Board Hears Positive Report From Independent Fiduciary Performance Audit
At the June meeting of the State Teachers Retirement Board, Funston Advisory Services presented findings from its independent fiduciary performance audit of STRS Ohio. The audit was commissioned by the Ohio Retirement Study Council (ORSC) and Funston was selected by the ORSC to conduct the audit.
Funston’s Chief Operating Officer Randy Miller noted:
- The Retirement Board has been effectively fulfilling its fiduciary duties of loyalty, prudence, staying informed, diversifying assets, controlling costs, compliance with laws and co-fiduciary duties.
- Overall, STRS is operationally excellent with effective operational policies and processes and is a generally well-run, high performing operation.
- STRS’ investment performance is in the top quartile of systems in the country according to CEM Benchmarking, and investment operations are excellent.
- Member Services are consistently a top performer while costs are currently lower than the average of STRS’ peers.
The full report is posted on the system’s website and includes recommendations for improvement in several areas, including governance policies and practices, organizational structure and stakeholder engagement. The board will have follow up sessions to review the audit recommendations in more detail.
Board Approves Health Care Premiums for 2023; 96% of Current Enrollees Will Have Lower Premiums
The Retirement Board approved health care premiums for the 2023 plan year that will result in lower premiums for about 96% of plan enrollees. STRS Ohio staff shared that premiums will be at least $20 lower per month for about 104,000 current plan enrollees. The lower cost is due to a board-approved increase in the health care subsidy, lower-than-expected health care claims and increased revenue from the Center for Medicare & Medicaid Services for STRS Ohio’s Medicare Advantage plans.
Report Shows STRS Ohio Investment Returns in Top 10% of Public Peer Funds
The Retirement Board’s investment consultant, Callan LLC, reported that STRS Ohio’s investment returns for the one-, three-, five-, seven- and 10-year time periods ending March 31, 2022, ranked in the top 10% of Callan’s public fund sponsor database of more than 200 public funds. Callan said STRS Ohio also outperformed its benchmark for each of these time periods. On a risk/return basis, Callan said STRS Ohio’s portfolio for the five-year period ending March 31, 2022, exhibited less risk than the median fund in the database and outperformed 95% of its peers.
Board Names Chair, Vice Chair
According to Board Policies, Carol Correthers (Lorain City Schools, Lorain County), who is currently serving as the board vice chair, automatically moves into the position of chair on Sept. 1, 2022. The Retirement Board elected contributing teacher member Dale Price (Toledo Public Schools, Lucas County) as its vice chair effective Sept. 1. Board members receive no compensation for serving on the board other than reimbursement for actual, necessary expenses.
Board Adopts Fiscal 2023 Investment Plan, Approves PBI Plan for Fiscal 2023
STRS Ohio Investment staff presented its Fiscal 2023 Investment Plan to the board. The plan details the investment strategy for each asset class in the system’s portfolio. The board’s external investment consultants, Callan LLC and Cliffwater LLC expressed their support for the plan. The Fiscal 2023 Investment Plan projects returns for the upcoming year to be at or near STRS Ohio’s 6.03% policy objective. STRS Ohio will post the plan on its website in early July.
In other investment news, the board reviewed and approved the Performance-Based Incentive (PBI) Program for fiscal 2023 for eligible Investment associates. Incentive plans are common among large pension plans with a significant portion of assets managed internally. STRS Ohio manages nearly 70% of assets internally, and CEM Benchmarking has reported that STRS Ohio’s approach saved the system more than $100 million in 2020.
Board Adopts Fiscal 2023 Operating, Capital Budgets
The Retirement Board voted to adopt system budgets for fiscal 2023 (July 1, 2022–June 30, 2023). The approved fiscal 2023 operating budget totals $112.5 million. The approved capital budget for fiscal 2023 totals $7.9 million. Combined, the fiscal 2023 capital and operating budgets are about 3.4% higher than fiscal 2022. STRS Ohio staff shared these budgets with the Ohio Retirement Study Council at its May meeting.
The operating budget reflects 521 full-time equivalent associates, a net reduction of nine positions from the current year. The budget includes a 3% increase for merit-based wage adjustments, including promotions (staff does not receive step, COLA or automatic salary increases). Fiscal 2023 includes 27 pay periods, instead of the usual 26. This anomaly occurs every 10–11 years, resulting from STRS Ohio being a bi-weekly payroll employer.
The Retirement Board approved 474 active members and 59 inactive members for service retirement benefits.
Other STRS Ohio News
STRS Ohio issues RFP for private market fee validation services and third-party administrative services
STRS Ohio staff finalized a request for proposal (RFP) to obtain fee validation and third-party administrative services for private funds within our alternative investment and real estate portfolios. The RFP is seeking to contract with one or more firm(s) to provide fee validation services (including the collection, tracking and validation of fees, expenses and carried interest associated with private market investments), and third-party administrative services (including back office, accounting and reporting services). STRS Ohio looks forward to taking this next step in support of its fee transparency efforts and enhanced governance process.