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Board News

February Board News

Pension Legislation Sponsorship Will Be Bipartisan
The five Ohio retirement systems, including STRS Ohio, are still waiting for the Legislative Service Commission to finish its work in drafting the legislation designed to keep the systems financially strong and sustainable for all current and future public employees. During the February meeting of the State Teachers Retirement Board, Executive Director Michael Nehf reported that STRS Ohio has learned that the bill sponsorship will be bipartisan. House Assistant Minority Leader Louis Blessing (R-Cincinnati) has agreed to co-sponsor the legislation with Ohio Retirement Study Council Chair Rep. Todd Book (D-Portsmouth). It is anticipated that once a bill is introduced, hearings may occur this spring; however, voting on a bill is not expected until after the November election.

On Capitol Hill in Washington, D.C., the focus of legislators and the president appears to be on jobs; financial market regulation and reform; and the growing federal deficit and debt reduction measures. Health care is also on the list; however, congressional staff members are giving passage of health care reform a 50/50 chance this year. Additional information about discussions at the federal level can be found in this February’s issue of STRS Ohio’s Legislative News.

HPA Presents Modified Package of Pension Benefit Changes
At the February board meeting, the Healthcare & Pension Advocates for STRS (HPA) presented an alternative proposal for pension benefit changes to the Retirement Board for its consideration. The HPA proposal does not call for any changes to the proposed member and employer contribution increases nor to the benefit formula change contained in the plan adopted by the board on Sept. 1, 2009.

However, the HPA proposal does call for a phased approach to increasing the number of years of service required for full retirement benefits. In the HPA proposal, the change to 35 years from 30 of required service would be phased in, in two-year increments beginning in 2015 (i.e., 30 years until Aug. 1, 2015; 31 years from August 2015 through July 31, 2017; 32 years from August 2017 through July 31, 2019; 33 years from August 2019 through July 31, 2021; 34 years from August 2021 through July 31, 2023; and 35 years from August 2023 and beyond). Members could also retire early with 30 years of service, but with an actuarial reduction of their benefits.

HPA is also recommending that there be no tiering of the cost-of-living adjustment (COLA). In the HPA proposal, current retirees would receive a 2% COLA, beginning on July 1, 2011. New retirees after that date would also receive a 2% COLA, but it would be deferred for 36 months or until age 60, whichever comes later.

Finally, the HPA proposal would prefer legislation that grants authority to the Retirement Board to adjust the final average salary at three, four or five years, based on the funding status of the system.

In presenting its proposal, the HPA also expressed its commitment to the STRS Ohio Health Care Program by recommending that a contribution to the Health Care Stabilization Fund be set at no less than 1% of employer payroll.

At the March board meeting, STRS Ohio staff will present a report to the board showing the impact of the HPA’s proposed changes on the solvency of the pension fund. It was noted that any or all of HPA’s changes could be included in the pension legislation through amendments to the bill.

Projected Life of the Health Care Fund Increases Slightly, But Long-Term Changes Still Needed
A positive return on fund assets, as well as the addition of a Medicare Advantage program and other plan changes, helped to slightly lengthen the solvency period for the Health Care Stabilization Fund as of Jan. 1, 2010. The results of the annual actuarial valuation of the fund show that the projected life of the STRS Ohio Health Care Program now extends through 2021. This reflects an increase of three years from the 2009 valuation.

Costs for the STRS Ohio Health Care Program are paid out of the Health Care Stabilization Fund. Currently, monies for the fund come from premiums charged to STRS Ohio retirees and their dependents who are enrolled in the program, 1% of payroll from employer contributions, Medicare Part D subsidies and investment earnings on these funds. Though the balance in the fund stood at almost $3 billion on Jan. 1, 2010, next year the fund principal will be tapped to cover the shortfall in paying health care costs. Reliance on the principal rapidly depletes the health care fund, leaving only the 1% employer contribution, enrollee premiums and Medicare Part D subsidy to sustain the fund. Without significant changes in premiums, program eligibility or plan design, the program cannot survive in the long term. In the coming months, STRS Ohio staff will present options for the health care program for the board’s consideration.

Retirements Approved
The Retirement Board approved 175 active members and 125 inactive members for service retirement.

Other STRS Ohio News

STRS Ohio Receives State Auditor’s Award
STRS Ohio has received the “Making Your Tax Dollars Work” award from the Auditor of State’s Office for the second consecutive year. STRS Ohio received the award for the quality of its financial reporting and the absence of audit issues. Less than 5% of the 5,500 entities that the Auditor of State’s Office audits each year receive this award.

 

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From John Curry, March 1, 2010
Columbus Dispatch - Feb. 28, 2009
Newspaper miscast report on pensions
With each story it becomes increasingly clear that The Dispatch doesn’t support retirement security for the more than 500,000 public employees who work in Ohio. First, it ran the Jan. 3 “Good as gold” articles, a four-page spread bashing Ohio’s public pension systems, burying the fact that public employees are not eligible for Social Security, a huge gap that must be filled by the public pensions.
Now it missed the point completely on the Pew Center on the States report about public pensions in the United States (Dispatch article, Feb. 18). One only has to look at the headlines to see the bias. The Cincinnati Enquirer’s headline was “Pew Report gives Ohio pensions high marks.” The Dispatch’s was “Public pension systems reeling.”
The true success of the public pension systems in Ohio was buried in another negative story by The Dispatch. The fact is Ohio was issued the highest rating as a “top performer,” with 87 percent of its total pension costs in the bank, way above the recommended 80 percent preferred by pension experts.
And why didn’t The Dispatch use this quote from the study: “It (Ohio Public Employees Retirement System) started saving back in the 1970s, and today it is one of only six states on track to fully fund its nonpension (retiree health care) obligations. Ohio had $11.1 billion — an amount far higher than any other state.” Clearly the headline should have been, “Ohio public pensions outperform the rest.”
And in general the Pew report supported public pensions, which despite losing money in today’s poorly regulated Wall Street, still manage to be funded on average at 84 percent, 4 percentage points higher than preferred by pension experts.
It is a disservice to readers, Ohio residents and public-employee retirees to mischaracterize this report.
JOHN A. LYALL
President

American Federation of State, County and Municipal Employees Ohio Council 8
Worthington

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CORE

Message to CORE members from Dave Parshall

From Dave Parshall, January 18, 2010
To CORE members
Dear CORE members,
Please find below a letter for you to use to send to the media or any interested group you wish. This letter was board approved and is the product of the CORE Media Committee. You can use it as whole or any part you wish. It is time to start to get our side of the pension issues to the public. Also, we need to be politically smart. There are groups out there that wish to do us harm for a host of reasons. While the legislature is deciding what to do with Ohio Public pensions, we need to stop the public attacks on STRS. CORE will still bring up some of the STRS issues we have with Mr. Nehf in February. All educators need to stand together during these difficult times. We can’t afford to hurt our own cause.
Yours truly,
Dave Parshall, President of CORE
You Asked the Wrong Question!
Recent attacks by the media on public employees and their pensions were asking the wrong question. The real question the private sector should demand an answer for is, “What has happened to my pension?” Retirement was meant to be a three-legged stool: Social Security, an employer provided pension, and personal savings. 401k plans were never intended to be the foundation of anyone’s retirement, yet they have become so today. Corporations have been allowed to undermine pensions and depress salaries to increase their bottom lines, enrich investors, and inflate CEO’s golden parachutes at the expense of workers. It is simply the product of corporate and Wall Street greed that has taken pensions and helped drive this country into the ditch.
Recent research published by the National Institute on Retirement Security, www.nirsonline.org entitled “More Bang for the Buck,” points out that a defined benefit pension is the best retirement plan for all Americans. U.S. News and World Report, August 2008, states “401k plans save employers money because workers fund a portion of the plan. But a new analysis says 401ks are an inefficient way to finance a secure retirement.” The Financial News, August 2009, points out that “defined contribution schemes such as 401k plans are more expensive for employers to implement even as companies shift toward them and away from defined benefit schemes.” Time Magazine, Oct 2009, tells us, “Why it is Time to Retire the 401k...the ugly truth is that the 401k is a lousy idea, a financial flop, and a rotten repository for our retirement reserves.” And that is the real problem.
Public employees have a “defined benefit pension”--more accurately a deferred contribution pension--and so should you. However, there are some truths about public pensions and State Teacher’s Retirement System (STRS) in particular that the corporate-dominated press will never tell you.
In the first place, by state law teachers fund their own pensions. Their pensions are deferred compensation acquired through negotiations. The moment teachers sign a contract to teach, their contributions to STRS become part of their salary. The school board’s contribution to STRS is part of that contract. The school board’s 14% contribution to STRS has not changed since 1984. Over the same time period, an individual teachers’ contribution rate has increased 42.9 % to the current 10% of salary. The truth is teachers fund their own retirements. Switching public pensions to defined contribution plans is just a bad idea and will cost the state more.
Ohio teachers’ pension system was designed to replace Social Security and provide a decent retirement. To this day, teachers don’t pay into or receive Social Security. (Those teachers who worked enough quarters in the private sector get a greatly reduced payment. Social Security has a true compounded COLA, cost of living adjustment, based on the Consumer Price Index.) The STRS COLA is not compounded and is based on final salary average and never increases during a retiree’s life time. Teachers’ salaries are still low compared to similar degreed professionals. The media loves to quote the salaries of large urban school districts like many in Franklin County. What they don’t tell you is that about half of the teaching force works in rural districts and are paid far less. In many districts in southern Ohio, after a 35 year career a teacher is lucky to earn $40,000. Currently, 37,000 30-year retirees have pensions of $30,000 or less, and 62,000 retirees receive a pension less than $39,000. With Social Security, a company pension, and a 401 K or IRA plan, professionals in the private sector still fare much better during their career and into their retirement.
Until recently active teachers did not have the option of paying into Medicare. Consequently, about 10,000 retired teachers do not get Medicare Part A. STRS retirees have no spousal subsidy for health care. A retiree couple pays well over $1000 a month for health care. This is a big hit to a small monthly pension. STRS retirees fund 95 % of their health care and yet the fund is running dry. It will be the crisis for Ohio’s taxpayers if nearly 170,000 older retirees are added to the state’s Medicaid and Welfare roles.
Teachers and their leaders continue to work to find ways to solve the shortfall generated by the current market drop. Some changes have already been made. It is understandable that the public is upset with their own lot, and the feeling that they have lost control of their own retirement, but public pensions are not the problem.
The question needs to be redirected. The real revolt will come when those 30 or 40 year old workers finally realize that with a 401k foundation they will never be able to retire. Perhaps the media attack on public pensions was an attempt to redirect attention away from what has happened to private pensions and the unconstitutional funding of Ohio schools. It is time to finally ask the right questions so we all will be on the same side. Corporations and Wall Street will be on the other side where they have always been.
A proud member of CORE: Concerned Ohio Retired Educators.

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