Friday, April 12, 2013

Dennis Leone: Factors Driving STRS 30-Year Planning and Revenue Assumptions

From Dennis Leone, April 12, 2013 
The attached 4 updated charts are not pretty (except for a couple of great stock market years). As I tried to say in 2007 and 2008, but no one wanted to listen, the current trends pertaining to: (1) The increasing number of retirees; (2) The decreasing number of active educators; and (3) The decreasing revenue assumptions connected to active member payroll growth (base salaries, base raises, step increases, bonuses, etc.) all spell trouble for STRS absent there being annual spectacular stock market returns. It deserves noting that a board consultant from New York has convinced the board that in 2017, the payroll growth will go up from 3.5% per year to 4.0% per year. Interesting to say the least, given that the data shows an average payroll growth increase of 1.63% per year for the past 8 years. 
The board and staff have been terribly naïve about payroll growth, developing assumptions based on what an uninformed outside consultant has said instead of what Ohio’s 615 school districts are saying. While the recently adopted pension solvency plan will help, it will not be enough unless these 4 areas improve significantly. The overly generous 13-year phase-in for the new retirement age requirement will not produce the help STRS needs in the immediate future. Maybe now the board will be interested in working on a contingency plan. The current pension solvency plan will need refinement sooner than later. 
Dennis Leone
(Click images to enlarge)
Larry KehresMount Union Collge
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