Rob Walters' and Dan MacDonald's report on the October 19, 2023 STRS Board meeting

From Dan MacDonald

October 24, 2023

STRS BOARD OCTOBER REPORT 

Robert Walters and Dan MacDonald attended the October 19, 2023, STRS Board meeting. No fireworks this month. 

New Board member Pat Davidson has dived into STRS’s financial figures and questioned management as became obvious during the Finance Department’s report which came after the approval of minutes. An allotted 90 minutes became 220 minutes before an executive session/lunch was called at 12:47 p.m. With the close of FY23, an Annual Comprehensive Financial Report is being prepared. Figures were shared and questioned.

Board member Fichtenbaum  pointed out 2012 retirees have lived half their retirement without a COLA increase; they cannot make it up; and “They do not live forever.” This was spurred by outside consultant actuary Cheiron which produced a Pension Actuarial Valuation based on FY23. The general fund is 81.3% funded, up from 80.9%. If all remains the same [which NEVER happens], in 11.2 years the plan will be fully funded, previously 11.5 years. [Creeping forward]

There still is a negative cash flow of 4.6%, but the flow is covering some of the interest and principal paydown. [Think if you owe on your credit card and make a payment that covers the interest plus an additional 10% of the charges on the card AND you do not add additional charges.]  Cheiron shared multiple projections of what happens to the fund based on investment rate of return over several years. [Think market going up or down and STRS not getting an annual return of 7% to the general fund.] This year’s Funding Policy Dashboard went from a negative 1 to a negative 2, the total range of the dashboard is negative 11 to a positive 11. [Much preferable to be in the positive range.]    

There was also an Actuarial Valuation of the Healthcare portfolio. The healthcare fund is 169% funded. The Healthcare scorecard/dashboard is “0” down from a positive 9 last year, the total range is from a negative 11 to a positive 11.  

Although The Finance report was not completed, the Board broke for Executive session/lunch. After the break, the Finance Department presented the status of Board members’ request. There were 3 proposals. A phase-in of retirement eligibility based on hire date: Group A: those who retired prior to July 1, 2012; Group B, everybody else. A proposal to provide a CPI triggered COLA. A proposal to change fractional years for early retirement factors. All these will be discussed in future Board meetings.  

The Executive Director then gave his report on five items. The Childcare Center between 2012 to 2019 averaged a negative $11,582 per year. It had four surplus years and 4 years of loss. The last four years, COVID years, the center averaged a loss of $209,915 per year with all four years showing loss. 

The Center currently has 35 children with a calculation by STRS of 64 needed to break even. Also, STRS reported it could not find qualified childcare staff. (Not mentioned, but this is amazing, since the childcare staff pay into OPERS and would receive a pension if they stayed; working there should have been a selling point against other centers.) A vote was taken to keep the center open through June. The motion was defeated 3 for, 8 against. 

Public Participation had 10 speakers including 2 childcare parents speaking on behalf of the center, 1 on the STRS townhall meetings, 2 on hirings, 2 on COLA, 2 on Investment staff, 1 on STRS not being the worst pension in the nation. 

The Investment Department then reported. September’s return was a negative 2.29%. Total investment assets ended September at $87.5 billion, lower by $2.6 billion for the first quarter. For FY2024 the total fund net return is a negative 1.72%.  

Figures were shared indicating future better Capital Market assumptions. (Hopefully, the assumptions will happen.) Investment fund governance language changes were made to policy based on the Funston audit. Alternative Investments made a presentation explaining concepts and its positive 12% return from inception-to-date. An overview of the SEC private fund adviser rules was also presented.  

Routine Matters followed and then Old/New Business. Board member Hunt suggested AI and its use with investments be placed on the Board agenda.  

The next Board meeting is in December, but the annual Education/Planning meeting will take place November 16th and 17th and is open to the public.  

Rob Walters & Dan MacDonald