Solvency Period for Health Care Fund Drops to 15 Years; Board Exploring Options to Preserve Plan
At the March meeting of the State Teachers Retirement Board, Paul Snyder, deputy executive director — Finance and chief financial officer, presented results of Segal Consulting’s annual actuarial valuation of the Health Care Fund. The report shows the funded ratio for the Health Care Fund dropped to 63% from 74% last year. This means STRS Ohio has 63 cents on hand for every dollar needed to continue the current plan indefinitely. The valuation projects the Health Care Fund to remain solvent until 2031, a decrease of four years from last year’s valuation — and a decrease of 33 years from the 2014 valuation. The projected 15-year solvency period is an estimate — in actuarial terms, there is a 50% confidence level that the Health Care Fund has at least 15 years of solvency. Depending on the strength of financial markets, the amount of health care claims and whether additional funding is available, there is a chance the life of the fund could be 10 years or less.
The primary reasons for the decrease in the solvency period are: STRS Ohio no longer allocates 1% of the 14% employer contribution to the Health Care Fund, and 2015 investment returns did not meet STRS Ohio’s 7.75% assumption. The decision to discontinue the 1% allocation to the Health Care Fund was made in March 2014 so the 1% could be used to strengthen the pension fund.
The Health Care Fund is valued on a calendar-year basis. During 2015, the Health Care Fund earned a 2.5% rate of return. Costs for the health care program are paid out of the Health Care Fund, which is currently funded through premiums charged to enrollees, government reimbursements and investment earnings on these funds. The balance of the fund as of Jan. 1, 2016, was $3.26 billion, nearly $200 million below the $3.45 billion reported in the Jan. 1, 2015, valuation report. Benefit payouts during 2015 totaled $690 million, an average of more than $1.8 million per day.
The Retirement Board identified health care funding challenges as a key area of focus for 2016 during its annual planning meeting in January. The board identified several steps for staff to pursue while continuing to study potential funding solutions. These steps included:
- Work with membership and stakeholder groups to determine the components that deliver a plan that represents good value and determine how long — with a high degree of confidence — STRS Ohio can offer a meaningful plan.
- Evaluate the impact of additional health care plan changes in the areas of eligibility, plan design and subsidy levels.
- Work with membership and stakeholder groups on approaches to increase funding for retiree health care.
- Continue open and honest communication with membership and stakeholders.
As in years past, STRS Ohio staff is working with the board to set 2017 coverage features, program eligibility and premium subsidies. In February, staff presented potential changes for the board to consider for the 2017 plan year. The board is reviewing these options, as well as working with staff regarding how to extend the solvency of the health care program. These potential changes can be found in the February Board News. STRS Ohio will continue to share information on these discussions, along with any actions taken — via the system’s website, newsletters and eUPDATE email news service.
Retirement Board Election Materials to Mail in April
The 2016 Retirement Board election packet will mail on April 1. It will include information about the two candidates — Cory R. King and Tim Myers — who are running for the one contributing member seat on the board that is up for election this year. The election packet will also include instructions for casting votes using the Internet, phone or mail. Those eligible to vote in this election include all STRS Ohio contributing members, individuals who have contributions on deposit at STRS Ohio and disability benefit recipients. The deadline for voting is May 2. STRS Ohio will announce the results of the election following certification of the election results by the board of tellers on May 7.
Board Approves Changes to Board Policies, Including Funding Policy
The board adopted amendments to its Board Policies at the March meeting, and the changes were substantially similar to those presented by general counsel at the board retreat in January. Included in these amendments were changes to the board’s Funding Policy, which has been a key topic for the board for several months. The most recent changes to the Funding Policy were presented by staff at the February 2016 Retirement Board meeting. The updated policy includes the stated goal of managing “the risk of unanticipated benefit changes and to safeguard members’ benefits in the long term.” The policy also provides criteria for making decisions regarding changes to funding and benefits, as well as when those changes should be considered by the board.
The updated Board Policies will be available in early April on the STRS Ohio website, by selecting “Retirement Board” under “About Us.” The updated Funding Policy is available here.
The Retirement Board approved 70 active members and 53 inactive members for service retirement benefits.