(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.