Skip to main content

STRS October Board News Details With Comments

Below is the reprinted news release by STRS from 10/18/2010. This is an important news release that lists revisions to the proposed changes to pension reform.

In my opinion it appears the changes to get the state pension systems in fiscal order are falling short of what is required. While participants are going to have to contribute an additional 2.5% to the pension plan, phased in over time, so too are the school districts. At a time when property taxes in Ohio are already what they are and schools face the funding challenges they do, it hardly seems like a sound fiscal idea to legislate additional funding, regardless of the time over which the changes may be phased in. After all, who knows what the next several years may hold in our era of high unemployment and (current) slow growth.

With the current meager 60% funded ratio of STRS and the reform falling short of what is required, it is a safe assumption that additional changes are going to be needed in the not too distant future. Teachers pay attention to this warning. Oh, and don't forget about the 800 pound healthcare gorilla either.

Additionally, it will certainly be interesting to see the latent effects of this forthcoming legislation on the Ohio taxpayers, as the schools will no doubt ask for more money from taxpayers, particularly once their funding obligations start to increase in 2016 through 2020. Sad to say that this is another example of not making tough choices and kicking the can down the road...

Kevin Kroskey, CFP(r), MBA and STRS participant (but a realist)

----------------------------------------
https://www.strsoh.org/boardnews/bn_current.html 

BOARD ADOPTS REVISIONS TO LONG-TERM PENSION REFORM PLAN At its October 2010 meeting, the State Teachers Retirement Board approved changes to the pension reform plan originally adopted by the board on Sept. 1, 2009. Since then, the Healthcare and Pension Advocates for STRS (HPA), who represent a coalition of member, employer and retiree groups, have suggested some modifications to the plan. After discussing these changes for several months, the board approved modifications in three areas at this month's meeting. With these changes, both the Retirement Board and the major constituency groups are now united in their support of the proposed reform package and can work collectively for its passage in the Ohio General Assembly.

The modifications are as follows:

- Retirement Eligibility
The transition period for qualifying for a retirement benefit at 35 years of service from 30 years of service will be phased in based on the following timeline:

30 years of service until 8/1/2015;
31 years of service 8/1/2015 through 7/31/2017;
32 years of service 8/1/2017 through 7/31/2019;
33 years of service 8/1/2019 through 7/31/2021;
34 years of service 8/1/2021 through 7/31/2023;
35 years of service from 8/1/2023 and after.

As in the board's original plan, members will still be able to retire at age 60 with 30 years of service or at age 65 with five years of service, beginning Aug. 1, 2015. Under the revised plan, a member may also retire with 30 years of service under age 60 or at age 60 with five years; however, the pension benefit will be actuarially reduced beginning Aug. 1, 2015.

- COLA (Cost-of-Living Adjustment)
Under the revised plan, STRS Ohio members who are retired as of July 1, 2011, will receive an annual 2% COLA (down from a current 3% simple-interest COLA). Members retiring after 7/1/2011, will also receive a 2% COLA (not the 1.5% originally planned), but it will not begin for 36 months after the date of retirement.

- FAS (Final Average Salary)
Rather than request a change to a five-year FAS calculation from the current three-year calculation, the Retirement Board will now seek statutory authority to set a three-, four- or five-year FAS. This will give the board some discretion in making this change on the proposed implementation date of Aug. 1, 2015, based on the actuarial condition of the pension fund at that time.

The proposed changes to contributions and the benefit formula contained in the board's original plan remain the same. Member and employer contributions would be increased by a total of 5% by July 1, 2020. The member increase would be phased in at 0.5% per year, beginning July 1, 2011, until 2.5% is reached on July 1, 2015. The employer increase would be delayed for five years, when it would be phased in at 0.5% per year, beginning July 1, 2016, until 2.5% is reached on July 1, 2020.

Under the board's plan, the benefit formula would be 2.2% per year for the first 30 years of service; 2.5% per year thereafter, beginning Aug. 1, 2015. With this formula change, the 35-year enhanced benefit is eliminated.

The entire package of changes is projected to save about $8.4 billion in accrued liabilities and would bring the pension fund to a 35.1-year funding period; a slight increase from the 33.4-year funding period that would have resulted from the board's original plan.

The changes contained in the Retirement Board's plan require legislative action. The introduction of any pension legislation is not expected until after the November election.


ANNUAL ACTUARIAL VALUATION REPORT REITERATES NEED FOR PENSION FUNDING CHANGES At its October meeting, the Retirement Board received the annual actuarial valuation report of STRS Ohio's pension fund from its actuarial consultant, PricewaterhouseCoopers (PwC). This report provides a "snapshot" of the actuarial position of the retirement fund as of July 1, 2010. As expected, the funding period for the pension fund remains "infinite"; the funded ratio declined slightly from 60.0% to 59.1%. The funding period is the number of years required to pay off the pension fund's unfunded actuarial accrued liabilities; the funded ratio is the percentage of assets STRS Ohio has on hand to pay all benefits accrued by STRS Ohio members to date. An infinite funding period means the system will eventually be unable to pay benefits, unless changes are made.

In developing the actuarial valuation, STRS Ohio's actuarial gains and losses for fiscal year 2010 (July 1, 2009-June 30, 2010) were compiled. PwC looked at the system's actual versus expected actuarial experience in several areas, including investment returns, payroll growth, salary increases, retiree mortality, and the number of retirements and other separations from the system, such as account withdrawals -- all of which can either reduce or increase the system's liabilities from one year to the next.

STRS Ohio experienced a net actuarial loss for the fiscal year of $279 million. Investment losses in prior fiscal years were the major reason. The positive investment return for fiscal year 2010 above the assumed rate of 8% generated a gain. However, STRS Ohio uses an approved accounting and actuarial technique called "smoothing" to spread market volatility over four-year periods to make investment returns more of a "trend" rather than a "spike." Consequently, the significant losses in the market value of investments experienced in fiscal year 2009 are still reflected in this year's valuation, resulting in a 6.58% rate of return for actuarial purposes.

The results of this actuarial valuation continue to confirm the need for the reasonable, measured changes contained in the long-term pension reform plan the Retirement Board has proposed to help strengthen the financial condition of the retirement system.


BOARD CONTINUES HEALTH CARE STRATEGIC PLANNING DISCUSSION At its October meeting, the Retirement Board continued reviewing the STRS Ohio Health Care Program as part of its initial steps toward developing a strategic plan for retiree health care for adoption next spring. As noted in previous STRS Ohio communications, funding for the health care program will be depleted by 2021.

During October's meeting, the board heard a presentation from Brent Greenwood, vice president of Actuarial Consulting for Ingenix Consulting. He reviewed how STRS Ohio's health care program compares to the current marketplace and how the retiree marketplace will change in the future in light of national health care reform.

Across the country, fewer organizations -- both public and private -- are offering retiree health care. For those entities that do still provide coverage, retirees are paying an increasing portion of the total cost through their premiums, deductibles, copayments and coinsurance to keep pace with unrelenting increases in the health care trend rate.

Overall, STRS Ohio's Health Care Program offers career educators comparable or better value in terms of coverage and member premiums at this time because of the premium subsidies to career educators, no underwriting and no age rating. However, federal health care legislation will change the marketplace by 2014, creating new pressures on STRS Ohio's program. The health care legislation calls for enhanced access to coverage through the eventual elimination of all preexisting condition exclusions, limited underwriting and the introduction in 2014 of state-sponsored health care exchanges. As a result, more plan options with lower premiums than STRS Ohio can offer for those under age 65 will likely become available in the marketplace. For those age 65 and older, reduced subsidies for Medicare Advantage plans could lead to higher premiums, while the 10 Medicare defined supplemental plans offered through many insurance carriers may become more attractive.

In previous meetings, it has been noted there are four levers that affect the financial status of the health care program: (1) funding, (2) plan design, (3) eligibility and (4) premium subsidy. Greenwood reiterated this, noting that retiree health care plan costs can generally be reduced in one of two ways: (1) reduction in the cost of coverage per retiree (subsidy/plan design); or (2) reduction in the number of covered retirees (eligibility).
In November, the board will begin deliberations centered on the four levers to develop a long-term strategic plan for its health care program.


RETIREMENTS APPROVED
The Retirement Board approved 1,000 active members and 83 inactive members for service retirement benefits.

Bookmark and Share

Popular posts from this blog

March Board News

(The text below is reprinted from the news release by STRS)   Solvency Period for Health Care Fund Drops to 15 Years; Board Exploring Options to Preserve Plan   At the March meeting of the State Teachers Retirement Board, Paul Snyder, deputy executive director — Finance and chief financial officer, presented results of Segal Consulting’s annual actuarial valuation of the Health Care Fund. The report shows the funded ratio for the Health Care Fund dropped to 63% from 74% last year. This means STRS Ohio has 63 cents on hand for every dollar needed to continue the current plan indefinitely. The valuation projects the Health Care Fund to remain solvent until 2031, a decrease of four years from last year’s valuation — and a decrease of 33 years from the 2014 valuation. The projected 15-year solvency period is an estimate ­— in actuarial terms, there is a 50% confidence level that the Health Care Fund has at least 15 years of solvency. Depending on the strength of financial markets,

STRS January Board News Details

(The text below is reprinted from the news release by STRS on 1/15/2010.) NEW MEMBER JOINS RETIREMENT BOARD Joining the State Teachers Retirement Board at its January meeting was Dr. Daniel J. Martin, who was recently appointed to the board by Treasurer of State Kevin L. Boyce. Martin is currently the president of Mount Vernon Nazarene University. Before assuming this position in 2007, he served as the vice president for University Advancement at Point Loma Nazarene University in San Diego, as well as in various positions with MidAmerica Nazarene University in Olathe, Kan. He holds two doctorate degrees in higher education from the University of Pennsylvania and The University of Kansas, as well as a law degree and a master's in business administration from The University of Kansas. His four-year term on the board will run through Jan. 7, 2014. BOARD CONSIDERS CHANGE TO SERVICE CREDIT RULE FOR PARTIAL YEARS OF TEACHING Currently, STRS Ohio members who are employed on a full-t

September Board News

(The text below is reprinted from the news release by STRS on 9/19/2014.)    Board Reviews Enterprise Risk Management At the September meeting of the State Teachers Retirement Board, STRS Ohio’s chief financial officer Paul Snyder reviewed how the pension system identifies and addresses enterprise-wide risks. Snyder shared that enterprise risk management (ERM) provides a framework and a systematic approach for effectively evaluating and managing operational uncertainty and allows STRS Ohio to respond by reducing risks appropriately.    Snyder explained that the executive director, in coordination with STRS Ohio’s senior leadership team, addresses overall system risks and provides updates to the board. Snyder also reviewed with the board that STRS Ohio’s ERM framework is focused on the following core risk areas:  Investment returns Regulatory/statutory compliance Actuarial results Member satisfaction Constituent/public relations Legislative change