Dan MacDonald's report on the December 2025 STRS board meeting

From Dan MacDonald

December 16, 2024

TWO DAYS OF ACTION: DECEMBER STRS BOARD MEETING

Dan MacDonald attended the December STRS Board meeting.  [I appreciate all that tuned in for Wednesday and Thursday. As you know the Board now operates from committees to the Board. It was one of the suggestions from the 2022 Funston Audit.]

The Audit Committee started the Wednesday meeting at 11 a.m. The department heard Robert Vance, and his colleagues, shared information regarding the 2024 internal audits and the proposed 2025 internal audit plan.  [Mr. Vance has been with STRSOH for the past 28 years; he’s headed the department for the last 3.5 years. He was to retire but is extending until his replacement is found and settled.] Outside audit consultant Crowe presented its “Annual Independent Financial Statement Audit of FY 2024 with “unmodified opinion” issued, the highest level of audit.  Conclusion, all is accurate and functioning.

At approximately 2 p.m. the Governance Committee was called to order.  The committee interviewed three search firms for the chief executive officer search.  [This was interesting, and you might want to watch the video of the 3 presenters. The video can be found at strsoh.org under the banner ‘About.”] A firm was chosen by the committee.

Wednesday concluded with the Legislative Committee selecting a chair, Pat Davidson, and the disappointing news that the Ohio Retirement Study Council, ORSC, did not support the legislation for the Ohio Police and Fire Pension increase in contribution.  [In other words, the OP&F was looking for support for an increase in contribution as is STRS attempting.] A couple of bills were reviewed to include HB 78 which will allow reemployed retirees to serve on the STRS Board if the governor signs the passed legislation.

Thursday started at 8 a.m. with the Investment Committee. The committee met until 12:15 p.m. to cover several reports and activities.

First, October preliminary total fund net return for October was a NEGATIVE 1.3 percent with fixed income and domestic equity down with pre-election jitters.

November preliminary total fund net return was a POSITIVE 2.2 percent. Markets rallied driven by favorable economic results and unambiguous election results [the election was not drawn out by months of accusations and court rulings.]. From July through November the FY25 net return is up a POSITIVE 5 percent with preliminary total investment assets ending November at $98.2 billion, higher by $2.9 billion in FY25.

The semiannual broker review was reviewed and approved.

Outside consultants Meketa presented a first quarter review. [Although retirees are not receiving a COLA, STRS Investment department is outperforming most of its peers in 5,10-, and 20-year periods.] 

Outside consultant Albourne presented on fee validation, identifying fees and their correct payment. Albourne validated the fees paid in calendar year 2023 with no findings identified and they validated the management fees for FY24.

Outside consultant CEM Benchmarking then presented using Albourne’s validation of fees information. CEM’s findings: STRS’s 5-year annualized net total return for the period ending calendar year 2023 was 9.7%.  This was above both the U.S. Public median of 8.8% and the peer median of 9.3%. The fund was low cost to its peers primarily because it paid less than peers for similar services. Internal management saved about $122 million compared to its peer median external costs.

Outside consultant Callan gave its quarterly review as of September 30, 2024, and supported the belief that the Investment department is performing well. [Again, then why no COLA and why are actives working longer for less?  It is complicated and goes back to decisions from before 2012 and several market downward adjustments.]

Outside consultant Meketa then led the Board in its Asset-Liability Study. The Asset Liability Study will determine what the asset classes will be in the future and the percentage of funds in each class. [The demand for more passive investments enters this discussion as well as ultimately staffing needs internal and external. This part of the meeting was demanding of the Board and presenter with push, pull, confusion, hesitancy and finally agreement for further discussion with wider parameters.]

At 12:30 p.m. the Board meeting was called to order. Public Participation took place after minutes approval. Nine people spoke.  Toledo Blade articles, misinformation, COLA, Executive Director selection, fees, passive investments and “Welcomes” to Interim Director Hood were all part of the mix.

After lunch/executive session, the Board returned with a report from the  Member Benefits Department. Outside consultant CEM Benchmarking shared its study of the department against 68 global pension systems. The STRS service score was the highest of anyone in the study.

The Health Care Subsidy was also discussed. With the move to 33 years for actives and the cost of health benefits and the projection of such changes in the future, money will soon be needed for the health care fund to offset the costs outflowing.  [Remember, there is no flow of money into the health care fund except for member’s premiums which are subsidized.] Discussion followed with the Board agreeing that this must be addressed sooner than later.

Interim Director Aaron Hood gave the director’s report. He was impassioned stating that the glass partition in the Board area will be removed by the next scheduled Board meeting and his work to build trust in his time at STRS amongst all its communities.

Routine Matters followed.  Bills were paid and committees reported.  [This agenda item is going to need more time delegated because of the committee reports. The fifteen minutes allocated turned into an 85-minute session].

The Governance Committee report was challenged by several Board members and the search firm recommended by the committee changed.  A great discussion happened, but the trust and concern amongst all members was on display.  It should be acknowledged, and was by all, that this probably is the biggest decision that this Board will have to make, a new Director of STRSOH.

The meeting adjourned at 6:25 p.m. The next regular meeting is scheduled for February 19, 20, and 21, 2025.