NOTE: To find the most current posts, please scroll down to the two big red arrows. You can't miss them.

STRS Ohio Watchdogs: a public Facebook group you can join

STRS OHIO WATCHDOGS

by Cindy Murphy

STRS Ohio Watchdogs monitor the management and investment practices of the State Teachers Retirement System of Ohio.

We advocate for prudent and transparent investments, the restoration of the COLA for retired teachers, and the rollback of additional years of service required for active teachers.

This site will provide you with information about the work that is being done by Ohio's active and retired teachers to preserve our retirement benefits. Check back often for updates.

Join our conversation on Facebook. You don't have to be a member of STRS Ohio to join. Everyone who is interested in learning more about the management and investment practices of STRS Ohio is welcome.

Use this link to join our pack on Facebook:.

https://www.facebook.com/groups/ohiostrswatchdogs 

Have you joined the Ohio STRS Member Only Forum on Facebook?

If you are a member of STRS Ohio and have a Facebook account, you are eligible to join thousands of others who make up the Ohio STRS Member Only Forum. This is a closed group of retirees and actives who are advocating for the return of our COLA, which, as you no doubt know, your STRS Board SUSPENDED on April 20, 2017. Two of our members, Bob Buerkle and Dean Dennis, filed a class action lawsuit against STRS on May 23, 2019 suing for the reinstatement of our COLA. The text of the lawsuit can be found on this blog. You can go here to join the Forum and sign the petition, already signed by more than 20,000 people, for the return of our COLA: Ohio STRS Member Only Forum

Click image to enlarge

Angel of Grief

Garrison Keillor

Items of interest in the Archives: The 2013 STRS Board Election

Many people have been very interested in reading about the irregularities of the 2013 STRS board election. There are many posts related to this topic, beginning the first week of April 2013, after the ballots were mailed to retirees from STRS. You can find them by going to the Archives for this blog, over in the right sidebar, and clicking on dates beginning with April 7, 2013. Dennis Leone announced his candidacy for a retired seat in November, 2012. There is a lot of information about him in the Archives, beginning with November 12, 2012 posts. If you want to read only the best stuff about that infamous election of 2013, go over to the sidebar on the right of where you are now, which is the archives of previous articles on this blog. Scroll down to April 2013. That's where the "interesting" articles begin. You will see many, clear up to the middle of May 2013.5/28/13

.....so what REALLY happened in 2003 that touched off a firestorm at STRS that is still smoldering today? Read it here, from the Cleveland Plain Dealer. (Hint: It ain't over yet!)

More here (Akron Beacon Journal, 2003)

A MUST READ: Dennis Leone Reform Initiatives as an STRS Board Member  Between 2005 and 2009

To find current, day-to-day posts -- pull your scroll bar down a ways, just below the big red arrows (you can't miss them). Thanks.

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Find your state representative and senator here.

http://www.legislature.state.oh.us/

I know, it's weird.........

Many posts that appear "at the top" for a while are eventually moved down, where they can be found under their original posting dates. Also, if you are confused by the postdating, this is done to keep these posts up there; otherwise, they drift down when new posts are added. It's a "blog thing" which I have no other way to control. KB

Handy links: Contacts, information and more (short version)
This is an abbreviated version of the original 'Handy links' post. Click here to view a more complete list. (Some of it is old.)

STRS Board.....STRS website

Board calendar

E-mail contacts at STRS (old, but some may still work)

Map/directions to STRS, 275 E. Broad St. Columbus, OH 43215

STRS "Membership Survey" (spoof)
State legislators.......State of Ohio website

Latest OEA salaries (2011) over 100K; USDL report

Rich DeColibus' PowerPoint presentation STRS' PBI Program; Does it work?: click December 21, 2008 (blog Archive) and scroll down to December 23 posts.

Charts: PBI (bonus) payments

Popular links; click, then scroll down: charts, graphs, investment staff, lists, spreadsheets

$TR$ Inve$tment $taff $$$ (old)

SPECIAL (must read):

Dennis Leone's INVESTIGATIVE REPORT on STRS: May 16, 2003...Who is Dennis Leone?........(PDF version)...More on Dennis Leone .......(PDF version)

Dennis Leone: "Catcher of Thieves"

Dennis Leone's STRS Report to ORTA, March 2007

Dennis Leone's Testimony at the Statehouse 9/5/12
The Plain Dealer article that started it all

Dennis Leone: Factors Driving STRS 30-Year Planning and Revenue Assumptions (with charts)

Historic PBI vote, January 16, 2009

Charts: PBI (bonus) payments

CURRENT POSTS BELOW

Trina gets it: a power play at STRS; bullying and bad judgement

From Trina Kay Prufer

December 17, 2024

Dan MacDonald's speech to the STRS board December 12, 2024

From Dan MacDonald

December 16, 2024

CHANGES ARE SLOW BUT HAPPENING

Mr. Chair and members of the Board, good morning/afternoon. I am Dan MacDonald, an STRS retiree with 38 plus years of service. I am also the Executive Director of Local 279R, Northeast Ohio AFT retirees. Happy Holidaze. Thanks for moving up this meeting date.

“It was the best of times; it was the worst of times” is a famous opening line from A Tale of Two Cities by Charles Dickens. I have used this opening a couple of times since 2014. The phrase suggests that contradictory extremes can happen at the same time.  The 2024 calendar year is ending. Time to reflect.

If one follows STRS Ohio Watchdogs and/or Ohio STRS Member Only Forum, STRS and the Board grades would be an F and on a quadrant chart would appear in the lower right quadrant with its peers almost all above.

Let’s reflect for a moment, over the past 5 years this Board has substantially changed both in elected and appointed members. Terms ended, courts make their decisions, Board members entered retirement, elections happened and will again this spring. Many reasons for the turmoil. Yet reading news articles and following computer posts, every Board is held immediately accountable for current decisions and past decisions.

Changes from 2012 are being addressed. Yes, we are not back to 30 years with an enhancement if choice is to 35 years. Minimum age 60 for retirement has come and gone. A yearly 3 percent COLA is obviously not back, but current Board members have certainly tried to be creative in reducing the mandatory years of service along with a couple of COLAs and now a supplemental check. The televisions in the ante room were not present in 2019 although the glass wall existed and, now from the internet, I know its history. The agenda was not available a week in advance.  The handouts were not in color.  Yes, some of these are very minor, but they exist. The Board demanded the changes. Current Board members question/push/challenge STRS staff.

Reading a recent Toledo Blade article, I questioned the FY23 external management expenses that STRS reported as $256.2 million for the 2025 budget and the Blade has as $629 million paid to Wall Street. Point? Transparency is still hard to find, but maybe that will also happen with new leadership at the top of STRS management. This Board will determine the new leadership.

Point? Systematic changes did not occur overnight. I’m appreciative of the steps toward a better, more understood, more transparent STRS.

As always, actives need their benefits enhanced and retirees need a 3% COLA restored.

Dan MacDonald's report on the December 2025 STRS board meeting

From Dan MacDonald

December 16, 2024

TWO DAYS OF ACTION: DECEMBER STRS BOARD MEETING

Dan MacDonald attended the December STRS Board meeting.  [I appreciate all that tuned in for Wednesday and Thursday. As you know the Board now operates from committees to the Board. It was one of the suggestions from the 2022 Funston Audit.]

The Audit Committee started the Wednesday meeting at 11 a.m. The department heard Robert Vance, and his colleagues, shared information regarding the 2024 internal audits and the proposed 2025 internal audit plan.  [Mr. Vance has been with STRSOH for the past 28 years; he’s headed the department for the last 3.5 years. He was to retire but is extending until his replacement is found and settled.] Outside audit consultant Crowe presented its “Annual Independent Financial Statement Audit of FY 2024 with “unmodified opinion” issued, the highest level of audit.  Conclusion, all is accurate and functioning.

At approximately 2 p.m. the Governance Committee was called to order.  The committee interviewed three search firms for the chief executive officer search.  [This was interesting, and you might want to watch the video of the 3 presenters. The video can be found at strsoh.org under the banner ‘About.”] A firm was chosen by the committee.

Wednesday concluded with the Legislative Committee selecting a chair, Pat Davidson, and the disappointing news that the Ohio Retirement Study Council, ORSC, did not support the legislation for the Ohio Police and Fire Pension increase in contribution.  [In other words, the OP&F was looking for support for an increase in contribution as is STRS attempting.] A couple of bills were reviewed to include HB 78 which will allow reemployed retirees to serve on the STRS Board if the governor signs the passed legislation.

Thursday started at 8 a.m. with the Investment Committee. The committee met until 12:15 p.m. to cover several reports and activities.

First, October preliminary total fund net return for October was a NEGATIVE 1.3 percent with fixed income and domestic equity down with pre-election jitters.

November preliminary total fund net return was a POSITIVE 2.2 percent. Markets rallied driven by favorable economic results and unambiguous election results [the election was not drawn out by months of accusations and court rulings.]. From July through November the FY25 net return is up a POSITIVE 5 percent with preliminary total investment assets ending November at $98.2 billion, higher by $2.9 billion in FY25.

The semiannual broker review was reviewed and approved.

Outside consultants Meketa presented a first quarter review. [Although retirees are not receiving a COLA, STRS Investment department is outperforming most of its peers in 5,10-, and 20-year periods.] 

Outside consultant Albourne presented on fee validation, identifying fees and their correct payment. Albourne validated the fees paid in calendar year 2023 with no findings identified and they validated the management fees for FY24.

Outside consultant CEM Benchmarking then presented using Albourne’s validation of fees information. CEM’s findings: STRS’s 5-year annualized net total return for the period ending calendar year 2023 was 9.7%.  This was above both the U.S. Public median of 8.8% and the peer median of 9.3%. The fund was low cost to its peers primarily because it paid less than peers for similar services. Internal management saved about $122 million compared to its peer median external costs.

Outside consultant Callan gave its quarterly review as of September 30, 2024, and supported the belief that the Investment department is performing well. [Again, then why no COLA and why are actives working longer for less?  It is complicated and goes back to decisions from before 2012 and several market downward adjustments.]

Outside consultant Meketa then led the Board in its Asset-Liability Study. The Asset Liability Study will determine what the asset classes will be in the future and the percentage of funds in each class. [The demand for more passive investments enters this discussion as well as ultimately staffing needs internal and external. This part of the meeting was demanding of the Board and presenter with push, pull, confusion, hesitancy and finally agreement for further discussion with wider parameters.]

At 12:30 p.m. the Board meeting was called to order. Public Participation took place after minutes approval. Nine people spoke.  Toledo Blade articles, misinformation, COLA, Executive Director selection, fees, passive investments and “Welcomes” to Interim Director Hood were all part of the mix.

After lunch/executive session, the Board returned with a report from the  Member Benefits Department. Outside consultant CEM Benchmarking shared its study of the department against 68 global pension systems. The STRS service score was the highest of anyone in the study.

The Health Care Subsidy was also discussed. With the move to 33 years for actives and the cost of health benefits and the projection of such changes in the future, money will soon be needed for the health care fund to offset the costs outflowing.  [Remember, there is no flow of money into the health care fund except for member’s premiums which are subsidized.] Discussion followed with the Board agreeing that this must be addressed sooner than later.

Interim Director Aaron Hood gave the director’s report. He was impassioned stating that the glass partition in the Board area will be removed by the next scheduled Board meeting and his work to build trust in his time at STRS amongst all its communities.

Routine Matters followed.  Bills were paid and committees reported.  [This agenda item is going to need more time delegated because of the committee reports. The fifteen minutes allocated turned into an 85-minute session].

The Governance Committee report was challenged by several Board members and the search firm recommended by the committee changed.  A great discussion happened, but the trust and concern amongst all members was on display.  It should be acknowledged, and was by all, that this probably is the biggest decision that this Board will have to make, a new Director of STRSOH.

The meeting adjourned at 6:25 p.m. The next regular meeting is scheduled for February 19, 20, and 21, 2025. 

Dean Dennis to STRS board 12/12/2024: It's time for all of us to start pulling in the same direction and take care of our members who spend all of their working lives for the good of Ohio.

From Dean Dennis

December 13, 2024

Dean Dennis- Retired, 35-years from CPS, ORTA Executive Bd Chair.

Let’s reflect on the current state of affairs. While progress is being made, active teachers still have the worst, or one of the worst, normal costs for their contributions in the United States, and retired teachers are perhaps the only group of public employees without any guaranteed inflation protection.

Members are in this predicament due to legislative neglect, STRS staff mismanagement, and a lack of staff oversight by prior boards.

However, I do believe there is a silver lining ahead of us. Our current board seems to be working towards transparency, moving our asset allocation into more indexed investments while moving away from PE investments which are fraught with hidden fees and non-disclosure agreements. Hopefully, our Board will also concentrate on better staff supervision. In my opinion, one department, in particular, has failed the board and its members.

A critical component ahead of us will be the selection of the next STRS Executive Director. That person must be aligned with the philosophy that trying to beat the market is foolish, and be an advocate of indexed investments. We don’t need any more bad press. They must be aware that saving 50 basis points in investment fees on a 90 billion pension captures $13.5 billion, excluding interest, over a 30-year funding period. This adds up to the cost of a permanent 2% COLA. The next person must also understand that they report to our Board and must be approachable. Our next hire must put the interests of members ahead of their staff. Lastly, they cannot lose control of their staff or support any vindictive behavior toward board members who are only trying to improve our pension system.

It's time for all of us to start pulling in the same direction and take care of our members who spend all of their working lives for the good of Ohio. We must move towards the day when our members agree that we are members of a top-quartile pension system instead of hearing it from the staff and their contracted services.

Robin Beebe and Santa to STRS board December 12, 2024: "Happy 3% COLA to all retirees and Don't Give Up the Good Fight!"

From Robin Beebe

December 13, 2024

My name is Robin Beebe. Retired teacher of mainly 4th Graders and Kindergarteners, a smattering of other elementary grades, and eight summers of Migrant Education. 35 years. Fremont City Schools and Perrysburg Schools. Retired for 15 years. Please start the 3 minute timer now. 

Well, it's December. Christmas is approaching. It is a magical time. It is a time of wonder.

My apologies to Clement C. Moore. 

T'was the night before Christmas, when all through the STRS Taj,

Not a creature was stirring, not even in the pavered parking garage.

The stockings were hung by the waterfall with care,

In hopes that our 3% COLA soon would be there.

The retirees were nestled all snug in their chairs,

While visions of restored 3% COLA's danced away their cares.

And mama with her teacher face, and I in disbelief,

Had just settled our brains down for some long sought relief!

When out on the STRS heated sidewalks there arose such a clatter,

I sprang from behind the infamous divisive glass wall to check the Mess at STRS and see who was getting fatter.

Instead, it was a little old driver, so lively and Boss,

I knew in a moment, it was FIDUCIARY CLAUS!!!!

He whistled and shouted and called them out by name.

On and begone, Hedge Funds and Alternative Investments!

On and begone, Out of State Real Estate Holdings!

On and begone, Spying and Propagandizing Department of 

MIS-Communications!

On and begone, Political Dark Monies!

Out and away, Exhorbitant Excessive STRS Staff and Salaries!

Out and away, Cafeteria Operating in the RED!

Out and away, Performance Based Incentives, i.e., BONUSES!

Out and away, All Greedy Grifting and Corruption!

To the top of the STRS Pension with Fiduciary Duty,

To the top of the STRS Pension with Honesty and Integrity,

Now fly away, speed away with total Transparency.

As I drew in my head,and was turning around,

Down the elevator FIDUCIARY CLAUS came with a bound.

He spoke a "Bah Humbug" and went straight to his work.

He fixed ALL the STRS Messes and turned with a jerk.

And laying his finger aside of his nose,

With a smiling nod to all the teachers he knows, 

POOF!!!! went all the STRS corruption -

Away it ALL goes!!!

FIDUCIARY CLAUS sprang to his sleigh and whistled for the crash gate to be lifted.

And away FIDUCIARY CLAUS flew, the champion of all teachers he just gifted.

But I heard him exclaim, ere he drove out of sight,

"Happy 3% COLA to all retirees and Don't Give Up the Good Fight!"

(Ring Jingle Bell.)

Trina Kay Prufer's message for STRS: Time to examine STRS, the financial institution, through a different lens. The current one deserves to be thrown into the dustbin of history, as in Ohio, it serves only the politicians, Wall Street and grifters.

From Trina Kay Prufer

December 13, 2024

My belief is that we are living in the 21st century, and a tremendous paradigm shift must occur in how we think about STRS.

STRS started out, about a hundred years ago, as a way to protect Ohio’s classroom teachers (mostly women) from poverty in old age and provide the dignity of being able to support oneself. It was progressive in its day, but also paternalistic in that it made all the decisions about how contributions were pooled and invested. It was based on TRUST that the institution was benevolent and would keep its word.

Well, that ship has sailed, and the TRUST has been broken, irreparably. That model no longer works, because the laws guaranteeing the defined-benefit ( with COLA) were watered down and manipulated. A contract is no longer a contract, and the ship has leaks. Everyone benefits at STRS except those who contribute.

When all is said and done, classroom teachers end up IN poverty, BECAUSE of STRS. The theft is in the -3% between the contribution rate and the normal cost, and the fact that the district contribution ( 14%) does not go towards paying benefits.

STRS today is a financial institution in charge of billions, without any laws protecting contributors. We were sold a financial product (an annuity) without any guarantees, transparency or protections. Arguably, when the numbers are looked at between the obligation and the reality, it's one of the biggest financial heists in history.

STRS should be regulated just like any other financial institution or investment company in the nation. If it was, we would not be seeing the excessive waste, outrageous perks and unfunded liability; investors would be paid what was legally agreed to, first. What happened to Ohio’s teachers is bait and switch. Why do STRS officials perpetuate the fiction that the COLA was never guaranteed in its documents? Is STRS really a premier, safe haven for our life savings? Has it delivered on the contracts we signed? Does the defined benefit deliver any value as compared to a 60/40 portfolio of diversified index funds invested over 30 years? What happens to Ohio’s classroom teachers after 20 years without a COLA?

Time to examine STRS, the financial institution, through a different lens. The current one deserves to be thrown into the dustbin of history, as in Ohio, it only serves the politicians, Wall Street and grifters. In its present form, does it deliver any financial value at all to Ohio’s classroom teachers? Would the STRS defined benefit even exist as a financial product in an open market of other, fully-regulated, competitive, choices?

Cathy Steinhauser to STRS board: "...we’re counting on you to grab the bull by the horns and do the right thing!"

Cathy Steinhauser's speech to STRS board December12, 2024

Cathy Steinhauser – 35 yrs., satellite teacher of Family & Consumer Sciences through Pickaway/Ross CTC for Circleville City Schools.

I’d like to welcome our new temporary executive director this month. Welcome, and STRS pensioners are counting on you to do what’s right in making decisions that impact our everyday lives while the Board searches for that permanent executive director. We understand that you have private equity experience, a background that is not reassuring to us, as we look to the board for transparency and investment in index funds so this concerns us deeply.

We are NOT fans of this type of investing because it has cost us dearly by way of COLAs. Even Warren Buffet, the 8th richest man in the world, has said that no pension should be invested in private equity. We’ve had a hard time the past 12 years since STRS reneged on their promise to provide an annual COLA. We’re frustrated, tired, some barely living retirement check to retirement check, and this has hurt us in more ways than any of you can imagine. We are ignored time and again because it seems that we are being labeled as whiners…we have legitimate complaints that need attention.

We really need some deep cleaning such as closing the cafeteria and gym, cutting the budget, selling the real estate, selling this building known among pensioners as the Taj Mahal, and downsizing staff-it’s ridiculous how many assistants to the assistants that are employed here. When school districts have to tighten their belts, RIFing takes place (reduction in force), budgets are cut, busing stops, higher fees for sports participation, and teachers’ salaries are frozen, just to name a few. The STRS staff, including the investment group, have no stake in this issue since their retirement is with OPERS so they don’t lose out on anything like a COLA. We’re tired of being the cash cows for STRS spending and staff need to share in the sacrifice like the pensioners.

I’m the person who has the reputation for reminding the board members and the STRS staff of their fiduciary duty for 23 board mtgs., yes 23! You would think by now the importance of the word FIDUCIARY would have eventually become more fully understood or accepted and acted upon by someone, after some time or repeatedly explained. Maybe you need to listen more carefully during this Public Participation event. The Merriam-Webster Dictionary definition reads as follows:

“A person who acts on behalf of another person of persons putting the client’s interests ahead of their own with a duty to preserve good faith and trust. Being a fiduciary requires being bound both LEGALLY AND ETHICALLY to act in other’s best interests”. In essence, it IS all about US, the PENSIONERS…NOT the STRS staff or STRS investment group or the STRS real estate staff…just ALL the pensioners, active/retired/and disabled. So we’re counting on you to grab the bull by the horns and do the right thing!

Suzanne Laird to STRS board: "...every time a bell rings, it should NOT mean a retired angel-teacher dies without a COLA."

Suzanne Laird's speech to the STRS board December 12, 2024

Good Morning, Members of MY Board,

And welcome to our newest Executive Director.

Our wish for this holiday season is that you have a wise man’s ability to discern naughty from nice, AND the fortitude to slice through the ………..fatted goose.

With only 3 minutes, I have no time to sugar-coat it: we, who have attended these meetings for 10, 15, or 20 years have a long wish list, and we are putting you at the top. We wish for someone who is not afraid to make the difficult decisions necessary to completely revamp our pension and restore the very reason it exists: to pay benefits to those who have given their lives to the students of Ohio. We wish for an end to the fiduciary fraud perpetrated upon the educators of Ohio: the lack of transparency, the lack of accountability, the contemptible waste of our hard-earned money.

Our wish list:

•  An immediate freeze on all new hires.

•  Cut existing staff by 20 percent, especially an investment team that cannot turn a profit during a 10-year bull market.

•  Rent out all the unused office space. Consolidate the staff to three floors. Close all satellite offices.

•  Eliminate the employee educational stipend. Ohio teachers must pay out of pocket; so must these employees.

•  Charge for parking, fitness, and make the cafeteria profitable or close it.

•  Cut the bonuses.

Now, the staff will tell you that cutting the bonuses will not restore the COLA, but don’t you believe them: 10 years of bonuses in the 5 million dollar range is more than a little “stocking stuffer” and we retirees are suffering this Christmas, even with a supplemental-white- elephant-one time check.

Are you a quick learner? Think of it as setting up the next Executive Director for success in the new year. Ring in the new year with an austerity policy similar to that WE have all had to implement in our lives.

Because every time a bell rings, it should NOT mean a retired angel-teacher dies without a COLA.

Campaign/Position Statement from Rudy Fichtenbaum, Candidate for Reelection to the STRS Ohio Board

Why I am Running for Reelection

 By

Rudy Fichtenbaum

When I ran for my first term on the STRS Board, I had a number of objectives: I advocated index investing, increasing the employer contribution, restoring the COLA, reducing contribution for active Members to its previous level, and greater transparency. A major challenge faced by STRS was its cash flow problem. That is, benefit payments and expenses were (and still are) significantly greater than contributions. To make up this difference STRS relies more heavily than most pensions on investment returns to make monthly pension payments. When returns are low or negative, STRS must sell assets just to make pension payments. This puts the pension in a precarious position.

One of the ways in which transparency was lacking was promoting the myth that all STRS needed to do was to become 100% funded (i.e., to eliminate its unfunded liability), and then benefits could be restored. STRS management led the STRS Board to believe that. Today, we are led to believe that if we meet our 7% assumed rate of return, then STRS would be 100% funded by 2034; this is the projection of STRS’s actuary. But paying for an ongoing permanent COLA starting even as late as 2034 will be impossible unless STRS can also reduce its negative cash flow. This is something that Members were not hearing until I was elected to serve on the Board. I told that hard truth, not to mention others, regardless of whose feathers were ruffled – and I intend to continue doing just that.

When I was elected, no other Board members were advocating an increase in the employer contribution. Everything I heard from senior staff, other Board members, and most stakeholder groups like Health and Pension Advocates was that there was no support for increasing the employer contribution. The only two organizations that advocated for an increase in the employer contribution were OFT and AAUP.

Another way in which transparency was lacking was in understanding how much actively managed investing was costing our Members. For the longest time, STRS staff refused to release unredacted copies of CEM’s reports on investment expenses. (CEM is a consultant hired by STRS.) Even after the reports were finally released, we still did not have a full understanding of our expenses, because CEM’s reports did not include all our expenses for private investments. Last year, after two election cycles in which reformers were elected, for the first time the Board finally received an expense verification report from a third-party showing all expenses for real estate and alternative investments (the two main categories of private investments).

Yet another way in which transparency was lacking had to do with benchmarking and Performance Based Incentives (PBI), known to most Members as annual bonuses for the investment staff. Way back in 2006, a fiduciary audit recommended that STRS stop using its own performance as a benchmark for alternative investments (AI). I find it ironic that the senior staff and the Board simply ignored this recommendation given the fact that now anytime the Board gets a recommendation from fiduciary counsel or our governance consultant, we are told that if we ignore the recommendation, we will be sued. But from 2006 until 2021, it was okay to ignore advice from the fiduciary audit, and no one on ORSC (Ohio Retirement Study Council) seemed concerned. In fact, ORSC is required to conduct a fiduciary audit for all state pensions every 10 years according to the Ohio Revised Code (ORC), but they simply chose to ignore the law and went without scheduling a fiduciary audit for STRS from 2006 until 2021.

The fact is that STRS had a real benchmark for AI, namely the Russell 3000 +1% for private equity (PE) and the Russell 3000-1% for Opportunistic/Diversified (OD). (PE and OD are the two components of AI.) However, this benchmark was never used in calculating the total fund benchmark, something that was only revealed in two small footnotes contained in a table on investment performance.

STRS staff and several Board members justified giving PBI, even when the pension lost money, arguing that without our actively managed investments, we would have lost even more money. But we have no way of evaluating this claim without benchmarks that incorporate opportunity cost (the cost of the next best alternative, e.g., comparing active management with index funds). But clearly using your own performance as a benchmark – as STRS did for fifteen years for AI, recommendation to the contrary notwithstanding – along with other custom benchmarks does not measure opportunity cost. Moreover, STRS’s PBI policy is so arcane that I doubt that most Board members could explain it. Again, the argument given to justify PBI is that staff’s active investment is outperforming the market. But at the asset class level where most of the PBI dollars are doled out, the PBI policy specifies using gross returns, i.e., the returns before expenses. In addition, between 2013 and 2020 when STRS was using the Russell 3000 +1% for PE and the Russell 3000-1% for OD, it never beat its benchmark over any 5-year period. So how were PBI payments for AI paid? Again, buried deep in the PBI policy, it says if you don’t beat a benchmark (which does measure opportunity cost) you get another opportunity to get a PBI, comparing your performance to the STRS absolute return objective for AI, which happened to be 7.09% for several years. In 2021 the Annual Comprehensive Financial Report references the absolute return objective for AI and claims that STRS beat that objective – but the absolute return objective is nowhere in the report. Needless to say, transparency is lacking yet again.

When I first was elected to the Board, I was told by senior staff that surveys show most of our Members were very happy. My response was that I would rely more on the election results for Board seats than survey. As more reformers started running for and winning Board seats, what did the STRS senior staff do? They doubled down on the Potemkin Village myth by putting out the Reflections Series. And as time went on, a survey that STRS commissioned by Saperstein finally showed exactly what the elections did: Members were not happy. Again, we have another example of where transparency was lacking.

Ever since I have been on the Board, I have been pointing to the negative normal cost for active Members. On numerous occasions, I explained that the negative normal cost means that active Members are paying more on average each year than the value of the benefits they earn for that year. Since STRS is the only major public pension in the U.S. with a negative normal cost, it is certainly fair to say that active teachers have the worst deal in the country. But how did STRS respond to this claim? In the middle of an election, STRS’s communications department issued a statement saying that Members receive far more money from STRS than they contribute, so they are getting a good deal. It goes without saying that this statement was a fundamentally misleading comparison – a red herring.

Recently, ORSC seems to have discovered STRS’s negative normal cost and has made a big deal about it, claiming that the unfunded liability is creating intergenerational equity, i.e., active Members are paying 14% and getting a pension worth approximately 10.4%. The reason for this is that 3.6% of active Member’s contributions are going to pay off the unfunded liability. The term intergenerational inequity is in this case being used to try to drive a wedge between active and retired Members. It falsely implies that retirees are freeloading off active Members.

But the real problem is Ohio’s pensions are nearly unique in having a fixed employer contribution. Pensions are not designed to have a fixed employer contribution. In virtually all other states, employer contributions are variable. The reason for the variable contributions is so that when investment performance is poor the employer contribution goes up, and when investment performance is outstanding, it goes down. This mitigates the impact of negative cash flows and is one of the reasons why other teacher pensions with similar or even worse asset-to-liability ratios are able to pay COLA’s to retirees.

If ORSC were doing its job, it would have recommended years ago that the legislature enact variable contribution rates. At a minimum, they should have supported some increase in the employer contribution as part of what was euphemistically referred to as “pension reform”. Is it not genuine intergenerational inequity for an entire generation of retired teachers not to get the COLA they were promised, especially during a period of high inflation?

As pressure mounted by the election of more reformers, the Board finally started talking about trying to reduce years of service and having a one-time (as opposed to an ongoing) COLA. The senior staff referred to these changes as “sustainable benefit enhancements.” Hah! Here’s yet another example of a lack of transparency. What Members were demanding was the restoration of cuts. “Enhancement” implies a new benefit, but the truth is that a tiny sliver of the cuts were undone.

Making change at STRS requires the support of a majority of Board members. Building a majority committed to change is hard when there are 7 elected members and 4 appointed members. Just when it appeared that people who were committed to reform were going to have a majority, the Governor illegally removed appointed Board member Wade Steen, who was an outspoken advocate for reform. So, we had to wait for another election cycle. Then, just after Wade was reinstated to the Board after winning a lawsuit, the Attorney General stepped in and filed a lawsuit against me and Wade for violating our fiduciary duty. I view this lawsuit as an attempt to instill fear and to intimidate Board members who support reform.

So let me address the elephant in the room: the lawsuit filed by the Attorney General against me. The lawsuit is based on an anonymous complaint delivered to the Governor’s office by an STRS staff member. The Governor turned the complaint over to the Attorney General who promised to do a fair, thorough and impartial investigation – but less than a week later filed a lawsuit against me for violating my fiduciary duties.

When I was running for my Board seat, I advocated for an increase in the employer contribution because I knew that STRS could not restore benefits based only on improved investment performance. But as I stated earlier, there seemed to be very little if any support at the time for an increase in employer contributions. My first choice was always and still is an increase in the employer contribution. I know that some have argued that taxpayers should not be required to pay more to support teacher’s retirement. But I would argue that it all depends on which taxpayers would have to pay. For years the wealthiest Ohioans have been having their taxes cut. If we are going to have a system of public education, then we must have a fair retirement system for teachers, above all one that keeps it promises. That should entail the wealthiest Ohioans paying their fair share. But I am also a political realist and recognized there was not then enough support for an increase in the employer contribution. So, I thought it was my fiduciary duty to look for other ways the pension could make more money and take less risk. Indeed, Steen and I both asked (fruitlessly) the investment staff and consultants repeatedly for ways STRS could earn more money with less risk.

When I was told about a proposal that by a firm named QED, I was very skeptical. However, seeing no other alternative, I thought I should investigate it especially because it seemed to have support from other Board members and a former Board member.

The proposal we brought to the Board in November 2021 has been mischaracterized as turning over $65 billion to QED; in fact, it would have started with a much smaller stake which would have been subsequently ramped up only with proven success.

QED’s proposal was aimed at increasing STRS’s cash flow by allowing STRS to earn fees. Let me elaborate. In any market there are two sides: a buyer’s side and a seller’s side. Investors are the buyer’s side; they buy assets and hope to earn a return in the form of capital gains, interest, dividends, and (in the case of real estate) rent. The seller’s side (Wall Street) makes money by earning fees. The QED proposal was for STRS to continue earning investment income but supplement it by earning fees by also becoming a market maker, i.e., being on the seller’s side. STRS would have remained on the investor side but would have supplemented investment income with fee-based income. This strategy has been used successfully by the Healthcare of Ontario Pension Plan (HOOPP), arguably the best performing pension in North America. I listened to the due diligence meeting between Cliffwater (then STRS’s consultant for AI) and QED. I spoke with HOOPP’s Robie Goobie, who had agreed to work with QED. I listened in on a conversation between QED and Goldman Sachs to verify the fees for the various trades. After all of this and seeing no other viable alternative for restoring a COLA and reducing the number of years active teachers would have to work, I decided to participate in making a presentation to the Board about this idea. I along with Wade Steen and Bob Stein (former board member) tried to make a presentation to the Board about this idea. Those of you who heard the attempt at making a presentation know that the presentation was sabotaged by the staff. At our attempted presentation we were prepared to make a motion to ask, “the Ohio attorney general…appoint a special counsel to negotiate a business partnership named Ohio AI between the State Teacher’s Retirement System and QED.” Our view was that there would be no way to negotiate a contract to form a partnership without understanding how the strategies proposed by QED would work, so there would have been an additional due diligence performed in that process. At that point, if the Board was not comfortable going forward, it could simply not approve the contract.

I have said before and I will say it again: I never accepted nor was even offered any compensation or gifts of any kind from QED, JD Tremmel, Seth Metcalf or any other party. I believed STRS should have honestly explored what seemed like a credible idea for the pension to make more money and take less risk – a necessary pair of objectives since at the time increasing employer contributions was not viable. My fundamental objective was what I have stated already: STRS should keep its promises to teachers, restoring the COLA and reducing to previous levels the number of years needed for an unreduced pension.

I am running for reelection to my seat on the Board because I believe that over the last three and half years, I have played a positive and constructive role in bringing change to STRS. If I am reelected, I pledge to continue advocating on behalf of all Members, both active and retired, to restore benefits and to ensure that everyone who has taught, is teaching, or will be teaching in the future in Ohio has a dignified retirement.