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

STRS Legislative News

 

Posted: May, 2017 ·

At the Statehouse

Ohio House passes state budget bill

The Ohio House of Representatives passed the state’s two-year operating budget, House Bill 49, on May 2 by a vote of 58–37. The vote largely followed party lines, and the bill now moves on to the Senate.

The $123 billion biennial spending bill, shepherded by House Finance Chairman Ryan Smith (R-Bidwell), reduced state spending by $2.5 billion over the biennium compared to what Gov. John Kasich’s administration had proposed. On the House floor, speeches were kept to a minimum, with opening remarks from Chairman Smith and Ranking Minority Member Jack Cera (D-Bellaire). Democratic members offered about a dozen floor amendments and remained steadfast in requesting more funding to combat the state’s opiate addiction crisis and for primary and secondary education. Democrats also focused on protecting the Medicaid expansion and college affordability amendments.

 

A large part of the debate focused on the state’s current fiscal status. As revenues continue to come in below estimates, Democrats questioned whether the budget was actually balanced and pushed for the budget to make use of some of the funds in the state’s Budget Stabilization Fund (aka the Rainy Day Fund). Chairman Smith assured members that the current bill’s spending comes in below the most recent estimates from the Office of Budget and Management and the Legislative Service Commission. New revenue figures were due to be released on Thursday, May 4.

 

Following House passage, H.B. 49 officially goes to the Ohio Senate for consideration. The Senate has been conducting unofficial hearings on the budget for several weeks now, mainly hearing from state agencies, boards and commissions on their proposed operating budgets. The Senate expects to conclude its work in the first or second week of June. The bill will then move to a conference committee to resolve the differences between the House and Senate versions. Gov. Kasich will need to sign a balanced budget by June 30, 2017, for the budget to be in place for fiscal year 2018. STRS Ohio has been monitoring the bill’s progress and does not anticipate any direct impact on the retirement system.

 

Ohio Retirement Study Council Receives Update From Investment Consultant

The Ohio Retirement Study Council (ORSC) met on May 10 and received a variety of reports and updates. The Council’s investment consultant, RVK, Inc., presented the semi-annual review of the five systems’ investment returns for the period ended Dec. 31, 2016. RVK’s Jim Voytko provided members with background on the current capital markets and reminded them that economic growth has been tepid globally for some time. Calendar year returns for the systems ranged from 7.3% for the Ohio Highway Patrol Retirement System (HPRS) to the Ohio Police & Fire Pension Fund’s (OP&F) 11.5%. STRS Ohio’s calendar year 2016 returns were 8.2%, while Ohio Public Employees Retirement System (OPERS) returned 8.6%, and the Ohio School Employees Retirement System (SERS) reached 8.1%. Voytko noted that all of the systems are diversifying their investments more and gradually de-risking, which is positive in RVK’s view.

Funston Advisory Services, LLC, presented its review of the SERS fiduciary audit. The ORSC is required by law to conduct a fiduciary audit of each statewide public retirement system at least once every 10 years. The firm found that overall the system is well run, with minor room for improvement. One recommendation involved the Ohio law that designates the Treasurer of State as custodian and requires the custodial bank to be located in the state. Funston recommended that this provision of law be reviewed by the legislature because it results in higher costs and complexity for SERS, and nearly all major pension funds in the United States utilize other global custodial banks.

 

The Council also received reports from STRS Ohio, SERS, OPERS and OP&F on efforts to divest from companies doing business in Iran and Sudan. HPRS does not hold any direct international investments, so it is exempt from this provision. All four systems have reduced investments in those businesses over the past 10 years. Additionally, STRS Ohio and SERS presented their fiscal year 2018 budgets and most recent reports from their internal auditors.

 

Michael Nehf informed the ORSC members of the board’s decision to reduce future cost-of-living increases to 0% to preserve the fiscal integrity of the retirement system and the events leading up to that decision. ORSC members were interested in whether the board looked at other options, including reducing rather than suspending the COLA. Nehf shared that the board did evaluate other options, but none had the necessary financial impact.

 

ORSC staff provided an overview of its most recent Issue Brief. The Issue Brief is the second in a series and explains the Federal Government Pension Offset and the Windfall Elimination Provision.

The Council announced its next meeting will be held on June 8.

 

Appendix

View a report from the National Association of State Retirement Administrators (NASRA) on reforms to public pension plans in progress around the country. We will include this report monthly as part of the Legislative News.

 

 

 

 

Posted: April, 2017 ·

Ohio Retirement Study Council Holds First Meeting of 2017, Reviews Draft Bill on SERS COLA

The Ohio Retirement Study Council (ORSC) kicked off its first meeting of the 132nd General Assembly on April 13 with a full agenda, featuring reports by the various retirement systems. After swearing in new members, the Council elected Rep. Kirk Schuring (R-Canton) as chair and Sen. Steve Wilson (R- Maineville) as vice chair.

STRS Ohio’s executive director Michael Nehf led the procession of reports by presenting the results of the STRS Ohio 2016 Actuarial Valuation and later followed with STRS Ohio’s statutorily required Health Care Report for 2016. The Council also heard from the School Employees Retirement System (SERS) regarding the results of its 2016 Actuarial Valuation and Health Care Report.

STRS Ohio, SERS and the Ohio Public Employees Retirement System (OPERS) shared the results of their respective reports on the mitigating rate for the alternative retirement plans (ARPs) authorized for employees of institutions of higher education. House Bill 520 (effective April 6, 2017) requires each system to complete an actuarial study every five years to determine the mitigating rate for the ARP. The mitigating rate is a portion of the employer contribution that is used by the retirement system to offset the negative impact of participation in the ARPs. Based on those reports, the mitigating rate for STRS Ohio’s ARP will be 4.47% beginning July 1, 2017. The actuary for SERS determined that its mitigating rate is 3.48%, whereas, the OPERS actuary determined the OPERS mitigating rate to be 2.44%.

The Ohio Police & Fire Pension Fund, Ohio Highway Patrol Retirement System (HPRS) and OPERS presented the results of their annual Disability Reports and their Annual Audit Reports. Additionally, HPRS presented a five-year study on its Deferred Retirement Option Program.

Council staff reviewed a proposed bill for SERS regarding a change to its cost-of-living adjustment (COLA), detailed in the story below. Council staff also provided a preview of activities it anticipates completing this year.

The Council announced it will meet next on May 11.

 

SERS seeking COLA legislation; ORSC recommends STRS Ohio COLA cap

SERS announced it is seeking legislation that would change the current retiree and disability recipient cost-of-living-adjustments to one based on an inflation index, capped at 2.5%, from a flat 3%.

ORSC staff reviewed a draft of a bill during the April meeting. The legislation has not yet been introduced, but would provide for the following:

  • Eliminates SERS COLAs during calendar years 2018, 2019 and 2020;
  • Beginning 2021, provides a COLA indexed to CPI-W (U.S. city average for urban wage earners and clerical workers), not exceeding 2.5% and with a floor of 0% (current law provides for a fixed 3%); and
  • Provides that for new retirees, COLAs begin on the fourth anniversary of receiving a benefit (current law provides that COLAs begin on the first anniversary of retirement).

Additionally, the SERS board would be authorized to increase the COLA above the CPI-W or take it lower than the CPI-W if the board’s actuary “determines that an adjustment does not materially impair the fiscal integrity of the retirement system or is necessary to preserve the fiscal integrity of the retirement system.”

ORSC staff analysis led to the recommendation that the STRS Ohio COLA statutes be amended to include a cap. It is unclear at this time if a stand-alone piece of legislation will be introduced to effectuate the changes in the SERS statute or if the language will be added to the state biennial budget, which is constitutionally required to go into effect on July 1.

 

 

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