Dan MacDonald and Rob Walters report on the May 18, 2023 STRS Board meeting

From Dan MacDonald

May 20, 2023

1% Pension Cost-Of-Living Increase Approved

Rob Walters and Dan MacDonald attended the May 18, 2023 STRS Board meeting. The meeting opened with a greeting to new Board member Brent Bishop [boos and “Where’s Wade?” chant from audience]. After minutes approval, the Finance Department went over Ohio Law and Board Policies regarding the FY24 Budget proposal leading to the Sustainable Benefit Enhancement Plan [SBEP]. Outside actuarial consultant Cheiron re-presented its SBEP. STOP.

Board member Sellers asked why Wade Steen wasn’t present. Executive Director Neville replied that the governor made a new appointment and that was all he knew. Reformers pressed for reasons and info leaks. Fichtenbaum said it was shocking that the governor’s office would check attendance records of DeWine’s appointees to dozens of boards and commissions and stated, “This does not pass the smell test.” [By the way, Board member Herrington, an appointee, was absent for the morning session.]

Ultimately Cheiron presented using live modeling. Board members could ask what ifs, and calculations were drawn immediately. Ultimately, a one-time COLA of 1% and an extension of 34 years for full retirement until 7/31/2028 was passed. Total cost estimated at $325,000,000. STRS’s actuary, Brian Grinnell, then presented on OPERS, SERS, OP&F, and Ohio State Patrol and their funding plans.

Thirteen people addressed the Board during Public Participation. Seven addressed COLA. Three addressed SBEP. Two addressed the recent STRS election and sudden appointment. One addressed the Carlyle Group’s negative environmental impact on the world and STRS’s private equity holdings of the stock.

A two-plus hour Executive Session/lunch followed. After this break, Outside consultant AON presented on STRS’s Performance Based Incentive Plan. He mentioned that no incentive plan is identical to another, but each needs to attract, motivate, and retain top-caliber professionals; provide competitive pay; drive long-term investment performance; and be fair, reasonable and relatively easy to understand and administer. AON pointed out that STRS’s document is not relatively easy to understand or administer. He suggested five changes. 

AON pointed out that public investment departments are in challenging situations but do not control the market. AON reminded all that the current return is important, but long-term return is the most important.

The Investment Department then presented for adoption the Statement of Investment Beliefs. The vote 7-4, with the reformist all voting “NEA.” Fichtenbaum pointed out the lack of meeting obligations to members to pay benefits promised or a passive investment strategy appears nowhere. The reformists think these two types of statements should be included in the beliefs.

April’s preliminary total fund return was a positive 0.86%. Net Return for FY23 positive 5.19%. Total investment assets ended April at approximately $88.7 billion, higher by 1 billion in FY23.

Neville reported on 4 areas, two are: STRS supports the repeal of the Windfall Elimination Provision {WEP] and, 22, retirement applications are up almost 53%. Along with Neville’s report was a Legislative Update which included a future lobbying effort to increase Employer Contribution to 18%. 

Following the Legislative Update there was a Member’s Benefit Report. Information on the change to CVS from Express Scripts will commence in the third quarter. The health fund, which is totally separated from the General Fund, is 230% funded. Board member Foreman asked how some of those dollars could be used to offset those that are under 65 and retired.

The meeting ended after Routine Matters. The Ad Hoc Governance Committee then met and will interview, in June, six consultants for a Board Governance Consultant. The committee will interview, starting noon, on Wednesday, June 14. The next Board meeting will be Thursday, June 15.

Rob Walters & Dan MacDonald.