Kevin Kroskey's Ohio Faculty Advisor

Any future blog posts will be done at www.TrueWealthDesign.com . Thank you, Kevin Kroskey, CFP, MBA

CliftonLarsonAllen Completes Fiscal 2017 Annual Financial Statement Audit and Issues Clean Opinion At the December meeting of the State Teachers Retirement Board, CliftonLarsonAllen reported the results of its audit of the STRS Ohio financial statements for the fiscal year ending June 30, 2017. The report showed that the retirement system’s financial statements were fairly stated in accordance with generally accepted accounting principles and that no material weaknesses in internal controls or instances of noncompliance were found. As a result, STRS Ohio received an unmodified opinion — also known as a “clean” opinion — which is the highest level of opinion that an organization can achieve. STRS Ohio’s financial statements are included in the 2017 Comprehensive Annual Financial Report , which will be posted on the system’s website by Dec. 29, 2017. In addition to the financial statements, the report includes investment, actuarial and statistical information about STRS Ohio. This repor...

Actuarial Valuation Shows COLA Change, Investment Returns Lead to Funding Gains During the October meeting of the State Teachers Retirement Board, actuarial consultant Segal Consulting presented key findings from its July 1, 2017, annual pension valuation report. This report provides a detailed look at the financial health of the pension fund. The most common ways to express the system’s financial condition are through the funded ratio and the funding period. This year’s valuation report shows the funded ratio — the value of assets compared to actuarial accrued liabilities (benefits earned by members of the system) — improved to 75.1% from 69.6% last year. The funding period — the amount of time needed to pay off the system’s unfunded liability under current assumptions and benefit levels — also improved, decreasing to 18.4 years from 26.6 last year. Segal shared that without the board’s action to reduce cost-of-living increases granted on or after July 1, 2017, to 0%, STRS Ohio...

Board Reviews Health Care Subsidy Options for 2019 and Beyond During the September meeting of the State Teachers Retirement Board, the board continued its discussion on the solvency of the Health Care Fund and how to provide a meaningful subsidy for plan enrollees. The Health Care Fund has a balance in excess of $3 billion and is currently estimated to remain solvent through 2034. Solvency is largely driven by the subsidy provided to each enrollee — both the initial subsidy level and the growth of the subsidy. The STRS Ohio Health Care Program is currently funded through premiums charged to plan enrollees, government reimbursements and investment earnings on the fund. STRS Ohio no longer allocates a portion of employer contributions to the Health Care Fund, as all of the employer contributions are needed to fund pensions. Finding solutions for health care funding is challenging for several reasons. The board has already implemented many cost-saving options available throu...

STRS Ohio’s Investment Return of 14.29% in Fiscal 2017 Is a Positive Step For The Fund At the August meeting of the State Teachers Retirement Board, Investment Department staff reported that STRS Ohio’s total fund return for the year ending June 30, 2017, was +14.29%. This follows returns of +0.92% in fiscal year 2016 and +5.45% in fiscal 2015. The fiscal 2017 return beat the total fund benchmark by 0.63%. The system’s active management of the funds, rather than relying on index funds, added approximately $400 million in value after all investment costs during the fiscal year. Total fund assets were $75.1 billion as of June 30, 2017. STRS Ohio’s fiscal 2017 total fund return ranked in the top 20% of Callan Associates’ public fund sponsor database. Callan serves as an investment consultant to the Retirement Board. The strong performance was led by a +22.2% return on international investments (vs. a benchmark return of 21.6%) and a +19.6% return on domestic equities (vs. a be...

Retirement Board Approves Health Care Premiums For 2018; Approximately 80% of Enrollees Will See No Premium Increase At the June meeting of the State Teachers Retirement Board, the board approved 2018 premiums for all plans offered through the STRS Ohio Health Care Program. A complete list of these premiums is posted on the system’s website , or can be obtained by calling STRS Ohio’s Member Services Center toll-free at 888‑227‑7877. Additional information about the 2018 Health Care Program will be provided in upcoming newsletters and on the STRS Ohio website. In late October, all plan enrollees will receive personalized health care plan information in preparation for the fall open-enrollment period that extends from Nov. 1‑21, 2017. When determining premiums, the Retirement Board and STRS Ohio staff consider the claims experience of plan enrollees, annual health care cost trend rates and administrative expenses for the program. Factors that proved favorable for 2018 rate setti...

Correthers Wins Contributing Member Board Seat; Stein, Walters Unopposed for Retired Member Seats Contributing teacher member Carol Correthers was reelected to the State Teachers Retirement Board in the 2017 election that concluded on May 1. Retired teacher member and current board chair Robert Stein, as well as retired teacher Rita J. Walters, were unopposed for the two retired teacher seats on the board. Walters will be serving her first term on the board. The terms for these three seats begin Sept. 1, 2017, and end on Aug. 31, 2021. Board members receive no compensation for service on the board other than reimbursement for actual, necessary expenses. Board Reviews Preliminary 2018 Health Care Premiums; Will Continue to Explore Options to Improve Solvency of the Health Care Fund During the May meeting of the State Teachers Retirement Board, STRS Ohio staff presented a preliminary look at health care program premiums for 2018. Staff works with health care consultants and actuaries ...

Board Votes to Reduce Future Cost-of-Living Increases to 0% to Preserve Fiscal Integrity of the System; Will Revisit Within Five Years   At the April meeting of the State Teachers Retirement Board, the board made the difficult but necessary decision to reduce cost-of-living increases granted on or after July 1, 2017, to 0% to preserve the fiscal integrity of the retirement system. Current benefit recipients’ base benefit and past cost-of-living increases will not be affected by this change. The board also agreed to evaluate — not later than the next five-year actuarial experience review — whether an upward adjustment of the cost-of-living increase is payable without materially impairing the fiscal integrity of the retirement system. The cost-of-living adjustment has a large financial impact on the pension fund because it affects both active and retired members of the system. The vote follows last month’s action to approve changes to the actuarial assumptions that are used to c...

Solvency Period for Health Care Fund Drops to 15 Years; Board Exploring Options to Preserve Plan At the March meeting of the State Teachers Retirement Board, Paul Snyder, deputy executive director — Finance and chief financial officer, presented results of Segal Consulting’s annual actuarial valuation of the Health Care Fund. The report shows the funded ratio for the Health Care Fund dropped to 63% from 74% last year. This means STRS Ohio has 63 cents on hand for every dollar needed to continue the current plan indefinitely. The valuation projects the Health Care Fund to remain solvent until 2031, a decrease of four years from last year’s valuation — and a decrease of 33 years from the 2014 valuation. The projected 15-year solvency period is an estimate ­— in actuarial terms, there is a 50% confidence level that the Health Care Fund has at least 15 years of solvency. Depending on the strength of financial markets, the amount of health care claims and whether additional funding is av...

Board Reviews Recommendations From Experience Study, Weighs Impact on Financial Condition   At the February meeting of the State Teachers Retirement Board, staff summarized the results of the experience study recently completed by the board’s actuarial consultant, Segal Consulting. An experience study is completed every five years to help the system make accurate economic and demographic assumptions used to measure the financial condition of the pension fund. The economic assumptions include the rates of inflation, salary increases, overall payroll growth and the investment return on assets. Demographic assumptions include the number of retirements, disability inceptions, withdrawals from the system and deaths among active members and benefit recipients. The results of the study showed that STRS Ohio should consider adjustments in several key areas that will have an overall negative impact on the system’s funding status. Segal’s recommendations included: lowering STRS Ohio’s...

Study Indicates Need for Benefit Plan Design Changes to Meet State Funding Requirements   During its 2017 education and planning meeting, the State Teachers Retirement Board received the results of actuarial consultant Segal Consulting’s five-year experience study. The study compares the system’s economic and demographic assumptions to STRS Ohio’s actual experience from the past five years. The study results led Segal to recommend several changes to STRS Ohio’s assumptions. These changes are projected to significantly increase STRS Ohio’s total accrued liabilities and extend STRS Ohio’s funding period well beyond the state of Ohio’s 30-year funding requirement. The pension fund would then be required to present a plan to reduce its funding period to 30 years or less.   The experience review measures economic assumptions (inflation, salary increases, overall payroll growth and investment return on assets) and demographic assumptions (retirements, disability inceptions,...

(The text below is reprinted from the news release by STRS on December 16, 2016)   Preliminary Results of Five-Year Experience Review Indicate Possible Need for Benefit Plan Design Changes At the December meeting of the State Teachers Retirement Board, actuarial consultant Segal Consulting presented the preliminary results of the experience study it is conducting for STRS Ohio. An experience study is typically completed every five years to compare the system’s economic and demographic assumptions to the actual experience. The economic assumptions include the rate of inflation, salary increases, overall payroll growth and the investment return on assets. Demographic measures include retirements, disability inceptions, withdrawals and the number of deaths among active members and benefit recipients. Segal reviews past experience and tries to determine trends to help set long-term assumptions for the future. Segal’s role is to make appropriate “best estimate” recommendations to ...

(The text below is reprinted from the news release by STRS) Board Reviews Pension Funding Status and Weighs Next Steps 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 ...

(The text below is reprinted from the news release by STRS)   Annual Pension Valuation Shows Modest Improvement, But Indicates Challenges Ahead During the October meeting of the State Teachers Retirement Board, actuarial consultant Segal Consulting presented its July 1, 2016, report of the annual pension valuation results. The valuation report measures two sets of assumptions — demographic and economic — against the retirement system’s actual experience from the past year. Demographic measures include retirements, disability inceptions, withdrawals and mortality (the number of deaths among active members and benefit recipients). Economic measures include the rate of inflation, return on assets, salary increases and payroll growth. This year’s report shows the funding period — the amount of time needed to pay off the system’s unfunded liability — decreased to 26.6 years from 28.4 years, and the funded ratio increased slightly to 69.6% from 69.3%. During the presentation, Sega...

Retirement Board Continues Detailed Review of Health Care Program The State Teachers Retirement Board dedicated a significant portion of its September meeting to the STRS Ohio Health Care Program. Earlier this year, the board identified health care funding challenges as a key area of focus for 2016–17. The presentations at the September meeting included the results of member and retiree surveys, a report on how other states provide health care coverage for retired teachers and how STRS Ohio’s plan compares to the market.   STRS Ohio’s health care program covers nearly 130,000 individuals and paid $673 million in benefits during fiscal year 2015. The Health Care Fund is valued on a calendar year basis, and as of Jan. 1, 2016, its balance was $3.26 billion; however, there is currently no dedicated source of funds for the health care program. STRS Ohio no longer allocates 1% of the 14% employer contribution to the Health Care Fund because these funds are needed to strengthen th...