Dean Dennis to STRS board: Today, I still think adopting a formula-generated EA approach is more reasonable than following the 7% EA crowd. Remember, the crowd also has variable employer contribution rates, whereas we don’t. It’s time we demonstrate we are a top-tier pension system.

From Dean Dennis

October 17, 2024

October 17, 2024 - Dean Dennis, 35 yrs, Cincinnati Public Schools. ORTA Executive Chair.

I will read a quick section of the September 2024 Newsletter from the Ohio Public Employees Retirement System.

“The OPERS Board of Trustees approved updates to OPERS’ funding policies, establishing a decision-making framework to manage the future funding of the system's pension and health care plans.

The new policies came about because the trustees had expressed interest in creating a system to reduce funding risks by setting clear objective parameters honed on past experience that trustees will reference in the future to make prudent funding decisions.”

The new policies include the following update: Setting a systematic, formula-driven approach to identify potential actions for the trustees to manage funding and risks.

I bring this to your attention because on October 17, 2019, five years ago. I stood before the Board and presented the following:

Ohio Statute sets our funding period at 30 years. Over the last 40 years, has STRS earned less than 8% over any rolling 30 funding-year period? I believe we achieved around 8.5% over our previous 30-year period. So, why is our Earnings Assumption set at 7.45%, over 100 basis points less than what we are actually earning?

Why hasn't our Board adopted a reasonable EA formula that ties the actual earnings of our 30-year rolling funding periods and then adjusts the EA accordingly? Why can't we adopt an EA 50-60 basis points lower than what we earn and adjust accordingly every five years? If an EA of 7.9% were adopted, 60 basis points lower than what we are earning over our 30-year funding period, it would reduce billions from our 30-year liabilities. As fiduciaries, you could restore a COLA.

In March 2017, the Board drastically reduced the EA from 7.75% to 7.45%, dismissing the reality of our historical 30-year earning returns. Thirty months later, our 10-year earnings period netted a return of 10.44%, nearly 300 basis points above the current adopted EA. Adopting a reasonable formula-based earning assumption is not irresponsible; however, withholding benefits because of a lack of one is irresponsible.

Today, I still think adopting a formula-generated EA approach is more reasonable than following the 7% EA crowd. Remember, the crowd also has variable employer contribution rates, whereas we don’t. It’s time we demonstrate we are a top-tier pension system.