At its October meeting, the State Teachers Retirement Board received a report of the annual pension valuation results from its actuarial consultant, Segal Consulting. The report provides a “snapshot” of the actuarial position of the retirement fund as of July 1, 2013. This is the first valuation completed using the new benefit structure resulting from the passage of pension reform legislation last fall. Segal’s report this year shows the funding period for the pension fund decreased to 36.1 years, and the funded ratio improved to 66%.
Plan design changes along with strong investment returns were the primary reasons for the funding improvement. Other significant notes from this year’s report include:
•Accrued liabilities decreased to $94.4 billion from $106.3 billion, primarily from the recognition of benefit plan design changes brought about by the pension reform legislation.
•The pension fund has a net $2.8 billion in unrecognized gains being deferred to future years. STRS Ohio uses a common accounting and actuarial technique called “smoothing” to spread investment market volatility over four-year periods. This method helps pension funds recognize investment returns for a given year over a four-year window rather than a one-year “spike.”
•Funding improvements were muted by a decrease in contributing payroll and a higher number of retirements than projected.
Following the valuation presentation, Segal Consulting led an educational session on funding policy. A funding policy provides guidelines for adequately funding the pension plan and consistently reporting its funding progress. Segal’s Kim Nicholl said STRS Ohio’s demographic trends, as well as new Governmental Accounting Standards Board reporting rules, are key reasons the board should consider adopting a funding policy.