STRS Ohio, It's Our Money, Adopt a Reasonable Investment-Return-Assumption
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Our STRS Board Members have adopted an Investment-Return-Assumption far under what they have historically earned. This has created an unnecessary liability which has severely penalized both active and retired teachers.
In Ohio the State Legislature wants each of Ohio's five retirement systems to be able to pay off their retirement liabilities within a 30 year funding period. This requires each retirement system to understand what they historically earn over a 30 year period and project what they will earn over future 30 year periods. Each of the five retirement systems has autonomy, with their consultants, to project what they think they will earn. This projected rate is called the Investment-Return- Assumption (IRA) or Discount Rate.
The Ohio State Teachers Retirement System historically earns approximately 8.5% over all 30 year periods. A responsible (IRA), would be to project a little less than what is actually earned to build in a margin of safety. When you project less than what you actually earn, you are by definition creating a paper liability because you are projecting earning less than what you have been earning. Currently, this paper liability is around $30 billion
Ohio STRS has roughly $80 billion to invest. So adopting a realistic (IRA) is important as it will have a huge impact on both retired and active teachers. In 2003, the (IRA) was set at 8%. This was realistic because STRS was earning over 8.5%. However, in 2012 the STRS Board lowered their (IRA) to 7.75%. This .25% decrease (.25% is also called 25 basis points) created approximately an additional $15 billion in liabilities. This is because STRS reduced their (IRA) by a quarter-of-one-percent on $80 billion over a 30 year funding period. In 2016, STRS again lowered their (IRA) from 7.75% to 7.45%, thereby creating approximately another $15 billion in liabilities. How did the actions of the STRS Board impact you?
If you are a retired teacher they took away your promised COLA to help offset the huge liabilities they themselves created on paper. If you are an active teacher you now must work at least 5 years longer and they increased your employee contribution from 10% to 14% (a huge 40% increase) to help offset the huge liabilities they themselves created on paper. What can be done?
Active and retired teachers need to demand that STRS Board Members adopt an (IRA) that is formula generated, realistic, predictable, and closer to what STRS actually earns over 30 year funding periods. To not do so, is Draconian because those who are giving their monies to STRS and those who have given their monies to STRS cannot predict their future. For example, during the last 30 year funding period STRS earned 8.47%. If the Board were to adopt an (IRA) with a range from 40 to 75 basis points below actual earnings as a guide to periodically adjust the IRA slightly upward or downward, the current (IRA) would fall be between 7.72% to 8.07%. As one can see, our current 7.45% is over 100 basis points below actual earnings.
The current (IRA) with a setting 100 basis points below actual 30 year portfolio earnings is both extreme and unacceptable. This is why many teachers are having to work well into their sixties and retirees do not have a COLA. Please sign and share this petition that will go to the STRS Board President.
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