Thank you Jim Stoll, Paul Kostyu and the Cincinnati Enquirer for shedding some SUNSHINE on the bonus situation at STRS

IN-DEPTH: Fund manager bonuses questioned 
Rewarded even when state teacher fund falters

Over 38 million dollars in bonuses "given, not deserved" handed out to STRS investment staff since 2005. All for a performance that the Executive Director Mike Nehf says "the system will not be able to pay benefits in the future if changes are not made!"  We'll I've got news for you Mr. Nehf; you and the STRS Board should be the ones making the changes!  ELIMINATE THIS RIDICULOUS AND OUTRAGEOUS BONUS STRUCTURE!  If you read this and agree with me please email Mr. Nehf and the STRS Board. Board@strsoh.org  and  nehfm@strsoh.org

~ Jim Stoll, March 17, 2013

http://news.cincinnati.com/article/20130317/NEWS/303170069/IN-DEPTH-Fund-manager-bonuses-questioned 

Cincinnati Enquirer, Mar 17, 2013
By Paul Kostyu

(Please click all images to enlarge)

COLUMBUS — Fund managers at Ohio’s state teacher pension system took in nearly $4 million in bonuses last year – with many of the bonuses alone more than the governor’s salary.
Pension officials say that’s the cost of attracting the best fund managers, and experts say it’s not unusual. A fund spokesman said the educators whose salaries pay the staff are saving up to $100 million a year by not hiring outside firms to manage the funds.
But critics worry that the State Teachers Retirement System – the second largest public pension system in Ohio and 19th largest in the nation – is handing out big bonuses even when they’re not deserved. Ultimately, that money comes out of the retirement fund for the state’s nearly half million current and retired educators.
By contrast, the Ohio Public Employees Retirement System, the largest in the state and 11th largest in the country with a portfolio that’s $15 billion more than that of STRS, has half the investment staff and handed out smaller bonuses. Six-figure bonuses, however, were not unusual among OPERS top paid employees last year.
The STRS bonuses are being awarded by a pension fund that found itself the subject of a 2003 investigation for handing out bonuses to its investment and non-investment staff. Millions of dollars went to employees even when the system’s portfolio did poorly.
Questions about the bonuses come as critics across the country suggest pension systems should not be awarding high bonuses. In Ohio, teacher positions are being eliminated and school districts across the country have had to tighten their belts against state budget cuts and failed levies.

Informed of the recent STRS bonuses, state Rep. Kirk Schuring, R-Canton, told The Enquirer there are “legitimate questions” to be raised about the fund’s bonus structure, especially when the portfolio lost money.

Earning even more than the governor

Since 2005, the STRS paid out $38.6 million in bonuses to its roughly 80-member investment staff. OPERS paid $10.7 million, which does not include 2012.

That irks some who rely on the system, among them James A. Stoll, the athletic director of Sycamore Community Schools and a contributor to the pension. Stoll, who ran unsuccessfully for the STRS governing board in 2009, has been studying the bonus issue for more than three years.

“This really bothers me,” he said.

The money to pay those bonuses comes from investments and out of the pockets of the system’s 470,000 active, inactive and retired teachers – including 53,000 in Southwest Ohio – and ultimately taxpayers who indirectly contribute to STRS through taxes that pay educators’ salaries.

In Ohio, public school districts provide 14 percent of an educator’s salary for retirement purposes. Employees contribute 10 percent. Beginning July 1, the employee contribution climbs to 11 percent and adds another 1 percent each year through 2016 to eventually match the employer contribution.

The Enquirer found those who manage the STRS portfolio of $65.4 billion received bonuses in fiscal 2012 as high as 77.6 percent of their salaries. In other years, employees earned as much as 125 percent of their salaries.

Assistant Director of Investment Mary Ellen Grant, for example, received $512,842 in salary and bonus in 2011 as the top earner in the department. She oversees real estate.

Gov. John Kasich’s salary that year was $139,417, according to the state treasurer’s office.

OPERS’ top salary for 2011 went to Chief Investment Officer John C. Lane at $587,073.

One of the three other Ohio public pension systems, the School Employees Retirement System, also awards bonuses to its investment staff using a formula similar to that of the teachers’ pension.

“It sounds like a lot of money relative to what the typical Ohioan sees,” said William Even, a professor of economics at Miami University in Oxford. “At the same time, if they were to manage that kind of money for a mutual fund, they would probably be looking at similar kinds of salaries.”

In other states, a bonus backlash

The bonuses at STRS aren’t the only ones to raise eyebrows in state capitals.

In 2010, for example, investment staff in Georgia’s teacher retirement system got pay boosts of more than 35 percent, according to The Atlanta Journal-Constitution.

Last year, the California Public Employees’ Retirement System, the nation’s largest pension, froze executive pay and cut bonuses, but didn’t eliminate them, when investment returns dropped.

Other bonus skirmishes have occurred in Pennsylvania, Colorado, North Carolina, South Carolina, Massachusetts and Texas.

Stoll speaks out 

[Click here to see what Sycamore’s Jim Stoll has to say (video)]

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The other Ohio pensions

Ohio Public Employees Retirement System: The largest pension system in the state and the 11th largest public retirement system in the country. Assets $80.3 billion Bonuses: Based on a formula over three years. New employees may not be eligible.

According to Executive Director Karen Carraher, OPERS “has always been within the 30-year funding guideline” set by law. She said its investments earned 14.52 percent in 2012 and posted an annual investment return of 8.57 percent over the past 30 years.

Ohio Police and Fire Pension Fund: Assets: $12.9 billion all externally managed. Bonuses: None

School Employees Retirement System: Assets $11.2 billion all externally managed, but 10 investment staff manage the managers. Bonuses: Based on a three-year formula.

The pension system came under fire from legislators in late February for approving the travel of three board members to a convention in Hawaii, according to Gongwer news service.

Referring to the 2003 investigation of STRS, state Rep. Lynn Wachtmann, R-Napoleon, said, “I am not going to go through this crap again with another board that’s spending their members’ money. Do they have any clue that some of us are very, very unhappy about it?”

Highway Patrol Retirement System: The smallest of Ohio’s public pensions systems does not have in-house investment staff, but does have a chief investment officer. Assets: $720 million.

Winning and losing at STRS

The STRS investment staff rarely does day-trading primarily because of the high risk. But on May 18, 2012 it used $114 million to buy Facebook stock (2,175,000 shares) at $38 per share on the day the company went public. STRS broke even on a strategy that required trading Facebook nearly minute-by minute. On paper, however, the investment has been a money loser because STRS continues to hold stock in the company and that stock declined in value significantly since May. Here’s what happened:

11:30 a.m. 1.5 million shares sold at $42 per share.
11:32 a.m. 300,000 shares sold at $40.50.
11:36 a.m. 50,000 shares sold at $40.
11:43 a.m. 50,000 shares sold at $41.
1:50 p.m. 150,000 shares sold at $39.59.
3:35 p.m. 125,000 shares sold at $38.87.

The stock reached a high of $45 that day, but STRS did not sell any shares at that price. Had it sold all of the shares at 11:30 a.m. instead of waiting, it would have nearly doubled its profit.

Still, the pension system hung onto and purchased more shares. It continues to hold shares in Facebook, waiting for its stock price to climb from its current $27.72 per share.

STRS spokesman Nick Treneff said the pension fund broke even so far though there’s a “paper loss” of $5.6 million because stocks are still be held. Paul Justice, director of fund research at Morningstar, said it was “not typical” for a pension fund that is interested in long-term results to trade stock so quickly. “It seems odd to me,” he told The Enquirer. “It’s out of the norm.”

Bonuses at STRS

Here is the amount of STRS investment staff bonuses for the past eight fiscal years and the top earning employee in the investment department. (Click image)

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STRS Board members

There are 11 members of the governing board of the State Teachers Retirement System of Ohio. Of the seven elected members, two of the seven represent retirees and the others represent active members. The board includes three members appointed by the governor, Legislature and state treasurer. The state’s superintendent of public instruction serves as a non-voting member. The positions are unpaid except for expenses. They can be contacted via the STRS website, www.strsoh.org.

Michael J. Nehf, the system’s executive director, is the only employee with a contract. All others are at-will employees. (Click image)



Where money comes from; where it goes

For fiscal year 2012, the State Teachers Retirement System of Ohio lost $2.5 billion. Here’s where the money comes from and where it goes.

Contributions (in thousands)

Members…$1,099,473
Employer…$1,479,476
Health care premiums…$246,264
Other…$125,771
Investments…$1,152,489
Total…$4,103,473 

Deductions (in thousands)
Benefit payments…$5,725,859
Health care coverage…$627,890
Refunds to members…$183,768
Administrative expenses…$61,328
Other…$15,183
Total…$6,624,028

Not the first time

• This isn’t the first time bonuses for employees at the State Teachers Retirement System of Ohio have come under scrutiny. 

• An investigation by the Canton Repository in 2003 found STRS spent $16.7 million on bonuses, artwork and travel over three years.
• It also found the bonus for the system’s then-executive director, Herb Dyer, was linked to the bonuses of employees. The higher their bonus, the more he got.
• Dyer famously said the money sent to STRS by educators and their employers belonged to the system to do with what it wanted. In the freewheeling days of 2000 to 2003, STRS board members spent millions on art, parties, travel and bonuses. Dyer and the head of the investment department, Steve Mitchell, had hard-to-break contracts that almost guaranteed their jobs no matter what.
• As a result of the investigation, Dyer was forced out, though at a six-figure price because his contract was bought out to avoid a lawsuit. He and six pension board members were convicted of violating state ethics laws. Bonuses were dropped for non-investment and some investment staff.
• The Legislature passed a pension reform package that added more financial experts to all five state pension boards, among other items.