Annual Actuarial Valuation Shows Improvement in STRS Ohio Funding; Consultant Provides Guidance on Funding Policy
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, 2013. This is the first valuation completed using the new benefit structure resulting from the passage of pension reform legislation last fall. Segal’s report this year shows the funding period for the pension fund decreased to 36.1 years, and the funded ratio improved to 66%.
Plan design changes along with strong investment returns were the primary reasons for the funding improvement. Other significant notes from this year’s report include:
•Accrued liabilities decreased to $94.4 billion from $106.3 billion, primarily from the recognition of benefit plan design changes brought about by the pension reform legislation.
•The pension fund has a net $2.8 billion in unrecognized gains being deferred to future years. STRS Ohio uses a common accounting and 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.”
•Funding improvements were muted by a decrease in contributing payroll and a higher number of retirements than projected.
Following the valuation presentation, Segal Consulting led an educational session on funding policy. A funding policy provides guidelines for adequately funding the pension plan and consistently reporting its funding progress. Segal’s Kim Nicholl said STRS Ohio’s demographic trends, as well as new Governmental Accounting Standards Board reporting rules, are key reasons the board should consider adopting a funding policy.
CEM Benchmarking’s Cost Effectiveness Analysis Shows STRS Ohio’s Investment Costs are Lowest Among Peers
CEM Benchmarking, a leading global research company, provided the board a detailed look at the results of its 2012 investment benchmarking study.
The report showed that STRS Ohio’s total investment costs were the lowest in its peer group of 17 large U.S. public fund sponsors. The study noted that STRS Ohio’s use of internal investment managers is the primary reason its total costs are so low. According to the report, STRS Ohio saved about $84 million by using internal managers for about 75% of the system’s assets. The savings is based on the peer group’s median external management costs.
The report also provided performance data and showed that STRS Ohio’s 10-year return was in the top quartile among its peer group. However, CEM said STRS Ohio’s five-year return was below the peer group’s median return, primarily because of its asset mix — that is, a higher weighting in stocks and a lower weighting in fixed income than the peer group. During the past five years, fixed income has outperformed stocks.
Board Recognizes Chief Financial Officer for Outstanding Service
The Retirement Board recognized Bob Slater, deputy executive director — Finance and chief financial officer, who is retiring after 30 years of service at STRS Ohio. The board thanked Slater for his dedication and outstanding service to the retirement system’s employers and members.
The Retirement Board approved 637 active members and 127 inactive members for service retirement benefits.
Other STRS Ohio News
Health Care Open-Enrollment Meetings Begin Oct. 21; Seats Filling Quickly
Enrollees in the STRS Ohio Health Care Program will soon receive the October newsletter for benefit recipients and open-enrollment packets that will outline their plan options and changes to the Health Care Program for the 2014 year. Open enrollment runs from Nov. 1–26. STRS Ohio Member Education staff will again present meetings around the state in mid-October with the first meeting on Oct. 21 in North Canton. Through Oct. 9, more than 7,500 enrollees had reserved a seat at one of 60 sessions being offered. Additional sessions have been opened to handle overflow requests. Last year, 5,100 members attended one of the sessions. The same presentation provided to members at these meetings will be available for members to view on the STRS Ohio website.
Demand for Counseling Sessions Appears Lower Than Last Year
Benefits counselors met with 454 members in the Columbus office in September 2013 compared to 734 members last September. Appointments for October are also being scheduled at a much lower rate than last year. Counseling appointments at the field locations are holding steady. This may suggest that retirements in fiscal 2014 may be lower than the high in fiscal 2013.
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