Report from the State Teachers Retirement System Board meeting of March 2019
Submitted by Richard Williams, WSURA Board liaison
The STRS Retirement Board, at its March 2019 meeting, reiterated its long term objective to reach a funded ratio of 100% (plan assets divided by projected retirement benefits, currently 75.5%). Staff has projected that the plan will get to 100% in 2034 if their assumptions about investment returns and demographic are accurate. The Board is discussing the possibility of benefit changes before the plan is 100% funded but have reached no conclusions on when or what these changes might be.
While STRS continues to hear from retirees advocating a return of the Cost of Living Allowance, the STRS Board is less concerned with reinstating COLAs than they are in avoiding a third major cut in benefits (the previous two being in 2012 and 2017). Intergenerational equity between active and retired teachers is also a goal. The two previous benefit cuts initially affected primarily active teachers but as time passes the absence of a COLA means that retirees increasingly suffer as their pensions are eroded by inflation. The Board continues to be reluctant to state when a COLA might be reinstated given all of the factors that would need to go into such a commitment.
Investment Returns
Returns on STRS investment portfolio, which were very good in 2017, fell back in calendar year 2018 to a return of -1.75%, well below the assumed rate of return although this return was better than 89% of other public retirement funds. Investment returns must be managed with the riskiness of of the investments taken into account since higher returns are accompanied by a higher probability of a loss. For example, the STRS current funded ratio is 75.5% which equates to a 30% chance that the funded ratio could drop below 50% sometime in the next 10 years. STRS wants to increase the funded ratio to 100% to reduce the risk that a major decline in investment returns would trigger a reduction in retirement benefits.
Health Care
Greg Nickell, head of STRS health care, reported that medical coverage changes for 2020 will be announced in May. Premiums are likely to increase next year by less than double digits as health care costs generally are expected to go up by more than 10%. The premiums for next year will be announced in July.
