August Board News Details Retirement Board Actions and Discussion

This week, the State Teachers Retirement Board held 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 August report follows.

STRS Ohio Board News — August 17, 2007

Draft Divestment Policy Presented to Retirement Board
A portion of the Retirement Board’s August 2007 meeting included a discussion about a draft policy developed by STRS Ohio staff regarding the divestment of investments in Iran and Sudan. In June, the executive directors of the five Ohio public pension systems agreed to a request from Ohio House Speaker Rep. John Husted to ask their respective boards to consider development of policies for voluntary divestment of these investments. At the time, Substitute House Bill 151, which called for mandatory divestment by all five systems, was poised for a vote by the House of Representatives after being approved by the House Financial Institutions, Real Estate and Securities Committee. However, when the directors agreed to explore developing their own policies, the bill was referred to the House Rules and Reference Committee. (For a House vote to occur, the committee, which is chaired by Rep. Husted, would have to vote to place the bill back on the House calendar.)

The Retirement Board had previously passed a motion stating its opposition to any legislatively mandated divestment of investments in Iran and Sudan as such divestment is inconsistent with the board’s fiduciary duties to the membership. The draft policy developed by STRS Ohio staff is limited to STRS Ohio’s actively managed international portfolios in equities and fixed income. In presenting the draft policy, staff noted that its language recognizes that the fiduciary responsibilities of the Retirement Board are paramount. As written, STRS Ohio would not divest of a restricted security in Iran or Sudan unless a comparable substitute of equal risk and return, including transaction costs, is available. Board members asked that the Attorney General’s Office provide a written opinion regarding any potential conflict with the draft policy and the board’s fiduciary duty. Further, the board’s investment consultant, Russell Investment Group, will be asked to review the draft policy and comment on it at the September board meeting. No action was taken by the Retirement Board at the August meeting.

Retirement Board Approves Premiums for 2008 Health Care Programs
At its August 2007 meeting, the State Teachers Retirement Board approved the premiums for calendar year 2008 for each of the health care plans offered through the STRS Ohio Health Care Program. The new premiums take into account the plan design changes approved earlier in the year by the board to the Aetna and Medical Mutual Plus and Basic Plans and the Paramount health care plans. They also reflect the board’s continuation of its contribution strategy of providing a premium subsidy to benefit recipients of 2.5% per year of service, up to a 75% maximum, and requiring spouses and dependents to pay 100% of projected rates.

The majority of STRS Ohio’s benefit recipients and their family members are enrolled in the Medical Mutual and Aetna plans. For a 30-year retiree who is not receiving Medicare and is enrolled in the Medical Mutual Plus Plan, the monthly premium will increase to $181 from $163 in 2008. A 30-year retiree who is not receiving Medicare and is enrolled in Aetna’s Plus Plan will see an increase in the monthly premiums to $235 from $217. A 30-year retiree with Medicare will see a $2 increase in the monthly premium, to $69 from $67, for both the Medical Mutual and Aetna Plus Plans.

For a 30-year retiree without Medicare enrolled in Medical Mutual’s Basic Plan, the monthly premium will increase to $111 from $94. For a 30-year retiree without Medicare enrolled in Aetna’s Basic Plan, the premium will increase to $145 per month from $127 per month. For 30-year retirees with Medicare, the monthly premium will remain at $40 for both the Medical Mutual and Aetna Basic Plans.

The amount of increase in monthly premiums varies among plans. The minimum monthly premium is $40, except for benefit recipients enrolled in the Health Care Assistance Plan. In late October, all current enrollees in the STRS Ohio Health Care Program will receive personalized information that outlines their 2008 plan options, monthly premiums and coverage features. Open enrollment will run from Nov. 1 through Nov. 30, 2007. A complete list of premiums for all plans and each year of service will also be posted on the STRS Ohio Web site on Sept. 4, 2007. At that time, premium information is also available by calling STRS Ohio’s Member Services Center toll-free at 1-888-227-7877.

Current Reimbursement Dollar Level for Medicare Part B Unchanged for 2008
The dollar amount of reimbursement STRS Ohio benefit recipients receive for their Medicare Part B premium will not change in 2008. The maximum amount of reimbursement remains $52.83 per month for the 30-year retiree; the minimum amount of reimbursement is $29.90 per month. By maintaining these reimbursement levels, the annual required contribution for health care funding remains at or below 5%. This annual required contribution amount, which moves the Health Care Stabilization Fund toward a 30-year funding period, is the basis of the Retirement Board’s legislative initiative to create an ongoing, dedicated revenue stream for the health care program.

Express Scripts Chosen as PBM for 2008 Through 2010
Enrollees in the Aetna, Medical Mutual and Paramount health care plans will have a new pharmacy benefits manager (PBM) for their prescription drug coverage beginning on Jan. 1, 2008. The Retirement Board approved a three-year contract with Express Scripts that will extend through Dec. 31, 2010.

The selection of Express Scripts resulted from a collaborative effort between STRS Ohio, the Ohio Public Employees Retirement System, the School Employees Retirement System and The Ohio State University to choose a common pharmacy benefits manager for their respective health care programs. By joining together, the four groups have been able to leverage their collective purchasing power to stretch their respective health care dollars as much as possible. With the addition of OSU to the project in June 2007, the number of covered lives now totals more than 400,000.

STRS Ohio benefit recipients will receive more information about Express Scripts in the October STRS Ohio newsletter as well as in materials they receive this fall as part of open enrollment.

Operating Expenditures Come in Below Budget
Final figures for fiscal year 2007 (July 1, 2006–June 30, 2007) show that total operating expenditures for STRS Ohio were nearly $5.3 million less than what was budgeted. Less-than-expected expenditures for staff salaries and fringe benefits, custodial banking fees and other consulting services contributed to the majority of the savings.

Fiscal Year Investment Results Generate PBI Awards
The August meeting included the Retirement Board’s approval of earned Performance-Based Incentive (PBI) Awards for eligible associates in the Investment Department. For fiscal year 2007 (July 1, 2006–June 30, 2007), STRS Ohio recorded a very favorable investment return for the total fund of 20.7%, with all asset classes beating their benchmark returns. Overall, the total fund exceeded the composite benchmark by an estimated 124 basis points or 1.24%. After all direct internal investment costs (including earned PBI Awards) and external manager costs are subtracted from this gross active management return, the net value added was 113 basis points, or about $650 million for fiscal year 2007 and more than $2.3 billion during the five-year period from July 1, 2002, through June 30, 2007. This represents the additional value brought to the fund through active management by STRS Ohio associates and external managers, above and beyond the passive indexing of system assets. In addition, it was reported to the board that the most recent draft CEM Benchmarking Inc. study covering calendar year 2006 indicates STRS Ohio saved more than $88.4 million (after accounting for all expenses) by the internal management of nearly 80% of its investment assets. Based on the investment returns for fiscal year 2007, as well as for the trailing three- and five-year periods, the board approved a PBI payment of $8.2 million for 86 eligible investment associates.

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

• 2,646 active members were approved for service retirement; 201 inactive retirements were approved.

• In June, fixed-income purchases totaled $1.2 billion, domestic equity purchases totaled $1.7 billion and real estate purchases totaled $266 million.

• In July, fixed-income purchases totaled $1 billion, domestic equity purchases totaled $2.2 billion and real estate purchases totaled $169 million.

Additional Items Reported at the Meeting by Executive Director Damon Asbury

Health Care Champions lead grassroots effort
In anticipation of the health care funding bill being reintroduced in the Ohio House of Representatives, STRS Ohio staff and members of the Health Care Advocates for STRS have been meeting to map out the next steps of the campaign. One major initiative was launched on Aug. 15 with a training session for “Health Care Champions.” More than 400 active and retired members were identified by their professional or retiree organizations as potential participants in grassroots activities on behalf of the health care funding legislation. About 100 of these individuals attended the training session, where they received a detailed overview of the funding proposal plus tips on meeting with legislators, initiating discussions with their school board members and talking to colleagues. Additional regional training sessions are being planned to accommodate the more than 100 additional active and retired members who are interested in joining in this grassroots activity. These Health Care Champions, who are located throughout the state, will play an important role in ensuring dialogue about the funding proposal continues among STRS Ohio members, legislators and employers.

Return to the list of STRS Ohio news e-mails sent in 2007.