October Board News Details Retirement Board Actions and Discussion

This week, the State Teachers Retirement Board held several committee meetings, as well as its monthly meeting. On the Friday of regularly scheduled board meetings, a report titled “Board News” is posted on the STRS Ohio Web site, as well as sent to a number of members and education organization representatives who have requested it. As a registrant on the STRS Ohio news e-mail list, you will also receive this report each month.

The October report follows.

STRS Ohio Board News — Oct. 22, 2004

Retirement Board Receives Preliminary Results of Actuarial Valuation
The Actuarial Committee of the Retirement Board heard a preliminary report of the results of the July 1, 2004, actuarial valuation from the board’s actuary, Kim Nicholl of Mellon. In this report, STRS Ohio’s actuarial gains and losses for the past fiscal year (July 1, 2003–June 30, 2004) are reported. As part of the annual study, the actuary looks at the system’s experience in several areas, including investment income, payroll growth, salary increases, retiree mortality and the number of retirements and other separations from the system (such as account withdrawals).

While STRS Ohio had an exceptionally good year regarding investment returns, the system experienced actuarial losses in other areas. The most significant difference between projections and actual experience occurred with retirements and other separations. During the 2003–2004 fiscal year, there was an unexpected increase in the number of individuals retiring with 30 years or more of service, which resulted in an actuarial loss.

In addition, the growth in total payroll and corresponding contributions were less than anticipated. The report also noted that individual teacher salary increases were at a higher rate than expected, adding even more to the system’s accrued liability. This is because pension benefits are calculated, in part, on a member’s final average salary.

These factors contributed to an overall actuarial loss for the system of $178 million. Consequently, when the final actuarial report is released in November, it is expected that it will show only slight changes to the funding period and funded ratio for the pension fund. The funding period, which is the number of years required to pay off the system’s unfunded accrued liability, should stand at 42.2 years, down from 42.3 years. The funded ratio, which is the market-related value of assets compared to liabilities, should show an increase to 75.9% from 75.2%. This means that STRS Ohio has on hand almost 76% of the assets needed to pay all benefits accrued to date — even though the liabilities will not actually be payable for many years.

As part of the committee meeting, it was noted that increasing the employer contribution allocation to the Health Care Stabilization Fund to 1.5% from its current level of 1% would lengthen the funding period to 48.8 years. The current 1% allocation translates into approximately $92 million for the fund for the 2004–2005 fiscal year.

The Retirement Board also discussed the possibility of issuing a supplemental benefit, or “13th check,” to benefit recipients. In light of the fact that the funding period and funding ratio improved only slightly, and also that the system’s funding period still exceeds the 30-year requirement, the board agreed that a supplemental benefit should not be paid this year.

May Retirement Board Elections Will be Managed by VR Election Services
During its Election Committee meeting, the Retirement Board authorized Executive Director Damon Asbury to enter into a contract with VR Election Services of Carrollton, Texas, to run the May 2005 election. This election will include a contributing member seat and two retired teacher seats on the board. By using an outside firm, STRS Ohio members and benefit recipients will be provided additional ways to cast their votes. Mail ballots will still be provided to all eligible voters; however, the ability to vote by using a toll-free telephone number or by using the Internet will also be provided. In fact, voters will be encouraged to use the telephone or Internet options, as they will reduce costs for the retirement system.

Nominating petitions for the board seats will be available from STRS Ohio beginning Dec. 1, 2004. The deadline for their return is Feb. 25, 2005. Ballots will be mailed on April 4, 2005.

Investment Committee Meeting Includes Review of Real Estate Program
During the Investment Committee meeting, Russell Investment Group, the Retirement Board’s investment consultant, provided results of its recent review of the STRS Ohio real estate investment program.

Russell noted that STRS Ohio’s investment portfolio has outperformed its benchmark over the past one-, three-, five- and 10-year periods. These results have established real estate as the best performing asset class over the long term for the retirement system.

As part of its operational review of the 45-member real estate department, Russell noted that the structure and composition of the department have served the system well, not just through performance, but with much lower costs as compared to fees paid to external firms.

Retirement, Investment Transactions Approved
The Retirement Board approved the following retirements and investment transactions:

• 33 disability retirements were granted.
• 443 active members were approved for service retirement; 66 inactive retirements were approved.
• In September, fixed-income purchases totaled $159 million, domestic equity purchases totaled $1.019 billion and real estate purchases totaled $25.9 million.

Additional Items Reported at the Meeting

2005 Health Care Open Enrollment Began Oct. 18
On Oct. 18, personalized packets were mailed to all benefit recipients currently enrolled in the STRS Ohio Health Care Program. These packets include information about their individual health care options, monthly premiums and coverage features for calendar year 2005. Due to the combined efforts of Health Care Services and Communication Services, health care information contained in these packets has been greatly streamlined. As a result, STRS Ohio will experience a 5.5% reduction in the per packet cost.

Separate packets detailing the optional dental and vision plans that STRS Ohio is offering for the two-year period, Jan. 1, 2005–Dec. 31, 2006, are also being mailed in October. The dental plan is offered through Delta Dental, while vision coverage is provided by Vision Service Plan. The open-enrollment period for the health care, dental and vision plans runs through Nov. 22, 2004.

One unforeseen complication has arisen with the dental plan open enrollment. At this time, Delta Dental’s customer service employees are on strike. Fortunately, the plan materials being mailed to STRS Ohio members on Monday, Oct. 25, are quite detailed and provide information covering enrollment eligibility and procedures, benefits covered, premiums, and how to obtain information about participating dentists. In addition, Delta Dental’s automated service inquiry line enables a caller to receive information about participating dentists without having to talk to a customer service representative; the company’s Web site also provides this information. If an STRS Ohio member does need specific information about benefits, a message can be left with Delta’s customer service center and the call will be returned in about 24 hours.

Annual Budget Report Process to ORSC Begins This November
The recently passed pension legislation requires each retirement system to provide a copy of its proposed operating budget to the Ohio Retirement Study Council (ORSC) at least 60 days prior to approval by the respective retirement board. Finance directors from each of the systems met with ORSC staff to discuss a uniform reporting format. Although there are significant differences among the systems in the ways budgets are prepared, there was general agreement that for purposes of reporting to ORSC, planned administrative expenses, investments expenses and capital budgets would be reported on a cash basis. Am. Sub. S.B. 133 requires retirement board expense budgets to be reported separately. OPERS, Ohio Police and Fire, and the Highway Patrol Retirement System will report their budgets first since their fiscal years are January through December. These presentations will take place at the Nov. 10 ORSC meeting.

Satisfaction High and Attendance Increasing at Member Education Programs
Nearly 3,000 members attended one of 78 programs presented by the Member Education Department in the first quarter. This is a 3% increase over last year. About 25% of the members attended customized meetings that were specially requested by employers and other teacher organizations. Also, two Retiree Series programs were added to meet the demand. Member satisfaction with the sessions continues to be high. Regarding overall satisfaction, 33% of attendees during the first quarter rated the program as a 10 on a 10-point scale, while 92% rated the program as outstanding. Professionalism and courtesy were the highest-rated attributes of the presenters, with nearly two-thirds of respondents providing a 10 rating. Perhaps the most positive indicator is that 99% of attendees would recommend the program they attended to a co-worker.

Return to the list of STRS Ohio news e-mails sent in 2004.