The Ohio State Teachers Retirement System (STRS) is currently facing challenges due to leadership changes and ongoing financial difficulties.
Despite a net outflow of $3.5 billion to $4 billion annually, outgoing Executive Director Lynn Hoover defended the fund's position, stating that it is on a positive trajectory. The fund's fiscal strength is emphasized, with a sustainable benefit plan that has saved over $4 billion in incremental benefit changes since its implementation three years ago. The funded status of the plan has improved, with the funded ratio rising to 82.8 percent from 81.3 percent, largely due to favorable investment returns for the fiscal year 2024.
The STRS board has recently made significant decisions, including selecting Global Governance Advisors as its new governance consultant and approving a $306 million supplemental payment to retirees. These actions come after a series of controversies, including corruption allegations, state investigations, and internal conflicts. Hoover's retirement on December 1 follows a no-confidence vote in senior leadership. Critics, such as the Ohio Retirement for Teachers Association, have accused the system of mismanagement and called for greater transparency, particularly regarding cost-of-living adjustments (COLAs) for retirees.
The debate over COLAs has been a point of tension within STRS. In the late 1990s, when the fund was almost fully funded, the board approved significant benefit increases, including a 3 percent COLA. However, changing demographics, market volatility, and a stagnant contribution rate have made these benefits unsustainable. In 2017, the board decided to cut COLAs to zero, which sparked backlash. The board has since approved a plan to reinstate a 3 percent increase in 2023 and a 1 percent increase in 2024. However, Hoover cautioned that permanent ongoing COLAs would add approximately $21 billion in liabilities, which she argues is not sustainable for the system.
Critics have pointed to the COLA issue as a primary source of conflict. They have called for transparency and a shift away from actively managed investment strategies, suggesting that passive strategies could yield better returns at a lower cost. However, Hoover and her team maintain that alternatives, which make up about 20 percent of STRS' portfolio, are essential for achieving excess returns.
As Hoover prepares to step down, she has been discussing potential reforms with Ohio legislators, including raising employer contributions, which have remained unchanged since 1984. Immediate action may be delayed due to current election cycles and an upcoming lame duck session, but Hoover sees potential for progress with the new Ohio General Assembly in 2025. The discussions about COLAs and investment strategies will likely continue to shape the future of STRS as stakeholders seek to balance the needs of retirees with the financial sustainability of the fund.
The recent decisions made by the STRS board reflect an effort to restore confidence in the system amidst ongoing scrutiny. The selection of a new governance consultant and the supplemental payment to retirees demonstrate a commitment to addressing concerns raised by critics. However, the path forward remains challenging as the system grapples with the consequences of past decisions and the need for a sustainable financial model. The focus will continue to be on how STRS can navigate these complexities while ensuring the long-term viability of benefits for its members.