(The text below is reprinted from the news release by STRS.)
Board Discusses Options to Reduce Amortization Period for the Pension Fund
During the State Teachers Retirement Board’s annual retreat,
board members reviewed several options to reduce the retirement system’s
funding period. Ohio law requires the statewide retirement systems to amortize
unfunded liabilities over a period of not more than 30 years, otherwise they
must submit a board-approved plan to the Legislature to reduce the funding
period to 30 years. STRS Ohio’s current funding period is 40.2 years.
Pension reform laws passed in 2012 reduced STRS Ohio’s
accrued liabilities by $15.7 billion and improved the system’s funded ratio to
66.3% from 56.0%. These reforms also reduced the retirement system’s funding
period from infinity — but have not yet resulted in a 30-year amortization
period. The board-approved plan to reach the 30-year target is due to the Ohio
Legislature Feb. 21.
During the funding discussion, the board learned that investment
gains from 2011–2014 to be factored into this year’s valuation should reduce
the amortization period. Actuarial projections indicate that if investment
gains thus far in fiscal year 2014 hold through June 30, the amortization
period could be reduced by as much as four years. Other projections that were
reviewed by the board include:
· The impact of moving all or part of the 1% of
employer contributions that now help fund the STRS Ohio Health Care Program,
into the pension fund;
· The impact of a 1% increase in the mitigating
rate paid by active participants in STRS Ohio’s Defined Contribution Plan, as
well as college and university educators who participate in an alternative
retirement plan. The retirement system would need actuarial support to make
this change; and
· The impact of a one-year freeze in the annual
cost-of-living adjustment paid to current benefit recipients.
Of these considerations, directing the 1% employer
contribution to the pension fund — rather than the health care fund — would
have the biggest impact on the amortization period. If the entire 1% is
directed to pensions, the amortization period would be reduced by about four
years. Such a move would shorten the projected life of the Health Care Fund to
about 20 years; however, the board has authority to direct the 1% back to the
Health Care Fund in the future, and to make “catch up” payments to the Health Care
Fund once the financial condition of the pension fund improves. The Retirement
Board will learn more about the strength of the Health Care Fund during the
February board meeting when it is scheduled to receive the 2013 health care
valuation report. The board is expected to approve a plan to reach a 30-year
amortization period for the pension fund before Feb. 21.
Segal Addresses Coding Error in Pension Valuation Report
Representatives from Segal
Consulting met with the State Teachers Retirement Board to address the coding
error in the pension valuation report that was delivered to the board in
November. Segal’s error miscalculated future member contributions and the time
it will take to pay off the system’s unfunded actuarial liabilities. The
corrected valuation report shows STRS Ohio’s funding period now stands at 40.2
years, rather than 36.1 years that was previously stated in Segal’s November
report. During the Retirement Board’s annual retreat, Segal’s senior-level
executives shared how the error occurred, how it was identified and the
additional safeguards now in place to prevent this from occurring in the
future. Board members questioned Segal on issues surrounding the error and were
attentive to the consultant’s responses. The error did not impact the system’s
assets and does not affect STRS Ohio’s ability to pay benefits. Segal is
scheduled to deliver results of the 2013 health care valuation report at the
February board meeting.