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March Board News

(The text below is reprinted from the news release by STRS on  3/21/2014.)
 
Retirement Board Takes Action to Improve Pension Funding
At the March meeting of the State Teachers Retirement Board, the board took action to reduce the amortization period for the pension fund, voting unanimously to discontinue the current allocation to the Health Care Fund of 1% of the 14% employer contribution beginning July 1, 2014. This decision follows discussion that began at the Board Retreat in January and continued at subsequent board meetings. The Segal Company, STRS Ohio’s actuarial consultant, projects this change, coupled with smoothed gains from strong investment returns, will result in an amortization period of about 32 years. That puts STRS Ohio on track to reach a 30-year amortization period by 2016 — the time frame that was projected when pension reform legislation was passed in 2012. Ohio retirement systems are required by law to amortize unfunded liabilities over a period of not more than 30 years or to submit a board-approved plan to the Ohio Legislature to reduce the funding period to 30 years. STRS Ohio’s July 1, 2013, valuation showed an amortization period of 40.2 years.
 
Before the vote, board chair Dale Price said, “As we consider these decisions, the board realizes that, in accordance with Ohio Revised Code, health care is an optional benefit, and our first obligation and fiduciary duty is to the pension fund. That said, this board and past boards have provided funding for STRS Ohio’s Health Care Program. We’ve recognized this coverage is important to our members’ retirement security. The Health Care Fund has a balance of about $3.5 billion and will continue to receive funding from investment returns on the fund, member premiums and government reimbursements.”
 
When the board-approved plan to reach a 30-year funding period was submitted to the Ohio Retirement Study Council last month, the board acknowledged that it wanted to share the need for additional funding improvements with STRS Ohio’s stakeholders, continuing a long-standing practice. The Healthcare and Pension Advocates for STRS (HPA) — a coalition comprised of groups representing active members, retired members and employers — supported the board’s action to discontinue the 1% employer contribution to the Health Care Fund. In public comments to the board last month, a spokesperson for HPA said, “ ... we recognize the seriousness of your statutory obligation to have a plan that will get this system to a 30-year funding period, and although we believe the pension reform package has us on a trajectory to reach this goal, we see the wisdom in making an effort to hasten the move in that direction.” Prior to the vote, Price thanked HPA for its support.
 
The board’s action shortens the projected life of the Health Care Fund to about 20 years; however, the board has authority to direct all or part of the 1% back to the Health Care Fund in the future, and to make “catch-up” payments once the financial condition of the pension fund improves.
 
STRS Ohio will communicate this change with members in its upcoming newsletters and on its website. The Retirement System will also share the board’s action with the Ohio Retirement Study Council, along with the funding impact on the pension and health care funds.
 
Price, Hill Unopposed for Retirement Board Election
In 2010, members elected Dale Price and Mark Hill to contributing member seats on the Retirement Board for a term that ends Aug. 31, 2014. Price and Hill were the only STRS Ohio contributing members to file enough completed petitions for the 2014 election for these seats by the deadline of Feb. 28, 2014. Since they are unopposed, in accordance with Ohio statute, no election needs to be held and they will continue in these seats through Aug. 31, 2018. Price is a high school mathematics teacher for Toledo Public Schools, and Hill is a mathematics teacher for Worthington City Schools. Board members receive no compensation other than reimbursement for necessary expenses.
 
STRS REIT Choice to Change July 1
The Retirement Board approved a change to one of the allocation options available to members who participate in STRS Ohio’s Defined Contribution Plan or Combined Plan. The STRS REIT Choice will change to a passively managed index return strategy beginning July 1, 2014, and will be renamed the STRS REIT Index Choice. This choice invests in the public securities of real estate companies, primarily real estate investment trusts (REITS) and will now be intended to closely match the return of its index benchmark. Annual asset management fees will be lowered from 0.50% to 0.15%. More information on this change will be included in STRS Ohio’s upcoming SmartTALK newsletter that is mailed to Defined Contribution Program participants.
 
Retirements Approved
The Retirement Board approved 193 active members and 117 inactive members for service retirement benefits.

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