Callan Associates Presents Preliminary Results of Asset-Liability Study; Retirement Board Requests Actuarial Experience Review

At the December meeting of the State Teachers Retirement Board, the board's investment consultant, Callan Associates, shared its preliminary findings from the asset-liability study that began in August. Asset-liability studies take into account an investor's risk tolerance, investment goals and cash flow needs paired with capital market expectations to determine the optimal portfolio allocation into broad asset classes.

As reported in last month's Board News, Callan concluded that STRS Ohio's current investment policy target would be challenged to achieve an 8% return during the next five to 10 years; however, based on historical data, Callan said STRS Ohio could expect to generate an 8% to 8.5% return over a 30-year horizon. Callan created a liability model for the system and ran simulations of various asset allocation mixes to project expected return rates and how that growth meets the expected growth in the system's liabilities. The preliminary results of the study confirm that without the benefit changes that STRS Ohio is currently seeking through S.B. 3 and H.B. 69, the system will eventually be unable to pay benefits. Unless the proposed plan changes are fully implemented soon, Callan recommends reducing the risk in the investment portfolio to meet liquidity needs to pay benefits.

The asset-liability study and annual actuarial valuation (received last month) are two important tools for the Retirement Board to assess the financial health of the pension fund. During the December meeting, the board voted to request one additional study - an actuarial experience review. This study assesses all of the pension fund's actuarial assumptions to determine if any adjustments are necessary. Data presented by the board's actuarial consultant in November indicated that assumptions used for payroll growth and individual teacher salary growth are higher than what has been experienced during the past several years.

An experience review is typically conducted every five years - STRS Ohio's last review was in fiscal year 2008. Even though it has been only three years, the board voted to carry out a comprehensive experience review in early 2012 so that it could have up-to-date analysis as it continues discussion of STRS Ohio's financial condition. The board plans to resume that dialogue at its January meeting and also during the Board Retreat later that month.

2011 Annual Financial Statement Audit Completed

Clifton Gunderson reported the results of its audit of the STRS Ohio financial statements for the fiscal year ended June 30, 2011, at the December Retirement Board meeting. The report noted that the system's financial statements were fairly stated in accordance with generally accepted accounting principles; further, no material weaknesses in internal controls or instances of statutory noncompliance were found. As a result, STRS Ohio received a "clean" audit known as an unqualified opinion, which is the highest level of opinion that an organization can receive.

STRS Ohio's financial statements are included in the 2011 Comprehensive Annual Financial Report, which will be posted on the STRS Ohio website by Dec. 30, 2011. Copies of the report can also be requested by calling STRS Ohio's Member Services Center toll-free at 1-888-227-7877. In addition to the financial statements noted above, the report includes investment, actuarial and statistical information about STRS Ohio.

Board Approves Three Goals for 2012-2025 Health Care Strategic Plan

The Retirement Board continued its deliberation on strategic health care planning and approved three goals to improve the sustainability of STRS Ohio's Health Care Program. The vote followed presentations by the Member Benefits Health Care Department in November and December. Staff recognized that the current health care program is only expected to remain solvent until 2024, and there is little likelihood for additional funding.

The three goals adopted at the December meeting resolve to:

The board directed staff to begin drafting a strategic plan document and to explore potential actions to achieve the newly adopted goals. While laying the groundwork for the long term, the strategic plan will include specific initiatives for 2012-2015. Some of the ideas discussed are designed to better align the non-Medicare program with the marketplace. These ideas included consolidating the Plus and Basic plans into a single plan and phasing in higher annual deductibles and out-of-pocket limits in order to lower monthly premiums. Plan details will be presented and voted on at future board meetings.

Retirement Board Salutes Retiring ORSC Director

Board chair Jim McGreevy presented Aristotle Hutras with a resolution honoring Hutras' 22 years of service as Ohio Retirement Study Council director. Hutras is retiring at the end of December. The resolution recognized Hutras for providing "guidance, direction and counsel to STRS Ohio in both good and challenging times." Hutras, who noted that he graduated with an education degree "before the Statehouse bug bit me," thanked the board and staff for working closely with him over the past two decades.

Retirements Approved

The Retirement Board approved 100 active members and 64 inactive members for service retirement benefits.

Other STRS Ohio News

STRS Ohio Receives $43 Million from Early Retiree Reinsurance Program (ERRP)

On Dec. 8, STRS Ohio received ERRP payments of $20.4 million for calendar year 2010 and $22.6 million for calendar year 2011 requests. In addition, staff received approval on the claim files for the regional fully insured plans - Kaiser, AultCare and Paramount for 2010 and 2011; the amounts are $1.1 million and $1.6 million respectively. Staff expects the regional fully insured requests will be added to the pending list of outstanding reimbursement requests. To date, STRS Ohio has received a total of $72.7 million from the ERRP project and is awaiting payment for an additional $3.3 million for the regional fully insured plans AultCare and Paramount. Last month, the U.S. Department of Health and Human Services (HHS) announced that, as of Oct. 27, they have paid out $4.1 billion of the total $5 billion available for ERRP payments.

Update on contract negotiations between Express Scripts, Walgreens

Walgreens and Express Scripts have not come to terms to continue Walgreens' participation in Express Scripts' pharmacy network in 2012. Overall, departure from the Express Scripts' network will likely lead to reduced program costs for STRS Ohio and enrollees. On Nov. 22, Express Scripts began mailing letters to Medicare and non-Medicare enrollees who fill prescriptions at Walgreens. The letter provides information regarding local alternative network pharmacies and instructions should enrollees decide to transfer their prescriptions. On average, there are one or more network pharmacies within one-half mile of a Walgreens' pharmacy. Medicare enrollees who do not use Walgreens will receive an informational letter per Centers for Medicare & Medicaid Services guidelines. All letters include a reminder that mail service is available for maintenance medications and how to locate in-network retail pharmacies via Express Scripts' toll-free phone number or by visiting Express Scripts' website. Non-Medicare enrollees who do not have active prescriptions at Walgreens will not receive a letter.

Retirement Board Election Process is Under Way

In spring 2012, an election for one contributing member seat on the State Teachers Retirement Board will be held. The election process began this fall, when individuals interested in running for this seat could first request petitions from STRS Ohio. Those eligible for nomination are individuals presently contributing to STRS Ohio or those who have contributions on deposit with STRS Ohio. STRS Ohio retirees who are reemployed in an STRS Ohio-covered position are not eligible for nomination.

Individuals interested in running for this seat can request petitions from STRS Ohio by calling toll-free 1-888-227-7877. The deadline for returning petitions is Feb. 24, 2012. STRS Ohio members will receive their ballots and voting information in April; they will have through May 7, 2012, to cast their vote. The winner of the election will begin his or her four-year term on the board on Sept. 1, 2012.

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