John Damschroder: Ohio pension funds are a great deal for the people who manage them as they are getting rich while lowering value and passing the pain on to workers and retirees

Damschroder: OPERS presentation reads like a Hollywood script

John Damschroder, Columnist

Fremont News Messenger

September 24, 2019

The Ohio Public Employees Retirement System Board of Trustees meeting had everything you expect at a good movie, except the popcorn. There was an elaborate slide show of more than 750 pages detailing proposed changes to fund allocation, member benefits, board responsibility and ethics guidelines, and bonus

structure for internal investment managers. But just like Hollywood’s elaborate sets and scripts designed to create an illusion, following the OPERS presentation required suspension of disbelief.

OPERS slides showed high returns for the 31 percent of the portfolio in alternative assets with no public market transparency. But the settlement to my public records lawsuit against OPERS revealed that the state’s largest retirement system has no knowledge of what those assets are and accepts valuations as provided by the contractors they’ve funded.

Trustees protecting an $87 billion fund that doesn’t know what it owns, and can’t confirm what a third of its portfolio is worth, want Ohio lawmakers to freeze retirees' cost of living adjustments, push retirees under 65 off the health care plan, and increase employee contributions while cutting benefits for future OPERS members.

State lawmakers will eventually go along because OPERS-recognized liability will cross the 30-year payoff requirement in Ohio law next year, and it’s a sure thing that the true value of the alternative investment portfolio is well short of the valuations supplied by people pulling in huge fees from OPERS, so the actual shortfall is larger than shown. Then there’s the assumption that OPERS will meet its investment return target. But there wouldn’t be need for cuts if OPERS could perform that mission. The high fee managers are articulate failures.

It’s the fees that are killing OPERS retirement benefit just as a cancer cell kills its human body host. In 2001, OPERS had a $1.3 billion surplus and paid outside fund managers $10.7 million. By 2017, OPERS pay to Wall Street managers had increased by 56.6 times to more than $606 million. Had the $58 billion in OPERS account back in 2001 grown like the fees, OPERS would have $3.2 trillion dollars and be more than four times larger than the Gross State Product of Ohio.

Had the state simply put OPERS and all the rest of the public pension funds, who’ve already made the cuts OPERS wants because unlike OPERS they don’t need the legislature’s approval, on auto-pilot in a 60-40 stock to bond fund everyone would have achieved the needed return on investment. The 10-year annualized return exceeds 9.5 percent, but none of the state fund managers would earn six figure bonuses following that path.

My column detailing bonuses collected through dubious valuations supplied by outside fund managers dependent upon OPERS managers to keep the cash coming, brought records from the State Teachers Retirement System. In 2018, 84 STRS internal investment managers collected bonuses. There was a $416,000 bonus, five bonuses above $300,000, and seven investment managers making more than a half million dollars in combined bonus and salary at STRS.

None of Ohio’s public retirement funds has been able to fully meet obligations to members because none of the funds has achieved their assumed investment returns over the 10-year period and all of the funds pay top dollar to outside managers and richly reward internal managers.

If the pensions truly worked for the benefit of the public employees who’ve paid into the system, the elegant Columbus headquarters would be sold, the retirement fund workforce would be terminated and all of the money would be rolled into a 60-40 index fund provided by the low cost bidder who would also make the monthly benefit payments.

Ohio pension funds are a great deal for the people who manage them as they are getting rich while lowering value and passing the pain on to workers and retirees. A 60-40 index fund is the ultimate no brain investment. It’s unconscionable that public servants are being rewarded and treated as irreplaceable without beating that measure.

There hasn’t been such a low bar since Gordon Gee declared a tie with Michigan to be “one of Ohio State’s greatest wins ever.” If this pension scandal was about something important like Ohio State football, every media outlet in the state would be on the story and the six figure failures would be terminated without delay.

John Damschroder, a Fremont native who worked in Gov. George Voinovich’s administration, writes about business and economic development in Ohio.

Freeloading administrators? Surely not! But John Curry tells is like it is.....

From John Curry

September 23, 2019

Thank you, Robin, for having the intestinal fortitude to say what many have been thinking.....the employer also needs to pitch in to help in this situation. The employers haven't had an increase in their contribution rate in over 40 years....and it's about time they also step up to the plate. Some schools can afford this additional payroll burden immediately, others may have to "cut corners" to do so...and some may have to ask their taxpayers for additional funds to care for their cadre of educators that they (rightfully) always praise as being highly talented. The bottom line is they will also have to pitch in to cover their concern for their highly valued employees.

One immediate way to make contribution rates more affordable to public schools won't win me any friends in the education community (ask me if I care)...but it is one that I always felt needed attention is the fact that public schools can save significant moneys by forcing superintendents and other administrators to pay their "fair share" out of their paychecks (14%) into STRS just like all their classroom teachers have to. I can't think of how many police chiefs, fire chiefs and county administrators I have talked to who had no idea that most Ohio superintendents and other school administrators pay nothing (or only partially) to their retirement system out of their own paychecks. They were in disbelief when informed of this benefit...one that they didn't receive. This practice, that could accurately be called "freeloading," isn't common in other venues of public service jobs.....all of their city and county administrators, as well as department heads, have to pay their fair share....just like their underling employees.

P.S. Many classroom teachers are still not aware that this inequity exists even today. P.S. Sometimes the truth hurts, doesn't it?

John Curry

Robin Rayfield to STRS Board: Not paying the obligations of STRS to the beneficiaries is not a ‘plan to strengthen the system’

Robin Rayfield's speech to STRS Board

September 19, 2019

Greetings STRS Board of Trustees and Staff. My Name is Robin Rayfield and I represent the Ohio Retired Teachers Association. I am a STRS beneficiary, having retired in 2011 after 30+ years of service.

I want to publicly acknowledge the work of the STRS employees throughout the 2018 fiscal year. As reported during last month’s meeting of the STRS Board of Trustees, the investment people added just over $1.1 billion to the assets of our retirement fund. If I understand correctly, STRS earned just over $5.1 billion through its investment activities. With approximately $4 billion going towards paying beneficiaries, the net result of the work of the investment staff resulted in $1.1 billion being added to the assets of our pension fund. 

Although the increase in assets brings the pension system closer to the 85% funding level required by the recently revised funding policy, the system remains well below the level identified for serious consideration of benefit enhancement. Many of our retirees do not have 7 or more years of life left to enjoy prior to receiving an increase in the benefit that they were promised at the time of their retirement.

ORTA encourages the board of trustees to take action to rectify the hardship the loss of COLA has placed on retirees. Two specific actions would demonstrate a commitment to the retirees that STRS Ohio serve:     

1. STRS should seek an increase in the rate of employer contributions. The 40% increase forced upon active educators that resulted from the pension reform efforts put into place in 2012 were not matched with an increase in employer contributions. Similar to the ‘phased in’ increase in employee contributions, STRS should seek a similar increase in employer contributions. It does not make sense for active employees to contribute more, retirees to receive less, and employers to be exempt from the process of strengthening the STRS pension system. 

2. STRS should revise its funding policy to allow for a COLA for retirees providing at least some of what they were promised. Establishment of a minimum level of asset increase, for example $500 million, would allow STRS an opportunity to provide a COLA, although that COLA might be much less that what was promised, to current retirees during the time that the STRS pension system is moving towards 100% funding status. 

I hope that the Board of Trustees will seriously consider actions that will strengthen the STRS pension system while offering retirees more of what they were promised. 

I respectfully remind the STRS Board that simply not paying the obligations of STRS to the beneficiaries is not a ‘plan to strengthen the system’.