Dan MacDonald's report on the December 2023 STRS Board meeting

From Dan MacDonald

December 16, 2023

SUMMARY OF DECEMBER 2023 STRS BOARD MEETING 

The December STRS Board meeting was a bit unusual. The meeting started on Wednesday December 13th with an Ad Hoc Legislative Commitee meeting. A number of topics were reviewed: preschool teachers, employer contributions, pending legislation, administrative code disability rule, STRS’s disability review panel, & health care fund impact changing to 30 years of service. Preschool teachers are currently covered by SERS. STRS is seeking to place preschool teachers into STRS.  In an informal opinion the Attorney General response was since the statute does not require licensure, preschool remains in SERS. STRS is pursuing legislation proposing an increase in the employer contribution rate to 18% phased-in over eight years. ORC states that a disability benefit is immediately terminated if the recipient performs any teaching service. OAC defines: “To perform any teaching service” includes all employment, contracted services, or volunteer work that relates to the work of educators, such as, but not limited to, writing curriculum, leading workshops, providing training, instructing students of any age, or directing teachers, student teachers or students.

The Board meeting then commenced upon the committee meeting closure. Consultant AON presented the survey results that the Board members were asked to complete. AON shared info and led discussion amongst Board members present.  Highest scores revolved around new Board member orientation, roles of Board and staff, and materials and information. The lowest scores were the Board's one voice policy, trust in each other, and teamwork.  AON did state that overall, the survey provided the lowest scores they have ever seen. Much interaction occurred.  Following the survey discussion, the implementation of the fiduciary audit recommendations/governance considerations-part 2 commenced. The Board adjourned at 5:15 p.m. 

Thursday’s meeting started with the Audit Committee meeting.  STRS has internal and external audits happening every year. Every five years a Quality Assessment Review must take place by an assessor not in any way connected with STRS. She gave STRS exemplary status. Following the report, the Audit Department presented current audits and changes then had the Board approve its 2024 Audit Plan.  

The Board meeting then commenced with minutes approval and consultant Crowe, LLP on the results of the financial statement audit. Crowe found no “corrected” or “uncorrected” misstatements in the audit. 

Acting Director Lynn Hoover then gave her Executive Director’s Report which included the heads of the Benefits Department and Communications Department addressing the Board. Hoover addressed 7 areas. Most routine, but one not. The Fiscal 2023 Annual Comprehensive Financial Report (ACFR) has been completed.  During Benefits presentation it should be noted that appointments for consulting session has dropped from 12 weeks to 4-5 weeks.   Under Communications, Board members want to be notified when an STRS Town Hall meeting is taking place in their general area. Bias in Board member election cycle and misinformation was also discussed.  

Public Participation ranged from Neville to funding levels to KARMA to COLA to sustainability to offers to help to levers and assumptions.  Twelve speakers addressed the Board.  [By the way, on Thursday there was discussion on Public Participation.  One proposal was to have to sign up one to two weeks early to speak and present the topic.  Consideration and scheduling would then happen.  Davidson suggested some type of videoing so actives could speak.  Hunt thoughts address a Board meeting is for the Board which has to be held in public.  He implied no need for participation.  Fichtenbaum said it would be a mistake to alter participation.  Everyone had input.  AON will do some research] 

The Investment Department presented.  October’s return was a negative 1.90%.  November’s return was a positive 4.86%.  The preliminary FY 2024 total fund net return is estimated at a positive 1.10% with total investment assets at $89.2 billion, still lower than FY2023 ending by $800 million.  Consultant Albourne presented on fee validation processes.  STRS has 447 not in-house investments.  Net managements fees were $192,343,072 for FY2022.  [There is much more explanation to this such as operating expenses and interest expenses and paid carried interest. One should review the presentation on the STRSOH.org site.] One Board member was delighted that this should “put to rest” the public outcry of what is paid in fees. Following Albourne, consulting CEM Benchmarking presented on the health of STRS general fund to its peers.  STRS performs in the top quadrant and its investment costs rank well against its peers. The low costs come primarily because STRS paid less than its peers for similar services. Returns, value added, and cost and cost effectiveness were all strong against peers.   Consultant Callan then presented on Alternative Investments. Again, Callan reported that STRS has done well. Finally, Callan reported on the fund’s overall performance against its peers. Like CEM’s report, STRS is one of the leaders of its peers.  

Routine Matters and Old/New business ended the meeting. Under Old business, Davidson, Jones, and Sellers reported on the trustees' conference they attended.  Under New business, Sellers moved to reduce years of service to 32 years at any age pending Cheiron’s February presentation that it would not materially impair the fund.  Foreman 2nd. Price overruled. The consultant Parliamentarian was called upon who ruled the motion was in order but suggested to Sellers to make it a Notice.  After much Board discussion, Sellers withdrew her motion and accepted the Notice which means it will be an agenda item on February’s meeting.  The Board does not meet in January.  [It should be noted that Bishop and Herrington were not attending the meeting so very possibly the vote would have been 5-4 with Sellers getting the vote if the recent elected Board members voted with her].  

The next Board meeting was not announced, but probably is February 15, 2024. [See Board meeting schedule here.]

Rob Walters & Dan MacDonald