Lloyd Knudsen's speech to STRS Board, November 20, 2008

Hello, my name is Lloyd Knudsen. I am a retired, 30-year teacher from the Woodridge Schools of Summit County. I’d like to speak to you today about the recent STRS investment bonus situation.

There is a tremendous amount of anger and disappointment among retirees about this issue. There is anger that STRS would award 80% base salary bonuses to an investment staff who oversaw the loss of $25 billion in our assets. Twenty-five BILLION dollars lost. Coincidentally, that’s the same total dollar amount requested by the entire U.S. auto industry to bail them out. Twenty-five BILLION dollars. And there is disappointment in this STRS Board that not only approved those bonuses but in your infinite wisdom, in March of this year preapproved this same unconscionable bonus plan for fiscal 2009. Although the thoughts I am about to express are shared by many retirees, I speak only for myself.

In response to many e-mails sent to STRS about the bonus situation, Mr. Nehf and Mrs. Cervantes basically explained in two separate e-mails to retirees that the investment staff had earned their bonuses; that investment pay is based on the prevailing pay rate in the market; and that teachers need to understand that STRS is a business and needs to operate like one.

Teachers were not employed in traditional business but make no mistake-–we do understand how a "real" business UNLIKE STRS is supposed to operate.

What typically happens in a real business when it has lost approximately 30% of its value like STRS has in the last year? Job losses, pay freezes or cuts, bonuses eliminated, or possibly plant or store closings? Probably all of the above.

What typically happens in schools when expenses exceed income, when school levies don’t pass and budgets don’t balance? Same answer -- jobs are lost; classes are cut; sports and extracurricular activities become pay to play; and school buses stop operating. Probably all of the above.

Now, what typically happens at STRS when they have experienced a $25 billion loss when approximately 30% of its value evaporates in one year. Job losses? None that we know of. Pay freezes or cuts? None that we know of. In fact STRS just paid $6 million in performance bonuses to the staff that just lost the $25 billion. Any physical plant closings or reductions at STRS ? None that we know of. No, its business as usual at STRS. Does this sound like the way a real business operates?

So how can STRS operate this way? It can operate this way because STRS is not a real business, it is a pension fund. At STRS their $25 billion loss was not a real loss, it was in their words just a "paper loss". Not to worry. They’ll make the $25 billion back. They always do. Stay the course! That’s the STRS motto.

My second comment deals with STRS having to pay the investment staff the prevailing wage in the financial marketplace. It’s my understanding that we don’t do that now. According to Mr. Nehf’s presentation last Thursday, he stated the investment staff is paid only at the top of the 25th percentile of pay. In other words, 75% of all comparable financial investment people earn more than their counterparts at STRS. If that is indeed true.

Q. Why do our investment people stay at STRS if they are so underpaid?

ANS. Maybe our investment people stay because of their ever-growing future PERS pension, or maybe they stay because they have a Cadillac-type health care plan, or maybe they stay because every year they have a virtually guaranteed 80-100% performance bonus on their base pay coming or maybe they simply stay for the guaranteed employment.

I always knew teachers had a pretty good job security deal with the concept of tenure, but working for STRS apparently has that beat.

In summary, I believe this Board did a great disservice to all active and retired educators when back in March of this year you voted to REapprove the performance pay structure for our investment staff for fiscal 2009. Even though STRS had already lost $8 billion by March and our nation was facing an even more uncertain period after that, you gave your approval. In STRSese you "Stayed the course." You failed your stockholders in this system miserably.

No one from the Executive Director down to the custodian should be paid a performance-based incentive when our system is losing money. Period! Due to the Board’s lack of foresight we are locked into the 2009 agreement you signed off on. But I hope you will begin work immediately to rectify this pay program for the coming years.

Thank you for letting me speak to you today.