Dan MacDonald's report on the STRS Board meeting of October 21, 2021

From Dan MacDonald

October 21, 2021

STRS October Board Meeting

The October 21, 2021 STRS Board meeting was called to order at 8:30 a.m.

After minutes were approved and the Investment Department was called to present, Board member Rudy Fichtenbaum challenged the new disclaimer statement on the investment report. Chief Legal Officer Wideman responded that the statement was placed to protect the Board from the public who misrepresents and alter slides and info.

Board member Steen jumped in also sharing its first-time appearance and asked what “triggered” the event.  Wideman responded that there was no event, just good business practices. Board member Price pointed out that the disclaimer resembled Callan’s, Cliffwater’s and other consultants’ disclaimers, but did ask if anyone at STRS considered telling Board members about the disclaimer before its sudden appearance. Fichtenbaum suggested that its wording be altered to clarify the intent of the disclaimer. Wideman stated it would be reviewed.  [Shenanigans continue; I’ll be shocked if it ever comes up again by STRS staff].

The Investment Department reported a negative 1.33% return to the fund for September.  FY22 return [since July] is a positive 2.12%. Total investments assets ended September at $95.1 billion, higher by $280 million for FY22. Asset class presentations followed for alternative investments, domestic equities, and international. Under International assets, the department head asked the Board to consider hiring an ACWI ex-US growth external manager and hiring a dedicated China A-share external manager. Consultant Callan ended the report praising the team efforts to beat benchmarks and willingness to try new strategies for better returns.

The Executive Director’s Report covered 7 areas. The Ohio Retirement Study Council Report showed that STRS Ohio’s returns ranked STRS first among the Ohio five pension funds, for the months since June 2021 and also for five-, seven-, and 10-year time periods. [STRS is proud; Neville didn’t point out STRS is the ONLY fund not currently paying a COLA]. STRS is under a special audit by the Ohio Auditor of State’s office from complaints received related to the Benchmark Financial Services report. [Think Ted Siedle’s forensic audit paid for by members]. Steen and Fichtenbaum asked questions about the special audit and its scope and Steen, as chair of the audit committee, pointed out Board policy doesn’t cover the jurisdiction of the audit committee in special audits. He wants his committee involved.]McFee and Rhodes, two active seats, are up for election in the spring, as well as Walters, a retirement seat. The other areas were all “Bravo, STRS staff.” 

Under Public Participation 7 spoke. Most were on COLA, but one spoke against investment involvement with China and its government entanglement with its companies; another spoke against STRS Investment Department’s stake in HIG Capital and HIG’s poor track record with companies filing bankruptcy and being prosecuted for fraud.

Actuarial consultant Cheiron reported for the Finance Department after lunch. Cheiron, of course, used STRS’s new projected rate of return of 7% [from 7.45%], and of course that leads to less income to the general fund, BUT still projecting that if 7% is reached yearly, the fund would be fully funded in eight years. In its summary, Cheiron pointed out that “the plan is still vulnerable to future adverse experience,” the 7.0% investment assumption exceeds the investment consultant’s long-term expectation, a negative cash flow that exceeds 4% of assets is happening, a fixed employer contribution rate, and concluded “any consideration of benefit improvements should be delayed at least until after the completion of the upcoming experience review.” [Think late spring 2022]

The Funding Policy Dashboard, which is a statistical measurement used to direct the Board regarding the Fund’s solvency, went from a negative three to a negative one. Sixteen Plan Design Levers were also shared and their impact on the general fund. [Think the impact of a COLA, increasing/decreasing the Contribution rate, a one-time supplemental benefit, changing the benefit multiplier or final average salary determiner, etc.]

 The health of the Health Care Fund was then presented. It’s healthy, 174.73% funded. Dashboard went from a plus 7 to a plus 5, mostly because of government changes in subsidies.

The Board concluded with a one-time authorization of a premium rebate of $300 for each individual covered by the STRS retiree health care program in September 2021 to be paid in November’s pension payment.  Routine Matters approved expenses and other business.

Under new business, Steen and Fichtenbaum thanked “the Chair,” for allowing a future presentation on how to increase the general fund and both stated, that no matter the actuarial report, they both would present and support a COLA.

The next meeting is scheduled for November 18^th; it is the annual Educational and Planning meeting and not a Board meeting. The next Board meeting is scheduled for December 16^th.