Report from STRS on October Board meeting

From STRS, October 16, 2009

This week, the State Teachers Retirement Board held its monthly meeting. Following the regularly scheduled meetings, a report titled "Board News" is posted on the STRS Ohio Web site, as well as mailed to a number of members and education organization representatives who have requested it. As a member of STRS Ohio with an e-mail address on file, you will also receive this report each month. The October report follows.

OCTOBER BOARD NEWS

ANNUAL ACTUARIAL VALUATION REPORT CONFIRMS NEED FOR PENSION FUNDING CHANGES

At its October 2009 meeting, the State Teachers Retirement Board received its first look at the annual actuarial valuation report of STRS Ohio's pension fund from its actuarial consultant, PricewaterhouseCoopers (PwC). This report provides a "snapshot" of the actuarial position of the retirement fund as of July 1, 2009. As expected, the PwC report confirmed the data shared much earlier in the year with the Retirement Board and STRS Ohio members during the board's long-range planning discussions. Since July 1, 2008, the funding period for the pension fund has increased to "infinity" from 41.2 years and the funded ratio decreased to 60% from 79.1%.

In developing this actuarial valuation, STRS Ohio's actuarial gains and losses for fiscal year 2009 (July 1, 2008-June 30, 2009) were compiled. PwC looked at the system's experience in several areas, including investment returns, payroll growth, salary increases, retiree mortality, and the number of retirements and other "separations" from the system, such as account withdrawals -- all of which can either reduce or increase the system's liabilities from one year to the next.

STRS Ohio experienced a net actuarial loss for the fiscal year of more than $17 billion -- due almost entirely to the significant decline in the value of STRS Ohio's investment assets as a result of the global recession. Consequently, the system's unfunded accrued liabilities more than doubled to $36.6 billion from $18.2 billion.

The fact that the pension unfunded liabilities are at "infinity" -- meaning the system can never pay off its liabilities unless changes are made -- prompted the Retirement Board to begin developing a long-range plan to strengthen the financial condition of the retirement system last March. The plan adopted by the board on Sept. 1 calls for an increase in contributions; an increase in final average salary years; a change in eligibility for retirement; a change in the benefit formula; and a reduction in the annual cost-of-living adjustment. STRS Ohio staff projects the proposed changes would save almost $9 billion in accrued liabilities and would bring the pension fund to a 33.4-year funding period from its current status of infinity, assuming the proposed timeline for the changes can be implemented.

OHIO RETIREMENT STUDY COUNCIL REVIEWS COMPARISON CHART OF SYSTEMS' PLANS; LEGISLATION EXPECTED IN THE COMING MONTHS

On Sept. 9, Executive Director Michael Nehf presented STRS Ohio's plan to the Ohio Retirement Study Council (ORSC); Ohio's four other public pension systems -- Ohio Public Employees Retirement System, School Employees Retirement System, Ohio Police & Fire Pension Fund and Highway Patrol Retirement System -- also presented their plans for strengthening their funds. The ORSC is the legislative oversight body for the five systems.

At the ORSC's October meeting, the council members reviewed a comparison chart detailing each system's proposals by category (e.g., retirement eligibility, final average salary and contributions). Most of the changes that each system is proposing require legislation. Rep. Todd Book, who chairs the ORSC, noted that he expects legislation to be drafted over the next several months and introduced by the end of 2009 or the beginning of 2010.

RETIREMENT BOARD ANNOUNCES NEW INVESTMENT CONSULTANTS

The Retirement Board has chosen Callan Associates Inc. to serve as its investment consultant for general investment matters and all asset classes other than alternatives (i.e., private equity investments, hedge funds, etc). For the alternatives component of STRS Ohio's investment fund, the board has chosen Cliffwater LLC as its investment consultant. The board will be entering into contracts with each firm extending through June 30, 2012. Callan and Cliffwater are replacing Russell Investment Group, which notified the board in summer 2008 that it would not be renewing its contract with STRS Ohio due to changes in Russell's new business model.

During the search for new investment consultants, the board and staff spent considerable time contacting and interviewing current Callan clients. The board was impressed with the expertise of the Callan staff and its track record of satisfaction among those clients. Callan has extensive experience in working with public pension funds. Because of the board's long-term plan to increase its exposure to alternatives, the board also wanted a consultant with specific expertise in that area. As with Callan, the board and staff contacted and interviewed many Cliffwater clients, who indicated Cliffwater was instrumental in adding value to their portfolios.

RETIREMENTS APPROVED

The Retirement Board approved 335 active members and 121 inactive members for service retirement benefits.

ADDITIONAL ITEMS REPORTED BY EXECUTIVE DIRECTOR MICHAEL J. NEHF

HEALTH CARE MEETINGS WILL TRIPLE 2008 ATTENDANCE

The Member Education staff will again present meetings around the state this fall to help members with their health care plan decisions. The first year for these meetings was 2007, when 1,008 retirees attended one of 25 sessions. In 2008, the attendance doubled. Through the end of this September, more than 6,000 enrollees have reserved a seat at one of 51 sessions being offered. Due to the introduction of the Aetna Medicare Plan (PPO) and the changes to the Express Scripts prescription drug coverage, staff expected increased interest in the meetings this year. Sessions were increased to 51 with nearly 10,000 seats available. Representatives from the Health Care Services Department and Express Scripts, as well as other health care vendors, will also attend to help answer enrollee questions. Open-enrollment packets will begin mailing Oct. 23; this year, open enrollment will run from Nov. 1-24.

RETIREMENT BOARD ELECTION PROCESS BEGINS IN NOVEMBER

In spring 2010, a Retirement Board election will be held for two contributing member seats currently held by Conni Ramser and Mark Meuser. The individuals elected will serve from Sept. 1, 2010, through Aug. 31, 2014. The election process begins in November 2009, when individuals interested in running for one of these seats can request petitions from STRS Ohio, beginning Nov. 13, 2009. Those eligible to run for these two seats are STRS Ohio members who are presently contributing to STRS Ohio or those who have contributions on deposit with STRS Ohio (inactive members). STRS Ohio retirees who are reemployed in an STRS Ohio-covered position are not eligible for nomination. The deadline for returning petitions is Feb. 26, 2010. STRS Ohio members will receive their ballots and voting information in April; they will have through May 3 to cast their votes by mail, phone or Internet. Petition forms can be obtained from STRS Ohio by calling toll-free 1-888-227-7877.