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Strengthening the Financial Condition of theState Teachers Retirement System of Ohio
Additional items contained inSub. Senate Bill 342
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Before the 2008 investment market downturn, STRSOhio's pension fund had a funding period of 41.2years, exceeding state statute's 30-year maximum.
Economic and demographic factors, such as
members living longer, were causing a reductionin available funds to pay off accrued liabilitiesover time. The unprecedented decline in the
global investment markets and the accompanyingrecession, along with the protracted economic
recovery, significantly accelerated the need forSTRS Ohio to make changes. If no changes weremade, STRS Ohio would eventually be unable to paybenefits.
The new benefit plan:
Provides retired teachers a reasonable and reliabledefined benefit pension they won't outlive,reducing the likelihood they will have to turnto taxpayer-funded public assistance, Medicaidor social services in retirement. Further, these
pensions can continue to provide a stable sourceof revenue for local economies and provide taxrevenues to support needed government services(more than $4 billion in STRS Ohio pensions arepaid annually to Ohio residents).
Continues to offer a retirement plan that will helpOhio's public schools, colleges and universitiesrecruit and retain quality educators.
Provides a transition period for those teachers whoare close to retirement, while recognizing thatthose further out from retirement have more time
to plan for their future financial security.
Preserves all past cost-of-living adjustments(COLAs) and ad hoc increases for current retirees.
Allows retirees' pensions to continue to grow in the
future, but at a slower rate.
Planning process
in March 2009, the State Teachers RetirementBoard took the prudent and proactive step tobegin a long-term contingency planning process toaddress the funding challenge. The board pledgedthat the process would be detailed, thorough anddeliberative, noting that no actions would be takenlightly as all actions impact STRS Ohio membersand employers. The Retirement Board and STRSOhio staff developed a pension reform plan andrefined it several times along the way with inputfrom legislators, consultants and the Heaithcare andPension Advocates for STRS (HPA) -- a coalitioncomprised of groups representing more than470,000 members and retirees, as well as employers.At its April 19, 2012, meeting, the board unanimouslypassed a reform plan that will help ensure STRS Ohiocan continue to pay pensions to future generationsof teachers. The plan addressed stakeholders'requests for a smoother transition to new retirementeligibility rules, and the board's actuarial consultantestimates the plan reduces the pension fundingperiod to 36 years. The plan is projected to save$11.6 billion in accrued liabilities, does not include
Elimination of purchased service subsidies-- Effective Jan. 1,2014, members will paythe full projected liability created by thepurchase of service. This could result in coststwo-to-four times higher than under thecurrent rates. For service credit certified withSTRS Ohio by Dec. 31, 2013, members will haveuntil June 30, 2014, to purchase the credit atcurrent cost. Members currently purchasingunder a payroll plan can continue to completetheir payoff at their current rate.
Reemployment at retirement -- EffectiveJuly 1,2014, members who hold more thanone position with STRS Ohio, OPERS or SERSand who plan to retire from one employer whilecontinuing to work in the secondary positionwith another employer may do so only if theyhave continuously held that position for at least12 consecutive months immediately prior toretirement.
Elimination of retirement incentive credit-- Effective July 1, 2014, the provision thatallows employers to establish a RetirementIncentive Plan will be eliminated for retirementafter July I, 2014.
Interest paid for purchasing past leave ofabsence- Effective Feb. 1,2013, the cost topurchase a past leave of absence will includeinterest on both member and employerpayments compounded annually beginningthe first year following the year in which theabsence or leave is terminated and ending thelast day of the month in which the payment ismade.
Changes for new members after July 1, 2013-- Educators who begin membership with STRSOhio July 1, 2013, or later will have to worklonger to be eligible for disability and survivorbenefits.
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STATE TEACHERS RETIREMENT SYSTEM OF OHIO275 East Broad Street • Columbus, OH 43215-3771
1-888-227-7877 • www.strsoh.org
an increase in employer contributions and maintainsa 1% employer contribution to STRS Ohio's healthcare fund. The plan also had the support of HPA,with several of its members testifying before the OhioLegislature in support. The General Assembly passedSTRS Ohio's long-awaited pension reform bill (Sub.Senate Bill 342) on Sept. 12, 2012. The effective dateof the bill is Jan. 7, 2013, but most of STRS Ohio's planchanges will take effect July 1; 2013, or later.
The Retirement Board will continue to annually reviewthe actuarial valuations of the pension fund and thehealth care fund to monitor both funds' progress overtime.
The issue
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Cond of Yourent
Changes to Pension PlanComponents Based on
2012 Legislation
The State Teachers Retirement Board began planning to strengthen the financial condition of the retirement system in 2009 and concluded in September 2012, when the Ohio Legislature passed Sub. SenateBill 342. The new rules take effect on Jan. 7, 2013, but most of STRS Ohio's plan changes will take effect July 1,2013, or later ÿ and include changes for both current members and benefits recipients.
Changes to the cost-of-living adjustment (COLA), effective in fiscal year 2013 Change in eligibility for retirementbeginning Aug. 1,2015
• Members who retire anytime BEFORE July 1,2013, will not receive a COLA during the 2014 fiscal year(July 1,2013-June 30, 2014). For example, a member who retired on Aug. 1, 1997, would not receive aCOLA on Aug. 1,2013.
• Members who retire effective July 1,2013, will not receive a COLA on July 1,2014.
• After missing one COLA, retirees will resume COLAs at 2% per year.
• Members retiring AFTER July 1,2013, will also receive a 2% COLA, but it will not begin until the fifthanniversary of retirement. For example, a member who retires Aug. 1,2013, will receive his or her firstCOLA on Aug. 1,2018, and that COLA will be 2%.
Increases age and service requirementsfor retirement
Change in final average salary (FAS)years beginning Aug. 1, 2015
New FAS calculation is the average ofthe five highest years of earnings
Pension benefits are determined by a member'sage, years of service and FAS.
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Change in benefit formulabeginning Aug. 1,2015
Members will contribute 14% of their salary toSTRS Ohio beginning July 1,2016. Currently,members contribute 10%.
New formula is 2.2% for all years of service
The current 35-year enhanced benefit formulawill be eliminated after July 1,2015. Teachersretiring with 35 years of service as of Aug. 1,2015,or later will receive 77% of their final averagesalary as a pension. Beginning Aug. 1,2026,members will need to be age 60 to receive anunreduced benefit with 35 years of service.
Members who are eligible to retire on July 1,2015,will maintain retirement eligibility if they continueworking, and the benefit will be the greater of:
(a) The benefit calculated upon retirement underthe new benefit formula, or
(b) The benefit as of July 1,2015, under thecurrent formula. J
Board authority to make adjustments in the future
The new law also provides the Retirement Board with authority to make future adjustments to the membercontribution rate, retirement age and service requirements, and the COLA as the need or opportunity arises,depending on the retirement system's funding progress.
Increase member contributions by 4%,phased in 1% per year beginningJuly 1, 2013, through July 1, 2016
fIncrease in member contributions
beginning July 1, 2013
Service credit requirements for retirement withan unreduced benefit will increase to 35 yearsof service by Aug. 1,2023. A minimum age 60requirement will be added beginningAug. 1,2026. This change will be phased inbased on the timeline shown to the right.Members may also still retire at age 65 with aminimum of five years of service credit.
The service credit requirements for anactuarially reduced benefit* will be phasedin beginning Aug. 1,2015, gradually increasingto 30 years of service by Aug. 1,2023. Thischange will be phased in based on thetimeline shown to the right. Members mayalso still retire at age 60 with a minimum of fiveyears of service credit, but the benefit wouldbe actuarially reduced beginning Aug. 1,2015.Benefits will be reduced to be actuariallyneutral. Visit www.strsoh.org to estimate earlyretirement benefits.
*An actuarially reduced benefit reflects a reduction for each year that a member retires beforemeeting eligibility for an unreduced benefit.
Now-7/1/2015
8/1/2015-7/1/2017
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8/I/2019-7/I/2021
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8/1/2023 -7/1/2026
8/I/2026
Any age and 30 yrs.;or age 65 and 5 yrs.
Any age and 31 yrs.;or age 65 and 5 yrs.
Any age and 32 yrs.;or age 65 and 5 yrs.
Any age and 33 yrs.;or age 6.5 and 5 yrs.
Any age and 34 yrs.;or age 6.5 and 5 yrs.
Any age and 35 yrs.;or age 65 and 5 yrs.
Age 60 and 35 yrs.;or age 6.5 and .5 yrs.
Now-7/1/2015
8/I/2015-7/I/2017
8/1/2017-7/1/2019
8/I/2019-7/I/2021
8/I/2021-7/I/2023
8/1/2023
Any age and 30 yrs.;or age 55 and 26 yrs.; or
age 60 and 5 yrs.
Any age and 30 yrs.;or age 55 and 27 yrs.; or
age 60 and 5 yrs.
Any age and 30 yrs.;or age 55 and 28 yrs.; or
age 60 and .5 yrs.
Any age and 30 yrs.;or age 5.5 and 29 yrs.; or
age 60 and 5 yrs.
Any age and 30 yrs.;or age 60 and .5 yrs.