Retirement Board Will Continue to Share Potential Funding Improvements With StakeholdersAt its February meeting, the State Teachers Retirement Board reviewed several options to reduce the amortization period for the pension fund and agreed that STRS Ohio will continue to involve stakeholders in the process of considering plan revisions. STRS Ohio is required by law to amortize its unfunded liabilities over a period of not more than 30 years. Since STRS Ohio’s current funding period is 40.2 years, the system is required to submit a board-approved plan to the Legislature to reduce the funding period to 30 years. The plan was submitted on Feb. 21.
The plan reviewed the significant impact that pension reform legislation had on the pension fund. STRS Ohio’s July 1, 2013 pension valuation shows pension reform reduced STRS Ohio’s unfunded liabilities by $15.7 billion and improved the system’s funded ratio to 66.3%. The reforms also reduced the system’s funding period from infinity, but have not yet resulted in a 30-year amortization period.
The valuation also showed that STRS Ohio has a net $2.8 billion in unrecognized investment gains being deferred to future years. The $2.8 billion reserve is due to the four-year smoothing method that spreads investment market volatility over four-year periods. The remaining gains since 2011 reflect stronger investment returns than the 7.75% assumed rate. The plan sent to legislators explains investment gains from 2011–2014 to be factored into this year’s valuation, along with strong returns thus far in the current fiscal year, should have a positive impact on the pension fund. STRS Ohio’s actuary projects that if the current year investment returns hold until June 30, the valuation for the fiscal year ending June 30, 2014, will show about a four-year reduction in the amortization period.
Board Discusses Options to Reduce Amortization Period for the Pension Fund
During the State Teachers Retirement Board’s annual retreat, board members reviewed several options to reduce the retirement system’s funding period. Ohio law requires the statewide retirement systems to amortize unfunded liabilities over a period of not more than 30 years, otherwise they must submit a board-approved plan to the Legislature to reduce the funding period to 30 years. STRS Ohio’s current funding period is 40.2 years.
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