Columbus Dispatch: Alternative award system worth exploring if the funds can remain competitive

Editorial: Extra consideration

Pension boards and retirees need to find middle ground on investment bonuses

http://www.dispatch.com/live/content/editorials/stories/
2008/12/16/strs.ART_ART_12-16-08_A10_K6C7HUC.html

Columbus Dispatch
Tuesday, December 16, 2008

State Teachers Retirement System officials should be sensitive to concerns about a compensation plan that pays some investment managers six-figure bonuses even as the retirement fund loses billions of dollars. Teachers who depend on that fund for retirement income are understandably upset.

But retirees should understand that investment experts who minimize losses in a declining market are doing work as valuable as those who maximize earnings in a booming market.

A committee of the system's board last week rebuffed the suggestion of one member, retired Chillicothe schools Superintendent Dennis Leone, that bonuses be suspended Jan. 1. But committee members agreed to consider the matter between now and Jan. 16.

The issue isn't simple. Even though the retirement fund lost $30 billion in value in the past year, the fund's performance beat that of the market as a whole: The fund lost 5.44 percent of its value in the fiscal year that ended June 30 while the market declined by 5.79 percent. The fund's officials say this saved the fund $215 million.

Fund managers commonly are rewarded for beating the market. Paying such bonuses is presumed to attract talented investment managers.

The bonuses in this case totaled $6 million, to be spread among 89 people. Ten of the STRS bonus employees are getting more than $200,000 above their salaries this year, which start at a base of $149,565.

Questioning the size of those bonuses is understandable, considering the financial plight of the funds and their investors. Most of the retired educators live on annual pensions of less than $35,000.

So far, in the fiscal year that began July 1, the fund has lost another 30 percent of its value.

The taxpayers, through public-school budgets, and teachers ultimately are the ones paying to rebuild the funds as needed if losses erode the investments' value dramatically.

The retirement system is charged by law with safeguarding and maximizing the return on contributions made by teachers and the taxpayers who employ them.

In hard times, every administrative expense should be scrutinized. A bonus, after all, beyond rewarding performance, suggests that there is prosperity to be shared, but this year the fund's beneficiaries are sharing only anxiety. But there would be even greater anxiety if skilled investment managers weren't helping to ease fund losses.

Some of the committee's members said they would consider lowering bonuses in down years and awarding larger ones when gains are made.

If the funds can use such an alternative award system and remain competitive in the hiring of top investment talent, the idea is worth exploring.