(The text
below is reprinted from the news release by STRS on 6/15/12.)
Retirement Board
Chair, Vice Chair Named
During its
June meeting, the State Teachers Retirement Board elected Dale Price (Toledo
Public Schools, Lucas County) as its vice chair for the coming year. According
to Board Policies, Mark Hill (Worthington City Schools, Franklin County), who
is currently serving as vice chair, automatically moves into the position of
chair. Hill and Price will assume their new responsibilities on Sept. 1, 2012.
Retirement Board Accepts the Annual Investment Plan
The
Retirement Board voted to accept the Investment Plan for fiscal year 2013 (July
1, 2012–
June 30, 2013). The plan details staff's
investment strategy for each asset class comprising the system's investment
fund.
STRS Ohio
staff expects only modest growth in the capital markets during fiscal year
2013. With the threat of global debt problems having a harmful effect on the
markets, STRS Ohio will continue to closely monitor markets to assess the risk
levels. Investment associates expect interest rates to rmain low
throughout the fiscal year. Staff will also begin to implement the recently
completed STRS Ohio asset-liability study — consistent with the phased-in
target weights. The new asset mix for the system's total fund will be a
slightly higher risk-return portfolio with a decrease in broad U.S. equity
holdings and modest increases in the international equity, private equity and
opportunistic/diversified portfolios. Staff will also continue to monitor the
progress of pension reform legislation. If reform changes are not promptly
implemented, a more conservative portfolio would be recommended to meet the
system's liquidity needs to pay benefits, as the asset-liability study noted.
A memo to the
board reported that market volatility in late May/early June has somewhat
changed market values, interest rates and expected returns in the Investment
Plan. Staff will evaluate the need to issue an addendum to the annual
Investment Plan once market levels are set on June 30, 2012.
In early July
2012, the Fiscal 2013 Investment Plan will be posted on the STRS Ohio
website. A copy of the plan
can also be requested by calling STRS Ohio's Member Services Center toll-free at1-888-227-7877.
Fiscal Year 2013 Budgets Adopted
The
Retirement Board adopted the proposed budgets for fiscal year 2013 (July 1,
2012–June 30, 2013). The operating budget totals $90,513,400, which represents
an increase of less than 1% over this year's operating budget. STRS Ohio's
operating budgets have remained relatively flat for the past three fiscal
years. The capital budget for fiscal year 2013 totals $1,845,700.
Throughout
the fiscal year, the Retirement Board reviews each month's expenditures and
year-to-date expenditure totals as part of its regular meetings. The
information is also posted on STRS Ohio's website for members to view.
Retirement Board Approves Health Care Premiums for 2013
The
Retirement Board approved the 2013 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 1-888-227-7877. Additional information about the 2013 Health
Care Program will be provided in upcoming newsletters and on the STRS Ohio
website. In late October, all current enrollees will also receive personalized
health care plan information in preparation for the fall open-enrollment
period, which extends from Nov. 1–Nov. 20, 2012.
In
determining premiums, annual health care cost trend rates, as well as the
claims experience of plan enrollees, are taken into consideration. Plan changes
approved by the board in April offset the increased costs associated with trend
for most enrollees. Most benefit recipients, however, will see an increase in
premiums due to reductions in the years of service subsidy approved in 2011.
Callan Associates Addresses STRS Ohio's Performance-Based Incentive Plan
The
Retirement Board's investment consultant, Callan Associates, provided input on
STRS Ohio's recently revised Performance-Based Incentive (PBI) Program for
eligible Investment associates. Callan noted that for STRS Ohio to meet its
long-term obligations, the fund must take on market risk and invest in
securities rather than simply in cash. Callan added that STRS Ohio has to pay
internal or external managers to invest these funds, and that STRS Ohio
currently manages about 75%–80% of its assets internally. Callan's 2011
Investment Management Fee Survey indicates STRS Ohio's investment expenses are
$117 million lower than what the average fund sponsor would spend to manage the
same assets. In addition, a CEM Benchmarking study for 2010 estimates that STRS
Ohio would spend about $100 million more than its current investment expenses
if the fund chose to manage all of its assets with external investment managers.
In April, the
Retirement Board adopted a revised PBI Program that will take effect in fiscal
year 2013 for eligible Investment associates. Associates who are eligible for
the PBI Program have a compensation plan comprised of a base-pay component and
a variable or "at risk" component that is paid only when certain
performance levels are achieved. The new PBI Program:
·
Revises
the current 100% "cutback" provision when total fund returns for a
given year are negative, with a graduated reduction dependent on the level of
negative returns; and
·
Implements
an additional cutback provision when the smoothed actuarial return is below
7.75%; and
·
Removes
the reduction to incentives paid if the total asset level is below $65 billion
at the end of a fiscal year; and
·
Eliminates
the incentive enhancement factor that provided a larger incentive when returns
exceeded certain thresholds.
The board and
staff are expected to continue to study compensation for Investment associates
during the upcoming fiscal year.
Retirements Approved
The
Retirement Board approved 935 active members and 101 inactive members for
retirement.
Other STRS Ohio News
Pension Legislation Waiting for House Action
In May, the
Ohio Senate passed legislation that would incorporate the recommendations from
the State Teachers Retirement Board designed to strengthen the financial
condition of the pension fund. Sponsored by Senate President Tom Niehaus (R-New
Richmond) and Senate Minority Leader Eric Kearney (D-Cincinnati), Sub. Senate
Bill 342 moved quickly once introduced and passed the Senate on May 16 by a
vote of 31–2.
The next step
in the process for the bill to become law is for the Ohio House of
Representatives to either commence hearings on Sub. S.B. 342 or restart
hearings on House Bill 69. H.B. 69 was introduced by Rep. Lynn Wachtmann
(R-Napoleon) in early 2011 and was heard fairly extensively in a subcommittee
of the House Health and Aging Committee just after introduction. In the
interim, the Ohio Retirement Study Council (ORSC) hired a consultant to review
the recommendations submitted to the legislature by the five retirement
systems. The report is scheduled to be submitted to the ORSC in July. The House
is not expected to act on legislation before the consultant issues a report.
Updated Retirement Benefit Calculator Available on
STRS Ohio Website
STRS Ohio
updated a valuable tool for members to use when planning for retirement. The
retirement benefit calculator on STRS Ohio's website can now calculate
retirement projections for Aug. 1, 2015, and later — based on the board-approved
pension reform proposal reflected in Sub. S.B. 342. In addition to calculating
the 2.2% multiplier and five-year FAS, the calculator allows members to measure
how they will be affected if they choose to retire during an early retirement
window with the newly proposed reduction factors.