Board Approves Enhancements to Health Care Plans for 2022 Plan Year; Discusses Premiums for 2022
At the May meeting of the State Teachers Retirement Board, the board approved changes to the retiree health care plan that were first reviewed at the April meeting. The enhancements for the 2022 plan year include:
- Moving to Express Scripts’ National Preferred Formulary for non-Medicare enrollees and to the Premier Performance Formulary for Medicare enrollees. This results in a three-tier drug copay structure with a new option for non-preferred brand name drugs (in addition to generic and preferred brand name drugs).
- Reducing the specialty copay to the lesser of 8% of cost or $450 from the lesser of 13% or $450 per 31-day supply.
- Decreasing the drug maximum out-of-pocket limit to $5,100 from $6,500 for the Medicare plans, below the 2022 standard Part D limit of $7,050, while maintaining the $5,100 out-of-pocket limit for non-Medicare enrollees.
The board also voted to maintain for the 2022 plan year the current $275 annual deductible for prescription drugs for Medicare and pre-Medicare plans for brand name and specialty drugs.
The board then discussed premiums for the 2022 plan year. The board is expected to vote on premiums in June. Plan changes and premiums will be posted on the STRS Ohio website and outlined in upcoming newsletters.
Actuarial Consultant Stresses Importance of Reasonable Economic Assumptions
The Retirement Board’s actuarial consultant, Cheiron, provided the board with information on the economic assumptions for the upcoming June 30, 2021, actuarial valuation. Cheiron stressed the importance of using reasonable assumptions, noting that realistic assumptions provide the best foundation to prudently plan for the future.
The presenters shared several factors to consider when setting economic assumptions, noting that plan dynamics and future expectations are the most important. A significant plan dynamic for STRS Ohio is that, like most mature plans, STRS Ohio has negative cash flow because the system pays out much more in benefits (about $7.4 billion per year) than it collects in contributions (about $3.4 billion per year). This makes the plan more reliant on investment returns.
Looking at future expectations, Cheiron noted that the board’s investment consultant, Callan LLC, expects lower than normal returns over the next decade. Future expectations for all asset classes have declined in the past year. Callan’s 2021 estimate for STRS Ohio’s portfolio return for the next 10 years is 6.02%. The board and Cheiron are expected to have additional discussions about STRS Ohio’s economic assumptions at the June board meeting.
Investment Consultants Provide Performance Review
The board’s investment consultants, Callan LLC and Cliffwater LLC provided brief performance updates at the May meeting for periods ending March 31, 2021. Callan shared that STRS Ohio’s performance over the three-, five-, seven- and 10-year periods all ranked in the top 20% of its Public Fund Sponsor Database. Callan also noted that STRS Ohio’s five-year return — which outperformed 84% of public sector peers — did so while exhibiting less risk than most of the funds in the database.
Cliffwater LLC provided an overview of STRS Ohio alternative investments and reported that alternatives have enhanced STRS Ohio’s total fund return and reduced total fund risk over the past 20 years. Private equity returns for the 10-year period ending March 31, 2021, were an annualized 16.16%.
Correthers, Fichtenbaum, Stein Win Seats on Retirement Board
Contributing teacher member Carol Correthers was reelected to the State Teachers Retirement Board in the 2021 election that concluded on May 3. Correthers is an intervention specialist for emotionally disturbed students for Lorain City Schools. In the contest for the two retired member seats, Rudy H. Fichtenbaum was elected to his first term on the Retirement Board. He retired from Wright State University, where he was an economics professor. Robert Stein was reelected to a retiree seat on the board. He is a retired educator from Strongsville City Schools.
The term for these seats runs from Sept. 1, 2021, to Aug. 31, 2025. Board members receive no compensation for service on the board other than reimbursement for actual, necessary expenses.
The Retirement Board approved 71 active members and 51 inactive members for service retirement benefits.