School Employees Retirement System says current contribution rates, COLA authority keep fund on 20-year path to full funding

Executive Director Richard Stensard of the School Employees Retirement System told the Ohio House Public Insurance and Pensions Committee on May 20 that the system’s current contribution structure and statutory authority over cost-of-living adjustments (COLAs) are sufficient to keep the pension plan on a 20-year amortization path to full funding.

Stensard, executive director of the School Employees Retirement System, said the fund manages roughly $19,600,000,000 in assets and has a funded ratio of 79%. “Engagement, transparency, accountability, and sustainability,” he said, listing the four principles that guide SERS operations. He said the system is projected to reach a 100% funded ratio within 20 years under current assumptions and contribution rates.

The presentation outlined membership and benefit characteristics to explain why SERS costs and benefits are modest relative to other state plans: the average active member salary is about $27,800 and the average annual retirement benefit is $16,775. Stensard said 46% of active members earn less than $20,000 annually and 78% earn less than $40,000. He told the committee that 68% of active members are female and 74% of retirees and beneficiaries are female.

Stensard described SERS’s contribution structure: a 10% employee contribution and a 14% employer contribution. He said that design results in employees paying most of the normal cost for accruals and that more than 13% of the employer contribution is available to pay down unfunded liabilities. He cited actuarial attestation that the current contribution rates are sufficient to amortize the unfunded liability within the 20-year period described to the committee.

On sustainability, Stensard said SERS performs annual actuarial sustainability assessments and stress tests across scenarios including investment volatility, payroll declines, and longevity changes. He told members that the system’s investment program has ranked in the top decile nationally for the 3-, 5- and 10-year periods and has exceeded its fund benchmarks.

Stensard explained the board’s statutory COLA authority and recent history: the board’s authority is benchmarked to the CPI-W with a 2.5% statutory cap; the board can set a COLA above or below CPI-W within the cap if the actuary so attests. He said COLAs were suspended for a three-year period during prior adjustments and that, after the fund’s objectives were met, COLAs restarted in 2021 and have been paid at the statutory 2.5% cap for the past four years.

SERS also reported on retiree health care: the retiree health plan has about 39,000 participants, 91% of whom participate in a Medicare plan, and the health-care fund balance is about $816,000,000 with a solvency period Stensard called “the longest in its history” at 45 years.

Committee members asked clarifying questions about investment allocation, COLA costs and comparisons to salary increases. Representative Romer asked whether “global” allocations meant the fund invests entirely outside the U.S.; Stensard replied that “global” indicates a worldwide orientation but that domestic investments remain a large element in every asset class. Representative Brenner asked for the cost of a 1% COLA; Stensard said he did not have plan-specific numbers on hand for 1% but gave an illustrative figure: “for a 2.5% COLA, that is approximately $4,000,000 annually for SERS. A 1% COLA would be approximately a little more than $1,500,000.” He offered to provide more precise numbers to the committee later.

The director emphasized that SERS’s long-term plan and statutory COLA authority — combined with the current contribution schedule — are the principal tools the board uses to manage funded status. He closed by saying the board does not have a request of the committee at this time and welcomed questions.

Stensard’s presentation and committee questions focused on plan demographics, funding ratios, contribution mechanics, the board’s COLA authority and the investment program. The committee did not take formal action on SERS during the session and no bill or motion was offered related to the presentation.