State Teachers Retirement System of Ohio LEGISLATIVE

Transcription

1 LEGISLATIVE Information for Members About the STRS Ohio Plan to Strengthen the Financial Condition of the Retirement System , 8/12/3M Pension Funding--The Issue Pension funds have been significantly impacted by the recession, as well as changing economic and demographic trends. Changes are needed to help secure pensions for the long term and preserve the Defined Benefit Plan. - Our liabilities are growing faster than our assets. If no changes are made, STRS Ohio will eventually be unable to pay benefits. 1

2 The Planning Process Retirement Board began long-term contingency planning process in March 2009 to address the funding challenge. The board evaluated changes to: - Eligibility for benefits. - Benefit formula. - Final average salary calculation. - Cost-of-living adjustments. - Contribution levels m member and employer. Numerous combinations were evaluated. Input received from statewide constituent groups. Recognized that few would be happy with needed changes, as they would ultimately reduce benefits. The Planning Process April Board unanimously passes reform plan.* May Ohio Senate passes pension reform legislation. - STRS Ohio's pension reform bill is Sub. Senate Bill STRS Ohio hopeful House of Representatives will take action on bill yet this year. Other four public pension plans have also proposed changes. Each system's changes require legislative action. *The Ohio Retirement Study Council, which provides legislative oversight to Ohio's five statewide retirement systems, hired an actuary to evaluate the pension plan design changes approved by the boards of the retirement systems. That actuary, Pension Trustee Advisors, recommended adoption of the systems' plans. 2

3 STRS Ohio Plan Proposed pension reform plan would: - Increase age and service requirements for retirement. - Calculate pensions on a lower, fixed formula. - Increase the period for determining final average salary. - Reduce the annual cost-of-living adjustment (COLA) for current and future retirees and defer the COLA for future retirees. - Implement a one-year COLA freeze in fiscal year 2014 for all retirees. - Increase member contributions. Other benefit changes that are part of proposed legislation: - Cost of purchasable service credit. - Eligibility for disability and survivor benefits for new members. STRS Ohio Plan The pension reform bill includes provisions that would give the Retirement Board authority in the future to adjust member contribution rates, the COLA, and age and service requirements without legislative approval.* Adjustments would be made on the condition that they: - Would not materially impair the fiscal integrity of the retirement system, or - Are necessary to preserve the fiscal integrity of the retirement system. *Pension Trustee Advisors, the actuary hired by the Ohio Retirement Study Council to evaluate the pension plan design changes approved by the retirement systems' boards, suggested that the boards be given authority to make further benefit changes in the future. 3

4 Eligibility for Retirement Age and service requirements for retirement would increase beginning Aug. 1, For an unreduced benefit: - Increase in years of service requirement; phased in. - Increasing to 35 years of service by Aug. 1, Minimum age 60 requirement added beginning Aug. 1, Members may also still retire at age 65 with a minimum of five years of service credit. For an actuarially reduced benefit: - Increase in years of service requirement; phased in. - Increasing to 30 years by Aug. 1, Members may also still retire at age 60 with a minimum of five years of service credit; benefit actuarially reduced beginning Aug. 1,2015. Normal Retirement Eligibility ll inÿ[![ÿ!l-'iÿiiÿ ' ÿglll m ii J Now-7/1/2015 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 /2021 Any age and 33 yrs.; or age 65 and 5 yrs Any age and 34 yrs.; or age 65 and 5 yrs. 8/ /1/2026 Any age and 35 yrs.; or age 65 and 5 yrs. 8/1/2026 Age 60 and 35 yrs.; or age 65 and 5 yrs. 4

5 Early Retirement Eligibility Now-7/1/2015 Age 55 and 25 yrs; or age 60 and 5 yrs 8/1/2015-7/1/2017 Any age and 30 yrs; or age 55 and 26 yrs; or age 60 and 5 yrs 8/1/2017-7/1/2019 Any age and 30 yrs; or age 55 and 27 yrs; or age 60 and 5 yrs 8/1/2019-7/1/2021 Any age and 30 yrs; or age 55 and 28 yrs; or age 60 and 5 yrs 8/1/2021-7/1/2023 Any age and 30 yrs; or age 55 and 29 yrs; or age 60 and 5 yrs 8/1/2023 Any age and 30 yrs; or age 60 and 5 yrs *An actuarially reduced benefit reflects a reduction for each year that a member retires before meeting eligibility for an unreduced benefit. Early Retirement Reductions 1 year early 9% 91% 2 years early 18% 82% 3 years early 25% 75% 4 years early 32% 68% 5 years early 38% 62% 5

6 Benefit Formula Benefit formula - Effective Aug. 1, New formula would be 2.2% for all years of service. 35 yrs. (at age 60 or older) X 2.2% = 77% of FAS 38 yrs. (at age 60 or older) X 2.2% = 83.6% of FAS - Current 35-year enhanced benefit formula would be eliminated. Less than 35 years of service % for years 1-30; 2.5% for year 31; 2.6% for year 32; 2.7% for year 33 and so on until 100% of FAS is reached. 35 or more years of service % for years 1-31; 2.6% for year 32; 2.7% for year 33 and so on until 100% of FAS is reached. 2.2% for all years of service Transition benefit - Those who are eligible to retire on July 1,2015, maintain retirement eligibility and the benefit would be the greater of: a) The benefit calculated upon retirement under the new benefit formula, or b) The benefit as of July 1,2015, under the current formula. - In short, members who are eligible for service retirement will receive no less of a Single Life Annuity benefit than they could have received on July 1,2015. d

7 ii Final Average Salary (FAS) FAS - Calculation to be average of five highest years of $50,000 $50,000 earnings. - Beginning Aug. 1, Pension benefits are based on member's $52,000 + $52,000 $54,ooo + $54,000 $56,000 + $56,000 $58,000 + $58,000 $168,000 age, years of service 3 and FAS. $56,000 = $270,000 + = 5 $54,000 Cost-of-Living (COLA) Proposed COLA - Members who retire any time before July 1,2013, would not receive a COLA during the 2014 fiscal year (July 1,2013-June 30, 2014). - Members who retire effective July 1,2013, would not receive a COLA on July 1, After missing one COLA, retirees would resume COLAs at 2% per year. - Members retiring after July 1,2013, would also receive a 2% COLA beginning the fifth anniversary of retirement. - Not compounded. Retired as of 7/1/ % after one year suspension All retirees -- 3% Retiring after 7/1/ % after five years 7

8 Contribution Increase Increase member contributions by a total of 4%. - Increase phased in 1% per year, beginning July 1,2013, until 14% is reached on July 1,2016. Members -- 10% Members -- 14% Key Dates Retire on or before July 1, Under Sub. Senate Bill 342, the benefit may be lower than a future retirement date; however, COLA begins on second anniversary, compared to beginning on fifth anniversary for retirements after July 1,2013. Retire on July 1, 2015, or continue working. - Under Sub. Senate Bill 342, the transition benefit locks in the minimum base benefit level; however, a member may have to work two or more years before the retirement benefit begins to increase. 8

9 Cost-of-Living (COLA) Example July 1,2013, retirement member who is age 2013 Base $3, with 29 years of 2014 service credit, with $59,400 FAS Versus July 1,2014, retirement member who is age $3,000 $3,350 $3,060 $3,350 (no COLA) (2% COLA begins) 2016 $3,120 $3, $3,180 $3, $3,240 $3, with 30 years of service credit, with $60,900 FAS $3, Base $3,500 $3,417 (2% COLA begins) Cost-of-Living (COLA) Example July 1,2013, retirement member who is age 55 with 30 years of service credit, with a $63,600 FAS Versus July 1,2014, retirement member who is age $3,500 (no COLA) $3,570 (2% COLA begins) $3,750 $3, $3,640 $3, $3,710 $3, $3,780 $3, $3,850 (2% COLA begins) 56 with 31 years of service credit, with a $65,700 FAS. 9 $3,825

10 Purchasing Service Credit Purchased service credit - Eliminate purchase service subsidies by (1) requiring members to pay the full projected liability created by the purchase of private teaching, out-of-state public service, prior military service before teaching and Ohio noncontributing public service; and (2) eliminating the interest-free period for completing deposits on a leave of absence. - Members must file all necessary forms for certification by Dec. 31,2013, and purchase the credit by June 30, Disability and Survivor Benefits Disability benefits - For new members July 1,2013, and later: Increase service requirement to 10 years from five years of earned Ohio service for eligibility. Reduce time period members can apply for disability to one year from two years after last date of service. - For all members beginning July 1,2013: Service credit granted upon a member returning to work would match either return-to-work service up to five years or time on disability, whichever is less. Survivor benefits - For new members July 1,2013, and later: Increase service requirement to five years from 1.5 years of earned Ohio service for eligibility. Reduce time period survivor benefit eligibility continues to 12 months from 27 months after last date of service. 10

11 Next Steps Pension reform plan requires legislative action by the Ohio General Assembly and the governor. STRS Ohio will keep members informed of progress and any amendments going forward. Legislative leaders are looking for constituent support for these plan changes. - A letter, phone call or to your representative is a positive way to show your support. Visit the STRS Ohio website at. - Latest details on proposed pension legislation. - Register for eupdate updates. On May 16, 2012, the Ohio Senate passed Sub. Senate Bill 342 ("Bill"), commonly referred to as pension reform legislation. The Bill has not been acted on by the Ohio House and has not been signed by the governor. Thus, the pension changes contained in the Bill are not yet law. It is possible additional pension changes will be made before the Bill becomes law. It is also possible the proposed changes will never be enacted. This Legislative Update is written in plain language as if all provisions of the Bill will become law. Eligibility for and calculation of benefits are governed by the laws in effect at the time the benefits become payable. 11