Active teacher Bill Stewart to Mark Meuser: Your responsibility goes well beyond the dollars and cents of contributors' personal life savings

From Bill Stewart, April 17, 2009
Subject: Re: No Bonuses
Mr. Meuser,

Thank you for taking the time to personally respond to my concerns and give me your version of what you believe to be the facts.

Since you have identified yourself as a math teacher of 37 years, you will understand this as I reduce it to my LOWEST COMMON DENOMINATOR:

When you are responsible for the personal life savings of others, that responsibility is not restricted only to the dollars and cents, but entails ensuring people like me that they understand and appreciate the sacrifices made by the contributors. For me personally as someone who has been in public service my entire professional life, I have never received a BONUS for anything that I have done regardless of the results. I ask you, why should someone else EXPECT or even ACCEPT a bonus when everyone but them is watching their future earnings going down the drain?

Please know that I have complete faith in Jim Stoll and hope that he is elected to your Board, with full knowledge that he completely understands my LOWEST COMMON DENOMINATOR. I wholeheartedly encourage you to join me in my support of Jim and work with him to protect our life savings so that we may enjoy a peace of mind our retirement after our years of public service have ended.

Bill Stewart
Business Dept. Chair
Fairfield Sr. High School

From Mark Meuser, April 16, 2009
Subject: RE: No Bonuses

Dear Mr. Stewart,

Thank you for your recent e-mail. I have received a number of e-mails expressing concern over STRS investment bonuses, and I want to take this opportunity to clarify a few points for those who took the time to write.

I am a math teacher with 37 years experience in the classroom. Like you, I have never received a bonus nor do I make the kind of regular salary that many of our investors do. Even so, I have been a proponent of Performance-Based Incentives. This program has, over the years, been instrumental in adding value to the system.

I would like to comment on some common misunderstandings that I have seen expressed in e-mails.

Misunderstanding # 1: The STRS staff lost our members billions of dollars. The investment staff cannot realistically affect the performance of the fund by any more than about one half of one percent of our assets. Though this is a tiny fraction of the assets, it can amount to tens of millions of dollars. Active trading by our investors did not cause the system to lose the billions that it did. Those losses were the result of the extreme bear market and the subsequent economic downturn, which affected all segments of the economy. That downturn was not controlled by any investor.

Misunderstanding # 2: STRS Investors are being rewarded for poor performance. In fiscal 2008, our investors beat the total fund benchmark (the performance of an index fund) by $215 million. What this means is that if we had put our money in an index fund instead having our own employees invest it, we would have been $215 million poorer. In pursuit of that $215 million, we paid about $6 million in incentives. The whole concept of incentives is a no-lose deal for the board. If our investors beat the benchmark by a predetermined amount, they earn an incentive. If they don’t beat the benchmark, they don’t get the incentive. Thus, the excess earnings above benchmark pay for the incentives.

Misunderstanding # 3: The retirement board has recently increased the investors’ salaries. This is not true. It is true that one year ago the board voted to bring total investment salaries (base salaries plus maximum potential incentive) up to the bottom 25th percentile of private investment firms. That was an effort to make investment salaries more competitive and was part of the overall operating budget for fiscal year 2009. In the wake of the economic downturn, however, the board did a number of things. It suspended investor incentive payments from January through June of 2009, and it put restrictions on future incentives. It also froze salaries for all STRS employees for the remainder of this fiscal year and for fiscal 2010. These measures are more than any other Ohio retirement system has done thus far. If we reduce our investors’ total salaries (including incentives) by too much, we run the long-term risk of losing the best talent (both current and prospective) to systems or brokerage firms that have not instituted such cuts.

We have three choices in managing our assets. We can manage them internally, which is what we do now for 80% of our assets.. We could put the majority of our assets into index funds, or we could hire external managers. For the last six years, our investors have substantially outperformed index funds, and external managers would charge much more for their services than what we pay our own investors with no guarantee of any better performance. Consequently, I believe that we should continue to invest using our own staff. This will remain a viable option, though, only if our staff continues to outperform the benchmark. My view is that the real bottom line is not how much money we spend on incentives. The real bottom line is the monetary value that our investors add to the system. No one relishes paying high salaries, but outperforming the benchmark by directly investing in the stock market requires specialized expertise. That expertise can be expensive. The market will eventually recover. When it does, and even in these difficult times before that happens, I do not want to trust our assets to below-average investors. How many of us would go to a hospital for an operation and insist on using the cheapest, least experienced doctor? I realize that my views may not be popular with some STRS members. However, it is my fiduciary duty to the system and its members to act and vote in such a way as to most positively impact the system’s assets. That is why I am not in favor of further cuts to the salaries or incentives of the STRS investment staff. Thank you again for your e-mail. I appreciate your input. I want to assure you that I am acutely aware of the economic crisis and of the board’s responsibility to do what is in the best interests of all of our members.

Sincerely,
Mark H. Meuser
STRS Board Member

From: Bill Stewart, March 19, 2009
Subject: No Bonuses

Mr. Nehf,

I am contacting you today as a result of the following comments:

“STRS staff believes it’s important for the Board to implement financial contingencies immediately, given the current state of the economy in terms of POTENTIAL REPERCUSSIONS OF FUNDING FUTURE BENEFITS.”
~ Mr. Bob Slater, Exec. Dep. Dir/Finance STRS (Feb.19,2009)

“WOW, what you've said is HISTORIC, STRS assets are INSUFFICIENT TO MEET our Pension obligations in the Future”
~ Dr. Dennis Leone – STRS BOARD MEMBER (Feb. 19,2009)

As a member of the STRS for nearly 31 years, I find it extremely troubling that the STRS is willing to pay out huge bonuses and willingly mortgage my savings, with reckless abandon and ill-advised consideration, that I have entrusted to the board. The Ohio State Teacher's Retirement System is not AIG or General Motors. STRS will not receive "bailout funds" from the our Democratic controlled Congress, nor be directed by our Democrat President to do so, despite the PAC money that has been invested by the STRS to back these candidates.

As a result, I urge you in the strongest of terms to oppose these bonuses and to more vigilantly protect my savings and those of my fellow contributing members of the Ohio State Teachers Retirement System.

Sincerely,
William J. Stewart
Business Dept. Chair
Fairfield City Schools
Fairfield, OH 45014