The Ohio Retirement Study Council is evaluating reports presented by the state’s five public pension systems on how to stabilize the funds in the wake of the recent global economic downturn. The next anticipated steps include a draft of legislation to enact changes. OFT urges caution against a rush to make changes without proper analysis or communication to members.
Each of the public pension systems last month submitted plans to the ORSC, the legislative oversight committee for state pensions. OFT members are part of the State Teachers Retirement System, School Employees Retirement System or Public Employees Retirement System. The Ohio Police and Fire Pension Fund and Ohio Highway Patrol Retirement System also presented plans to the ORSC.
Each pension system’s plan is different, but all include some combination of changes to retirement age, required years of service, the retirement formula that determines retirement benefit, final average salary, cost of living adjustment, and increases in contributions by employees and employers.
OFT continues to urge caution against any rush to drastic changes to the pension systems. Instead, legislators should take the time needed to study what best affects the stability of the systems. In addition, individual pension systems and OFT need time to communicate these proposals to their members so that those impacted by the changes understand and can support them. Changes in the past have been dramatic, and at times, unnecessary.
Any change to eligibility requirements or increased contributions must be approved by the Ohio General Assembly.
Experts warn that no fund will be able to invest its way out of the situation caused by the economic recession. It would take years for the value of funds to recover to the pre-recession level. Since public pension systems must maintain a fund balance necessary to satisfy calculated pension benefit payments over the next 30 years, the ORSC requested the pension systems to propose changes that would stabilize the funds with the least possible impact on members.
The following are components of the plan changes recommended by STRS:
- Contribution Component: lncrease member and employer contributions by a total of 5% by 7/1/2020. Ultimately, members would contribute 12.5%; employers would contribute 16.5%.
- Final Average Salary Component: Base final average salary (FAS) on five highest years of earnings, beginning 8/1/2015.
- Retirement Eligibility Component: Beginning 8/1/2015, members may retire and receive an unreduced benefit at: any age with 35 years; age 60 with 30 years; or age 65 with 5 years. Members may retire earlier with an actuarially reduced benefit at: age 55 with 30 years, or age 60 with 5 years. Members who meet age and service eligibility for service retirement as of 7/1/2015 under the current rule retain their eligibility.
- Benefit Formula Component: Benefit formula is 2.2% per year for first 30 years; 2.5% per year thereafter, beginning 8/1/2015. The 35-year enhanced benefit is no longer needed to encourage teachers to work longer and is eliminated. Those who have 30 years of service; who are age 55 with 25 years of service; or who are age 60 with 5 years of service as of 7/1/2015 receive the greater of:
- The benefit as of 7/1/2015 under the current formula; OR
- The benefit upon retirement under the new formula.
- The benefit as of 7/1/2015 under the current formula; OR
- Cost-of-Living Adjustment Component: Beginning 7/1/2011, current retirees receive an annual 2% COLA. Members retiring on July 1, 2011, or later receive a 1.5% COLA each year.
The following are components of the plan changes recommended by SERS:
- Eligibility for the full retirement allowance, a member must be age 67 with 10 years of service or age 57 with 30 years of service;
- A member may retire early at a minimum age 62 with 10 years of service or age 60 with 25 years of service; early retirement benefits will be subject to actuarial reductions from the lesser of age 67 or possible attainment of 30 years of service.
SERS is currently within the 30-year funding period. The SERS board wanted to avoid increases in employer contributions since schools districts have also been hit by the impact of the economic crisis, and employee contributions because they average lower wages than the participants of other funds. Likewise, the low wages of SERS pension recipients left the board unwilling to reduce cost-of-living adjustments. In public meetings with retirees, employers and active members, strong objections were voiced to any changes to final average salary calculations.
Because the average age of SERS retirees is already 62.5, the retirement age increase will further reduce the gap between when people retire and when they are eligible for Medicare.
STRS Defers Payment of Performance Based Incentives
The STRS Board voted Sept. 17 to defer $3.39 million in performance based incentive payments to eligible investment department associates. Performance based incentives recognize associates for their part in raising the net value of the fund benchmark by more than $1 billion over the last five years.
Historically, the expertise of the investment department associates has helped the fund outperform benchmarks and saves STRS about $100 million each year in fees that would be paid by contracting with an outside investment firm.
Performance based incentives will be paid to eligible investment associates as follows:
The 2009 performance based incentive will be paid in halves with the first half paid when the following conditions are met:
· STRS Ohio investment assets must be $60 billion or higher at the fiscal year end prior to payment; and
· STRS Ohio must have a positive Total Fund return for the fiscal year prior to payment; and
· Payment cannot be made before July 1, 2010.
The final half of the award will be paid when the following conditions are met:
- STRS Ohio investment assets must be $65 billion or higher at the fiscal year ending prior to payment; and
- STRS Ohio must have a positive Total Fund return for the fiscal year prior to payment; and
- Payment cannot be made before July 1, 2011.
This Board action renders a final decision in response to intense debate over payment of investment associates after STRS experienced a negative return for fiscal year 2008. Fiscal year 2008 was when the global economy plunged into a recession and investments experienced the most severe loss since the Great Depression. In January the Board voted to suspend the performance based incentive program effective Feb. 1.
The Board has not determined how to handle performance based incentives for fiscal year 2010.
New STRS Compensation Study to Determine Future Pay for Investment Staff
The Board also approved a compensation study for the investment associates to be completed in November. A former survey of compensation for investment associates showed earnings of STRS’ investment associates are in the lowest quarter compared to their counterparts in the market of private investment employees. A combination of salary and performance based incentives has been used to attract and retain qualified investment experts on staff.
That new study will present data from the public and private sectors along with a recommendation for the combination and amount of base pay versus a variable pay for professional investment department positions. Data from the public and private sectors will be part of the study.
STRS hires investment managers because STRS investments are managed internally as well as externally. Internal management of investments has saved STRS about $100 million per year in external fees. It is a top priority for STRS to hire investment employees with the expert knowledge and experience to adequately manage the investments that bring needed returns to STRS. Accordingly, the need for such talent presents the need for competitive compensation so that STRS can compete in the labor market.
Open Enrollment for STRS Health Care
The open enrollment period for the 2010 Health Care Plan began Oct. 13. Health Care Program Highlights Meetings will be held in the near future. Postcards will be mailed to retired members to inform them of when and where the meetings will be held.
Fall Counseling Sessions for Members
Fall counseling sessions will be scheduled in 28 locations over the next three months. Members who wish to schedule an appointment may schedule at the STRS Ohio website www.strsoh.org or by calling STRS at 1-888-227-7877.
Nominations Sought for National Teachers Hall of Fame
Do you know someone who should be in the National Teachers Hall of Fame? The National Teachers Hall of Fame recognizes and honors exceptional career teachers, encourages excellence in teaching, and preserves the rich heritage of the teaching profession in the
Established in 1989, the National Teachers Hall of Fame honors five teachers each year who have demonstrated commitment and dedication to teaching our nation's children. For more information about the National Teachers Hall of Fame, the nomination process and the 2010 nomination form, visit http://www.nthf.org/index.htm.
AFT Asks Locals to Update Membership Lists
Within the coming weeks, AFT will once again distribute its new membership card to each active-status member in the database as of Nov. 15. In preparation for the issuance of new cards, AFT wants to make sure affiliates' membership records are as up-to-date as possible.
Why is a current membership list important? Both OFT and AFT provide an array of benefits to members. If your local membership list is out of date, many of your members may be missing out. Beginning Jan. 20, AFT+ Member Benefits will be accessible only by way of the members-only website at www.aft.org/members, so members will need their unique identification number for access. The new card is more durable and will not contain an expiration date. Instead, access will be controlled from within the AFT database based on the member's status of active or inactive.
Updating the records will help insure that all members who are eligible receive the new membership cards and information on benefits. Many locals update their member records online. For assistance or questions, contact the OFT office at 614-258-3240 or your local field coordinator.
