Investments and Financial News Update

Study Shows STRS Ohio Investment Returns Rank in the Top 10% While Investment Costs Remain Low

In March, CEM Benchmarking, a leading global research company, shared the results of its annual Investment Cost Effectiveness Analysis Report. The report compared investment data — both performance and cost data — from more than 300 pension funds, including about 150 U.S. pension funds. The study showed that for the five-year period ending Dec. 31, 2019, STRS Ohio’s net total fund return of 8.2% placed in the top 10% of CEM’s database. The report said STRS Ohio’s performance was due in part to having a higher allocation to one of the better performing asset classes of the past five years (U.S. stocks) and a lower allocation to one of the weaker performing asset classes during this time span (fixed income).

The report also noted STRS Ohio’s active management of pension fund assets, rather than relying exclusively on passive management, added an estimated $900 million in value to the fund during the five-year period. 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 STRS Ohio saved about $115 million in calendar year 2019 by using the internal management approach. This figure is based on the peer group’s median external management costs.

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Retirement Benefit Can Be Affected by Final Average Salary Limits

Are you planning on retiring in the next several years and considering taking on additional duties to increase your salary? STRS Ohio wants you to know there are limits on earnings that are used to calculate the final average salary (FAS) that is included in the retirement benefit formula.

The FAS is the average of your five highest years of earnings, but it is subject to certain limits required by law to help ensure that members’ retirement benefits have been properly funded. If you work extra duties, it may benefit you by providing extra salary during your working years but may not increase your FAS at retirement. Don’t let FAS limitations catch you by surprise. Your FAS will be limited if the extra earnings you receive cause the percentage increases in your two highest years of earnings to be greater than the increases in the three years that immediately precede the earlier of the two highest years. Compensation for a partial year of service may also be limited.

Examples of extra duties in the two highest years of earnings that may trigger a limit to your FAS include:

  • Accepting a supplemental contract, summer school teaching (K–12) or summer session (college and university).
  • Assuming extra duties that required working extra days or hours.
  • Working additional duties for three years, but not teaching through the last day of the school year in the last year.
  • Performing services for the school district for years with no pay and then getting paid for those duties only in the last year, last two years or last two years and a partial year.
  • Receiving a supplemental contract for services performed as a mentoring teacher as part of the licensing requirement for teachers in your district.
  • Working overload assignments in addition to your regularly salaried employment, even if that was required.
  • Accepting new employment or more pay in a position covered by the Ohio Public Employees Retirement System or the School Employees Retirement System in addition to your employment covered by STRS Ohio.
  • Accepting an interim or short-term position that results in a significant increase in pay.
  • Accepting a new part-time position with another STRS Ohio-covered employer.

These are some of the more common reasons for FAS limits, but they are not the only examples. Please note — while all of these earnings may not be included in your FAS, at least a portion of the earnings are included in many cases, which could result in a higher FAS than if the extra duties had not been performed.

Please be sure to discuss your retirement with an STRS Ohio benefits counselor at least twice before retirement. If you earn additional amounts beyond your contract for regular teaching duties, you should talk with a counselor at least four years before you retire. Also, if you do not plan to work through the last day of your contract in your last year of teaching, be sure to discuss this plan with a benefits counselor before your retirement. For more information or to schedule a counseling session, call STRS Ohio toll-free at 888‑227‑7877.

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