Dispatch coverage of STRS bonuses

Pension fund's bonuses debated

Columbus Dispatch, December 9, 2008
By James Nash
THE COLUMBUS DISPATCH

Leaders of the pension system for retired Ohio teachers took a few tentative steps yesterday toward tweaking a system that funneled $6 million in bonuses to investment officers even as the pension fund lost billions of dollars in value.

The bonuses, topping out at $259,200 for one senior investment manager, have outraged some retired teachers at a time when pension systems are suffering because of the Wall Street downturn.

In all, the State Teachers Retirement System, which serves 449,000 current and retired teachers, paid $6 million in bonuses to 89 investment officers this year, with 10 making $200,000 or more.

Last year, when the pension system made money, investment officers took home $8.2 million in bonuses.

One board member of the retirement system, retired Chillicothe schools Superintendent Dennis Leone, wants to scrap the bonuses in years when the fund loses money.

But others defend the bonuses as the best way to encourage good performance.

During a meeting yesterday of a committee studying the bonuses, Leone suggested suspending the payments beginning Jan. 1, but his idea found no support among fellow board members.

Board member Steven Puckett, a former assistant state superintendent of public instruction, said he's willing to explore changes but does not want to act rashly.

"My concern is that the board will make a premature left turn into a strategy that will result in lower fund performance and therefore risk jeopardizing benefits to our retirees," Puckett said.

The State Teachers Retirement System is Ohio's second-largest public pension fund but is by far the most generous with bonuses. That's because most of its investments are managed in-house, officials with the fund say.

The system is structured to pay bonuses even in down years, as long as the teachers' investments fare better than the market as a whole.

The $6 million in bonuses for the fiscal year ended June 30 came because the pension fund lost 5.44 percent of its value, whereas the market as a whole lost
5.79 percent, pension officials said. By doing better than the market as a whole, the investment staff saved $215 million, according to the system's calculations.

While most pension leaders said they were unwilling to dump the bonuses, even in down years, some said the payments could be lowered, with the possibility of reciprocal increases in bonuses during rich years.

Consultants and pension officials are to explore the options during the next month.

jnash@dispatch.com