Looks like our "former" STRS Board has some competition from the current Missouri Teachers Retirement System!

From John Curry, October 19, 2008

Hmmmm.....cars, gas, parties, open bars, credit cards, expensive hotel stays, and gratuities - just like former Ohio STRS Board members enjoyed in past years! I wonder If we could spare Dennis Leone and bring John Lazares out of Board retirement for a few months to "clean up" the entitlement mentality that currently exists at the Missouri Teachers Retirement System?

Of course, it also took ethics convictions of former multiple Ohio STRS Board members and a former STRS Executive Director to get our Board's attention - didn't it? I wonder if Missouri will have to witness some "perp walks" before they decide to reform their situation? Even if they did reform their system....would they credit the board members who initiated the reform or....would they criticize them after the dust settled and business returned to normal? John

Sunday, Oct 19, 2008
Apple for the teacher, but luxury for execs
By JUDY L. THOMAS
The Kansas City Star

Company cars with free gas, even for personal use. Stays at luxury New York City hotels such as The Plaza and the Waldorf-Astoria. Expensive dinners and open bars.

The people who run Missouri’s teachers retirement system — at $27 billion one of the nation’s biggest pension funds — have been living like there’s no tomorrow, an examination by The Kansas City Star has found.

While other pension funds are closely watching expenses during tough economic times, top executives of the Public School and Education Employee Retirement Systems of Missouri are spending thousands of taxpayer dollars on themselves, records show.

What’s more, The Star found that some retirement system executives openly accept gifts, meals and travel from investment companies that they are in charge of hiring and firing. In many other states, such actions are prohibited and in some cases have led to criminal charges.

Not in Missouri, where lax fiscal and ethical oversight allows top executives of the teachers retirement system to spend money just about any way they want.

“We really stress fiduciary independence,” said M. Steve Yoakum, the system’s executive director, in defending its spending practices and relationships with investment managers. “Then we say, as a check on that, don’t do anything that you don’t want to read about on the front page of The Kansas City Star. … And generally, that works for us internally on our staff and it works for the board as well. Just don’t do anything stupid.”

But some teachers, who make on average $43,229 a year and invest their retirement savings in the fund, were outraged to learn of the spending practices.

“Those people are taking advantage of us,” said Oren Bates of Peculiar, who retired from teaching in the Hickman Mills School District in 1992. “I see and hear and read of that in the big corporations, but in this case, it’s my money and the taxpayers’ money that they’re spending.”

Ethics experts also expressed surprise at some of the spending.

“I frankly have never heard of free cars,” said John Hood, president of the John Locke Foundation, a public policy think tank based in North Carolina. “You either get mileage or you get a car. But you don’t typically get a car plus whatever fuel you want.”

The retirement system collects more than half a billion dollars a year from public school districts — other than Kansas City and St. Louis, which have their own systems — and half a billion more from its membership, which includes administrators and non-teaching personnel.

But the retirement system, which was overfunded with a surplus from 1996 to 2000, was only 83.5 percent funded last year. That left it with an unfunded liability of $5.3 billion, even before the current market turmoil.

Indeed, the overall investment return for the Missouri teachers pension fund for the first quarter of fiscal year 2009 (which ended Sept. 30) was -9 percent — well below the actuarial required return of 8 percent. Fiscal 2008’s return was -4.6 percent. In fiscal 2007, the return was 16.6 percent.

However, retirement system executives said the negative return is better than that of other public funds on Wall Street’s rollercoaster ride. If markets are down 20 percent, they assured, the teachers fund expects to be down only about 10 percent because of diversification.

“Sure, it’s a concern. We know there are going to be years that are bad years. This is just a difficult game that we’re finding ourselves in now,” Yoakum said of the current market conditions, but added “over the long run, we think we’ve designed a portfolio that will weather those storms and give us those returns.”
Photo: Steve Yoakum

Among The Star’s findings amassed from credit card receipts and expense reports:

•The retirement system spends thousands of dollars a year on fuel for personal miles on vehicles driven by three of its top executives. And they put thousands more personal miles on the retirement system’s cars than business-related miles. In fact, last year one put seven times more personal miles on the vehicle than business-related miles.

•The retirement system spends thousands of dollars on Christmas parties at a country club for current and former board members and executives, which included open bars.

•The retirement system’s top executives travel extensively, sometimes staying at posh hotels that cost more than $300 a night, an apparent violation of the agency’s policies.

•Some of the retirement system’s employees used the pension fund’s credit cards to make personal purchases. One employee, Jennifer Bass, made more personal charges than business charges and continued to do so even after being told to stop. Officials said she reimbursed the agency. Most credit cards were taken away in 2003.

Ironically, Bass now is the executive director of a joint legislative committee that oversees the state’s 120 retirement systems, including her former employer.

Bass said she always paid the retirement system back on a timely basis. “I just had one card at the time, and as soon as I got the bill, I reimbursed them for it,” she said. “There was never any time that they paid for any personal thing of mine whatsoever.”

Part of the spending problem, The Star found, is that the teachers retirement system — which has 114 employees and an annual operating budget of $86 million — never even had an ethics policy until 2006. And experts say the 3 ½ -page policy the board finally did adopt is weak.

The policy doesn’t prohibit board members or its employees from accepting gifts. Nor does it require executives and board members to file personal financial disclosure statements with the Missouri Ethics Commission, something required by other public retirement systems to avoid conflicts of interest.

In Kansas, the Public Employees Retirement System is different. It’s an umbrella organization that administers three retirement plans for state and local government employees, including teachers. And its budget must be approved by the Kansas Legislature and governor.

The KPERS ethics policy prohibits employees from accepting any gifts, meals or travel from those doing business with the agency. Its trustees also must report with the state ethics commission ownership interests, gifts, compensation, or involvement in a business that may pose a conflict.

In Missouri, the teachers retirement system’s ethics and expenditure policy only requires that employees keep their expenses “reasonable.” However, it sets no limits on spending.

“We just tell people to try to be reasonable and to document what they do. I haven’t seen any that I consider outrageous,” Yoakum said.

But The Star’s examination found that the retirement system’s total travel costs jumped from $180,000 in fiscal 2005 to $269,000 in fiscal 2008 — a 49 percent increase.

One room at The Lucerne Hotel in New York City cost more than $600 a night.

That wouldn’t pass muster in states such as Ohio “for a number of reasons,” said Paul Nick, chief investigative attorney for that state’s Ethics Commission, “not the least of which is fiduciary responsibility to the people who pay for your system.”

Cars and bars

The teachers retirement system provides vehicles for three of its top executives: Yoakum; chief investment officer Craig Husting, and assistant executive director Robert Rust.

Yet it’s a stretch calling them “company cars.” That’s because all three men logged more personal mileage on them than business, records show.

Last year, for example, Rust reported driving only 2,489 business miles, but he put 17,207 personal miles on his vehicle. Husting put 7,926 business miles on his vehicle, but he reported driving 16,024 personal miles. Yoakum put nearly 100,000 personal miles on his company cars — he’s now driving a 2009 Toyota Camry — between 2001 and 2007.

And those personal miles didn’t cost the executives a penny for gas. They did, however, cost the retirement system more than $18,000 between 2001 and 2007.

The pension fund’s seven-member board approved the company cars and gasoline as part of the executives’ compensation package, said Yoakum, who noted that such perks are considered taxable income.

Board members also recently approved nearly 7 percent raises for Yoakum, who makes $253,000 a year, and his executive staff. Board members, who are appointed by the governor or elected by retired teachers and school employees, referred all questions to Yoakum.

As for the cars, Yoakum said “they’re part of our contract and part of our compensation. We maintain very detailed logs. … Because I live in Columbia, I have 72 miles a day just commuting. But I have to pay tax on that.”

Still, some teachers said they weren’t happy about the perk at a time they’re struggling to fill their tanks.

“I’m not only surprised, I’m shocked that those at that administrative level would take advantage of the system,” said Don Fore, a retired teacher and former member of the Oak Grove school board.

Fore also expressed surprise at how much it costs to fill up board members and executive staff on food and drink.

For example, a $707.92 receipt for a June 2005 board meeting dinner at a Hereford House restaurant in Kansas City showed that 16 people dined on steaks, desserts and numerous alcoholic beverages including wine, beer, margaritas, and Drambuie.

And every December between 2001 and 2006, the retirement system invited between 35 to 50 former board members and management staff to a board dinner at the Meadow Lake Acres Country Club in New Bloomfield, Mo.

Total food costs: more than $5,500. Bar tab: $1,600.

Yoakum said there should not have been an open bar at the event but noted that the average cost of alcohol per person was only $4.38 in 2005 and $5.86 in 2006. (Last year’s event was canceled due to an ice storm.)

“We’ve had for a long time a prohibition on any kind of reimbursement of alcoholic beverages for the staff,” Yoakum said. “We didn’t have it for the board, but it just wasn’t an issue. For the most part, it didn’t come up. This one frankly just slipped up on me.”

But The Star found other “slip ups” where employees turned in receipts and were reimbursed for meals that included alcoholic drinks.

That happened when Husting turned in a $131.20 receipt dated Nov. 13, 2006, from La Vigna in New York City. Included on the bill were three Michelobs, a Heineken and a Stella Artois. The $24.50 bar tab was not deducted from his expense report.

But sometimes drinks were deducted from the employee’s expense reports, such as a dinner receipt dated June 21, 2006, from Dick’s Last Resort in San Diego. It showed two Bud Lights for $3.75 each, a Bud Light Bigass for $5 and a Bud Light Bigass with Souvenir Bigass Glass for $7.50.

Yoakum said that the retirement system had recently implemented new financial controls that make it easier to catch improper charges.

Hotels and credit cards

Although the teachers retirement system sets no limits on how much its employees or board members can spend on travel, it does say they should keep their expenses “reasonable” and stay at “moderately priced hotels.”

Retired English teachers, however, may differ with retirement system officials on the definition of “moderate.”

Records show that on June 24, chief investment officer Husting stayed at the Renaissance Hotel in Chicago at a cost of $460.45 a night. And on Dec. 5, 2007, Husting stayed in New York City, costing the retirement system $604.39 for one night.

Board members have stayed in pricey hotels as well. Peggy Preston and former member Cheryl Boggess spent two nights in 2003 at The Ritz-Carlton in Washington, D.C., at $326 a night, and Boggess stayed at The Plaza in 2002 for $369 a night.

Those costs greatly exceed what some other states, such as Ohio, allow in 2008.

Yoakum acknowledged it’s a challenge to keep hotel expenses down in bigger cities. The average amount spent on hotels for the board and staff, retirement system officials said, is $153 a night.

“Much of the staff travel is required to perform due diligence visits with investment managers,” retirement system officials said in a written response to questions. “Those managers are often located in cities such as New York, Boston, Chicago, London and San Francisco where $300 to $400 per night for a hotel room would be considered reasonable.”

But according to the Corporate Travel Index 2008, issued by Business Travel News magazine, the average cost of a hotel room in New York City is $326 a night, Washington, D.C., $251, Boston $205, Chicago $188 and San Francisco $181.

Retirement system credit cards also were misused, records show.

Bass, the agency’s former legislative analyst, made more personal charges than business charges on her company card. Many were for gas, while others were for airline tickets or at businesses such as Bathrobes Online, Target and Kmart.

In an e-mail dated Aug. 23, 2002, chief financial officer Lori Woratzeck warned Bass that “we do not want personal items charged to the work credit card … only business-related items should be charged.” Yet Bass continued to charge personal items on the card through May 2003.

Bass wasn’t the only one. In February 2002, another employee charged $86 worth of merchandise at Toys ‘R’ Us on her company card. Among the items purchased: a Fashion Polly Doll, a Fashion Polly Backpack, and a Rescue Heroes Fire Truck.

Even Yoakum charged $100 for Glamour Shots while in Sacramento, Calif., in April 2007.

In October 2003, the teachers retirement system canceled company cards for most employees, including Bass, and began requiring staff to use their personal credit cards and submit any business-related charges for reimbursement.

Although the retirement system was reimbursed for the cards’ personal use, critics contend it still was an inappropriate use of taxpayer money.

“There isn’t any employee for any company that should be making personal charges on a company card,” Bates said. “I’m president of the Hickman Mills Retired Teachers Association, and I can tell you right now, there isn’t one teacher in our organization that would approve of them doing that. Not one.”

Yoakum acknowledged that the system had a problem with one employee making personal charges on a regular basis, but said “this is not the norm and is outside of our standard procedures.”

Oversight lacking?

The teacher retirement system’s board chairman, Phil Wright, stepped down in April.

The move came after Wright said he was forced out of his job as Liberty school superintendent over accountability concerns. They included questionable business decisions and credit card purchases by school administrators for personal items such as alcohol, expensive meals and travel.

Wright has denied any wrongdoing and blamed school board members for some of the problems. The Missouri state auditor is examining the district’s finances and spending by several administrators. The Liberty Police Department also is investigating.

Yoakum called Wright “an exemplary trustee. He was very prepared, did his job. … I wish I could have more people like him serve on a board.”

But while it is looking into the Liberty schools spending controversy, the Missouri state auditor’s office does not conduct a thorough examination of the teacher retirement system.

The Star found that the auditor is only required to review the organization’s own independent audits at least every three years, and those reviews are not detailed. What’s more, the last audit was in 2004, which means the current audit is a year overdue.

Critics said legislative reforms are needed.

“Part of the problem is that this agency is not part of the Missouri public employee retirement program,” said Jon Plaas, a Lee’s Summit school board member. “It’s independent.”

The Star also found that board members and executives don’t file personal financial disclosure statements with the Missouri Ethics Commission.

If they did, they’d have to report any gifts worth more than $200, lodging or travel expense paid by a third party, and substantial ownership interests or involvement in a business that could create a conflict of interest with the retirement fund’s investments.

Ethics experts such as Hood found that hard to believe.

“I don’t think there’s any doubt that the filing of financial disclosure forms is a bare minimum standard. It should be applied to any elected or appointed official with substantial authority,” he said.

Yoakum said the retirement system has twice asked the Ethics Commission whether staff or board members should file disclosures and was told that they did not need to.

“We’re not part of state government officially,” he said. “We’re created by state law, and we’re governed by state law, but beyond that, they’ve set a status up of a trust fund and a not-for-profit corporation and have taken a pretty hands-off approach.”

Elizabeth Ziegler, general counsel for the Ethics Commission, confirmed that the retirement system is not on the commission’s “master list” of those required to file. “There’s never been a determination made that they really do fall within the statute,” she said.

However, board members and executives of the Missouri State Employees’ Retirement System — which is not part of the teachers retirement system — do file such reports with the state.

Yoakum said that the board adopted a personal trading policy in 2006 that requires some employees to notify the system’s compliance officer within five days of buying or selling a security, or before acquiring any securities in an initial public offering or private placement.

The only other potential oversight of the teachers retirement system comes from the Joint Committee on Public Employee Retirement, which also is charged with monitoring the state’s other 119 retirement systems.

The committee was created 25 years ago by the General Assembly “in response to the growing concern regarding the fiscal integrity of Missouri’s public employee retirement system.”

The committee’s current director is Bass — the former legislative analyst for the teachers retirement system who made personal charges on her business credit card before it was taken away.

Yet Yoakum maintained even that committee does not have an oversight role over the teachers retirement system. He said it only provides “research” for lawmakers concerning the state’s retirement plans.

Some of the best oversight, Yoakum insisted, is the retirement system’s own members.

“We’ve got 200,000 members that are looking over our shoulders all the time,” he said.