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Preble County Retired Teachers Association (PCRTA)
Preble County Retired Teachers Association                             (PCRTA)

STRS NEWS

 

 

May 19, 2017

 

Correthers Wins Contributing Member Board Seat; Stein, Walters Unopposed for Retired Member Seats

Contributing teacher member Carol Correthers was reelected to the State Teachers Retirement Board in the 2017 election that concluded on May 1. Retired teacher member and current board chair Robert Stein, as well as retired teacher Rita J. Walters, were unopposed for the two retired teacher seats on the board. Walters will be serving her first term on the board. The terms for these three seats begin Sept. 1, 2017, and end on Aug. 31, 2021. Board members receive no compensation for service on the board other than reimbursement for actual, necessary expenses.

Board Reviews Preliminary 2018 Health Care Premiums; Will Continue to Explore Options to Improve Solvency of the Health Care Fund

During the May meeting of the State Teachers Retirement Board, STRS Ohio staff presented a preliminary look at health care program premiums for 2018. Staff works with health care consultants and actuaries to develop expected costs for the health care plans. The board learned that lower than expected health care claims during the review period for STRS Ohio’s self-insured plans will likely have a positive impact on 2018 premiums for these plans. This means premium increases are expected to be smaller than the consultants’ original projections. The board is slated to approve premiums for the 2018 plan year at its June meeting. Once approved, the premiums will be posted on STRS Ohio’s website.

The board has been studying proposals to improve the solvency of the Health Care Fund. This fund is currently funded through premiums charged to enrollees, government reimbursements and investment earnings. At its April meeting, the board learned that long-term trend increase projections, along with the new actuarial assumptions adopted by the board in March, had a negative impact on Health Care Fund solvency. The fund is now estimated to remain solvent for about 18 years. Staff is working with the system’s actuary, Segal Consulting, to develop options to extend solvency to 30 years or more, with the goal to keep the fund solvent until funding from employer contributions can be used to support the program. The board is expected to continue its discussion on Health Care Fund solvency at its June meeting.

STRS Ohio Operations Reviewed as Fiscal Year 2018 Budget Discussion Continues

Following the fiscal year 2018 budget presentation at the April board meeting, the Retirement Board requested information regarding retirement system administration and associated costs. In May, staff presented an overview of STRS Ohio’s operating budgets since fiscal year 2006 and the number of full-time equivalent (FTE) staff members. STRS Ohio’s proposed fiscal 2018 operating budget of $99.6 million is slightly higher (0.7%) than the fiscal year 2009 operating budget. The number of FTE staff members has decreased from a high in that period of 624 in fiscal 2008, to the proposed 544 in the fiscal 2018 budget. Other operational efficiencies noted include:

  • High level of member service — STRS Ohio’s service has been ranked #1 compared to nearly 60 participating systems in CEM Benchmarking’s pension administration survey. While maintaining these high service levels, STRS Ohio’s costs have steadily declined while the average cost of CEM participants has increased.
  • Low-cost investment structure —STRS Ohio manages about 70% of system assets in-house, a higher percentage than its pension plan peers. Internal management is much less expensive than using external money managers. About 20% of STRS Ohio’s total investment costs are spent on the 70% of assets managed in-house. The remaining 30% of assets are managed by outside money managers — accounting for about 80% of STRS Ohio’s total investment costs. In its most recent study, CEM Benchmarking indicated if STRS Ohio outsourced its internally managed assets and paid the median costs of its peer group, total investment costs would have been about $102 million higher. The CEM study showed STRS Ohio ranked second best in its peer group for lowest investment costs, and its five-year total net return ranked in the top 25% of the peer group.

Retirements Approved

The Retirement Board approved 35 active members and 60 inactive members for service retirement benefits.

 

April 21, 2017

 

Board Votes to Reduce Future Cost-of-Living Increases to 0% to Preserve Fiscal Integrity of the System; Will Revisit Within Five Years

At the April meeting of the State Teachers Retirement Board, the board made the difficult but necessary decision to reduce cost-of-living increases granted on or after July 1, 2017, to 0% to preserve the fiscal integrity of the retirement system. Current benefit recipients’ base benefit and past cost-of-living increases will not be affected by this change. The board also agreed to evaluate — not later than the next five-year actuarial experience review — whether an upward adjustment of the cost-of-living increase is payable without materially impairing the fiscal integrity of the retirement system. The cost-of-living adjustment has a large financial impact on the pension fund because it affects both active and retired members of the system. The vote follows last month’s action to approve changes to the actuarial assumptions that are used to calculate pension liabilities. The new assumptions resulted in additional liabilities that took STRS Ohio outside the parameters established in the board’s funding policy and beyond the 30-year funding target in Ohio law.

The board’s action is the culmination of many months of work with staff and consultants to get a detailed look at the financial status of the pension fund. The Retirement Board’s actuarial consultant, Segal Consulting, provided the board with updated financial projections that took into account the newly adopted actuarial assumptions. The system’s financial strength is expressed through the funded ratio — that is, the value of assets compared to accrued liabilities (expressed as a percentage), and the funding period — the amount of time needed to reach a funded status of 100% assuming current contribution rates. Segal’s projections showed STRS Ohio’s funded ratio at 62.6% with a funding period of 57.7 years. Under this scenario, STRS Ohio would be required to present a plan to the legislature to reduce its funding period to 30 years or less. Segal projects the board’s decision to reduce future cost-of-living increases will improve the system’s funded ratio to about 70.8% with a funding period of about 20 years if all economic and demographic assumptions are met. This would meet the benchmarks in the board’s funding policy, as well as the state of Ohio’s funding target.

As noted in the March issue of Board News, the changes to STRS Ohio’s actuarial assumptions followed the five-year experience study conducted by Segal Consulting. The experience review measures the system’s economic and demographic assumptions versus the actual experience over the past five years. Based on this review, Segal recommended adjustments to assumptions about expected investment returns, mortality, inflation, salary growth, payroll growth and teacher retirements, disability inceptions and terminations. The assumption changes with the most significant financial impact were: (1) Reducing the investment rate of return to recognize projections for modest global economic growth and lower expected returns for capital markets; (2) Adopting new mortality assumptions that reflect members are living longer and STRS Ohio is paying benefits for a longer period of time than expected; and (3) Reducing the payroll growth assumption to recognize there will be less money coming into the fund through member and employer contributions than expected.

 

Assumption Changes Have Negative Impact on Health Care Program Solvency

The Retirement Board has been weighing STRS Ohio staff proposals to improve the solvency of the retirement system’s Health Care Fund. The Jan. 1, 2017, valuation of the Health Care Fund showed a balance of $3.22 billion and an estimated solvency period of 22 years. The board learned at its April meeting that actuarial assumption changes adopted by the board in March had a negative impact, reducing the solvency period to an estimated 18 years. The primary factors for this change were increasing health care cost (trend) projections and a lower assumed rate of return on investments.

The Health Care Fund is currently funded through premiums charged to enrollees, government reimbursements and investment earnings on these funds. With no new sources of revenue for the health care program, the Retirement Board is looking at options to keep the Health Care Fund solvent until funding from the employer contributions can be returned. With the new assumptions in place, staff proposals discussed last month will need further revisions to meet the board’s funding objectives. The board directed staff to work on new options that have at least a 30-year solvency period. Under the plans presented thus far, costs for all participants are expected to increase — more so for non-Medicare enrollees — as health care program costs continue to grow. Health care coverage payouts during fiscal year 2016 totaled $677 million, an average of more than $1.8 million per day.

Proposed Operating Budget for Fiscal Year 2018 Calls for 2.8% Increase Over Current Year to Meet Board’s Investment Initiatives

The Finance Department proposed system budgets for the 2018 fiscal year (July 1, 2017–June 30, 2018) during the April meeting. The proposed operating budget totals $99.6 million, an increase of 2.8% over the fiscal 2017 budget and an increase of 0.7% over the fiscal year 2009 budget. Investment items account for all of the increase, as administrative departments budgets reflect a slight decrease from the current year. The budget increases in the investment area reflect changes in costs for custodial banking fees; payroll and staffing; and quotation and analytic services. The staffing component will expand STRS Ohio’s internal investment capabilities and recognize that STRS Ohio’s model of managing more than 70% of the system’s assets internally is cost effective. CEM Benchmarking analysis estimates STRS Ohio’s use of internal management saves about $100 million annually for the retirement system (based on median external management costs of STRS Ohio’s peer group of similar-sized retirement systems).

The proposed fiscal 2018 budget reflects 544 full-time equivalent associates, down from 556 in the current year. Other cost containment measures include spending less on printing and mailing costs as more members opt for online services. The proposed capital budget for fiscal 2018 totals $3.3 million, a 1.7% increase from the current year’s budget.

Retirements Approved

The Retirement Board approved 61 active members and 79 inactive members for service retirement benefits.

Other STRS Ohio News

STRS Ohio Retains Top Spot for CEM Service Level While Reducing Costs

CEM Benchmarking released its annual Pension Administration Benchmarking report for fiscal 2016 activity and STRS Ohio again received the very top service level score among 52 participating pension systems, primarily in the United States and Canada. STRS Ohio’s service level increased to 94 from 93. This increase was driven by new satisfaction surveying of online activities and faster than usual average speed of answer in the call center. STRS Ohio earned the highest service level score for Pension Payments, Call Center, One-on-One Counseling, Pension Estimates and Disaster Recovery. This is the 19th year STRS Ohio has participated in the benchmarking study and the ninth time the system received the top score.

While the service level was at the top, the administrative cost per active member and annuitant decreased to $107 from $110. This continues a trend of reduced administrative costs. The reduction in administrative costs had been primarily driven by staff reduction that reflects the increased usage of online applications and a reduction in retirements, counseling sessions and purchasable service activity.

 

           STRS Ohio                                           

 

March 17, 2017

eUPDATE

Retirement Board Adopts New Actuarial Assumptions — Including Lower Investment Return; Will Consider Benefit Plan Design Changes in April
At its March meeting, the State Teachers Retirement Board voted to approve changes to the actuarial assumptions used to calculate pension liabilities. The vote follows the five-year experience review conducted this winter by the board’s actuarial consultant, Segal Consulting. The experience review measures the system’s economic and demographic assumptions versus the actual experience over the past five years. Based on this review, Segal recommended adjustments to assumptions about expected investment returns, mortality, inflation, salary growth, payroll growth and teacher retirements, disability inceptions and terminations. In total, the new assumptions outlined below have a negative overall impact on the system’s funding. When applied to the July 1, 2016, valuation of the pension fund, the new assumptions would add about $6.5 billion to STRS Ohio’s accrued liabilities (benefits earned by active and retired members).
The most common ways to express the system’s financial condition are through the funded ratio and the funding period. The funded ratio is the actuarial value of assets compared to accrued liabilities. The gap between the assets on hand and what is owed in benefits is called the “unfunded liability.” The funding period is the amount of time needed to pay off, or amortize, the system’s unfunded liability, assuming current contribution rates. When measured with the new actuarial assumptions in place, STRS Ohio’s funded ratio drops to 62.4% from 69.6%, and the funding period increased to 59.5 years from 26.6 years. The funding period falls outside of the state of Ohio’s 30-year funding target, and will require STRS Ohio to present a plan to reduce its funding period to 30 years or less.
Following is a summary of the key changes to the assumptions and how each impacts the system’s funding:
  • Reducing the expected investment return to 7.45% from 7.75% — assets are not expected to grow as fast as needed to pay benefits. Financial impact: adds about $3.2 billion to liabilities.
  • Change to updated generational mortality tables — recognizes that STRS Ohio members are living longer and STRS Ohio is paying benefits for a longer period of time than expected — and this trend is expected to continue in the future. Financial impact: adds about $4.1 billion to liabilities.
  • Reducing the inflation assumption to 2.5% from 2.75% — impacts expected investment return and individual salary increases.
  • Reducing salary growth scale for merit and seniority, as well as for inflation — reflects that individual teacher salary increases were lower than expected. Financial impact: reduces liabilities by about $1.3 billion.
  • Reducing overall payroll growth to 3% from 3.5% — lengthens the funding period by recognizing that there will be less money coming into the fund through member and employer contributions than expected.
Board to Continue Discussion on Benefit Plan Design Changes
When adopting the assumption changes, the board recognized that benefit plan design changes are now necessary to preserve the fiscal integrity of the pension fund. Models of possible plan design changes indicate the cost-of-living adjustment (COLA) is the most effective means possible to preserve the fiscal integrity of the fund because it by far has the biggest impact on liabilities. The COLA has a significant financial impact because it affects active and retired members of the retirement system. Substitute Senate Bill 342, passed in 2012, gives the Retirement Board authority to set the COLA. The board can choose to indefinitely suspend or reduce the COLA and can vote to restore the COLA when the pension fund is healthy enough to do so. Discussion on potential benefit plan design changes will continue at the April meeting, when a vote on these changes is likely.
Board Selects New Asset Mix for Pension Fund
Following the completion of the five-year asset-liability study conducted by the Retirement Board’s investment consultant, Callan Associates, the board selected a new asset mix for the system’s total fund with a lower risk-return portfolio. The new asset mix is designed to provide lower volatility with a slightly lower expected rate of return. The asset mix includes investments that will be easier to convert to cash when benefit payments are due each month. The new asset mix targets are shown below.
Callan projects the new asset mix to earn a return of 6.84% over the next 10 years, but said returns could be higher over a longer time horizon.
The asset-liability study began in August to help the Retirement Board determine reasonable risk and return expectations. These studies are typically conducted every three to five years to acknowledge change and uncertainty in the capital markets and to confirm an investment policy to meet return and risk objectives in relation to funding, accounting and policy goals. STRS Ohio’s Investment staff will begin to develop acceptable target ranges for each asset class and will incorporate the newly approved asset mix target in its Investment Plan before implementing the changes.
STRS Ohio’s New Asset Mix Targets
  • Broad U.S. equity: 28%
  • Broad international equity: 23%
  • Broad U.S. fixed income: 21%
  • Real estate: 10%
  • Private equity: 7%
  • Opportunistic/diversified: 10%
  • Liquidity reserve: 1%
Click here to view a table that shows STRS Ohio's current and new asset mix targets.
Board Considers Pathways to Improve Solvency of the Health Care Fund
The board continued its discussion on various plans designed to extend the life of the Health Care Fund. The most recent valuation projects the fund to remain solvent for 22 years; however, there is no dedicated source of revenue for the fund, since all of the employer contribution is directed to the pension fund.
The board has narrowed its focus to four potential plans — or pathways — that would extend the solvency for the health care program to 35 years or more, with the hope that some funding from the employer contribution could eventually be used for health care. The pathways under consideration would continue to provide a higher premium subsidy percentage for Medicare enrollees than for non-Medicare enrollees. This is consistent with the board’s strategic plan goal to establish Medicare as the health care program’s cornerstone. The board reviewed projected monthly premiums and lifetime costs under each of the pathways being considered and saw that costs for all participants are expected to increase — more so for non-Medicare enrollees — as health care program costs continue to grow. In April, the board is expected to approve a pathway to improve the fund solvency.
Retirement Board Election Materials to Mail in April for Contributing Member Seat on the Board; Retiree Candidates Unopposed
The 2017 Retirement Board election packet will mail on April 3 and will include information about the two candidates — Sean Patrick Brennan and Carol L. Correthers — 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 online, by phone and by 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 1. STRS Ohio will announce the results of the election following certification of the election results by the board of tellers on May 6.
Robert Stein and Rita J. Walters were the only two retired members who filed enough completed petitions for the 2017 election for the two retiree seats on the board. Since they are unopposed, in accordance with Ohio statute, no retiree election needs to be held. The term for Stein and Walters begins Sept. 1, 2017, and runs through Aug. 31, 2021.
Retirements Approved
The Retirement Board approved 98 active members and 76 inactive members for service retirement benefits.

 

 

STRS April Board News

Posted: April 22, 2016

Board Approves Health Care Program Changes for 2017; Long-Term Health Care Funding Discussions to Continue

At its April meeting, the State Teachers Retirement Board approved changes for the 2017 health care program that are designed to help reduce STRS Ohio’s long-term plan costs and extend the solvency of the health care fund. Due to increasing claims costs and the lack of a dedicated source of funding, STRS Ohio is facing significant health care funding challenges. The approved changes do not provide a long-term funding solution for the health care fund. The changes are projected to extend the solvency of the health care fund by two to three years beyond the projected 15-year solvency period reported last month in Segal Consulting’s annual actuarial valuation.

The board is exploring long-term funding solutions for the health care program that would allow STRS Ohio to continue a health care program that is of value to members. Throughout the discussion of possible options, STRS Ohio will use its website, newsletters and eUPDATE email news service to keep members informed.

Following reviews that took place during its February and March meetings, the Retirement Board approved the changes outlined below to the STRS Ohio Health Care Program for 2017:

Plan design changes for 2017:

  • The Alere disease management program for non-Medicare enrollees will be discontinued.
  • Emergency room copays will increase to $75 from $65 for Medicare plan enrollees.
  • Medical Mutual non-Medicare enrollees residing outside of Ohio will move to a Basic Plan administered by Aetna.
  • Urgent care copays will increase to $40 from $35 for all plans.
  • Health care plans offered by HealthSpan will be discontinued.
  • Coverage for proton pump inhibitors (PPIs) will be discontinued for non-Medicare enrollees.
  • Preferred network for retail pharmacies will be adopted and copays at non-preferred network pharmacies will increase by $10.
  • Diabetic prescriptions copay will increase to the full copay from a one-half copay.
  • Specialty drugs coinsurance percentage will increase to 13% from 10%, and the per prescription maximum will increase to $550 from $500.

Eligibility changes for 2017:

  • Medicare Part B premium reimbursements for survivors and beneficiaries who were age 65 by 2008 will be discontinued.
  • Coverage for sponsored dependents of unmarried retired teachers will no longer be offered. This does not include incapacitated adult children.
  • Premiums for dependent children will be changed to a per child premium.

Subsidy changes for 2017:

  • The subsidy multiplier for non-Medicare benefit recipients will be reduced to 1.8% per year of service from 2.1%.
  • The Medicare Part B premium reimbursement will be phased out over a three-year period, beginning in 2017.

STRS OHIO www.strsoh.org

 

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