STRS eliminates COLA to protect pension

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Faced with massive unfunded liabilities, the April State Teachers Retirement Board in April voted to eliminate the cost-of-living adjustments (COLA) that increase annual pension benefits. The move is projected to save the pension fund $12.2 billion to cover a projected $10 billion liability.

The COLA elimination will go into effect July 1. Base pension benefits will not be impacted.

The unfunded liability grows as retirees live longer, drawing their pension for longer periods of time. Decreased state education funding forces districts to hire fewer staff or stagnate wages which contributes to the liability. Actives choosing to leave the profession due to teaching conditions; these and other factors reduce the amount of money going into the pension fund which impacts the liability.

The board agreed to revisit whether to reinstate the COLA in five years, but we are skeptical about conditions improving in a significant enough way to warrant reinstating it.


STRS hired Segal Consulting to conduct a five-year review of recommended adjustments to assumptions about expected investment returns, mortality, inflation, salary growth, payroll growth and teacher retirements, disability inceptions and terminations. The assumption changes with the most significant financial impact were:

  • Reducing the investment rate of return to recognize projections for modest global economic growth and lower expected returns for capital markets;
  • Adopting new mortality assumptions that reflect members are living longer and STRS Ohio is paying benefits for a longer period of time than expected; and
  • Reducing the payroll growth assumption to recognize there will be less money coming into the fund through member and employer contributions than expected.

Segal’s projections showed STRS Ohio’s funded ratio at 62.6 percent with a funding period of 57.7 years.  Eliminating the COLA will close the $10 billion funding gap.

Assumption changes have negative impact on health care program solvency

The Retirement Board has been weighing STRS Ohio staff proposals to improve the solvency of the retirement system’s Health Care Fund. The Jan. 1, 2017, valuation of the Health Care Fund showed a balance of $3.22 billion and an estimated solvency period of 22 years. The board learned at its April meeting that actuarial assumption changes adopted by the board in March had a negative impact, reducing the solvency period to an estimated 18 years. The primary factors for this change were increasing health care cost (trend) projections and a lower assumed rate of return on investments.

Costs for all participants are expected to increase — more so for non-Medicare enrollees — as health care program costs continue to grow.

There will be further discussion about various options that will be needed to reach the 30 year solvency.

Get more info from STRS.