There will be fewer teachers on the board of the State Teachers’ Retirement System of Ohio, phasing in gradually over the next three years, under provisions of a new state budget that gives the state government significantly more control over the board.
Under the $60 billion two-year budget signed by Governor Mike DeWine on July 1, educators will see their seats on the 11-member retirement board shrink from a majority of seven to three by 2028, likely in response to a clash of opinions over how to invest the system’s assets.
Major Board Changes
The pension fund’s board currently includes five active educators and two retired ones. It also includes three government-appointed investment experts, as well as the director of the Department of Education and Workforce or an investment expert in their place.
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Under the board’s current makeup, one investment expert is appointed by the governor, one is appointed jointly by the speaker of the house and the senate president, and another is designated by the state treasurer.
In October, four government appointees will join the board, increasing the number of board members to 15 and enabling government appointees to outnumber educators by one seat. Between 2026 and 2028, four educator board seats will be abolished as terms expire, leaving government appointees to outnumber educators eight to three.
Constant Conflict
In recent years, the retirement board has been split between two factions, including reformers: a group that wants to reinstate cost-of-living adjustments for the fund’s beneficiaries and invest its assets in index funds.
The reformers currently control a majority of board seats, but the board shake-up will reduce their hold. This reformers’ group has often been at odds with the Ohio government.
In 2023, reformer Wade Steen was removed from the board by DeWine. Steen was later reinstated by the Ohio Supreme Court, after it was determined that DeWine did not have the authority to remove Steen.
DeWine and Attorney General Dave Yost had previously accused some STRS board members, including Steen and current Board Chair Rudy Fichtenbaum, of collaborating with a start-up financial firm, QED, to manage 70% of the fund’s investments. The governor and attorney general alleged the reformer board members had ties to QED, allegations the board members denied.
The internal drama at the system led to two consultants calling it quits with STRS. In April 2024, Aon, the fund’s governance consultant, resigned. DeWine called for an investigation to find out exactly why Aon quit. In July 2024, McLagan Data & Analytics, STRS Ohio’s compensation consultant, also ended its work with the pension.
The turmoil has led to a significant turnover among STRS staff. In September 2024, both CIO Matt Worley and Acting Executive Director and Chief Financial Officer Lynn Hoover submitted their resignations to the board. Hoover was acting in the interim for Bill Nevile, who had been dismissed.
Last month, the board named Steven Toole as the new executive director of the pension fund.
State of the Fund
STRS Ohio managed $96.9 billion in assets, as of June 30, 2024. Its financial performance is similar to other large U.S. pension funds. In fiscal year 2024, the fund reported an annual return of 10.53%, a slight underperformance relative to its 10.75% total fund benchmark. The fund’s five- and 10-year annualized returns were 8.77% and 8.01%, respectively. Its funded status was 82.5%, as of June 30, 2024.
The fund’s investments were allocated to the following: approximately 25.6% to domestic equities, 21.2% to international equities, 21.5% to fixed income, 19.8% to alternative investments, 10.5% to real estate, and 1.4% to cash and short-term investments, according to its “2024 Summary Annual Financial Report.”
The pension fund provides benefits for more than 530,000 beneficiaries, primarily active, inactive and retired educators from the state of Ohio. The fund’s members have long complained about the lack of cost-of living adjustments to their benefits.
STRS suspended COLAs for five years in 2017, due to the strain the increases put on pension funding. In 2022, a one-time COLA of 3% was granted to participants. In April, STRS reinstated a one-time, permanent 1.5% COLA for some participants, effective July 1.
Related Stories:
STRS Ohio CIO, Acting Executive Director Resign
Ohio STRS’ 1.5% COLA ‘Doesn’t Go Far Enough,’ Says Retirement Group
Ohio Attorney General Calls for Removal of Two Teachers’ Pension Board Members
Tags: Ohio, State Teachers Retirement System of Ohio, STRS Ohio
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