Rudy Fichtenbaum shares his letter to the HPA with all STRS stakeholders
Will the HPA be part of the problem or part of the solution?
From: Rudy Fichtenbaum
To: STRS stakeholders
June 21, 2021
From: Rudy Fichtenbaum
To: Healthcare and Pension Advocates of STRS (HPA)
June 18, 2021
HPA members:
I have never heard a Board meeting like the one I listened to Thursday, and I have sat through many Board meetings for different organizations. I have never seen an organization where Board members cannot add items to a Board agenda. I can tell you that no University Board operates that way, union Boards do not operate that way at least not in the AAUP nor on the Executive Board of the Miami Valley AFL-CIO. It is part of the way that the staff try and control the agenda of the meeting because they are afraid. I will not speculate as to why they are afraid but I think that is a fact.
Voting on items as a group is certainly contrary to Robert’s rules unless a group of changes is common e.g., let’s change this word to another word throughout the document. But when voting on distinct items, any parliamentarian (and I have had the opportunity in AAUP to work with a professional parliamentarian) will tell you that you should have separate votes on items to allow members to vote one way on a particular item while voting another way on another item. Incidentally, in another life, I also served as President of the Faculty Senate at WSU twice, chaired almost all the major University-wide faculty committees and I was President of the National AAUP for more than 8 years, so I know a thing or two about running the meetings of deliberative bodies. When the question was raised about whether STRS follows Robert’s Rules of Order, we were informed that they use them as a guide. I am not sure what that means. Does it mean you used them when it is advantageous to those who are running the meeting to control the meeting but not use them when it might threaten their control? You either use Robert’s Rules or you don’t. Yes, I know the STRS Board is not required to follow Robert’s Rules, so no policy, regulation or law was broken. But there is a reason why organization use Robert’s Rules and that is because they ensure fairness, orderly meetings and promote democratic decision making. That part of the meeting was a total embarrassment. It is what I imagine meetings to be like in the Kremlin or in a Banana Republic. You can have any view you want as long as it is the view sanctioned by a dictator.
I am not sure why it is hard to find common ground on a set of facts. After all facts are just facts. Part of the problem is STRS staff has lots of facts that they are unwilling to share. I am not going to speculate as to why they will not share the information but it is a fact they will not share a great deal of information that would put us all on the same footing. Nevertheless I think there are facts we agree upon.
Our pension is the only public pension in the U.S. where the normal cost is less than member contributions. So active members are getting screwed. It is a fact that a significant number of retirees are very, very upset about the elimination of the COLA. They feel that they were promised a COLA when they made the decision to retire and now that they have made an irreversible decision, the rug was pulled out from under them. So far, I don’t think anyone will argue with the facts as I have stated them in this paragraph.
The pension has significant cash outflows and fixed contributions that can only be changed through legislative action. This along with some previously stated facts means that the pension is very vulnerable to a significant downturn in the market. Such a downturn could trigger an irreversible spiral down from which STRS could not recover ultimately leaving the pension insolvent. Checking in again on the facts, I don’t think any staff, current Board members or members would disagree, although many members do not understand the risk for the pension. Again, so far, I don’t think I have said anything controversial.
Given the investment strategy of STRS if the Board reduces risk, they will reduce returns and right now although 2021 has been a great year they cannot afford to reduce returns. There is also a lot of unmeasured and unmeasurable risk in the STRS portfolio. There is a lot of liquidity risk because of the significant part of the portfolio in alternatives and real estate. This last statement probably starts to boarder on a fact that some might not agree with but it doesn’t seem very controversial to me.
I think it is a fact, that STRS needs to increase its returns and I have heard several current board members and former board members make this statement and I have not heard any Board member or staff member disagree with that statement. There are only two ways to increase returns, reduce investment expenses or other things equal increase returns (gross returns). At the end of day the pension needs more money. How am I doing so far?
It is also a fact that a proposal to increase returns, reduce expenses and reduce risk exists and the staff of STRS are aware of it. That is a fact. I have seen an email from an STRS staff member asking questions about how to implement this proposal from written to an employee of another pension has been implementing these strategies for years and I would be willing to produce a copy of that email if anyone doubts it. The email is exploring the possibility of STRS using liquidity monetization (LM) strategies to enhance STRS earnings. So, I will consider this a fact.
At yesterday’s Board meeting Wade Steen, the governor’s appointee said, “A solution exists to restore COLA and lower both employee and employer contributions.” That is additional evidence that at least some members of the Board know about LM. Steen goes on to say that “STRS senior staff have gone to great lengths to prevent the board from discussing this solution. The reason for this obstruction is likely because of the inherent conflicts of interest - the staff are unwilling to confess their performance failures and recommend a solution which jeopardizes their employment with STRS.” Now I think I have gotten an area that will be controversial, because here Wade Steen is speculating about motives. But forgetting about motives, it is a fact, that there is a proposal that could be helpful, but it can’t get in front of the Board because that decision is controlled by the Chair and the senior management staff.
The fact that no Board members were willing to comment on Siedle’s report except for Wade Steen is deeply disturbing. Board members who spoke in response to Steen’s request sounded like school children giving excuses like my dog ate my homework, when trying to explain why they had not “had time to read the report carefully.”
When a sitting board member says that his information requests have been denied, how can the STRS staff say with a straight face that they are being transparent? The three items that Wade Steen mentions should have been given to him immediately (that’s my opinion, not a fact). If they are not being transparent, what are they trying to hide? (That’s just a question, not a fact or an opinion). When a sitting member of the Board of one of the largest pensions in the world says he has read the Siedle report and found it deeply disturbing and gives out the phone number of the FBI in a public meeting, I would say it is a fact that there is trouble in paradise.
If we are going to save the pension, we need help. At some point you either have to be part of the solution or you are part of the problem. I am hoping that HPA can be part of the solution.
Best,
Rudy
Rudy
Rudy Fichtenbaum is Professor Emeritus of Economics at Wright State University. In May, 2021, he was elected to a retired seat on the STRS Board, effective September 1, 2021.
posted by Kathie Bracy at 3:02 PM
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