Dennis Leone: Report on STRS Board Meeting on 11-20-08

From Dennis Leone, November 20, 2008
Subject: My Report -- STRS Board Meeting on 11-20-08
To all – since I am not sure what will be said in the official STRS communication about the 11-20-08 STRS Board meeting, and since I disagreed with the way the previous STRS communications were handled, here is my report………speaking as one board member:

1. For the record, it was revealed that as of 11-19-08, the STRS market value assets have dropped $30 billion -- from $80 billion on 10-31-07 to “approximately” $50 billion yesterday. According to my math, and I stated this publicly, this represents a 38% drop of everything STRS has in a little more than 12 months. It also was officially revealed that the negative STRS stock market returns for the first quarter of fiscal year 2009 are – 21.4%.

2. I stated my belief that STRS assets (unreported) were as high as $81 billion in early October of 2007 when the Dow topped 14,000, and that STRS likely currently is far below $50 billion in assets as a result of the significant drop in the Dow over the past two days. This means realistically, in my mind, that STRS actually has lost about 40% of its assets in the past 13 ½ months.

3. There was considerable discussion about the bonus checks that STRS investment staff members received for fiscal year 2008 even though the STRS reported a – 5.44 return in the stock market. A consultant named Adam Barnett from the firm McLagan presented information. He reported that while staff and bonuses are now being cut in the private sector, he recommended a continuation of the board’s philosophy to pay the bonuses if staff members beat their so-called “benchmarks,” even when STRS loses money. I complained that their “benchmarks” are not benched – they are unfixed, floating figures that generate bonuses even if they go down and we lose considerable money. I said that school officials, conversely, have real report card “benchmarks” that have to be met irrespective of external factors that adversely affect them. I also reminded everyone that the STRS board, through formal action, has told retirees that improved pension benefits (like the 13th check and health insurance subsidies for retiree spouses) will not occur unless firm benchmarks are met pertaining to the fiscal stability and “unfunded liability” at STRS. In other words, the investment staff at STRS enjoy having benchmarks that are far different. They earn bonus checks (on top of base salaries, fringe benefits and PERS retirement contributions) as long as they beat the Wall Street “market” – even if the “market” declines.

4. I complained about the board’s 8-1 decision this past March to adopt a new bonus plan for fiscal year 2009 – even though we had just dropped $8 billion in assets and even though we didn’t know how much more we might drop in the final 4 months of fiscal year 2008. (We dropped another $2 billion.) To my surprise, my fellow board members expressed their belief that the board could deviate from the March vote and change the bonus plan for fiscal year 2009 if it decided to do so. Legal counsel was asked to advise the board on this issue, which occurred in executive session. This matter will be considered further next month. The board then voted unanimously to refer the matter of the previously-adopted fiscal year 2009 bonuses to a Salary/Benefits Sub-Committee. The Sub-Committee will be expected to bring a recommendation on the bonus matter to the board on December 12. All board members were invited to participate in the upcoming Sub-Committee meetings. I will participate, most definitely. I support bonus checks for investment staff when we have positive returns, but certainly not when we have dropped $30 billion in 12 months. Perhaps a compromise can be reached on this matter. I really don’t know.

5. I stated my hope that the STRS staff will be more cautious about future “all is fine” communications going out from STRS, given the realities of the stock market downturn. STRS Executive Director Mike Nehf reiterated his conviction that the pensions of current retirees are secure. I expressed my concern over how secure the future pensions are of teachers who have not retired (if the stock market continues to decline significantly).

6. The board’s “unfunded liability” was reported to be at 41 years, up from 27 years in 2007.

7. Four people addressed the board in the public participation section of the agenda: Expressing concern about the bonus checks were Lloyd Knudsen (CORE), Ron Lott (Fayette County RTA) and Ryan Holderman (Warren County RTA). Offering unqualified support for the bonus checks was former STRS board member Steve Buser.

8. Board member Mark Meuser (from Gahanna-Lincoln High School) was appointed to chair a committee to establish an agenda for the board’s January retreat work session.

9. At the end of the meeting, board member Craig Brooks asked STRS Executive Director Mike Nehf to provide the board with a list of operational cuts at the December 12 board meeting that he planned to implement. I also requested that such a report indicate whether there will be an upcoming wage freeze for employees at STRS.

10. I asked if the deceased Paul Boyer, a CORE founding member and vigilant retiree supporter, could be formally recognized in December as OFT’s Hershel Grim was in October. There was support for this to occur. I will work with Laura Ecklar in developing something appropriate. I think it would be good if CORE Chair Dave Parshall and Paul’s children could be present for the recognition on December 12, along with representative from the Allen County RTA.

Dennis Leone
STRS Retiree Board Member