MANSFIELD — Acting executive director Lynn Hoover stopped by the Mansfield/Richland County Public Library this week for a town hall with local educators.
A 30-year employee of the agency, Hoover was chief financial officer when she was tapped to step in as executive director of the Ohio State Teachers Retirement System (STRS) in November.
Hoover gave an overview of the agency’s history and took questions from active and retired members. Several educators called the session informative, but it didn’t answer all their questions.
Kevin and Debbie Reidy, both retired school administrators, said they’d like more transparency from STRS on its internal and external investment managers.
“I don’t think it resolves anything,” said Debbie Reidy, who finished her career at Crestview Local Schools.
“At least they are making themselves available. A lot of things need to be remedied.”
Charles Bradley, a former band director with Mansfield City Schools, said he wants the agency to reduce its facility costs.
Skeptics of STRS have questioned the agency’s need for a large, well-decorated facility in the midst of financial hardship.
Hoover said the STRS board has granted permission to hire a third party that can look for a different location.
She told educators the agency staff has dropped over the years and STRS doesn’t need as big a space, but finding another appropriate location at the right price takes time.
Controversy and COLA cuts: a recent history of STRS
The last few decades have been tumultuous for STRS.
Like many pension systems, STRS was in a strong financial position heading into the 21st century. The system struggled in the face of setbacks like the dotcom bubble burst and Great Recession.
STRS’ funded ratio reached a low of 56 percent in 2012, with $47 billion in unfunded liabilities. A period of recovery and pension reform followed, but not without impact to active and retired educators.
In 2017, STRS suspended its 3-percent cost of living adjustment (COLA). Retirees went five years without a COLA.
The number of years active educators had to work to receive full retirement benefits increased to 35. (It’s since dropped and been set at 34 years.)
Market fluctuations aren’t the only challenge to the agency’s finances. Hoover said demographics also play a key role.
In 1994, STRS had more than two active teachers for every retiree. Now, the ratio is nearly one to one, with 175,032 active teachers and 156,511 beneficiaries.
Over the last three decades, STRS has gone from a positive cash flow of $40 million to a negative cash flow of $3.4 billion.
“We pay out annually over $3 billion more in benefits,” Hoover said. “That’s why the investment piece is critical, because we have a gap.”
Fast facts on STRS
- Ohio’s State Teachers Retirement System (STRS) is one of five pension plans for the state’s public employees.
- Members include public K-12 teachers, faculty at public colleges and universities, certified educators like school psychologists and counselors and school administrators.
- The agency serves more than 536,000 active, inactive and retired public educators and holds investment assets of around $92.8 billion.
- In addition to pension benefits, the agency also administers survivor and disability benefits as well as health-care coverage for eligible retirees and their dependents.
- Members and employers both contribute 14 percent each of an employee’s annual salary to STRS. STRS members do not pay into, nor are they eligible to receive Social Security benefits based on their years working in public education.
Hoover said that teachers tend to live longer than average public employees. Also, women, who make up the majority of STRS members, tend to live longer than men.
Thus, many educators receive STRS benefits for decades after they retire. According to Hoover, STRS currently has more than 200 beneficiaries who are 100 or more years old. The oldest retiree in the system is 108 years old and began receiving benefits in 1973.
One disability recipient has been receiving benefits for 66 years.
Romanchuk: Ohio Retirement Study Council keeping an eye on STRS
Personnel difficulties have also given STRS a controversial reputation in recent years.
Last November, then-executive director Bill Neville was placed on administrative leave. An investigation found a number of allegations against him were unfounded, but he was required to undergo some training, per reporting from the Dayton Daily News.
Meanwhile, two board members were accused of using their position for their own financial benefit at risk to the agency. Those anonymous accusations prompted a lawsuit and investigation from Ohio Attorney General David Yost’s office.
Many retired teachers consider the board members involved reformers and have called Yost’s actions politically-motivated.
Hoover said she’s not involved in the Yost investigation, but confirmed it is ongoing. She also said Neville remains on paid administrative leave, but she expects the board to make a decision on his employment next month.
Sen. Mark Romanchuk is on the Ohio Retirement Study Council (ORSC), which provides legislative oversight to all five of Ohio’s public retirement systems.
He said the ORSC recently formed a subcommittee to look specifically at STRS after the board-hired governance consultant Aon severed his contract.
“Aon inexplicably said, ‘We’re not going to do work for you anymore. They severed the contract and left,’ ” he said. “That to us signal that we should look into that.
“There’s not a whole lot to find out because they (Aon) don’t want to talk too much about it.”
Why does STRS have both internal and external investors?
According to the agency’s website, about two-thirds of STRS’ investment assets are managed internally by a department of more than 100 people.
Several educators asked Hoover why the agency has both internal and external investment managers.
Hoover said it’s a common question. She acknowledged managing assets internally does cost less, but also said it’s another means of minimizing risk.
“There’s no public pension fund out there that has one manager,” she said. “It goes back to the principles of diversification. You want not just diversified investments, you want diversified managers.”
Why did STRS employees get bonuses even after investments lost money?
Another common question is why STRS awards bonuses to its investment staff even when the agency’s investments lose money.
In 2022, internal investment staff reported $5.3 billion in losses, but the staff received $10 million in bonuses.
Hoover told educators only internal investment staff are eligible for bonuses. Those bonuses are based on how the agency’s investments compare to benchmarks set by the board.
In other words, certain staff are eligible for bonuses if the investments do better than the comparison group — even if that means losing less money than benchmark funds lose.
“The pension fund outperformed that year and preserved about $2 billion of value,” she said. “As your CFO, I would say it’s even more important to outperform in a down market than in up market, because you want to preserve the value.”
Hoover said the agency’s long-term investment track record is one of the best in the state, if not the country.
“We’ve outperformed 98 percent of the funds around the country in our 20 years’ return,” she said.
Nevertheless, Hoover said the board recently reduced the maximum bonus percentages staff were eligible to receive. They also reduced the number of staff eligible for performance-based incentives.
David Hornung, a retired horticulture instructor from Pioneer Career and Technology Center, wasn’t satisfied.
“As far as I’m concerned, this benchmark thing is a joke,” he said.
Why does STRS own out-of-state property?
Hornung said he believes there’s a lot of “smoke and mirrors” surrounding STRS operations.
He told Richland Source he’d like to see the agency reduce its reliance on outside investment managers. He also criticized STRS ownership of out-of-state real estate as part of its portfolio.
“They’re talking about diversification. There are ways to diversify where you don’t have to be in the market that’s roly-poly at the best,” Hornung said.
“If the real estate market isn’t good, don’t be in real estate. Put it in what would work like in annuities, something of that nature — passive investments.”
Hoover estimated that real estate makes up about 10 percent of STRS’ portfolio. Of that, about three-quarters are in direct real estate properties, primarily commercial buildings.
“We tend to be focused in the major metropolitan cities — Chicago, San Francisco, New York,” she said. “We have a very small number of staff (in those cities) to help us manage and negotiate those deals.”
Hoover said real estate makes sense as part of STRS’ portfolio because of its long-term potential.
“Real estate over the long term has been a very good asset class for us. This past year was not a good year for real estate, but all of our other asset classes outperformed and did very well.”
What does the future of STRS look like?
Hoover expressed optimism about the strength of the agency’s investment and its future.
She told educators the board’s actuary — an outside hire independent of agency staff — goes through a rigorous process each year to ensure any changes made to member benefits are sustainable in the long term.
“At the end, they say to the board, ‘You have X amount to spend this year on benefit changes.’ Now the board has to weigh, ‘How are we going to spend it? Or are we going to save it to preserve the fund for future?'” she explained.
Hoover called the tension between the interests of active and retired educators a balancing act. STRS must prioritize long-term financial sustainability while also considering the impact of inflation on current beneficiaries.
She said decisions on COLAs need to be made annually, but she’s hoping for more consistent increases in the future.
“The main two things they’re looking at are COLAs for retirees and lowering years of service for the active teachers.”
She also said the agency is advocating to increase the employer contribution rate for active educators. Currently, employers pay 14 percent of a member’s salary into the system.
Hoover said the rate hasn’t increased since 1984. She also said it’s the second lowest employer contribution rate among states where public educators don’t draw from Social Security.
Meanwhile, Ohio’s member contribution is the third highest.
Ohio is one of 13 states that doesn’t extend Social Security eligibility to public employees, according to the National Center for Education Statistics.
“Many plans around the country have what’s called a variable employer contribution rate,” Hoover said.
“What I mean by that is, as the markets were going down, the actuary calculates the employer rate and they have to put more money into the system.
“In Ohio, we don’t have that.”
State legislation would be needed in order to change the employer contribution rates.
Romanchuk declined to say whether he’d vote for a change, saying it would depend on the specifics of the bill. He said since no bill has been introduced yet, there has been nothing to consider — legislators tend to focus on the bills in front of them.
“With regard to the next general assembly, I think there’s some potential there. I think there’s some willingness to look at the contribution rate on the employer side,” he said.
“We’ll probably need something in return — a change that will continue this trend of making the system more financially viable. We want the system to be as strong as possible.”
