Saturday, December 20, 2008

Failure PAYS (Unless You’re a Retiree)

STRS and Mike Nehf found on a different blog......
From John Curry, December 20, 2008

"The Chimpy 'failure culture' that rewards stupidity has got to be one of the things we throw away in the coming era. America can’t afford it."

November 15, 2008
This country started blatantly rewarding utter failure in December of 2000, when a guy who in all likelihood lost the country’s biggest election was awarded the Presidency anyway. The guy awarded the office had never, in the entire course of his life, succeeded at anything he tried. Yes, the wingtard talking heads (largely supported by the mainstream media) claimed that this lifetime failure had done well as the Governor of Texas, but just a few scratches at the surface revealed that Texas under the stweardship of this failure has become a place of alarming poverty, sickening pollution, and thuggery in the “justice” system.
The failed Governor of Texas went on failing in a spectacular fashion, dragging this country into an expensive, unending war against people who had no beef with us. What did we do about it? In 2004, the failure was awarded a clear majority of votes (and I do believe he won a majority of the votes, even if I doubt he actually won Ohio.) It seemed the Age of Failure had arrived in force in America. Gone was the hard work and honest behavior ethic that made America a great place to be; instead, we saw failure after failure rewarded AT THE EXPENSE of hard working, honest people. Failed CEOs were rewarded with multimilliondollar bonuses, and even the ones who were fired were sent off to their retirement with lucrative “severance” packages that represented the lifetime earnings of dozens, or hundreds, of workers. What did those workers get? They got fired. Over and over, we saw it happen. Enron. HP. Countless banks, insurance concerns, airlines, investment brokerages. For gutting their companies and destroying the lives of loyal employees, executives made out like bandits. The private sector, in other words, was behaving just like the Government, and “shareholders” in both arenas seemed to be willing to let it all go by.
Then, of course, the failures got so numerous, and so blatant, that we couldn’t ignore them anymore. Katrina finally shined a light on just how miserable the failure in Government has been, while the collapse of investment funds and banks threatened to end the retirement plans of millions of aging American workers. Suddenly, we were awakened to just how bad things had gotten in America.
Uh, MOST of us were awakened, anyway. While it might be true that the 401(k) and other pension systems have collapsed for tens of millions of Americans, the people actually running those systems haven’t taken notice yet, in a lot of places. Let us look at Ohio, where the loss of money has been astronomical-and the bandits CONTINUED, and continue, to pilfer the scraps that are left.
The turmoil on Wall Street has sucked billions of dollars out of Ohio public-pension systems, but many of the pension employees who are paid to invest retirees’ money still will reap tens of thousands of dollars in bonuses.
This year, 10 investment officers for the State Teachers Retirement System pulled in bonuses of $200,000 or more, and two crossed the half-million mark in combined salaries and bonuses.
Thirteen investment officers for the teachers’ pension could reach $500,000 in total pay next year under a bonus plan approved by the pension board, although many will fall short unless the market recovers.
While a depressed market will pinch the performance bonuses somewhat, it doesn’t necessarily spell the end of six-figure jackpots for pension officers who oversee declining portfolios. A pension officer whose assets lose value — but less value than average for a comparable portfolio — still qualifies for a bonus, in some cases reaching into tens of thousands of dollars.
In all, the State Teachers Retirement System paid nearly $6 million in bonuses to 89 investment officers this year, most of whom have base salaries of $100,000 or more.
The pension fund affects 449,000 people, including about 180,000 active teachers, 140,000 retirees and 120,000 beneficiaries. Some retired teachers are fuming about the bonuses at a time when their pensions are bleeding value.
“When retirees are struggling to pay for groceries, there’s so much insensitivity to see millions and millions of dollars going to pay for bonuses,” said Molly Janczyk, a retired Columbus school teacher. “No one faults them for bonuses, but it kind of rubs salt in the wounds to see these kinds of bonuses during the economic downturn.”
The bonuses have touched off a brush fire of criticism among members of a group called Concerned Ohio Retired Educators, which formed in late 2003 in response to perceived extravagances at the teachers’ pension system.
A Web log run by a member of the activist group, retired Columbus teacher Kathie Bracy, has been abuzz with comments on the bonuses.
“Retirees think it’s only fair that (investment officers) pull in their belts the way we all have to pull in our belts,” Bracy said.
The teachers fund’s top earner, assistant director of investments Mary Ellen Grant, took home $529,200, including a bonus of $259,200.
That’s nearly as much as her counterpart in California. Christopher Ailman, chief investment officer for the California State Teachers Retirement System, took home a bonus of $295,000 this year. Ailman oversees $147 billion in assets for the nation’s largest teacher pension, compared to $63 billion for the Ohio system.
Although the California teachers’ pension has a larger investment staff, only 15 officers qualify for performance bonuses, a spokeswoman for the system said.
Officials from the Ohio system defend the merit pay, saying the bonuses pay for themselves several times over in improved performance of the system’s portfolio. They also note that while many investment officers clear $200,000 a year, that’s still far less than they would be paid in the private sector.
“In order to attract and retain quality people at STRS Ohio, and you need to have the best and brightest to have the kind of investment performance you want, you have to have these kinds of incentives,” said Michael J. Nehf, executive director of the pension system. “The money we pay in those bonuses is repaid many times in terms of our investment performance.”
Mike, Mike….. you’re a failure. Yes, the times have become challenging for you, but you still failed, spectacularly. How can you justify paying these bonuses out of a crumbling system by talking about the supposed “talents” of the people who helped to make this collapse possible?
The Chimpy “failure culture” that rewards stupidity has got to be one of the things we throw away in the coming era. America can’t afford it.

Remember the Bonus Carols of 2005? Guess it's time to trot 'em out again

Bonus Carols (December 11, 2005 postings)
Click here to see 2005
Bonus Carols
Click here to see more 2005 Bonus Carols
Click here to see special illustration for Bonus Carols
And yet another carol (this one's a credit card carol).

Friday, December 19, 2008

Shirlee Zerkel to Mary Ann Cervantes: Why even have a Board?

From Shirlee Zerkel, December 19, 2008
Subject: Re: Black Friday!
Dear Mary Ann:
I did receive your answer. Thank you for the slap in the face to me and all the other retirees and active members who are counting on the STRS pension to live. Most of us are not entitled to Social Security. At the rate you are willing to spend the money on staff, there will be none left for retirees and that includes you. But since you do not appear to be concerned, you must have another source of retirement income or a very wealthy spouse. The funds that STRS has to work with are funds paid in by members and school boards. According to the ORC 3307.15 it is to be used for the benefit of the members.
I am sorry, but the staff are not members. STRS is not another government office or pension fund. I find it interesting that you have compiled a list of other pension funds that give their employees more benefits than STRS. STRS gives the employees up to 24 vacation days, 15 sick days, 2 personal days and 10 paid holidays, 7 fixed and 3 floating. I request a list of those entities who offer the staff more.
But the thing that bothers me the most is that you do not care if the director breaks Board Policy. Why even have a Board? That policy was made to be followed. But as I understand from your comment-anything goes as long as the decision or action is made by the director or other upper staff-but just let Dr. Leone question and ask for a motion, and you and the rest of the Board try to silence him. Dr. Leone has the best interest of the system at heart and as I see it the rest of you just say yes to anything staff suggests.
Please start following policy and ORC 3307.15.
Shirlee Zerkel

John Curry to Mary Ann Cervantes: If violations of Board policy are OK, why have a Board?

From John Curry, December 19, 2008
Subject: Mary Ann, tell me it isn't so!
In viewing your letter below to retiree Shirlee Zerkel it appears as though selective violations of Board Policy are viewed by as being acceptable by you. [See Shirlee Zerkel to STRS Board: Follow policy or leave, posted December 15, 2008] Am I correct in this assumption? If that is the case then...why even have an STRS Board in the first place? So much for the concept of checks and balances! Why not resign from the Board as you really are not needed?
Have a wonderful holiday also...retirees won't.
John Curry
P.S. A point of information.......STRS employees retire with OPERS healthcare insurance which is far more affordable than STRS healthcare insurance.
Mary Ann Cervantes to Shirlee Zerkel, December 19, 2008
Subject: RE: Black Friday!
Shirley, I received your second send of email. Thank you. One point of information: STRS employees have the lowest holiday allowance of any comparative government or pension entity.
Have a wonderful holiday.
Mary Ann

Thursday, December 18, 2008

Molly Janczyk, Dennis Leone and Jim McGreevy: Comments on December STRS Board meeting

From Molly Janczyk, December 18, 2008
Subject: Re: FW: Report to OEA-R on Recent STRS Board Meetings
I hope I NEVER see the Board speak as one voice though I am sure I will as of 9/1/09!!! Speaking as one voice is what got us into misspending and ethics violations!!!! We live in America and Americans KNOW Boards SHOULD BE places of strong debate and open mindedness. This Board, we well know, thinks a wave is the end of the world. Passionate debate was no enemy of the Tom Mooneys of the world. Unfortunately, his organization's reps see no place for it. Tom said he was often the loudest in the room. What is the problem with the STRS Board CLONES who feel they must sit nicely and play well regardless if it is in our best interests or not!!! Healthy debate and competent oversight is what shareholders want and NEED in these times. This will NEVER be learned at STRS! They need to go to some REAL board meetings and see what transpires to get things moving-FAST , EFFICIENTLY AND EFFECTIVELY!
At STRS, it is the Stepford mentality all the way. How many times I have heard: "Well, we didn't make waves!" Is that the fiduciary duty at ORTA, OEA, OEA-R and STRS?
From Dennis Leone, December 18, 2008
Subject: Re: FW: Report to OEA-R on Recent STRS Board Meetings
Speaking as one STRS board member whom the rest have attempted to gag in each of the last 2 meetings (first by trying to prohibit amendments to minutes I desired to make sure our financial condition was fully reported as a record, and secondly by publicly stating that the board speaks as "one voice" and I shouldn't talk to reporters), I appreciate what you written below.
D. Leone
From Molly Janczyk, December 18, 2008
Subject: Re: FW: Report to OEA-R on Recent STRS Board Meetings
STRS Board: We have seen the lack of wisdom is staying in funds to heap the rewards of catching the wave riding up again at some point. We can continue to lose beyond a bottom line stop gap point waiting for this to occur in bad times. Please consider moving funds into safer areas UNTIL the rise is definite and not a day up and then day down scenario. During these times, most prudent investors move to lower gain but secure investments as NO ONE has any idea when or even if high times we have seen will be with us again. Some experts predict a more modest growth when the growth again appears for many years to come and others predict a very long time before growth is a predictable course. The investors who find this good buying time have money to lose. If funds can be found that are down with no other course but to rise in the future, great. But, who has the crystal ball saying which funds will simply end and which will rise again in the foreseeable future. Many stockholders of some of these funds are still waiting for their once $80+ per share to rise again from its current below $2 or $3 dollar a share for the last decade or so.
Prudence is the standard according to the ORC. Taking chances is not a viable path to conserving our money at this time. We want safety and long term assurance as we cannot afford to lose another 30% of our funds. THERE IS NOT AN INVESTOR ANYWHERE THAT CAN GUARANTEE A FUND WILL GROW AS PREDICTED BY SOME IN THIS REPORT BELOW! That is akin to realtors telling buyers to choose adjustable rates because they KNOW rates will go lower next year or will not increase, etc. Those buyers have lost homes and gone into bankruptcy. Different 'experts' are predicting far different scenarios. We can all chose the one we want to base our actions upon.
From James McGreevy, December 18, 2008
Report to OEA-R on Recent STRS Board Meetings
Below is my report on three recent meetings at STRS. The first occurred on Monday, December 8. It was a special meeting on the question of Performance Based Incentives (bonuses) for STRS investment managers. There was also a regular, monthly Board meeting on Thursday, and a special one-day seminar on Health Care on Friday.
Board Examines PBI Program
The Staff Benefits Committee of the STRS Board spent the entire day Monday studying the investment staff’s compensation policies, and found that they still could not reach consensus on what changes to make, if any, in the program.
Here are a few pertinent facts concerning compensation for STRS investment managers:
During the administration of Executive Director Herb Dyer at STRS, bonuses were routinely handed out to all STRS employees, even those who had nothing to do with investments. The bonuses were somewhat arbitrary and not based in any measurable, objective evaluation of job performance. This practice was ended with the reforms that were adopted in 2005. Following a lengthy study, the Board then adopted a new compensation strategy. Bonuses for good investment performance would be included in the calculation of total compensation for investment management staff only; no other employees would be eligible. The goal of placing investment staff in the 25th percentile of private investment firm salaries for similar positions was established in order to remain competitive in attracting and retaining the necessary level of talent to achieve the STRS investment targets. The combined total of base salary plus the maximum bonus possible would hit this 25th percentile target. Investment managers achieve the bonus portion of their compensation by “beating the market” by a fixed percentage in their area of investment. If they don’t reach that benchmark, they receive no bonus. Additionally, even if they hit their personal targets and the overall funds suffer a loss, their PBI payments are reduced by 20%. Thus, the investment department employees are not in competition with each other over a “fixed pie” but are incented to work together for the overall success of the fund. This system mirrors other public pension funds in the country and is considered to be an industry “best practice.” Investment department PBIs can be earned in “losing years” although at a reduced level. The benchmarks they must hit are relative to the overall market. For example, in Fiscal Year 2008 the staff returned value to the fund about $215 million better than the industry established benchmarks. These figures are not arbitrary and are verified by outside auditors. So, even in FY 2008, a down year, the investment staff earned bonuses that were paid in Fiscal Year 2009.
All of this has taken on new meaning in many minds in light of the recent meltdown in the financial markets. Board member Craig Brooks said “…we probably would not even be having these discussions if the funds hadn’t suffered the huge losses we’re seeing because of the recent troubles on Wall Street…” Brooks offered a modified PBI plan that would create different levels of reduction in bonuses dependent on the severity of losses. Board member Dennis Leone advocated for suspending all bonuses if there is any loss, but offered he would be willing to pay even greater bonuses if earnings exceeded the benchmarks by greater margins. Other Board members indicated they did not see a need to react precipitously to change a system that seemed to be meeting the long-term needs of the system. Some members reminded others in the room that STRS has a very long-term horizon for investments, stretching over six or seven decades, and that changes in policy should reflect that long view.
I favor the Brooks approach. A single fixed cut, regardless of the size of investment losses, seems to me to make about as much sense as a two-step salary schedule. Craig Brooks idea, although not completely fleshed out, recognizes a need to be proportional in response to bad times. I don’t favor the complete elimination of PBIs. I believe it matters what kind of talent STRS can attract and retain, and although there is nothing “magic” about the 25th percentile compensation goal, I would tend to agree with the Board’s expert consultant, Maclagan, that this figure puts STRS in a good position.
At the end of the meeting, it was determined that more data and more time was needed to make a prudent decision, and it was decided the issue would be continued to another special meeting after the first of the year. Stay tuned.
STRS Board Gets Another Bad Investment Report
In recent months, the Investment Department Report has become the most anticipated news to be offered at STRS Board meetings, and not for positive reasons. The bad news afflicting the entire world economy continues to impact STRS investments. Chief Investment Officer Steve Mitchell reported that November saw an additional loss of 5.1% in total fund assets for a year-to-date total of a negative 25.4%. Significantly, STRS investments are trailing industry benchmarks rather significantly, possibly making the whole debate over PBI payments somewhat moot for FY 2009. At close of business November 30, STRS total fund assets stood at $51.48 billion, nearly $29 billion lower than the peak value reached in October of 2007, the system’s all-time high.
It should be noted that the reason for this has a great deal to do with the asset allocation strategy at STRS. Because STRS has a total fund return target of 8% - 10%, there is a heavy emphasis on domestic stocks. The equity markets are down more than other financial segments, so any fund heavy with equities (stocks) will do worse than a fund that is more invested in fixed income or other more stable, but generally less productive, instruments. Many private pension funds whose view is not as long-term as STRS, or who have lower necessary rates of return than ours, have shifted to these lower performing investments. Russell Investments, consultant to STRS, recommended not doing this to be ready to take advantage of the opportunities when the market turns, something they believe will happen as soon as late in the second quarter of 2009. The Board is currently in the midst of an asset allocation study that will conclude in late winter. It is the Board, not the investment staff that must make this decision. Most experts maintain that nearly 90% of a fund’s returns are dependent on this asset allocation decision, vastly more than even the best active management, market-timing, or stock-picking can produce.
Rep. Wolpert’s Bill Attacks Defined Benefit Plans
The lame ducks in Columbus are up to some mischief. Rep. Larry Wolpert (R-Hilliard) introduced HB 645 that would require all new pubic employees be placed in a defined contribution (DC) pension plan instead of a defined benefit (DB) plan such as the one selected by over 95% of STRS retirees. Although there would be no immediate effect on anyone already retired, the slow erosion of numbers from STRS would, over time, undermine the stability of the pension fund. The Financial Institutions, Real Estate and Securities Committee (commonly called the FIRES Committee) has been assigned the bill, but they have announced they will hold no further hearings on this bill and it will die at the end of the session in December. Rep. Wolpert is leaving the legislature so there is little chance this bill in this form will be introduced again, but it is a wake-up call that there is a good deal of “pension envy” abroad in the land and we must be vigilant in our opposition to any similar bills in the future.
New Board Member Seated
Gov. Ted Strickland has named Regina F. Burch as his appointee to the State Teachers Retirement Board.
Burch is an associate professor at Capital University Law School in Columbus. She holds a bachelor's degree from Harvard College, a master's degree from the Sloan School of Management at Massachusetts Institute of Technology, and a juris doctor degree from the Hastings College of Law at the University of California. Her term on the board will run through Sept. 28, 2012.
Additional appointments will soon be made by the President of the Ohio Senate and the Speaker of the Ohio House (a joint appointment) and also by the Treasurer of the State of Ohio. When this occurs it will be the first time in well over a year that all of the seats on the Board have been filled.
Reemployed Health Care Rule About To Be Implemented
STRS Health Care Services reported that 998 insured retirees have yet to reply to the Verification of Employment and Employer Health Care Access forms that were mailed out in July. If you are currently enrolled in an STRS health insurance program and do not respond by December 31, your insurance will be canceled on New Years Day, January 1, 2009. STRS has continued efforts to contact these few remaining retirees. If you have questions about your status, call the STRS toll free helpline at 1-888-227-7877.
Health Care Seminar Held on Friday
A well-attended health care education session took place at STRS on Friday and it underscored the concern over health care funding as STRS looks to the future. It was reported that the efforts to secure a dedicated revenue stream for retiree health care will continue into the next session of the Legislature. The bill currently labeled HB 315 will be reintroduced in some form with Rep. Scott Oelslager (R-Canton) continuing as sponsor. Additional co-sponsors from both parties are being lined up. Whether or not there will be modifications to the bill to answer some of the criticisms leveled by Ohio School Boards Association and Ohio Association of School Business Officials is yet to be revealed. But as any experienced negotiator knows, you don’t counter your own offer. You get the item on the bargaining table and work for the best possible agreement.
Another item receiving considerable attention at the meeting was the idea of offering a Medicare Advantage program. About a year ago the Board rejected a pilot project for the Canton area that would have field-tested an Advantage program sponsored by Ault-Care, a prominent health care provider in that part of the state. Opposition at that time centered on widespread feeling that what amounts to a “privatized” Medicare approach was just a way to pump profits into insurance companies without any measurable benefit to those insured under such plans. On Friday, the Board heard reports from industry experts that indicated that was not the case, and held out the possibility of better coverage for less cost to the insured. No decisions were made, but you can bet your bottom health care dollar that we have not heard the last of this idea.
The status of STRS’ Health Care Stabilization Fund (HCSF) was also discussed at length. The balance in the fund has dropped to approximately $2.8 billion, largely due to a drop in fund assets due to the stock market plunge of recent months. That drop has also required the system to dip into fund assets to make up for the shortfall in income and premiums. Although it is a separate fund for accounting purposes, the HCSF funds are invested along with the pension fund and rise and fall at the same rate. It was noted that the fund had also fallen to $2.6 billion back in 2003, but rebounded with the sterling investment performance of the next four years. No “life expectancy” of the HCSF was offered, but it’s clear that without a market rebound plus additional funding as might be provided by HB 315 or similar legislation, the HCSF could run dry sooner than the 2021 date mentioned in recent years. Without additional cash and/or investment returns, the only way to extend the life of the fund would be by adjusting eligibility requirements, the subsidy, plan designs or some combination of the three.
The staff presented a series of examples to illustrate how changes in various aspects of the plan would impact the life of the HCSF. It was emphasized by Member Benefits head Sandy Knoesel that none of these “what-if scenarios” should be viewed as a recommendation but only were used to give Board members an idea of how much impact various moves could have.
By far, the most positive possible impact would result from passage of HB 315 or similar legislation. The fund would have more than thirty years of life, virtually fully funded. Such legislation will be difficult to obtain given the hard financial times and opposition from OSBA and OASBO, but compromises in the legislative process could produce positive developments as well. A half a loaf is better than no loaf at all. And no one knows if the incoming Obama Administration may eventually be able to move the health care coverage “ball” further downfield to our benefit. The next few years offer challenges but also great opportunities.
James McGreevy

STRS Board member apologizes: The "T" word WAS used

Tim Myers to John Curry, December 18, 2008
Subject: FW: Questions from Ohio
I apologize. He did use the word TERMINATE in this letter. As you can see below, a decision has NOT been made to eliminate it yet.
I have deleted the attachment (and another paragraph that does not pertain to the incentives) since it is an internal document that he did not want distributed.
Jeffrey Clay to Tim Myers, December 15, 2008
PSERS does have an incentive compensation program for its in-house investment professionals. A copy of the current FY 2008-2009 Policy is attached. Please note, the Board last week did terminate this Policy, effective as of December 31, 2008, to allow it an opportunity to review the Policy in light of current market conditions. At this point it is too early to tell what direction that review will take.
Jeffrey Clay
Executive Director

John Bos: Lake Wobegon School Retirement System

From John Bos, December 17, 2008
Subject: Retirement System Bonus in Pennsylvania. Tim can say that this is false information, but 5 major Pennsylvania Newspapers have reported the same story.
Hey Friends,
After a 10 minute search regarding the Pennsylvania Retirement System Bonus and other related hits on bonus, I am reminded of one of my favorite American citizens: Garrison Keillor once said that all of the students in Lake Wobegon where all of the women are strong, all the men are good-looking, and all the children are above average.
The one theme that keeps coming back is that "each state" says that their returns are the best and that their "investment experts" are the best in the business.
Something is wrong when they all sing the same song. Perhaps all of these ABOVE AVERAGE INVESTMENT EXPERTS should assume responsibility for the Lake Wobegon School Retirement System Pro bono.
John Bos

In a basemente deepe and darke alonge Broadstreete….

[With apologies to the late William Shakespeare]

Firste Witch

Rounde aboutte the Cauldronne goe;
Wherein the poison'd Entrails throwe.

Enronne shares into the vatte

Fannie Mae follows thatte

Tongue of Sir Dennis Leonne, may it rotte
Boille thou firste i' the charmed potte.


Double, double toyle and trouble;
Fire burne and Cauldronne bubble.

Seconde Witch

Eye of Newte, and Toe of Frogge,
Wool of Batte, and Tongue of Dogge,

Composite Markette Indexe doth winne oure vote

We laughe at fooles who believe suche joke
Adder's Forke, and Bloated Paye

Our praises sunge by the feye

While we are only fewe in numbere

We lose billiones while you slumbere
For a Bonus of powerfulle trouble
Like a Hell-brothe, boille and bubble.


Double, double toyle and trouble;
Fire burne and Cauldronne bubble.

Thirde Witch

Scale of Dragonne, Toothe of Wolfe,
Witches' Mummy, Maw and Gulfe

We hunte oure Bonus like a Sharke,

A billione loste a mere Larke

Roote of Hemlock, yes we knowe
For the fewe that oppose us we growe
Silver'd in the Moon's Eclipse,
What care we of Markette dippes,

Make the Gruele thicke and slabbe:

Though be oure investmentes drabbe

Nay, it worries us notte at alle
We have the Boarde within oure thralle.


Double, double toyle and trouble;
Fire burne and Cauldronne bubble.

[Speciale thankes to Richard DeColibus]


Click here for a more legible version.

Pennsylvania's STRS....the real truth re: the bonus (PBI) termination on 12/12/08

John Curry to Tim Myers, December 18, 2008
I think this news brief, right from the "horse's mouth," pretty well sums up the answer to whether or not this Pennsylvania teachers' retirement system did or did not quash the PBI program. The last paragraph says it all. The "second line" in the article
[See Dec. 17 post below: Take a hint, like Pennsylvania's STRS did....eliminate bonuses for investments people... even though they ALSO did better than their peers!] which I furnished is not "misleading" fact, it is the truth. Here is what the (Pennsylvania) Public School Employees' Retirement System has to say about this topic as taken right from their website.
Statement to PSERS Members from PSERS Executive Director Concerning Payment of Incentive Compensation to PSERS Investment Staff
By now you have probably seen articles or heard comments about PSERS paying incentive compensation to its investment staff for performance that was earned during the past fiscal year ended June 30, 2008. For the past fiscal year, twenty-one PSERS’ investment professionals earned incentive payments of approximately $854,000.
These payments are not bonuses. The incentive plan, part of the overall compensation package of the investment staff for over 14 years, is outlined in a policy that is reviewed and approved by the Board on an annual basis. Rather than paying more in base salary, PSERS incentive plan makes the investment staff earn part of their pay through the incentive policy.
PSERS saved school employers and Commonwealth taxpayers millions of dollars by having its investment staff manage nearly 30 percent of the Fund’s assets in-house. While PSERS paid out an incentive for FY 2007/2008, PSERS investment staff added $1.3 billion in value by outperforming the median public pension plan return of -4.56 percent.
For the past three-and five years, PSERS added $9.3 billion and $14.8 billion, respectively, versus the returns posted by the median public pension plan. A large portion of the current year’s incentive is tied to longer-term performance which remains positive. For the three- and five-year periods ended June 30, 2008, PSERS was up 5.26% and 9.59%, respectively.
By producing returns above the median public pension plan, PSERS investment staff created significant savings for Pennsylvania school employers and Commonwealth taxpayers.
If PSERS were to eliminate its investment staff, PSERS’ school employers and Commonwealth taxpayers would pay significantly higher fees to external investment managers to similarly invest the funds.
PSERS understands there are concerns about paying these incentives during the current economic crisis. The incentives currently being paid, however, are based on a policy that was approved by the Board over a year ago, in August 2007, for the fiscal year ending June 30, 2008. PSERS is legally and contractually obligated to pay the incentives earned for the past fiscal year. PSERS cannot change the compensation package for its investment staff for their past investment performance.
While PSERS is obligated to pay the incentives for the past fiscal year, PSERS Board on December 12, 2008 terminated the incentive > compensation plan policy for the current fiscal year as of December 31, 2008.
From Tim Myers, December 17, 2008
Subject: RE: Take a hint, like Pennsylvania's STRS did....eliminate bonuses for investments people... even though they also did better than their peers!
In a letter from the Pennsylvania Executive Director, Jeffery Clay on Monday, Jeffery told me that the bonus have NOT been eliminated. They are going through a study of the bonuses just like we are. In fact, we are a month ahead of them on this. The second line of the article in question is misleading at best. The committee tasked with making the determination has NOT reached a conclusion yet.

Wednesday, December 17, 2008

...and now, we have the Pennsylvania Auditor General calling for elimination of bonuses at Pennsylvania STRS and other state agencies!

From John Curry, December 17, 2008
Pennsylvania Auditor General Jack Wagner, Troubled at PSERS' Bonuses, Renews Call for Elimination of Bonuses in State Government
Dec. 16, 2008
HARRISBURG, Pa., Dec 16, 2008 /PRNewswire-USNewswire via COMTEX/ -- Auditor General Jack Wagner said today that he was appalled by the Public School Employees' Retirement System's decision to award $854,000 in bonuses to 21 employees following the system's $1.8 billion investment losses this year. Wagner called on the PSERS board of directors to try to recover the bonuses from employees, and he again urged the General Assembly to pass legislation explicitly banning all bonuses in state government.
Noting that he was the first statewide official to call for complete abolition of bonuses in state government more than two years ago, Wagner said, "It's unconscionable that PSERS would award bonuses at a time when our nation is facing its greatest economic crisis since the Great Depression, our state is facing a budget deficit of almost $2 billion this fiscal year, and Pennsylvanians are grappling with rising unemployment and soaring energy, health and education expenses.
"In the private sector, bonuses are intended as a reward to employees who meet or exceed their performance goals and their employer meets its profit targets. Regardless of the cause, a public pension system that lost $1.8 billion has no business awarding bonuses to employees."
The Department of the Auditor General audited PSERS in 2006 and found that the pension system, which has 225,000 active and 157,000 retired members, was performing well but it was only 85 percent fully funded.
In a 2007 audit, Wagner faulted the Pennsylvania Higher Education Assistance Agency, the state's leading provider of loans and grants for college students, for giving $7.5 million in bonuses to hundreds of employees over a three-year period.
Wagner said his department was reviewing the possibility of auditing PSERS' contracts to determine how the pension fund could legally obligate itself to pay bonuses to employees during a period when its investments were losing money.
"There is no place in state government for bonuses," Wagner said. "I once again urge the General Assembly to protect taxpayer dollars by passing legislation that forever bans bonuses in state government."
Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth's elected independent fiscal watchdog, conducting financial audits, performance audits, and special investigations. The Department of the Auditor General conducts approximately 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department's website at SOURCE Pennsylvania Department of the Auditor General

John Curry and Tim Myers re: Eliminating bonuses

From John Curry, December 17, 2008
Subject: Re: Take a hint, like Pennsylvania's STRS did....eliminate bonuses for investments people... even though they also did better than their peers!
Thank you for your reply. Maybe they are just "studying" the bonus program at this time and that they are "contractually obligated" at this time to award the bonuses. This contract will come to an end sooner or later. The Pennsylvania Governor prefers "sooner." This isn't the only news coverage of this situation. In the coverage of this (furnished below) It states:
"The system's board voted Friday to end the program at the end of this month. Market conditions and other pressures led to the board's decision to rescind the practice, said Jeffrey Clay, the system's executive director." Sounds like Mr. Jeffrey Clay has a whole bunch of media correcting to do as this additional article, if I read it correctly, states that the Board has now already voted to quash the bonus program. Do we have a case of "media gone wild" here and have the facts of this incident been totally reversed? Here is that article from
Bonuses for losing money
From, December 16, 2008
The Patriot-News
In a year when the school employees' pension system lost $1.8 billion, the system's investment staff still received more than $854,000 in bonus payments.
Twenty-one members of the Public School Employees' Retirement System's investment staff received bonuses for their work in the 2007-08 fiscal year, which ended June 30. The bonuses range from $9,720 to $106,223.
The average bonus is $40,672. The system's investment staff earn base salaries between $63,179 and $251,542.
But the bonus program is coming to an end.
The system's board voted Friday to end the program at the end of this month.
Market conditions and other pressures led to the board's decision to rescind the practice, said Jeffrey Clay, the system's executive director.
"There was some concern given the unprecedented markets at this point, plus ... across this country, there are issues raised with respect to incentive compensation for investment professionals in this market," Clay said.
Gov. Ed Rendell was among those objecting to the bonuses. He sent a letter in November to system officials advising against awarding them this year.
"Given the fund's recent performance and the serious financial challenges now facing the commonwealth as a whole, the payment of large bonuses to PSERS employees would be inappropriate and indefensible," Rendell wrote.
System officials, however, said lawyers advised they had a contractual obligation to pay the incentive payment, since they were provided for in board policy.
Investment staff will still be eligible to receive bonuses for work done between July 1 and Dec. 31, Clay said. He said all incentives are based on objective criteria that are independently verified.
In the first quarter of the 2008-09 fiscal year, which ended September
30, the school employee pensions system's investments lost 11 percent.
Going forward, Clay said the board might consider raising the investment staff's base salaries to keep their compensation competitive, or it might hire an outside consultant to offer some ideas.
The bonuses are intended to supplement base salaries that a market study shows are lower than the going rate for professional investors to entice them to earn the best returns possible for the fund, system officials said.
While the investment staff's work in the last fiscal year did result in a 2.8 percent loss on investments, system officials pointed out their in-house investors outperformed their peers nationally. Their peers' median return was a negative 4.56 percent for the same period.
Steve Nickol, vice chairman of the system's board, said he understands that the payments are huge to people who already receive among the fattest salaries in state government. But he added that "they're some of the few people in state government who make money, generally."
Investment staff at the other state pension system, the State Employees' Retirement System, are also eligible for bonuses if they hit at least an 8.5 percent rate of return. Considering the losses that the fund experienced this year, system spokesman Robert Gentzel said, "I can say with a high degree of certainty that they will not be getting incentive payments for 2008."
For 2007, nine out of its 16 investors received a total of $193,803 in bonuses for helping the fund gain 17.2 percent in value, Gentzel said. Those bonuses ranged from $9,337 to $55,947. The average was $21,534. (The state workers' retirement system operates on a calendar year).
Sen. John Eichelberger, R-Blair County, welcomed the news about the school employees' pension board decision to end the bonus program. He said he plans to reintroduce legislation to ban bonuses to most state government employees when the new legislative session starts in January.
His proposal allows for an exception for bonuses that are based on objective criteria like the ones that the pension systems offered.
But he said, "it still was awkward because we were making an exception for somebody. If it's a good rule, it should rule across the board."
Using internal staff to manage about 30 percent of the school employees' pension fund's nearly $55 billion in assets and operate the system's in-house trading room saves about $12 million annually, system officials said.
That saving alone is a solid reason to reward investment staff incentives for good performance, said Keith Brainard, research director for the National Association of State Retirement Administrators. He noted that Pennsylvania was among a minority of states that offered incentive payments to investment staff.
He said, "I think the fact that more don't do it has more to do with the politics of the issue rather than the merits of it."
Staff writer Charles Thompson contributed to this report. JAN MURPHY:
232-0668 or
From Tim Myers, December 17, 2008
Subject: RE: Take a hint, like Pennsylvania's STRS did....eliminate bonuses for investments people... even though they also did better than their peers!
In a letter from the Pennsylvania Executive Director, Jeffery Clay on Monday, Jeffery told me that the bonus have NOT been eliminated. They are going through a study of the bonuses just like we are. In fact, we are a month ahead of them on this. The second line of the article in question is misleading at best. The committee tasked with making the determination has NOT reached a conclusion yet.

RH Jones to Mike Nehf re: Black Friday

From RH Jones, December 15, 2008
Subject: Fw: 121308 Leone, Black Friday
Re: the STRS employees and their day off.
Dear Mr. Mike Nehf:
To quote our STRS Retired Board Member, Dr. Dennis Leone, in his 12/13/08, 12:30 PM, message to John Curry: "Board policy prohibits the executive director from awarding benefits that are NOT part of a board-approved plan". Sir, if that is the case, it was an audacious mistake. Therefore, as executive director you should deduct an employee day (except for those who worked) from the coming holiday time off. It is the right thing to do for everyone. An unauthorized $175,000 taken away from STRS funding, that could be compounding, hurts employees as well as members.
Respectfully my opinion only,
Robert Hudson Jones,
STRS retired teacher

Take a hint, like Pennsylvania's STRS did....eliminate bonuses for investments people... even though they ALSO did better than their peers!

From John Curry, December 17, 2008
Dear STRS Board,
I respectfully ask that you read the following from your counterpart in our neighboring state.
John Curry Gov. Ed Rendell sent a letter to system officials in November in which he advised against awarding the bonuses.
"Given the fund's recent performance and the serious financial challenges now facing the commonwealth as a whole, the payment of large bonuses to PSERS employees would be inappropriate and indefensible," Rendell wrote.
Pa. school pension fund staff bonuses ending, December 16, 2008
HARRISBURG (AP) — Twenty-one investment staffers at Pennsylvania's public school pension fund received more than $854,000 in bonuses for the 2007-08 fiscal year, even though the fund's investments experienced a $1.8 billion net loss, a newspaper reported Tuesday.
The Public School Employees' Retirement System board plans to end the practice at the end of the month, however, citing market conditions and other factors.
"There was some concern given the unprecedented markets at this point," PSERS executive director Jeffrey Clay told The Patriot-News of Harrisburg. "Across the country, there are issues raised with respect to incentive compensation for investment professionals in this market."
Bonuses for the fiscal year ended June 30 ranged from $9,720 to $106,223. The fund's investment staff receive base salaries between $63,179 and $251,542.
Gov. Ed Rendell sent a letter to system officials in November in which he advised against awarding the bonuses.
"Given the fund's recent performance and the serious financial challenges now facing the commonwealth as a whole, the payment of large bonuses to PSERS employees would be inappropriate and indefensible," Rendell wrote.
But the system's lawyers concluded that it was contractually obligated to award the bonuses because the board's policy already authorized the payments, system officials told the newspaper.
Despite the investment losses, the system's in-house investors outperformed their peers nationally, system officials said.
The investment staff's base salaries are lower than the going rate for professional investors, system officials said. The board might consider increasing the salaries in the future to keep them competitive or seek other suggestions from an outside consultant, Clay said.
Investors at Pennsylvania's other state pension fund, the State Employees' Retirement System, will not likely receive bonuses this year, given the fund's losses for the 2008 calendar year, spokesman Robert Gentzel said. The fund's investments fell 14.4 percent from January through September.
SERS investment employees are eligible for bonuses if they achieve at least an 8.5 percent rate of return.
Pennsylvania is among a minority of states that offer bonuses to the investment staff of its state pension funds, said Keith Brainard, research director for the National Association of State Retirement Administrators.
"I think the fact that more don't do it has more to do with the politics of the issue rather than the merits of it," Brainard said.
Pennsylvania Auditor General Jack Wagner said his agency was considering a possible audit of PSERS' contracts to determine why the system could not legally forgo the bonuses when its investments were losing money. Last year, Wagner released an audit criticizing Pennsylvania's student-loan agency for awarding $7.5 million in employee bonuses over a three-year period.

Tuesday, December 16, 2008

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

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.

Sandy Knoesel (Beth Coffey): Some answers for surviving beneficiary

From Beth Coffey, December 16, 2008
Subject: FW: QUES:: Sandy: STRS Question
Following is the response (and attachment) that Ms. Knoesel sent to Dr. Leone regarding this issue.
A surviving beneficiary who is receiving benefits from a deceased retiree’s account is eligible for health care from STRS Ohio. For the first five years, the surviving beneficiary’s health care premium would be subsidized; following the initial five-year period, the surviving beneficiary would be eligible for health care at the benefit recipient’s full cost rate without any subsidy.
A surviving beneficiary’s current spouse may receive health care coverage if that spouse qualifies as a sponsored dependent. Sponsored dependent premiums are not subsidized; therefore, sponsored dependents pay the total cost of their premium. The 2008 monthly premium for a sponsored dependent who is not eligible for Medicare under the Medical Mutual Plus Plan is $669. In the event the surviving beneficiary dies, their current spouse’s STRS Ohio health care as a sponsored dependent would terminate and they would not be eligible for any further benefits from STRS Ohio.
The attachment has the definition of sponsored dependent from the 2009 STRS Ohio Health Care Program booklet.
I hope this information is helpful.
Sandy Knoesel
Beth M. Coffey Member Resolution Liaison
(614) 227-4031 - direct
(888) 227-7877 - toll-free
(614) 227-5216 - fax
From Molly Janczyk, December 12, 2008
Subject: QUES:: Sandy: STRS Question
HOW much do folks in this position pay for premiums? How long is their eligibility? WHY is this SPOUSE allowed to enroll a husband? Neither were educators. One is a spouse and only benefits to her should be considered as written. Since when do we get to bring others into our shareholders? I have some relations and friends who could use some help? Can I enroll them?
Subject: Sandy: STRS Question Date: Fri, 12 Dec 2008
This is outrageous, if true. Is the below true: The below came from another source:
I'm not sure if you know the answer to my question but maybe you know someone that could answer it.
____ got a call from a friend today and she told____something that really made me mad. This can't be true can it?
The friend is a widow of a teacher. She couldn't collect benefits right after his death because she was only in her mid forties. A few years later she became eligible for his retirement benefits as a survivor. She later remarried a man that worked for a company outside of STRS. Due to problems, the husband's insurance benefits have been cut drastically at his company outside of STRS. The friend contacted STRS and was told she could get benefits for her and her husband through STRS. They even told her that if she pre-deceases her second husband that he will be able to continue his insurance through STRS. If this is true how the hell can STRS justify insuring two people who spent not one day in education. If this is true we need to get somebody to pursue getting it changed pronto. I didn't spend 35 years paying into STRS to have them insure people that didn't contribute a dime. Let me know if you can find out the answer. Thanks!!

STRS Assets - Bar Graph

Monday, December 15, 2008

Shirlee Zerkel to STRS Board: Follow policy or leave

From Shirlee Zerkel, December 15, 2008
Subject: Black Friday!
Dear STRS Board:
Again I am writing to you concerning the Friday after Thanksgiving that most of the STRS staff had off because Mr. Nehf wanted them to have the day off. Please do not use the excuse that the two executive directors before also allowed the staff to have that day off with pay. I am not talking about the past. That was then; this Nov. 2008 day off is now! Page 53 of Board Policy does not allow the director to make such a decision and doing so is a slap in the face's of Board members who set up the policy. You all have the power to see that policy is followed. Stand strong and correct this breach of policy.
Why have a policy if you allow the director to break policy? The Board has the power to correct this decision and don't just tell him NOT to do it again. Just telling him it was wrong is allowing him to get away with it. I have worked with children long enough to understand that simple rule of discipline. You have to make the staff understand that you are in charge, not them. If nothing is done this time, disregard of policy will happen time and time again and it probably already has. You just have not found out yet.
The policy states clearly this was not to be done. The Board needs to be able to know that policy is followed. Since this decision of an added perk for the staff, I do not see how you can trust anything that comes from the mouths of the STRS administrative staff. How many other directives of the Board are not followed? Don't cover your eyes and ears, and look the other way while the staff does what it wants. You are there to take care of our funds. Allowing the expenditure of approximately $175,000 for a staff day off is not following 3307.15. Most of you wonder why CORE members watch you so closely; this is just one example of why we do. As I said in my email last week, correct this disregard of policy or leave your positions on the Board.

Salary Comparison for Investment--multiple titles, but pay FAR BELOW STRS!!!!!

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