Bob Buerkle educates some educators re: STRS funding and policy

Bob Buerkle’s Response to OEA Brass Facebook Comments follows this italicized posting

December 22, 2020

Stephen Kitchen, a member of this Facebook group, received this email message from Mary Binegar, OEA-R Chair.

I appreciate your concern about our pension system. As a fellow retiree, I too am very concerned that STRS stays healthy and reliable. Since you spoke about being an OEA member as well as an OEA-R member, I conferred with Scott DiMauro about my response to your email. Scott along with Mark Hill and Robert Davis put together a response with which I completely agree. The response is as follows:

It’s in the interest of all STRS members (active and retired) to have a fiscally sound retirement system that is able to indefinitely pay benefits. The Great Recession put the long-term solvency of STRS in peril. Without changes they would run out of money. This led to pension reform legislation and a lot of shared sacrifice. Active teachers have had to work longer, contribute more and see formula reductions, while retired teachers have been dealing with frozen cost-of-living adjustments. These changes were difficult but necessary.

STRS is currently 77% funded. Each year STRS pays out billions of dollars more in benefits than they take in from contributions. This means the system is heavily reliant on investment income to pay current benefits and pay down the unfunded liability of the system (over $20 billion). However, as financial conditions improve, OEA/OEA-R support the restoration of COLA benefits as well as a reduction in the employee contribution rate.

OEA and OEA-R, in collaboration with the Health Care and Pension Advocates (HPA), urged the STRS Board to establish a plan with clear financial guideposts for restoring benefits. The Board adopted a policy that once the system is 85% funded they will consider changes that do not materially impair the fiscal health of the pension plan. We believe that the 85% funding level is measured and appropriate.

Everyone wants a COLA. However, it would be shortsighted to say that STRS can afford to pay out a COLA now and put the pension benefits of future retirees at greater risk.

Mary Binegar

OEA-R Chair

Below is Bob Buerkle’s Response to OEA Brass Comments

After the response above from Scott DiMauro, Mark Hill and Robert Davis there are four paragraphs. I will identify each one I am commenting on by the paragraph numbers 1 through 4 and reference the topics within the "quotation marks."

Paragraph #1 – “The Great Recession put the long-term solvency of STRS in peril. Without changes they would run out of money.”

Since nobody has a crystal ball to see the future, these comments are speculation. It’s not that STRS did not lose a lot of money; they did. But they have lost a lot of money in other recessions and sometimes it takes years to recover. That’s why Callan Associates, the STRS Investment Advisors, said just last week at the Board meeting, that long term average returns are far more important than say one-to-five-year returns. Two more comments: First, the 30-year investment return averages have always exceeded the STRS investment return averages by a wide margin, currently by over 1%, even with the two extreme recessions and Covid 19 in the last 20-years. Second, when good investments still lose money, the experts say you should stay the course. STRS was over 70% invested in stocks in 2000 and we’ve dropped that down to just 50% today. If STRS had stayed the course and invested in the same stocks that it did invest in, but at a 70% investment exposure, instead of 50%, we would have had an absolute increase in equity returns of an extra 40%. Why did STRS not follow this long accepted investment theory?

Paragraph #2 -- “STRS is currently 77% funded. Each year STRS pays out billions of dollars more in benefits than they take in from contributions. This means the system is heavily reliant on investment income to pay current benefits and pay down the unfunded liability of the system (over $20 billion).”

This is the normal course of events for a MATURE PENSION SYSTEM. STRS reached that status after 76 years. The year was 1996. All that means is that some of our investment returns will have to be added to member and employer contributions to meet the retiree pension obligations. Currently that difference is around $3.5-4 billion dollars, which is only about 5% of our $80 billion dollar portfolio. Since the last 30-year STRS investment returns reported were 8.47%, the 5% target needed has not only been easily met, STRS has reduced our unfunded liability from around 36 years in 2013 to just over 13 years today, by far the best of all 5 Ohio pension systems.

Paragraph #3 -- “The Board adopted a policy that once the system is 85% funded they will consider changes that do not materially impair the fiscal health of the pension plan. We believe that the 85% funding level is measured and appropriate.”

There is nothing wrong with seeking an 85% funded ratio. However, the way that STRS voted to achieve this is problematic for our retirees. So far, since July 1, 2013, over 28,000 of our 2012 and earlier retirees have died without ever again receiving the COLA that they were promised at retirement. I was at the March 19th, 2015 Board meeting when the Board voted to adopt a 30-year closed funded plan. What that actually means is that the Board would be 100% funded at the time they reached an unfunded period of “0.” Later, under pressure, the board lowered the target to 85% funded when a COLA might be reinstated. Even 85% is projected to take 15-18 more years to achieve; again, according to Callan Associates. In the last 52 years STRS has only exceeded an 85% funded ratio in 4 years, all of which were during the dot-com bubble. Achieving an 85% funded ratio should have been a 50 to 75-year goal, while also continuing to pay some COLA amount.

Paragraph #4 -- “Everyone wants a COLA. However, it would be shortsighted to say that STRS can afford to pay out a COLA now and put the pension benefits of future retirees at greater risk.”

Remember this from Paragraph #2 above? “(over $20 billion).” As the three OEA authors stated, that’s the amount of current STRS debt, our unfunded liability. Or is it? The answer to this question must reflect investment returns we have actually earned, along with what STRS expects to earn going forward. Our actual and most recent 30-year returns averaged 8.47%. Callan has been predicting the 10-year STRS returns will be in the 6.85% to 7.45% range for about 4 years now. Something similar was projected around 10 years ago. According to STRS, the last actual 10-year return was around 10.4%. 2020 will most certainly be another excess earnings year and 2021 is supposed to be similar but probably slightly lower returns. Now back to that $20 billion of debt. If STRS changed their investment return assumption back to the 8% that it was from 2003-2012 we would immediately be over 90% funded. That still leaves a 47- basis point cushion of safety. That may not be enough of a safety margin, but what is? Is 75-basis points the right spread? Maybe the current 102-basis point cushion is more than necessary. Did you know that the Ohio Police and Fire Pension System still use an 8% return assumption, still pays a 3% COLA to their retirees and has earned less than STRS over the last 10 and 30-year periods? STRS is much, much stronger than OP&F. I’m for staying strong, but what’s the purpose of becoming over solvent at the cost of reducing the pension and COLA promises STRS made to us at retirement?

Robin Rayfield Reports.....

The following is taken from the December 2020 ORTA News and was written by Executive Director Dr. Robin Rayfield.

Forensic Audit 

ORTA’s effort to raise money to pay for a forensic audit of STRS investments and expenditures has been successful, to say the least. As I write this update, we are on the cusp of over $50,000 raised! With only $25,000 more needed, it appears as though we will reach our goal. Thus far nearly 600 donors have contributed over $48,000. Several local chapters have sent in donations, new ORTA members (roughly 200) have donated; non ORTA member retirees and active STRS members have also stepped up to the plate. And, as you no doubt already know, many faithful ORTA members have contributed to the cause. I am optimistic that many more ORTA members will step up and send in their donations to close out the fundraising effort and get the important work of a deep dive into the way our pension fund is managed begun. I would be remiss if I did not acknowledge the fantastic donation sent in by the members of the Hamilton County RTA. Hamilton Co. sent ORTA a donation of $15,000!

 I am very humbled by the donations sent in so far. I have received several calls and notes from ORTA members along with their generous donations. One note comes to mind. This person, who wishes to remain anonymous, wrote that they have been retired for many years and had enjoyed the promised COLA for several years and, even benefited from the 13th check program years ago. The last several years, however, have been a struggle as she had lost her spouse of many years and, as a result lost her spouse's Social Security benefit. Times were very difficult, but she wanted to contribute to the forensic audit because she felt like she had been lied to by STRS. She was adamant that she "only wanted" what she was promised and guaranteed by law at the time of her retirement. She was frustrated by the yearly salary increase awarded STRS employees and the performance incentives paid each year to STRS employees even though they were failing to pay her guaranteed retirement benefit. I could not agree more. I think she describes what all retirees are feeling.

Let’s push the donations across the finish line and get Mr. Siedle started on his important work. We deserve answers to our questions and the sooner we get them the better. If every person that receives this email sent in $5.00, ORTA would reach its goal and retirees could begin getting answers to questions about our pension system.

STRS News

As I write this update, I am waiting for the STRS board to begin its December 2020 meeting. The recent meetings of the STRS Board have provided interesting exchanges between STRS employees and a couple STRS Trustees. Specifically, Wade Steen has asked several questions of the STRS employees that go well beyond the surface. Mr. Steen has also acknowledged that STRS is not meeting its obligations to the retirees. He has challenged everyone at STRS to find ways to fund the COLA and improve the financial position of the STRS system.

Much of the information covered at the STRS Board meeting on Thursday Dec. 17, 2020 concerned the benchmarks for STRS investments. In fact, from 10:00 am until 3:00 pm each of the asset class benchmarks were discussed. What I was able to discern from five hours of discussions about benchmarks is that these metrics are not understood by any of the STRS board members. In fact, one STRS board member said, "I guess what we know about our benchmarks is that these benchmarks are not helpful in determining the performance of our investment staff"’. A few things are clear. STRS staff are being paid tremendous incentives and NOBODY can say for sure if the staff have met the benchmarks established or if the benchmarks really provide a measure of whether STRS staff performance warrants an incentive bonus.

STRS Elections

This spring two retiree seats on the STRS Board are up for election. I have received calls from OFT leaders and from individuals interested in running for a seat on the STRS Board. ORTA will seek information from each person that declares their candidacy for these positions. So far, I have received information from one person that has declared his candidacy; Ron Donatone is an ORTA member from Northeast Ohio. Ron is hoping to get the signatures required to be placed on the ballot. If you would like to help Mr. Donatone get his signatures, you may contact him via email at rdonatone@hotmail.com

OFT has reached out with names of two candidates. Rudy Fictenbaum and Elizabeth Jones have declared their intention to run for STRS Board. I do not have information from these people, but I will reach out and get platforms from all candidates for next month’s newsletter.

Best Holiday Wishes,

Dr. Robin Rayfield

ORTA Executive Director

Another Read from Edward Siedle's book, 'Who Stole My Pension?'

If you haven't yet donated to the fund for the forensic audit of STRS, you need to read this excerpt from Who Stole My Pension? by Robert Kiyosaki and Edward Siedle. If you have kindly donated, you may want to consider donating again after reading this. It may sound very familiar to those who have been following STRS Board decisions over the years and observed how pensioners have steadily lost ground while the STRS staff and investment personnel have gained BIG time. Six-figure salaries and bonuses handed out right and left? Did we get anything like that when we were teaching? Read on!

Chapter Twenty-Two (Excerpt)

Page 255

Join Others to "Crowdfund" an Investigation of Your Pension

Hopefully, at this point in our book, it is clear to you that:

1. The world is faced with a retirement crises;

2. The pension benefits you have been "promised" during retirement are in danger;

3. The people overseeing your pension are not knowledgeable about pensions or investments. They are incapable of making sound decisions and cannot be trusted to tell you the complete truth about how the pension is doing;

4. The Wall Street firms that have been hired by your pension to manage its assets are profitiing at the expense of your pension (aka looting);

5. You can and should get involved in scrutinizing the pension you will be relying upon to provide your retirement security. 

But there is something much more powerful you can do.

Imagine this: You and your fellow pensioners can get together to fund a forensic investigation of your pension by a pension expert. In other words, hire your own expert to review - and get a second opinion - on whether the pension overseers and Wall Street "helpers" they have hired to manage your pension are doing a good job.

For the cost of dinner for two at a middle-of-the-road restaurant, say $100, you and your fellow pensioners can retain an expert to investigate and provide a written report with recommendations to improve your pension and stop the looting. Is it worth a one-time contribution of $100 to protect a pension of, say, $1,000 a month for life?