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, 2016, was +0.92%. The return beat the total fund benchmark by 0.25%. The system’s active management of the funds, rather than relying on index funds, added approximately $85 million in value after all investment costs during the fiscal year.
The 0.92% return was consistent with staff’s annual plan forecast of moderate, positive returns. This follows returns of +5.45% in fiscal year 2015 and +16.83% in fiscal 2014. The value of investment assets as of June 30, 2016, was $69.9 billion.
|Assumed actuarial rate of return||+7.75%|
|5-year total fund return||+7.66%|
|10-year total fund return||+6.06%|
|20-year total fund return||+7.16%|
|25-year total fund return||+8.02%|
|30-year total fund return||+8.40%|
The Retirement Board’s investment consultant, Callan Associates, began STRS Ohio’s asset-liability study with a presentation that covered the timeline for the study and included some long-term capital market projections. STRS Ohio conducts an asset-liability study every five years with the primary objective of determining reasonable investment risk and return expectations. Callan expects the study to consist of three phases: 1) a review of STRS Ohio’s current investment program; 2) building an integrated asset-liability model; and 3) developing the asset-liability results and the board selecting an appropriate asset mix. Callan projects the study to be completed by March 2017.
Callan also reviewed its capital market projections for 10- and 30-year time horizons. Callan shared that it’s reasonable to expect STRS Ohio’s current asset mix to achieve an 8% return in its very long-term outlook for the capital markets (30-years), but the 10-year return projection is below STRS Ohio’s assumed rate of 7.75%. In the months ahead, Callan will work with STRS Ohio and its actuary to integrate the results of the upcoming actuarial valuation into the asset-liability model. The board will review these results with Callan at its December meeting.
The Retirement Board continues to closely monitor the financial condition of the pension and health care funds. In addition to the asset-liability study mentioned above, STRS Ohio will also work this fall with its actuary, Segal Consulting, on a five-year experience review. This is a study that evaluates the economic and demographic assumptions that are used in the valuation of the Defined Benefit Plan’s assets, liabilities and funding requirements. STRS Ohio Executive Director Michael Nehf shared a timeline with the board that outlines when consultants will complete various phases of the studies and make presentations to the board.
In September, the board meeting is scheduled over two days, Sept. 15–16, to allow for an in-depth presentation on health care. The health care discussion will begin on Sept. 15 in the afternoon and will resume in the morning on Sept. 16. The board is expected to review the results of active member and retiree surveys that are currently being conducted, and will explore potential options for the future of the health care program.
Final figures for fiscal year 2016 show that STRS Ohio’s operating expenditures were approximately $660,000 less than the amended operating budget approved by the board in the spring. Administrative expenses totaled $95.3 million for the fiscal year that ended June 30, 2016. Each month, STRS Ohio posts approved administrative expenses on its website.
The Retirement Board approved 762 active and 190 inactive members for service retirement benefits.