Finding hidden posts on this blog

A number of posts from this past week are currently hidden because of the many items I am holding in place on this page till the STRS Board election is over. For now, please use the Archives in the sidebar (list of dates over on the right) to find any posts you may have missed. Last week's posts may be found here: March 24, 2013 Thanks. KBB

STRS Ohio's 2012-2013 Annual Investment Plan

This is a 48 page PDF document which may be accessed from the link below, or from STRS website (https://www.strsoh.org/whatsnew/news17.html) in the article STRS Ohio Responds to Unjust Criticism Regarding Investment Program. The full article may also be found here: http://kathiebracy.blogspot.com/2013/03/mike-nehf-responds-to-criticism-re.html

Click here to view STRS Ohio’s 2012–2013 Annual Investment Plan.

Jim Stoll: Public records request of STRS

Jim Stoll to Nick Treneff, March 30, 2013

Subject: Re: STRS Public Records Request

Mr. Treneff, Yes I do have several more questions regarding the unrealized loss of 70 million dollars on just these two ETF which are referenced here. I'm not sure which is worse..our unrealized loss of 70 million or your condescending attempt at explaining away a loss of 70 million dollars. That 70 million could have provided less expensive healthcare costs for retirees, or perhaps their extremely important Cola benefit wouldn't have been reduced or maybe raising the percentage increase that active teachers contribute to fund such extremely poor management / investment decisions at STRS wouldn't be necessary.
I would like for you to consider the following questions as a public records request.

1) specifically who (I would request both names and job title) was responsible for deciding and actually executing the many HORRENDOUS trades involved in these ETFs that has us sitting on an unrealized loss of 70 million dollars.

2) I would like to request the salaries And pbi bonuses which these responsible parties received or will receive in 2011and 2012 while overseeing this unrealized loss of 70 million in this investment.

(My goodness a loss of 70 million dollars is a HUGE amount)

3) Can you specifically list the board minutes (month and date) that all the attached trades were listed and under what name.. I have copies of past board minutes but still can't reconcile the trades you listed in your attachments with buys and sells in the board minutes.

4) Is/was the Board aware that we are sitting on dramatic unrealized losses of 70 million dollars on these two trades and still approving the Pbi bonuses for those responsible for these trades.

Look forward to receiving this information.
Jim Stoll 
Sycamore Schools
From Nick Treneff, March 29, 2013
Mr. Stoll,
Please see the attached reply to your questions.  Please let me know if you have any other questions.
Regards, 
Nick Treneff
From Jim Stoll, March 14, 2013
Subject: RE: STRS Public Records Request

Nick,

Per my voicemail of today, I'm wondering if you might give me a timeline of when I could expect the information I requested on March 5, 2013 on all trades relative and gains and losses on SDS and VXX.

I'm told that STRS has trading software that can tell how many shares were bought and sold, the cost, and the net gain or net loss, All they have to do is put in the ticker symbol and it will produce the results fairly quickly.  Please advise.

Thank you.
J

From Nick Treneff, March 5, 2013
Subject: RE: STRS Public Records Request

Mr. Stoll,

I am confirming that I received your requests below.  We will begin to gather the information you requested.  I will be out of the office the remainder of the week and will pick up with it when I return.

Regards, 
Nick Treneff 
Communication Services Director 
STRS Ohio

From Jim Stoll, March 5, 2013
Subject: STRS Public Records Request

Dear Mr. Treneff:

I would like to make a of public records request of all trading by our investment department relative to the following investments.  Specifically, I would like a copy of all trades (purchases and sales and our net loss or gain..... which were made in two securities.  SDS and VXX.  I believe both are ETF's and It is my understanding that these were leveraged bets by Mr. Mitchell and the investment staff that the market would decline which obviously hasn't occurred.
Also (#2) can you tell me where I could find these purchases / sales in the Board minutes... I have looked for them in the minutes I receive but can't find them? Have they been listed?
I'm trying to confirm the following information which was provided to me by someone doing research on STRS Ohio Investments that, "Under Mr. Mitchell's direct orders over the past year, STRS traders have bought and sold SDS and VXX with disastrous results. STRS has lost tens of millions of dollars in these two leveraged ETFs, all because Mr. Mitchell has wrongly made a short-term bet that the market will decline. "
Also, there was a Bloomberg news article (which) I'd be happy to send which states that Mary Ellen Grant of the STRS Investment Department received total compensation last year of $678,291.   Can you please confirm that figure for me.  If the figure is incorrect can you please provide what her Total Compensation was? Thank you.  Actually if you could simply provide Mary Ellen Grant's Total Compensation package amounts for years, 2010, 2011 and 2012 that would be great for comparison purposes as these were the years that the Board proposed and CUT benefits to all their constituents... would like to compare how that philosophy applied to their own employees.
Thank you Nick for providing the requested information in a timely manner.  If you could please acknowledge receipt of this email that would be greatly appreciated. If you need further information to complete the request please don't hesitate to call or email.
Jim Stoll 
Sycamore Schools 
513-615-4690

[Access STRS Ohio’s 2012–2013 Annual Investment Plan here:

http://kathiebracy.blogspot.com/2013/03/strs-ohios-2012-2013-annual-investment.html]

Mike's credibility is questioned!

Jim Stoll to Mike Nehf, March 29, 2013

Subject: Re: STRS Ohio Responds to Unjust Criticism Regarding Investment Program

Dear Mr. Nehf, 

I find your response to Mr.Kostyu's very fair and factual article regarding bonuses paid to STRS investment staff very biased and misleading to all STRS stakeholders. 

A retirement system which "paid out 6 billion while taking in 2.9 billion" is totally broke and means that your investment staff "has failed" the people somewhere along the line despite what you say is "positive investment returns in both the short term and long term time periods."  If the investment staff's results are so positive as you state, why does STRS have such dramatic solvency issues .   It is comical for you to defend the investment Staff's day trading of Facebook stock and yet also defend the inability to trade out of stock positions quickly enough to prevent 30 billion in losses several years ago.   Your reasoning doesn't add up - you can't have it both ways.

You have said, and I quote, "without changes to the system, STRS will be unable to pay benefits in the future."  My suggestion would be that those changes should have begun with your investment staff's outrageous bonus structure and not some poor retired teachers COLA!! 

Why are dramatic changes to the system necessary if your investment staff returns are "so positive over both short and long term periods as you state"------- Your reasoning just doesn't add up. 

STRS compensation is totally out of line and certainly out of touch with those active and retired teachers whose benefits you have just recently and rather dramatically cut.  No public employee should ever receive compensation in excess of 500,000, which several of your employees do in any given year.   This is more than not only the Governor of Ohio, but also the President of the United States. A PBI benchmarking system which allows bonuses when the system loses 30 billion in assets as it did a couple of years ago is totally broke and needs to be fixed. 

You make a false statement to your constituents when you state in your response that STRS did not have a paper loss of 5.6 million in their Facebook investment as was written by Mr. Kostyu in his article.  Those figures were given to Mr. Kostyu and myself by your office and came directly from Mr. Nick Treneff.  For you to deny these facts in an article to your membership is in my opinion malfeasance in office and a gross neglect of your fiduciary duty. 

To STRS stakeholders I can provide hundreds of examples of investment funds which have outperformed our STRS investment staff over the past ten years costing STRS stakeholders billions instead of saving us millions as you state. 

Please quit defending a compensation system for your investment staff that simply doesn't work. 

Respectfully Submitted,
James Stoll
Sycamore Schools

[Read Mike Nehf's response here if it does not appear immediately below.]

Mike Nehf responds to criticism re: bonuses

https://www.strsoh.org/whatsnew/news17.html

STRS Ohio Responds to Unjust Criticism Regarding Investment Program

We at STRS Ohio understand that our members and the public at large are interested in seeing a well-managed retirement system that maximizes investment returns and minimizes expenses in a responsible manner. Recent media reports unjustly criticized the investment program and compensation practices at STRS Ohio. STRS Ohio is a $67 billion pension fund whose purpose is to provide retirement security to Ohio’s public educators. About 75% of members’ benefits are provided by investment returns, so our Retirement Board, staff and all stakeholders have a strong interest in maximizing investment performance. Here are a few key points that you should know about the investment program:

•  The media reports indicated that STRS Ohio is paying investment incentive payments while the fund is losing money. It’s important for our members and stakeholders to know that investment returns are positive over both short- and long-term time periods. STRS Ohio currently pays about $6 billion in pension and health care benefits each year to retirees and beneficiaries of the system, while taking in about $2.9 billion in contributions from members and employers. This results in more than $3 billion per year in negative cash flow.During fiscal year 2012, the total fund return of +2.34% beat the system’s benchmark return, but was not enough to offset the negative cash flow from the pension and benefit payments.  

•  STRS Ohio runs a very cost-effective investment program, managing about 75% of its investments using internal managers — a higher percentage than any other Ohio pension fund, as well as most others in the country. Studies by CEM Benchmarking have shown that STRS Ohio has saved more than $900 million during the past 10 years by managing these funds with internal staff versus using more costly external managers. STRS Ohio pays a higher total incentive amount than the other Ohio systems primarily because it has more in-house investors, which is less expensive to the members overall. The most accurate way to measure these programs is by including both internal and external investment costs — or totalinvestment costs. That is what the CEM Benchmarking study does, and in 2011, this study showed that STRS Ohio’s total investment cost was the lowest in its peer group.  

•  STRS Ohio’s 10-year total fund return is among the best in the industry. A recent report by the State Teachers Retirement Board’s outside investment consultant, Callan Associates, shows STRS Ohio’s 10-year total fund return of 8.37% ranked in the top 20 percent of the Callan Public Fund Sponsor Database. As a long-term investor, it’s important to note that this return exceeded STRS Ohio’s long-term actuarial assumed rate of 7.75%. STRS Ohio’s 30-year rate of return of 9.3% is comfortably ahead of the assumed rate of return.  

•  STRS Ohio’s compensation program is in line with other private and public institutional investors. Eligible investment staff has a compensation program that is comprised of a base-pay component and a variable or “at risk” component that is paid only when investment performance exceeds standard industry benchmarks. These performance-based (PBI) plans are commonplace in the investment industry. Last April, the Retirement Board revised the PBI program for eligible Investment associates. The new program includes a graduated reduction of the incentive when the total fund returns are negative for a given year (the fiscal year 2012 return was +2.34%, though media reports stated that the fund lost money) and implements an additional cutback provision when the smoothed actuarial return is below 7.75%.  

•  STRS Ohio’s investment in Facebook does not have a “paper loss of $5.6 million.” One media source reported on STRS Ohio’s investment in Facebook. This investment provided a good return when STRS Ohio sold some of its shares on the day of the initial public offering (IPO). While the stock price diminished following the IPO — hitting a low of just under $18 per share in September 2012, the price has rebounded nicely since then, now at about $27 per share. After factoring in the gains from some of STRS Ohio’s early sales of Facebook, as it stands today, this investment is slightly negative. Institutional investors like STRS Ohio own nearly every stock in the index. Some will make money; others will not. While Facebook could continue to climb and be profitable for STRS Ohio, it’s worth noting that the pension fund’s overall return was +13.6% for calendar year 2012. Click here to view STRS Ohio’s 2012–2013 Annual Investment Plan.

To maintain the current benefit structure in place for active and retired educators, STRS Ohio must manage a strong investment program designed to attract and retain top performers, although it must pay significantly less than private sector investment professionals. STRS Ohio members and stakeholders should know that our investment program provides solid, professional investment management at below average cost. 

Sincerely,

Michael J. Nehf
Executive Director
STRS Ohio

Jim N. Reed to the Columbus Dispatch: Does SERS Hawaii junket ring a bell with STRS members?

STRS should recognize Hawaii hubbub 

Columbus Dispatch
March 29, 2013

To members of the State Teachers Retirement System: Does the Hawaii junket by the School Employees Retirement System ring a bell? 

The State Teachers pension fund was seriously damaged and embarrassed about 10 years ago when its executive director, Herb Dyer, and several board members were convicted of violating state ethics laws. Hawaii, New York and Carolina beach airfare, Broadway shows, greens fees, bar bills, etc. appeared on the membership's tab. Entitlement. 

STRS members were saved by Dennis Leone, former Chillicothe schools superintendent, who exposed millions of dollars in misspending by some board members. Member-friendly policies were instituted and I submit he helped salvage a financially unstable system, tainted in the eyes of its knowledgeable members. 

Unfortunately, the beat goes on. Investor bonuses cost membership $4 million in 2012. [According to Bloomberg, the actual figure was closer to $8.1 million.] For investment advice, or ill-advice, individual bonuses frequently exceed the governor's salary. Bonuses continue despite lost assets, poor investment (Facebook), eliminated educator positions, school belt-tightening and failed levies. 

New pension rules cut retirees’ cost-of-living allowance while giving the board authority to legislate without General Assembly approval. 

Anybody seeing an ugly pattern developing? 

I strongly encourage retired members of the State Teachers Retirement System to vote only for Dennis Leone for retiree representative when they receive their April ballots. 

See http://kathiebracy.blogspot.com  for more information.  

- JIM N. REED
Baltimore

Ken Ruth: A question for the STRS Board

Nick Treneff to Ken Ruth, March 29, 2013
Subject: RE: a question for the STRS Board

Dear  STRS Member:  

Our executive director, Michael Nehf, has asked that I respond to your recent message.  In it, you expressed your concerns about the payment of performance-based incentives (PBIs) to investment associates.  I appreciate you sharing your concerns with us.  
We at STRS Ohio understand that our members and the public at large are interested in seeing a well-managed retirement system that maximizes investment returns and minimizes expenses in a responsible manner. Recent media reports unjustly criticized the investment program and compensation practices at STRS Ohio. STRS Ohio is a $67 billion pension fund whose purpose is to provide retirement security to Ohio's public educators.  About 75% of members' benefits are provided by investment returns, so our Retirement Board, staff and all stakeholders have a strong interest in maximizing investment performance.  Here are a few key points that you should know about the investment program:

•  The media reports indicated that STRS Ohio is paying investment incentive payments while the fund is losing money.  It's important for our members and stakeholders to know that investment returns are positive over both short- and long-term time periods.  STRS Ohio currently pays about $6 billion in pension and health care benefits each year to retirees and beneficiaries of the system, while taking in about $2.9 billion in contributions from members and employers.  This results in more than $3 billion per year in negative cash flow.  During fiscal year 2012, the total fund return of +2.34% beat the system's benchmark return, but was not enough to offset the negative cash flow from the pension and benefit payments.  

•  STRS Ohio runs a very cost-effective investment program, managing about 75% of its investments using internal managers -- a higher percentage than any other Ohio pension fund, as well as most others in the country.  Studies by CEM Benchmarking have shown that STRS Ohio has saved more than $900 million during the past 10 years by managing these funds with internal staff versus using more costly external managers. STRS Ohio pays a higher total incentive amount than the other Ohio systems primarily because it has more in-house investors, which is less expensive to the members overall.  The most accurate way to measure these programs is by including both internal and external investment costs or total investment costs.  That is what the CEM Benchmarking study does, and in 2011, this study showed that STRS Ohio's total investment cost was the lowest in its peer group. 
•  STRS Ohio's 10-year total fund return is among the best in the industry. A recent report by the State Teachers Retirement Board's outside investment consultant, Callan Associates, shows STRS Ohio's 10-year total fund return of 8.37% ranked in the top 20 percent of the Callan Public Fund Sponsor Database.  As a long-term investor, it's important to note that this return exceeded STRS Ohio's long-term actuarial assumed rate of 7.75%.  STRS Ohio's 30-year rate of return of 9.3% is comfortably ahead of the assumed rate of return.  
•  STRS Ohio's compensation program is in line with other private and public institutional investors.  Eligible investment staff has a compensation program that is comprised of a base-pay component and a variable or "at risk" component that is paid only when investment performance exceeds standard industry benchmarks.  These performance-based (PBI) plans are commonplace in the investment industry. Last April, the Retirement Board revised the PBI program for eligible Investment associates. The new program includes a graduated reduction of the incentive when the total fund returns are negative for a given year (the fiscal year 2012 return was +2.34%, though media reports stated that the fund lost money) and implements an additional cutback provision when the smoothed actuarial return is below 7.75%.

To maintain the current benefit structure in place for active and retired educators, STRS Ohio must manage a strong investment program designed to attract and retain top performers, although it must pay significantly less than private sector investment professionals.  STRS Ohio members and stakeholders should know that our investment program provides solid, professional investment management at below average cost.  

I know this is a lengthy response, but since you took the time to write to us I thought you deserved a detailed reply.  Your thoughts will be shared with STRS Ohio's senior staff and the board. And thank you again for writing.  

Sincerely,
Nick Treneff
Communication Services Director
STRS Ohio  

Ken Ruth to STRS Board, March 18, 2013

Subject: a question for the STRS Board

$38,000,000 in Bonuses since 2005!  HOW?  
I thought they were eliminated years ago until the overall fund topped $65 billion.  When/how was that proviso removed?  Behind closed doors?  
Let the sunshine in!  

Kenneth H Ruth,
Retired educator
Sidney, OH  45365

STRS Flashback - 10 years ago....thanks to Dr. Dennis Leone THIS HAPPENED....and it was long awaited, wasn't it?

From John Curry, March 27, 2013 

...and who enabled Herb Dyer to do what he did? THE STRS BOARD.....with a rubber stamp like they were, who needed enemies? Oh, by the way, that STRS board was made up of a majority of active teachers...all members of the OEA Executive Committee at one time! Sorry to tell you that but.....the truth hurts, doesn't it? So, yes, OEA, you have to take some responsibility in this sordid history, don't you? What do you say, Bill Leibensperger and Patricia Frost Brooks?  
John  
http://www.plansponsor.com/NewsStory.aspx?Id=6442465827  
Ohio STRS Executive Director Offers Apology To Retirees  
July 10, 2003 (PLANSPONSOR.com) - Herb Dyer, the embattled executive director of Ohio's State Teachers Retirement System (STRS), publicly apologized for making insensitive remarks to retirees as the rest of STRS board held a closed-door session to discuss his future.  
In his apology, Dyer said he regrets comments made to retirees who were worried they would not be able to afford steep increases in health insurance costs. He acknowledged that he told retirees to go out to eat less often and go on fewer vacations, according to a Cleveland Plain Dealer report.  
Dyer was scolded by several board members for making "unacceptable" comments to retirees, to justify all employee hirings since 1998 and fund the system at current levels. Aside from the insensitive comments about rising health care cost, Dyer also made comments in a letter written to one retiree that the teachers' pension fund belongs to STRS board members "to distribute as they see fit."  
The harsh words could not have come at a worse time, as many retired teachers will see their health insurance premiums more than double next year, from $66 a month to $135 a month. Spouses will have to pay as much as $427 a month to continue their health coverage.  
The apologetic remarks came as Dyer addressed the Ohio Retirement Study Council about his desire to restore trust in the pension fund and his regret for the comments some people found offensive. "I said things like their budget would have to adjust," Dyer said, "comments that were insensitive and some thought condescending. I spoke as a statistician, not a counselor," Dyer continued. "I apologize to anyone who has been offended by my remarks."  
Crow Pie  
Yet this may turn out to be a classic case of too little, too late. A total of 105 state lawmakers have called for Dyer's resignation, a group that was also joined by Ohio Attorney General Betty Montgomery, who sits on the STRS board. However Dyer has no intention of going quietly into the night, telling reporters he does not plan to resign and is not negotiating a severance package with the STRS board.  
This poses a bit of a quandary for the STRS board, and was one of the reasons for Wednesday's closed-door session to determine his future. If the board fired Dyer tomorrow, he would walk away with a $533,620 check. Even if he changes his mind and tenders his resignation, he would still get at least $133,405 because he must give STRS a six-month notice; a figure that does not include pay for any unused sick or vacation time.  
These seemingly large buyouts are due to Dyer's 6 1?2 -year contract, which ends June 30, 2005, which must be paid out unless the board can prove "malfeasance, misfeasance or nonfeasance."  
In addition to the payout clause, Dyer's salary grew handsomely over the last few years due to the contract's provisions for his pay to be adjusted annually based on the Consumer Price Index (CPI) of the previous year or 3.5%, whichever is higher. However, the index has not been above that level since 1991 and Dyer has received raises to his base salary above 3.5% every year since he got a new contract in February 1997.  
In 2001, his base salary was $236,000 and rose 8.6% in 2002, according to STRS documents. It went up again this year to $266,810, a 4.1% increase.  
Additionally, Dyer has received annual bonuses for meeting performance goals. His bonus is based on the weighted average of bonuses given to the STRS investment department multiplied by a percentage obtained from his annual evaluation. In other words, the higher the bonuses paid to the STRS investment staff - whether the portfolio did well or not - the higher Dyer's bonus.  
Costly Bonus  
It is lavish expenditures like the bonuses, along with artwork purchases and travel over three years that landed the entire STRS board in hot water recently and has some calling for Dyer's head (See Ohio Pension Fund Hit for Lavish Spending Practices). While the board was paying $15 million for these expenses over that time, the system's investments plummeted by $12.3 billion and health care contributions by retirees jumped significantly.  
Responding to criticisms of its lavish spending and compensation practices, STRS voted late last week to freeze employee bonuses, while the system's board members promised a full review of policies on out-of-state travel and fringe benefits. The immediate effect of suspending bonuses will cost the investment staff, at least for now, discretionary bonuses that were scheduled to be handed out next month. The bonuses - which come in addition to "performance-based" bonuses - totaled $1.75 million in 2000, $2.2 million in 2001, and $1.46 million in 2002 (See Ohio Fund Wants A Closer Look at Bonuses ).  
Additionally, the retirement study council voted 7 to 0 Wednesday to start the process of hiring an independent consultant to do a full performance audit of STRS. The audit will cover management, compensation, hiring and investment policies at STRS, said Senator Lynn Wachtmann, a northwest Ohio Republican and chairman of the council.  
Eric Hazard editors@plansponsor.com

RH Jones: End Ohio punitive income taxes on retired teachers

From RH Jones, March 25, 2013 

To all:  
It is common knowledge that Governor Kasich, and his "team", see an income tax cut essential to a stronger Ohio economy. Therefore, do you not see that cutting out state income taxes for retired teachers is a way to partially restore some of that large punitive "take-away" which has been recently forced upon the pensions of retired teachers? Most certainly, this has hurt those of us who have been retired the longest.  
In the past, the STRS has stated that 90% of retired teachers live and spend their income here in Ohio. To cut out the "rob Peter to pay Paul" state income tax on retired Ohio teacher residents does make sense. Those 10% that have chosen to live and spend outside our state will have an incentive to move back home. And, the coming bulge of retiring "Baby-Boomer" teachers will have a greater incentive to stay here, as well; then, in other words, the present retired and the future retired teachers will help support local and state budgets, businesses, and jobs.  
Local tax levies on property, local and state sales taxes, are the taxes which have been increased the most in the last several years. Ohio’s retired teachers living on the property, and supporting Ohio businesses, and local communities with their spending, should be an incentive for the governor and the state lawmakers to support a bill to eliminate Ohio’s income tax on retired teachers.
Will other retired teachers please step up to the plate and to ask that the "rob Peter to pay Paul" state income tax on retired teachers be eliminated? It makes no sense for the State Teachers Retirement System to issue a pension to retired teachers just to have a part of it paid back to the State of Ohio in the form of an income tax. The time is now to cut out this income tax on retired teachers. already, many other states have, for their own good, done so.  

RH Jones, retired Ohio teacher