STRS Update from ORTA June Newsletter
As you probably already know, the STRS Board of Trustees already
voted to adopt a new funding policy statement. The new funding policy
includes language that allows the board to consider plan changes that
the Boards actuary determines will not materially impair the fiscal
integrity of the system.
These plan changes may include increases in benefits that the Boards
actuary believe will not endanger the pension system. The Board may
consider such plan changes once the system is 85% funded.
The new language sets a target at a funding level of 85% as opposed
to 100%. Now, before we retirees make plans to spend the increases we
all believe we are entitled to, we must recognize that the current
funding level is at 77%. There is a great deal of improvement that
must take place before the system is at a level of 85% funded.
I think it is important to recognize what has happened over the last
several years and where the STRS pension system is at, presently. Some
key things to keep in mind:
* Currently, the STRS system has 1.1 active contributors for every
retiree. As such, STRS is considered a mature system. Just 20 years
ago STRS had 1.8 active contributors for every retiree.
* STRS collects less from active teachers than it pays out in retiree
benefits each year. This, even though active teachers contribute 40%
more from their paychecks than most retirees paid. Additionally,
active contributors must teach longer than most of us had to work to
receive full retirement benefits.
* To put this into easy to understand terms the pension system brings
in about $3 billion from active contributors but spends about $7
billion in retirement benefits. This negative cash balance of $4
billion must be made up through investments. If our investments earn
the assumed rate of return (.745%) much of that earnings amount is
spent on current retirees. If all things go as planned and the
investment folks at STRS are successful at reaching their goal, the
STRS system will gain a little over 1% on the funding ratio over the
course of 1 year. If, on the other hand, the investment people do
better than expected the gains could be larger. Truly, our retirement
is dependent upon the return on our investments.
* What I have suggested to STRS, legislators, and almost anyone that
will listen to me is that the STRS system needs to push for increases
in the employer contributions. When pension reform efforts were
initiated in 2009 and 2012 several changes were made. Some of those
changes included: increases in employee contributions (from 10% to
14%), forcing teachers to work longer, and reductions in COLA
provisions. Something that was not included was any increases in
employer contributions. STRS Ohio has a very low employer contribution
rate when compared to other public pensions in the state and around
the country. It seems logical to me that since STRS has suspended COLA
for retirees, increased the active contribution rate for active
employees, and required the length of service requirements for active
contributors, the next step would be to increase the employer
contribution rate.
As we work through the myriad of problems with the STRS system please
recognize that ORTA is working every day to protect and improve the
retirement benefits for STRS retirees.
ORTA Helps Active Educators
I received an email from the President of Preble Co. RTA informing me
that his chapter was reaching out to assist the teachers at Northridge
Elementary School near Dayton. Harold Niehaus informed me that the
teachers at Northridge Elementary lost most of their personal items
used for teaching as a result of the tornadoes that hit the Dayton
area. His chapter is seeking donations of items and or money to assist
the staff at this school as they prepare for next year. If you have
items (books and related supplies) that you would like to donate,
please contact Harold Niehaus President of Preble Co. RTA at
harold.niehaus@yahoo.com [3]. What a nice thing for a local chapter to
do to help its fellow educators.
Legal Action Brought Against STRS
Perhaps you have seen reports of a legal action brought against STRS
related to the loss of COLA in your news. On May 23rd, 2019 two
retired teachers from the Cincinnati area (Dean Dennis and Bob
Buerkle) filed a class action lawsuit against STRS Ohio challenging
the loss of COLA promised to Ohio STRS beneficiaries. Their suit
claims, among other things, that the action to suspend COLA violates
Ohios constitution, the U.S constitution, and Ohio Revised Code. Of
course, such a challenge is a drastic measure, but these two retirees
(and many other retirees across the state) feel that they have no
other recourse to fight against the STRS decision to break their
agreement with retirees. Although ORTA is not a principle in this
legal action; all STRS beneficiaries are a part of the class that the
plaintiff represents. I urge each ORTA member to read the lawsuit and
understand as much of this as possible. As a diverse group, ORTA
members opinions on this matter will vary. I have received many
comments on this action, most of them supportive of the action.
Finally, someone is doing something about the COLA probably represents
a majority of opinions from those that have contacted me. Of course, I
have also heard from people that are suspect of such a move and the
unintended consequences such an action might bring about. I will do my
best to keep ORTAs membership informed on what is happening with this
lawsuit.
Protect our Pensions Group
Many in the STRS beneficiary group have received, yet another, letter
from the Protect Our Pensions (POP 5) group. I remind ORTA members
that this group is NOT affiliated with ORTA in any way. I also remind
our membership that, in the 2 years I have attended the STRS meetings,
HPA meetings, and ORSC meetings, I have not seen anyone from POP 5
present. One statement in the most recent membership request from this
group is that older retiree associations have not been able to
accomplish much for you, recently. I would suggest that, while ORTA
efforts have not accomplished the goal of having COLA restored, ORTA
has been effective in several areas including:
* ORTA was effective in having the language in the loss of COLA
changed from eliminated to suspended. This was no easy task as the
STRS folks had determined that COLA was to be eliminated, forever. As
things stand our COLA is being reconsidered each year.
* ORTA was successful in getting the STRS Board to change the funding
policy (the policy that controls our COLA) from requiring a system
that is 100% funded to 85% funded. This is significant when one
considers that the STRS system has NEVER been funded at 100%. 85% is a
tall order but 100% was simply not realistic.
* ORTA was successful in maintain the $30 per month subsidy for all
Medicare eligible retirees. This was scheduled to cease in January of
2019 but continues as a result of ORTA (and others) hard work.
Another statement that I find troubling in the POP 5 letter is that
the retirement system is a well that is running dry. I disagree. In
fact, our system is better funded now that the historical average
funding level. So, a picture intended to frighten retirees into paying
dues to an organization that is absent from all meetings concerning
STRS is dubious.
STRS Budget
The budget for fiscal year 2020 (beginning July 1, 2019) for STRS
will be voted upon at the meeting of the STRS Board of Trustees on
June 20, 2019. Probably the most interesting aspect of the proposed
budget is the increase in compensation for STRS employees. When
factoring in a decreasing headcount in the number of employees at STRS
and a 3% compensation increase, the employees at STRS will see a 4.8%
increase in pay. This does not include the increases proposed to the
performance-based incentives that the investment people will receive.
These increases in wages to the people that manage our retirement
system are controversial, to say the least. ORTA has spoken against
the optics of giving raises to the STRS employees in the face of
reductions for retirees (loss of COLA) and increases in contributions
of actives. To be clear, these raises for STRS employees would not
provide sufficient funding for a COLA, however, the notion of shared
sacrifice is important. ORTA has suggested that everyone involved with
the STRS system, active contributors, retirees, and STRS employees
should share in the sacrifices that are required to strengthen the
pension system. ORTA will continue to voice opposition to the loss of
COLA, while witnessing the steady increase in wages for STRS
employees.
Best Regards,
Dr. Robin Rayfield, ORTA Executive Director
Richland County Retirement Seminar planned for September 17th. Ruth Pierce is planning the event.
May STRS OHIO Board NewsPosted: May 17, 2019Retirement Board Considers Pension Funding Perspectives, Adopts Amendments to Its Funding PolicyAt the May meeting of the State Teachers Retirement Board, STRS Ohio Finance Department staff shared some historical perspectives regarding the current pension funding status. As STRS Ohio approaches its 100th anniversary, it’s important to recognize that some demographic and economic characteristics have changed over the years, and these changes have had a significant impact on plan funding. Key points from the presentation include:
- Ratio of active members to beneficiaries has dropped — As a mature plan, the ratio of active members to beneficiaries has dropped to about 1.1 to 1 (about 170,000 active teachers and 157,000 beneficiaries) — compared to 20 years ago when the ratio was about 1.8 to 1 (about 170,000 active teachers and 92,000 beneficiaries). With Ohio birth rates dropping steadily over the past five or more decades, there are fewer students to educate, which could erode the number of active teachers needed
in the future. - The pronounced growth in the number of benefit recipients means that STRS Ohio has a negative cash flow — Meaning the fund pays out about $4 billion more in benefits each year than it collects in contributions. The balance is expected to be made up with investment returns. STRS Ohio needs to earn nearly 6% on investment returns to make up for the negative cash flow and must earn 7.45% to meet the expected needs of the retirement system.
- Economic environment has reduced risk-free rates of return considerably over the past 20–30 years, so investments must take on more risk — Staff shared that the 10-year treasury rates stood at 8.82% in 1988, versus 2.85% in 2018. This requires the pension fund to place a higher percentage of its portfolio in stocks and other volatile assets than it did 30 years ago in order to earn its assumed investment rate of return. Doing so increases the risk that the portfolio in a given year could lose assets during a market downturn and in these instances, the $4 billion in negative cash flow impacts the funding status even more.
- The likelihood of lower-than-expected investment returns leading to a funded ratio of less than 50% is reduced as the funded ratio improves — The changes in plan maturity and economic context combine to make the pension fund much more vulnerable to economic downturns. With its current asset mix, STRS Ohio faces about a 29% chance that the pension fund could drop below a 50% funded ratio in the next 10 years; however, the resiliency of the plan improves faster as the plan goes from a 75% funded level to a 90% funded level.
The funding objectives in the policy include:
- 100% funding.— At 85% or greater, the Board may consider plan changes that in the determination of the Board’s actuary do not materially impair the fiscal integrity of the system.
- Manage the risk of unanticipated benefit changes.
- Intergenerational equity, to the extent consistent with other funding objectives.
- Transparency and accountability.
Board Reviews Proposed Health Care Changes, Premium-Setting Strategy for 2020 Plan YearSTRS Ohio Member Benefits staff presented its proposed changes for the STRS Ohio Health Care Program for plan year 2020, along with its proposed strategy for setting premium subsidy rates. Staff reported that claims experience continues to trend in a positive direction and that should result in smaller premium increases than expected. Specific premium amounts were not part of the proposal but are expected to be shared at the June board meeting.
Proposed health care plan changes include:
- Extending the current Medicare Part B Partial Reimbursement program for one year. Under this program, benefit recipients currently enrolled in the STRS Ohio Health Care Program and Medicare Part B receive $29.90 per month to reimburse a portion of the Medicare Part B premium. The reimbursement was set to be reduced to $0 beginning Jan. 1, 2020. This impacts about 85,000 benefit recipients.
- Increasing prescription drug maximum out-of-pocket limit to $6,350 from $5,100 for the Medicare plans to align with the 2020 standard Medicare prescription plan.
- Modifying the specialty drug coinsurance for Medicare enrollees — changing the specialty drug coinsurance to the lesser of 13% or $450 per 31-day period from the lower of 13% or $550 per fill.
- Adding SaveonSP manufacturer copay assistance program — manufacturer pays higher copay with a $0 balance to the enrollee and net cost is lower for STRS Ohio.
- Adding 24-hour nurse line to the Medical Mutual Basic Plan for non-Medicare enrollees.
- Requiring transplants to be performed at Organ Transplant Centers of Excellence.
- Moving enrollees in the regional AultCare PPO plan to AultCare’s Medicare Advantage Plan.
Retirements ApprovedThe Retirement Board approved 46 active members and 53 inactive members for service retirement benefits.
Other STRS Ohio NewsSTRS Ohio to recognize 100th anniversary — A Legacy of Service to Ohio EducatorsSTRS Ohio will recognize its 100th anniversary during fiscal year 2020, (July 1, 2019–June 30, 2020), after a century of providing retirement benefits and quality service to its members. The 100th anniversary is a milestone worthy of acknowledging as we focus on strengthening the organization’s financial position and continue the mission to partner with members in helping to build retirement security. The framework for the year is an outward focus on both active and retired members, honoring Ohio’s teachers for their contributions to society — and to recognize the milestone and offer opportunities to further engage members, stakeholders and associates.
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