January Board News

Gavel

The State Teachers Retirement Board held a special meeting on Jan. 27 to receive presentations and discuss two topics — the ongoing asset-liability study and the actuary’s update on possible benefit improvements.

Cheiron Shares Insights on the Impact of Possible Benefit Improvements

The board’s actuarial consultant, Cheiron, presented the board with updates to the impact of possible plan design changes intended to benefit both active and retired members of the retirement system. This was a follow up to the presentation made at the December 2021 board meeting when the board asked Cheiron to model several possible plan changes for further review. Ohio law requires the system’s actuary to determine if proposed benefit changes would materially impair the fiscal integrity of the retirement system.

Cheiron reviewed a range of plan design changes for the board’s consideration. The board expressed interest in one option that included a 2%, one-time cost-of-living adjustment (COLA) for benefit recipients who are eligible for a COLA and a change to the current age and service eligibility requirements for active members, which would allow teachers with 35 years of service to retire at any age — thus eliminating the age 60 requirement scheduled to be put in place in 2026. A one-time simple COLA increase would result in a higher benefit going forward, but does not commit to additional COLA increases each year. Cheiron said it will be best prepared to assess the financial impact once it has completed its five-year experience review and following completion of Callan’s asset-liability study. These two studies are expected to wrap up in March.

Cheiron’s analysis included the projected cost of providing an ongoing 2% COLA. Cheiron said this would add approximately $13.8 billion in liabilities, which would increase STRS Ohio’s unfunded liabilities to $34.6 billion from $20.8 billion.

Callan Presents Preliminary Findings from Asset-Liability Study

Investment consultant Callan LLC shared with the Retirement Board preliminary results from its ongoing asset-liability study. STRS Ohio conducts an asset-liability study — typically every five years — to help determine investment risk/return expectations moving forward. The study helps the board determine its asset mix for the pension fund.

Callan’s projected 10-year return for STRS Ohio’s current asset mix is 6%. STRS Ohio’s neutral weight portfolio mix is 28% broad U.S. equities, 23% broad international equities, 16% broad U.S. fixed income, 5% liquid treasury, 10% real estate, 7% private equity, 10% opportunistic/diversified and 1% liquidity reserve (cash). Callan’s preliminary modeling of STRS Ohio’s assets and liabilities show an expected improvement in STRS Ohio’s funded status over the next decade.

Callan recommended the board should focus on investment mixes that do not differ substantially from the current asset mix, as less aggressive mixes do not provide significant growth potential and more aggressive mixes subject the plan to excessive volatility and downside potential. Callan will continue its discussion with the board at its February meeting and is targeting March to finalize an asset allocation strategy.