STRS Board Meeting May 15, 2014

Issues at the Statehouse:

As I reported in April, the Ohio House of Representatives passed Amended Substitute House Bill 483.  The House modified it just days prior to its passage. The amendment places a moratorium on the mitigating rate applied to alternative retirement plans and requires a study to be conducted relative to the mitigating rate. The moratorium would cease to be in effect as of July 1, 2015. The mitigating rate is a portion of the employer contribution that stays with the system when a member of the faculty at a public college or university chooses an alternative retirement plan (ARP) instead of a plan administered by STRS OH. The current rate is 4.5%. For every person covered by an ARP, STRS OH receives 4.5% of the 14% employer contribution to mitigate the negative impact that participation in an ARP has on STRS Ohio's Defined Benefit Plan. The faculty member's account receives the remaining 9.5% of the employer contribution. STRS Ohio's Executive Director, Mike Nehf is anticipating testifying before the Senate Finance Committee to express concerns with keeping the mitigating rate below the 5.5% recommended by the Board's actuary and to advocate that the study to be conducted on the mitigating rate be done by an actuarial firm.

On May 8th, the executive directors from STRS OH and the Ohio Public Employees Retirement System reviewed with the Ohio Retirement Study Council (OPERS) the systems' plans to discontinue the Irrevocable Waiver Program for health care. This program allowed benefit recipients of one system to enroll in another Ohio retirement system's health plan as a spouse by agreeing to irrevocably waive coverage in the system that pays their pension benefit. Because of changes in the Ohio retirement systems' programs that significantly reduce or eliminate spousal subsidies for health care coverage, the systems want to allow these individuals to enroll for coverage in the system that pays their benefit. The STRS Board voted in April to take this action and will allow these individuals to enroll in an STRS OH plan during the 2014 and 2015 open enrollment periods.

Paul Snyder, STRS Ohio's Deputy Executive Director for Finance, presented the system's proposed budget to the Council as required. This budget reflects a 1.08% increase over the current fiscal year's budget.

Issues from the STRS Meeting of May 15th, 2014

John Morrow, Chief Financial Officer of the Investment Department, reported a positive return of +13.0 for the fiscal year. Eight out of the past ten months have consistently produced high returns. The total fund is $72.9 billion dollars. April returns were good as employment improved. An early preview of May's returns were described as just so so. He reported that the Opportunistic/ Diversified theme has been expanded to include banking insurance and asset management. He gave a preview of a Domestic Equities initiative for 2015 that would have a) a Small Cap Value portfolio beginning in July of 2014 and b) a Concentrated Value portfolio also beginning in July of 2014 with a total of a $20 to $30 million investment. He promised to report more on these investments next month.

Callan Associates, Inc. also reported on STRS Investment Department's Performance Review. For the one-year period ending March 31st, 2014, the STRS Fund's domestic equity composite modestly trailed its benchmarks. The Total Real Estate exceeded its benchmark, but ranked below its peer median. International Equity and Fixed Income exceeded their benchmarks.

The Member Benefits Department (Pension Benefits) proposed a change to survivor benefits in which if a beneficiary dies, STRS would pay qualified children monthly survivor benefits to age 22 regardless of school attendance (recognizing other school and training options available today). This would provide a predictable, reliable stream of income to the surviving family. It would financially support children post-high school through studies & training to help them establish careers. Student benefits were added to survivor benefits Aug. 27th, 1970. This statute was written when college was a traditional four-year ( or two-year) course of study. Online and self-paced degree and training programs are now viable options for pursuing careers. Family incomes are disrupted when students don't meet the two-thirds of full-time basis outlined in the statute; yet, they may be in school or training. The formulas for this survivor benefit are two fold: a) dependent-based benefit in which the amount of the benefit depends on the number of qualified survivors in the family and fluctuates as children go off and back on survivor benefits and b) service-based benefit in which the amount of the benefit depends on years of service credit and the total benefit amount is constant and redistributes to remaining family members. OPERS retirement board approved pursuing payment up to age 22 at their Apr. 2014 meeting. SERS is paying up to age 19 due to recent pension reform changes. The STRS Board voted today to approve a change to the statute to pay all children monthly survivor benefits up to age 22.

The Member Benefits Department (Health Care) Greg Nickell reviewed the premiums and health care changes for 2015 that were recommended at last month's STRS meeting. He asked for Board action on those changes (which I sent in detail in last month's report) for 2015 ONLY. The Board voted to approve the changes effective January 2015. The health care changes proposed for 2016 will be reviewed and voted on at next month's STRS meeting.

The next STRS Board Meeting will be held on June 18th, 19th and 20th.