Dan MacDonald's report on the October 2026 STRS board meeting

HEALTH CARE BEING ADDRESSED FOR JANUARY 1, 2028

STRS's Committee and Board meetings were held October 21 and 22, 2026. The investment department shared a July return of a negative 0.1%. August was better at a positive 1.6%. Total investment assets ended August at roughly $111.1 billion. Currently the market is flat and certainly not as robust as the opening of FY 2026. As of July 1, we are into FY 2027 with the fund up $900 million. After the financial report, the investment committee went over the revised 14-page "living" investment reporting documents plus, since going to every other month's meeting format, a Board agenda of what will be addressed in meeting months. Outside Meketa consultant commented positively on the new format. The committee elected Alison Falls to be its chair for another year.

The Board was called to order after the investment committee. After approving minutes, the Board had a fiduciary educational training session and received its self-assessment results. Following lunch, guest speaker Keith Brainard addressed the Board. As former research director for the National Association of State Retirement Administrators, Keith Brainard collects, prepares, and distributes news, studies and reports pertinent to public retirement systems. He spoke to the national funding trajectory, STRS position, returns and assumptions, the pressures on our system in relationship to membership, cash flow, contribution rates, and the impact of pension reform. He noted that in Ohio "Members bear a comparatively large share of the cost."

The Human Resources Committee followed Mr. Brainard. They elected Joan Bellner their chair. The committee approved the Executive Director's FY27 Performance Evaluation template.

To me, the most important part of the meeting then began with the Ad Hoc Health Care Committee coming to order. Michelle Flanigan was elected committee chair. The health care fund is in need of money. It was projected to be 123% funded but is now projected to be 114% to 116% funded; liability was added by claims experience plus trend added $1.16 billion. STRS staff and policy recommend changes. Cost saving strategies include further subsidies reduction, plan design changes, and premium increases. Remember that no pension contributions go into the health care fund. These are two separate funds.

Guest speaker, Eric Seiber, PhD., of The Ohio State University College of Public Health, addressed the Board on the healthcare landscape within the USA with comparison to Germany, Canada, UK and the 38 OECD countries [Organization for Economic Co-Operation and Development]. The USA leads in healthcare costs because of pricing, often eliminating competition through consolidation [Columbus had 11 hospitals and now 3 systems], and administrative complexity. Administrative costs range from 15% to over 25% of all U.S. health spending. Administrative expenses for private insurance in the U.S. are 2.5 times higher than public programs. Committee members did live surveying questions like rank premium costs, to accessibility to care, to affordability, to long term availability. Also surveyed the committee member's attitude toward aligning costs with claims, plan designs [think deductibles and co-pay increases], eligibility, further subsidy reduction, pharmaceutical changes [the expense of GLP-1s was brought up.]

For those already on STRS healthcare, you should have received a mailing from Aetna and Silver Script regarding changes for January 1, 2027. If you have not looked over these documents, I suggest you do. Silver Script's annual deduction has increased as well as many co-pays. The discussions happening now at STRS are looking forward to 2028 health plan changes, not those already in effect for the 2027 healthcare plans. There was much Board discussion throughout this presentation.

Thursday morning Board meeting began with the Executive Director's Update, "The 25-year Arc: How Policy & Markets Shaped Our Funding." Toole started in 2000 when STRS was 99% funded with a 13th check, 3-year FSA, 3% annual COLAs, and an 88.5% formula. In 2003 was the dot.com bust, 55.1% funded. 2003-2007 The False Dawn, rebounded to 90% funded. The Break Point 2007-2009, 35.2% funded. Comprehensive Reform 2012-2017 75.3% funded initially on the backs of actives with increases in contribution and years of service and other changes. Then retirees with zero COLAs. In 2025, 84.1% funded. Administration acknowledged actives and retirees' sacrifice. The Board has developed and is using a SBP decision framework for a steady, shared [meaning retirees and actives] and disciplined approach to a fully funded plan for our newest active teacher to our oldest retiree.

Following Toole's presentation, a financial and actuarial overview was presented by the CFO. The FY ended June 30, 2026 with a negative $4.34 billion net cash flow [think contributions in versus benefits out]; net investment income was $13.82 billion; and the investment fund ended June at $111.3 billion, up from $101.82 billion at the end of FY 2025.

Outside actuarial consultant Cheiron presented its actuarial valuation. Key results: Benefit changes impacted $1.32 billion more in costs to the healthcare fund. Assets returned $5.89 billion more than expected on market value. The funding period decreased from 11.8 years to 10.3 years. All exceptionally good. Concern rests with FY 2027 and markets not looking as strong and therefore there is concern of earning a minimum of 7% return for FY 2027.

Outside actuarial consultant Cheiron presented its health care valuation. This report was not strong. Funded ratio fell to 116.6% driven by plan changes, health care experience, and regulation updates. Although investment returns were $349 million more than expected, liabilities were $693 million higher than expected. The Health Care Scorecard is RED which requires the Board to mitigate risks, hence the Ad Hoc Health Care Committee and its work to look at health care plan strategies, which means plan cost savings adjustments. 2027 Health Care Plans are set. The Board is looking at plan changes for January 1, 2028

Six people spoke during Public Participation, all retirees; 5 regarding the lack of COLA. One spoke on the need for health care coverage and the Ohio Retirement Study Council meeting.

Following lunch, the Executive Director thanked ORSC Chair Adam Bird and Vice –Chair Mark Romanchuk and their staff and committee for the ORSC's, along with independent consultants, identifying unsupported conclusions in a recent article questioning STRS's investment practices. The ORSC review was prompted by concerns raised about the management and investment strategies of the pension fund.

Routine Matters followed along with Old/New Business. After the meeting adjourned, the Ad Hoc Health Care Committee met 3 minutes to clarify the required contributions needed per year to support the health care fund.

The next meeting is scheduled for December 9/10, 2026.