Dean Dennis compares Ohio and Nevada teacher pension systems: a real eye opener!

Dean Dennis' speech to STRS Board

September 19, 2019

I am Dean Dennis, I retired after 35 years of service. I'm the STRS Chair for Cincinnati's Local 1520-Retirees and the Spokesperson for the Facebook, Ohio STRS Member Only Forum.

I want to share the similarities and differences of the teacher pension systems between Ohio and Nevada. Ohio and Nevada are both Non-Social Security States. The average Employer Contribution for Non-Social Security States is 22.5%. However, Ohio's Employers Contribution rate is only 14% while Nevada's is only 14.6%. For Non-Social Security States, Ohio is the lowest in the nation. Conversely, Ohio's Employee Contribution Rate is 14% and Nevada's is 14.6%, these are the highest in the nation. The Employer Contribution Rate in Ohio has remained at 14% for over 35 years, perhaps the most stagnant in the nation. Over this same time period, Ohio teacher's contribution rate has doubled. Other similarities between the states are, Ohio and Nevada pension systems are both currently funded at around 75%. Also similar, Nevada has a 7.5% Earnings Rate Assumption; Ohio's is 7.45%.

How the states differ. Ohio has around $77 billion for investments, Nevada $41 billion. STRS Ohio employs an investment staff of over 100 people. Nevada employs an investment staff of just one person. Nevada's total investment cost is only 12 basis points, significantly below the industry average of 51 basis points. I could not find where STRS Ohio shares their investments costs stated in basis points. Ohio's long term 30 year investment returns are 8.59%. Nevada's 35 year investment returns are 9.2%. Nevada invests 44% of their portfolio in domestic equities, STRS Ohio invests only 28% in domestic equities. Nevada does not invest in hedge funds, Ohio does. So, what do respective retirees from each State receive for their contributions upon retirement?

Ohio provides a 2.2% annual benefit formula. Nevada provides a 2.5% benefit formula. In Ohio a member must work 35 years and be at least 60 years of age to receive 77% pension benefit. In Nevada a teacher can retire after 33.3 years of service, at any age, for a 83.25% pension benefit.

In Ohio a teacher after a 5 year wait, might receive a simple 2% COLA but subject to adjustment leaving financial security up in the air. Currently, Ohio retired teachers do not have a COLA. In Nevada after a 4 year wait a retiree receives a compounded annual COLA of 2%. In years 7-9 the compounded annual COLA increases to 3% COLA. In years 10-12 the compounded COLA increases to 3.5%. In years 13-14 the COLA is increased to 4%. In years 15-16, the COLA increases to 5%, so long as they haven't exceeded the purchasing power at their point of retirement after factoring in inflation. In Nevada, retirees are grandfathered against changes made to the retirement system to protect their guaranteed benefits.

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Bob Buerkle: Nevada Pension System Invests in Index Funds

Bob Buerkle's speech to STRS Board

September 19, 2019

Who is Steve Edmundson, this 47-year-old investment director of Nevada PERS, whose 1, 3, 5 and 10-year returns have bettered all of the other big public pension systems? Is he a super investor? Is he taking excessive chances? Is he gambling with the Members' Pensions? The answer is NO to these last three questions. Steve is just following the investment protocol that the Nevada Legislature has established. It describes four Asset Allocation areas, along with a range of percentages, that the index funds can be invested in. I am providing a copy of this legislative investment protocol for you.

I guess Nevada took Warren Buffett's advice seriously over a decade ago. Buffett has stated for decades that "pension systems should stop trying to beat the market, which they always fail at over the long term, and just accept what the market delivers. They should use index funds and that way they will not lose a greater percentage than the market in a downturn."

Edmondson works out of a modest office in a one-story building in Carson, City. It was larger than he needed, so he let the room be walled off for other workers. He himself has no co-workers. On his desk is a stapler, a tin cup of paper clips and his business cards. He has a small conference table and 4 chairs. In 2015 his salary was reported in the WSJ as $127,121.75. Market turmoil, volatility, oil prices and elections have no effect on his workday. He does as little as possible on a daily basis. His investment plan is in place and outperforming his peers. Last year Nevada earned an 8.5% return while STRS earned 6.9%. Nevada has grandfathered its retirees and has never eliminated its COLA.

According to CALLAN ASSOCIATES, the STRS Investment Advisors, who also track expenses of numerous other retirement plans, "Nevada's outside management bill is about one-seventh the cost of the average public pension system."

Calpers Spokeswoman Megan White said "Nevada Demonstrates the benefits of reducing the complexity, risk and costs of a portfolio." Nevada has handily outperformed CALPERS returns for all periods over the last decade.

According to Stephen McCourt, co-CEO of the Meketa Investment Group consultants, "The pension world is definitely migrating toward Nevada."

For your additional information, I am also including a copy of the actuary's signature sheet. As you can see, it's Segal Consulting and Kim Nicholl, Senior Vice President and Consulting Actuary for Nevada. Kim Nicholl was also the STRS Senior Consulting Actuary for about 25 years dating back to her employment with Buck Consultants in the early 1990's.

Lastly, in Ohio, if your last workday is June 2nd, your first pension check is paid on July 1st. In Nevada if your last workday is June 2nd, your first pension check would be paid as of June 3rd, which means your pension is paid more like you were paid when you worked. This also means that Nevada Retirees are paid one more check in retirement than our STRS Retirees receive.

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Mike Mulcahy to STRS Board: We need the COLA we were promised! STRS present Management is pathetic!

Mike Mulcahy's speech to STRS Board

September 19, 2019

The Ten-Year Total Investment Return Average is 10.44%.

The 2019 STRS Fiscal Year is Over.

This 10-year average return exceeds our current "Earnings Assumption Rate" of 7.45% by a ridiculous safety margin of 40%, yet no COLA can be paid to our retirees?

In 2017 the STRS Board, pressured by Management and Callan Associates lowered the STRS Earnings Assumption Rate for a second time in recent years, reducing it to 7.45%. The two reductions added over $25 Billion dollars to our projected debt. The explanation for doing this was because Callan projected that STRS would earn only between 6.85% and 7.45% for the next 10 years. THEY WERE WRONG.

Over the past three years since the rate reduction STRS has earned an average 10.25%. That's a ridiculous 40% safety cushion.

Don't tell us that our COLA is unaffordable when it is your actions that are unaffordable. The Board approved high salaries and extreme bonuses for the Investment Department, this Excessively Expensive Building and its garage with its Expensive Paver brick floor, the Heated Sidewalks, the expensive Art Work and Furnishings, That's what's unaffordable!

All of this has been accomplished even though STRS actions were taken to prevent such stock market successes going forward. Those Board policy actions have drastically lowered our potential stock market returns by reducing our Stock investment exposure from the 72% range to only 53%. The majority of this difference has been placed in Alternative Investments, which Callan reported to have returned less than 5% for the past six or seven years!

As an example, for the first month of FY 2019-20, STRS earned 3% while the Dow earned 5%. That's 66% more than STRS earned.

YOU CAN'T WIN THE GAME IF YOU DON'T PLAY IN THE GAME!

Getting out of the game when the Stock Market has extreme losses is exactly the wrong thing to do. This is a well-known Truism in the investment world. You would not think that a 100 year-old pension plan like STRS would make such a blunder, but they have.

These STRS mistakes have cost our members dearly! We need the COLA we were promised! STRS present Management is pathetic!

STRS speech September 19, 2019 by E. Michael Mulcahy, STRS Retiree 31 years, Cincinnati Public Schools, Life time member Hamilton County Retired Teachers Association.

Dan MacDonald to STRS Board: STRS, our hen house, is being decimated by the foxes that administrate our plan

Dan MacDonald's speech to STRS Board

September 19, 2019 

Last month Investment Director John Morrow stated that CalSTRS is not doing anything unique, I beg to differ. 

I am Dan MacDonald, veteran and also STRS retiree, 38 years active, plus Executive Director of Local 279-R, NEO AFT retirees, 1,000 members strong. 

CalSTRS has a mature plan just like STRSOH. CalSTRS has gone through the same market volatility as STRS. CalSTRS educators have no Social Security. CalSTRS rate of return was less than STRS’s in FY 2019. CalSTRS, I am sure, has a sensitive and knowledgeable Board just as STRS. 

CalSTRS appears to have the support of its state legislature, perhaps that’s a difference. 

CalSTRS has managed to pay a COLA for the past 43 years, that is a difference. 

CalSTRS has Inflation Protection. This is purchasing power protection which maintains its retirees’ benefits at least at 85% of the retiree’s initial monthly benefit. That’s a BIG DIFFERENCE. 

CalSTRS retirement formula appears to be what STRS had before STRS’s “Pension Reform.” That’s a BIG DIFFERENCE. 

If these last are not unique from STRS, I don’t understand. Perhaps CalSTRS Board chair might be invited to Ohio to explain before our Board, California’s thought process, concerns, and benefits. CalSTRS has a goal of 2046 for full funding, but I’m sure they are also concerned about the next market drop. How can California continue to support its actives and retirees while we can’t? 

STRS, our hen house, is being decimated by the foxes that administrate our plan. While actives and retirees are losing hope of financial safety with the loss of a good benefit formula, COLA, and income protection, OUR employees; in other words, STRS staff, continue gaining merit based salary increases and performance-based incentives. 

Don’t consider placating us with a thirteenth check. We want our COLA back! 

Thank you.