During the April meeting of the State Teachers Retirement Board, members of the board discussed steps that STRS Ohio could consider to reduce the investment rate of return volatility for the Health Care Fund. STRS Ohio’s health care valuation report, presented by Segal Consulting at the February board meeting, showed a Health Care Fund balance of $3.69 billion. Segal said strong investment returns and good claims experience had a positive effect on the Health Care Fund. In addition, limiting the subsidy increase for Medicare enrollees to 6% and freezing the subsidies for non-Medicare enrollees significantly improved the funded status.
STRS Ohio staff shared potential pros and cons of lowering the investment risk in the Health Care Fund portfolio. Staff shared that with no current employer funding, the Health Care Fund is more susceptible to the economic cycle, and reducing investment risk means reducing the severity of possible negative investment return outcomes. However, reducing investment risk would also reduce some potential gains if investment markets continue to climb significantly beyond current levels.
The board reviewed models of potential investment returns based on the current asset mix for the fund as well as examples based on a “reduced risk” portfolio. The board indicated it will continue its discussion on the Health Care Fund at future meetings.
The Finance Department proposed system budgets for the 2019 fiscal year (July 1, 2018–June 30, 2019) during the April board meeting. The proposed operating budget totals $101.7 million, an increase of 2.2% over the fiscal 2018 budget. The proposed fiscal 2019 budget reflects 538 full-time equivalent associates, down from 544 in the current year and marking the fifth consecutive year of headcount declines. The proposed budget projects a 2.2% increase in the Salaries and Wages category, and includes an increase in costs for quotation and analytic services. The proposed capital budget for 2019 totals $4.2 million, an increase of 26.9% from the current year’s budget as the system plans to recap the roof on the North Building.
Expense information is posted on STRS Ohio’s website each month, and detailed payments by vendor are also uploaded to Ohio Treasurer’s Open Checkbook site.
The Retirement Board approved 68 active members and 101 inactive members for service retirement benefits.
CEM Benchmarking released the results of its annual Pension Administration Benchmarking report for fiscal year 2017 activity, and for the third year in a row, STRS Ohio received the top service level score. The survey benchmarked 45 participating pension systems, primarily from the United States, Canada and Scandinavia. STRS Ohio’s service level score was 94, compared to the median score of 80. STRS Ohio earned the highest service level score for Pension Payments, Call Center, One-on-one Counseling, Pension Estimates, Disaster Recovery and Website. This is the 20th year STRS Ohio has participated in the benchmarking study and the 10th time the system received the top score.
While the service level was at the top, the administrative cost per active member and annuitant decreased to $105 from $107. STRS Ohio’s administrative costs measured in the survey continue to trend lower, while costs for the peer group have increased. The reduction in administrative costs have been primarily driven by staff reduction that reflects the increased usage of online applications and a reduction in retirements, counseling sessions and purchasable service activity.