The STRS December 17, 2020 meetings were lengthy. The day started at 8:30 and ended about 5:10. Blessings on all who made it through the whole day with me. The day began with a meeting of the Audit Committee that shared which departments had been audited this year, which postponed, which are projected. The word “audit” is becoming a conundrum. STRS needs to define the word because board member Wade Steen keeps pointing out its misuse. The departments were “reviewed,” with no findings but 15 recommendations. Steen wants ownership of the numbers shared, what is included in the numbers and what is not, and is having a hard time discovering this vital information. For instance, Steen asked if the day care center is subsidized or self sufficient and whether the nepotism policy has ever been audited. [Oh my,] the meeting was moved to executive session. [Transparency is as clear in STRS as a frosted window or a locked door.]
The Board meeting began at 10 a.m. After the minutes approval, the review and approval of the semi-annual broker evaluation and associated policies occurred followed by the meat of the Board meeting, Callan’s educational presentation of “Benchmarks” for the asset classes and the total fund and Callan’s recommendations. Areas covered: Domestic Equity, International Equity, Fixed Income, Real Estate, Alternative Investments, the Total Fund. Why are these benchmarks important? They determine the marks that must be met for a full payout of Performance Based Incentives [PBI] to members of the investment department. If I am not mistaken, there is a 5-year smoothing of yearly performance; think of retirement and using 5 years to determine your Final Average Salary. S&P 1500 Index, MSCI, Custom Government Benchmark, Bloomberg Barclays US Aggregate Index, Russell 3000 Index, PitchBook, ILPA, ODCE, Cambridge, blended benchmarks are yardsticks for different asset classes. After 3 hours plus of questioning and discussion on lags, passive hedge, unhedged, unique amongst peers, liquidity, levered, unlevered, design our own, etc., Callan pointed out in some areas there aren’t benchmarks that are “perfect fits.” [The only “perfect fit” at STRS is the yearly payout of PBI’s and 3 percent merit based salary raises]
After lunch, the Investment Department concluded its presentation. October’s returns dropped the General Fund by 1.1 percent; the second consecutive month of decline. November’s return was the best monthly return in 20 years, a positive 7.75 percent. The total fund return through the first five months of FY21 is a positive 12.4 percent. The General Fund reached a new high of $84.7 billion. Following this good news, Executive Director Neville gave his staff reports/achievements for November and December. Following his report, the Finance Department presented a comparison of FY2000 to FY2020. In 2000 the market value funded ratio was 97.9 percent and the unfunded liability only $4.5 billion. In FY2020 the market value funded ratio is 75.5 percent and the unfunded liability is $22.3 billion. [What does this mean? No benefit enhancements for many years to come and disaster to less than 50 percent funded right around the corner. Scare tactics. Assumptions were “less favorable than assumed.” Who made the assumptions? The Board, the staff, and the consultants! On a slide the Finance Department listed Experience vs. Assumptions. Investments off by $13.9 billion (yet Investment staff get PBI’s); Retirements costing extra $6.2 billion (didn’t STRS think about the impact of reducing benefits on actives would have this effect); Mortality $3.1 billion (yes retirees, you are living too long and you actives you also need to work 35 years and then die immediately); Assumptions Updates $10.2 billion (whatever they are); by the way the finance department wants to severely drop the Rate of Return - “There is a good chance some of these losses will continue, as the current investment return assumption is higher than the expected return.” [A reminder, two retiree Board seats are up for election in the spring and one active seat.]
The meeting ended with Routine Matters which has become a time of the meeting no one should miss.
A motion to accept actuarial valuations although two metrics on the scorecard fell outside their limits [whatever that meant; no explanation; nothing in regular meeting that I remember, TRANSPARENCY MIA]
A motion to approve changes to the Board policies ended up being tabled to February since Steen attempted to change some of the language which he had shared with his colleagues.
Not listed on the slide was a motion to bring in the Attorney General on some issue [TRANSPARENCY] not to be shared with actives/retirees.
A motion to begin recording meetings [audio and slides only] starting in February. [Some confusion here as to how long they would be saved and shared. Dale Price brought up Ohio Channel but that was unheeded, audio/slides only, not the full Board and staff on view.]
The next Board meeting is scheduled for February 17, 18, 19. Steen, more than once, attempted to have a January meeting.
The day concluded with an Investment Committee meeting which featured the staff on the Direct & Co-Investment Strategic Initiative Program giving an update on a new STRS opportunity under Alternative Investments – Opportunistic Investments which looks very good in its initial stages although it needs additional staff to expand.
In union, Dan MacDonald, Executive Director, Local 279-R, NEO AFT Retirees
~ ~ ~ ~ ~
P.S. Topic jumping … now is the time to jump on the Band Wagon and send a few bucks to ORTA for a forensic audit of STRS OH. If you are on Facebook, join “Ohio STRS Members Only” and keep abreast of this fundraiser [already $50,000 of the $75,000 raised 12/18/20] along with your colleagues about STRS and their antics.
You do not need to belong to ORTA [Ohio Retired Teachers Association]
Make your check payable to ORTA, memo "Forensic Audit Donation", and send to ORTA’s office:
ORTA
250 E. Wilson Bridge Road, Suite 150
Worthington, OH 43085
(*Please include an email address with your payment. We will use this to only send you a payment conformation for your donation.)
I personally know Robin Rayfield, their Executive Director, who convinced their Executive Board to set up a special account. For more information go to www.orta.org, their website, and click on “Advocacy Through Action.”
~ ~ ~ ~ ~
From Robin Rayfield:
Nice recap, Dan. I battled through the entire day’s meetings and I am not sure just what I learned. I did hear one thing that stuck with me. I think it was Bob Stine, that said something to this effect ‘It appears that our benchmarks for determining performance incentives are not useful for their intended purpose’. So, we simply pay the incentives. That is a given.
