One part of Medicare (Part D) is being strongly questioned

From John Curry, October 18, 2008
Subject: One part of Medicare (Part D) is being strongly questioned

While reading this article keep in mind that the Medicare prescription drug program (Part D) is the only "privatized" part of the federal Medicare program. This privatization was conceived by the Medicare Modernization Act of 2003 which was pushed by President Bush. This program gives Medicare a bad name. This program lines the pharmaceutical manufacturers' pockets due to the lack of competitive bidding which was prohibited by the same Medicare Modernization Act of 2003. Am I being critical of privatization? You bet!

By comparison, standard Medicare (non-privatized) will NOT increase their premiums for 2009.

John

Kaiser Daily Health Policy Report

kaisernetwork.org
Friday, October 17, 2008
Medicare

Rep. Waxman Questions CMS on Premium Increases for Medicare Prescription Drug Plans

House Oversight and Government Reform Committee Chair Henry Waxman (D-Calif.) on Tuesday wrote a letter to acting CMS Administrator Kerry Weems expressing concern for how premium increases for the Medicare prescription drug benefit will affect beneficiaries, CQ HealthBeat reports. According to CQ HealthBeat, Waxman believes that CMS was "misleading" when it stated that during the open enrollment period beginning Nov. 15, beneficiaries would have access to drug plans with lower premiums than the previous year.

In a Sept. 25 statement, CMS said that beneficiaries nationwide would have access to "at least one prescription drug plan with premiums of less than $20 a month" and that "97% of beneficiaries enrolled in a stand-alone prescription drug plan will have access to Medicare drug and health plans in 2009 whose premiums would be the same or less than their coverage in 2008." According to data gathered by Waxman's staff, 16.3 million Medicare beneficiaries, including 92% of all drug plan members, will pay higher monthly premiums if they stay with the same plan next year. He also stated that in January 2009, average premiums for the drug benefit will increase by 22%, from $31.15 per month to $38.07 per month.

Waxman said since the beginning of the drug benefit the average Medicare drug plan premium has increased "by almost 50%, costing the average senior an additional $150 annually." He also noted that 2009 will be the third consecutive year that drug plan premiums have risen above the inflation rate. "These price increases are causing significant hardships, particularly seniors who live on fixed incomes, and who are already faced with rapidly increasing costs for food, gasoline and shelter," Waxman added.

Waxman requested that CMS provide his panel with information on the cause of premium increases; their effect on the program's enrollment, costs and beneficiaries; and estimates of increases for 2010 through 2012. He asked that the information be presented by the end of the month.

CMS spokesperson Peter Ashkenaz said the agency is collecting data to respond to Waxman. "We have been telling beneficiaries since August (when we announced the benchmarks) that they will need to compare the value of their current plan by looking at the plan coverage and costs as they enter the open enrollment period," he said, adding, "Ninety-seven percent of beneficiaries do have access to lower cost options, but as we have said before, they may need to change plans" (Vadala, CQ HealthBeat, 10/16).

Rich DeColibus to STRS Board: the investment staff should be doing no better or worse than the retirees and active teachers who fund(ed) the system

From Dennis Leone, October 18, 2008
Subject: Email to STRS Board from Richard DeColibus

As I think most know, Mr. DeColibus is the recently retired teacher union president from Cleveland City Schools. [Rich DeColibus was president of the Cleveland Teachers Union (affiliate of the OFT) for 16 years, retiring c. 2004. KBB]

Rich DeColibus to STRS Board, October 18, 2008
Subject: Fwd: RE: Sharing -- additional thoughts

Dear STRS Board Members,

I have corresponded with Mr. Leone with respect to giving bonuses to the investment staff. I agree with him that it is inappropriate and he asked me to share my thoughts, as a retiree, with you. Look, my bottom line is simple: the investment staff should be doing no better or worse than the retirees and active teachers who fund(ed) the system. That, to me, is a very uncomplicated but reasonable ethic. If they are offended by that, they are free to seek happiness elsewhere.

I am not blind to the value of treating employees fairly, and making sure they understand they are being treated fairly, but to completely divorce accomplishment from compensation in ultimately counterproductive. Just about everyone is being hurt by this current financial crises and the investment staff has to understand they're in the same boat as we are, and when you have to bail, everyone has to bail.

Rich D.

Dennis Leone to Rich DeColibus, October 17, 2008
Subject: RE: Sharing -- additional thoughts

Rich -- I would really appreciate it if you could see fit to forward what you have written below to the board. They tell me quite strongly that I am wrong when I say I believe retirees (and actives for that matter) would agree with me on this matter.

Please consider it. You, personally, have nothing to lose. The board has one email address that goes to all 10 members. It is board@strsoh.org.

Dennis Leone

From Rich DeColibus, October 17, 2008
Subject: Re: Sharing -- additional thoughts

Dennis, if you are off base on this, then anyone who believes most of the investment staff should be anything but fired isn't even in the ball park. I find it outrageous that those responsible for investments that managed to lose $25 billion in the course of one year would have the unbelievable nerve to suggest they should get a "bonus". Do the STRS workers live on some alien world and commute to this planet everyday? When the investments YOU ARE RESPONSIBLE FOR lose $25 billion dollars, what the hell kind of logic is it to respond, "Well, gee, other people lost more than we did so we deserve a bonus." Isn't there anyone but you down there who can say, "HELLO. This is the real world. When you lose $25 billion, you don't get rewarded."? What we have here is a new definition of the word "outrageous"; someone should notify the OED staff.

Methinks your investment staff has been reading too many stories of CEOs who, with their brilliant foresight and leadership, have driven their companies to record losses and then collected ten of millions of dollars in bonuses and golden parachutes. This is not Wall Street. Your investment staff are not CEOs. This money they lost did not come from stock buyers looking to make a profit and willing to accept the risk; it came from teachers, administrators and other personnel who saw 10% of their salary removed by law from their paychecks for thirty to thirty-five years so they could enjoy retirement, not give bonuses to lessor fools who lost $25 billion of what the members contributed (see how kind I am, I agreed with their logic and only called them "lessor fools"?).

If the investment department makes huge gains, it is not unreasonable to discuss bonuses. If their argument is we should get a bonus whether we lose or gain, exactly what does the bonus stand for except the gullibility of the Board members who agree with such twisted rationale? These people must laugh long and hard when they get home; they've found the gravy train, and it's a great ride. Where do I sign up to join the investment department? Naturally, I'll expect a signing bonus, and I'd like my first year's bonus up front (since, obviously, it doesn't matter how much money I make or lose) as a sign of good intentions on the part of management. Of course, I also expect health care totally paid for even though hardly anyone else in the world (well, this country anyway) has anything that good, much less the members who pay into the system, and a full range of nice perks that validate my value as a human being and sensitive employee. Being the model of humanity that I am, I will not require Board members to grovel and crawl when I walk down the hall, although it will be considered proper form if they cast down their eyes, move to the side, and remain silent as I pass. See, nothing special, just the way it is for the rest of the investment staff; wouldn't want any special privileges.

This is not some little mom & pop family business, this is supposed to be a professional organization with a budget the size of a small country's and I expect everyone's attitude, behavior, and guidelines to reflect that. There are so many "investment counselors" hanging off of Wall Street building ledges we could probably hire them by the dozen; if our staff members feel put out about not getting a bonus after losing $25 billion, they should go and be happy elsewhere.

I mean, really. This is too much. It must be some sort of plot to remove the health care burden on STRS by giving so many members apoplexy they die in droves.

If I've been a little obtuse, let me know and I'll tell you what I really think!

Rich D.

From Dennis Leone, October 17, 2008

Richard - thank you for your email. I really appreciate it. I thought you might find the exchange below between John Bos (retired Assistant Principal from the Shawnee Local Schools - Allen County) and myself of interest. I'd appreciate your reaction - because if I am off base on this in some way, I want to be informed.

Dennis Leone

Dennis Leone to John Bos, October 17, 2008
Subject: RE: Thank You for your service to STRS

Thank you John for the information below on Wall Street investors. I will use your Wall Street illustration at the STRS Board meeting next month, but I am sure it will fall on deaf ears. The mentality is simply this...if the market declines, for example, 10.3%, but the STRS investment staff's portfolio declines by "only" 10.1%, then they deserve a nice bonus check because they beat the market. Can you imagine a teacher arguing that she deserves a merit increase after the student test scores in her class declined by a huge amount, because her decline was a little bit less than other classes in her school. Our lawmakers would laugh at this notion. STRS argues that the investment staff - even though they receive handsome base salaries and nice benefits no matter what happens with their portfolios -- should not be "penalized" (meaning no bonus checks) because of external factors beyond their control that drive the stock market down. This is like OEA/OFT arguing that teachers shouldn't be "penalized" because external environmental factors adversely affect their student test scores. In fact, right or wrong, teachers may eventually lose their jobs if their test scores are continually low, irrespective of external environmental factors.

Dennis Leone

From John Bos, October 17, 2008
Subject: Thank You for your service to STRS

Dennis,

Just a brief note to thank you for always being watchful of the STRS business and the issues that will directly affect our future lifestyle.

There is another issue with the bonus that has never been reviewed. Most investment personnel on Wall Street do receive a bonus. Unlike STRS, their bonus is paid in stock of their employer -- not cash. They are also strongly encouraged (monitored) to not cash this bonus, but rather to "live and die" with their employer. Therefore all of their decisions on investment have a DIRECT LONG TERM relationship with their decisions. STRS employees are given cash and frankly have no concerns about their investment recommendations.

Bloomberg (satellite radio when I am doing dealer trades to pay for our medical expenses) said yesterday that these "investment gurus" are all over the place looking for work. They formerly would set up small hedge funds if there were not employed. There is NO INTEREST in these hedge funds and they do not have the capital to become self employed. They will move anywhere and the salary is not the issue. The reporter said that outside of investments, they were probably better suited to being a WalMart greeter. I can not find this report in print.

I also still have concerns why STRS associates have United Health instead of the Medical Mutual, Express Scripts coverage. Old Joe Endry (former board member) told me once that they live in Columbus and expect the Cadillac! Dennis, if our plan was the best deal, why not require the associates to utilize the same plan?

Thanks again for your assistance. We are in the biggest crisis that the U.S. has faced since Pearl Harbor.

John Bos

Report from STRS on October Board Actions and Discussions

From STRS, October 17, 2008
Subject: [News] October Board News Details Retirement Board Actions and Discussions

This week, the State Teachers Retirement Board held its monthly meeting. Following the regularly scheduled meetings, a report titled "Board News" is posted on the STRS Ohio Web site, as well as mailed to a number of members and education organization representatives who have requested it. As a member of STRS Ohio with an e-mail address on file, you will also receive this report each month. The October report follows.

OCTOBER BOARD NEWS

LONG-TERM MARKET OUTLOOK DISCUSSED AT OCTOBER RETIREMENT BOARD MEETING With marketplace issues and the overall global economy continuing to dominate the news, the State Teachers Retirement Board devoted a significant amount of time at its October 2008 meeting to discussing the impacts of these events on the pension fund.

The overall decline in the markets has continued to reduce the current value of STRS Ohio's investment assets. As of Sept. 30, 2008, preliminary results show the value of investments at about $62.9 billion, down from about $70.3 billion on June 30, 2008.

However, it was noted that this is not a time for panic. While the investment environment reflects the current worldwide banking and credit crisis, governments and central banks worldwide are coordinating efforts to address the problems. At this time, all indicators seem to confirm that the country is in a recession. Economic growth in the United States is expected to be slower through the end of this calendar year and the beginning of 2009. As a result, the STRS Ohio Investment staff has adjusted the economic forecast contained in its Annual Investment Plan for 2009; however, the overall investment strategy contained in the plan will remain largely intact. STRS Ohio will attempt to maintain its neutral equity weighting or be slightly above the neutral weighting of 67%
(domestic and international stocks) within the investment portfolio.

It may take at least three to six months before the impact of the steps taken in Washington and globally to stabilize the economy begin to be seen. Consequently, it may take awhile before the markets respond positively, but history has shown that recovery will eventually occur.

During this period, the Retirement Board will conduct its regularly scheduled asset allocation study to determine if the current allocation levels for different asset classes within the fund continue to be appropriate. The board will also receive the results of a review of STRS Ohio's domestic equities program that is currently under way by Russell Investments, the board's investment consultant.

During the discussion, it was noted that the amount of investment assets alone does not determine the solvency of the pension fund. The annual actuarial valuation (see story below) provides an opportunity for the board and staff to discuss all the variables that affect pension funding - both positively and negatively. Board and staff will continue to monitor what is happening in the markets and assess both the short- and long-term impacts. Further, STRS Ohio will continue to be prudent as an organization in managing its expenditures to make sure every dollar spent is spent wisely.
RETIREMENT BOARD GETS FIRST LOOK AT ANNUAL ACTUARIAL VALUATION OF PENSION FUND At its October 2008 meeting, the Retirement Board received its first look at the annual actuarial valuation report of STRS Ohio's pension fund from its actuary, PricewaterhouseCoopers (PwC). This preliminary report provides a "snapshot" of the actuarial position of the retirement fund as of July 1, 2008. It currently shows an increase in the funding period to 28.3 years from 26.1 years, and a decrease in the funded ratio to 80.1% from 83.0%. However, these numbers may change before the final adoption of the actuarial report by the board in November because PwC is recommending changes to some of the assumptions that are used in valuation calculations. These changes are being recommended based on the results of a five-year experience review PwC is also conducting this fall.

In developing the actuarial valuation for July 1, 2008, STRS Ohio's actuarial gains and losses for fiscal year 2008 (July 1, 2007-June 30, 2008) were compiled. The actuary looks at the system's experience in several areas, including investment returns, payroll growth, salary increases, retiree mortality, and the number of retirements and other "separations" from the system, such as account withdrawals - all of which can either reduce or increase the system's liabilities from one year to the next.

For fiscal year 2008, STRS Ohio experienced a net actuarial loss. Investment losses were a contributing factor. STRS Ohio assumes that the value of investment assets will increase 8% each year. Anything more than 8% is an actuarial gain; anything less than 8% is an actuarial loss. Because the market value of investments can literally change daily (e.g., U.S. stocks traded on the national exchanges), there is a tremendous amount of volatility in this assumption. STRS Ohio uses an approved accounting and actuarial technique called "smoothing" to spread this volatility over a four-year period when recording investment returns as part of the annual actuarial valuation process. It makes investment returns more of a "trend" rather than a "spike." With four-year smoothing, each year's gains or losses are recognized evenly over the current and subsequent three years: 25% per year. The calculation is done every year, so it just rolls forward. This results in a market-related value of investments. So, for the July 1, 2008, valuation, a portion of the investment losses recorded in fiscal year 2008 were included, as well as some of the investment gains experienced in the three prior fiscal years, resulting in a 7% rate of return for actuarial purposes.

Employer payrolls for teachers increased less than the 4.5% actuarial assumption for the fifth year in a row, only increasing by 2.6% in fiscal year 2008. In addition, retirement patterns continue to shift, with more members working 35 or more years before retiring. Both of these factors also contributed to the net actuarial loss.

Taking all the actuarial gains and losses into consideration, the funding period increased to 28.3 years. The funding period is the number of years required to pay off the unfunded accrued liability of the system at current contribution rates. The system's funded ratio - the market-related (smoothed) value of assets compared to liabilities - decreased to 80.1%.

A public pension plan's actual experience each year is rarely identical with all actuarial assumptions. As a result, public pension plans typically review all their actuarial assumptions every five years to determine if any adjustments are necessary.

At the October meeting, PwC reported preliminary results of its five-year study, noting that final results will be presented at the November meeting. Possible changes in assumptions could include changing mortality tables to reflect the fact that members are living longer, and making adjustments to the payroll growth and salary increase assumptions.

Any assumption changes that the board approves at the November board meeting will be applied to the July 1, 2008, actuarial valuation and could lengthen the funding period and slightly reduce the funded ratio.

CURRENT REIMBURSEMENT FOR MEDICARE PART B UNCHANGED FOR 2009 The dollar amount of reimbursement eligible STRS Ohio benefit recipients receive for their Medicare Part B premium will not change in 2009. The maximum amount of reimbursement from STRS Ohio remains at $52.83 per month for the 30-year retiree; the minimum amount of reimbursement is $29.90 per month. In September, the Centers for Medicare and Medicaid Services announced that there would be no increase in the Medicare Part B monthly premium of $96.40 for 2009.

RETIREMENTS APPROVED The Retirement Board approved 295 active members and 104 inactive members for service retirement benefits.

ADDITIONAL ITEMS REPORTED AT THE MEETING BY EXECUTIVE DIRECTOR MICHAEL J. NEHF

MEETINGS ON HOUSE BILL 315 CONTINUE Interested party meetings on House Bill 315 are now held twice a month. The sponsor, Rep. Scott Oelslager, is trying to bring the school boards, business officials and the employees to a point of agreement and negotiation in order to move the bill next session. Rep. Oelslager has asked for all parties, and especially employers, to come to the next meeting with funding alternatives. STRS Ohio continues to provide background information and documentation on the STRS Ohio health care plan, benefits and funding. One more meeting is scheduled before the election. The outcome of the General Assembly elections will factor into next year's legislative plans.

OHIO ETHICS COMMISSION TO PROVIDE PRESENTATION TO STRS OHIO ASSOCIATES David Freel, Ohio Ethics Commission executive director, and Susan Willeke, Ohio Ethics Commission educational coordinator, will present a 60-minute presentation to STRS Ohio associates on Oct. 29. The session will provide timely information regarding the Ohio Ethics Commission and about restrictions in the Ohio Ethics Law and related statutes that pertain to all public sector employees and private sector parties who are regulated or do business with public offices. This presentation will help ensure STRS Ohio associates understand how to identify and avoid potential conflicts of interest.

Rationale for bonus checks?

Dennis Leone to John Bos, October 17, 2008
Subject: RE: Thank You for your service to STRS

Thank you John for the information below on Wall Street investors. I will use your Wall Street illustration at the STRS Board meeting next month, but I am sure it will fall on deaf ears. The mentality is simply this…….if the market declines, for example, 10.3%, but the STRS investment staff’s portfolio declines by “only” 10.1%, then they deserve a nice bonus check because they beat the market. Can you imagine a teacher arguing that she deserves a merit increase after the student test scores in her class declined by a huge amount, because her decline was a little bit less than other classes in her school. Our lawmakers would laugh at this notion. STRS argues that the investment staff – even though they receive handsome base salaries and nice benefits no matter what happens with their portfolios -- should not be “penalized” (meaning no bonus checks) because of external factors beyond their control that drive the stock market down. This is like OEA/OFT arguing that teachers shouldn’t be “penalized” because external environmental factors adversely affect their student test scores. In fact, right or wrong, teachers may eventually lose their jobs if their test scores are continually low, irrespective of external environmental factors.

Dennis Leone

From John Bos
Subject: Thank You for your service to STRS

Dennis,

Just a brief note to thank you for always being watchful of the STRS business and the issues that will directly affect our future lifestyle.

There is another issue with the bonus that has never been reviewed. Most investment personnel on Wall Street do receive a bonus. Unlike STRS, their bonus is paid in stock of their employer -- not cash. They are also strongly encouraged (monitored) to not cash this bonus, but rather to "live and die" with their employer. Therefore all of their decisions on investment have a DIRECT LONG TERM relationship with their decisions. STRS employees are given cash and frankly have no concerns about their investment recommendations.

Bloomberg (satellite radio when I am doing dealer trades to pay for our medical expenses) said yesterday that these "investment gurus" are all over the place looking for work. They formerly would set up small hedge funds if they were not employed. There is NO INTEREST in these hedge funds and they do not have the capital to become self employed. They will move anywhere and the salary is not the issue. The reporter said that outside of investments, they were probably better suited to being a Walmart greeter. I can not find this report in print.

I also still have concerns why STRS associates have United Health instead of the Medical Mutual, Express Scripts coverage. Old Joe Endry (former board member) told me once that they live in Columbus and expect the Cadillac! Dennis, if our plan was the best deal, why not require the associates to utilize the same plan?

Thanks again for your assistance. We are in the biggest crisis that the U.S. has faced since Pearl Harbor.

John Bos

Dennis Leone speaks out re: STRS stock market losses

From Dennis Leone, October 16, 2008
Subject: Total STRS Assets

For the record, the market value assets at STRS peaked on October 31, 2007 at $80 billion. As of yesterday, October 15, 2008, we stood at $55 billion. This drop occurred over just 12 months and represents 31.25% of the total assets at STRS. Before lunch at STRS today, I did my best to emphasize three points:

1. I continue to believe that STRS needs to develop a mechanism with our passive stock portfolio that will permit a deviation from our investment philosophy in the event of abnormal external factors (like fraud) that suddenly drives a particular stock south significantly. We bought 92,000 shares of Fannie Mae stock on 6-27-08 after the stock dropped from $70 per share to $20 per share. A few weeks later, it dropped to $1.00 per share. Our total losses at Fannie/Freddie were about $160 million, which I feel could have been avoided. Our passive stock portfolio philosophy triggered the purchase of the stock when it dropped in value.

2. I want STRS to be more aggressive telling companies that we send millions to – through the purchase of their stock -- (like Fannie Mae, AIG, Merrill Lynch, etc.) that it is unacceptable to STRS when they waste millions on pleasure retreats in California, hunting trips to Texas, $23 million base salaries for their CEOs, and $15 million severance cash for departing executives. When they do these stupid things, public confidence in them is adversely affected, and this translates to a drop in value in the stocks we purchased. In other words, we lose money due to their entitlement insanity.

3. I do not agree with the fact that the board voted in March of 2008 (I voted no) – four months before the end of the fiscal year – to approve a bonus compensation package for the STRS investment staff for fiscal year 2009. The total assets at STRS dropped an additional $2 billion between February 28, 2008 and June 30, 2008, yet the board went ahead and approved new bonuses in March without having this information (because it hadn’t happened yet). It is not right in my eyes for the board to vote on such a thing until we know where our assets stand at the end of the fiscal year – or near the end of the fiscal year……perhaps mid-June.

Dennis Leone

Taps.....

Herschel Grim

1941-2008

Condolences are extended to the family of Herschel Grim and to the Ohio Federation of Teachers, for whom he served as a Consultant for Health and Retirement, following his death September 22, 2008 in Mansfield. Herschel's was a familiar, friendly face at the monthly STRS Board meetings; he will be missed by all.

Obituary (Mansfield News Journal)

Jim N. Reed’s speech to STRS Board, October 16, 2008

An STRS Member’s Anxiety

Ladies and Gentlemen,

My name is Jim N. Reed and I am a 44-year STRS member, and my remarks today represent my personal views.

In light of yesterday’s plunge on Wall Street and the oft-heard admonition that the nation is on the thinnest economic ice since the Great Depression, it is only reasonable that there is much anxiety among most Americans, including members of STRS Ohio.

It would also seem reasonable that membership would question the payment of $6 million in “Performance Based Incentives” to our employees during an economic downturn that has cost members $13 billion in the past year. [I checked with Jim; the $13 billion figure he had is two weeks old; the figure as of October 14 was $25 billion; who knows what it may be today! KBB]

As a teacher of history and a STRS member familiar with the combination of stock market crunch and entitlement philosophy of just a few years ago, I cannot help but be reminded that there appear to be some unwelcome similarities with the current Wall Street crisis. That indicted entitlement Board of just a few years ago could have passed for a minor league affiliate of A.I.G.

Questionable Board spending during monster losses led to a period of disgust and distrust during that embarrassing examination and reporting of Board excesses. The bad taste remains. Any semblance to Yogi’s “déjà vu all over again” is a bitter reminder.

At that time, while STRS was losing billions of dollars to a bear market and corporate greed, membership was being financially abused by staff bonuses and Board entitlement expenditures while many of those members were struggling with exploding healthcare costs and declining purchasing power.

As I understand it, the Board, despite Dr. Leone’s objection, has again approved millions in PBIs while billions have been lost to membership. How does that decision square with ORC 3307.15? It seems too similar to the not-so-long-ago fiasco that led to a most contentious era in Board-membership relations.

I also understand that member Ryan Holderman sent a letter of inquiry to each Board member and to Executive Director Mr. Nehf as to the propriety of the PBIs given this current financial environment.

As a member I am especially appreciative of Mr. Nehf’s timely and thorough response to Ryan’s letter. Unfortunately, I was informed that Dr. Leone was the only Board member to reply.

Dr. Leone continues to loyally and courageously represent STRS members and we continue to be grateful for his vigilance and insistence on reform. He and former member Mr. John Lazares (who admonished investors to beware of Fannie Mae’s implosion) have given membership hope that their retirement system can again be trusted to fulfill its intended mission of caring for all retirees.

I would only ask that this Board’s fiscal decisions be made with the membership’s anxiety, sensitivity and welfare in mind.

Thank you for listening and understanding.

Jim N. Reed

Columbus Dispatch: Public pension funds taking a hit

From John Curry, October 16, 2008
Subject: Ohio STRS pension fund loss - aided by a "passive" computer program that bought stocks automatically!

...and, yes, the STRS investment staff still get their bonuses! John

"The teachers' pension fund is 67 percent invested in domestic and foreign stocks, and part of its decline was attributed to a "passive" computer program that bought stocks automatically, Leone said. The program purchased 92,000 shares of Fannie Mae at $20 a share in late June; the stock lost half its value two weeks later and closed yesterday at $1 a share, a 95 percent wipeout, he said.

"I'm a little nervous about the enormity of the losses that we've sustained in the past month -- well, actually in the last 12 months," Leone said."

Public pension funds taking a hit

Market's volatility latest setback in a bad year
Thursday, October 16, 2008 3:19 AM
By Bill Bush
THE COLUMBUS DISPATCH

With the collapse of Fannie Mae, Freddie Mac, American International Group and Lehman Brothers, the third quarter was tough on Ohio's major public pension funds.

But this quarter has kicked off to a bloodbath.

The S&P 500 is down 22 percent since its close on Sept. 30, the end of last quarter's reporting period for the state's stock-heavy pension funds.

In less than a year, the Ohio Police & Fire Pension Fund lost almost of third of its value as of the close of markets Friday, one of the worst weeks in stock market history. The fund peaked at $13.2 billion on Oct. 31, 2007, and was worth $8.9 billion on Friday.

"Obviously, '08 is not going to be -- at this point -- a positive year in the market for any investor," said agency spokesman David Graham.

Other funds, including the massive State Teachers Retirement Fund and the Ohio Public Employees Retirement System, said they don't know what they've lost in the most recent downturn. But the two funds -- ranked in the top 18 public and private pension funds nationally by total assets -- are expected to have added to already huge losses sustained in the past year.

The teachers' investment portfolio was off 21 percent at the end of last month from its peak of $80.1 billion in October 2007, "before the real crazy stuff here in the last four or five days," said board member Dennis Leone, citing an investment report from last month.

The teachers' pension fund is 67 percent invested in domestic and foreign stocks, and part of its decline was attributed to a "passive" computer program that bought stocks automatically, Leone said. The program purchased 92,000 shares of Fannie Mae at $20 a share in late June; the stock lost half its value two weeks later and closed yesterday at $1 a share, a 95 percent wipeout, he said.

"I'm a little nervous about the enormity of the losses that we've sustained in the past month -- well, actually in the last 12 months," Leone said.

The Ohio Public Employees Retirement System, the largest pension fund in Ohio, was down more than 16 percent in the first nine months of this year, a loss of $13.6 billion. Officials won't know the damage from the October plunge until January, said spokeswoman Julie Graham-Price.

The School Employees Retirement System of Ohio has lost about 17 percent on its investments since June 2007. The fund is 65 percent in stocks, and in June this year, for the first time, it sank $258 million into hedge funds, which are lightly regulated and often secretive investment firms. But after only three months, the pension fund's board suspended all further hedge-fund investing, said spokeswoman Laurel Johnson. The move was because a consultation warned of "market volatility," she said.

"Obviously this is unprecedented," said Aristotle Hutras, director of the Ohio Retirement Study Council, which advises state lawmakers on pension issues. But it won't necessarily mean anything to the tens of thousands of public-employee pension holders over the long term, he said.

If the downturn were to persist for years, it might mean that lawmakers would force pension systems to lower benefits or raise member contributions, but nothing like that is being contemplated, Hutras said.

"Times will be good again," he said.

bbush@dispatch.com

Mike Nehf to appear at 10/16/08 CORE meeting

Dave Parshall to CORE members, October 9, 2008

During our next CORE meeting on October 16th, the STRS director, Mr. Michael Nehf will make a brief visit between 11:30 and 12:00 noon to say hello and introduce himself to CORE members. In addition, mark your calendar for November 13th. Mr. Nehf will meet at the STRS building with all CORE members who can attend. This meeting will start at 1:30 pm and will be similar to the meetings Mr. Nehf has been holding with RTA groups. Please plan on attending both meetings.

Dave Parshall,
CORE President

STRS Board meeting October 15 - 16, 2008

From STRS, October 7, 2008

PUBLIC MEETING NOTICE

The State Teachers Retirement Board and Committee meetings currently scheduled at the STRS Ohio offices, 275 East Broad Street, Columbus, Ohio 43215, are as follows:

Wednesday, October 15, 2008

11 a.m. Disability Review Panel (Executive Session)

4 p.m. Ad Hoc Committee for Retreat Review

Thursday, October 16, 2008

9 a.m. Retirement Board Meeting

The Retirement Board meeting will come to order at 9 a.m. on Thurs., Oct. 16, and begin with a report from the Member Benefits Department regarding health care, followed by a report from the Investment Department. The Executive Director's Report is scheduled to begin at approximately 1:15 p.m., followed by public participation, routine matters, old business, new business and any other issues that require the Board's attention.

Next CORE meeting: Thursday, October 16, 2008

From CORE, October 5, 2008

CORE (Concerned Ohio Retired Educators) will hold its October meeting on Thursday, 16th at the STRS Building at 275 East Broad Street in Columbus. Parking is free in the STRS parking garage behind the building. We encourage you to also attend the STRS meeting which usually begins around 9:00 a.m. on Thursday in the meeting room on the 6th floor but this beginning time varies from month to month. For this reason, we encourage you to check the STRS website (http://www.strsoh.org/) to confirm the time. CORE meeting attendees usually leave the STRS meeting around 11:30 in order to go to the cafeteria on the 2nd floor to get our lunches. We then take our lunches to the small cafeteria room behind the Sublett Room on the 2nd floor of the STRS building where the CORE Annual Membership Meeting will begin promptly at 11:45.

In response to suggestions from our supporters, CORE is calling for input for agenda items for this October 16th meeting. Please send the agenda item you would like discussed to John Curry (curryjo@watchtv.net). John has kindly agreed to send your suggestions to the CORE President, Dave Parshall. In order to have an agenda in place and printed for the meeting, please send your item no later than Tuesday, October 14th. Agenda items which are sent after October 14th will be held over to the November CORE meeting.

Thanks to input from members who attended CORE meetings this summer or who sent suggestions by email, we will be distributing a new CORE pamphlet which can be used to promote CORE membership. Members may pay their CORE membership dues now for the 2008-2009 year ($10.00) and/or make a CORE donation. So please plan to come, actively participate, and take home a new supply of CORE pamphlets to share with your Retired Teacher Association and others. We need each and every member. . . your ideas, your concerns, and your help. BRING A FRIEND OR TWO! We are always encouraging new members to join us.

Note: Below is a CORE membership and/or renewal of membership form. Please detach and return to the address included---note the new address:

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CORE MEMBERSHIP REGISTRATION FORM

Mail To: CORE, P.O. Box 167 Wilmington, OH 45177

County:____________________________ New Member ___(yes)

Last Name:_________________________________

First Name:_____________________________ (Mr., Mrs., Ms., Dr.) Circle one

Street Address: ______________________________

City:__________________________State_____________Zip:________

Telephone Number: (____)_________________________

E-mail address: ___________________________________

Do you want to receive CORE e-mail Alerts? Yes or No (circle one).

Amount of your donation: $______________($10.00 suggested)

Mike Nehf's response to Ryan Holderman's 9/30/08 letter re: PBI awards (bonuses) for investment staff

From Ryan Holderman, October 15, 2008
Subject: Mr. Nehf's response to my letter regarding PBIs
Dear One & All:
I have attached the response to my letter regarding the payment of Performance-Based Incentive awards that I recently received from STRS Executive Director, Michael J. Nehf. [Letter published below]
I hope that it helps in understanding why the PBI awards were given at a time when there is so much economic upheaval.
I appreciate the thorough response that Mr. Nehf took the time to provide. He and Dr. Leone were the only respondents to my query. [Ryan's letter was sent to all the Board members.]
Sincerely,
Ryan

[STRS Ohio letterhead]
October 6, 2008

Dear Mr. Holderman:

I appreciate your writing to us with your concerns about the payment of Performance-Based Incentive (PBI) awards to eligible Investment associates, following approval by the Retirement Board at its September meeting.

In your message, you have asked why "bonuses were paid when goals and benchmarks were not met." I am happy to respond through this e-mail; I would also refer you to our August and September 2008 editions of Board News (which were sent out via our e-mail news service and posted on our Web site), where this topic was also discussed.

Contained within the PBI Program, which is reviewed and adopted by the Retirement Board annually, are a number of objective criteria used in the calculation of PBI payments. As you correctly noted in your e-mail and as we shared in our communications to members, not all the goals were met. The total fund return did not exceed its benchmark by 40 net basis points and the total fund return was negative for the year.

You are also correct that the total fund return was -5.44% for the fiscal year 2008 (July 1, 007-June 30, 2008). However, our total fund return (-5.44%) exceeded the composite benchmark return of -5.79%. When markets decline, the value of our investment assets declines. Conversely, when markets go up, the value of our investment assets goes up. Our goal throughout is to minimize losses and maximize returns beyond the markets' performance. In the case of fiscal year 2008, our total fund return beat the composite benchmark return by +.35% The net value added after deducting all direct investment costs was 24 basis points or about $215 million for the year. So, in other words, active management by our STRS Ohio Investment associates and external managers resulted in the total fund return loss being less than it would have been if the assets were passively indexed -- and your pension plan benefited.

In our August Board News, as well as in the October newsletter that you will receive this month, you will see a chart that shows the performance of each asset class against its benchmark, resulting in the net value added of 24 basis points. For example, the benchmark return for fixed income investments was +6.22% for fiscal year 2008. However, the return on our fixed income investments was +6.82%.

In summary, based on the goals that were met, a PBI payment for performance in fiscal year 2008 was made, but because not all goals were met, it was less than the maximum potential amount.

I would also like to add one additional factor into our discussion. We internally manage a significant portion of STRS Ohio's investment assets -- about 80% -- versus using outside money managers. This long-standing practice has saved this system millions of dollars. In calendar year 2007 alone, we saved about $100 million in fees. The total compensation for our Investment associates still places them in the bottom quartile (25%) of total compensation levels in the private market (when 100% of maximum PBI is earned).

As you noted, these are challenging economic times. The value of many Americans' personal investments is declining. It is at times like these that the value of the defined benefit plan you and your retired colleagues have with STRS Ohio becomes even more apparent.

Thank you for giving me an opportunity to respond to your questions. Also, if I may divert from the topic of investments for a moment, I understand that you have been an ardent proponent of our health care legislation. Let me take this moment to thank you for your efforts on this initiative.

Sincerely,

Michael J. Nehf
Executive Director

Ohio's new super Super‏

Deborah Delisle Named New State Schools Superintendent

By Dave Harding, ProgressOhio - Oct 14th, 2008

Ohio has a new state schools superintendent.

Following a national search, the state Board of Education on Tuesday selected Deborah Delisle, who is superintendent of the Cleveland Heights-University Heights City School District.

The 55-year-old Delisle will paid a salary of $194,500 a year. The other finalist was Catherine Maple Cross, a deputy education secretary in New Mexico.

Current state superintendent Susan Tave Zelman's last day after nine years is Oct. 31.

She announced in May that she would resign, after Gov. Ted Strickland stated his intent to replace her with an education chief accountable to him instead of the state board.

For more information on Delisle from the Cleveland Heights district website, click here.

From John Curry, October 14, 2008

Wonder how much STRS Ohio lost in the last 12 months? Think we'll be told?

From John Curry, October 14, 2008

Calpers fund down 25 percent for year
Bloomberg News
10/13/2008

The largest public pension fund in the U.S. lost almost $67 billion in 12 months, more than 25 percent of its value, as stock markets tumbled.

The market value of the California Public Employees' Retirement System declined to $193.7 billion as of Oct. 9, from $260.6 billion a year earlier. Between Sept. 15, when Lehman Brothers Holdings Inc. filed for bankruptcy, and last week, the fund's stock holdings declined by $12.4 billion to $36.8 billion, according to data compiled by Bloomberg.

Pensions and retirement accounts, which tend to be heavily invested in stocks, may have lost as much as $2 trillion since 2007, the Congressional Budget Office reported Oct. 7. In the 12 months through Friday, the Dow Jones Industrial Average dropped 40 percent, the Standard & Poor's 500 Index, 42 percent.

Calpers reported that it lost 2.6 percent for the fiscal year ended June 30, its worst performance in six years. Retirement benefits promised to retired state workers in California are guaranteed and won't change when stock markets decline.

The pension fund has said it needs to earn an average of 7.75 percent in a so-called "smoothing policy" that allows it to spread its gains and losses out over 15 years as a way to ensure it doesn't have to ask state and local governments for more money to pay for guaranteed benefits. It earned an average of 10 percent during the five years ended Aug. 31 and 7.2 percent in the last three years.

"We're still applying gains from four years of double-digit returns," said Calpers spokeswoman Pat Macht. "Those will help offset employer rates for next year."

The California State Teachers' Retirement System, the second- biggest U.S. public pension fund after Calpers, lost 3.7 percent for the fiscal year, its worst one-year decline in a decade and the first loss since 2002. The teachers' fund saw the value of its stock portfolio decline 25 percent to $14.9 billion as of Oct. 10 from $20 billion on Sept. 15, according to Bloomberg data.