June 11, 2026 · Ohio Retirement Study Council · 3,240 words · 10 speakers · 28 segments
not just by the RSE, but also by various RSE consultants. the lack of authority for the boards to select the custodial banks is a lag in practice, to directly manage the custodial bank relationships on a day-to-day basis. would result in a custodial model that is more consistent with best practices. So that's the core of the amendment. Now, a couple other changes in here. The amendment also would transfer the custodial relationship over the ORSC's funds from the Treasurer of State to the Council itself. There is no recommendation on this issue from the ORSC. That said, in the past, when something similar like this has happened, for instance, with House Bill 110 in 2021, there's been a recommendation to treat those funds the same. So therefore, based on that, we would recommend that change as well. Finally, there is the elimination of certain additional payments to certain benefit recipients in OPNF. As far as our understanding is, these are now defunct. These no longer occur. So these are obsolete sections of the code that's being made at the same time as a custodial change. Given that, the ORC and various ORC consultants have consistently recommended that Ohio law be amended to grant retirement systems the authority to select, contract with, manage, and terminate the financial institutions that will provide master custody services to the systems. Based on these recommendations, RSC staff would recommend that the RSC recommend to the General Assembly to approve this amendment. And I'm available for any questions.
All right. Thanks for that presentation on a recommendation on this amendment. Any members of the council have a question? Vice Chairman Romachuk.
Thank you, Mr. Chairman. You mentioned one benefit is that they would be able to manage the accounts day to day. What are some of the other benefits? And I'm also curious if there's a cost benefit.
If I could, Mr. Chairman, I'd answer that two ways. As far as operationally, I would defer to the systems. However, what I can tell you is what the consultants have told us. So these are just, and again, we have seven or eight or nine of these recommendations. So there's a lot of material there, but here's some comments. When talking... Broad level. Yes, broad level, there has been cost concerns. For instance, with the SCRS fiduciary audit, they estimated that they were paying somewhere above 50% more than was necessary. As far as operationally, what I've heard, and I'll defer to the systems again, is that there can be fairly significant disruptions if there is a decision to change the master custody. As far as day-to-day operations, what has consistently been said is that as a result of this custody model, the response from the systems has been to move a lot of those services in-house to the extent that they can. Now, they can't do that with everything, but to the extent that they can, they would move some services in-house. That is not in line with best practices, but it is in response to some of the services that they would perhaps not get in through the mess or custody that would be typical in a contract.
All right. Thank you for that answer.
And seeing no further questions from members of the council, we appreciate your recommendation, the staff's recommendation to approve this amendment. and so I will move that the council adopt this recommendation on this amendment. The chair recognizes Vice Chairman Romanchuk for a motion.
Mr. Chairman, I also move to adopt the staff recommendation on the custodial bank relationship amendment. Thank you, sir.
Director, please call the roll.
Mr. Chairman. Yes. Representative Brennan. Yes. Mr. Vice Chairman. Yes. Senator Blackshear. Senator Blessing. Dr. Patajal. Mr. Shearer. Motion carries.
Thank you very much unanimously. And the next item on the agenda is the OPNF annual health care report. And I see Director Foley working her way to the podium. Thank you so much. Director Foley, please present.
Thank you. Good morning, Mr. Chair, Vice Chair, members of Council. In your packet is the Ohio Police and Fire Pension Fund's 2025 health care report in the format requested by the Retirement Study Council. Good news, and our health care fund is the bottom line. The top 1% performance of OPNF and its investment portfolio likewise boosted the health care stabilization fund, which is almost fully now funded by investment return. The performance last year has us as you can see on our report in page three almost back to the starting balance of the healthcare stabilization fund in 2020 So of course pre-COVID and pre a lot of medical plan and healthcare inflation. So that is pleasing. As you know, healthcare is an OPEB benefit or a not promised pension benefit. So therefore, health care is not part of the pension promise, but certainly a benefit we wish to continue providing to our members. This year tells us we'll be able to do so because it is an OPEB. The board has set a 15-year timeline for OP&F's health care stabilization fund. We are above that now around 2042. Of course, that is as volatile fluctuation as our capital market. We have found that our switch in about 2023 post-COVID to an open HRA model has assisted those who struggle most, which are, of course, pre-65 non-Medicare eligible retirees. And those are retirees who are about 56 to 65 years of age. They have the very most expensive health care, but we have been able to sustain them with our stipend, which is also the various levels, whether you have a spouse or a family, are in the report. So happy to answer questions, Mr. Chairman.
Thank you, Director. Looking around the room, members of the council, I see no questions. Thank you. Director Foley, thank you very much for your presentation. The next item on the agenda is the STRS travel policy, and we're going to turn to Director Toole, who is already at the podium. Thank you very much, sir.
Thank you, members of the chair, vice chair, members of the committee, and Director Rhodes. Just a big picture perspective, previous travel policy hasn't been updated since 2015, and it contained out-of-date references to the Ohio Revised Code and also outdated policies and outdated references to certain parking lots at the Columbus Airport that no longer exist. The updated policy modernizes and simplifies oversight while maintaining strong fiscal discipline, clear cost controls, and full accountability for all travel spending, making sure that we understand that this is the educator's money and we're held to higher standards. So we've adopted a practical common sense approach with our new travel policy. So what's changed? We have one consistent policy now for all associates, board members, and any vendors where we negotiate in the contract travel expenses. We have a simplified structure, we got clear terminology, standardized limits across everybody. We now have senior department leaders approving their own expense reports for the people they report to. And then we have updates aligned with current ethics guidance. We want to stay consistent with the Office of Ethics. Our core cost controls remain very strong, including mandatory pre-approval with business purpose and cost estimate. Multi-level approvals. I have to approve anything that's over a higher dollar amount for higher cost travel. Lodging caps are now aligned and remain unchanged from the previous version. Our meal cap, $60 a day. We have no reimbursement for alcohol moved into the travel policy. We also had to add no reimbursement for gift cards because we just didn't know where those were coming from, and we were concerned about a potential ethics violation, so we updated our policy for that. And we also added if someone goes to a conference or someone gets a meal from SDRS, we will not pay for another meal, the same meal, if they try to get it outside. So if we serve them dinner, they try to expense dinner later on after the meeting, we're not going to approve that. And then everyone has to use the ability to negotiate the rates with the government rates whenever available. So what accountability and safeguards exist? So expenses may be denied if they're not prudent or justified. Travelers still have to pursue virtual options if they're available. Noncompliance may result in non-reimbursement or discipline, including up to termination. Policy incorporates all the Ohio Ethics law requirements. Again, we're consistent there, and it's independently reviewed by the Ohio Ethics, and they found no material issues. So the bottom line on our revised travel policy, it's been simplified, it's been modernized, it has not been loosened, but rather tightened, and strong controls, clear limits, and accountability measures remain firmly in place to ensure responsible use of the member funds. That concludes my remarks. Happy to take any questions if you have any.
Thank you, Director Toole, and thank you for presenting some common sense changes there. I see no questions from the council, sir. Thank you for your presentation. Moving on to the next agenda item is the SCRS five-year experience review. And I see Mr Stendrud making his way for the last time I might point out to the podium Thank you I expecting this to be a very good presentation since it the last time How many years sir have you served in this position It be a little more than nine years Nine years Congratulations
I'm going to do my Lou Gehrig speech, but I think that was a little cheesy for the moment.
All right. Thank you, sir.
But thank you, and thank you for the opportunity to be here with you, Mr. Chairman, members of the Council. The actuarial experience study is actually sort of step three in what SIRS has been conducting from an actuarial perspective over the last year, a couple of few years, confirming the soundness and accuracy of the actuarial work that is being done. It's following on the heels of two separate actuarial audits, one commissioned by CERS, one commissioned by the ORSC, which found that the methodology and calculations of the actuary are reasonable and sound. And so the experience study is intended to build on that work. and now to take a look at the actuarial assumptions that underlie the actuarial work that's conducted on the fund. The purpose is to take a look at the actual experience of the plan over the preceding five years, compare it to the assumptions in place over that period, and determine whether or not any assumption changes need to be made. The overall assumptions come in two basic categories. There are financial assumptions, there are demographic assumptions, each of which category is important in its own right, but touch upon some of the key ones here in just a moment. Again, the objective is to make sure that the assumptions used to project future liabilities and future asset growth are reasonable and appropriately conservative in order to make sure that they can be met and that the plan remains sustainable over time. And also then that there's some basis for making decisions regarding plan design, grounded in fact. In the materials that we have provided with you, and I want to use the presentation, if I might, for my talking points, those are all drawn from the actual experience study itself. I've noted some of the key assumptions that are looked at, price inflation being one. This is historically measured by the CPIW. It is a component of a couple of different other assumptions, including the investment return assumption and the wage inflation assumption. Wage inflation is its own. It is a combination of price inflation plus promotions and longevity. Cost of living adjustments, as you know, adjustments that are made annually to the retirement benefits paid to our retirees, is statutorily controlled, but discretion is placed on the retirement board up to a cap of 2.5% annually. The retirement rates are also a very relevant consideration and have their own set of assumptions, and that is the percent of employees that are expected to retire at any given age and any given element or category, subcategory of the plan. Mortality is probably the most important demographic assumption because it projects how long people are going to be living in retirement and drawing retirement benefits. And then the investment return assumption, as noted previously, is another very important financial assumption. On the next slide, we've taken these assumptions and shown what the current assumption was and what the new assumption will be. The price inflation is being increased from 2.4% to 2.5%. The actuary felt that an upward adjustment in price inflation was prudent in light of the inflationary period that we have been going through. The investment return assumption, however, is going to stay the same at 7%. I'll talk in more detail about that in just a moment. Real wage growth is projected. The actuary believes it is prudent to increase the assumption for that component from 0.85% to 1%. The retiree cost of living adjustment, the assumption has been 2. As previously noted, the statutory cap is 2.5. And for the last several years, SERS board has been providing a COLA at that statutory cap. So the actuary believes that it is prudent to raise the assumption to the cap. That also is going to be consistent with the slight upward adjustment in the price inflation assumption. Mortality tables are going to be tweaked. We're finding that people are not living as long in some cases as had been projected, and therefore the mortality tables will be dialed back in order to better align with the actual experience. And then another change, which again I'll talk about in more detail in just a moment, is a change in the way amortization of unfunded liability is conducted at the system. The practice has been at CERS, as with many systems across the country, to retire your unfunded liability as one lump sum over a declining period of time. CERS is making a change to something called layered amortization. That works as follows. You start with the initial lump sum that you have as today, and then each year going forward each year actuarial experience is separately noted and the source of that experience is separately documented and then each year is on its own declining amortization schedule from 20 years down So you have the lump sum, which currently has a 19-year amortization period declining each year. Going forward, each subsequent year will have its own slice of amortization of unfunded liability, which will decline from 20 years. So we think this is something that is beneficial, provides greater transparency into the source and status of unfunded liability. So we will be doing that with the upcoming valuation as of June 30th, 2026. Thank you, sir. Turn my microphone on there.
Thank you, Mr. Sinsrud. I am looking at, oh, Dr. Potagil has a question.
First of all, thank you for your report and thanks for your time.
Thank you.
I think probably in real years, nine years doesn't feel like nine years, but that's another story for another day. So I was just on the basic components, and it's because I heard this as I was driving in this morning on inflation, because inflation looks like it's going to be higher than the rate that's quoted here. How sensitive, I mean, these are all different components, but how sensitive is the system to responding to a significant inflationary increase in terms of all these components, right? Because this is a study over time. So if we're looking forward, if inflation becomes an issue because it's not hitting these targets, what's the impact on the system, and then how does the system adjust to those changes?
Certainly. The first thing I would note is that these assumptions are meant to be long-term assumptions. So it is not simply what is expected in the next year or two, but what is assumed to be the case over a 30-year period. Determining what that assumption would be does involve looking back at history and seeing what the inflation experience has been during that period. But then there is also forward projection-looking analysis that is done by the actuary, looking into the financial markets and what the financial industry expects in the way of inflation. Generally speaking, an assumption like inflation is typically only changed or really seriously considered in that five-year experience study, again, because of the long-term nature of it. And certainly if there was some anomaly in which there was an unusually large blip in inflation, then it might be taken up out of cycle. But generally the practice is to sort of look at it, again, consistent with its long-term nature.
Seeing no further questions, Director, thank you so much for your time today. We're going to turn next on the agenda to Mr. Hennigan with rules. Mr. Hennigan, please proceed.
Thank you, Mr. Chairman. As you can see, there is only one rule in the packet today. This is the refiled STRS rule that we brought to your attention last month. As a reminder, it was refiled at the request of JCAR due to a technical cross-reference issue. With that being said, ORC staff have reviewed the rules. They are in line with the revised code, and we have no further comments. Thank you.
Looking around the room, I see no questions, Mr. Hennigan. Thank you for your report. Next on the agenda is old or new business, and I know of no old or new business that need to be brought before the council. At this point, I'm going to turn to Representative Brennan for a point of personal privilege.
Thank you, Mr. Chairman. I brought with me today a commendation from members of the Ohio House of Representatives for Director Stenzrud for all of his years of being a fine steward of the SCRS. so I wanted to present this to him in particular on behalf of his state representative Brian Lorenz so thank you for all your years of service it's been an honor working with you in my short time on the Ohio Retirement Study Council and I wish you a wonderful retirement just like the many folks whose retirement you've overseen for nine years now very good
Thank you very much for this recognition. Thank you very much for your kind words. Thank you very much to my colleagues here at the panel who have been a source of friendship and support over time, the leadership of the ORSC and the staff who have been great to work with, members of the Council itself. It has really been an honor and a privilege to serve the SERS members and participating employers, And I'm grateful for that opportunity, and I'm confident that the reins will be handed over to someone who will be able to continue the high standards that we've strived to obtain. So thank you very much again.
Very welcome, and thank you for your service. Announcement of next meeting, we are not going to meet on July 9th, and we will announce that our next meeting, subject to the call of the chair, is August the 13th. And at this point, we are adjourned.