September 2001

September 11, 2001

The OP&F Trustees and staff honor, support and remember our fallen firefighters, police officers, fellow citizens, and their families and loved ones who were impacted by the terrorist attacks on September 11, 2001.

The Ohio Police & Fire Pension Fund joins the National Association of State Retirement Administrators and the National Council on Teacher Retirement, as well as many public pension funds throughout the nation in publicly expressing our support of and confidence in the U.S. financial markets and its financial systems. Specifically:

• We support the efforts of the federal officials and stock exchange officials and members to re-open the markets in an orderly manner. In our view, time is not of the essence, but orderliness is.
• We have unqualified confidence in the U.S. financial systems and in the resilience of the U.S. financial markets.
• We, as institutional investors, will continue to provide stability in the U.S. financial markets. We will remain patient long-term providers of capital.
• We remain confident in the underlying strength of the U.S. economy.
• We join all of America in offering our condolences to the families, friends, and business colleagues who were personally affected by this horrible tragedy.

In addition, OP&F Executive Director William J. Estabrook has designated every Friday through October 5 as "Red, White & Blue Days," encouraging staff to wear the nation's colors and to donate money for relief efforts. The charities to receive OP&F staff donations include: the American Red Cross Disaster Relief Fund, the Salvation Army's New York Disaster Fund, IAFF World Trade Center 911 Relief Fund, and the New York State FOP World Trade Center Disaster Relief Fund.

Active Member Benefit Information

Law can require OP&F to pay support directly to ex-spouse in 2002

As reported in past issues of the Members Report, the passage of House Bill 535 created a vehicle for the courts to issue a Division of Property Order (DPO) that requires OP&F to pay a portion of a retirant's monthly service or disability benefit or a member's refund of contributions directly to a former spouse (or a spouse from whom a member is legally separated) beginning January 1, 2002. The new law can also require OP&F to release member information to the court and former spouse.

These DPOs are in the form of a withholding order, similar to the Child Support Enforcement Agency (CSEA) orders that OP&F currently receives and pays. Under the DPOs, however, OP&F must pay the former spouse instead of paying the CSEA. Like CSEA orders, there are limitations on the amount of monies that can be subject to the DPO. CSEA orders will have priority over the payments due under the DPO.

Before any payments can be made to the former spouse, the law requires that the order be in a form approved by the Ohio Retirement Systems, the Ohio State Bar Association, and the Domestic Relations Judges Association. This form has not yet been completed. In addition, the law mandates that the former spouse cannot be paid until the member starts to receive benefits and payments cease upon the member's death. The DPO does not entitle the former spouse to survivor or health care benefits.

Under the DPOs, the income will be attributed to the person, not the member. As a result, the former spouse will be subject to tax withholdings on the portion of the benefit that he/she receives. Members are taxed for the money they pay out under CSEAs.

For divorces that occurred prior to January 1, 2002, the courts can modify orders to include provisions under the new law if the court decree provided that the former spouse had an interest in the OP&F benefit.

Please note that the courts will not be required to issue a division of property order. In December 1999, the Board formally opposed legislation that would allow the courts to order a division of property in divorce cases.

Board Update

Chairs and committees set for 2001-2002 term

The Board recently elected Ken Gehring, Toledo Fire, as Chairman, William Gallagher, retired Cleveland Police, as Vice-Chair and Thomas Bennett, Dayton Police, as Chair-Elect for the 2001-2002 term. In addition, the Board's governance policy was revised to eliminate a requirement for Board members to serve one year on the Board prior to holding a Board officer position and to specify that the Chair-Elect would assume the Chairman position at the June Board meeting of the following term. The Board also formed seven committees for the 2001-2002 term: Audit & Personnel; Benefits; Disability; Finance; Health Care; Investments; and Information Systems (I.S.). Each committee has approved a charter outlining its purpose, functions and responsibilities.

Balazs reappointed to Board term

Governor Bob Taft reappointed Richard Balazs to a 3-year term on the OP&F Board of Trustees effective this month. Mr. Balazs, who is currently the Director of Finance in the City of Euclid, has served as the governor's municipal fiscal officer appointee to the OP&F Board since 1992. Mr. Balazs serves as Chairman of the Board's Finance Committee.

DROP legislation introduced in the Senate

An exciting new benefit enhancement is on the horizon for OP&F members! OP&F is pleased to announce that Senator Louis Blessing introduced Senate Bill 134 in June that, if passed, would allow OP&F to offer a Deferred Retirement Option Plan (DROP) to membership.

"We are extremely delighted that DROP legislation has finally been introduced," said OP&F Board of Trustees Chairman Ken Gehring. "Over the past four years, the Board and staff have worked hard to develop a plan that would be a financial benefit to our membership and, at the same time, have no financial impact on OP&F-now we are ready to deliver."

OP&F cannot offer a DROP plan without the passage of legislation. As a result, OP&F is ready to wage a full-force grassroots effort to promote DROP and gain support for the passage of Senate Bill 134. OP&F will focus on communicating the benefits of the proposed plan to members, member organizations, legislators, and employers.

A DROP plan is an alternative accrual benefit that allows the member to increase benefits that will be payable upon retirement in exchange for the member's deferral of retirement. The popularity of DROP plans has grown across the country since first introduced in the 1980's by public sector employers.

The DROP plan design proposed in S.B. 134 was developed by OP&F over the last several years along with its actuary, Watson Wyatt. Under this DROP program, members who are eligible for normal service retirement would continue to work and accrue benefits consisting of the monthly pension amount that would have been paid to them, plus a portion of ongoing OP&F member contributions and interest. Upon leaving DROP and electing retirement, members would begin to receive their monthly pension payment (established at the time of DROP entry), health care benefits, and could also withdraw funds from their DROP accrual in a lump-sum payment or installments.

OP&F began to research DROP programs in 1997 when OP&F Board and staff visited states and cities that had successfully implemented DROP plans. After the research was complete, OP&F worked with its actuarial consultant to develop a customized DROP program. The plan was designed to be: 1) cost neutral to OP&F; 2) recognized as a benefit enhancement for Ohio police officers and firefighters; and 3) easy to understand.

For more information on OP&F's proposed DROP program, please visit OP&F's website: www.op-f.org and click on the "DROP Information" button on the left side of the screen. The website contains the DROP plan design, Q&A, calculator, and instructions for calculating a DROP benefit.

Watch future issues of the Members Report for updates on this legislation.

Face Behind the Phone

Vicki Whyte, Customer Service

Vicki Whyte joined OP&F's customer service area in April 2001, bringing with her 25 years of extensive customer service experience. In addition to her wealth of knowledge, OP&F members benefit from Vicki's genuine concern for callers, always taking time to listen to the caller's questions and remaining courteous and respectful at all times. Vicki's daughter, Sarah, attends the Ohio State University and also is a member of the Columbus Crew Professional Soccer Team's dance squad. Vicki spends free time attending Crew soccer games, listening to music, watching movies, walking, and crocheting.

LEGISLATIVE UPDATE

The Board of Trustees recently voted to support the following legislation.

• House Bill 323/Senate Bill 100 would allow OP&F to grant an on-duty disability to a member of a fire department if the member became disabled as a result of cancer or a contagious or infectious disease, as long as the member had a pre-employment physical that showed that the member did not have the condition prior to employment. The Board voted to support this legislation under the following circumstances: 1) the presumptive condition be limited to cancer resulting from exposure to heat, radiation or a known carcinogen recognized by the International Agency for Research on Cancer; and 2) the provision also apply to police officers since they are sometimes the first to arrive on the scene and can go into a situation unprotected and be subject to the same risks as a firefighter.
• Senate Bill 119 would allow OP&F to accept the transfer of OP&F service credit that was previously transferred to another Ohio Retirement System. The law currently does not allow OP&F to accept credit that was originally OP&F service credit. The Board voted to support this legislation since this bill is consistent with current statutory provisions governing the transfer and purchase of service credit; however, their support is subject to certain technical corrections being made.
• House Bill 298 would allow OP&F to pay survivor and health care benefits to surviving spouses whose benefits had been terminated because they remarried prior to OP&F's creation in 1967. As currently written, the bill allows the Board of Trustees to establish the evidence necessary to document the deceased member's status as a contributor to the local fund created under former Ohio Revised Code Chapter 741. The Board's approval of this legislation is under the condition that the bill also grants the Board authority to establish the evidence necessary to document the spouse's termination of benefits due to remarriage. Since the number of survivors falling into this category is predicted to be relatively small, a recent actuarial analysis conducted by Watson Wyatt estimated that the additional liability to OP&F would be minimal and would lead to a very small increase in OP&F's amortization period. OP&F survivor and health care benefits would not be retroactive under the proposed legislation.

In addition, the Board recently voted against the acceptance of part-time service credit.

To preserve the structure of OP&F and allow for the development of a long-term plan for future benefit increases and changes, OP&F's Board voted not to support changes recommended by the Ohio Retirement Study Council (ORSC) regarding the transfer of part-time service credit until OP&F's actuarial funding status is closer to 90 percent. In a study required by House Bill 648, the ORSC recommended to the legislature last year that OP&F accept the transfer of part-time service credit on a pro-rata basis. Since OP&F currently only accepts full-time service credit, the acceptance of part-time service credit would result in accelerated eligibility and would affect OP&F's long-term funding status.

Planning for Your Retirement

Pre-retirement interviews help you through the retirement process

Upon retirement, you must make several complicated decisions that will impact your financial future. As a result, OP&F encourages you to visit OP&F offices in downtown Columbus for a one-on-one pre-retirement interview five to six months before your retirement date. During this interview, retirement counselors go through the pension calculation process, provide an estimate of your pension, and explain the medical expense benefits program.

You can schedule an appointment Monday through Friday from 9:00 a.m. to 2:00 p.m. and parking is provided at no charge. You should plan to spend approximately two hours in the interview. To schedule an interview, call customer service at 1-888-864-8363. Keep in mind that appointments fill up quickly.

If you are unable to travel to OP&F's offices for a one-on-one interview, OP&F's customer service representatives are available to answer your inquiries Monday through Friday from 8:00 a.m. to 4:30 p.m. Just call our toll-free customer service number: 1-888-864-8363. You can also submit written requests or inquiries via e-mail through the website: www.op-f.org; fax: (614) 628-1777; or mail: 140 E. Town St., Columbus, Ohio 43215.

Questions from our Members

I am already retired and recently married. How do I add my new wife to my health care benefits and pension?

Submitted by Thomas G. Tibbetts, Retired Parma Fire

By virtue of your marriage, your spouse is automatically entitled to receive statutory survivor pension benefits upon your death. There is no enrollment requirement for this benefit. If you would like additional benefits paid to your spouse upon your death, you must change your annuity payment plan type and beneficiary within one year of your marriage (certain limitations may apply). Certain annuities are available that allow you to receive a lesser amount each month so that your designated beneficiary would be paid a monthly cash allowance upon your death-this annuity is paid to your spouse in addition to the statutory survivor pension previously described.

To enroll your spouse in OP&F's health care program, OP&F requires you to submit an Annual Health Care Eligibility Form along with copies of his/her Social Security card and solemnized marriage certificate signed by the person with legal authority to conduct the ceremony. Coverage for the newly-enrolled spouse will take effect the first day of the following month if all requested paperwork is submitted to OP&F prior to the 15th of the month (with certain exceptions). If written requests are received after the 15th of the month, coverage will not take effect until the first day of the month that falls two months later. For example, if OP&F receives all necessary paperwork by October 15th, then the effective date of coverage would be November 1st. If the form were received on October 24th, the coverage would take effect on December 1st. If the marriage involves stepchildren or other dependents, please call OP&F for eligibility and enrollment guidelines.

Thomas G. Tibbetts, of Parma, Ohio married wife Judith on July 19, 2001. Mr. Tibbetts is a retired Parma Fire Department Captain with over 37 years of service. Mrs. Tibbetts is retired from the Federal Government. They share three adult children and four grandchildren. Two favorite pursuits are hunting and fishing, with leisure time spent at the Lake Erie Islands and in the Dakotas enjoying these hobbies.

Retiree/Survivor Benefit Information

New Prescription Drug Administrator Begins Service in January

As announced in the last issue of the Members Report, AdvancePCS will manage prescription drug benefits for OP&F benefit recipients and their dependents beginning January 1, 2002. Following are some commonly asked questions and answers about the transition from Merck-Medco to AdvancePCS.

Will the same benefit provisions that currently apply also apply under AdvancePCS?

Yes. Your copayments and benefits are not affected by the change in prescription drug administrators.

Is the list of formulary drugs changing?

Yes. You will receive a different formulary list in mid-December as part of your welcome packet. The AdvancePCS formulary list includes commonly prescribed brand name and generic drugs, which can help OP&F manage rising drug costs. You are encouraged to share this list with your doctor to discuss your prescription options; however, using this list is voluntary.

When will I receive a new prescription drug ID card?

You will receive AdvancePCS prescription drug ID cards in mid-December as part of your welcome packet.

How will I know which retail pharmacies are participating under AdvancePCS?

For the most part, you will be able to use the same pharmacy that you use today. A pharmacy network list will be mailed to you in mid-December as part of your welcome packet.

How do I receive refills at my RETAIL pharmacy?

For refills obtained after January 1, 2002, simply inform the pharmacy that your prescription drug carrier has changed and present your new AdvancePCS ID card (you will receive your new card in mid-December). Ask the pharmacy to be sure that your information is updated in their system and that they file your claims with AdvancePCS. You will not need a new prescription unless you are taking a narcotic or compound drug or you have no refills left.

Will my existing MAIL SERVICE prescription(s) be transferred to AdvancePCS?

Most existing prescriptions (with refills remaining) will automatically be transferred from Merck-Medco to AdvancePCS. Sending a new prescription is not necessary unless you are taking a narcotic or compound drug or if you have no refills left.

What should I do if I need a mail service refill in November or December?

If you need a mail service refill before January 1, 2002, place your order through Merck-Medco. They will process and ship mail service orders until December 31, 2001. Starting January 1, 2002, you should place mail service orders through AdvancePCS. An AdvancePCS mail service form and envelope will be mailed to you in mid-December as part of your welcome packet.

AdvancePCS' toll-free customer service number is 1-877-827-7315. You may call this number for general benefit and transition information. Customer service representatives will not have access to enrollee-specific information until mid-November.

Open Enrollment Period to run through Nov. 16

Benefit recipients currently participating in the OP&F health care program will receive Open Enrollment 2002 packets in their mailboxes during the first week of October. During the annual open enrollment period, members can change health care plans and enroll in or disenroll from the supplemental dental and vision plans for the next year. A green Annual Health Care Eligibility Form (AHCEF) also will be included in open enrollment packets. All benefit recipients currently enrolled in OP&F major medical benefits must complete and return this form by October 31, 2001 (even if no health care changes are being made) or risk loss of health care coverage. Dates and locations of open enrollment information sessions to be held around the state in October are listed in the Important Dates section of this newsletter.

United HealthCare and Medical Mutual HMOs not available in 2002; copays for other HMOs will change

In 2002, OP&F will no longer offer the United HealthCare (UHC) and Medical Mutual HMO plans (OP&F will continue to offer the Medical Mutual PPOs in 2002). Benefit recipients who are currently enrolled in these plans were recently notified via letter that they will be required to change to another available health care plan in their area effective January 1, 2002. In addition, certain copays for other available HMOs will increase from $5 to $10.

Changes to the HMO plans in 2002 came as a result of recent negotiations with the HMO carriers, which reported a $2.5 million (13.5%) increase in overall HMO costs if OP&F's plan design and carriers remained unchanged. By implementing these changes, premiums will increase by $1.1 million (5.9%) in 2002.

To change health care plans, current UHC and Medical Mutual HMO enrollees should follow instructions included in their 2002 open enrollment packets, which they will receive in early October. If the proper paperwork is not filed with OP&F, OP&F will automatically convert their coverage to an Aetna or Medical Mutual PPO plan. Coverage under the new plan will take effect on January 1, 2002. Coverage through the UHC or Medical Mutual HMO will continue through December 31, 2001.

Delta Dental coverage to change in 2002

The coverage amounts of the supplemental dental plan offered through Delta Dental will change effective January 1, 2002 to encourage participants to utilize dentists participating in Delta's provider network. Under the revised plan design, Delta Dental participants may still choose any dentist in the country; however, out-of-pocket costs and deductibles will be less if participants utilize the DeltaPreferred Option Network because these dentists have agreed to a discounted fee schedule. Since a large number of OP&F plan participants use non-network dentists, which charge higher fees, Delta Dental reported that premiums would increase by 37% in 2002 without changing the plan design. The new plan design will result in a very slight increase in dental premiums, which are completely paid by plan participants. More information regarding the new plan design will be included in open enrollment packets.

System redesign/data streamlining project begins

In late June, OP&F began a project to redesign its member information system and streamline member data. An outside consultant, Peterson Consulting, will provide planning and management services for the project. Based on input from staff and a review of internal computer systems and data, Peterson will create a structure for the coordination of this extensive multi-year project. OP&F then will issue a Request for Proposal (RFP) to select a firm to assist OP&F in actually building the new system. The new system is expected to take OP&F well into the future and allow for enhanced service to members.

Board of Trustees

Dear Members:

As fellow OP&F retirees, we share your concerns about health care. We all want affordable, comprehensive medical and prescription drug coverage that is there when we need it. As your elected retiree representatives to the OP&F Board of Trustees, we want you to know that OP&F is committed to meeting your health care needs, despite rising health care costs. We wanted to take this opportunity to provide you with an update on the health care front.

You've read countless articles in this newsletter and in other publications that health care expenses are rising at an alarming rate. The Board previously has taken steps to hold down costs and still maintain the quality of the health care program, including the introduction of PPO Networks, HMOs, coordination of benefits with Medicare, and disease management programs.

Most recently, we've taken steps to collect more money from the only sources available by law to fund health care benefits. We introduced a new contribution schedule this past July that ensures benefit recipients collectively contribute 6% toward OP&F's overall annual health care costs. We also allocated more employer-paid contributions to health care. In addition, a funding cap was removed for the amount of investment income credited to the Health Care Stabilization Fund, which was set up to cover health care expenses.

Despite these actions, we've now come to an even more critical stage in our health care funding situation. In 2000, OP&F spent approximately $111 million on health care benefits, which represented an 11.3% increase from 1999. In 2001, health care expenses are projected to increase another 15%. Based on these higher than expected cost increases, and with no changes in member contributions or plan designs, our actuary anticipates the next forecast study to reflect the depletion of the Health Care Stabilization Fund much faster than originally forecasted. The Board's Health Care Funding Policy Statement states that the health care fund must be solvent for at least 10 years to be considered adequate. We know that rising health care costs are not going to decrease as Medicare continues to shift costs, utilization increases as our retiree population ages and grows at a larger rate than our active members.

We are reporting this information to educate you, not to alarm you. The Board's Health Care Committee examines health care funding issues every month, along with our dedicated staff. We are working to position ourselves for the future and are focused on increasing the life of the health care fund.

Page 4 of this newsletter reports on some benefit changes that we will make in 2002 in response to rising costs. First, we will change to a new prescription drug vendor effective January 1, 2002. Our recent prescription drug vendor negotiations resulted in a contract with reduced administrative fees and enhanced performance guarantees. Second, we will no longer offer HMOs through United HealthCare and Medical Mutual of Ohio in 2002 and certain copays for existing HMOs will increase from $5 to $10. Changes to the HMO plans came as a result of recent contract negotiations with HMO carriers, which reported a $2.5 million increase (13.5%) in overall HMO costs if OP&F's plan design and carriers remained unchanged. By implementing these changes, HMO premiums will increase by $1.1 million (5.9%) in 2002.

Over the next several months, and in the future, the Committee will work with staff and the Board to review medical trends, forecast studies, the benefit recipient health care contribution schedule, and health care plan designs. As we review these items and implement future health care funding strategies, our goal remains to offer affordable, quality health care benefits that is there when you need it.

Sincerely,

Patrick J. Patton
OP&F Trustee
Cleveland Fire, Retired

William D. Gallagher
OP&F Trustee
Cleveland Police, Retired