Valuation Report Shows Mixed Results for Pension Fund in Fiscal Year 2020
During the October meeting of the State Teachers Retirement Board, STRS Ohio’s actuarial consultant, Cheiron, shared the results of the fiscal year 2020 pension valuation report. The report provides a detailed look at the financial and actuarial health of the pension fund. Valuation reports measure two sets of assumptions — economic and demographic — against the retirement system’s actual experience from the past year.
Economic assumptions include the return on assets, the inflation rate and the rate of salary increases and payroll growth. Demographic assumptions include retirements, disability inceptions, withdrawals and mortality (the number of deaths among active members and benefit recipients).
The health of the pension fund is most commonly measured through the funded ratio and the funding period. This year’s valuation report shows the funded ratio — the value of actuarial assets compared to the actuarial accrued liabilities (essentially, the assets on hand versus the value of the benefits expected to be paid) — improved slightly to 77.4%, from 76.1% last year when measured using the four-year actuarial smoothed value of assets. This means if STRS Ohio meets all future assumptions, including its assumed investment return rate of 7.45%, the fund has about 77 cents on hand for every dollar of benefits expected to be paid to members of the system.
The shortfall between STRS Ohio’s actuarial assets and liabilities is called the unfunded actuarial liability. During fiscal 2020, STRS Ohio’s unfunded actuarial liability decreased to $22.31 billion from $23.43 billion last year. The funding period is a measure of how long it will take to close that gap (if all future experience matches assumptions) and reach a funded ratio of 100% — when plan assets are equal to the expected benefit to be paid to the membership. This measure also improved, decreasing to 14.9 years from 16.6 years in last year’s report.
The results of the valuation report are considered mixed because investment returns have been below the assumed 7.45% rate of return during each of the last two fiscal years. The four-year actuarial smoothing method defers some of those actuarial losses to future years (to spread market volatility over a four-year window rather than a one-year “spike.”) When measured using the June 30, 2020, market value of assets, the funded ratio fell below last year’s 76.1%.
During the presentation, Cheiron shared that despite some improvement in aspects of the plan’s funded status over last year, STRS Ohio’s pension plan is still very vulnerable to future adverse experience due to:
- A 7.45% investment assumption that exceeds STRS Ohio’s investment consultant’s 10‑year expectations;
- A fixed employer contribution rate; and
- Negative cash flow that exceeds 5% of assets (benefit payments of about $7 billion during last fiscal year far exceeded contributions of about $3.4 billion).
As a result of these factors above, Cheiron noted that any consideration of benefit improvements needs a corresponding increase in plan contributions to avoid a deterioration in the plan’s financial outlook. Cheiron’s report said, “... without an additional source of funding above the current fixed statutory rate, a continued reduction of the cost-of-living adjustment to zero remains necessary.”
STRS Ohio staff estimates that the pension fund faces about a 29% chance of dropping below a 50% funded ratio in the next 10 years, primarily due to the volatility around investment returns. Cheiron expressed its desire to continue to work closely with the board and staff leading into the five-year experience review slated to begin late next year. This review will provide guidance around STRS Ohio’s economic and demographic assumptions.
Retirement Board Election Process Underway
The contributing member seat on the Retirement Board currently held by Carol Correthers will be up for election in 2021. The four-year term for this seat will begin on Sept. 1, 2021, and conclude on Aug. 31, 2025. Board members are not compensated for board service but may be reimbursed for actual, necessary expenses incurred while serving on the board.
Individuals eligible to run for this seat are current contributing STRS Ohio members, disability benefit recipients and members who have contributions on deposit at STRS Ohio. By law, STRS Ohio retirees employed in a position requiring them to make contributions to the system (commonly referred to as “reemployed retirees”) are ineligible to serve as a contributing member of the board. Individuals interested in running for this seat can request nominating petitions from STRS Ohio by calling toll-free 888‑227‑7877. STRS Ohio members will receive their ballots and voting information in April 2021 and will have through May 3 to cast their votes by mail, phone or online.
Member Education, One-on-One Counseling to Continue Online
STRS Ohio staff is continuing to offer our members one-on-one retirement counseling and group education opportunities online during the current health crisis. Members can schedule a conference through their Online Personal Account or by calling STRS Ohio toll-free at 888‑227‑7877. A list of webinars is available on the STRS Ohio website. We are not scheduling in-person appointments or sending benefit counselors around the state for in person counseling at this time, and our Columbus office remains closed to visitors for now.
STRS Ohio staff continues to provide services that our members value. Our Call Center is fully staffed each business day and many STRS Ohio services — including tax changes, bank changes and applying for benefits — can be completed through a member’s Online Personal Account. Most forms and publications are also available on this website. STRS Ohio urges all of our members to stay safe and use care to stop the spread of the coronavirus.
Retirement Board Names Chair, Vice Chair; Herrington Appointed to Board Seat
The State Teachers Retirement Board elected contributing member Robert A. McFee (Willoughby Eastlake City Schools, Lake County) as its vice chair for the current board year that runs from Sept. 1, 2020, until Aug. 31, 2021. According to Board Policy, Rita Walters, who was previously serving as vice chair, automatically moves into the position of chair. McFee and Walters assumed their new responsibilities on Sept. 1.
Claudia Herrington was appointed to the State Teachers Retirement Board jointly by the Ohio Senate president and the speaker of the Ohio House of Representatives on Nov. 5, 2020. Herrington serves as the senior director of compliance for JobsOhio, overseeing a portfolio that exceeds $800M and is an adjunct faculty member and university senator at Otterbein University. She will serve as an investment expert on the board, and her term runs through Nov. 4, 2024.
Board members receive no compensation for serving on the board other than reimbursement for actual, necessary expenses.
STRS Ohio to Stop Supporting Internet Explorer Effective Jan. 9, 2021
STRS Ohio’s website is designed to be responsive to the device that you are using — desktop, laptop, tablet or mobile phone — and should be viewed with a recent version of a supported web browser. This also enables the best functionality of the features in the Online Personal Account section of the website.
Internet Explorer is no longer the most current browser offered by Microsoft, and website visitors will not be able to access the STRS Ohio member website or its Online Personal Account section using Internet Explorer beginning Jan. 9, 2021. If you are still using Internet Explorer, please update your browser to Microsoft Edge (version 12 or later), Google Chrome (version 30 or later) Mozilla Firefox (version 27 or later), Apple Safari (version 7 or later) or Opera (version 17 or later).
STRS Ohio Earns GFOA Certificate of Achievement
The Government Finance Officers Association (GFOA) awarded STRS Ohio its Certificate of Achievement for Excellence in Financial Reporting for the system’s Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2019. STRS Ohio has received the GFOA award each year since 1990. Staff assembles financial, investment, actuarial and statistical information into one publication that meets the standards established by the GFOA to receive this recognition. STRS Ohio’s fiscal 2019 CAFR is available on the system’s website. The fiscal 2020 CAFR will be posted around Jan. 1, 2021.