September 2024 OEA Retirement Systems Update
SERS Board Approves 2.5% COLA for 2025
On Thursday, September 19, 2024, the SERS Board unanimously approved a 2.5% cost-of-living allowance (COLA) for eligible SERS retirees. This COLA amount is the maximum allowed under state law for SERS. The 2.5% COLA will be paid to SERS retirees in calendar year 2025.
Statute allows SERS to provide a cost-of-living allowance based on the Consumer Price Index over a twelve-month period (June to June). That figure was 2.9%. However, state law does cap the COLA amount at 2.5% and further notes that COLA payments are subject to further reduction or elimination if such payments would have a material impact on the solvency or health of the retirement plan. SERS reported investment earnings of 9.61% over the past fiscal year and an improving funded status. Given these factors, the Board voted in support of a 2.5% COLA.
In further action, the Board elected to continue to not allocate any of the 14% employer contribution to the health care fund. The health care fund has a solvency of over 40 years and receives an employer surcharge of 1.5% of payroll. The Board determined that the full employer contribution was needed for pension benefits which are statutorily required as opposed to health care which is discretionary.
Sponsors of GPO-WEP Repeal Push for Floor Vote
Work continues to try to fully repeal the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP). These are provisions of federal law that unfairly punish public service by reducing earned Social Security benefits or spousal and survivor benefits when a public sector retiree collects a pension from a jurisdiction (such as Ohio) where they did not contribute to Social Security.
U.S. Senator Sherrod Brown (D-Ohio) is a lead sponsor of the Social Security Fairness Act (S. 597) which would fully repeal GPO-WEP. This legislation now boasts 62 bipartisan cosponsors—a filibuster proof majority of the Senate. Senator Brown and OEA have called upon Senate leadership to bring the bill to the floor for a vote.
H.R. 82 is companion legislation in the U.S. House of Representatives. The bill has 327 bipartisan cosponsors. The sponsors of the bill have started a discharge petition to try to bring the bill to the floor for a vote. Such a petition would require 218 signatures, a majority of Congress. OEA is calling upon members of the Ohio Congressional delegation to sign the petition and support the bill. You can contact your legislator and urge their support by clicking here to take action.
Health Care Premiums Remain Flat for Most STRS Retirees
During its August meeting, the STRS Board approved 2025 premiums for its health care plan offerings. More than 90% of current enrollees will have no premium increase. The monthly premium for career employees is $141 for those in Medicare and $319 for those under 65 years old.
In other notes from the August meeting, STRS posted a 10.5% investment return for FY 2024. The Board’s investment consultant noted this continues strong returns for STRS as its return of 8.8% over the past five years ranked in the top 8% of public pension funds in the United States.
Additionally, the Board elected Michael Harkness to fill a vacancy for active employees on the Board. The vacancy was a result of the retirement of Steven Foreman. Mr. Harkness is an intervention specialist from Akron and serves as Vice President of the Akron Education Association.
Click here to download a copy of this September 2024 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
June 2024 OEA Retirement Systems Update
Field Hearing on GPO-WEP Repeal Offers Opportunity for Advocacy
U.S. Senator Sherrod Brown has announced a field hearing on the Social Security Fairness Act (S. 597). This is vital legislation Senator Brown has sponsored that would fully repeal the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP). These provisions of federal law unfairly punish public service by reducing the earned Social Security benefits of retirees who collect a public pension in states like Ohio.
The Senate Finance Subcommittee on Social Security, Pensions, and Family Policy hearing will be held on Friday, June 7, 2024, at the Columbus Firefighters IAFF Local 67 Union Hall (379 W Broad St, Columbus, OH 43215). The hearing is scheduled from 10:00 a.m. to noon. OEA is strongly encouraging members to attend the hearing, click here to let us know you plan to attend the hearing.
OEA is also asking members to submit testimony in support of the legislation to repeal GPO and WEP to the subcommittee. Any individual or organization wanting to present their views for inclusion in the hearing record should submit in a Word document, a single-spaced statement. No other file type will be accepted for inclusion. Title and date of the hearing, and the full name and address of the individual or organization must appear on the first page of the statement. Statements must be received no later than two weeks following the conclusion of the hearing.
Statements can be emailed to: Statementsfortherecord@finance.senate.gov
The NEA website has additional resources on the issue. Click here to view the toolkit on GPO and WEP.
STRS Board Update: AG Files Suit Against Two STRS Board Members, Board Elects New Chair and Vice Chair
Attorney General Dave Yost has filed a lawsuit seeking to remove two members of the STRS Board following serious allegations about their potential involvement in trying to promote risky investment schemes. In a recent message to members, OEA President Scott DiMauro stated, “OEA is very concerned about allegations in the whistle-blower documents and in the state’s lawsuit. We look forward to learning the full truth of the matter as the AG’s investigation moves forward.”
Meanwhile, the STRS Board voted 6-5 to replace the Chair and Vice Chair of the Board. On Wednesday, May 15, 2023, after several motions and debate, the STRS Board voted to create a new board policy allowing for the removal of the Chair and Vice Chair with a majority vote. Subsequently, Dale Price and Carol Correthers were removed as Chair and Vice Chair, respectively. Rudy Fichtenbaum was elected Chair and Elizabeth Jones was elected Vice Chair. Those terms are to run through August.
In other Board news, Michelle Flanigan was elected to a four-year term representing contributing members of the system. Flanigan defeated OEA-recommended candidate Sandy Smith Fischer with approximately 85% of the vote. Flanigan’s term will begin on September 1, 2024.
STRS Investigates COLA and Inflation Protection
At its regular May meeting, the STRS Board passed a motion to direct staff to gather information about potential benefit changes. The Board directed staff to explore the feasibility of providing a one-time supplemental benefit to retirees in December 2024, serving as a form of inflation protection. Additionally, the motion called for an accelerated review of the upcoming actuarial valuation. The Board hopes to hear from the actuary in November as to whether funds would be available to offer some amount of a one-time cost-of-living allowance (COLA) for the 2026 fiscal year.
Actuarial Valuation Shows OPERS 84% Funded
OPERS ended 2023 with a funded ratio of 84% for the defined benefit pension plan. Further, the amortization period, or amount of time OPERS is projected to pay off its unfunded liabilities based on current assumptions, was 15 years. State law requires this funding period to be no greater than 30 years.
The Board’s actuary, Gabriel, Roeder, Smith & Co., noted that the funded ratio remained the same as the previous year, while the amortization period declined by one year. The investment return on a market-value basis was 11.06%, which was greater than the assumed rate of 6.9%. Investment gains and losses are smoothed into the valuation over a four-year period.
Click here to download a copy of this June 2024 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
May 2024 OEA Retirement Systems Update
ORSC Discusses Forthcoming SERS Actuarial Audit, Report on State Retirement Systems
On April 11, 2024, the Ohio Retirement Study Council (ORSC) met and discussed a number of items. Based on a subcommittee recommendation, the full council approved a request for proposals for an actuarial audit of the School Employees Retirement System (SERS). State law calls for this type of audit on all state retirement systems once every 10 years. Firms have until June to respond to the RFP.
Additionally, the ORSC released a historical review of all five statewide pension systems. The report compares the fiscal health of the systems since 1998. The report, which was completed by ORSC staff, contains several recommendations for legislative changes: ensuring that funding for discretionary benefits like health care remains secondary to full funding of pension benefits; standardizing Board authority for all systems to make changes in eligibility and benefits; and implementing an amortization period shorter than the current 30-year standard.
While the report offers helpful historical context and a detailed comparison of the five retirement systems, OEA has a different view of some of the legislative recommendations. Requiring a shorter amortization period coupled with broader board authority over benefits could have the effect of reducing member benefits. The more conservative requirement of a shorter funding period should not be considered. Currently, three of the five systems (STRS, OPERS, and Police and Fire) are seeking legislation to increase employer contributions. This is being sought to better provide more financial stability and aid in restoring benefits such as reducing retirement eligibility requirements and inflation protection for STRS members. Ohio’s public employers pay a low rate when compared to other states that do not participate in Social Security and the employer contribution rate has remained unchanged for decades.
It should be noted that none of the recommendations of the ORSC report have been introduced in any pending legislation. The full report can be viewed here.
Appeals Court Ruling Results in Abrupt End to STRS Board Meeting
On Thursday, April 18, 2024, the 10th District Court of Appeals ruled that Wade Steen had been improperly removed by Governor DeWine and ordered for him to be reinstated. This happened during a scheduled meeting of the STRS Board. Steen’s replacement, Brian Perera, attended the first part of the meeting. However, upon return from a midday executive session, Steen retook the seat.
DeWine removed Steen about a year ago, citing his attendance record and meetings and perceived advocacy for specific investment managers. DeWine appointed G. Brent Bishop in Steen’s place, but Bishop later resigned prompting DeWine to appoint Perera, previously budget director for the Ohio Senate and lobbyist for the Ohio State University. The Governor’s office has urged an appeal of the Court’s ruling, although DeWine was dropped as a party in the suit and cannot initiate the appeal himself.
Upon resumption of the STRS Board meeting, and after a series of motions, Steen was ceremonially re-sworn to his post. After the Board addressed routine agenda items, Chair Dale Price attempted to adjourn the meeting. This was met with objection as there were several items remaining on the agenda. Price brought the meeting back to order and called for a 15-minute recess. However, Price did not return, and it was announced by counsel that the meeting had been adjourned.
Subsequently, STRS released a statement from Price which said in part: “Counsel had not yet had the opportunity to review the opinion and consider its implications. When it became apparent that I was unable to conduct the meeting in an efficient and effective manner, I decided to conduct the necessary business and adjourn the meeting. I plan to have the Retirement Board consider the remaining items from today’s agenda at the regularly scheduled May Board meeting.”
Click here to download a copy of this May 2024 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
February 2024 OEA Retirement Systems Update
STRS Board Maintains Current Economic Assumptions
During its February meeting, the STRS Board elected to maintain the current economic assumptions for the upcoming actuarial valuation. The Board’s actuarial advisor, Cheiron,
recommended maintaining the assumptions of a 7.0% discount rate, 2.5% for inflation, and 3.0% for payroll growth.
The discount rate is similar to an expected rate of return. This is a key assumption because it helps to project the cost of future liabilities and the rate at which they can be paid off. There was discussion among the Board of increasing the discount rate to 7.25%. This change would have reduced the unfunded liabilities of the system by approximately $2.5 billion. However, the actuarial consultant reported that the majority of public pension plans have a 7.0% assumption, that the trend is lowering investment assumptions, and that only one plan in the last 10 years had raised their assumption. Further, the Board’s investment consultant has a 10-year projected rate of return of 7.04% and other investment projections are trending down amid economic uncertainty.
These economic assumptions will be used, not only for the actuarial valuation at the end of the fiscal year, but also in a March Board discussion about possible benefit changes. State law allows the Board to make certain plan changes if the Board’s actuary determines such changes do not “materially impair the fiscal integrity” of the system. Last year, Cheiron developed a method of providing the Board with a benefit enhancement budget. At that time the budget was $0. However, in that instance, the actuary determined that a de minimus change could be made. This resulted in the Board electing a 1% cost-of living adjustment (COLA) and a five-year period of retirement eligibility with 34 years of service.
STRS Seats New Board Member Amid Continued Legal Battle
Governor Mike DeWine has named Brian Perera to the STRS Board replacing G. Brent Bishop who resigned earlier this month. Mr. Perera is a consultant, former lobbyist for Ohio State University, and former Finance Director for the Ohio Senate. Mr. Bishop was initially appointed to the seat after Governor DeWine removed Wade Steen, his prior appointee, from the Board. Mr. Steen’s removal is the subject of an ongoing lawsuit about the Governor’s authority to remove his appointed Board members.
Recently, 10th District Court of Appeals Magistrate Thomas Scholl stated that the Governor lacked legal authority to remove Steen. However, that decision is not final or binding. It now goes to a three-judge panel to adopt or reject it. That panel’s decision could also be appealed to the Ohio Supreme Court. The Attorney General advised STRS to seat Mr. Perera on the Board and he participated as a voting member in the February meeting.
The STRS Board also announced that Executive Director Bill Neville will remain on leave until at least May. Neville was placed on leave in November in response to an anonymous letter alleging harassment and threats. Attorney General Dave Yost hired outside attorneys to investigate the matter. A statement by STRS said the Board reviewed the investigation’s summary before voting to keep Neville on leave. Lynn Hoover, Chief Financial Officer, will continue as acting Executive Director
SERS Board Discusses Definition of Compensation
The SERS Board is discussing potential changes to the pension contribution compensation definition. The current definition was originally adopted in the 1980s and has been largely
unchanged. However, compensation practices used by employers have changed with more bonuses and lump sum payments being used—not just standard salaries and wages. Some of
these payments are subject to pension contributions, others are not, and it can be unclear which is the case.
This matters because what types of pay meet the definition of compensation for SERS determines how much funding goes towards members’ pension benefits and ultimately determines how much they receive in retirement. The Board’s expressed goals for the discussion are to identify which payments should be pensionable, clarify the rules so they are easier to understand and administer, and to understand how decisions might impact the pension plan, employers, and members of SERS.
On Thursday, February 15, the SERS held a special meeting to discuss the issue with stakeholder groups. OEA, other labor unions, and employer groups were represented. There was consensus among the labor groups that the current definitions are murky and that as bonuses and lump sum payments become more prevalent, it would have real and lasting impact on members in retirement if left unchanged. OEA Secretary-Treasurer Mark Hill made the point that the purpose of a pension is to replace a portion of your earnings you had while employed. If the pension benefits do not reflect your true income during employment, it undermines members’ economic security.
The Board discussions on this matter are ongoing. Depending on what changes are approved by the Board, they might require changes in administrative rules or legislation to be passed.
OPERS Posts Positive Investment Returns for FY 2023
Preliminary investment reports for 2023 found that OPERS had double-digit investment returns which exceeded their assumed rate of return. OPERS reported a preliminary return of 11.34% for the defined benefit pension plan. This return is above the assumed rate of 6.90% and beat the benchmark return by 0.87%. The OPERS health care fund is invested with a different asset allocation and has a lower assumed rate of return (6.0%). The health care fund posted a preliminary return of 13.96% for the year, beating the benchmark by 0.32%. All returns are reported net of fees
Click here to download a copy of this February 2024 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
December 2023 OEA Retirement Systems Update
SERS Board Finalizes Anti-Spiking Provision
The SERS Board has approved the final piece of an anti-spiking provision known as the Contribution Based Benefit Cap (CBBC). The state budget bill, House Bill 33, included the provision that impacts future SERS retirees. The CBBC will go into effect on August 1, 2024. It will only affect a small fraction of retirees who have abnormally large increases in salary that are not supported by retirement contributions over their career. When a member’s final average salary in their pension calculation is well above what would be expected from normal salary increases, their benefits are effectively subsidized by other members of the system.
The final piece of the CBBC puzzle was the SERS Board adopting a “factor” used in its calculation. The CBBC calculation annuitizes member/employer contributions and then multiplies it by a factor that will be identified by the SERS Board. A member’s pension is capped at the lower of the formula benefit or the CBBC benefit. The SERS Board adopted a factor of 6.25. Analysis of past retirement data indicates that only a small number of future retirees will be impacted by this change. Of the nearly 3,000 retirements from 2022 and 2023, only eight would have seen a reduction had the CBBC been in place.
STRS Executive Director on Leave Amid Investigation
On Friday, November 17, 2023, the STRS Board voted to put Executive Director Bill Neville on leave pending an investigation by an outside council appointed by Ohio Attorney General Dave Yost. The investigation will look into accusations from an anonymous letter from STRS staff alleging a pattern of harassment and threats of violence.
Lynn Hoover, who serves as Chief Financial Officer for STRS, will serve as acting executive director during the investigation.
Click here to download a copy of this December 2023 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
October 2023 OEA Retirement Systems Update
SERS Board Approves 2.5% COLA for 2024
At its September meeting, the SERS Board approved a 2.5% cost-of-living adjustment (COLA) increase for eligible retirees in 2024. SERS bases its COLA on the change in the Consumer Price Index (CPI-W) over a twelve-month period.
This year’s CPI-W was 2.3%. However, the Board’s actuary stated that a slightly higher COLA amount would not materially impair the funding status of the pension plan. With that in mind, the Board unanimously voted to approve a COLA of 2.5%, which is the highest amount permitted by statute.
Payment of the 2024 COLA takes effect on a retiree’s anniversary date. Those who retired on or after April 1, 2018, are not eligible for a COLA increase until the beginning of their fourth year of SERS retirement.
OPERS and STRS to Pursue Increased Employer Contributions
On Tuesday, October 17, the OPERS Board voted 7-2 to pursue legislation that would increase the percentage of payroll that employers pay to support OPERS benefits for public employees. The current employer contribution amount is capped at 14%.
OPERS plans to seek legislation that would increase the statutory maximum employer contribution limit from 14% to 18%. The increase would be phased in over time. Further, OPERS recommends allowing an additional increase of up to 1% every 10 years if needed to fund benefits.
Likewise, the STRS Board voted in 2022 to seek legislation to allow for an increase in employer contributions to the pension fund. Although the Board did not put forth a specific proposal, legislation was introduced in the last session (HB 601) which would have increased the employer contribution cap from 14% to 18% over an eight-year period. A similar proposal may be introduced this session. The STRS Board has established a legislative committee which will begin discussing potential legislative recommendations in November.
Ohio pension plans are hamstrung by a fixed employer contribution rate that has been unchanged for decades. Ohio public employees do not pay into Social Security and therefore are more reliant on their pension benefits. Total contribution rates in Ohio are lower than in other non-Social Security states. Further, Ohio pension systems are mature plans that pay out far more in benefits to retirees than they receive in contributions. This puts tremendous pressure on investment returns to adequately fund future benefits. When investments take a downturn, this puts member benefits at risk as we saw in pension reform in the wake of the Great Recession.
OEA believes that an increase in employer contributions is warranted. It would help improve the long-term solvency of the plans and support needed benefits for current and future retirees. However, proposals to increase employer contributions face a difficult path in the legislature. During pension reform, Governor Kasich refused to consider such an increase. Employer groups will be opposed to such legislation. Increases in employer contribution rates may also have an impact on the ability of OEA local associations to negotiate higher salaries.
OEA will keep members updated when legislation is introduced and there is an opportunity for member advocacy on this issue.
Actuarial Valuation Shows Slight Improvement in STRS Funding Status
On Thursday, October 19, the STRS Board received a report on its annual actuarial valuation. This report shows the financial status of the pension plan as of the end of the fiscal year (June 30) and how it has changed in the past twelve months.
The valuation shows a slight increase in the funded status of the plan. The STRS pension plan is 81.3% funded, compared to 80.9% last year. The amount of time needed to pay off the unfunded liabilities of the pension plan decreased slightly to 11.2 years from 11.5 years.
The Board’s actuary, Cheiron, also provided a valuation for the STRS Health Care plan. This plan continues to be fully funded with a funded ratio of 168%. The healthy financial status of the plan has allowed the Board to make benefit improvements to the plan and provide premium rebates to retirees in recent years.
Click here to download a copy of this October 2023 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
February 2022 OEA Retirement Systems Update
OEA Endorses McFee, Rhodes and Walters for STRTS Board
The OEA Board of Directors has endorsed three candidates for the STRS Board. Robert McFee and Jeffrey Rhodes are seeking re-election to the STRS Board as representatives of active members. Rita Walters is seeking re-election to the Board as a retiree representative.
As Board members, these candidates and OEA members have been dedicated to improving the funding status of the pension plan to make pension benefits more secure for all members. Over the past four years, the funding ratio of the pension plan has improved significantly. The STRS Board is now able act on resumption of the cost-of-living adjustment (COLA) for retirees coupled with improvements for active teachers.
Robert McFee and Jeffrey Rhodes (active seats)
Robert McFee is a math teacher in the Willoughby Eastlake City Schools. Jeffrey Rhodes is an Industrial Education teacher in North Royalton City Schools. Both have served on the Board since 2018.
Rita Walters (retiree seat)
Rita Walters retired with 35 years of experience as a classroom teacher with Switzerland of Ohio Schools. As an active teacher, she served as president of her local association and on the OEA Board of Directors for 12 years. Walters was elected to the STRS Board in 2017.
- Improving Funding
After the Great Recession, STRS was projected to run out of money. Since McFee, Rhodes, and Walters have been on the Board, STRS funding has greatly improved making our future pensions benefits more secure and reliable. - Restoring Benefits
Improved funding means that STRS is now able to begin restoring benefits. McFee, Rhodes, and Walters believe this must benefit all STRS members—active and retired. In addition to bringing back a COLA for retirees, active teachers should benefit from an earlier retirement age (removing the age 60 requirement). - Securing Health Care
Once projected to run out of money, the STRS Health Care program is now fully funded, and retirees have received premium rebates for the past two years. - Protecting Our Pension
Recently, two STRS Board members proposed investing up to $65 billion (2/3 of STRS assets) in a firm with no clients and no track record of success. Our endorsed candidates will fight against unproven investment schemes targeting our pension dollars.
In early April, ballots will be sent to all STRS members. Active employees, those currently paying into STRS are eligible to vote in the election for the active member seat. STRS retirees, are eligible to vote in the election for the retiree seats.
OEA’s endorsed candidates for the STRS Board are proven leaders who are looking out for the best interests of their fellow educators. These three candidates are dedicated to improving benefits for active and retired teachers while ensuring that the pension plan is sustainable into the future.
We need to do everything we can to re-elect Robert McFee, Jeffrey Rhodes, and Rita Walters to the STRS Board
OEA Urges COLA Payment, Removal of Age 60 Requirement at STRS
At the February meeting of the STRS Board, OEA Secretary-Treasurer Mark Hill addressed the Board to advocate for restoration of cost-of-living adjustment (COLA) payments for retirees coupled with changes benefiting active teachers. Specifically, he voiced OEA’s support for options that would pay a 2% COLA for eligible retirees coupled with removal of the age 60 requirement for retirement eligibility. This would allow unreduced benefits with 35 years of service at any age from August 2023 and beyond. A second supported option would include those two items and a 1% decrease in the employee contribution rate from 14% to 13%. A copy of the statement is attached.
The improved funding level of the pension plan make these recommended benefit improvements possible. In 2017, the STRS pension plan did not meet the requirement in Ohio law that period needed to pay off the unfunded liabilities of the system cannot exceed 30 years. The STRS Board voted to suspend COLA payments to shore up the long-term funding of the pension plan. The Board stated that they would review the change within five years and subsequently adopted a funding policy to consider changes that do not impair the fiscal integrity of the pension plan once the plan was 85% funded.
Given the strong investment returns of last fiscal year (over 28%) and due to the shared sacrifice of both active and retired members, STRS is now over 85% funded on a market basis. OEA believes that both active and retired teachers should benefit from this improved funding status. The proposed changes can be afforded without putting the long-term solvency of the system in jeopardy.
The STRS is expected to vote on possible changes at its March meeting. The Board will examine the proposals outlined above as well as the possibility of a multi-year COLA or a COLA of 3%–
Click here to download a copy of this February 2022 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
December 2021 OEA Retirement Systems Update
STRS Funding Level Improves
During its October meeting, the STRS Board received the results of the actuarial valuation of the pension plan. As of the end of fiscal year 2021 (June 30), the pension plan was 80.1% funded. This is an improvement from 77.4% the previous year. Very strong investment returns during the period were largely responsible for the improved funding.
Not all of the investment gain of FY 2021 is reflected in the actuarial valuation because gains and losses are smoothed over a four-year period. Using the market value of assets, the funding ratio is 87.8%. This is significant as the STRS Board policy says that they will consider benefit improvements that do not impair the fiscal integrity of the pension at 85% funding.
It would be unwise to make permanent changes based on one year of investment returns. OEA believes that at least a short-term restoration of the cost-of-living allowance (COLA) coupled with a decrease in the employee contribution rate is merited. It has taken shared sacrifice of retirees and active employees to greatly improve the funding status. The members and beneficiaries of the system should reap those rewards.
Cheiron, the Board’s actuarial firm, has noted that the pension plan is still vulnerable to adverse experience. Unfunded liabilities are greater than $20 billion and STRS pays out billions more in benefits each year than they collect through contributions. The actuary has recommended that any consideration of benefit improvements should be delayed until after the completion of the five- year experience review (expected in March 2022).
STRS Board Members Pitch Questionable Investment “Partnership”
During the STRS Board’s November meeting, two current Board members presented a “new business opportunity” for STRS. Wade Steen (Governor DeWine’s appointee to the STRS Board) and Rudy Fichtenbaum (a retiree representative) advocated for the creation of a public/private partnership with a firm called QED. Under the proposal the company would facilitate access to STRS assets by a counter party who would execute asset swaps resulting in profits from arbitrage for the counter party.
During a lengthy discussion, it was revealed that QED currently has no assets under management and no track record of performance. Further, STRS would provide 100% of the assets in the “partnership” and receive 25% of the profits. Mr. Steen had previously indicated that he had an investment plan that would return $4 billion in revenue while reducing risk to the portfolio. Based on the discussion, in order to achieve that level of return it would be necessary to devote $65 billion in assets (two-thirds of all STRS assets) to this new enterprise. A proposed motion to hire outside council to negotiate an agreement with QED was never offered
SERS Receives Actuarial Valuation Results
Cavanaugh Macdonald Consulting, SERS’ actuary, presented the results of the fiscal year 2021 actuarial valuation at the SERS Board’s November meeting. The funded status of the pension plan improved from 71.5% to 74.5%. In the actuarial valuation, investment gains are recognized over a four-year period. The funded ratio based on the market value of assets is 82.9%.
Strong investment returns also contributed to extended solvency for the SERS health care fund. The fund is projected to be solvent until 2058. The system’s funding policy allows the Board to allocate up to 0.5% of the employer contribution toward the health care fund if the pension funded ratio is between 70-80%. However, the Board voted to dedicate the full 14% of employer contributions towards basic benefits.
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OPER Board Lowers Expected Rate of Return Assumption
After hearing the results of a five-year experience study presented by their external actuary, the OPERS Board voted to reduce its assumed rate of return. The change reduced the assumed rate from 7.2% to 6.9%. This was the most impactful among several changes in economic and demographic assumptions of the pension plan.
Assumption changes added almost $2 billion in unfunded liabilities to the plan. The funded ratio was 82.9% as of the last actuarial valuation and the funded ratio would drop to 81.5% based on the changed assumptions.
Click here to download a copy of this December 2021 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
September 2021 OEA Retirement Systems Update
STRS Posts Investment Return Over 29% for FY 2021
For the fiscal year ending June 30, 2021, STRS reported a net investment return of 29.16%. This figure is net of all management fees, carried interest and other costs. Additionally, the fund beat its investment benchmark by 1.18%. This means that active management of the fund, as opposed to investing solely in index funds, added approximately $790 million (net of costs) over the fiscal year.
This rate of return was the highest for STRS since 1983. STRS total fund assets increased by over $17 billion with a market value of $98.8 billion. This is welcome news as it will increase the long-term stability of the pension fund. Further, OEA believes that as financial conditions improve, STRS should take action to reduce the contribution rate for active teachers and work to restore the cost-of-living adjustment (COLA) for retired teachers.
OEA, in collaboration with the Health Care and Pension Advocates (HPA), urged the STRS Board to establish a plan with clear financial guideposts for restoring benefits. The Board adopted a policy that once the system is 85% funded, they will consider changes that do not materially impair the fiscal health of the pension plan. The annual actuarial valuation in October will show how close this brings the plan to 85% funded.
Walters Appointed to Fill Vacancy on STRS Board
During the August meeting of the STRS Board, Rita Walters was elected by a majority of the Board to fill a vacancy as a retired member. Walters recently completed a four-year term on the Board and had finished third in the election for two retiree seats. Robert Stein, who had finished second in the election, resigned his seat before beginning his new term.
Walters is a retired language arts teacher from the Switzerland of Ohio School District and a member of OEA-R. She was elected by the STRS Board to a one-year term, September 1, 2021 through August 31, 2022. An election will be held among STRS benefit recipients to elect a representative for the remaining three years of the term.
STRS Responds to Seidle Report
Earlier this year, the Ohio Retired Teachers Association (ORTA) commissioned a third-party “forensic audit” of STRS. A report was released by Edward Siedle entitled The High Cost of Secrecy which was critical of STRS investment practices and operations. The report alleged that STRS is not sufficiently transparent in providing information on investment fees and suggests that changes in STRS investment strategies could save money in a way that could help contributing and retired members of the system.
OEA urged the STRS Board to take the Siedle report seriously and fully investigate the claims. Further, OEA asked that STRS communicate openly with its findings, whether deficiencies have been found and what is being done to address them.
On Thursday, August 19, 2021, STRS staff and consultants presented to the Board a detailed response to the Siedle report. The response refuted the claims in the report. STRS notes that the report is not in fact a forensic audit as its author is neither an accountant or auditor and not bound by professional standards. Further, the report overestimates, misstates and miscalculates various fees and performance costs of the system—including double-counting fees on alternative investments. The full response can be viewed here.
OEA has confidence that the elected members of the Board will continue to closely monitor STRS investment practices. Investment returns are the primary driver of paying future pension benefits. Active and retired teachers rely on STRS to invest these assets prudently
SERS Board Passes Motion to Pursue Pension Legislation
On Friday, September 17, 2021, the SERS Board unanimously voted to pursue legislation that would allow the Board to set a Contribution Based Benefit Cap (CBBC). If enacted, the legislation would allow the SERS Board to set a cap on how much greater a member’s pension benefit can be than a single life annuity based on the member’s total contributions. The concept is similar to a policy adopted by OPERS. Such a cap is designed to keep the majority of members from subsidizing benefits of a few members with irregular contribution histories.
SERS staff presented the Board with information on applying a range of CBBC factors. Modeled on recent retirements, a factor of 4.5 would impact 6.3% of retirees whereas a factor of 5 would affect 2.5% of retirees. Those who converted to retirement from a disability benefit would be excluded from such a cap.
The Board motion authorized SERS staff to work with stakeholder groups on the concept and to pursue the introduction of legislation. The Board’s intention is for the legislation to grant them authority to set the CBBC factor rather than setting a number in statute. The discussed timetable was to have something introduced early in 2022.
Click here to download a copy of this September 2021 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.
June 2021 OEA Retirement Systems Update
Correthers, Stein and Fichtenbaum Elected to STRS Board
Two out of three of OEA’s endorsed candidates were re-elected to the STRS Board. In the election of one board member representing active educators, Carol Correthers (OEA endorsed) was re-elected to the Board. In the election of two retiree representatives, Robert Stein (OEA endorsed) was re-elected, and Rudy Fichtenbaum was elected for the first time. Rita Walters, OEA’s other endorsed candidate, finished third in the retiree election.
The results of the active member election were as follows:
Carol Correthers – 7,470 (elected)
Benjamin Pfeiffer – 5,357
Matt Sheridan – 2,877
The results of the retired member election were as follows:
Rudy Fichtenbaum – 21,339 (elected)
Robert Stein – 19,592 (elected)
Rita Walters – 17,114
Elizabeth Jones – 15,926
OEA would like to congratulate the elected members on their victories and thank all members who worked on this election effort and took the time to vote. The new four-year terms on the Board officially begin on September 1, 2021.
SERS Board Discusses Contribution Based Benefit Cap
During the May SERS Board meeting, the Board continued its ongoing discussion of plan sustainability. A large topic of conversation was the notion of a contribution-based benefit cap (CBBC) aimed at addressing spiking concerns. Such a cap would potentially limit a member’s calculated formula benefit if their contribution histories do not adequately support that benefit level. Several examples were given of situations where hypothetical members contribute small amounts over most of their career but have much larger contributions in a few years resulting in an inflated benefit. Utilizing a CBBC would place an upper limit of annual benefit based annuitizing accumulated contributions and interest and multiplying by a factor to set a benefit cap. The examples presented to the Board illustrated factors of 5 or 6 times the annuitized contributions.
The use of a CBBC is still in the exploration phase but Board members expressed some interest in preventing spiking to keep the majority of members from subsidizing others. There was also discussion of a tiered benefit formula that would have a lower multiplier in the early years of a member’s career and a higher multiplier later. This was discussed as a potential way to reward career service.
Click here to download a copy of this June 2021 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.