A Delicate Dance for STRS Ohio
Posted on 01/11/2020
The 15th largest pension in America, US$ 79 billion STRS Ohio, is celebrating its 100 year anniversary. STRS Ohio has been awarded the Government Finance Officers Association Certificate of Achievement every year since 1990 for financial reporting. Its latest numbers show some improvement in funding but possible roadblocks down the line.
In October 2019, STRS reported a funded ratio of 76.1%, which is up from 75.5% the year before. However the funded ratio is dependent on STRS earning an annual rate of return of 7.45%. If all goes according to plan, its actuarial liability, or the amount of shortfall, is US$ 23.43 billion. STRS actually earned 7.13% in fiscal year 2019. Fiscal year 2018 was stronger, with 9.57% returns. The 30-year investment return is 8.33%. STRS Ohio’s Defined Benefit and Combined Plans paid out US$ 7 billion during the fiscal year. STRS manages 70% of its investments in-house.
STRS Ohio management reports that it’s staring down the possibility of falling below being 50% funded within 10 years. This risk is a concern within the pension, but its US$ 22.4 billion in U.S. stocks returned 8.74%, a number hard to come by elsewhere. It also has US$ 15.7 billion in fixed income and almost US$ 10 billion in real estate. The pension recently awarded two emerging market debt mandates to MFS Investment Management and Payden & Rygel. Real estate holdings are concentrated most heavily in the eastern United States with US$ 3 billion, but the west is not far behind, with US$ 2.5 billion. Alternative investments, such as private equity, account for another US$ 12.3 billion. STRS Ohio maintains an outlook for more private equity fund managers.
In 2018, Ohio pensioners protested the loss of their cost of living allowances. STRS Ohio had cancelled them due to budget restraints. The operating budget for 2020 is growing to US$ 104.4 million. The pension organization has been led by Executive Director Michael Nehf. Nehf is planning to retire after the second quarter of 2020. Nehf guided STRS through the aftermath of 2008, when assets dipped to US$ 46 billion. Executive search company Korn Ferry is looking for a replacement.
Retirement Changes in America
Congress has been busy overhauling America’s retirement system. The Secure Act will affect all full time, part time, and older workers. The problem being addressed is that working Americans between 35 and 64 years of age are short by US$ 3.83 trillion that they will need to retire. The new laws make it easier for smaller companies to offer retirement plans and it promotes plans that pay an annuity. Critics believe the annuities will come with higher than necessary fees. Over a third of Americans have never had a retirement account. More than half of low income Americans also lack any sort of retirement plan. More of them will enter into the retirement savings market as a result. College savings plans and student loans will also be easier to manage under the Act.
Keywords: State Teachers Retirement System of Ohio.