Rob Walters and Dan MacDonald's report on the March 21-22, 2024 STRS Board meeting

NO COLA FOR RETIREES; ACTIVES: PERMANENT 34 YEARS UNREDUCED RETIREMENT plus 29 years reduced

Rob Walters and Dan MacDonald attended the March 21 STRS Board meeting and the March 22 Annual Investment Seminar. [Once again thanks to all that attended via the STRS link. March, April, May and June’s meetings are critical. Critical decisions that affect the next fiscal year are voted.] A motion was immediately made by Chair Price regarding Acting Director Lynn Hoover's financial compensation for holding two positions at STRS from Thanksgiving until at least May 17, 2024. Vote 10-1. Herrington voted No. Board member Pat Davidson pointed out that threats to Hoover and her family should not be happening and that he was thankful for her willingness to be Acting Director and Chief Financial Officer over this period. It was not required. [Hoover does bring a different positive tone to Board meetings and the public that we see carries over to staff.] February’s minutes were then approved, and outside consultant AON presented on strategic planning and implementation of governance items. Committee assignments were presented and voted, 11-0.

Staff then presented on the STRS Disability Program. The Funston audit recommended the elimination of the Disability Review Panel, on which Board members sit, and appeals would be determined by staff and the Medical Review Board (MRB). Board members did push back on this idea based on the lack of diversity, age, and no term limits of the MRB members and the lack of understanding of today’s schools and stress within them. [STRS disability approval rating is 85%; OPERS 97%. Interesting. We were hoping that a Board member would request information on denials to approval through the appeal process.] The vote on elimination of Board members from appeals will happen in April.

The Investment Department reported a February preliminary total net return of positive 1.96% with a FY preliminary net total net return of positive 6.61% [Remember the Board’s goal is at least a total fund return of 7% by the end of June.] Total investment assets ended February approximately $93.1 billion, higher by $3 billion in FY 2024. [Right direction.] The Board also voted 11-0 on the amended stock proxy voting policy.

STRS actuary Grinnell did his annual update on enterprise risk management. The purpose of the presentation is to help the Board understand the current largest risks facing the system, what the board and staff are doing to manage and mitigate those risks, and the best estimates of the risks that remain despite those mitigations.

Chief Benefits Officer Christina Elliott introduced her benefit directors and reported on the Prescription Drug changeover to Caremark.

Hoover followed with the Executive Director’s report. Applications for retirement are up for this period, STRS’s efforts for additional transparency, the election of a contributing member seat by actives taking place April to May 6, 2024, the FY 2025 budget preparations and a couple of other items. 

Fifteen people spoke during public participation, two actives who took personal days. [One active spoke to his concern of retirees endorsing contributing members' seats and concern for balance on the Board. The other active addressed teacher shortages and that STRS was an enticement to join the profession, and with all the changes, teaching is no longer a career with a good ending. Two other retirees spoke of false claims by some retirees of promised COLAs and the need for STRS to continue as it has, looking out for the future retirees. One retiree addressed the 2 sections of Board members and their need to listen to one another and not be critics but problem solvers together. One person addressed the current de minimis financial plan and a need for an STRS financial plan looking to the future instead of the scraps that divide actives and retirees. The other 11 addressed the staff and board about lack of COLAs, PBIs, limited seating at STRS Town Hall meetings, legal threats for giving cookies out at Board meetings and the STRS’s Oscar Awards – listen to the video available under STRSOH.org, Resources, Board meetings.]

After lunch, Cheiron presented the Sustainable Benefits Enhancement Plan. After a lengthy presentation, $0.83 billion was available to enhance benefits. The Board chose to make permanent 34 years of service for unreduced retirement, currently 34 years extended only to 2028. Along with that comes an eligibility reduced retirement of 29 years or 60&5, currently it is 30 years or 60&5. Effective date June 1, 2024. Vote 11-0. There will be NO COLA this coming year for retirees. [Know that the Board could have voted a 1% COLA and extend unretirement at 34 years to 2036. Rob and I worry, not only because of today’s public participation, that an effort is being orchestrated to divide actives and retirees by outside forces.]

Member Benefits did a report on early 2025 cost indicators. There are headwinds in the health care area. Cost increases and subsidy reductions and changes made by the Inflation Reduction Act. Changing the years of service also affects the cost of medical plans. STRS is delaying until August to address plan design and premium decisions.

Routine Matters and Old Business/New Business ended the meeting. There was a short presentation on the elections for the contributing member seat and Davidson asked to explore absorbing/reducing/rebating premium costs because of June 1, 2024, pension changes.

Next Board meeting April 17, 18, 19, 2024.

Rob Walters and Dan MacDonald

STRS ANNUAL INVESTMENT SEMINAR – Making Our Fund Grow in Today’s Economy

On Friday, March 22, was the annual Investment Seminar that also ran until 5 p.m. Outside consultants Meketa and outside consultant Callan presented and led Board discussions.

The decisions the Board has to make in the area of investment determine what the investment department accomplishes. It is through investment that the 4-billion-dollar gap of benefit payments to income received collide. The investment department faces all the same issues that the world and we each face. This annual seminar is important because the Board sets the policy; the investment department implements their decisions. With all of that in mind, the world/national economy update was shared, and capital market assumptions were presented. A review of the asset-liability study process was presented. The Board will be reviewing and setting/resetting allocations for liquidity reserves, fixed income, domestic equity, international equity, real estate, and alternative investments. In the rebalancing of assets, the Board is determining the risks it is willing to take. The Board determines benchmarks for the investment department in these areas. The full day of presentations ended with an overview of alternative investments, and its quarterly performance. 

The dichotomy of the current approach to investments and a much more passive approach as presented in a paper by Dr. Fichtenbaum will be addressed in asset decisions and policy directives in the coming months/years. Bottom line, one can’t predict the market, but usually the better the market performs the better STRS general fund becomes healthier.

Rob Walters & Dan MacDonald

SO WHAT IS STRS’S FINANCIAL PLAN FOR ACTIVES & RETIREES?

[Added]: First, I want to acknowledge and give kudos to Director Elliott and the benefit department for assisting my member who was visiting in Georgia from Thanksgiving until March. The retiree did not have her new SilverScript card and had no idea how to get her medications. She had four days of insulin left. By calling STRS the next morning she was able with their help to register with SilverScript, get a script sent by her doctor to a drug store near where she was staying by Saturday morning. Thank you, Benefits Department.