STRS Ohio Total Fund Returns 7.13% for Fiscal Year 2019
STRS Ohio’s total fund return for the year ending June 30, 2019, was +7.13%. This follows returns of +9.57% in fiscal 2018, +14.29% in fiscal 2017 and +0.92% in fiscal 2016. Total investment assets increased by $1.1 billion during fiscal 2019 and ended at approximately $78.9 billion (after benefit payments of approximately $7.5 billion).
The fiscal 2019 return slightly trailed the assumed actuarial return of 7.45% and was just below the total investment benchmark return of 7.30%. Despite volatile markets through much of the year, STRS Ohio’s total investment return ranked in the top 20% of investment consultant Callan’s public fund sponsor database. STRS Ohio’s total investment returns also ranked in the top 10% of Callan’s public fund sponsor database for the three-, five-, seven and 10-year time periods ending June 30, 2019. Callan continues to call for lower than normal market returns over the next decade.
STRS Ohio currently manages about 70% of its assets through its in-house investment department. A report by CEM Benchmarking, a leading global research company, shows that STRS Ohio’s internal investment strategy is a key reason the retirement system has the fourth lowest investment costs in its peer group of 17 large U.S. public fund sponsors. The report showed STRS Ohio saved about $95 million in calendar year 2017 alone by using this internal management approach. A portion of compensation for STRS Ohio’s investment staff is earned through performance-based incentive (PBI) payments. Based on the investment performance for fiscal year 2019, as well as the trailing five-year period, the Retirement Board approved PBI payments totaling approximately $7.78 million at its September 2019 meeting. STRS Ohio’s fiscal 2019 investment performance was verified by ACA Performance Services and was in compliance with the CFA Institute Global Investment Performance Standards (GIPS), widely considered to be the best standard for calculating and presenting investment performance.
|STRS Ohio's Returns Over Various Time Periods|
|5-year total investment return||7.38%|
|10-year total investment return||10.44%|
|20-year total investment return||6.51%|
|30-year total investment return||8.33%|
|Current assumed actuarial rate of return||7.45%|
Fiscal 2020 Operating Budget Reflects 2.6% Increase; Fiscal 2019 Expenses Finish Under Budget
STRS Ohio’s adopted operating budget for fiscal 2020 totals about $104.4 million, an increase of about 2.6% over the fiscal year 2019 budget. Final figures for fiscal 2019 show that STRS Ohio operating expenditures were about $1,048,000 less than the operating budget approved for that fiscal year. STRS Ohio posts approved administrative expenses on its website following each board meeting.
Pension, Valuation Report Expected to Show Slight Improvement in STRS Ohio’s Funding Status
In preparation for the October meeting of the State Teachers Retirement Board, STRS Ohio staff provided some context for the annual pension valuation report that the board’s actuarial consultant, Cheiron, will present at the meeting. Preliminary estimates for the pension fund show progress continues for STRS Ohio’s funded ratio and funding period, as both are expected to show slight improvements in this year’s valuation report. The funded ratio is the value of the system’s actuarial assets compared to the actuarial accrued liabilities. Staff estimates the funded ratio will be near 76.1%. The funding period is the amount of time needed until actuarial assets match actuarial liabilities — if future experience matches the valuation assumptions. Staff estimates the funding period to be near 16.6 years.
In May 2019, the Retirement Board adopted amendments to its funding policy following several months of review and discussion. One of the funding objectives in the policy is to reach a funded ratio of 100%, noting that “At 85% or greater, the Board may consider plan changes that in the determination of the Board’s actuary do not materially impair the fiscal integrity of the system.” While the report is expected to reveal slight funding improvements, STRS Ohio staff estimates that based on the market volatility associated with the pension fund’s current investment asset mix, the fund has a greater than 25% chance of seeing its funded ratio drop to 50% (or lower) in the next decade.
Cheiron will also present its health care valuation report at the October board meeting. This report is expected to show that the health care fund remains in a solid position despite no new funding for the account. Findings from the pension and health care valuation reports will be shared in Board News, which is distributed following the meeting to all STRS Ohio members who have an email address on file with the retirement system. Board News is also posted on the system’s website.