At the November meeting of the State Teachers Retirement Board, STRS Ohio staff provided a recap of the annual pension valuation results and related funding data. The board received the pension fund’s annual valuation report in October that points to funding challenges ahead. The report showed STRS Ohio’s funding period — the amount of time needed to pay off the system’s unfunded liability — stands at 26.6 years, and the funded ratio is 69.6%. The pension fund has a net $2.8 billion in deferred investment losses that will be recognized over the next three years because investment returns were below the assumed return of 7.75% during the past two fiscal years. The valuation report also showed that the fund is seeing slower than anticipated growth in covered payroll and that benefit recipients are living longer and collecting benefits for longer than expected.
The Retirement Board is working with its actuarial consultant, Segal Consulting, and its investment consultant, Callan Associates, to determine if changes to the pension fund’s actuarial assumptions are necessary to reflect these economic and demographic trends. Changes to the mortality assumption (to reflect benefit recipients’ longer lifespans) and the discount rate (that is also used as the investment return assumption) will increase the system’s liabilities and decrease its funded ratio. A change to the payroll growth assumption could also increase the funding period beyond the state of Ohio’s statutory 30-year target to pay down the system’s unfunded liability.
STRS Ohio has created a funding scorecard that the board and staff use to indicate the financial strength of the pension fund. The scorecard uses measures that include the system’s funding period, the funded ratio, economic considerations and the chance of a major negative economic event. The resulting score indicates the board should consider future plan design changes to address the funding challenges. The board is taking a deliberative and thorough approach, as board members understand that any action will impact STRS Ohio members, retirees and employers. There are several changes the board could consider in the months ahead. The board has statutory authority to change the annual cost-of-living adjustment, establish new age and service requirements and change member contribution rates (not to exceed the current 14%). Legislation would be required to change the benefit multiplier, the number of years used in the final average salary calculation or the matching amount in member withdrawal calculations.
The Retirement Board will continue its discussions in the months ahead. In December, Segal Consulting will present its preliminary results on its five-year experience review for board discussion. At the board’s January planning meeting, Segal will present its final results of the experience review and make recommendations regarding assumption changes. STRS Ohio staff will use the recommended assumptions to show how proposed changes would impact the funding scorecard. In March, the board is expected to adopt new actuarial assumptions that will be effective July 1, 2017. STRS Ohio will continue to use its website, newsletters and eUPDATE email news service to share information as these discussions continue.
During the past several board meetings, STRS Ohio Investment Department staff provided the board a detailed look at each asset class and return expectations. The Retirement Board reviewed a summary of these presentations in November and the return expectations were consistent with Callan Associates’ projections for slightly below average returns for the Total Fund over the next 10 years. The board will use this information as part of its current asset-liability study. The asset-liability study is expected to conclude in March when the board adopts an asset mix for the pension fund.
The Retirement Board approved 71 active members and 62 inactive members for service retirement benefits.
On Nov. 4, STRS Ohio sent notices to all reporting employers and other interested parties about the upcoming Retirement Board election for one contributing member seat and two retired member seats. In addition, election information is included in STRS Ohio’s fall newsletter and is posted on the STRS Ohio website. Individuals interested in running for a seat on the State Teachers Retirement Board can request petitions from STRS Ohio. The deadline for returning petitions is Feb. 24, 2017.
STRS Ohio is working with Saperstein Associates on the annual member survey. This year the public opinion and research company is conducting phone and email surveys of active and retired members to measure opinions about the benefits and services STRS Ohio offers, as well as the Retirement Board. The surveys will be conducted in the coming weeks and results are scheduled to be presented to the board at its February 2017 meeting. The addition of email this year will allow staff to compare the results to the phone survey and consider whether to use email as the primary means to conduct the survey in the future, as it provides more flexibility and potentially lower costs.
The Online Personal Account section of the STRS Ohio website now includes an option for members to “opt out” of the paper version of the 1099-R tax form. This option allows retirees to elect to receive their tax forms electronically instead of by paper, saving the system the cost of printing and mailing. It also provides earlier access to the forms and reduces the chance for the paper form to be lost or stolen.