Annual Actuarial Valuation Shows Steady Improvement in STRS Ohio Funding
At its October meeting, the State Teachers Retirement Board received a report of the annual pension valuation results from its actuarial consultant, Segal Consulting. The report provides a “snapshot” of the actuarial position of the retirement fund as of July 1, 2014. Segal’s report this year shows the funding period for the pension fund — the amount of time needed to pay off any unfunded liability — decreased to 29.5 years from 40.2 years, and the funded ratio improved to 69.3% from 66.3%.
Better than expected investment returns were the primary driver for the funding improvement. Other significant notes from this year’s actuarial valuation report include:
•The unfunded actuarial accrued liability decreased to $29.5 billion from $31.8 billion — this represents the difference between STRS Ohio’s actuarial value of assets and the actuarial accrued liabilities.
•STRS Ohio paid about $6.7 billion in benefits during the fiscal year.
•The pension fund has a net $5.2 billion in unrecognized gains being deferred to future years. STRS Ohio uses a common actuarial technique called “smoothing” to spread investment market volatility over four-year periods. This method helps pension funds recognize investment returns for a given year over a four-year window rather than a one-year “spike.”
•Contributing payroll decreased by 0.4%, and the number of active members decreased slightly.
Ohio’s public retirement systems are required by law to amortize any unfunded liabilities over a period of not more than 30 years. Following last year’s valuation, the Retirement Board took action to reduce the amortization period, or “funding period,” by discontinuing the allocation of 1% of the 14% employer contribution to the system’s Health Care Fund. This step, along with expected strong investment returns, put STRS Ohio on track to reach a 30-year amortization period by 2016; however, better than expected investment returns helped the pension fund reach the 30-year funding period earlier than projected.
The Retirement Board will continue to regularly monitor the strength of the pension and health care funds. The board is also working with Segal and STRS Ohio staff to study its funding policy, and this month’s pension valuation report is an important step in that process.
Board Approves Letter of Agreement on Joint Retirements
STRS Ohio staff provided the Retirement Board an update on a series of meetings held between staff members from the Ohio Public Employees Retirement System (OPERS), the School Employees Retirement System (SERS) and STRS Ohio on joint retirements. Joint retirement is an option that permits members to combine their accounts among these systems to determine both eligibility and retirement benefit amounts. This option has been available to members since the 1950s.
Pension reform changed the formula used to transfer monies between the systems when joint retirements occur, and the three systems have been working to reach agreement to settle these joint retirement accounts. Staff members from all three systems developed a letter of agreement for their respective boards to review. The State Teachers Retirement Board reviewed and approved the letter, as did the OPERS and SERS boards at their respective October meetings.
Legislative action will be needed to implement the agreed upon changes. STRS Ohio staff will pursue the associated changes in statute. In addition to preserving joint retirements, the agreement also will permit members to withdraw their account from one retirement system without incurring a reduction in service credit for time that overlapped with another system.
The Retirement Board approved 426 active members and 125 inactive members for retirement.
Board Recognizes House Speaker Batchelder, Representative Wachtmann for Distinguished Service
The Retirement Board recognized Speaker of the Ohio House of Representatives William Batchelder (R-Medina) and Representative Lynn Wachtmann (R-Napoleon) for their years of service in the Ohio Legislature. Both representatives are retiring at the end of the current legislative term.
Speaker Batchelder, pictured below in the photo on the left with Retirement Board members Craig Brooks (far left) and Robert Stein (right), has served in the Ohio House of Representatives for 38 years, and served as House Speaker for his past two terms. The board resolution for Batchelder noted “his understanding of pension issues has protected the fiscal soundness and independence of the State Teachers Retirement System of Ohio.” The Speaker also served many years as an adjunct professor, providing him with an educator’s perspective on the value of maintaining a strong retirement system.
Rep. Wachtmann, pictured below in the photo on the right with Retirement Board members Craig Brooks (far left) and Robert Stein (right), has served on the Ohio Retirement Study Council since 2001, including multiple terms as chair of the Council. The board commended Wachtmann, saying “his support of pension reform legislation passed during the 129th General Assembly helped strengthen the financial condition of STRS Ohio and preserved defined benefit pensions for generations of Ohio’s educators.”
STRS Ohio wishes each of these legislators many happy years in retirement.
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