Dan MacDonald's report on 5/19/22 STRS Board meeting

MAY’S STRS BOARD MEETING SUMMARY

Robert Walters and Dan MacDonald attended the May 19, 2022 Board meeting called to order at 9 a.m. All Board members were present in one form (present) or another (electronically, Steen). After approval of the minutes, the Investment Department reported that the preliminary total fund return for April was a NEGATIVE 4.03%. The preliminary FY22 total fund return is estimated at 0.11%. Total investment assets ended April at $91.6 billion, lower by $3.2 billion in FY22. [The following statements are for your awareness. All these number are VIP. The market had a very rough month. STRS has an assumed rate of return for a fiscal year (FY) at 7%. The FY ends June 30. Presently we are estimated at 0.11%. Only May and June are left to reach 7%]. The Board reviewed and approved the Statement of Investment Objectives and Policy and Statement of Fund Governance. The new asset allocations will now be the Investment Department’s goals. The Board reviewed the semiannual broker evaluation and associated policies for the first half of FY23. The Board reviewed the Performance-Based Incentive Program for FY23. Two positions were eliminated for the incentives. There was a lot of discussion regarding the PBI and also STRS’s compensation policy in general. The PBI Policy will be voted on during the June Board meeting. Steen asked about April’s large purchase of Phillip Morris stock. The investment was a “defensive” purchase. Price asked about the chances of a recession. The response was it is increasing and will be on the June agenda.

The Finance Department had outside consultant Cheiron review economic assumptions for the June 30, 2022 actuarial valuation. Charts were presented on STRS’s historical rate of return experiences, industry trends using 200 large retirement plan, regulatory changes, the Board’s risk preference and how it has changed since 1992 [currently 7%], plan dynamics [think contributions and normal costs plus interest on the unfunded liability. Cheiron still projects reaching fully funded in 8 to 16 years]. Basically, Cheiron recommends assumptions of a rate of return between 6.25% to 7.0%, inflation rate of 2.5% [yes, inflation is projected to fall], and payroll growth to continue at 3%. [This does not mean another COLA is in the pipe. It means STRS is going in the right direction.]

The Member Benefits Department did a presentation on pension benefit comparisons against other pension plans.  Systems are all over the place with final salary averages, COLAs, health care coverage, contribution rates, benefit multiplier. Director Neville did comment on “Inflation Protection” and hopes to present STRS’s ideas at the Board’s November Planning and Education Meeting. [If you have the time you should go to www.strsoh.org and download the Member Benefits slide presentation.]

The Executive Director reported on 4 areas. As of April 30th, there are 400 fewer applications in for retirement than last year, a 23% decline. Hunt asked Neville to respond to Ohio State Representative Phil Plummer’s meeting  questioning STRS on the pension paying $0.77 on each dollar contributed; 6% pay raise; low investment returns; and transparency. Neville had a response basically pointing out the inaccuracies of the accusations. Fichtenbaum was the only Board member to push back on Neville’s responses. Seven retirees and one active, Julie Sellers, spoke during Public Participation. Newly elected Sellers shared that STRS had made no contact with her to this point in time and asked for an informational packet, orientation dates, and tour of the building. [Good start for Julie]

After lunch a presentation of STRS Ohio HQ Building was presented. The original 3 story building was built in 1958. The building was expanded in 1977. A third phase was in 1988 and the last phase was 1998. Four potential solutions were presented, lease unused space; consolidate; relocate; maintain. Each option was discussed. After discussion, the Board will further explore the building’s future.

Routine Matters followed. Under old business, Price brought up the Rule of 92, a combination of years of service and age. The rule combines years of service and age to reach a retirement.  The Board voted to hired outside consultant Cheiron to explore this and similar point-based retirements options.

The next Board meeting will be June 16, 2022.