Highlights of the October Board Meeting
Board Members Question Actuarial Assumptions
Dr. Leone questioned the Actuaries' method of calculating the unfunded liability that dropped from 55 to 47 years. He wondered whether it was much higher than stated. Dr. Leone wondered why returning the 1% of statewide payroll to the pension fund from the it's current allocation in support of the Health Care Stabilization Fund was presented in the report while other items (like eliminating the enhanced 35 year retirement benefit) that would have a greater benefit to the actuarial statistics were not being suggested. Buck Consultants were confident of their numbers given the returns in market. Dr. Leone questioned the Board's 4.5% payroll growth assumption as being too high in today’s economy. He cited the fewer number of teachers being hired at lower salaries as the cause of his concern.
Mr. Meyers questioned the use of the smoothing method as misleading and that it could hide a problem of dipping into Capital Funds. According to Mr. Meyers the private sector use of the market value is a more accurate number.
Dennis Leone Questions Ferguson Contract Details
Dr. Leone questioned using the “Industrial Standard” rule when the rule applies to the private sector and STRS Ohio is a publicly funded pension. The question concerned the contract to hire Ferguson to recruit four real estate investors. Dr. Leone raised a question about the length of time travel expenses would be paid and if they would be paid if they stayed an extra day beyond the time they were needed. He was concerned about the cost to the Board is they did hire one of the recommended candidates.
Dr. Asbury pointed out that Ferguson was the lowest of the bidders and that they agreed to find four for the price of three. He did not think paying for an extra day’s lodging would be approved and that the contract contained a clause to terminate the contract by the Board. The board hiring someone other than a Ferguson candidate would not be a problem.
STRS and PERS Partner in Search for New PBM
STRS Ohio is partnering with OPERS to hire Buck Consultants at a range of $80,000 to $100,000 fee to help select a new pharmacy benefits manager (Caremark is STRS' current PBM) for both pensions.
Mr. Meyers wanted to know why weren’t all five-pension plans combining to create greater bargain leverage through economics of scale. Dr. Asbury replied that all the systems weren’t on the same renewal schedule and the contract with Buck Consultants allowed STRS Ohio and OPERS to have different contract to meet the differing needs of their membership.
Computer Project Contract Raises Questions
The IT report sparked a debate over the $718K severance budget item. While severance may be a convenient budget category, it is more an incentive insurance plan to ensure that staff who are crucial to the successful completion of the transition to the new IT system remain with STRS until the project is finished.
STRS Ohio has been up from with its employees in telling them certain IT people and services will no longer be needed upon the completion of the technology upgrade. But until the new system is installed their services are required to maintain the old system. Chairman Ramser stated that it’s cheaper to pay departing employees to remain on the job than to train a temp assuming that a skilled replacement could be found.
Prescriber Advisor Program to be Ended
The Board voted to terminate the Prescriber Advisor Program that identified drug usage and drug interaction. Staff questioned the inflated savings claimed by the vendor in the second year of the contract and believes that the marketplace offers better means of integrating these services into STRS Ohio’s health care plan.
STRS Approves New Auditor
The Board’s auditor KPMG resigned and the state auditor who has legal authority to hire the Board’s auditor at the Board’s expense, has hired Clifton-Gunderson upon the Board’s recommendation. The contract runs until 2010.
Investment Department Reports Good News
The Investment Department reports are very good with the Total Return Fund up 4.9% for fiscal year. Mr. Mitchell warned, once again, that markets go up and markets go down. Stay calm.
Contract Review Policy is Adopted
The discussion of the contract review process started with a template provided by staff that all agreed to along with Dr. Asbury’s three guidelines: 1) for all actions greater than $100K, 2) for goods and services directly contracted to the Board such with Frank Russell, inc, and 3) for goods and services outside the budget.
The debate over attorney’s fees for the settlement with employees concluded that it was a “freak occurrence” that lies outside of the guidelines.
Dr. Leone was concerned about discovering a hidden clause after the fact that that contract would not be approved before negotiated.
The issue seems to be the amount of oversight the Boards needs or wants to exercise over staff. Mr. Meuser raised the question of the differences between the legal standard of "prudent person" v. a "prudent expert." As a part-time Board member and full-time teacher, he was wary of the legal implications (both personally and for the STRS) of representing himself as a prudent expert.
Mr. Meuser surveyed retired pension boards and found none assuming these legal responsibilities. He also thought it would hinder the staff’s ability to negotiate contracts.
Mr. Meyers agreed with Mr. Meuser.
STRS Executive Director Contract Approved
The Board voted to extend the contract of Excutive Director Damon Asbury for two years.
Dr. Leone questioned the Actuaries' method of calculating the unfunded liability that dropped from 55 to 47 years. He wondered whether it was much higher than stated. Dr. Leone wondered why returning the 1% of statewide payroll to the pension fund from the it's current allocation in support of the Health Care Stabilization Fund was presented in the report while other items (like eliminating the enhanced 35 year retirement benefit) that would have a greater benefit to the actuarial statistics were not being suggested. Buck Consultants were confident of their numbers given the returns in market. Dr. Leone questioned the Board's 4.5% payroll growth assumption as being too high in today’s economy. He cited the fewer number of teachers being hired at lower salaries as the cause of his concern.
Mr. Meyers questioned the use of the smoothing method as misleading and that it could hide a problem of dipping into Capital Funds. According to Mr. Meyers the private sector use of the market value is a more accurate number.
Dennis Leone Questions Ferguson Contract Details
Dr. Leone questioned using the “Industrial Standard” rule when the rule applies to the private sector and STRS Ohio is a publicly funded pension. The question concerned the contract to hire Ferguson to recruit four real estate investors. Dr. Leone raised a question about the length of time travel expenses would be paid and if they would be paid if they stayed an extra day beyond the time they were needed. He was concerned about the cost to the Board is they did hire one of the recommended candidates.
Dr. Asbury pointed out that Ferguson was the lowest of the bidders and that they agreed to find four for the price of three. He did not think paying for an extra day’s lodging would be approved and that the contract contained a clause to terminate the contract by the Board. The board hiring someone other than a Ferguson candidate would not be a problem.
STRS and PERS Partner in Search for New PBM
STRS Ohio is partnering with OPERS to hire Buck Consultants at a range of $80,000 to $100,000 fee to help select a new pharmacy benefits manager (Caremark is STRS' current PBM) for both pensions.
Mr. Meyers wanted to know why weren’t all five-pension plans combining to create greater bargain leverage through economics of scale. Dr. Asbury replied that all the systems weren’t on the same renewal schedule and the contract with Buck Consultants allowed STRS Ohio and OPERS to have different contract to meet the differing needs of their membership.
Computer Project Contract Raises Questions
The IT report sparked a debate over the $718K severance budget item. While severance may be a convenient budget category, it is more an incentive insurance plan to ensure that staff who are crucial to the successful completion of the transition to the new IT system remain with STRS until the project is finished.
STRS Ohio has been up from with its employees in telling them certain IT people and services will no longer be needed upon the completion of the technology upgrade. But until the new system is installed their services are required to maintain the old system. Chairman Ramser stated that it’s cheaper to pay departing employees to remain on the job than to train a temp assuming that a skilled replacement could be found.
Prescriber Advisor Program to be Ended
The Board voted to terminate the Prescriber Advisor Program that identified drug usage and drug interaction. Staff questioned the inflated savings claimed by the vendor in the second year of the contract and believes that the marketplace offers better means of integrating these services into STRS Ohio’s health care plan.
STRS Approves New Auditor
The Board’s auditor KPMG resigned and the state auditor who has legal authority to hire the Board’s auditor at the Board’s expense, has hired Clifton-Gunderson upon the Board’s recommendation. The contract runs until 2010.
Investment Department Reports Good News
The Investment Department reports are very good with the Total Return Fund up 4.9% for fiscal year. Mr. Mitchell warned, once again, that markets go up and markets go down. Stay calm.
Contract Review Policy is Adopted
The discussion of the contract review process started with a template provided by staff that all agreed to along with Dr. Asbury’s three guidelines: 1) for all actions greater than $100K, 2) for goods and services directly contracted to the Board such with Frank Russell, inc, and 3) for goods and services outside the budget.
The debate over attorney’s fees for the settlement with employees concluded that it was a “freak occurrence” that lies outside of the guidelines.
Dr. Leone was concerned about discovering a hidden clause after the fact that that contract would not be approved before negotiated.
The issue seems to be the amount of oversight the Boards needs or wants to exercise over staff. Mr. Meuser raised the question of the differences between the legal standard of "prudent person" v. a "prudent expert." As a part-time Board member and full-time teacher, he was wary of the legal implications (both personally and for the STRS) of representing himself as a prudent expert.
Mr. Meuser surveyed retired pension boards and found none assuming these legal responsibilities. He also thought it would hinder the staff’s ability to negotiate contracts.
Mr. Meyers agreed with Mr. Meuser.
STRS Executive Director Contract Approved
The Board voted to extend the contract of Excutive Director Damon Asbury for two years.
posted by Gary Hollow at
1:27 PM
