STRS Flashback - 1 year ago - Dennis Leone to the STRS board and Michael Nehf

From John Curry, September 6, 2010

From: Dennis Leone
Sent: Sunday, August 16, 2009 9:55 AM
To: 'Board'; 'Nehf, Mike'
Subject: Everything is NOT really "on the table"

Board – I write this in my last day as an elected STRS Board member. Much has been written over the past several months how “everything is on the table” pertaining to potential reductions to address future pension solvency concerns. Here is the truth: Everything is NOT on the table – at least as such pertains to the STRS staff and the STRS Board majority.

While the board annually takes action to require retirees to pay more for health insurance, while the total assets at STRS have dropped a staggering $27.4 billion since 10-31-07, and while the board soon will be making far-reaching legislative recommendations to reduce retirees’ COLA, to increase the contribution rate of active teachers, to increase the contribution rate of employers, to eliminate the ill-advised 35-year/88% rule, to calculate final average salaries on the top 5 years instead the top 3 years, and to raise the minimum age of retirement, here is what is NOT “on the table” for consideration:

1. The staff has refused to recommend --- and the board has refused to take action -- to require that STRS employees pay more for their health insurance which is provided by pension system funds.

2. The staff has refused to recommend – and the board has refused to require – that STRS employees receive a base wage reduction. Yes, a few months ago the board finally and reluctantly took action (with split votes) to implement a wage freeze, to require a 40-hour work week (changing the long-standing 37 ½-hour work week), to suspend bonuses for the second half of fiscal year 2009, to eliminate bonuses completely in future years when STRS experiences a stock market loss, to require a minimum asset threshold of $65 billion for investment staff members to be eligible to achieve their bonus potential, and to remove certain staff positions (i.e. real estate attorney) from the bonus plan completely . It deserves noting that ALL of these were initially rejected by both the STRS staff and the STRS board majority when they were first recommend many months earlier. The staff and the board felt they knew better, and the changes that finally occurred only after much ugliness and blood on the sidewalk. But don’t talk about anyone getting a possible wage reduction. After all, the staff and OEA-dominated board majority continue to believe that STRS won’t be able to attract the “best and the brightest” at STRS if we reduce wages or if we fail to give bonuses to investment staff. Never mind that the average BASE compensation for the STRS investment staff in fiscal year 2009 was $156,000. Bonuses come into play on top of that, even though the STRS Board provides staff with spectacular fringe benefits and a wonderful pension plan (through PERS) which are not the norm in the private sector.

3. The staff has refused to recommend – and the board has refused to implement – a true hiring freeze. Yes, the board has approved a “head count” freeze, but his is not the same as a hiring freeze. A “head count” freeze does not ensure savings. While I do not believe that the staff will be attempting to “beat the system,” it is a fact that two half-time employees can cost more than one full-time employee -- with the FTE “head count” remaining constant. The STRS executive director has pledged to reduce staff, but the board has rejected the notion that formal action is needed to require it. I made such a motion and it failed. Everything seems to be built on trust, even though the staff and board members personally and collectively violated this trust in past years by wasting pension system money in many, many different ways.

4. The staff has refused to recommend – and the board has refused to require – that STRS employees have an unpaid furlough of any kind. Bowling Green State University announced on August 14 that 500 employees there will be receiving an unpaid furlough during the 2009-10 academic year. Many state offices in Columbus are currently doing the same. Not at STRS however. In fact, there even are employees at STRS who still receive additional compensation yearly with “service awards” as well as annual cash reimbursements for unused sick leave.

5. The board flat-out rejected a motion I made a few months ago to place a moratorium on board member out-of-state travel. In other words, it is okay to reduce things for the membership, but not for the board members themselves. This will cause happiness for board member Tim Myers, who spent thousands and thousands of dollars on out-of-state travel “for training” during fiscal year 2009. Myers is the reincarnation of Jack Chapman on the STRS Board. Myers also publicly stated that the board “broke a promise” when bonus checks were suspended for the investment staff in January (Myers voted no), even though the STRS employees do not have individual contracts, and even though said employees were told very clearly a year in advance, in writing, that the board could suspend or modify the bonus plan at any time for any reason. At the June board meeting, Myers even made a motion (which failed 5-4) to stop me from discussing the bonus question for fiscal year 2009. This provides a snapshot for what STRS is facing in the future with the OEA-dominated board.

The Bonus Embarrassment: At the September Board meeting, the STRS will vote to approve bonus checks totaling $3.4 million for the first half of fiscal year 2009. This means simply that in the past two fiscal years, even though STRS stock market returns have been a dismal -27.1%, a total of $9.4 million will be handed out in bonus compensation. Can you believe it? The board majority didn’t listen in the fall of 2008 when members repeatedly expressed their outrage. No sir. The board majority felt it knew what was best for STRS and felt it knew the pulse of the STRS membership. They told me so, publicly, over and over again. In fact, as two members publicly stated, STRS needs to give bonus checks to staff even when we lose money to provide “an incentive for them to perform at their highest level.” The board could have stopped the bonus plan dead in its tracks one year ago, but did not. The vote to approve $3.4 million in bonuses in September for the first half of fiscal year 2009 is terrible mistake. But we will lose so much more through litigation, Tim Myers wrote recently, if the board does not give the bonuses. This is a cop-out in my eyes, given that a responsible STRS board and STRS staff should have stepped up to the plate to do the right thing a year ago – given what everyone else has gone through and what will be going though in the near future.

Without a doubt, the STRS Board’s recommended pension solvency plan for the Legislature will include a provision to raise the contribution rate of both active teachers and school boards. A proposal to raise the school boards’ contribution – given the reality of the state’s economy – makes no sense whatsoever, and every lawmaker I have spoken with knows this. So what will happen? How will the final proposed bill come up with the dollars needed to replace an increase in the school boards’ contribution rate (which will likely be stripped from or not included in the final proposed legislation)? You guessed it……..a harder hit on the retirees’ COLA and certainly not a harder hit on the contribution rate for active teachers. In other words, take away from those who have the least ability to earn more.

Dennis Leone
STRS Retiree Board Member
August 16, 2009