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April Board News

 
The Retirement Board voted to increase the mitigating rate by 1%, which will impacts those in the Defined Contribution (DC), Combined Plan, and alternative retirement plan participants (ARP).
 
The mitigating rate subtracts from the teacher's total contributions -- legislated at 14% employee and 14% employer once recent increases are phased in by July 2016. It then allocates the subtracted portion to the traditional defined benefit plan, which said teacher does not participate in nor derives benefit from, in order to "offset the negative financial impact of participation in a DC plan" (per Ohio STRS).
 
A few things are interesting about this to me:
  1. It's good to pause and realize a 14% employer contribution for STRS is very rich and unheard of in private companies.
  2. The mitigating rate for Ohio STRS will be a whopping 5.5% yet Ohio PERS is only increasing to 2%. Compound 3.5% of salary over a working lifetime and that equates to a substantial dollar difference.
 
Best Regards,
 
Kevin Kroskey, CFP, MBA


(The text below is reprinted from the news release by STRS on 4/20/15.)

Board Votes to Increase Mitigating Rate
Consistent with the recommendation of the board’s actuarial consultant, The Segal Company, and in accordance with Chapter 3307 of the Ohio Revised Code, the Retirement Board voted to increase the mitigating rate for STRS Ohio’s Defined Contribution (DC) and Combined (CO) Plan members by 1%. The increase will be phased in over two years beginning July 1, 2015. 
 
The mitigating rate for DC participants will increase to 5.5% from 4.5%. The first 0.5% increase takes effect July 1, 2015, and the remaining 0.5% increase is effective July 1, 2016. For members participating in the CO Plan, effective July 1, 2015, 11.5% of their contributions will be allocated to their DC account while 1.5% will be allocated to the defined benefit (DB) portion. Effective July 1, 2016, 12% of their contributions will be allocated to their DC account and 2% will be allocated to the DB Plan. 
 
By operation of law, the change will also increase the mitigating rate for higher education faculty who participate in an alternative retirement plan (ARP). The mitigating rate for ARP participants will be 5% effective July 1, 2015, and 5.5% effective July 1, 2016.
 
Since members will be contributing an additional 1% to their account beginning July 1, 2015, and another 1% beginning July 1, 2016, a 0.5% increase in the mitigating rate in each of the next two fiscal years enables STRS Ohio to increase the mitigating rate to the recommended level, while members will see a net increase in contributions to their accounts each of the next two years. 

Board Reviews Changes to STRS Ohio Health Care Program for 2016
Last year, the State Teachers Retirement Board approved several changes to the health care program for 2016. These changes support the health care strategic framework adopted by the board in December 2011. During the April meeting of the Retirement Board, STRS Ohio staff reviewed implementation of these approved changes and presented additional recommendations for 2016. 
 
Implementation of approved changes for 2016
 
Premium subsidy and reimbursement
Reduce the subsidy multiplier by 0.1% to 2.1% per year of service. This completes the phased-in reduction the board began in 2012. A retiree with 30 or more years of service will receive a subsidy in 2016 of 63% of the total cost of the plan. 
 
Continue the Medicare Part B premium reimbursement at 2015 levels for eligible benefit recipients. 
 
Aetna Medicare Plan
Reduce the in-network deductible to $150 from $300. 
 
Out-of-network coverage changes include: increasing out-of-pocket limit to $2,500 from $2,000; increasing specialist physician office visit copayments to $55 from $50; increasing coinsurance percentage to 8% from 6%; and increasing skilled nursing/home health care coinsurance to 8% from 2%. 
 
Medical Mutual Plans
Discontinue the Plus Plan. 
 
Increase the Basic Plan deductible and coinsurance out-of-pocket limits to: 


Express Scripts Prescription Drug Plans
Increase the maximum annual expense per enrollee to $4,850 from $4,700. 
 
Additional recommendations for 2016
Establish the prescription deductible methodology for the Express Scripts Prescription Drug Plan to be 63% of the standard Medicare Part D plan deductible, rounded down to the nearest $25 increment. Using this methodology, the 2016 Express Scripts deductible would increase to $225 from $200. 
 
Increase the Health Care Assistance Program (HCAP) monthly premium to $100 from and limit new applicants to those eligible for health care subsidy in non-HCAP programs (excludes currently enrolled HCAP participants so long as they have no break in HCAP enrollment). Additionally, continue HCAP coverage at 2015 levels.
 
Change the base plan for non-Medicare regional plan premiums to be the same as the Medical Mutual Basic Plan. 
 
The board will be asked to vote on these recommendations at its May meeting. Following board action, a comprehensive review of all health care program changes will be included in upcoming STRS Ohio newsletters. 
 
Proposed Operating Budget for Fiscal Year 2016 Calls for Modest Increase 
The Finance Department proposed system budgets for the 2016 fiscal year (July 1, 2015–June 30, 2016) during the April meeting. The proposed operating budget totals $95,039,800, an increase of 3.9% over the current year’s budget. The proposed budget reflects 572 full-time equivalent associates, down from 578 currently. The proposed capital budget for fiscal year 2016 totals $1,541,500, a decrease of 3.5% from the current year’s budget. 
 
Retirements Approved
The Retirement Board approved 194 active members and 89 inactive members for service retirement benefits. 
 
Other STRS Ohio News 
 
CEM Reports Improvements in Service and Reduction in Cost for Fiscal Year 2014
STRS Ohio received the CEM Pension Administration Benchmarking report for fiscal year 2014, which reflected an improvement in the system’s service level score. STRS Ohio’s service score increased to 93 from 91 and was the second highest service level score among its peer group of 14 systems and the total universe of 55 plans. STRS Ohio missed having the top service level score by 0.13 of a point. The Call Center, Written Pension Estimate, Pension Payments and Disaster Recovery activities ranked first among all participating systems and One-on-One Counseling ranked second. These five activities accounted for 54% of the service level score. 
 
STRS Ohio’s administrative cost per member decreased to $109 from $111. This cost is above the peer average of $94 and below the $119 average of all participating systems. Since 2006, STRS Ohio has reduced the cost per member and annuitant of administering the pension benefits to $109 from $135.
 

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