STRS Ohio Investment Returns Weather Bumpy Start to 2018
During the February meeting of the State Teachers Retirement Board, STRS Ohio Investment staff provided an update on total fund performance. Following a positive year in calendar year 2017 when the total fund returned 15.9%, stock market returns have been erratic so far in 2018. STRS Ohio operates on a July 1–June 30 fiscal year and staff provided the following fiscal year performance updates to the board:
- Through Jan. 31, the total fund return was about +10.4%.
- The total fund return through early February decreased to about +6% (market correction).
- Fiscal year to date, the total fund return is about +7.5% (reflects recent market rebound).
Staff indicated that total fund returns have been positive for each of the past 15 months, so the market correction that has taken place over the past two weeks is not surprising. Even with that correction, STRS Ohio’s fiscal year-to-date return has the fund within range to meet its assumed rate of return of 7.45% by the fiscal year end on June 30, assuming markets stabilize. STRS Ohio’s total fund assets are allocated among the following asset classes: liquidity reserves, fixed income, U.S. and international stocks, real estate and alternatives.
Member Survey Results Reveal Impressions of STRS Ohio
The Retirement Board reviewed the results of the 2017 membership survey conducted October through early November 2017 with active educators and retirees of the system. Key findings from the survey results included:
- More than nine out of 10 retirees and about eight out of 10 active members have positive overall impressions of STRS Ohio.
- Compared with last year, fewer active members (61%) consider the pension they expect to receive an excellent/good value considering the amount they contributed to the system, while 86% of retirees consider their pension an excellent/good value.
- Most retirees (85%) and active educators (72%) feel STRS Ohio has earned the trust and confidence of its members.
- Most members continue to be satisfied with STRS Ohio communications — including email updates — with about eight out of 10 active members and nine out of 10 retirees indicating that STRS Ohio keeps them well-informed about pension- and retirement-related issues.
- 75% of active educators are setting aside additional savings for retirement — in addition to their retirement plan with STRS Ohio and the money they’re saving for health care.
- More than nine out of 10 retiree households have at least one source of income in addition to their STRS Ohio pension. Investments and spouse’s pension are the most common forms of additional income. On average, STRS Ohio provides 58% of retirees’ household income.
Segal Consulting Presents Update on Health Care Fund Status
STRS Ohio’s actuarial consultant, Segal Consulting, presented the results of its annual actuarial valuation of the Health Care Fund. The report shows that plan design changes, strong investment returns and good claims experience had a positive effect on the fund in calendar year 2017. Costs for the health care program are paid out of the Health Care Fund, which is currently funded through premiums charged to enrollees, government reimbursements and investment earnings on these funds. The Health Care Fund is valued on a calendar-year basis, and during 2017 the fund earned a 15.8% rate of return. The fund balance as of Jan. 1, 2018, was $3.69 billion — an increase of about $470 million more than the $3.22 billion reported in the Jan. 1, 2017, valuation. Segal said assuming the fund earns 7.45% in all future years and all other plan experience matches assumptions, the fund is now projected to remain solvent for all current members.
Recent plan design changes — freezing the current health care subsidy for non-Medicare enrollees and capping future subsidy increases at 6% for Medicare enrollees — had the biggest impact on the funding improvement. The valuation also showed that benefit payouts for 2017 totaled $517 million, an average of more than $1.4 million per day.
The positive news for the Health Care Fund is tempered somewhat by the volatile nature of various components of the health care valuation report. Examples of these components include investment returns, government subsidies and rebates, plan enrollment and utilization, and Affordable Care Act taxes. These were areas that led to gains for the Health Care Fund in 2017, but are not predictable and may not necessarily be positive for 2018 and beyond.
The Retirement Board approved 151 active members and 166 inactive members for service retirement benefits.
Other STRS Ohio News
New federal tax withholding began with February benefit payments
In mid-January, the IRS published revised withholding tax tables that were included in the 2018 Tax Cuts and Jobs Act passed by Congress in late December. The new tables were updated in STRS Ohio’s pension administration system to reflect the new tax
rates. The impact on the federal tax withholdings for benefit recipients was significant, with a monthly decrease of approximately $12 million, or 16% of the $75 million that was withheld in the prior month. Of STRS Ohio’s 160,000 benefit recipients, about 88% had less tax withheld and about 12% saw no change. About 30 individuals experienced a tax withholding increase.
Mayerfeld reappointed to four-year term
Treasurer of State Josh Mandel announced his reappointment of Yoel Mayerfeld to the State Teachers Retirement Board. Mayerfeld is the Co-CEO of Chase Properties, where he is active on its investments committee. He was first appointed to the board in July 2012, and his term on the Retirement Board will end on Jan. 7, 2022.