OHIO TEACHERS Leader explains pension system

Health-care coverage is not a guaranteed part of a pension system.
By JoANNE VIVIANO
VINDICATOR EDUCATION WRITER
YOUNGSTOWN -- Forcing the state's pension systems to invest and manage money through Ohio firms will also obligate those systems to go against their fiduciary responsibilities, said the new head of the State Teachers Retirement System of Ohio.
Dr. Damon Asbury, interim director of the STRS, has been visiting newspapers across the state to get out his message. He visited The Vindicator editorial board last week.
Asbury was appointed this summer after the resignation of director Herbert L. Dyer amid criticism of large bonuses and questionable spending. Since then, state legislators have pondered ways to reform the policies that govern the STRS and the state's four other public pension systems.
What they've come up with, in Asbury's view, are some reforms that will help the system's 400,000 current and retired teachers and college faculty, and others that will cost them.
Among them is a "Buy Ohio" requirement that the pension boards invest at least 70 percent of funds through Ohio brokers and that 50 percent of the funds managed outside the systems be handled by Ohio firms.
"That's at odds without fiduciary responsibility to do what's in the best interest of retirees," Asbury said. "Ohio banks don't have the capacity to handle the amount of money we invest daily."
Investments
Pension systems invest $75 million a day, an amount that requires the use of brokers on Wall Street and in Chicago, Asbury said. Using local banks as a middle man will cost the five pension systems a total of $115 million per year. STRS would pay about $35 million to $40 million of that amount.
Further, Asbury continued, the pension system is classified as a trust fund by the Internal Revenue Service. As such, contributions to the fund by current active teachers are tax free, but only if the STRS invests funds in a way that is in the best interest of retirees. Asbury said using Ohio firms is not in the best interest of these retirees and would place STRS contributors in danger of losing that tax-exempt status.
Asbury said pension systems have support from the governor and Senate members but are still trying to convince members of the House that the Buy Ohio plan would harm retirees.
Among other provisions Asbury takes exception to is one that places the state treasurer as the sole person with authority to hire or fire the executive directors of each of the pension fund systems.
Insurance premiums
Besides the prospective reforms, Asbury has also inherited a pension system struggling to finance health care for retirees and their families. Starting Jan. 1, STRS is requiring retirees and their spouses to pay a higher percentage of insurance premium costs.
Until now, the system paid an amount based on years of service -- up to 87 percent of the premium -- for retirees and 50 percent for spouses and dependents. Now, the system pays up to 75 percent of the premium for retirees with 15 or more years of service and nothing for spouses, dependents and those with fewer than 15 years of service.
Costs to retirees range from $135 to $541, depending on length of service. Cost to a spouse would be $427. Those with Medicare coverage pay less.
Another option offered by STRS is a catastrophic plan, with a lower premium cost but higher deductibles and out-of-pocket co-pay expenses.
Asbury pointed out that pension systems are not required by law to pay health insurance costs; STRS has offered it since 1974. Over the years, the STRS has had a first priority to invest in the pension fund and a second priority to place funds into health care.
As health-care funds depleted, the STRS found it necessary to implement the new premium plan, part of a 10-year stabilization period, Asbury said.
Of the STRS's $3 billion budget, the cost of health care is $456 million per year.
Current teachers contribute 10 percent of their salaries to the fund; their employers contribute 24 percent, for roughly $2 billion of the annual revenue. The rest comes from investments.