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Council reviews 2025 actuarial valuations; directors warn of funding risks and detail healthcare solvency
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Summary
Directors reported 2025 valuation results: STRS and SIRS posted double‑digit market returns, funded-ratio improvements, but leaders flagged smoothing effects and negative cash flow as risks; SIRS approved a 2.5% COLA for 2026 and healthcare fund metrics showed mixed signals.
Directors for multiple systems presented 2025 actuarial valuations and healthcare fund reports and answered members’ questions about sustainability and guardrails for benefit changes.
Director Toole said the STRS pension plan’s market value of assets earned 10.48% in the fiscal year. After actuarial smoothing, the actuarial return was 5.85%, which produced an actuarial loss on the smoothed basis; the market‑value funded ratio was reported at 84.1% with an actuarial funding period of about 11.8 years. Toole warned that negative cash flow (reported in the presentation as -4.8) remains a significant risk and described recent board actions — temporary unreduced retirement after 32 years through 2030, a 1.5% cost‑of‑living adjustment (COLA) and a supplemental benefit payment in December 2024.
Representative Brennan asked whether guardrails exist to prevent benefit enhancements from materially weakening the funding ratio and whether those protections rely on projected future gains. Toole said the board uses a "sustainable benefit plan" test performed by the actuary under the revised code, that assumptions are reviewed annually and that actuaries present scenario analyses to the board. He said the smoothing scheduled to recognize prior-year losses is ending (the last year of that smoothing was identified as 2021), and that recognition of unrecognized amounts will affect reported returns.
Director Stan Strouff summarized SIRS results: a market return of 10.64% for the fiscal year, an increase in the funded ratio from about 78.99% to roughly 79%, and a decline in the amortization period to 19 years. He reported $719,000,000 of unrecognized smoothing gains that the system expects to recognize as approximately $266,000,000, $282,000,000 and $171,000,000 over the next three years. The SIRS board approved a 2.5% COLA for 2026. Strouff also noted the funding policy allows applying up to one half of one percent of employer contributions to the healthcare fund and that employer contributions toward normal cost leave roughly 4.26% of the employer 14% contribution available to reduce unfunded liability.
On healthcare funding, Toole reported one system-funded figure (transcript: 128.34) and said eligibility changes to the pension plan put downward pressure on healthcare ratios; he said the plan relies substantially on investment returns, member premiums and government reimbursements and estimated a roughly 32% probability of the plan remaining at current levels for the next 60 years under present assumptions. Strouff said the SIRS healthcare fund’s funded ratio was 54.53% with a 39‑year solvency period and a balance of $939,000,000, calling that balance the highest historic level and an improvement year‑over‑year.
Members asked whether funds could be commingled to cover shortfalls; staff said the accounts are invested similarly but are accounted for separately and that law prevents commingling once funds are designated in the trust. Directors emphasized the board’s work on a framework to balance COLA, active employees’ protections and pension sustainability.
What happens next: Directors said healthcare and sustainable‑benefit discussions will continue, with further board work and an actuarial-scenarios review scheduled in coming months.
