HomeMy WebLinkAboutSchool Employees Retirement System of Ohio - Public Financial ReportFor the Year Ended June 30, 2021
Summary Annual Financial Report
202 1
School Employees Retirement System of Ohio
Serving the People Who Serve Our Schools®
SERS Summary Annual Financial Report FY2021 1
Introduction
On behalf of the Board and staff of the School Employees Retirement System of Ohio (SERS), I am pleased to share with you this Summary Annual Financial Report (SAFR).
This publication summarizes SERS’ organizational accomplishments and financial highlights for the period of July 1, 2020 through June 30, 2021. For more detail on the information contained in this publication, please read our Annual Comprehensive Financial Report (ACFR), which is available on our website at www.ohsers.org/about-sers/by-the-numbers/financial-reports/.
What a difference a year makes.
As we ended FY2020, the pandemic was in full swing, touching the lives of every Ohioan either through the disease itself or the changes in daily routines brought about by measures enacted to control the spread of the virus. Our active members adapted to changing school schedules and our employees adjusted to working from home. Fast forward to the end of FY2021 and normalcy began to return: shutdowns expired, most schools returned to in-person learning, and our employees returned to the headquarters at 300 East Broad Street.
While we’re still wearing masks, face-to-face interactions like retirement counseling sessions and Board meetings have resumed.
Financially, FY2021 was a banner year for investments. SERS’ investment portfolio realized a 26.76% net return which was the highest return since at least 1985. All of the portfolios registered positive returns led by Private Equity at 45.80% and Global Equities at 41.56%. Overall, SERS’ investment portfolio increased by $4.1 billion.
Significant organizational achievements in FY2021 included:
• Completing a five-year actuarial experience study that modified several economic and demographic assumptions that ultimatelyled to the reduction of SERS’ assumed rate of investment return from 7.5% to 7.0%
• Improving customer service in the disability application process and counseling experience using feedback from newlyimplemented surveys
• Protecting SERS’ critical processes by updating business continuity and disaster recovery plans and improving data backupoperations
• Implementing new digital and virtual tools including Zoom, Microsoft Teams, and Voice Over Internet Protocol (VOIP) technologyto allow staff to maintain work efficiency while they worked remotely during the pandemic shutdown
• Resuming cost-of-living adjustments (COLAs) for retirees based on the year-over-year change in the Bureau of Labor Statistic’sConsumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) following a three-year suspension
Finally, I would like to thank SERS members, retirees, employers, and stakeholders for all of their work and support throughout the year.
Richard Strensrud
Executive Director
Summary Annual Financial Report
2 SERS Summary Annual Financial Report FY2021
2 SERS Summary Annual Financial Report FY2021
Financials
SERS is a defined benefit public pension plan. This means that SERS provides a specific, lifetime pension benefit based on a member's
age, amount of service credit, and average of the member's highest three years of salary. SERS works with an actuary to calculate the
future costs of these benefits when the member retires. The actuary also calculates how much of the employer contributions must be
dedicated to pension benefits before health care benefits are funded. In FY2021, the Board voted to devote all 14% of the employer
contribution rate to cover the costs of pensions with none going to fund health care.
SERS has five main sources of income: employer contributions, member contributions, investment income, health care premiums, and
Medicare subsidies. In FY2021, the largest addition to the fund came from investment income. Deductions from plan net assets refer to the
expenses SERS covers each year. The main expenses are pension benefit payments, health care coverage, Medicare Part B
reimbursements, refunds of employee contributions to members who leave SERS, and administrative expenses.
FY2021 financial highlights include:
•Total assets at June 30, 2021 were $18.8 billion, an increase of $3.5 billion, or 23.1% compared to FY2020 assets. Cash and Short
Term Investments are 76.8% higher than FY2020. Investments had a very strong year which accounted for the majority of the
increases in assets.
•Total liabilities at June 30, 2021 were $298.5 million, a decrease of $26.5 million, or, (8.2)% compared to FY2020. The decrease is
due to the timing of investment transactions resulting in a lower Investment Payable balance at year end.
•Total additions to SERS' assets were $5.1 billion; $969 million from contributions and other income, and a net investment gain of $4.1
billion. Investment earnings were approximately 863.8% of the prior year's income. The markets recovered in FY2021, despite the
ongoing pandemic, with strong investment returns in FY2021.
•Total deductions were $1.5 billion, a decrease of 0.1% from FY2020. Small increases in benefit payments were offset by a significant
reduction in administrative expenses resulting from SERS recognizing their portion of OPERS' pension income and OPEB income,
$3.3 million and $10.1 million respectively.
•The increase in fiduciary net position totaled $3.5 billion, compared to a $106 million net decrease in FY2020. The majority of the
variance is due to strong investment earnings in FY2021.
CONDENSED SUMMARY OF TOTAL FIDUCIARY NET POSITION
($ in millions)Change
ASSETS 2021 2020 Amount Percent
Cash $ 1,174.2 $ 664.3 $ 509.9 76.8 %
Receivables 163.4 196.9 (33.5) (17.0)
Investments 17,352.6 14,310.1 3,042.5 21.3
Capital Assets, Net 59.0 62.3 (3.3) (5.3)
Other Assets 3.3 0.9 2.4 266.7
Total Assets 18,752.5 15,234.5 3,518.0 23.1
DEFERRED OUTFLOWS OF RESOURCES
Deferred Outflows 2.0 6.5 (4.5) (69.2)
LIABILITIES
Benefits & Accounts Payable 41.4 42.5 (1.1) (2.6)
Other Liabilities 257.1 282.5 (25.4) (9.0)
Total Liabilities 298.5 325.0 (26.5) (8.2)
DEFERRED INFLOWS OF RESOURCES
Deferred Inflows 15.4 13.6 1.8 13.2
Fiduciary Net Position $ 18,440.6 $ 14,902.4 $ 3,538.2 23.7 %
This table depicts a summary presentation of the assets and liabilities of SERS as of June 30, 2021 and 2020. The Fiduciary Net Position shown is available for future payments of benefits to retirees, beneficiaries, and members of SERS. These figures are presented in conformity with Generally Accepted Accounting Principles (GAAP).
CONDENSED SUMMARY OF CHANGES IN TOTAL FIDUCIARY NET POSITION
($ in millions)Change
ADDITIONS 2021 2020 Amount Percent
Contributions $ 884.5 $ 892.4 $ (7.9) (0.9) %
Other Income 84.1 97.4 $ (13.3) (13.7) %
Net Investment Income 4,088.6 424.2 $ 3,664.4 863.8
Total Additions 5,057.2 1,414.0 3,643.2 257.7
DEDUCTIONS
Benefits 1,425.1 1,412.8 12.3 0.9
Refunds & Transfers 77.8 76.3 1.5 2.0
Admin. Expenses 16.1 30.9 (14.8) (47.9)
Total Deductions 1,519.0 1,520.0 (1.0) (0.1)
Net Increase (Decrease) 3,538.2 (106.0) 3,644.2 (3,437.9)
Balance, Beginning of Year 14,902.4 15,008.4 (106.0) (0.7)
Balance, End of Year $ 18,440.6 $ 14,902.4 $ 3,538.2 23.7 %
Summary Annual Financial Report
SERS Summary Annual Financial Report FY2021 3
Investments
The main goal of SERS’ Investment Department is to ensure that assets are invested wisely. This is necessary so that pension benefits
required by law and other benefits authorized by the Board, such as health care, are properly funded. SERS’ investment portfolio is
diversified, meaning that money in the fund is divided among many different investment types. This is important because different kinds of
investments perform differently depending on the economic conditions. Diversification helps protect assets in bad economic conditions and
increase assets during good economic conditions.
In FY2021, SERS' portfolio generated a positive net-of-fees performance of 26.8%, exceeding the policy benchmark by 3.2%.
Implementation of the investment program added value to the fund over five and ten-year periods relative to the total fund benchmark and
also exceeded the actuarial rate of 7.5%. Private Equity recorded the highest return at 45.8% (net), followed by Global Equities at 41.6%
(net), and Opportunistic at 25.8% (net).
Strategies
SERS makes investments in eight different asset classes and strategies: Global Equity, Global Private Equity, Global Fixed Income, Multi-Asset Strategies (MAS), Global Private Credit, Global Real Assets, Opportunistic and Tactical Investments, and Cash Equivalents.
Global Equities - Equities are investments in company stock. Equity investments usually increase or decrease in price depending on the company’s financial performance. SERS’ global equity allocation is split equally between US and non-US investments.
Global Private Equity - Private equity investments are usually direct investments in private companies that are reorganizing or growing, or situations where one company is buying another. Private equity investments often require long holding periods to allow for a turnaround of a distressed company or the sale of a company to another buyer.
Global Fixed Income - SERS’ global fixed income portfolio consists of core assets (Treasuries, corporate bonds, and mortgages), core plus assets (below investment grade corporate bonds, non-US debt, and emerging market debt), and emerging market debt assets (bonds issued by less developed countries).
Multi-Asset Strategies (MAS) - About 75% of the MAS portfolio is comprised of hedge funds with the other 25% made up of multi-asset/multi-strategy investments (stocks in companies or bonds issued by government entities that are experiencing financial or operational distress, default, or are under bankruptcy). This asset class will be phased out by June 30, 2022, as recommended in the recent asset allocation study. Exposure was reduced from 10% of the Total Fund to 4% by June 30, 2021.
Global Private Credit - Broadly defined as strategies that provide loans and financing to middle market companies in lieu of bank financing. Strategies can have objectives of either preserving capital, with return coming primarily from current pay coupon and fees or maximizing appreciation of more subordinated loans. SERS invests in direct lending, stressed/distressed debt, structured credit, and mezzanine strategies.
Global Real Assets - SERS’ global real assets portfolio is made up of a majority of real estate investments and some infrastructure investments. Real estate is divided into core strategies (properties that produce income through rents) and non-core strategies (those that appreciate in value over time).
Opportunistic and Tactical Investments - This asset class allows SERS to invest in short-term, nontraditional opportunities (such as direct lending) that do not fit within any of the other asset classes.
Cash Equivalents - This portfolio consists primarily of short-term cash and any gains or losses of the overlay program. Short-term cash provides liquidity for the Total Fund while the overlay program is intended to add value by taking active positions in the broad asset classes and foreign exchange markets, with a tight risk budget.
Diversification
Broad diversification within an investment portfolio is used to control the level of risk and volatility within the portfolio over the long
term. SERS has adopted a broadly diversified asset allocation policy, and the strategies used within each asset class also have been
diversified.
Besides the broad diversification of assets and strategies within SERS’ portfolio, SERS also employs a diverse group of investment
managers with the goal of outperforming the respective benchmark while managing relative risks.
Wilshire Associates, Inc., SERS' general investment consultant, assists the Board on matters of investment policy and asset
allocation recommendations. Wilshire also reports to the Board on quarterly performance reviews of the Fund and each portfolio.
Summary Annual Financial Report
4 SERS Summary Annual Financial Report FY2021
SERS Summary Annual Financial Report FY2021 3
Investments
The main goal of SERS’ Investment Department is to ensure that assets are invested wisely. This is necessary so that pension benefits
required by law and other benefits authorized by the Board, such as health care, are properly funded. SERS’ investment portfolio is
diversified, meaning that money in the fund is divided among many different investment types. This is important because different kinds of
investments perform differently depending on the economic conditions. Diversification helps protect assets in bad economic conditions and
increase assets during good economic conditions.
In FY2021, SERS' portfolio generated a positive net-of-fees performance of 26.8%, exceeding the policy benchmark by 3.2%.
Implementation of the investment program added value to the fund over five and ten-year periods relative to the total fund benchmark and
also exceeded the actuarial rate of 7.5%. Private Equity recorded the highest return at 45.8% (net), followed by Global Equities at 41.6%
(net), and Opportunistic at 25.8% (net).
Strategies
SERS makes investments in eight different asset classes and strategies: Global Equity, Global Private Equity, Global Fixed Income, Multi-Asset Strategies (MAS), Global Private Credit, Global Real Assets, Opportunistic and Tactical Investments, and Cash Equivalents.
Global Equities - Equities are investments in company stock. Equity investments usually increase or decrease in price depending on the company’s financial performance. SERS’ global equity allocation is split equally between US and non-US investments.
Global Private Equity - Private equity investments are usually direct investments in private companies that are reorganizing or growing, or situations where one company is buying another. Private equity investments often require long holding periods to allow for a turnaround of a distressed company or the sale of a company to another buyer.
Global Fixed Income - SERS’ global fixed income portfolio consists of core assets (Treasuries, corporate bonds, and mortgages), core plus assets (below investment grade corporate bonds, non-US debt, and emerging market debt), and emerging market debt assets (bonds issued by less developed countries).
Multi-Asset Strategies (MAS) - About 75% of the MAS portfolio is comprised of hedge funds with the other 25% made up of multi-asset/multi-strategy investments (stocks in companies or bonds issued by government entities that are experiencing financial or operational distress, default, or are under bankruptcy). This asset class will be phased out by June 30, 2022, as recommended in the recent asset allocation study. Exposure was reduced from 10% of the Total Fund to 4% by June 30, 2021.
Global Private Credit - Broadly defined as strategies that provide loans and financing to middle market companies in lieu of bank financing. Strategies can have objectives of either preserving capital, with return coming primarily from current pay coupon and fees or maximizing appreciation of more subordinated loans. SERS invests in direct lending, stressed/distressed debt, structured credit, and mezzanine strategies.
Global Real Assets - SERS’ global real assets portfolio is made up of a majority of real estate investments and some infrastructure investments. Real estate is divided into core strategies (properties that produce income through rents) and non-core strategies (those that appreciate in value over time).
Opportunistic and Tactical Investments - This asset class allows SERS to invest in short-term, nontraditional opportunities (such as direct lending) that do not fit within any of the other asset classes.
Cash Equivalents - This portfolio consists primarily of short-term cash and any gains or losses of the overlay program. Short-term cash provides liquidity for the Total Fund while the overlay program is intended to add value by taking active positions in the broad asset classes and foreign exchange markets, with a tight risk budget.
Diversification
Broad diversification within an investment portfolio is used to control the level of risk and volatility within the portfolio over the long
term. SERS has adopted a broadly diversified asset allocation policy, and the strategies used within each asset class also have been
diversified.
Besides the broad diversification of assets and strategies within SERS’ portfolio, SERS also employs a diverse group of investment
managers with the goal of outperforming the respective benchmark while managing relative risks.
Wilshire Associates, Inc., SERS' general investment consultant, assists the Board on matters of investment policy and asset
allocation recommendations. Wilshire also reports to the Board on quarterly performance reviews of the Fund and each portfolio.
Summary Annual Financial Report
4 SERS Summary Annual Financial Report FY2021
4 SERS Summary Annual Financial Report FY2021
SERS Total Investment Return (Gross of Fees)
SERS Total Investment Gross Return 30-Year Annualized Return 8.53%Current Actuarial Assumption 7.00%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
-21%
-18%
-15%
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
18%
21%
24%
Investment Summary as of June 30, 2021 Asset Allocation
Fair Value % of Fair Value Policy Range
Global Equities $ 8,751,893,637 48.3 % 45.0 %35% - 55%
Global Private Equity 2,147,918,916 11.8 11.0 8 - 16
Global Fixed Income 2,674,655,067 14.7 19.0 12 - 26
Multi-Asset Strategies 221,496,023 1.2 4.0 0 - 0
Global Real Assets 2,723,556,505 15.0 16.0 14 - 20
Opportunistic and Tactical Investments 566,406,161 3.1 0.0 0 - 5
Global Private Credit 408,697,444 2.3 3.0 3 - 7
Cash Equivalents 653,364,390 3.6 2.0 0 - 5
Total Portfolio $ 18,147,988,143 100.0 % 100.0 %
15.0%
2.3%3.6%
48.3%
11.8%
14.7%
1.2%
3.1%
Pension Funding
SERS' retirement benefits are funded with member contributions (10% of pay), employer contributions (14% of pay), and income earned from investment returns on those contributions.
The Pension Funding chart on the following page shows the available assets according to actuarial calculations to pay for accrued pension liabilities. The accrued pension liabilities are the estimated cost of providing all the benefits to current and future retirees. The percentages in the chart show SERS' funded status (ratio of assets to liabilities) in a given year. By Ohio law, SERS must be able to pay its liabilities within 30 years and is at 23 years as of June 30, 2021.
Through a history of reasonable benefit levels and prudent investments, SERS continues to be financially sound.
Summary Annual Financial Report
SERS Summary Annual Financial Report FY2021 5
SERS Summary Annual Financial Report FY2021 5
Pension Funding ($ in billions)
Last 10 fiscal years
62.8%
65.3%
68.1%68.8%
67.3%
70.7%70.7%71.0%71.9%
74.8%
Valuation Assets Accrued Liabilities Funded Ratio
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
$22
Total Fiduciary Net Position ($ in millions)
Last 10 Fiscal Years
2012 2013 2014***2015 2016 2017**2018 2019*2020 2021$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
* Fiduciary Net Position was restated due to the implementation of GASB 87 during FY2020.
** Fiduciary Net Position was restated due to the implementation of GASB 75 during FY2018.
*** Fiduciary Net Position was restated due to the implementation of GASB 68 during FY2015.
Summary Annual Financial Report
6 SERS Summary Annual Financial Report FY2021
6 SERS Summary Annual Financial Report FY2021
Membership
SERS' members include administrative personnel, bus drivers, food service workers, maintenance personnel, educational aides, business
officials, and other non-certified school employees who are vital to the operation of Ohio's schools. Our demographics are quite different
from those of the other Ohio public retirement systems. SERS' members are predominantly women who begin their public employment at a
later age, retire at an older age, and receive modest wages while working. These membership demographics drive the decisions the Board
makes regarding pension design, benefits, vesting, contributions, investments, health care, and fund policies.
Retired Members by Type of Benefit
Service Disability Survivor
Average Monthly Benefit $1,313 $1,502 $794
Average Age 74.6 66.2 76.8
Average Active Member Statistics
Age Service Annual Salary
47.7 8.1 $24,700
Employee Membership Data (as of June 30)
2021 2020
Terminated employees eligible but not yet receiving, and retirees and beneficiaries receiving benefits 86,693 86,505
Active employees 146,646 156,579
Total Employees 233,339 243,084
Gender Distribution
74%68%
26%32%
Female Male
Retired Members Active Members0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Employers
More than 1,000 public schools within the state's cities, villages, and counties, as well as local school districts, vocational and technical schools, community schools, community colleges, and the University of Akron, employ SERS' active members. Employers are responsible for creating member enrollments for all SERS members, reporting contribution detail for each member, submitting employee contributions, and processing all contributions.
Covered Employee Members
67,297
49,347
9,754 6,801 4,770 4,139 3,102 1,436
Ci
ty School Districts
Lo
cal School Districts
Ed
ucational Service Centers
Ex
empted Village Districts
Co
mmunity Schools
Hi
gher Education
Vo
cational/Technical Schools
Me
tropolitan
0
20,000
40,000
60,000
80,000
As of June 30, 2021, there were 146,646 covered employee members.
Summary Annual Financial Report
SERS Summary Annual Financial Report FY2021 7
SERS Summary Annual Financial Report FY2021 7
Economic Impact
Public pensions positively impact Ohio's economy. Of the 80,721 individuals receiving pension benefits from SERS, nearly 91% live in
Ohio.
In FY2021 alone, benefit payments of $1.4 billion were distributed among Ohio's 88 counties, positively impacting the state's economy. For
every dollar in employer contributions invested in SERS' retirement benefits last year, $2.67 was returned to local economies.
Pension Benefits by County FY2021 ($ in millions)
Summary Annual Financial Report
8 SERS Summary Annual Financial Report FY2021
8 SERS Summary Annual Financial Report FY2021
Health Care
We know for many of our retirees that a secure retirement means more than a pension. Since 1974, SERS has worked to provide retirees
access to group health care coverage.
The Health Care Fund balance was $600 million at June 30, 2021. This was an increase of $118 million from the prior year. SERS funds
health care through a combination of investment income generated on the Health Care Fund, federal subsidies, premiums, and employer
contributions (when permitted by SERS' funding policy), and a separate empoyer-funded health care surcharge to compensate for low-
wage salaries. The Health Care Fund is projected to remain solvent through 2058.
FY2021 Health Care Fund Income
BenefitRecipientPremiums:
25.7%
Employer
Surcharge:
21.5%
InvestmentIncome: 44.8%
Federal
Subsidies &Other Receipts:8.0%
FY2021 Health Care Participants
Service
Retirees:30,898
Children: 276
Spouses: 7,143 DisabilityRecipients:
2,580
About SERS
Established in 1937, SERS provides retirement security through defined benefit pensions and health care coverage for the people who serve Ohio schools. Protecting and growing the retirement contributions of our members and their employers is our priority. SERS is governed by a nine-member Retirement Board consisting of four elected employee members, two elected retiree members, and three appointed investment expert members. One investment expert is appointed by the Governor, a second one by the State Treasurer, and the third one jointly by the Speaker of the House and President of the Senate. They meet monthly, except January and August, to discuss and act on SERS business.
This Summary Annual Financial Report (SAFR) is produced with information contained in SERS' Annual Comprehensive Financial Report (ACFR). All financial information contained in the SAFR conforms with Generally Accepted Accounting Principles (GAAP). SERS' ACFR contains more extensive information and is available on our website at www.ohsers.org.
School Employees Retirement System of Ohio
300 E. Broad Street, Suite 100
Columbus, Ohio 43215-3746
614-222-5853
MISSION - VISION - VALUES
Mission - To provide our membership with valuable lifetime pension benefit programs and services
Vision - Through the continuous pursuit of excellence and innovative solutions, we will partner with our stakeholders so that our membership will understand and achieve security in retirement
Values - Focus, Accountability, Communication, Collaboration, Innovation
SCHOOL EMPLOYEES RETIREMENT SYSTEM OF OHIO - RETIREMENT BOARD
Hugh W. Garside Jr.Barbara M. Phillips Jeffrey T. DeLeone James Haller
Chair, Employee-Member Vice-Chair, Appointed Member Appointed Member Employee-Member
Matthew King Catherine D. Moss James Rossler Jr.Frank Weglarz Daniel L. Wilson
Employee-Member Retiree-Member Appointed Member Retiree-Member Appointed Member
Summary Annual Financial Report
SERS Summary Annual Financial Report FY2021 9
School Employees Retirement System of Ohio
Serving the People Who Serve Our Schools®
300 E. Broad St., Suite 100, Columbus, Ohio, 43215
614-222-5853 | Toll-Free 800-878-5853 | www.ohsers.org