Dan MacDonald's personal report on the August 17 and 18, 2023 STRS Board meeting

SUMMARY PERSONAL AUGUST STRS BOARD MEETING

Rob Walters and Dan MacDonald attended the August 17 & 18 STRS Board meeting. If you tuned in, thank you. If you stayed “tuned in” for the 5 hours executive session a special thanks for listening at 5:55 p.m. when the meeting resumed.

The 17th started with the Audit Committee which shared updates on internal audits being conducted. This was followed by a report from outside consultant Crowe LLP who is also conducting audits with a final report due December, 2023. Outside consultant ACA Group followed by its report that STRS is GIPS [Global Investment Performance Standards] compliant. It is the highest of accounting standards. Executive Director Neville followed with a Fiduciary Audit Update.

Funston Advisory Services was engaged by the Ohio Retirement Study Council to conduct a STRS performance audit which was completed May, 2022. Recommendations from this audit numbered 172. 33 recommendations are complete; 85 are in progress or planned; 49 are Board decisions [for which the Board is seeking an outside consultant] and 5 recommendations are “Disagree/Disagree in part.” Some of the recommendations’ “Highlights” include a statement of investment beliefs, Board meetings videoed and archived a year; preliminary Board materials available to public 2-days before a meeting; more town hall and other constituent group meetings to the public.

The actual Board meeting commenced at 10:05 a.m. After roll call and minutes approval, the Investment Department reported the fund return for June was 2.79% which showed investment assets increased by $2.4 billion during FY 2023 ending approximately at $90.1 billion. The total fund FY 2023 return was 7.68% gross. [Fichtenbaum pushed on this since costs were included. He is a lone voice. His point is that STRS should be reporting everything less costs [net] to get a true picture of assets and asset classes. I agree with him.

Remember the Fiscal Year [FY] ended June 30, 2023. Performance-Based Incentives are based on the closed numbers. Not to confuse this information, but Alternative/Opportunistic Investment numbers lag by a quarter, so will not be available until October. Remember the discrepancy in closing numbers last year FY2022. As I stated, Fichtenbaum is perhaps the most knowledgeable on this since Wade Steen has been removed and he now is a lone voice.]

The Investment Department updated on the search for a General Investment Consultant, proxy voting, a review of securities compliance policies and procedure, the semiannual derivatives exposure, and a Domestic Equities review [where for the first time ever I heard a department associate admit that STRS might have been able to do “a little better” if they reacted quicker in the 4th quarter. Truly, this is a good thing.] Outside consultant Callan then reviewed performance and STRS against its peers. STRS is on the right path and is great was the conclusion.

Public Participation had 15 individuals sign to speak. Fourteen spoke. Four passionate parents spoke on the childcare center sudden closure; another was not able because she had to return to work. Two spoke on transparency. One spoke on concern of newly elected Board members whose ideas could lead to devastating the pension. One spoke on soon-to-be former board member Lard's passion and service. Six spoke on the lost COLA.

At 12:55 p.m. the meeting was recessed for a “not earlier than 3 p.m.” return Executive Session. The Board returned at 5:55 p.m. The Performance-Based Incentive Program for FY2024 was presented. The program is voted yearly and has been in place for over 35 years [and always paid]. It is common amongst large pension plans which have a significant portion of assets internally managed. STRS manages internally 2/3 of its assets. Outside consultant CEM reports a $100 million savings because of active management. STRS reports performance over the benchmarks added over $2 billion in value during the past five years.

Changes from last year’s document were proposed and each gone over. [The font size presented and in documents you can download on STRS website,https://www.strsoh.org/, is probably a 9, very small. Not much discussion and the meeting adjourned at 6:23 p.m. [Twenty-eight minutes spent with intro and changes and a document for which a guest needed a magnifier. A document that is definitely a hot spot for many of the 500,000 STRS members.]

On Friday, August 18, the Board meeting came to order at 9 a.m. The 2024 Health Care Program was presented. Major changes. All enrollees will transition to CVS Caremark (CVS) from Express Scripts as of January 1, 2024. It was stated that nearly 95% should experience no disruption such as formulary changes, utilization management or tier changes. If there is a disrupted, CVS will notify individuals by mid-December.

The plan has 66,000 pharmacies, of which 9,000 are CVSs, in network including many chains like Kroger and independent pharmacies. Mail order will also continue through CVS although you will need to set-up payment. Under medical, all Medical Mutual, AultCare, Paramount and Health Care Assistance will transition to Aetna.

The Aetna Medicare Advantage Plan will have some enhancements. Everyone covered by an STRS plan will be receiving a new identification card for both medical and prescription drug by the December holidays. Information will start being mailed late September.

Open enrollment is November 1 through November 21. Understanding Your Health Care webinars will be offered Monday, October 30, Wednesday, November 1, Thursday, November 2, plus there will be a customer service number available, plus STRS own staff, to help everyone transition.

Following benefits, the meeting recessed to allow two governance consultants to be interviewed, AON and Nossaman. The Board meeting resumed with a resolution thanking Arthur Lard for his four years of Board service. Executive Director Neville then gave reports for July and August [no mention of the childcare center closing.] Eight reports for July and two for August. There were 2,689 retirements this summer.

The 2024 Performance-Based Incentive Program was then brought up for a vote. [Voting on this usually is part of presentation and was not brought up last evening or on today’s agenda – transparency] Back and forth discussion with praise of the document as steps toward a just and solid policy by Hunt, Bishop, Price, Falls, Herrington with Fichtenbaum and Sellers pushing back. The policy was amended to “If the Board’s actuary determines the System does not have at least a de minimis amount available under its Sustainable Benefit Enhancement Plan (SBEP) for the fiscal year during which Incentive Compensation is scheduled for payment, the Incentive Compensation for each Eligible Associate will be reduced by 10% [was set at 5%]. The policy passed 7 to 4 with Fichtenbaum, Foreman, Jones, and Sellers voting No.

Routine Matters followed. Payment of the FY2023 Performance-Based Incentive passed. Under old Business AON was approved as governance consultant. A vote was taken to establish a Legislative Committee, passed. Board member Jones requested the daycare situation be visited in an open session. Neville responded with “unprepared remarks” justifying the closure with some information. [To me it is a transparency issue. During Public Participation the closure of the daycare center is often brought up, as is selling or renting the building, the art within the building, the non-tax charged on cafeteria lunches, closing the cafeteria, heated sidewalks, a myriad of thoughts/suggestions.

Correthers reminded Jones that “we do not respond” to Public Participation. The Board should. It does not. The daycare center closing notice happened in July. It will now close the end of December. The Board did not even know of its closing from what I understand. Neville did step up to the plate and respond to Jones instead of hiding behind a blocking Chair, Correthers.] Fichtenbaum then brought up Roberts Rules of Order which will now be brought up as part of an agenda item in September. The meeting adjourned at 1 p.m. The next meeting is September 20-21-22.