During the February meeting of the State Teachers Retirement Board, the board and staff continued discussion on funding policy elements and potential improvements to the current funding policy. The pension fund currently uses a 30-year open amortization method — meaning the unfunded accrued actuarial liability (UAAL) is re-amortized over a new 30-year period every year. In an effort to put greater focus on improving system funding, the board agreed to adopt a 30-year closed funding period beginning July 1, 2015. Closing the funding period effectively targets a date when the UAAL will be paid off and the pension fund will be fully funded, strengthening the pension fund’s ability to provide a secure retirement for STRS Ohio members. Further, a closed funding period provides a good benchmark to compare to and will help the pension fund better manage volatility in the future.
The Retirement Board will continue its funding policy review in March with a presentation on plan volatility based on the pension fund’s current asset mix. The board will also discuss at a future meeting under what financial conditions it might consider adjusting benefits to maintain long-term financial stability.
The Retirement Board’s actuarial consultant, Segal Consulting, presented results of the annual actuarial valuation of the Health Care Fund at the February board meeting. The funded ratio for the Health Care Fund remained at 74% — meaning STRS Ohio has 74 cents on hand for every dollar needed for coverage; however, the fund is projected to remain solvent until 2034, a decrease of 29 years from last year’s valuation. The primary reason for the decrease is because STRS Ohio no longer allocates 1% of the 14% employer contribution to the Health Care Fund.
The decision to discontinue the 1% allocation to the Health Care Fund was made in March 2014 so the 1% could be used to reduce the amortization period for the pension fund. This decision, along with strong investment returns during last fiscal year, brought STRS Ohio’s pension fund below Ohio’s statutorily required 30-year limit.
The Health Care Fund is valued on a calendar-year basis. During 2014, the Health Care Fund earned a 7.9% rate of return, slightly ahead of its 7.75% assumed rate of return. Costs for the health care program are paid out of the Health Care Fund, which is currently funded through premiums charged to enrollees, government reimbursements and investment earnings on these funds. The balance in the fund as of Jan. 1, 2015, was $3.45 billion; slightly below the $3.47 billion reported in the Jan. 1, 2014, valuation report.
As in years past, STRS Ohio staff will work with the board this spring to set 2016 coverage features, program eligibility and/or premium subsidies needed to maintain a viable health care program going forward. Any proposed changes to the 2016 health care program will be addressed this spring and communicated with benefit recipients through STRS Ohio’s website, newsletters and eUPDATE email news service.
Board Adopts Strategic Goals for 2015
During the December 2014 Retirement Board meeting, executive director Mike Nehf shared with the board a draft of strategic goals for the organization for 2015. These strategic goals were further discussed at the Retirement Board’s retreat in January. The board adopted the goals during its February meeting. The strategic goals are summarized below:
•Improve STRS Ohio’s long-term financial solvency.
•Advance the long-term interests of STRS Ohio membership.
•Improve overall investment performance consistent with the STRS Ohio Statement of Investment Objectives and Policy.
•Ensure a high level of quality service to STRS Ohio members.
Board Receives 2014 Member Survey Results
Nearly 90% of members continue to have positive overall impressions of STRS Ohio, according to the results of a membership study conducted late last fall.
At the February board meeting, Dr. Marty Saperstein presented the findings of the 2014 membership survey. Telephone interviews were conducted in November and December with active members and retirees. Key takeaways from the survey results included:
•A majority of active members and retirees believe the pension system is financially sound and consider their pension an excellent or good value.
•Members clearly distinguish between their pension benefits and health care coverage; more consider their pension benefits an excellent or good value.
•The likelihood of active members enrolling in the STRS Ohio Health Care Program when they retire increased slightly.
•Most members are satisfied with communications, including email updates, and there is growing interest in Web-based communication and services.
•About 60% of active members plan to teach longer than they originally thought, and the most common reason is due to the benefit changes brought about by the pension reform legislation passed in 2012 by the Ohio General Assembly.
The Retirement Board approved 355 active members and 217 inactive members for service retirement benefits.