FLASHBACK -- 6 YEARS AGO -- Bonuses were also in vogue then!

From John Curry, January 31, 2009
A July 13, 2003 (Canton Repository) STRS Flashback...of course, then the OEA was firmly in control of the STRS Board and had been for years, weren't they? John

Click image to enlarge.

Controversy surrounds STRS’s awarding of bonuses

Canton Repository, July 13, 2003
By PAUL E. KOSTYU
Copley Columbus Bureau chief

COLUMBUS — The people who run the pension system for Ohio’s teachers got millions in bonuses for attending workshops, talking to parents and keeping spreadsheets of expenses.

The bonuses are just one of the controversies swirling around spending by the State Teachers Retirement System. Critics blast the payments as an example of excessive spending. The system paid nearly $19 million in bonuses to its investment and non-investment staff from 2000 to 2003. During that same period, health care costs for retired teachers skyrocketed, and the pension fund’s portfolio plummeted.

By comparison, the larger Ohio Public Employees Retirement System gives only its investment staff bonuses, and those bonuses totaled just $2.06 million from 2000 through 2002.

The controversy about the teachers system’s spending has led nearly 80 percent of Ohio lawmakers and Ohio Auditor Betty Montgomery to call for Executive Director Herbert Dyer to resign. The system’s board met for nearly five hours behind closed doors Thursday to talk about “staff performance, compensation and other terms and conditions of employment;” many think the discussion focused on the terms under which Dyer will leave.

Meanwhile, the teachers pension board has temporarily suspended all bonuses as it reconsiders its policy.

Documents from the last full year for which bonuses were paid — the fiscal year that ended in June 2002 — showed at least 42 supervisors reached 100 percent of their bonus goals. Records for another eight employees did not make it clear if goals were met.

Of the 15 who did not meet all their goals, 10 were in the 90 to 96 percent range. For example, Damon Asbury, deputy executive director of administration, reached 96 percent of his goals and got a $49,728 bonus. That was on top of his $148,000 salary.

Shun Koizumi, supervisor of the copy center, was the least successful at reaching planned goals, 60 percent, but that was good enough for a $1,367 bonus tacked onto a $45,580 salary.

According to retirement system officials, the performance-based incentive program was set up so organizational goals could be achieved cost effectively.

“The goals are to expand beyond the associate’s regular assignments, representing additional initiatives and increased workload outside the normal scope of responsibility,” says one document.

Each employee develops and assigns a weight to his or her own goals. They’re approved by the employee’s immediate supervisor, the deputy executive director overseeing that department and Dyer.

At the end of the year, the employee reports whether he or she met the goals and by what percentage. That assessment is approved by the same three officers.

Teachers retirement system officials say the program is one reason member satisfaction with their pension system exceeds 95 percent.

What are some of the bonus goals that were above regular assignments and workload?

• Fifteen percent of Jodi L. Wells’ goals as director of the system’s child care center was to “continue to maintain open communication between parents and staff.”

She also was supposed to “stay abreast of latest research dealing with the Information Technology field as it relates to children’s use.” In other words, she read about Internet filters and talked to parents and staff about them.

Wells also was to “maintain awareness of budget and continue to explore options to increase efficiency.” To reach that goal, she created spreadsheets and monitored monthly spending.

All told, Wells achieved 93.8 percent of her goals and got an $8,639 bonus on top of her $61,400 salary.

• Carol Hamilton, supervisor of food services, achieved 100 percent of her goals in 2001-2002 and received a $1,965 bonus. Her goals for 2002-2003 were nearly identical. For example, in both years, four of her six goals were maintaining her dietary manager’s certification, performing employee safety training, assuring technical training for the food service staff, and making sure the staff was certified.

• To help earn his $13,462 bonus as the supervisor of business systems analysis, David Donithen participated in “a minimum of three formal activities to enhance technology and/or investments related knowledge.” In doing so, he met 20 percent of his incentives for the 2001-2002 fiscal year.

For the fiscal year that ended June 30, Donithen proposed going to two formal activities, counting toward 15 percent of his bonus.

Not reaching the goals has no effect on regular salaries or cost-of-living raises that supervisory staff receive.

According to the system’s spokeswoman, Laura Ecklar, any employee who gets a negative annual review or a “needs improvement” notation is not eligible for a bonus.

The number of non-investment employees eligible for bonuses increased from 46 in 2000 to 66 this year.

Retirement system officials and their consultants defended the incentive plan to the Ohio Retirement Study Council last week.

Lawmakers questioned why the STRS bonuses are “so vastly different” than those at the state’s four other pension funds.

Deborah Scott, chairwoman of the teachers’ board, said the program is based on the advice of consultants, Dyer and staff, who said the bonuses generally follow those at similarly sized pension funds in other states.

But council Chairman Sen. Lynn Wachtmann, R-Napoleon, called the bonuses “extraordinary” and said he was “extremely upset” by “a lot of misjudgment.”

“Help me out here,” said Rep. John Boccieri, D-New Middletown, addressing Peter Gundy with Buck Consultants, who was hired by the pension fund. “How do you justify bonuses for the copy center supervisor, the day care director and the maintenance supervisor?”

Gundy said his firm did not address incentives for those positions when it advised the board.

Boccieri asked if his firm consulted the retirement system members about the bonus policy.

“No,” Gundy responded.

STRS Retirement Board Retreat, Day 2

Friday, Jan. 30th, 2009
Retreat location: STRS Bldg., 7th Floor
Notes by Mary Ellen Angeletti

A.M. Session: All Board members were in attendance except for Steve Puckett and Tai Hayden. A summary of Board discussions from Thursday's session regarding the application of governance principles to section 3307.15 was shared:

Top Three Priorities:
...1. Determine what are policies versus administrative procedures and memorialize these decisions
...2. Focus on investments, including general education, asset allocation, investment strategies and risk
...3. Learn how to deliberate and disagree in a constructive manner

Other Items Noted (in no particular order):

...• Be prepared for discussion by doing "homework" ahead of time

...• Be sensitive to stakeholders' positions

...• Continue to pay reasonable expenses to run the system efficiently without starving the budget

...• Think openly & look at things through the eyes of your peers

...• In Board deliberations, clearly articulate understandings of expert advice & how that advice informs Board member's opinion

...• Question the current nature of recommendations. Be inquisitive

...• Create a checklist of information sources to use in Board decision-making

...• Look at the possibility of using more than one consultant in some areas

...• Open up channels of communication with other public pension board members, use other systems as a reference

...• Use "Fiduciary Impact/Member Impact" grid

...• Anticipate (contingency planning)

...• Form an ad hoc board governance committee

...• Continue education about fiduciary issues/continue to use Ian Lanoff

A summary of Board discussions from Thursday's session regarding state and federal relationships was shared:

Top Three Priorities of this topic were:
...1. More legislative contact by Board members in concert with Governmental Relations staff
...2. Contingency planning
...3. Continue membership in coalitions

Other Items Noted (in no particular order):

...• Be visible at ORSC meetings

...• Stay informed of pertinent legislation (state & federal)

...• ID positive issues for member action

A summary of Board discussions from Thursday's session regarding fiduciary and financial contingency planning was shared:

Top Three Priorities of this topic were:
...1. Identify issues & trends
...2. Begin using a disciplined, long-term, documented contingency planning process [NOTE: Dr. Leone offered that this topic was not adequately discussed in the past. Conni Ramser felt it was adequately discussed]
...3. Determine & implement appropriate communication strategies

Other Items Noted (in no particular order):

...• Receive education around issues

...• Think and act in best interests of members

...• Be flexible (things change)

...• Have an open mind

...• Encourage constructive discussion

Following the sharing of the summary above, Steve Mitchell, deputy executive director of investments, and Matt Downie, investment policy officer of investments, made a presentation of corporate governance and shareholder activism and the role of STRS Ohio. This presentation was based on previous discussions with the Board in the mid-1990s when a decision was made to maintain an aggressive proxy voting policy. The discussion also was based on previous discussions with the Board in the fall of 2002 at which time the Board discussed hot topics (IPO allocations, investment protection principles, mutual fund proxy voting disclosure, & tax havens) and made a decision to address these issues in the proxy voting policy, letters, and other policies. STRS current approach to corporate governance & shareholder activism was discussed next. It consists of:

...1. STRS Voting Proxy Voting Policy:

......a. aggressive proxy voting

......b. semiannual proxy voting review/presentation to the Board

......c. annual proxy voting policy review
...2. CII Membership-Council of Institutional Investors is a nonprofit association of public, union and corporate pension funds with combined assets exceeding $3 trillion. Member funds are major long-term shareowners with a duty to protect the retirement assets of millions of American workers. CII has 140 members.

......a. semiannual conferences

......b. newsletters, primers & teleconferences

......c. CII direct engagement focus list process

......d. CII policies committees/council letters

......e. access to information about how other members address issues like proxy voting, corporate governance, etc.
...3. CFA Institute Membership:

......a. corporate governance manual:

.........• corporate ethics, standard code of conduct

.........• evaluation standards for executive compensation

.........• guide to environmental, social & governance factors for listed companies

.........• shareowner rights
...4. STRS Ohio Securities Litigation Policy (There have been 353 security litigations)
...5. Iran & Sudan Divestment Policy & Program
A discussion ensued regarding the effectiveness of corporate governance efforts on long-term stock performance. There is no evidence of better long-term performance based on governance scores. Dr. Leone said that STRS has an obligation to protest the current practice of bailout money being used for bonuses, trips, etc. by companies in which STRS invests. He then asked if there were any triggers which signal that a company is guilty of abuse of governance principles. He used the example of Fannie Mae. Mr. Mitchell reminded us that STRS is active in proxy voting and audits are conducted. Conni Ramser referred to the book each member has which includes the voting records. Dr Leone took issue that STRS is not critical enough of companies with whom we have investments. Conni asked Dennis to what extent he felt that STRS should be involved. "Should we add additional staff?" Terri Bierdeman offered that at present, discussions center on the stimulus package, regulatory reform of banking, and a strengthened FCC is favored. Bill Neville, STRS counsel, gave a summary of the suits brought by STRS against some of these companies which has brought in billions of dollars. STRS is very active in changing audit procedures, removal of company board members, etc. Recommendations & options involve being active in corporate governance and shareholder activism which ensures that the shareholder's right to vote is used (proxy voting). STRS is also engaging with other companies to change the way they act (engagement). Mary Ann Cervantes wanted the Board to consider a proposal to establish a committee to address corporate governance. Mr. Brooks said STRS might be very active and/or get other entities to join with STRS. However, STRS is not going to issue shareholder warnings. Regina Burch asked about CalPERS aggressiveness and the fact that they seem to have the ear of senior management of companies. A summary of the Board discussions of corporate governance and shareholder activism and the role of STRS followed:

Top Three Priorities:
...1. Determine costs/benefits of playing a more active role in corporate governance reform
...2. Explore forming a Corporate Governance Subcommittee
...3. Remain involved in collaborations & coalitions that are focused on corporate governance reform

Other Items Noted (in no particular order):

...• Communicate corporate governance reform successes to membership

...• Identify & review "hot button" issues

...• Monitor where STRS Ohio is in relation to other pension plans (i.e. comparison charts)

...• Continue reviewing proxy voting policies

...• Continue aggressive litigation

...• Remember that fiduciary duty trumps concerns about such issues as tobacco and Iran (but not fraud)

...• Don't be reluctant to address corporate problems because of "We're in this for the long haul"

Following a mid-morning break, Laura Ecklar, Director of Communication Services for STRS, presented an overview of STRS public relations. She began with a definition: "Public relations is the management function that identifies, establishes, and maintains mutually beneficial relationships between an organization and the various publics on whom its success or failure depends." "Publics" was defined as:
...1. membership (actives, retirees, candidates running for Board members)
...2. legislators
...3. staff/associates
...4. employers (school boards)
...5. Board members, new Board members
...6. general public

She described the process of public relations with a circular model composed of 4 parts:

...1. situation analysis (research)
...2. develop strategies
...3. talking actualities & communication
...4. evaluation (research)

To answer the question of how does her department know if their P.R. is working, she cited that the research provides the answers. Examples would be the STRS surveys. They indicate:

...a. approval of fund management

...b. health care is IMPORTANT

...c. improvement in a lot of Dr. Leone's critical issues

...d. Board votes & takes action & STRS P.R. reports that action

...e. not all Board members agree but the Board must speak collectively

...f. Board members are following fiduciary responsibilities Current trends are pocketbook issues concerning health care and service credit.

Mr. Brooks said, "Corporate P.R. tends to be positive." Ms. Ecklar offered that good corporate P.R. tells the good and the bad news, is transparent, tries to be proactive, and gets out in front of issues. She used the example of the Fordham report and the way in which STRS P.R.'s fast action (informing members) took the steam out of a big media rush. She mentioned that one case study (the Iran mandatory divestment issue) came very quickly. In this case, all of the pension systems were impacted. The STRS call center helped as well as media coverage and in the end, the issue was NOT mandated. She offered that the best P.R. is when the Board does a good job. Dr. Leone praised the quality of STRS publications. Dr. Leone expressed criticism of STRS' P.R.too. He said that STRS public relations must start admitting when the Board and/or staff is wrong. For example, he said in 2000, STRS said, "Nothing is wrong." Yet Herb Dyer had said, "The money here at STRS is ours to spend. Retirees need to go out to dinner less." Yet later he said that Dr. Asbury admitted that the staff was not reporting the information. He raised the issue of the 8 to 1 vote last March regarding handing out the bonus checks which was a mistake and was later changed. Yet STRS P.R. was unable to admit that a mistake had been made on this issue. Mr. Brooks asked, "How do Board members respond to members' inquiries?" He said that he is presently selectively responding to emails. He asked, "What is the Board member's role regarding inquiries, editorials in the paper, etc." Ms. Ecklar said that it depends on the individual issue. Then Dr. Leone asked, "What should I do if I see illegal actions by Board members?" He was told to address the issue to STRS legal counsel.

A summary of Board discussions of STRS Ohio Public Relations followed:

Top Three Topics:
...1. Assist Board members in how to interact with members (i.e., personal contact, correspondence, etc.)
...2. Make sure messages are transparent; develop a game plan for communicating long-term strategy reviews
...3. Maintain budget to support great quality of publications and documents

Other Items Noted (in no particular order):

...• Continue to encourage use of e-mails and recordings of meetings, particularly through monthly reminders

...• Inform the Board of pending issues (trouble shooting)

...• Stop acting as if the Board members are knowledgeable about legal and management issues when they are not

...• Be mindful of terminology

...• Be more informative about the totality of Board decisions

An Executive Session Lunch Break followed.

Following lunch, a Board self-assessment occurred in which there was consensus that they need to work on commitment, to engage in much more discussion, to encourage interaction, and to focus on fewer items.

The retreat concluded at 3 p.m.

Thank you, Congressman Tiberi

Kathie Bracy to Congressman Pat Tiberi, January 30, 2009
Subject: GPO/WEP

Dear Congressman Tiberi,

I am REALLY happy to learn that you have signed on as a co-sponsor of H.R. 235, the Social Security Fairness Act of 2009, which would repeal the Government Pension Offset and Windfall Elimination Provisions.

GPO/WEP is unfair and hurts many people, as you know. Many Ohio retired teachers worked second jobs (and paid into Social Security) to supplement their modest incomes. With modest pensions and shabby healthcare through STRS Ohio (which had promised us "the Cadillac of healthcare" in our retirement, which is why we put up with lower teaching salaries in the first place), many retirees are barely making it, yet they are being cheated out of their rightful income from Social Security.

Also, I wonder how many of our military are affected by the GPO through Troops to Teachers (http://www.ed.gov/programs/troops/index.html). In Ohio, I would venture to guess most of our military who go on to become teachers have no idea they will be heavily penalized when retirement time rolls around for them. They do not deserve this kind of treatment.

Thank you again for signing onto H.R. 235.

Kathie Bracy
Columbus, OH

Congressman Pat Tiberi signs on to repeal GPO/WEP

Congressman Pat Tiberi to Linda Meinelt
Date: Friday, January 30, 2009

Dear Ms. Meinelt,

Thank you for your communication regarding the Government Pension Offset and the Windfall Elimination Provision. I appreciate this opportunity to correspond with you.

After many discussions with residents of the 12th Congressional District, I became aware of the effect the government pension offset (GPO) and windfall elimination provision (WEP) have on many of my constituents. Indeed, the current procedure for calculating the offset may produce unintended consequences, particularly for low-income public service employees. Additionally, those affected are often unprepared for a smaller Social Security benefit than they assumed when making retirement plans.

As you may know, H.R. 235, the Social Security Fairness Act of 2009 would repeal the Government Pension Offset and windfall elimination provisions. This legislation was introduced by Representative Howard Berman (D-CA) on January 7, 2009 and referred to the House Committee on Ways and Means. You will be happy to know that I have agreed to add my name as a co-sponsor to H.R. 235.

Thanks again for taking a moment to share your views with me. Please don't hesitate to contact me if I may be of additional assistance.

Sincerely,

Patrick J. Tiberi
Representative to Congress

Hats off to the new Illinois governor -- he knows it all starts with INTEGRITY

"Today is a beginning, a start. We are going to fumigate state government from top to bottom to make sure there's no corruption."

~ Illinois Governor Pat Quinn, on his first day in office after the ouster of former Governor Rod Blagojevich

January 30, 2009

STRS Retirees' Bonuses

1. Do more with less.

2. Eat out less often.

3. Don't get sick.....stay out of the hospital.

4. Skimp on your medications.

5. Your check's in the mail....even though it doesn't always arrive on time.

Mr. Nehf responds to Tom Curtis

From Michael Nehf, January 29, 2009
Subject: RE: 012909 Curtis To Nehf, A Time To Reconsider Revisited

Mr. Curtis,

I appreciate your email. It is my expectation that the Board will be addressing this matter at its next meeting in February.

Sincerely,

Mike Nehf

These pre-65 aged Illinois educator retirees got irritated....then, they got an attorney!

From John Curry, January 30, 2009

Teachers' attorney says appeal costly
surbabanchicagonews.com
January 30, 2009
By DAVID SHAROS For The Sun

A lawsuit filed on behalf of 106 retired teachers from Glenbard High School District 87 has resulted in a judgment worth more than $120,000 to be paid to the plaintiffs, based on a ruling by DuPage County Circuit Court Judge Stephen J. Culliton.

On Jan. 22, Culliton ruled that the money be awarded as compensation for the district's failure to honor provisions of three prior collective bargaining agreements that would provide health insurance coverage for early retirees until age 65. Problems between the district and its former employees escalated quickly after the Glenbard District announced in June 2007 that it would require all retirees pay a portion of those costs.

Attorney for the plaintiffs Jeffrey Kehl said the matter was a clear breach of the contracts.

"The retirees sued the very next month, claiming that their right to paid insurance under the prior contracts should have been honored, while the district asked immediately for a dismissal, claiming there was no standing since the contracts had expired," Kehl said. The district's motion was dismissed.

Kehl said the issue was not tried not as a class-action case because each plaintiff would receive compensation according to his or her unique circumstances, including a variety of PPO or HMO health plans. Enrollment months also varied from teacher to teacher. Financial compensation, Kehl said, could vary from as much as $1,200 to as little as zero.

Kehl admitted that most of the 18 months of his efforts have been provided pro bono.

"The teachers have paid some of my fees, but they are far and away ahead of the game at this point," he said. "My view was that these people had been treated unfairly, and I think the district thought that no one would take them to court. The principle carries the day on this, as far as I'm concerned."

Since the January judgment, the district has filed an appeal. Kehl said the matter will likely be tied up in court for as much as a year before the appellate court decides whether to hear the case. Meanwhile, the costs to the district are mounting.

"In addition to the legal fees they'll be paying, my clients will continue to receive 6 percent interest on their money for as long as this drags out," he said. "I see this as a complete waste of time on the district's part. I don't see any way they'll come out of this."

Ron Molek, assistant superintendent for Human Resources, told The Sun this week that he would not talk about litigation because it is under appeal. Molek did clarify the District's position, however, saying that the retired teachers were offered options.

"Teachers could have taken the Teacher Retirement System's health insurance program known as TRIP [Teachers' Retirement Insurance Program] and paid nothing, or they could elect to stay with the district's insurance program and pay what a regular teacher pays," Molek said.

"We felt we gave the teachers a fair choice. Their point is that they shouldn't pay for the district insurance because of the contracts that have now expired. We feel the time to address that issue should have been done when the new contract was being drawn up."

Molek also said he believed it was fair to hold the judgment money in escrow until the appeal process is over.

Mary Ellen Angeletti: STRS Board Retreat, Day 1

STRS Retirement Board Retreat
Day 1, Thursday, Jan. 29th, 2009
Location: STRS Bldg. 7th Floor

A.M. Session: Welcome and Opening Comments All Board members were in attendance except for Tai Hayden and Steve Puckett. Staff members who are in charge of departments were also in attendance as well as legal counsel and the Executive Director, Mike Nehf.

The Retreat Facilitator was Ed Gaydos (who had participated in this capacity for past STRS Retreats) who provided the agenda overview and explained the ground rules for the retreat.

The Retreat agenda began with Ed Gaydos leading a discussion of Board governance principles. This was a refresher overview of a Board member's job in light of governance structure and roles, of competencies and personal attributes, and of delegation of responsibilities. In other words, what is a Board member's job, what do Board members need to know, and how should Board members spend their time. The governance structure was explained as a pyramid with the Board at the top, the Executive Director in the middle, and the STRS staff at the base. At this point, Dr. Leone made the point that he felt the stakeholders (like stockholders) should be at the top of the pyramid, especially now when so many boards of trustees (Wall Street, other businesses) are experiencing fraud, greed, illegal use of funds, etc.

The roles of the Board were explained as having three parts:
...1. Long-term strategy involving a sustainable fiduciary plan with 1 to
...3 year objective, and which includes the welfare of ALL members.
...2. Executive director
...3. Oversight which includes policy and metrics (looking at the numbers).

The roles of the Executive Director were:
...1. Manages the operation
...2. Representative to the stakeholders
...3. Link between the Board and the staff

The roles of the STRS staff were explained as:
...1. Executes daily operations
...2. Monitors legislative, economic and professional issues
...3. Advises the Executive Director and the Board

It was pointed out that the STRS Board member's role receives the greatest impact of decisions made. The staff 's role provides technical expertise, knowledge of the operation, and time in operation. The Executive Director's role encompasses all of these efforts.

Competencies and personal attributes were described as what Board members need to know (the "what" and "how" of competent work conducted in a culture which provides results). What do Board members need to know and how to conduct themselves. The "what" was described as having a basic understanding of:
...1. modern portfolio theory (asset allocation)
...2. diversification principles
...3. basic financial analysis
...4. fundamental accounting principles
...5. basic features of STRS Ohio benefit programs Board members were reminded that they cannot delegate basic competencies since they come with the job. They are the job.

The "how" was described as a positive work culture which is created when trustees are . . .
...1. loyal to members as a whole
...2. inquisitive
...3. willing to devote time and attention
...4. civil and constructive in debate
...5. cooperative in solving problems

Delegation of responsibilities was described as:
...1. putting work where it can be done most efficiently and effectively
...2. ensuring that the Board can focus on its primary role

Gaydos emphasized that Board time priorities are driven by its two major obligations:

...1. welfare of members as a whole
...2. fiduciary soundness of assets He concluded with the reminder that governance means:
......a. know the job
......b. do the job
......c. play nice

Next on the agenda was Board governance training led by Ian Lanoff of the Groom Law Group which represents public employee pension and welfare benefit plans to corporations, institutions, labor unions, etc. He is fiduciary counsel to several giant public employee pension funds.

He explained that the basic fiduciary rules found in the STRS legislation is derived from the federal Employee Retirement Income Security Act of 1974 known as ERISA. He reviewed the wording of 3307.15 explaining that "prudence" means "common sense". There is a "Prudent Expert Rule" that says that when making investment decisions for multi-billion dollar funds, a fiduciary is held to the standards of a prudent individual with experience managing assets of the same magnitude. To carry out his/her duties prudently, a fiduciary "has a duty to seek independent advice where he/she lacks the requisite skill and experience".

Lanoff added that under the law, a Board member must be able to defend himself/herself for his/her votes. The Board member is liable. He added that if a Board member votes "no" on an investment vote, and the majority of the Board votes "for" it and there are problems as a result of the vote, ALL Board members are liable. While a fiduciary may rely on advice of independent experts, he or she may not blindly do so as the fiduciary is not relieved of the obligation to exercise his/her own judgment in making a decision.

For Board members to gain more knowledge, Lanoff suggested obtaining training and complimented OSU resources. He reminded Board members about the stringent laws of accepting gifts from vendors and suggested Board members have STRS pay for expenses. He emphasized that Board members cannot delegate authority to the STRS staff, to consultants, or to investment managers/advisors. Board members must understand decisions.

Mr. Lanoff reminded Board members that the U.S Supreme Court concluded that while performing trust business, they may wear only one hat - as trustee - and may not at the same time wear a second hat as a representative of the union or employer who appointed them. Examples were:
...1. No fiduciary duty is owed to a group of union members or constituents.
...2. No fiduciary duty is owed to participating employers
...3. No fiduciary duty is owed to the Legislature
...4. No fiduciary duty is owed to the Governor
...5. No fiduciary duty is owed to the taxpayers

This governance training session concluded with a discussion of current problems affecting public funds such as divestiture, overseas investments, alternative investments, changing investment approaches, new ways to look at risk, etc. Also discussed was what costs have been found to be unreasonable such as the bonuses for the investment staff. It was mentioned that the Board has not received much guidance on what is reasonable & unreasonable costs. Dr. Leone cited the example of eight STRS employees who were laid off last year and were given $8,000. each and free health care for these employees and their families. Bill Neville, STRS counsel, said that the $8,000. was a severance payment and that the 8 employees paid for their own health care. Dr. Leone said, No". It was also mentioned that these employees agreed not to sue STRS.

Lunch break followed. Dr. Puckett arrived for the afternoon session and Dr. Leone had to leave.

Following lunch, the agenda resumed with Terri Bierdeman (director of Governmental Relations for STRS) and Marla Bump (assistant director of Governmental Relations) providing an overview of current approaches to state and federal relationships, specific programs and their estimate of what is on the horizon. Their objectives were described as:
...1.Keeping the Ohio Revised Code 3307 and the Board administrative rules current
...2.Keeping the Retirement Board, Executive Director, and staff informed of political issues, trends, and legislation
...3. Advancing the Retirement Board's legislative policy initiatives
...4. Fighting policy & legislative initiatives harmful to STRS Ohio
...5. Maintaining positive relationships with legislators, policymakers, and coalition network
...6. Providing timely services to stakeholders
...7. Improving departmental efficiencies.

Terri and Marla emphasized particular challenges to these objectives:
...1. term limits of legislature & staff
...2. lack of positive issues (tight budgets)
...3. current crisis (state/federal budgets)

How to address these challenges:
...1. educating the many federal coalition associations
...2. orientation sessions by the 5 pensions funds for legislators explaining defined benefit, divestiture, etc.
...3. scheduling appointments for personal meetings with every legislator
...4. linking key relationships
...5. positive communications which emphasize that our defined benefit plan is a good one and we want to hang on to it . . . using our HCA (health care advocates) to help with this

...6. providing legislative updates to promote awareness to membership and to engage membership

...7. positive communications are MOST important

Next Aristotle Hutras, director of the Ohio Retirement Study Council, provided a legislative update. He emphasized that the present climate is tough and will become tougher. He warned that the threat to the defined benefit is the defined contribution. He explained that the defined contribution would solve a lot of the legislator's problems. He said ballot issues are also an ongoing threat. He also reminded us that the ORSC has always been concerned with the next GENERATION rather than the next ELECTION. New members of the ORSC are to be announced in a week. Regarding the pros and cons of re-introducing HB 315, he said:
...1. he thinks we should re-introduce it
...2. the 14% which the school boards pay could be reduced substantially by substituting the defined benefit plan with the defined contribution plan. . . this is a real threat
...3. retirees must be patient and allow the STRS pension fund to return to higher levels or increase the years of smoothing

Following a break, Mike Nehf, Executive Director, explained a model for fiduciary and financial contingency planning for the Board's consideration. This model was the result of review of minutes from previous Board and staff discussions. These discussions were categorized around 3 main areas: Assets, Liabilities, and Operational Factors. It was also noted that at the 2007 Retreat, contingency planning was an agenda topic and during that discussion, it was noted that a catastrophic event cannot be timed. Once such an event happens, a large and immediate market reaction takes place rendering any investment contingency plan moot. Implementing a conservative investment asset allocation in anticipation of a catastrophic event would be very costly for STRS because of the opportunity cost of being "out of the market". It was again reiterated that a diversified portfolio provides the best long-term contingency plan for short-term market fluctuations.

The proposed contingency planning process model would work as follows:
...1. An incident/trend is identified to the Board which is then discussed in an open forum.
...2. The Board determines if action or additional discussion is required.
...3. At the direction of the Board, a Review Team (or committee) is assembled to study the incident's/trend's impacts.
...4. A report is developed & presented to the Board as a whole at a formal meeting.
...5. The Board accepts or rejects the report & communicates a decision. This proposed contingency planning model was positively received by the Board members.

The session ended around 4:30.

Mary Ann Cervantes: A response to Tom Curtis re: Black Friday

From Mary Ann Cervantes, January 29, 2009
Subject: RE: 012909 To Cervantes, Re Black Friday

Hi Tom,

I delayed response to you until I was sure of the agenda. The Board will address the issue at the February meeting. I am sorry about the delay.

Mary Ann

STRS Retreat to be held January 28-30

From STRS, January 21, 2009

PUBLIC MEETING NOTICE

A special meeting of the State Teachers Retirement Board will be held on Jan. 28, 29 and 30, 2009, for the purpose of a planning retreat and any other matters that may arise. The meeting will be held at the STRS Ohio offices in Columbus, Ohio.

The business agenda will begin at 9 a.m. each morning.

Bonuses....'Let the talent bolt. Hell, encourage them to bolt!‏'

Save the Wall St. Bonuses for Real Talent
by: Rick Newman
SeekingAlpha.com
January 29, 2009

Here’s another Wall Street bromide that needs to be retired: The need to pay lavish bonuses to retain the best talent.

Let’s define our terms here: In sports and the arts, the most talented performers are those with unrivaled raw abilities. They don’t always win or make money, but they set the individual standards that others aim for. And often, they delight.

There’s a lot of talent in business, academia, and the military. These are leaders who motivate others to do their best work, find ways to make strangers productive as a group, and create something valuable out of a bunch of raw material.

[See when the job and housing markets might finally bottom out.]

On Wall Street, the “talent” doesn’t come up with better ways to serve customers, or solve vexing problems, or create something new that people can use. Those deemed “talent” are the rainmakers: The ones with the most lucrative clients, the biggest book of business, the most profitable deals. This so-called talent is richly rewarded with bonuses, to make sure the fees they generate keep flowing.

Merrill Lynch just paid $4 billion in bonuses to its top executives – about $1.2 million apiece, on average – as a reward for …. helping Merrill lose $27 billion in 2008. If this seems outlandish, apparently you just don’t get it: At Merrill, there’s an outcry because bonuses are down one-third from the year before.

Most of the other big Wall Street firms that haven’t gone bankrupt paid bonuses in 2008. The average bonus was about $112,000. Bankers who survived the Bear Stearns flameout and went to work for JP Morgan Chase (JPM), the new owner, got especially big bonuses, even though $29 billion in government funds helped ink that deal. Other firms that got government aid, like Goldman Sachs (GS) and Morgan Stanley (MS), paid nice bonuses, too.

[See why Obama's bailouts will look like Bush's.]

If your bonus wasn’t quite as juicy, and you’re feeling a little miffed, let me explain. The venerated bonus, you see, is long-standing practice on Wall Street. Rainmakers aren’t motivated by their puny monthly salaries, they’re motivated by a fat year-end payout that could be 10 or 50 times their base pay. It’s bad enough that bonuses fell by almost 40 percent this year, for those who still have jobs. It would be a terrible shame if an international financial catastrophe or the threat of insolvency interfered with the way these eminently talented moneymakers earn their living.

The presumption, of course, is that without these windfall payouts, the Wall Street talent would bolt for other firms, bringing their rich clients with them. So without their best performers, firms like Merrill would be left with … what? Only their worst performers? And then what? Losses of $50 billion? $100 billion? More government triage? Should firms this fragile even be in business?

Maybe not. So here’s a fresh idea: Let the talent bolt. Hell, encourage them to bolt.

What good is a roster of highly paid All-Stars if the company loses money – and can’t even survive without a federal bailout? (Answer: About as much good as the third-place New York Yankees in 2008.) If the rainmakers became free agents, any independent firm that’s not milking the government should be free to pay them $10 million, or $100 million, or whatever it wants for the riches they’d return to shareholders.

[Yes, there's a bright side to the bank bailouts.]

But would they? Let’s let the famed free market determine that. There are 20,000 unemployed bankers out there. Maybe a few cheap hires from the ranks of the Bear Stearns and Lehman Brothers (LEHMQ.PK) leftovers would generate more return than one prima donna from Merrill Lynch.

Besides, if the multimillion-dollar bankers are so talented, they ought to be able to go start their own Wall Street firms, from scratch, without the overhang of toxic securities issued at the drunken heights of the housing boom. Maybe they’d start up new banks that will actually lend money. If they're really talented, maybe they'd go into other fields and solve some of the world's biggest problems, like cancer or petroleum dependence or poverty.

So call their bluff: No bonuses. If you don’t like it, go find a better deal someplace else.

At bailed-out banks like Citigroup (C), Bank of America (BAC) (which now owns Merrill), GMAC (GMA), American Express (AXP), and dozens of others, the government could invoke its preferred shareholder status to insist that dearly departed rainmakers be replaced with team players: Capable executives who bear responsibility not for their own enrichment, but for the company’s revival. If they accomplish that, pay them lavish bonuses. And set a new standard for what constitutes talent.

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Shirlee Zerkel to Mary Ann Cervantes: Please answer the Black Friday questions for us

From Shirlee Zerkel, January 29, 2009
Subject: Please answer the questions

Dear Mary Ann:

I am asking you to answer the questions about Black Friday that Tom Curtis has asked you in a very recent email. Earlier I e-mailed you some of the same questions and never really got any answers. All you wanted to do was call me and talk about what my concerns were.

Sincerely,
Shirlee Zerkel

Tom Curtis to Michael Nehf re: Cutting costs at STRS

From Tom Curtis, January 29, 2009
Subject: 012909 Curtis To Nehf, A Time To Reconsider Revisited

Hello Mr. Nehf,

I wish to thank you for agreeing with Dr. Leone, that the suspension of the PBIs was necessary at this time and the right thing to do.

It was my hope, that when I wrote to you in late December 2008, I would open a line of communication with you. With all due respect, your response was very brief and far less then I had expected. You answered none of my questions.

In my December correspondence to you, I stated that in my opinion, "the lavish lifestyle, misspending practices and greed of the management and investment people of various enterprises have brought this country and the world into a financial crisis, one that I fear will loom for a long time. The effects have not even begun to be realized."

Well, the time has come where we are starting to see the fallout from the huge financial crisis laid at our feet, by greedy people not living within reality. Thousands are being laid off daily. Programs and people are being cut to reduce costs and increase the efficiency of the operation. What plans do you have to cut costs?

I will again emphasize to you, that this is a time to reassess your position as our director and to look at ways you can reduce the cost of operation.

A wage freeze, staff reduction, and other needed reforms that would cut costs are and will continue to be issues with the stakeholder.

Would you kindly address your current thoughts to me on these issues and other means are you considering in reducing costs?

Mr. Nehf, please remember, as I stated before, "We the stakeholders will be ever vigilant, not because we desire to be, but because the personal greed of our money managers has forced us to be."

Thomas Curtis

Tom Curtis to Mary Ann Cervantes: Questions re: 'Black Friday'

From Tom Curtis, January 29, 2009
Subject: 012909 To Cervantes, Re Black Friday

Hello Mary Ann,

Last month, I wrote you and asked for an explanation of how the board was going to handle the fact that Mr. Nehf, the STRS Executive Director, sanctioned a paid holiday to staff (Black Friday), when that day was not part of the agreed upon holidays listed in either board policy, or the employees benefit handbook.

In other words, he arbitrarily gave a paid holiday to staff, without the permission of the board and obviously at the expense of the stakeholders.

Your very brief response to my communication at that time offered no explanation. There has been a board meeting since that time, and you have offered no further response. Therefore, I find it necessary to write to you again concerning this issue.

Would you kindly address the following questions?

1. Did the board address the issue that the executive director arbitrarily provided staffs with a paid holiday that was not provided in the employee handbook or board policy?

2. If the board did address the above issue, what were the result of the boards' discussion and what action was taken?

3. If you did not address this issue, would you kindly explain why not, as I see this as failure of your duties as described in 3307.15 and in board policy?

Thank you for your timely response,

STRS Stakeholder,
Thomas Curtis

Looks like the Broad Street 'bonus elimination' had some company on Wall Street!

From John Curry, January 29, 2009

Wall St. Bonuses Fall 44%, Report Says

By REUTERS
New York Times, January 29, 2009

Wall Street firms slashed cash bonuses for New York City employees by 44 percent in 2008, as they reeled from record losses in the securities industry, New York State’s comptroller said in a report issued on Wednesday.

Bonuses fell to $18.4 billion from $32.9 billion in 2007, the largest decline ever and the biggest percentage drop in more than 30 years, Comptroller Thomas DiNapoli said. The size of the bonus pool is the sixth-largest on record, he said.

Losses from traditional broker-dealer operations of New York Stock Exchange member firms topped $35 billion in 2008, more than triple the record set a year earlier, Mr. DiNapoli said.

Meanwhile, Wall Street shed 19,200 jobs, or 10.2 percent, in New York City over the last 14 months, ending the year with 168,600 workers.

The declines reflect the souring of the global economy and credit markets, as well as the disappearance of the traditional Wall Street investment banking model.

What were the five largest Wall Street banks no longer exist in the form they began 2008. Goldman Sachs and Morgan Stanley became commercial banks, Bear Stearns was bought by JPMorgan Chase, Lehman Brothers went bankrupt and Merrill Lynch was acquired by Bank of America.

JPMorgan and the ailing Citigroup are also based in New York.

Lower bonuses also cut into tax revenue, at a time when Gov. David A. Paterson and legislators are trying to slash a potential $15.4 billion budget deficit over 14 months. Mr. DiNapoli said tax revenue could fall by nearly $1 billion in New York State and $275 million in New York City from lower bonuses.

The comptroller said the industry’s problems could worsen, despite an influx of hundreds of billions of dollars of taxpayer money from the federal Troubled Asset Relief Program.

“The industry is still continuing to write off toxic assets,” Mr. DiNapoli said in a statement. “It’s painfully obvious that 2009 will probably be another difficult year.”

Mr. DiNapoli said the average Wall Street bonus fell 36.7 percent, to $112,000 in 2008. The average decline was smaller than the drop in the overall bonus pool, he said, because the pool was shared among fewer workers as jobs were cut.