2005 STRS Ohio News E-mails

October Board News Details Retirement Board Actions and Discussion

Last week, the State Teachers Retirement Board held several committee meetings, as well as its monthly meeting. Following 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. 25, 2005

Health Care Member Education and Engagement Campaign Under Way
During Executive Director Damon Asbury’s monthly report to the Retirement Board at its October meeting, he reported that STRS Ohio and the Health Care Advocates for STRS (HCA) continue to work on the Member Education and Engagement Campaign approved by the board at its September meeting. As part of this fall campaign, all active STRS Ohio members are being invited to attend regional meetings designed to inform STRS Ohio members about retiree health care costs, and to gauge their support for a possible legislative initiative that increases STRS Ohio member and employer contributions to support the retiree health care program into the future.

Right now, STRS Ohio is collecting the maximum it can from teachers and employers under current law (10% from teachers/14% from employers). To collect more, the Retirement Board would need to go to the Legislature — but before it does this, it wants to be sure there is significant support from members and employers.

After thorough study of the situation, STRS Ohio and the HCA have concluded the only way to provide adequate funding for the STRS Ohio Health Care Program for current and future retirees is to ask members to contribute 2.5% more and employers to contribute 2.5% more of their teacher payroll. This contribution increase, plus a continuing focus on cost containment, should sustain the program well into the future. The permanent increase would be phased in over a five-year period, in .5% increments each year. The earliest possible date this phase-in would begin is July 1, 2006; it will probably be later.

Information meetings are being held throughout the state in Akron, Athens, Canton, Cincinnati, Cleveland, Columbus, Dayton, Lima, Portsmouth, Toledo and Youngstown. Information is also posted on the STRS Ohio Web site, including an online version of the presentation that is being made at the meetings. Active members are being encouraged to voice their opinion about this issue by completing a survey at one of the information meetings, responding to an online survey on the STRS Ohio Web site, or by filling out the survey card in the mailer.

Board Approves Legislative Initiative
At the Statehouse, Rep. Michelle Schneider has introduced House Bill 272 at the request of OPERS. This bill includes a component that requires reemployed retirees of that system to obtain health care benefits from their employer — regardless if the employer is public or private — provided health care is offered to employees in comparable positions. Current law requires this of only those reemployed retirees who are working for an OPERS employer. At its Oct. 12 meeting, the Ohio Retirement Study Council recommended the bill to the Legislature for passage after approving an ORSC staff recommendation to include STRS Ohio and SERS in that provision of the bill.

A second provision of H.B. 272 that ORSC staff recommended be amended to include STRS Ohio and SERS allows for the creation of medical savings accounts that would be funded while a member is actively teaching, but drawn upon for allowable medical expenses after retirement.

At the State Teachers Retirement Board’s October meeting, the board voted to authorize staff to support this legislation, but with a three-year delayed effective date for the change to the reemployed retirees’ health care coverage. The board instructed staff to seek an amendment to H.B. 272 that would make the change effective on Jan. 1, 2009. Collectively bargained agreements are typically three years in duration. Many STRS Ohio reemployed retirees are currently working under a contract that does not provide access to their employer’s health care plan — even though other employees who are similarly employed have access. The Jan. 1, 2009, effective date would allow all existing contracts to be completed.

The Retirement Board also voted to include additional amendments to H.B. 272 that reflect some needed changes to several sections of Chapter 3307 of the Ohio Revised Code. These include:

Changing the eligibility requirements for service retirement and disability retirement to require a member to have 5.00 years of actual Ohio teaching service for which member and employer contributions were made to the system.
Changing the eligibility requirement for survivor benefits to be 1.5 years of actual Ohio teaching service rather than 1.5 years of any service.
Extending the benefit of the right to return to a prior position if a disability benefit is terminated during the first five years to a member enrolled in the Combined Plan.
Requiring employers who grant a leave of absence to a Combined Plan member to pay the employer share of contributions if the member elects to purchase that leave of absence.
Changing the default choice for final plan selection for Defined Contribution and Combined Plan members to the plan that they initially selected. During their fifth year of membership, these members have an opportunity to make a final plan selection. The law currently states that the member defaults to the Defined Benefit Plan if no action is taken during the final selection period window of 180 days. The board also approved a reduction in that window to 90 days.

As the bill progresses through the General Assembly, we will keep STRS Ohio members informed through our newsletters and the Web site.

Pension and Health Care Funding Remains a Board Priority
At October’s Retirement Board meeting, the annual actuarial valuation of the pension fund was presented by the board’s actuary, Buck Consultants. As expected, the system’s funding period as of July 1, 2005, increased. The changes from the previous fiscal year reflect some experience losses, as well as inclusion of investment losses from the 2000–2002 period (due to four-year smoothing). The higher investment returns of the past two years will have more of an effect going forward. The board will be holding further discussion on the report at its November meeting.

The information contained in the actuarial valuation is one piece in a continuum of financial, investment and actuarial information that the Retirement Board has been reviewing since last fall. At the November meeting, the board will also be acting on the recommendations contained in the asset/liability study that began last spring. In addition, the results of the Member Education and Engagement Campaign will add valuable information to the discussion.

In November, the Retirement Board will receive a report from the board’s actuary regarding the overall cost or benefit to STRS Ohio of providing the enhanced 35-year benefit. The board requested this study because, as of July 2005, the enhanced benefit formula for 35 years of contributing service credit had been in effect for five years. There has been no discussion at Retirement Board meetings to eliminate this formula enhancement. The review of its impact on the system is just one component of the board’s ongoing discussion about pension and health care funding.

Board Receives Benefit Comparisons Report
At its October meeting, the Retirement Board received an annual report from staff that compares the benefits provided by teacher retirement systems in 12 other non-Social Security states to those offered by STRS Ohio.

Pension Benefit Comparison
Retirement benefits vary considerably across the United States in regard to benefit levels, eligibility for unreduced benefits, calculation of final average salary and contribution levels. Based on the various benefit formula rules, it is difficult to narrow a ranking of STRS Ohio to a single factor; however, STRS Ohio does rank favorably among the teacher plans when comparing the benefit available to a 55-year-old member with 30 years of teaching credit. STRS Ohio ranks 9th out of 52 formulas regarding its pension benefit of 66% of final average salary.

Health Care Coverage
Five of the 13 teacher retirement systems not covered by Social Security administer their own health care plan. In addition to STRS Ohio, the others are Alaska, Colorado, Illinois and Texas. Two other systems, Kentucky and Connecticut, offer subsidies for retirees without Medicare, but don’t actually administer a health care plan. In the remaining states — California, Louisiana, Missouri, Nevada, Maine and Massachusetts — health care is provided to retirees either by the state or through the retirees’ last employer.

The STRS Ohio Health Care Program was compared with the other states’ plans that offer similar coverage levels. Career teachers without Medicare enrolled in STRS Ohio’s Medical Mutual Plus Plan will pay $148 per month for their coverage in 2006. Similar coverage is $154 in Illinois, $280 in Texas and $283 in Colorado. Coverage for an STRS Ohio member and spouse without Medicare is $649 per month, compared to $768 in Illinois, $605 in Texas and $818 in Colorado. Retirees in Alaska who had membership before 1990 are eligible for free health care coverage. However, Alaska retirees with membership after 1990 pay $573 for the retiree or $1,146 for retiree and spouse per month.

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

25 disability retirements were granted.
580 active members were approved for service retirement; 136 inactive retirements were approved.
In September, the fixed-income purchases totaled $676 million, domestic equity purchases totaled $860 million, and real estate purchases totaled $37 million

Return to the list of STRS Ohio news e-mails sent in 2005.