Fiscal 2019 Financial Statement Audit Results in Clean Opinion
At the December meeting of the State Teachers Retirement Board, CliftonLarsonAllen reported the results of its audit of the STRS Ohio financial statements for the fiscal year ending June 30, 2019. The report showed that the retirement system’s financial statements were fairly stated in accordance with generally accepted accounting principles and the firm found no instances of noncompliance nor any material weaknesses in internal controls. As a result, STRS Ohio received an unmodified or “clean” opinion — affirming the financial information prepared by STRS Ohio.
STRS Ohio’s financial statements are included in the 2019 Comprehensive Annual Financial Report, which will be posted on this website by Dec. 27, 2019. In addition to the financial statements, the report includes investment, actuarial and statistical information about STRS Ohio. This report can also be requested by calling STRS Ohio’s Member Services Center toll-free at 888‑227‑7877.
CEM Benchmarking Study Shows STRS Ohio Has Top Quartile Investment Returns, Low Investment Costs Compared to Peers
CEM Benchmarking, a leading global research company, presented the results of its annual Investment Cost Effectiveness Analysis Report to the Retirement Board. The report compared investment data — both performance and cost data — for the five-year period ending Dec. 31, 2018, from more than 300 global pension funds. The study revealed that STRS Ohio’s five-year total net return of +6.25% placed in the top 25% of CEM’s U.S. public fund universe. STRS Ohio’s top quartile performance was primarily due to its asset mix, which had a higher weighting in one of the better performing asset classes over the past five years (U.S. stocks) and a lower weighting in one of the weaker performing asset classes during this time period (fixed income).
The report also noted that STRS Ohio’s investment costs were second lowest in its peer group of 17 large U.S. public funds for calendar year 2018. This is primarily due to STRS Ohio’s low cost implementation style (managing about 70% of assets in-house) and the report found STRS Ohio paid less than peers for similar services. The report estimated STRS Ohio saved about $107 million in calendar year 2018 by using the internal management approach. This figure is based on the peer group’s median external management costs and is greater than STRS Ohio’s entire operating budget for fiscal year 2020 ($104.4 million).
The Retirement Board’s investment consultant, Callan, also reviewed its quarterly performance report at the December board meeting. This report showed STRS Ohio’s investment returns ranked in the top 10% of Callan’s public fund sponsor database for the three-, five-, seven- and 10-year periods ending Sept. 30, 2019, and exceeded the benchmark returns for these time periods.
Cheiron Discusses STRS Ohio’s Economic Assumptions
The Retirement Board’s actuarial consultant, Cheiron, reviewed several of STRS Ohio’s economic assumptions and discussed with the board some recent trends in the pension fund industry. Cheiron pointed out that STRS Ohio’s assumed investment return of 7.45% (comprised of a 2.5% inflation rate and a real rate of return of 4.95%) is slightly higher than most plans of its size and that most investment consultants have been lowering their long-term return expectations. Cheiron also noted that STRS Ohio’s assumed rate of inflation is slightly lower than most public plans. STRS Ohio has exceeded its current 3% payroll growth assumption in each of the past three fiscal years.
STRS Ohio conducts a complete experience review every five years, with the next review expected to be completed in 2022. The experience review measures the system’s economic and demographic assumptions versus the actual experience from the past five years. Economic assumptions include the rate of inflation, salary increases, overall payroll growth and the investment return on assets. Demographic measures include retirements, disability inceptions, withdrawals and the number of deaths among active members and benefit recipients.
The Retirement Board approved 54 active members and 61 inactive members for service retirement benefits.
Other STRS Ohio News
STRS Ohio earns Public Pension Standards Awards
STRS Ohio received the Public Pension Standards Awards for both Funding and Administration for 2019 from the Public Pension Coordinating Council (PPCC). PPCC is a confederation of the National Association of State Retirement Administrators, the National Conference on Public Employee Retirement Systems and the National Council on Teacher Retirement. The awards recognize public pension plans that meet key standards in several assessment areas, including actuarial, audit, benefit programs and communications.
The State Teachers Retirement Board and staff wish all of you a safe and happy holiday season!