Update on Silicon Valley Bank
Released March 17, 2023
STRS Ohio has bought and sold shares of SVB stock since 1999 and achieved net gains on this stock of over $30 million since inception, even after the write downs on March 8. As of Wednesday, March 8, STRS Ohio held shares of SVB worth $27.2 million, which accounted for approximately 0.03% of STRS Ohio’s total fund. Due to the bank’s failure, SVB stock was removed from the S&P 500 and the Russell 3000 indices, and the price of its stock was written down to $0.
STRS Ohio continues to be a strong pension fund and benefits to STRS Ohio members remain safe.
The STRS Ohio fund is designed to weather situations like this. Our investment strategy is built on the core principle of diversification. By diversifying across various asset classes, sectors and companies, STRS Ohio can mitigate the impact of unforeseen events like the loss in SVB shares.
Callan Provides Board With Economic Update
Investment consultant Callan LLC shared its review of capital markets at the March State Teachers Retirement Board meeting. Callan said changes in the capital market environment during the past year have resulted in higher future expected returns. These and other factors mean Callan is increasing its expectations for STRS Ohio’s portfolio returns to an annualized 7.17% over the next decade.
Board Reviews Plan for Sustainable Benefit Enhancements
When the Retirement Board announced the 3% cost-of-living-adjustment (COLA) and removed the age 60 requirement last year, the board communicated it would discuss possible benefit enhancements this spring for fiscal year 2024.
As part of 2012 pension reform, the General Assembly provided the board with limited authority to adjust COLAs, member contributions and retirement eligibility requirements. Ohio law requires the board’s actuary to determine if a proposed enhancement could materially impair the fiscal integrity of the system. The board can only make adjustments with a supporting determination by its actuary.
The key components of the proposed sustainable benefit enhancements plan include a budget amount for potential enhancements calculated annually by the board’s actuary. This approach would meet the “fiscal integrity” requirement of Ohio law. The budget amount would vary year to year based on the financial condition of the pension plan. There could be years where no budget is available.
Each spring, the board would decide how to spend any available budget on benefit enhancements including COLAs, member contribution decreases and changes to eligibility requirements. The plan would allow for the establishment and communication of a long-term benefit enhancement strategy including the board’s funding priorities.
Board Reviews Possible Points-Based Eligibility System
The board also reviewed the possibility of a points-based retirement eligibility system. In such an approach, a member’s combined age and years of service would be used to determine retirement eligibility. A “Rule of 94,” for example, could provide retirement benefits when a member’s age and years of service totaled 94 (for instance, age 59 with 35 years of service). Board actuarial consultant Cheiron provided an estimate of the financial impact of adding such an option to current retirement eligibility rules. The board expects to continue its review and consideration of this approach at its April meeting. It is important to note that the addition of points-based eligibility would require legislative changes.
Board Election Ballots to Mail by April 5; One Contributing Member Seat to Be Filled
The 2023 Retirement Board election will take place beginning in April when ballots are mailed by a third-party vendor to all STRS Ohio members eligible to vote. In accordance with Ohio Administrative Code 3307-2-01, ballots will be mailed on or before April 5. Two STRS Ohio members qualified through the nominating petition process to run for the contributing member seat: Pat Davidson and Arthur Lard. Those eligible to vote in the contributing member election include all STRS Ohio contributing members (except for reemployed retirees), individuals who have contributions on deposit with STRS Ohio and disability benefit recipients.
The ballot mailing will include information about both candidates and instructions for voting online, by phone or by mail. The deadline for voting is 4:30 p.m. on Monday, May 1. STRS Ohio will share the results of the election following the presentation of results to the board of tellers on Saturday, May 6. The four-year term for this seat begins on Sept. 1, 2023.
STRS Ohio is using Election Services Co. to conduct the election. Board members are not compensated for board service but may be reimbursed for actual necessary expenses incurred while serving on the board.
The Retirement Board approved 88 active members and 60 inactive members for service retirement benefits.