Bob Buerkle to STRS Board: You need to unravel this mess

NO SKIN IN THE GAME                                         

STRS Speech by Bob Buerkle on 02/21/2019 

Today my speech will be somewhat of a brief book report, intertwined with some of my own thoughts and experiences.  Nassim Nicholas Taleb, author of the immensely popular 2007 book. The Black Swan, wrote another book in 2017 called Skin In The Game.  I will read you three quotes from this book, in bold print below, along with some of my thoughts about how they apply to the STRS Management Bureaucracy and our Members.  

“Bureaucracy is a construction by which you are conveniently separated from the consequences of your actions.”  At STRS the Management Bureaucracy has no skin in our pension game.  Instead, they have skin in the OPERS pension Game!  As elected Board Members you do have skin in the STRS Pension game.  As you might remember from former STRS Board member Dennis Leone’s last speech from this podium, you need to do your own research, independent and shared thinking and base your questions and decisions not just by what the STRS Bureaucracy tells you to do but what is the right thing to do.  For instance, STRS Management thinks the goal of achieving a 100% funded ratio is more important than utilizing the rules and law established by ORC to be compliant and sufficiently pension solvent.  Their lack of skin in the game speaks volumes.  Please remember, Management decisions may be suggested to you but the Board has the final decision power, and significant culpability. 

“There is no evolution, no learning from your mistakes without skin in the game.”  If the decisions by STRS Management had applied to themselves would we have seen a different plan for “Strengthening” our pension system? We'll never know because STRS pays into OPERS. It would be interesting if STRS management is lobbying for OPERS to become a 100% fully funded by advocating a 5-year COLA freeze or advocating for no COLA until after 5 years of retirement.  When the Fox is in charge of the “STRS Chicken Building,” all of us teacher and retiree chickens just look like tasty chicken nuggets to the Fox. 

“Things designed by people without skin in the game tend to grow in complication (before their final collapse).” For instance, since at least beginning in 2009, I and others have informed this Board about ways that several other states had achieved pension reform that applied to new hires only, by creating a different “Tier or Plan” for them.  Over thirty state plans made changes that only applied to new hires. This allowed those pension systems to honor the promises that had been made to their members who had already retired; something that STRS Ohio did not do.  The Summer 2015 OPERS Newsletter states that the pension design changes of one or two years of lengthened careers and age 55 for retirement will save 3.2 billion dollars.  The changes that STRS made will reduce the pension liability by 27 billion, but at what cost to our members?  That 27 billion had previously been earmarked for retiree pensions, most of which was for our earned and promised COLAs. 

As Board members you need to unravel this mess. You could begin by taking the actual 30-year return averages on STRS investments as a starting point, reducing that return average by 50-75 Basis Points for a margin of safety, capping the high limit of the “Earnings Assumption Rate” at 8% to 8.25% and adjusting it downward whenever the 30-year average dictates that it should be lower.  If STRS had used this system They would never have had to lower the “EAR” below 7.75% in any past 30-year rolling period using its “prudent person” investment authority.