Pension Health Updates

July 2, 2020

By Dean Dennis

The purpose of this article is to put our pension plan in perspective with the other Ohio pension plans. The most recent Ohio Retirement Study Council (ORSC) Annual Report issued March 4, 2020 is interesting. The report shows the 30-year funding plans for all five systems required by the Legislature. If a plan exceeds 30 years, that pension plan must develop a plan to lower their funding level to 30 years or less in the future. An indicator of the strength of a system is how many years the unfunded liability is from becoming fully funded. So, the lower the number of years (the closer to zero), the stronger the pension plan. The ORSC Chart indicates the following:

1) STRS is best at 16.6 years, averaging about 10 years ahead of the other four plans.

2) PERS is at 27 years

3) OP&F is at 29 years

4) SERS is at 25 years

5) HPRS is at 23 years

Also, in the latest ORSC Annual Report is the 10-year averages for the investment returns for all five plans. The report also lists the Earnings Rate Assumption of each of the five plans. This is important because it helps determine if each plan is exceeding what they expect to earn, or is falling short. This is measured in Basis Points (bps). A Basis Point (bps) is one hundredth of 1%. So, if a pension plan expected to earn 8% (Earnings Rate Assumption) but actually earned 9%, they would have earned 100 Basis Points (bps) more.

1) STRS is best earning 10.31% (averaging nearly a full percent ahead of the other four plans)

2) PERS earned 9.69%

3) OP&F earned 10.24%

4) SERS earned 9.42%

5) HPRS earned 8.77%

It is important to note that all 5 of Ohio's pension plans earned more than their expected Earnings Rate Assumptions. Over the 10 year period STRS again performed the best earning 286 bps over their Earnings Rate Assumption. In fact STRS performs the best in every financial performance category rating except in "Funded Ratio" where they are at 76%, second to PERS at 77%.

Now that we have established the strength of Ohio's 5 pension plans, let’s compare the COLA policies:

1) STRS- no one has received a COLA since 2017, nothing is in sight. Retirees were not grandfathered.

2) OPERS-pays a 3% COLA to all pre-2013 retirees and the lower of CPI or 3% to post 2013 retirees.

3) OP&F- pays a 3% COLA to pre-2013 retirees and future retirees who had 15 or more years of service in 2013

4) SERS-plans to restart their COLA at the lesser of CPI or 2.5%, in 2021 after a 3-year suspension

5) HPRS-reviews actuarial report each year to determine their COLA. In recent years it has been around 1.5%.


June 1, 2020

By Dean Dennis

The purpose of this article is to put the health of our pension in perspective after the stock market tumble resulting from the COVID-19 quarantine. My April 29, 2020, letter explained that while our pension certainly took a hit, it is also certainly safe and remains healthy.

The previous article explained that STRS has about 51% of our monies invested in the stock market and one of the easiest ways to measure what happened to the stock market is to utilize one of the best stock market indicators, the S&P 500 index. Again, as a way of review, using the S&P 500 index, the S&P 500 fell from a high of 3,386 points on February 19, 2020, to a low of 2,237 points. This equals to a drop of about 33%. However since the drop, the market has recovered substantially.

Previously explained, the STRS fiscal year began on July 1, 2019 and will end on June 30, 2020. On July 1, 2019, the S&P 500 was at 2,942 points. At the end of April the S&P 500 was at 2,836 points.

Now for some good news, at the time of this update, the S&P 500 is at 3,056 points. During the past 30 days, the S&P 500 has gained 220 points for a 7% increase. This gain puts the S&P 500 up 114 points from where the STRS Fiscal Year began for an overall 3.8% increase. This is positive news because a month ago the S&P 500 was down approximately 3.5% from where STRS began their Fiscal Year. Let's hope STRS is matching the S&P 500.

There is another reason this is positive news. When STRS pays its obligated pension benefits, roughly 50% are funded by the combination of the Employer and Employee Contributions and the other roughly 50% is funded from STRS investments. STRS began the year with approximately $77 billion for investments. Annually, STRS needs to earn about $3.75 billion to cover pension costs. If STRS investments are mirroring S&P 500 results, then STRS should be near covering these costs.

April 29, 2020

By Dean Dennis

I wanted to put the health of our pension in perspective. It is understandable that members are wondering if our pension system is safe after the COVID-19 quarantine and all the news about the stock market tumbling. The answer is "yes." While our pension certainly took a hit, it is also certainly safe and remains healthy.

Let's put our pension's financial health into perspective. Many of you have heard the news that the stock market had huge losses. First, know that STRS has only about 51% of our monies invested in the stock market. One of the best ways to measure what happened to the stock market is to look at one of the best stock market indicators, the S&P 500.

The S&P 500 on February 19, 2020, when the virus news started to break was at 3,386 points. By March 23, 2020, the S&P 500 had fallen to 2,237 points, which is 1,149 points or about 33%. This is certainly a huge loss, but let's put this into perspective. The US economy was strong when the virus hit and the stock market was significantly up for the 2019 year. For our purposes, we have to remember that this years' STRS fiscal year began on July 1, 2019. It will end on June 30, 2020. On July 1, 2019, the S&P 500 was at 2,942 points. Since the significant drop to 2,237 points, the S&P 500 has since rebounded to 2,836 points. So, for the STRS fiscal year which ends on June 30, 2020, we began the year at 2,942 points and now are at 2,836 points (at the time of this article) for a loss of only 106 points. This means we are not down the whooping 33% that many of you might be worrying about. Instead we are down only about 3.5% from where we began our fiscal year. Also, remember that we have another 60 days left before our fiscal year ends.

Lastly, from the COVID-19 market lows, the stock market has rebounded over 20% in slightly over 30 days. Let's see what happens the next 60 days. While it is possible we might not hit the STRS 7.45% Earnings Rate Assumption, it's also possible we might. Also, since we were ahead of the 7.45% Earnings Rate Assumption (significantly for the 10 year period at 10.44%); no matter what happens in the remaining 60 days, we will remain significantly ahead of the STRS 10 year target.

I hope this puts the Corona speed bump into perspective.