Saturday, February 20, 2021

Dean Dennis and Bob Buerkle: Will Our Trustees Treat Us Right?

From Dean Dennis and Bob Buerkle

February 20, 2021

STRS began this Fiscal Year on July 1, 2020 with $79.8 billion in assets. As of December 31, 2020, due to the performance of the stock market, the STRS assets have increased by nearly $7 billion dollars and stood at $86.6 billion. This near record of unprecedented growth could be good for STRS members because our Board could use it towards paying a COLA or to approach legislators to consider reducing the Employee Contribution level while raising the Employer Contribution.

If this increase in assets holds until June 30th when our 2020 Fiscal Year ends, it will move the STRS Funded Ratio nicely towards the Board's unnecessary 85% funding goal which they have stated is when they will review our COLA. Our guess it might put STRS in the 82-83% range. Again, the STRS goal of being 85% funded for considering a COLA is ridiculous because STRS can easily afford a COLA. STRS is wrong to make our generation of retirees their sacrificial lambs so they can right their wrongs. When will our Board show some compassion?

Let's hope STRS Management doesn't pressure our Board into lowering the Investment Return Assumption from 7.45% to say 7.25% in order to get out of paying retirees a COLA. Doing this would add several billion dollars of more debt to the system and once again provide cover for the Board and management by moving the funded ratio lower. At the last Board Meeting (which was supposed to be recorded) Board President Rita Walters, up for re-election, dropped a hint this might be in play. Our Board President could then report that a COLA is still unaffordable because STRS would not have reached the stated 85% funded ratio goal for considering a COLA. Being over 85% funded has only happened 4 times in 53 years and all 4 years were during the dot-com-bubble. Yet at the present time we are inching closer.

There would be no acceptable reason to lower the Investment Assumption rate since the 2020 CAFR states on page-5 that the last 5-year investment return average through 2019 was 8.2%. Last fall, the STRS Investment Director also told us that the 10-year returns averaged over 10.4%. Also, since our legislators look at a 30-year funding period, know our 30-year investment returns are above 8.4%. There is an argument STRS should increase the Investment Rate Return. If STRS Management decides to pressure our Board to lower the Investment Assumption Rate again, after having a super-six-month period of returns, it will only because of hints they have dropped stating, “because that’s the level that most retirement plans are now assuming.” STRS wants to join the average. Doing this would fly in the face of their claims they are a top-tier pension system. They love to make this claim, while they reward their investment staff lavishly with bonuses. Yet, they want to be average with the other pension systems when it comes to setting their goals for investment returns. They can't have both ways. This is like the management of the Super Bowl Champions telling their quarterback Tom Brady, to set a goal of throwing fewer completed passes so he more closely matches the average of other NFL quarterbacks. The average pension system also provides some form of a COLA.Let's watch how our STRS Board responds if STRS management tries to move the goal posts on its members. Our member have gone more than half a decade without a COLA.

What are the better odds are this year, STRS members finally getting a COLA or, STRS staff receiving millions in bonuses? Will our Trustees do what is right?

Dean Dennis and Bob Buerkle

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