(The text below is reprinted from the news release by STRS.)
Retirement Board Will
Continue to Share Potential Funding Improvements With Stakeholders
At
its February meeting, the State Teachers Retirement Board reviewed several
options to reduce the amortization period for the pension fund and agreed that
STRS Ohio will continue to involve stakeholders in the process of considering
plan revisions. STRS Ohio is required by law to amortize its unfunded
liabilities over a period of not more than 30 years. Since STRS Ohio’s current
funding period is 40.2 years, the system is required to submit a board-approved
plan to the Legislature to reduce the funding period to 30 years. The plan was
submitted on Feb. 21.
The
plan reviewed the significant impact that pension reform legislation had on the
pension fund. STRS Ohio’s July 1, 2013 pension valuation shows pension reform
reduced STRS Ohio’s unfunded liabilities by $15.7 billion and improved the
system’s funded ratio to 66.3%. The reforms also reduced the system’s funding
period from infinity, but have not yet resulted in a 30-year amortization
period.
The
valuation also showed that STRS Ohio has a net $2.8 billion in unrecognized
investment gains being deferred to future years. The $2.8 billion reserve is
due to the four-year smoothing method that spreads investment market volatility
over four-year periods. The remaining gains since 2011 reflect stronger investment
returns than the 7.75% assumed rate. The plan sent to legislators explains
investment gains from 2011–2014 to be factored into this year’s valuation,
along with strong returns thus far in the current fiscal year, should have a
positive impact on the pension fund. STRS Ohio’s actuary projects that if the
current year investment returns hold until June 30, the valuation for the
fiscal year ending June 30, 2014, will show about a four-year reduction in the
amortization period.
The
board-approved plan stated that STRS Ohio is continuing to share information
about potential funding improvements with stakeholder groups, noting that
constituent support was key in the pension reform process in 2012. The board is
considering several options to reduce the amortization period. One option
discussed by the board at its meetings in January and February was directing
all or part of the one percent of employer contributions that now help fund the
STRS Ohio Health Care Fund into the pension fund. Directing the full one percent
employer contribution to the pension fund beginning July 1, 2014, is projected
to reduce the amortization period by about four years. STRS Ohio’s actuary
projects this move, coupled with the smoothed gains from strong investment
returns, would result in an amortization period of about 32 years and put STRS
Ohio on track to reach a 30-year amortization period in the time frame that was
projected when pension reform legislation was passed in 2012. 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 one percent 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.
STRS
Ohio’s plan also notes that the Retirement Board is continuing to study a
funding policy to help guide funding decisions and will continue to use annual
valuation reports to monitor the strength of the pension fund. Executive
director Michael Nehf will present the plan to the Ohio Retirement Study
Council at its March meeting.
Health Care Funding
Status Improves Slightly in 2013
Strong
investment returns and changes in plan costs provided an improving financial
picture for STRS Ohio’s Health Care Fund as of Jan. 1, 2014. During the
February board meeting, the Retirement Board’s actuarial consultant, Segal
Consulting, presented the results of the annual actuarial valuation of the
fund. The projected life of the fund now extends to 2063 — an increase of about
three years from last year’s valuation.
Costs
for the health care program are paid out of the Health Care Fund, which is
currently funded through premiums charged to enrollees, 1% of payroll from
employer contributions, government reimbursements and investment earnings on
these funds. The balance in the fund as of Jan. 1, 2014, was $3.47 billion.
While
the report showed improved solvency, the health care program still requires
changes in coverage features, program eligibility and/or premium subsidies to
reach the three primary goals set by the board. Those goals include
establishing Medicare as the health care program’s cornerstone, achieving 30
years of solvency for the health care program by 2016 and extending forecasted
solvency to 65 or more years by 2025.
Board Receives 2013
Member Survey Results
More
than 90% of STRS Ohio members continue to have positive overall impressions of
STRS Ohio, according to the results of a membership survey conducted in
November 2013.
At
the February board meeting, Dr. Marty Saperstein presented the findings of the
annual membership survey. Dr. Saperstein’s Columbus-based research firm,
Saperstein Associates, conducted interviews with 603 randomly selected
participants (302 active members and 301 retirees). Key takeaways from the
presentation included:
·
A
majority of active members and retirees believe the pension system is
financially sound and consider their pension an excellent or good value.
·
A
declining number of active members consider themselves likely to enroll in the
STRS Ohio Health Care Program when they retire.
·
Most
members are satisfied with communications, and there is increasing interest in
Web-based communications and services.
·
51%
of active members plan to teach longer than they originally thought, and the
most important reason is due to the changes brought about by the 2012 pension
reform legislation.
·
More
than nine out of 10 retiree households have at least one source of income in
addition to their STRS Ohio pension, and on average, STRS Ohio provides about
58% of retirees’ income.
Retirements Approved
The
Retirement Board approved 378 active members and 244 inactive members for
service retirement benefits.
Other STRS Ohio News
Markets deliver strong
returns in 2013
Preliminary figures show that the STRS Ohio Total Fund return for calendar year 2013 is estimated at 17.4%. The first six months of the calendar year were already reported as part of the fiscal year 2013 return (+13.7%). The preliminary fiscal year 2014 Total Fund Return as of Dec. 31, 2013 was +10.2%, and the market value of assets stood at $72.3 billion.
Preliminary figures show that the STRS Ohio Total Fund return for calendar year 2013 is estimated at 17.4%. The first six months of the calendar year were already reported as part of the fiscal year 2013 return (+13.7%). The preliminary fiscal year 2014 Total Fund Return as of Dec. 31, 2013 was +10.2%, and the market value of assets stood at $72.3 billion.