The PricewaterhouseCoopers (PwC) report found that even though the system reaped its strongest investment return in nearly three decades during fiscal year 2011 (see Ohio Teacher System Posts Near 23% Return), the funding period for the pension fund remains “infinite,” and the funded ratio declined slightly from 59.1% to 58.8%. The fund experienced a small actuarial gain of about $181 million during the fiscal year.
A press release explained that STRS Ohio uses a common accounting and actuarial technique called “smoothing” to spread market volatility over four-year periods. This method helps pension funds recognize investment returns for a given year over a four-year window rather than a one-year “spike.” The smoothing technique is more apparent when the returns are especially high (as they were in 2011), or unusually low (as they were in 2009). Some of the significant investment losses from fiscal year 2009 are still being absorbed into this year’s valuation, which is part of the reason for the overall decline in funded ratio. The pension fund has a net $5.5 billion in unrecognized gains being deferred to future years.
Other findings of the valuation included:
- A net gain for the system in individual salary increases – these increases were smaller than expected;
- Net losses for the system in retiree mortality – retirees are living longer than expected and collecting benefits for a longer period of time; and
- A net loss in the system in retirements/terminations/withdrawals – the system saw a greater number of retirements than expected.