Report on STRS August board meeting

From STRS, August 13, 2010

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 August report follows.

AUGUST BOARD NEWS

RAMSER RECOGNIZED FOR BOARD SERVICE During its August 2010 meeting, the State Teachers Retirement Board passed a resolution recognizing the dedicated and tireless service provided by Conni Ramser during her tenure as a board member. Ramser was selected to fill a contributing member seat on the board in August 2004, and was subsequently elected to a four-year term in May 2006.

STAFF REPORTS 13.54% INVESTMENT RETURN FOR FISCAL YEAR 2010 The STRS Ohio total investment fund returned 13.54% for the 12 months ending June 30, 2010, outperforming the composite benchmark return of 13.28% by 0.26%. After all direct internal investment costs and external manager costs are subtracted from this gross active management return, the net value added was 0.15%, or about $50 million. This represents the additional value brought to the STRS Ohio investment fund through active management by STRS Ohio associates and external managers, above and beyond the passive benchmark. At the end of the fiscal year, the market value of investment assets totaled $56.9 billion.

During the August Retirement Board meeting, Callan Associates, the board's investment consultant, noted that all STRS Ohio investment fund asset classes posted a positive return for fiscal year 2010 except for real estate. However, despite falling below its benchmark return, the STRS Ohio real estate portfolio ranked in the 12th percentile versus its peers for one-year returns. (Note: 1st percentile = best; 100th percentile = worst.)

The information below can be viewed as a chart at the following link: https://www.strsoh.org/boardnews/bn_current.html#chart

STRS OHIO INVESTMENT RESULTS (FISCAL YEAR 2010)

LIQUIDITY RESERVES STRS Ohio Return: 0.30% Benchmark Return: 0.12% Relative Return: 0.18%

FIXED INCOME STRS Ohio Return: 13.28% Benchmark Return: 10.60% Relative Return: 2.68%

DOMESTIC EQUITIES STRS Ohio Return: 14.94% Benchmark Return: 15.72% Relative Return: -0.78%

INTERNATIONAL STRS Ohio Return: 13.09% Benchmark Return: 11.45% Relative Return: 1.64%

REAL ESTATE STRS Ohio Return: -0.67% Benchmark Return: 6.50% Relative Return: -7.17%

ALTERNATIVE INVESTMENTS STRS Ohio Return: 20.04% Benchmark Return: 20.04%* Relative Return: 0.00%

TOTAL FUND STRS Ohio Return: 13.54% Benchmark Return: 13.28% Relative Return: 0.26%

Less Costs to Arrive at Net of Fees: -0.11% Total Fund, Net of Fees: 0.15%

*No benchmark exists for this asset category; actual returns are used.

OPERATING EXPENDITURES COME IN BELOW BUDGET Final figures for fiscal year 2010 (July 1, 2009-June 30, 2010) show that total operating expenditures for STRS Ohio were $8.5 million less than budgeted and $9.4 million less than fiscal year 2009 expenditures. Less-than-expected expenditures for associate salaries and related fringe benefits, custodial banking fees and outside services contributed to the majority of the savings. Operating expenditures for fiscal year 2010 totaled about $79.4 million.

RETIREMENTS APPROVED The Retirement Board approved 1,559 active members and 182 inactive members for service retirement benefits.

OTHER STRS OHIO NEWS

MEMBER SERVICES COMPLETES BUSIEST YEAR SINCE FISCAL 2004 Demand for services this past fiscal year surpassed all previous years since fiscal 2004 in STRS Ohio's Member Services area. The Member Education staff presented 312 programs to more than 20,000 members, which was a record high for member participation. This exceeded the previous high year of 287 meetings for about 10,000 members. For the first time since fiscal 2004, benefits counselors met with more than 18,000 members, while the Member Services Center exceeded 300,000 calls. The heavy call volume has increased since Jan. 1, 2010, and is currently running at a 15% increase over last year.

WORK CONTINUES ON LONG-TERM CARE PROGRAM CHANGES The transition to Prudential as STRS Ohio's long-term care (LTC) vendor is proceeding. In June, 12,033 Aetna LTC enrollees received a customized transfer offer from Prudential that provided recipients with a one-time opportunity to transfer to Prudential from Aetna without evidence of insurability. To date, Prudential has received acceptance forms from 5,126 (42%) enrollees. Prudential's coverage for these individuals begins Oct. 1, 2010. The policies of individuals who remain with Aetna LTC become individual LTC policies under a trust that continues to be regulated under the enrollees' State Department of Insurance. Staff continues to work with Prudential on the open-enrollment period for full-time active teachers, which is targeted for Feb. 14-March 4, 2011. All active teachers who work at least 20 hours a week can enroll with Prudential without medical underwriting during this one-time open enrollment. Staff is also finalizing the process to notify new retirees of their op tion to enroll in Prudential LTC, effective Oct. 1. 2010.

STRS OHIO WEB SITE NOW FEATURES PENSION PLAN REFORM INFORMATION The home page of the STRS Ohio Web site (https://www.strsoh.org) now features a section titled "Special Pension Plan Reform Coverage." In addition to sharing the details of the proposed plan approved by the Retirement Board in September 2009, it includes information about the value of defined benefit plans, an ongoing recap of the board's long-term planning work, a link to the National Institute on Retirement Security and other pertinent information. STRS Ohio also continues to respond to various newspaper articles focusing on Ohio's public pension plans. Copies of these "Letters to the Editor" can also be found in this section of the Web site. Additional information will be added to the site on an ongoing basis.

LEGISLATIVE NEWS INCLUDES OVERVIEW OF FEDERAL FINANCIAL SECTOR REFORM BILL In July, President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act - a measure that many consider the most sweeping reform of the financial sector since the Great Depression. The August 2010 issue of STRS Ohio's Legislative News includes an overview of the issues within the reform package that have the most direct impact for STRS Ohio. This newsletter also includes a report from the National Association of State Retirement Administrators (NASRA) on reforms to public pension plans in progress around the country. The newsletter can be accessed via the STRS Ohio Web site at: https://www.strsoh.org/quicklinks/legislative.html.