2008. Even though it has been only three years, the board voted to carry out a comprehensive experience review in early 2012 so that it could have up-to-date analysis as it continues discussion of STRS Ohio's financial condition. The board plans to resume that dialogue at its January meeting and also during the Board Retreat later that month.
2011 Annual Financial Statement Audit Completed
Clifton Gunderson reported the results of its audit of the STRS Ohio financial statements for the fiscal year ended June 30, 2011, at the December Retirement Board meeting. The report noted that the system's financial statements were fairly stated in accordance with generally accepted accounting principles; further, no material weaknesses in internal controls or instances of statutory noncompliance were found. As a result, STRS Ohio received a "clean" audit known as an unqualified opinion, which is the highest level of opinion that an organization can receive.
STRS Ohio's financial statements are included in the 2011 Comprehensive Annual Financial Report, which will be posted on the STRS Ohio website by Dec. 30, 2011. Copies of the report can also be requested by calling STRS Ohio's Member Services Center toll-free at 1-888-227-7877. In addition to the financial statements noted above, the report includes investment, actuarial and statistical information about STRS Ohio.
Board Approves Three Goals for 2012–2025 Health Care Strategic Plan
The Retirement Board continued its deliberation on strategic health care planning and approved three goals to improve the sustainability of STRS Ohio's Health Care Program. The vote followed presentations by the Member Benefits Health Care Department in November and December. Staff recognized that the current health care program is only expected to remain solvent until 2024, and there is little likelihood for additional funding.
The three goals adopted at the December meeting resolve to:
Retirement Board Salutes Retiring ORSC Director
Board chair Jim McGreevy presented Aristotle Hutras with a resolution honoring Hutras' 22 years of service as Ohio Retirement Study Council director. Hutras is retiring at the end of December. The resolution recognized Hutras for providing "guidance, direction and counsel to STRS Ohio in both good and challenging times." Hutras, who noted that he graduated with an education degree "before the Statehouse bug bit me," thanked the board and staff for working closely with him over the past two decades.
On Dec. 8, STRS Ohio received ERRP payments of $20.4 million for calendar year 2010 and $22.6 million for calendar year 2011 requests. In addition, staff received approval on the claim files for the regional fully insured plans — Kaiser, AultCare and Paramount for 2010 and 2011; the amounts are $1.1 million and $1.6 million respectively. Staff expects the regional fully insured requests will be added to the pending list of outstanding reimbursement requests. To date, STRS Ohio has received a total of $72.7 million from the ERRP project and is awaiting payment for an additional $3.3 million for the regional fully insured plans AultCare and Paramount. Last month, the U.S. Department of Health and Human Services (HHS) announced that, as of Oct. 27, they have paid out $4.1 billion of the total $5 billion available for ERRP payments.
Update on contract negotiations between Express Scripts, Walgreens
Walgreens and Express Scripts have not come to terms to continue Walgreens' participation in Express Scripts' pharmacy network in 2012. Overall, departure from the Express Scripts' network will likely lead to reduced program costs for STRS Ohio and enrollees. On Nov. 22, Express Scripts began mailing letters to Medicare and non-Medicare enrollees who fill prescriptions at Walgreens. The letter provides information regarding local alternative network pharmacies and instructions should enrollees decide to transfer their prescriptions. On average, there are one or more network pharmacies within one-half mile of a Walgreens' pharmacy. Medicare enrollees who do not use Walgreens will receive an informational letter per Centers for Medicare & Medicaid Services guidelines. All letters include a reminder that mail service is available for maintenance medications and how to locate in-network retail pharmacies via Express Scripts' toll-free phone number or by visiting Express Scripts' website. Non-Medicare enrollees who do not have active prescriptions at Walgreens will not receive a letter.
Retirement Board Election Process is Under Way
In spring 2012, an election for one contributing member seat on the State Teachers Retirement Board will be held. The election process began this fall, when individuals interested in running for this seat could first request petitions from STRS Ohio. Those eligible for nomination are individuals presently contributing to STRS Ohio or those who have contributions on deposit with STRS Ohio. STRS Ohio retirees who are reemployed in an STRS Ohio-covered position are not eligible for nomination.
Individuals interested in running for this seat can request petitions from STRS Ohio by calling toll-free 1-888-227-7877. The deadline for returning petitions is Feb. 24, 2012. STRS Ohio members will receive their ballots and voting information in April; they will have through May 7, 2012, to cast their vote. The winner of the election will begin his or her four-year term on the board on Sept. 1, 2012.
At the December meeting of the State Teachers Retirement Board, the board's investment consultant, Callan Associates, shared its preliminary findings from the asset-liability study that began in August. Asset-liability studies take into account an investor's risk tolerance, investment goals and cash flow needs paired with capital market expectations to determine the optimal portfolio allocation into broad asset classes.
As reported in last month's Board News, Callan concluded that STRS Ohio's current investment policy target would be challenged to achieve an 8% return during the next five to 10 years; however, based on historical data, Callan said STRS Ohio could expect to generate an 8% to 8.5% return over a 30-year horizon. Callan created a liability model for the system and ran simulations of various asset allocation mixes to project expected return rates and how that growth meets the expected growth in the system's liabilities. The preliminary results of the study confirm that without the benefit changes that STRS Ohio is currently seeking through S.B. 3 and H.B. 69, the system will eventually be unable to pay benefits. Unless the proposed plan changes are fully implemented soon, Callan recommends reducing the risk in the investment portfolio to meet liquidity needs to pay benefits.
The asset-liability study and annual actuarial valuation (received last month) are two important tools for the Retirement Board to assess the financial health of the pension fund. During the December meeting, the board voted to request one additional study — an actuarial experience review. This study assesses all of the pension fund's actuarial assumptions to determine if any adjustments are necessary. Data presented by the board's actuarial consultant in November indicated that assumptions used for payroll growth and individual teacher salary growth are higher than what has been experienced during the past several years.
An experience review is typically conducted every five years — STRS Ohio's last review was in fiscal year 2008. Even though it has been only three years, the board voted to carry out a comprehensive experience review in early 2012 so that it could have up-to-date analysis as it continues discussion of STRS Ohio's financial condition. The board plans to resume that dialogue at its January meeting and also during the Board Retreat later that month.
2011 Annual Financial Statement Audit Completed
Clifton Gunderson reported the results of its audit of the STRS Ohio financial statements for the fiscal year ended June 30, 2011, at the December Retirement Board meeting. The report noted that the system's financial statements were fairly stated in accordance with generally accepted accounting principles; further, no material weaknesses in internal controls or instances of statutory noncompliance were found. As a result, STRS Ohio received a "clean" audit known as an unqualified opinion, which is the highest level of opinion that an organization can receive.
STRS Ohio's financial statements are included in the 2011 Comprehensive Annual Financial Report, which will be posted on the STRS Ohio website by Dec. 30, 2011. Copies of the report can also be requested by calling STRS Ohio's Member Services Center toll-free at 1-888-227-7877. In addition to the financial statements noted above, the report includes investment, actuarial and statistical information about STRS Ohio.
Board Approves Three Goals for 2012–2025 Health Care Strategic Plan
The Retirement Board continued its deliberation on strategic health care planning and approved three goals to improve the sustainability of STRS Ohio's Health Care Program. The vote followed presentations by the Member Benefits Health Care Department in November and December. Staff recognized that the current health care program is only expected to remain solvent until 2024, and there is little likelihood for additional funding.
The three goals adopted at the December meeting resolve to:
· Establish Medicare as the health care program’s cornerstone
· Achieve 30 years of solvency by 2016
· Extend forecasted solvency to 65 or more years by 2025
The board directed staff to begin drafting a strategic plan document and to explore potential actions to achieve the newly adopted goals. While laying the groundwork for the long term, the strategic plan will include specific initiatives for 2012–2015. Some of the ideas discussed are designed to better align the non-Medicare program with the marketplace. These ideas included consolidating the Plus and Basic plans into a single plan and phasing in higher annual deductibles and out-of-pocket limits in order to lower monthly premiums. Plan details will be presented and voted on at future board meetings.
Retirement Board Salutes Retiring ORSC Director
Board chair Jim McGreevy presented Aristotle Hutras with a resolution honoring Hutras' 22 years of service as Ohio Retirement Study Council director. Hutras is retiring at the end of December. The resolution recognized Hutras for providing "guidance, direction and counsel to STRS Ohio in both good and challenging times." Hutras, who noted that he graduated with an education degree "before the Statehouse bug bit me," thanked the board and staff for working closely with him over the past two decades.
Retirements Approved
The Retirement Board approved 100 active members and 64 inactive members for service retirement benefits. Other STRS Ohio News
STRS Ohio Receives $43 Million from Early Retiree Reinsurance Program (ERRP) On Dec. 8, STRS Ohio received ERRP payments of $20.4 million for calendar year 2010 and $22.6 million for calendar year 2011 requests. In addition, staff received approval on the claim files for the regional fully insured plans — Kaiser, AultCare and Paramount for 2010 and 2011; the amounts are $1.1 million and $1.6 million respectively. Staff expects the regional fully insured requests will be added to the pending list of outstanding reimbursement requests. To date, STRS Ohio has received a total of $72.7 million from the ERRP project and is awaiting payment for an additional $3.3 million for the regional fully insured plans AultCare and Paramount. Last month, the U.S. Department of Health and Human Services (HHS) announced that, as of Oct. 27, they have paid out $4.1 billion of the total $5 billion available for ERRP payments.
Update on contract negotiations between Express Scripts, Walgreens
Walgreens and Express Scripts have not come to terms to continue Walgreens' participation in Express Scripts' pharmacy network in 2012. Overall, departure from the Express Scripts' network will likely lead to reduced program costs for STRS Ohio and enrollees. On Nov. 22, Express Scripts began mailing letters to Medicare and non-Medicare enrollees who fill prescriptions at Walgreens. The letter provides information regarding local alternative network pharmacies and instructions should enrollees decide to transfer their prescriptions. On average, there are one or more network pharmacies within one-half mile of a Walgreens' pharmacy. Medicare enrollees who do not use Walgreens will receive an informational letter per Centers for Medicare & Medicaid Services guidelines. All letters include a reminder that mail service is available for maintenance medications and how to locate in-network retail pharmacies via Express Scripts' toll-free phone number or by visiting Express Scripts' website. Non-Medicare enrollees who do not have active prescriptions at Walgreens will not receive a letter.
Retirement Board Election Process is Under Way
In spring 2012, an election for one contributing member seat on the State Teachers Retirement Board will be held. The election process began this fall, when individuals interested in running for this seat could first request petitions from STRS Ohio. Those eligible for nomination are individuals presently contributing to STRS Ohio or those who have contributions on deposit with STRS Ohio. STRS Ohio retirees who are reemployed in an STRS Ohio-covered position are not eligible for nomination.
Individuals interested in running for this seat can request petitions from STRS Ohio by calling toll-free 1-888-227-7877. The deadline for returning petitions is Feb. 24, 2012. STRS Ohio members will receive their ballots and voting information in April; they will have through May 7, 2012, to cast their vote. The winner of the election will begin his or her four-year term on the board on Sept. 1, 2012.
Monday, December 5, 2011
November Board News
(The text below is reprinted from the news release by STRS on 11/18/11.)
ORSC Chooses Pension Trustee Advisors to Review Pension Reform Plans
The Council questioned whether the three senior principals proposed to lead the project would be sufficient to accomplish all of the work, but the firm addressed this concern to the satisfaction of Council members. The PTA partners said they have no ongoing long-term contracts and will be able to focus their work on the Ohio pension funds. They said they expect to be able to complete their work by July to meet the ORSC's timeline. PTA referred to prior work done with CalSTRS and the city of New York to show its experience with larger public pension funds.
Rep. Kirk Schuring (R-Canton), who chaired a subcommittee that scored the initial written proposals, underscored that the scope of the project should be manageable for the firm, noting that PTA will be "reviewing, not recreating" the work done by the pension systems.
The ORSC received six written proposals in response to an RFP issued last summer. After the subcommittee met and scored those proposals, all of the firms were invited to make a presentation to the full Council. Three firms responded to that request, PTA, Hay Group and The Segal Company.
PricewaterhouseCoopers Reviews Annual Pension Valuation
Representatives from the Retirement Board's actuarial consultant, PricewaterhouseCoopers (PwC), reviewed with the board the results of the 2011 annual actuarial valuation report. The preliminary report was presented to the Retirement Board at its October meeting by STRS Ohio staff. There were no changes to the report — the pension system's funded ratio stands at 58.8% as noted in the October issue of Board News. PwC noted that as retirement systems mature, it is common for the fund to experience negative cash flow — that is, for benefit payments to exceed contributions collected. However, PwC said that it is happening at a faster than projected rate at STRS Ohio due to an uptick in retirements (more benefits are being paid) and slower growth than expected in teacher payrolls (fewer contributions).
PwC also reviewed the Governmental Accounting Standards Board (GASB) exposure draft on pension accounting and financial reporting by employers. If adopted, the new rules will have a significant impact on how public pension funds and reporting employers show liabilities on their financial statements. If unchanged, the new rules are scheduled to take effect in 2013.
Callan Associates Updates Board on Asset Liability-Study
During the November board meeting, the Retirement Board's investment consultant, Callan Associates, updated the board on its ongoing asset-liability study that began in August. Callan is currently refining its liability model and resulting projections. The final results of the study are now expected in January.
As part of the study, Callan is providing both long- and short-term capital market projections. Callan concluded that STRS Ohio's current investment policy target will be challenged to achieve an 8% return for the next five and perhaps 10 years. However, Callan reported that based on this investment policy target and historical data, STRS Ohio could expect to generate an 8% to 8-1/2% return over the longer term 30-year horizon. Due to market volatility, the study said the path to a long-term 8% return will include extended periods of returns above the 8% and periods below the 8%.
Board Discusses Strategic Plan for Health Care
One of the Retirement Board's strategic goals is to work on options for the Health Care Stabilization Fund that support the STRS Ohio Health Care Program. The board and staff are developing a long-term strategic plan that includes specific initiatives for 2012–2015.
During the discussion at the November board meeting, staff recognized that the current health care program continually faces near-term insolvency with little prospect for additional funding. The board reviewed statistical analysis that showed:
ORSC Chooses Pension Trustee Advisors to Review Pension Reform Plans
At its Nov. 16 meeting, the Ohio Retirement Study Council (ORSC) heard presentations from three firms vying for the opportunity to advise the Council on the pension reform plans currently in pending legislation (S.B. 3 and H.B. 69). Following the presentations and question-and-answer sessions with each firm, the ORSC unanimously selected Pension Trustee Advisors (PTA) to conduct the review.
The Council questioned whether the three senior principals proposed to lead the project would be sufficient to accomplish all of the work, but the firm addressed this concern to the satisfaction of Council members. The PTA partners said they have no ongoing long-term contracts and will be able to focus their work on the Ohio pension funds. They said they expect to be able to complete their work by July to meet the ORSC's timeline. PTA referred to prior work done with CalSTRS and the city of New York to show its experience with larger public pension funds.
Rep. Kirk Schuring (R-Canton), who chaired a subcommittee that scored the initial written proposals, underscored that the scope of the project should be manageable for the firm, noting that PTA will be "reviewing, not recreating" the work done by the pension systems.
The ORSC received six written proposals in response to an RFP issued last summer. After the subcommittee met and scored those proposals, all of the firms were invited to make a presentation to the full Council. Three firms responded to that request, PTA, Hay Group and The Segal Company.
PricewaterhouseCoopers Reviews Annual Pension Valuation
Representatives from the Retirement Board's actuarial consultant, PricewaterhouseCoopers (PwC), reviewed with the board the results of the 2011 annual actuarial valuation report. The preliminary report was presented to the Retirement Board at its October meeting by STRS Ohio staff. There were no changes to the report — the pension system's funded ratio stands at 58.8% as noted in the October issue of Board News. PwC noted that as retirement systems mature, it is common for the fund to experience negative cash flow — that is, for benefit payments to exceed contributions collected. However, PwC said that it is happening at a faster than projected rate at STRS Ohio due to an uptick in retirements (more benefits are being paid) and slower growth than expected in teacher payrolls (fewer contributions).
PwC also reviewed the Governmental Accounting Standards Board (GASB) exposure draft on pension accounting and financial reporting by employers. If adopted, the new rules will have a significant impact on how public pension funds and reporting employers show liabilities on their financial statements. If unchanged, the new rules are scheduled to take effect in 2013.
Callan Associates Updates Board on Asset Liability-Study
During the November board meeting, the Retirement Board's investment consultant, Callan Associates, updated the board on its ongoing asset-liability study that began in August. Callan is currently refining its liability model and resulting projections. The final results of the study are now expected in January.
As part of the study, Callan is providing both long- and short-term capital market projections. Callan concluded that STRS Ohio's current investment policy target will be challenged to achieve an 8% return for the next five and perhaps 10 years. However, Callan reported that based on this investment policy target and historical data, STRS Ohio could expect to generate an 8% to 8-1/2% return over the longer term 30-year horizon. Due to market volatility, the study said the path to a long-term 8% return will include extended periods of returns above the 8% and periods below the 8%.
Board Discusses Strategic Plan for Health Care
One of the Retirement Board's strategic goals is to work on options for the Health Care Stabilization Fund that support the STRS Ohio Health Care Program. The board and staff are developing a long-term strategic plan that includes specific initiatives for 2012–2015.
During the discussion at the November board meeting, staff recognized that the current health care program continually faces near-term insolvency with little prospect for additional funding. The board reviewed statistical analysis that showed:
- The Health Care Stabilization Fund is only expected to remain solvent until 2024.
- Sixty-nine percent of benefit recipients enrolled in the STRS Ohio Health Care Program are also receiving Medicare benefits, while 31% are non-Medicare.
- Subsidies for non-Medicare retirees account for 62% of all subsidies.
With this in mind, staff proposed a vision for the future that would establish the Medicare program as the cornerstone for the STRS Ohio Health Care Program, to help the largest number of retirees for the longest period of time. This plan would increase out-of-pocket expenses to reduce premium increases and merges the Medical Mutual Plus and Basic plans into one plan by 2016. The most significant changes would affect the non-Medicare program. These changes would more closely align costs with the marketplace. The discussion also addressed the need to continue to educate members about planning for growing health care costs in retirement and how to better manage their health and health care coverage. The board is expected to continue the strategic plan discussion at its December meeting. Retirements Approved The Retirement Board approved 311 active members and 112 inactive members for service retirement benefits.Other STRS Ohio News Satisfaction Survey Responses Ranked Outstanding for First Quarter During the first quarter of the 2011–12 fiscal year, more than 2,100 members who met with a counselor completed a satisfaction survey, with 96% responding that the service met or exceeded their expectations. Of those members who met with a counselor, 51% provided a perfect 10 score for overall service. Staff continues to be rated the highest in the areas of professionalism, courtesy and knowledge, with 67% of members providing a perfect 10 rating. In addition, about 1,000 members who attended a Member Education program completed satisfaction surveys for the quarter, with 98% stating that the program exceeded their expectations and 47% rating the program a perfect 10. More than 76% of respondents rated the Member Education staff a perfect 10 regarding professionalism, courtesy and knowledge. Retirement Board Election Process Begins this Month On Nov. 10, notices were sent to all STRS Ohio reporting employers and other interested parties about the upcoming Retirement Board election for one contributing member seat. In addition, information was in the October newsletter and is posted on the STRS Ohio website. Individuals interested in running for this seat can request petitions from STRS Ohio. The deadline for returning petitions is Feb. 24, 2012. |
Thursday, October 27, 2011
October Board News
(The text below is reprinted from the news release by STRS on 10/21/11.)
Despite Strong Investment Returns, Annual Actuarial Valuation Underscores Need for Pension Plan Adjustments
At its October meeting, the State Teachers Retirement Board received the preliminary annual actuarial valuation report prepared by its actuarial consultant, PricewaterhouseCoopers (PwC). The report provides a "snapshot" of the actuarial position of the retirement fund as of July 1, 2011. Even though the system reaped its strongest investment return in nearly three decades during fiscal year 2011, the funding period for the pension fund remains "infinite," and the funded ratio declined slightly from 59.1% to 58.8%. The fund experienced a small actuarial gain of about $181 million during the fiscal year.
Other significant factors in this year's valuation included:
The results of this year's actuarial valuation reiterate the need for pension reform and implementation of the changes the Retirement Board proposed to strengthen the financial condition of the retirement system.
CEM Benchmarking Gives STRS Ohio High Marks for Member Service
CEM Benchmarking, a leading global research and benchmarking company, reported the results of its annual pension administration benchmarking report for fiscal year 2010 at the October Retirement Board Meeting. CEM has used peer comparative analysis to measure the performance of public pension plans since 1998, and STRS Ohio has consistently scored in the top quartile of CEM's universe for service. This year's results again recognize STRS Ohio as above the peer median for total service, while noting that the system's total cost is also above the peer average (but below the average of all 78 participating private and public retirement systems from around the world). The report noted that STRS Ohio's costs per member decreased by 2.7% annually between 2007 and 2010, while the average cost of its peers increased by 2.0%.
One key takeaway from the report is that there is a global shift to online service and related savings. STRS Ohio has been aware of this shift and is currently developing an online Service Retirement Application to make the retirement process easier for members and more efficient for the retirement system. STRS Ohio will continue to enhance its website and to review other internal processes to identify opportunities to gain efficiency.
Retirements Approved
The Retirement Board approved 1,090 active members and 134 inactive members for service retirement benefits.
A subcommittee of the Ohio Retirement Study Council (ORSC) met Oct. 11 to score six proposals that were submitted in response to a request for proposals issued by the Council. The subcommittee, chaired by Rep. Kirk Schuring (R-Canton), also includes Rep. Dan Ramos (D-Lorain) and Seth Morgan, a gubernatorial appointee.
Categories included in the scoring were: management summary, vendor capabilities and references, staff qualifications, resources, methodology, timeline, additional information about services, glossary and cost information. The Hay Group received the highest score — a 46 out of a possible 50 points. The combined proposal from Pension Trustee Advisors/KMS Actuaries came in at 43 points. Two firms, The Segal Company and Milliman both scored 37 points. Rounding out the bottom with 30 and 26 points, respectively, were Bolton Partners and Deloitte.
The results of the scoring were accepted by the full Council at its Oct. 13 meeting. On Nov. 16, the six bidding firms are expected to make presentations to the Council. Awarding of the contract will likely happen after the November meeting.
Open Enrollment for the STRS Ohio Health Care Program Begins Nov. 1
The annual open-enrollment period for the STRS Ohio Health Care Program for calendar year 2012 will be Nov. 1–22. Benefit recipients currently enrolled in an STRS Ohio health care plan will soon receive a personalized information packet about their 2012 plan options, monthly premiums and details about features of the hospital/medical and prescription drug coverage. During open enrollment, current enrollees may change plans and enroll dependents. Benefit recipients who do not currently participate in the program may enroll without a waiting period.
STRS Ohio Receives Additional ERRP Payments
After a lengthy quality assurance review by the U.S. Department of Health and Human Services (HHS), STRS Ohio received $9.3 million on Sept. 21 for a 2011 payment from the Early Retiree Reimbursement Program (ERRP). This brings the system's total ERRP funds received to $29.7 million. In late September, STRS Ohio staff submitted four new payment requests: two for the 2010 self-insured plans and two for the fully insured plans for 2010 and 2011. The total of the four requested payments is $35.9 million. Staff expects these payments to be subjected to HHS quality assurance review; so, it is unclear if or when STRS Ohio will receive any reimbursement.
Health Care Services staff is currently working with consultants to plan the timing of fourth quarter ERRP submissions to HHS, as it is unknown at this time when the federal ERRP funds will run out.
Despite Strong Investment Returns, Annual Actuarial Valuation Underscores Need for Pension Plan Adjustments
At its October meeting, the State Teachers Retirement Board received the preliminary annual actuarial valuation report prepared by its actuarial consultant, PricewaterhouseCoopers (PwC). The report provides a "snapshot" of the actuarial position of the retirement fund as of July 1, 2011. Even though the system reaped its strongest investment return in nearly three decades during fiscal year 2011, the funding period for the pension fund remains "infinite," and the funded ratio declined slightly from 59.1% to 58.8%. The fund experienced a small actuarial gain of about $181 million during the fiscal year.
While the positive investment return for fiscal year 2011 generated a gain, STRS Ohio uses a common accounting and actuarial technique called "smoothing" to spread market volatility over four-year periods. This method helps pension funds recognize investment returns for a given year over a four-year window rather than a one-year "spike." The smoothing technique is more apparent when the returns are especially high (as they were in 2011), or unusually low (as they were in 2009). Some of the significant investment losses from fiscal year 2009 are still being absorbed into this year's valuation, which is part of the reason for the overall decline in funded ratio. The pension fund has a net $5.5 billion in unrecognized gains being deferred to future years.
Other significant factors in this year's valuation included:
· A net gain for the system in individual salary increases — these increases were smaller than expected.
· Net losses for the system in retiree mortality — retirees are living longer than expected and collecting benefits for a longer period of time.
· A net loss for the system in retirements/terminations/withdrawals — the system saw a greater number of retirements than expected.
The results of this year's actuarial valuation reiterate the need for pension reform and implementation of the changes the Retirement Board proposed to strengthen the financial condition of the retirement system.
CEM Benchmarking Gives STRS Ohio High Marks for Member Service
CEM Benchmarking, a leading global research and benchmarking company, reported the results of its annual pension administration benchmarking report for fiscal year 2010 at the October Retirement Board Meeting. CEM has used peer comparative analysis to measure the performance of public pension plans since 1998, and STRS Ohio has consistently scored in the top quartile of CEM's universe for service. This year's results again recognize STRS Ohio as above the peer median for total service, while noting that the system's total cost is also above the peer average (but below the average of all 78 participating private and public retirement systems from around the world). The report noted that STRS Ohio's costs per member decreased by 2.7% annually between 2007 and 2010, while the average cost of its peers increased by 2.0%.
One key takeaway from the report is that there is a global shift to online service and related savings. STRS Ohio has been aware of this shift and is currently developing an online Service Retirement Application to make the retirement process easier for members and more efficient for the retirement system. STRS Ohio will continue to enhance its website and to review other internal processes to identify opportunities to gain efficiency.
Retirements Approved
The Retirement Board approved 1,090 active members and 134 inactive members for service retirement benefits.
Other STRS Ohio News
ORSC Scores Proposals for Pension Plan Adviser; Firms to Present to Council Nov. 16 A subcommittee of the Ohio Retirement Study Council (ORSC) met Oct. 11 to score six proposals that were submitted in response to a request for proposals issued by the Council. The subcommittee, chaired by Rep. Kirk Schuring (R-Canton), also includes Rep. Dan Ramos (D-Lorain) and Seth Morgan, a gubernatorial appointee.
Categories included in the scoring were: management summary, vendor capabilities and references, staff qualifications, resources, methodology, timeline, additional information about services, glossary and cost information. The Hay Group received the highest score — a 46 out of a possible 50 points. The combined proposal from Pension Trustee Advisors/KMS Actuaries came in at 43 points. Two firms, The Segal Company and Milliman both scored 37 points. Rounding out the bottom with 30 and 26 points, respectively, were Bolton Partners and Deloitte.
The results of the scoring were accepted by the full Council at its Oct. 13 meeting. On Nov. 16, the six bidding firms are expected to make presentations to the Council. Awarding of the contract will likely happen after the November meeting.
Open Enrollment for the STRS Ohio Health Care Program Begins Nov. 1
The annual open-enrollment period for the STRS Ohio Health Care Program for calendar year 2012 will be Nov. 1–22. Benefit recipients currently enrolled in an STRS Ohio health care plan will soon receive a personalized information packet about their 2012 plan options, monthly premiums and details about features of the hospital/medical and prescription drug coverage. During open enrollment, current enrollees may change plans and enroll dependents. Benefit recipients who do not currently participate in the program may enroll without a waiting period.
STRS Ohio Receives Additional ERRP Payments
After a lengthy quality assurance review by the U.S. Department of Health and Human Services (HHS), STRS Ohio received $9.3 million on Sept. 21 for a 2011 payment from the Early Retiree Reimbursement Program (ERRP). This brings the system's total ERRP funds received to $29.7 million. In late September, STRS Ohio staff submitted four new payment requests: two for the 2010 self-insured plans and two for the fully insured plans for 2010 and 2011. The total of the four requested payments is $35.9 million. Staff expects these payments to be subjected to HHS quality assurance review; so, it is unclear if or when STRS Ohio will receive any reimbursement.
Health Care Services staff is currently working with consultants to plan the timing of fourth quarter ERRP submissions to HHS, as it is unknown at this time when the federal ERRP funds will run out.
Monday, October 17, 2011
September Board News
(The text below is reprinted from the news release by STRS on 9/16/11.)
Pension Legislation Remains on Hold; Six Firms Respond to RFP
Six potential vendors have submitted proposals in response to the Request for Proposals (RFP) from the Ohio Retirement Study Council (ORSC). The six firms that submitted proposals are: Deloitte, The Segal Company, Bolton Partners Inc., Hay Group, Milliman, and Pension Trustee Advisors. The ORSC has not met since the proposals were submitted. Senator Keith Faber (R-Celina), chair of the ORSC, reiterated at the August meeting his intention to conduct regional hearings on the five pension system boards' pension reform proposals; however, no announcement regarding the hearings has been made. STRS Ohio will share information concerning these meetings as soon as it becomes available.
Retirement Board Updated on Asset-Liability Study
Callan Associates, the Retirement Board's investment consultant, is conducting an asset-liability study for the pension fund that is expected to conclude in December. Pension funds use asset-liability studies to establish investment policy by evaluating various criteria including pension plan design (benefit structure), actuarial data, and investment risk and return objectives.
During the September board meeting, Callan Associates' staff discussed asset allocation with the board, calling it a long-term strategic process that is the primary determinant of investment return and asset volatility. The board's consultant will create a series of asset mix alternatives with different levels of risk/reward for consideration. This "modeling" will include the June 30, 2011, valuation results. The study will also evaluate the impact of different interest rate and economic scenarios on STRS Ohio's liabilities.
The presentation also noted that the appropriate asset allocation policy should satisfy two basic criteria:
• The asset mix will be efficient — generating the maximum level of expected return for a given level of risk
• The asset mix will reflect the appropriate level of risk for STRS Ohio.
Investment Cost Effectiveness Analysis Shows $94 Million Saved Through Internal Management
A CEM Benchmarking report, "Investment Cost Effectiveness Analysis" was shared with the board at the September meeting. The analysis compares cost and return performance to a custom peer group of pension systems. One of the more significant findings is that STRS Ohio saved $94 million in 2010 by managing about 80% of its total assets with in-house staff. The analysis compared those internal management costs to the median management costs that the peer group pays for external management. The report also noted that STRS Ohio's five-year total return of 4.4% was ahead of its policy return of 4.2%. The five-year value added figure of 0.2% was above the peer median.
Retirements Approved
The Retirement Board approved 1,517 active members and 151 inactive members for service retirement benefits.
Finance Staff Educates Employers About GASB Exposure Draft
As noted in last month's Executive Director's Report, the Governmental Accounting Standards Board (GASB) has recently issued two exposure drafts about pension accounting and financial reporting that would make fundamental changes to standards for state and local governments, including public school districts, colleges and universities. The proposed change is most likely to directly impact STRS Ohio reporting employers, because employers participating in a cost-sharing, multiple employer pension plan (like STRS Ohio) are required to report a net pension liability in their financial statements for a proportionate share of the plan's entire unfunded liability. Finance staff sent a bulletin to employers to make them aware of the exposure drafts and how these rules, if they become standards, will impact them. The bulletin also gave employers information about how to submit written comments to GASB.
Benefit Counselors Are on the Road Again
Benefits counselors took to the road for fall field counseling the week of Aug. 15. The fall season includes 26 locations around the state. Scheduling for the available appointments began in July with nearly 1,300 members scheduling appointments at one of the first 11 locations. Internet scheduling is still popular, with half of the appointments being scheduled through the STRS Ohio Web site. Counselors will be available to meet with more than 4,600 members at the various locations around the state during the next three months. This is a 30% increase in capacity compared to fall 2010.
Express Scripts Inc. and Medco Health Solutions Sign Definitive Merger Agreement
Express Scripts Inc. (ESI) and Medco Health Solutions Inc. announced recently that they entered into a definitive merger agreement. The transaction is targeted to close in the first half of 2012. However, monopolistic concerns and scrutiny as to whether regulatory review will approve the merger have been raised.
Under the terms of the definitive merger agreement, ESI management is sustained and becomes the executive driving force. STRS Ohio, as a client of ESI, expects little if any adverse impact to enrollees. Looking ahead, ESI should have opportunity to leverage additional dispensing facilities, augment clinical pharmacy services and potentially enhance volume discount negotiations.
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