Some scary STRS data.......

From Dennis Leone, November 4, 2013

Attached are 4 updates important charts pertaining to (1) STRS annual investment returns since 2002; (2) STRS Active Member Payroll Growth since 2002; (3) STRS Total Number of Retirees since 2002; and (4) STRS Total Number of Active Teachers since 2002.  Observations:

1.    Investment returns, while averaging +6.97% annually over the past 12 fiscal years (which is BELOW the board-adopted STRS annual assumption of +7.75%) it is pleasing to see that over the past 10 years, the average annual return has been +8.94%.  This certainly was helped by the +13.66% return in fiscal year 2013.

2.    Payroll growth has been dismal and the board-adopted annual  assumption of +3.50% is woefully unrealistic.    How the STRS Board could possibly accept a consultant’s recommendation for a +3.50% annual assumption – given the reality of what has happened since 2005 – is rather incredible and irresponsible.  Statistically, the average payroll growth in the 12 fiscal years between 2002 and 2013 has been +2.26%, while the average payroll growth average over the past 9 years has been just +1.33%.   Worse yet is the hard data for what has occurred with the STRS payroll growth over the past 3 fiscal years -- +0.34% in fiscal year 2011, -1.97% in fiscal year 2012, and -1.04% in fiscal year 2013.  Even more alarming is the fact that the STRS Board has adopted a consultant’s recommendation to RAISE the payroll growth assumption to +4.00% in  fiscal year 2018.  How could the board accept such a recommendation?  It should not take a rocket scientist to see that huge numbers of Ohio school districts are giving smaller base raises, cutting staff, replacing retiring teachers with first year teachers, and some even are eliminating the automatic step raises.  These facts are exacerbated by two more realities:  (A) An overall birth rate reduction statewide, which will translate into declining school enrollments and fewer teachers being needed; and (B) While charter school enrollments have increased, salaries at these institutions are far lower than the salaries in public school districts.  It seems that the STRS Board would rather not discuss the realities of our payroll growth and the impact they have on our future pension system solvency.

3.   The total number of active teachers at STRS has declined from 179,944 in fiscal year 2003 to 169,945 in fiscal year2013.  That’s a drop of 9,999. 

4.   The total number of retirees at STRS has increased from 108,294 in fiscal year 2003 to 149,221 in fiscal year 2013.    That’s an increase of 40,927.

5.    In fiscal year 2002, there were 73,257 more active members at STRS than retirees.  In fiscal year 2013, there were just 20,724 more active members than retiree.  

6.   The reality of #3, #4, and #5 above clearly show that having 5 active teachers and 2 retirees on the STRS Board is misplaced.  Clearly the ratio of active teachers versus retirees on the board should be 4-3, not 5-2.  (Prior to 2004, the active teacher-retiree board member ratio was 6-1.  The Legislature saw the wisdom in changing it in 2004, and it needs to happen again.)

7.   The end result of the 4 charts is that they show that the overly generous 13-year phase-in for the age 60 requirement was ill-advised and not very helpful in achieving the desired unfunded liability threshold.  Yes, active teachers now have to pay more into STRS, and yes, new retirees will be without a COLA for 5 years.  These facts, however, do not outweigh the reality that the board-adopted age 60 phase-in is currently providing very little positive correction in the STRS unfunded liability.  Many states, however, in order to protect current retirees, have completely eliminated the COLA for new retirees only…….which translates into the new retirees (who will have higher pensions upon retirement than their equal peers) not getting something they never had to begin with.    The 13-year phase-in for the age 60 requirement protects the current 47-year-old active teacher at the expense of making things more risky long term for the 77-year-old retiree.

Dennis Leone 
(Click image twice to enlarge.)