Fiscal 2021 Financial Statement Audit Results in Clean Opinion
At the December meeting of the State Teachers Retirement Board, Crowe LLC reported the results of its audit of the STRS Ohio financial statements for the fiscal year ending June 30, 2021. The report showed the retirement system’s financial statements were fairly presented 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. Crowe LLC performed this independent financial audit under the oversight of the Ohio Auditor of State.
STRS Ohio’s financial statements are included in the 2021 Annual Comprehensive Financial Report (ACFR), which will be posted on the system’s website by the end of the year. In addition to the financial statements, the ACFR includes investment, actuarial and statistical information about STRS Ohio.
Cheiron Shares Initial Impressions of Five-Year Experience Review, Provides Data on Possible Benefit Improvements
The board’s actuarial consultant, Cheiron, presented its initial impressions on STRS Ohio’s current actuarial assumptions as part of its five-year experience review. The purpose of this review is to examine the economic and demographic assumptions that are used in the annual actuarial valuation and determine recommended assumptions moving forward.
Cheiron’s pension valuation report in October showed solid investment returns, coupled with pension plan changes included in 2012 pension reform legislation and in 2017, have led to funding improvements over the past decade. Following the positive pension valuation report, several board members expressed interest in exploring possible plan design changes intended to benefit both active and retired members of the retirement system. Ohio law requires the system’s actuary to assess the impact of benefit changes, and Cheiron provided a brief look at possible changes, advising it will be best prepared to assess the impact once Callan’s asset-liability study and Cheiron’s five-year experience review have been completed. The board asked Cheiron to model several possible plan changes for further review and consideration.
CEM Benchmarking Shows STRS Ohio Investment Returns and Costs Compare Favorably to Peer Funds
CEM Benchmarking, a leading global research company, presented the results of its annual Investment Cost Effectiveness Analysis to the Retirement Board. The report compared investment data for both performance and costs from more than 300 pension funds, including more than 150 U.S. pension funds. CEM results showed STRS Ohio’s net total fund return of 10.2% ranked above the U.S. public fund median of 9.5% and above the median of a subset of similar sized U.S. peer funds for the five-year period ending Dec. 31, 2020.
The study’s cost analysis shows STRS Ohio’s costs were lower than most peers due mostly to STRS Ohio’s low-cost implementation style (managing about 70% of assets in-house) and paying less than peers for similar services. The report estimated this saved STRS Ohio about $117 million in calendar year 2020.
Callan’s Quarterly Investment Performance Update Reflects Positive News
Callan LLC, one of the board’s investment consultants, shared its quarterly performance report, comparing STRS Ohio’s returns against a database of more than 200 public pension funds. Callan’s data showed that STRS Ohio investment returns for the quarter ending Sept. 30, 2021, ranked in the top 10% of the database. Likewise, STRS Ohio’s returns for the one-, three-, five-, seven- and 10-year periods ending Sept. 30, 2021, all ranked in the top 10% of Callan’s public funds database.
Callan’s update noted that STRS Ohio’s investment returns outperformed benchmark returns over each of the time periods noted above and over longer time periods as well. The report shared that STRS Ohio’s benchmark returns were typically in the top 20% of benchmark returns tracked in Callan’s database. Callan’s report also showed that STRS Ohio’s investment portfolio exhibited less risk than the median of the Callan’s public fund sponsor database for the five-year time period.
Mitigating Rate Reduced for Defined Contribution Plan and Alternative Retirement Plans
Under a formula set forth in Ohio law, the mitigating rate for the alternative retirement plans (ARP) will decrease to 2.91% from the current 4.47%. To align the ARP and STRS Ohio Defined Contribution Plan (DC), the board voted to also reduce the DC mitigating rate to 2.91%. The new mitigating rates will go into effect July 1, 2022. STRS Ohio will be communicating this information with STRS Ohio members and employers who are affected by this change.
The Retirement Board approved 62 active members and 79 inactive members for service retirement benefits.
The State Teachers Retirement Board and staff wish all of you a safe and happy holiday season!