Dec. 12, 2003

2003 Annual Financial Statement Audit Reveals no Findings or Recommendations
KPMG completed its audit of the STRS Ohio financial statements for the fiscal year ended June 30, 2003, on behalf of the Auditor of State. The audit was conducted in accordance with generally accepted auditing standards as well as Government Auditing Standards issued by the Comptroller General of the United States. In presenting the results to the State Teachers Retirement Board at its December meeting, the auditors reported that there were no findings or recommendations for improvement in internal controls. As part of its audit, KPMG performed tests of STRS Ohio’s compliance with certain provisions of law, regulations and contracts. The results of these tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. KPMG representatives also reported to the Retirement Board that management cooperated fully and provided them with complete access to the books and records of STRS Ohio.

Board Receives Annual Report to Members
The annual Report to Members was presented to the Retirement Board by Sandra Knoesel, deputy executive director — Member Benefits. The report primarily covers the July 1, 2002, through June 30, 2003, fiscal year. During this period, STRS Ohio:

• Paid more than $3 billion in benefits, including $456 million in optional health care benefits and administration;

• Saw service credit purchases double due to new rollover options made possible through passage
  of the Economic Growth and Tax Relief Reconciliation Act of 2001;

• Implemented the Partial Lump-Sum Option Plan (PLOP);

• Provided enhanced services to members, including more interactivity on the Web site (e.g., real-time address changes and health care open enrollment), a redesigned Annual Statement and the LifeMasters Disease Management Program;

• Answered more than 300,000 calls to the Member Services Center;

• Provided individual counseling sessions to 17,500 individuals; and

• Presented seminars and in-service programs to 12,000 members.

Knoesel also noted that the “baby boomers” are working longer than expected. Two factors are contributing to this pattern: an enhanced benefit formula with 35 years of service and higher costs for health care. She also noted that participation in the Defined Contribution and Combined Plans remains steady, with 14% of eligible members choosing these plans rather than the Defined Benefit Plan.

Work on Forming a Coalition Continues
On Dec. 10, the Retirement Board met with the Health Care Advocates for STRS (HCA) to continue discussions about health care funding. It was reported that on Dec. 8, STRS Ohio and the HCA hosted a meeting that brought together individuals from more than 20 organizations representing public employers, public employees and retirees. Those in attendance agreed to continue discussions regarding forming a statewide coalition to examine how to provide quality, affordable health care for Ohio’s public retirees while maintaining fiscally sound pension systems.

Operating Expenses Continue to Decrease
During the monthly review of the system’s expenditures, it was noted that operating expenses for STRS Ohio continue to decrease. Fiscal year-to-date expenses through November 2003 are $4.6 million or 13.7% less than the same period last year. Staff salary payments are down nearly 2% from last fiscal year.

Appointment Made to Medical Review Board
Jeffery C. Hutzler, M.D., was appointed to the STRS Ohio Medical Review Board. He is replacing George H. Lohrman, M.D., who is retiring. During its December meeting, the Retirement Board recognized Dr. Lohrman for his more than 29 years of service on the Medical Review Board.

Retirements, Investments Approved
The Retirement Board approved the following retirements and investment transactions:

• 21 disability retirements were granted.

• 82 active members were approved for service retirement; 157 inactive retirements were approved.

• In November, fixed-income purchases totaled $766.7 million, domestic equity purchases totaled $835.6 million, and real estate purchases totaled $10.9 million.

Additional Items Reported at the Meeting  
Interim Executive Director Damon Asbury reported on activities at the Statehouse.

Final Version of Pension Reform Legislation Still Unresolved
Ohio House and Senate members were unable to reach resolution on final language for pension system reform legislation before the holiday break. Staff members of all five public pension systems have been meeting with legislative leaders to find some middle ground on the two pension bills — Am. Sub. H.B. 227 and Am. Sub. S.B. 133. The systems are particularly concerned about two provisions in the House bill.

The House bill mandates that the five pension systems use “Ohio qualified” brokers for 70% of equity and bond trades and Ohio-based money managers for 50% of the externally managed assets. There are significant cost implications to this mandate. Preliminary projections are that it could cost the retirement systems as much as $180 million in just the first year. Other language in the bill puts the Treasurer of State on each board and gives him or her the authority to hire and fire all five system executive directors. This would undermine the authority of each system’s board and the elected representatives of the membership.  

The General Assembly Will Resume its Work on Jan. 6. In the meantime, STRS Ohio members should continue to share their opinion about the two bills with their representatives and senators through letters, phone calls and e-mails.

Proposals for ORSC Audit Still Under Review
The Ohio Retirement Study Council has narrowed its search for a company to perform a fiduciary performance audit of STRS Ohio to two firms. At its Dec. 10 meeting, the ORSC announced its intent to hear presentations from these two firms before making a decision. 

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