Rudy Fichtenbaum responds to STRS' response to Ted Siedle's forensic audit report

From Rudy Fichtenbaum

June 12, 2021

Subject: My comments on STRS's response to Siedle's Report

Some quotes from Fichtenbaum's full response, which is posted below the quotes:

"The general approach taken by the STRS staff in responding to Siedle's report is not to provide real evidence but to use a basic fallacy that gets taught to every college student who takes a course in logic and that is the 'appeal to authority.' The appeal to authority fallacy is making a statement that something is true or false because an expert says it is true or false. Something is true or false, not because an expert declares it to be true or false, but because there is evidence."

"The STRS response is long on appeals to authority and short on evidence."

"...the statement in the STRS response was a form of misdirection and is therefore misleading, because it is addressing the wrong question."

"The claim that alternative investments are good for STRS would be like a coach in a post-game interview telling reporters that we had a terrible game in the first half and a terrible game in the second have but overall, we played a great game."

"Higher returns would have increased the plans assets and reduced the unfunded liability and that is what matters when it comes to the ability of the pension to meet the promises that were made to members."

Rudy Fichtenbaum: a spreadsheet for the HPA

Rudy Fichtenbaum to HPA (STRS Healthcare and Pension Advocates)

June 12, 2021

I am attaching my spreadsheet that shows that when you use the Russell 3000 + 1 for private equity and Russell 3000 -1 for opportunistic/diversified investments as the benchmark and calculate the SIOP benchmark for STRS total returns and compare them with the GIPS returns, STRS active management does not add value. All of the data except the numbers for the Russell 3000 come from STRS’s CARFs. STRS only keeps five years of CAFRs on its website and if you download their PDFs and try and copy and paste the numbers into a spreadsheet, you will find that the PDF is password protected i.e., you cannot copy and paste. So much for transparency. But fortunately, you can download STRS CAFRs from the auditor’s website (look under audits, then search audits and type in State Teachers Retirement) and you can get the CAFRs going all the way back to 2000 and they are not password protected. So, if you want to collect your own data and verify my calculations have at it. I have also provided a little guide to the formulas in the spreadsheet that show the arithmetic in the spreadsheet for anyone unfamiliar with reading formulas in spreadsheets in Column A.

The highlighted numbers in columns O and P show that active management cost STRS approximately $4.1 billion over 10-years which is an average of $410.3 million per year. To me the numbers and the numbers and they show when you use the benchmark in the SIOP STRS underperforms the benchmark for total returns, which implies that we would have done better with passive investing. In addition, the total returns benchmark is a key element in determining PBI.

Finally, all of these numbers are totally unrelated to the question of whether STRS accurately reports its expenses. The returns I use in this spreadsheet are STRS’s GIPs returns, so in effect this analysis assumes STRS is accurately reporting all expenses. If the GIP’s returns are not net of all expenses, because STRS understates its expenses, then the underperformance would be even greater.

STRS Ohio's response to Edward Siedle's June 8, 2021 forensic audit report on the pension fund

 

Is Nick telling us just PART of the story?

From John Curry

June 12, 2021 

Nick....pray tell....tell us more!

John Curry to Rita Walters: JUST SAY NO!

From John Curry

June 12, 2021

Letter to Rita Walters

STRS Board member Rita Walters,

A few months back you gave your "they went home and did their jobs" speech. And now, next week, the STRS administration has the audacity to ask you and your fellow Board members to approve, at the June Board meeting, A 1.4% INCREASE IN YOUR 2022 BUDGET?? Really???

Active teachers have now gone years with a 14% contribution rate (second highest in the United States), and many retirees have gone 7 years without a COLA and you are being asked to approve more moneys to operate on from a building that, when built 20 years ago, had a staff of over 700 and now have a staff of 500??

Your administration has the audacity to ask for a 1.4% budget increase when they are too d..n lazy to even rent (or lease) out office space in your building which is larger than two football fields combined??? All of this when the Police & Fire, SERS (across the street) and OPERS ALL rent out building space in their buildings to other entities which make monthly rent payments to offset their expenses??? Rita, tell your "handlers" that they should get off their butts and make some money off your and my dead office space at 275 East Broad Street!

"Merit increases, promotions and adjustments?" If anything you should have long ago stopped all merit increases and "adjustments" as the people whom you are supposed to be serving, actives and retirees, have done without for years now and, for actives, will have to work longer for less. Rita, it's time YOU tightened YOUR Belt! Have your "brightest and best" leaders figure out how to survive without ANY budget increase AS YOUR STAKEHOLDERS HAVE BEEN DOING FOR YEARS NOW! Rita, "JUST SAY NO" to a budget increase and have YOUR employees sacrifice for a change....as actives and retirees have for years now!

John Curry provides us with a list of members of the STRS Healthcare and Pension Advocates

From John Curry

June 11, 2021

Here is a list of those people on the STRS Healthcare and Pension Advocates:

James McGreevy <jmcgree@columbus.rr.com>
Melissa Cropper <mcropper@oft-aft.org>, Julie Davis <jdavis@oaesa.org>, Robert Davis <davisr@ohea.org>, Rudy Fichtenbaum <rfichtenbaum@gmail.com> Timothy Freeman <tfreeman@oassa.org>, Jack Hershey <jhershey@ohiocc.org>, Mark Hill <sluggohill@gmail.com>, Julie Hovance <hovance.2@osu.edu>, Jim Rowan <jim@oasbo-ohio.org>, Bruce Johnson <johnson.3287@osu.edu>, Darold Johnson <djohnson@oft-aft.org>, Katie Johnson <Katie@oasbo-ohio.org>, Mark Jones <mjones@oaesa.org>, Sara Kilpatrick <sara@ocaaup.org>, Rick Lewis <rlewis@ohioschoolboards.org>, Kevin Miller <miller@basa-ohio.org>, Gerald Newsom <newsom.1@osu.edu>, Brian Perera <perera.1@osu.edu>, Nicole Piscitani <npiscitani@ohioschoolboards.org>, Robin Rayfield <rrayfield@orta.org>, Will Schwartz <wschwartz@ohioschoolboards.org>, Barbara Shaner <barbaracshaner@gmail.com>, Mike Suver <Suver.1@osu.edu>, Tom Walsh <twalsh@ohiocc.org>

Here's what happened when private equity, hedge fund firms invested pension cash for Ohio teachers

From NBC News: https://www.nbcnews.com/business/personal-finance/private-equity-hedge-fund-firms-invested-pension-cash-retired-ohio-n1269885 

Private equity and hedge fund firms invested pension cash for retired Ohio teachers. Here's what happened.

~    ~    ~    ~    ~ 

From Yahoo News: https://news.yahoo.com/heres-happened-private-equity-hedge-100050248.html?guccounter=1 

What happened when private equity, hedge fund firms invested in Ohio teacher pensions

John Damschroder: Our reporting confirmed

https://www.thenews-messenger.com/story/news/2021/06/08/damschroder-our-reporting-confirmed/7584606002/ 

Damschroder: Our reporting confirmed

By John Damschroder, Columnist Fremont News - Messenger

June 8, 2021

Since 2016 I have been reporting facts in the state pension financial documents that contradict former Governor John Kasich’s campaign calculated claim that Ohio pensions are “rock solid.” The State Teachers Retirement System-STRS defended Kasich’s premise, asserting in the News Messenger that CEM Benchmarking data shows them as a low cost, high performance, value adding pension system.

Now comes Edward Siedle, the former SEC lawyer turned whistleblowing crusader, to say STRS is misleading citizens through the selective use of limited CEM data. The Ohio Retired Teachers Association-ORTA forensic audit, a limited, high impact, inspection of STRS, produced a finding that fully disclosed CEM data shows the $279 million in fees STRS reports are actually at least $463.6 million.

 Moreover, CEM published reports bemoan the fact that clients like STRS are unaware at least half their true costs. The Siedle Report concludes STRS is paying nearly $1 billion a year and that those undisclosed fees cause STRS to massively underperform what a simple, cheap, transparent, liquid and safe index fund would produce. Siedle calculates STRS overpayment for underperformance costs the fund $2.5 million every trading day, far more than the $890,000 a trading day it would take to fully fund the cost of living adjustment for retired teachers.

Read the rest of the article here: 

Edward Siedle's Forensic Investigation/Audit of STRS Report, June 7, 2021: The High Cost of Secrecy

Preliminary Findings of Forensic Investigation of State Teachers Retirement System of Ohio, Commissioned by Ohio Retired Teachers Association

Benchmark Financial Services, Inc., June 2021

Click here to read the report: 

Forensic Investigation of STRS Ohio: The High Cost of Secrecy

The High Cost of Secrecy

Preliminary Findings of Forensic Investigation of State Teachers Retirement System of Ohio, Commissioned by Ohio Retired Teachers Association: Executive Summary and Full Report by Benchmark Financial Services, Inc., June 2021

Thanks to four months of hard work by Edward Siedle of Benchmark Financial Services, we FINALLY have a clear picture of what has been going on for an untold number of years at STRS regarding the unspeakably gross mismanagement of our retirement funds!

The last line in the 127 page report says it all: 

"Billions that could have been used to pay retirement benefits promised to teachers have been squandered."

See the report here: 

https://82781d1e-9774-4c42-8beb-47ead2a438eb.filesusr.com/ugd/ed1884_cb39f322009c4c8aa4189e

45f15402e7.pdf 

Tom Curtis to Plain Dealer reporter: Please consider doing an investigative report on the mismanagement and misspending at STRS

From: Tom Curtis

June 6, 2021

To: John Caniglia

John Caniglia, Investigative Reporter for the Cleveland Plain Dealer,

My name is Tom Curtis. I have been a STRS benefit recipient since 1998.

I am contacting you in hope that you might consider an investigative report on the mismanagement and misspending at the Ohio State Teachers Retirement System.

As you may know, the promised 3% COLA for retirees was eliminated by the STRS Board in 2013. The change to a 2% COLA was also eliminated in 2017 and we have been stagnant ever since. The Board promised to revisit the COLA issue in a few years, but has not done so to date, citing various reasons for not doing so.

STRS is currently undergoing a forensic audit by famed outside Attorney Ted Siedle. This is being paid for ($75,000) by STRS retiree donations through the Ohio Retired Teacher’s Association (ORTA), headed by Executive Director Dr. Robin Rayfield. ORTA has since had to file a suit against STRS to release investment records that STRS claims they cannot provide because that information is “secret”. STRS actually claims that they do not have the records of certain investments handled by an investment firm they have used for several years. How is it lawful for our fiduciary to claim that certain investments are “secret”?

Some background: In 2003, one of your former investigative reporters (Steve Ohlemacher 6.8.03) covered the reported mismanagement and misspending going on at STRS by the then Superintendent of the Chillicothe School System, Dr. Dennis Leone. Dr. Leone had written a 13 page position paper listing his numerous questionable findings. Leone presented this document to the Board and requested a response to his allegations. At first, due to the arrogance of the then Executive Director Herb Dyer, he and the Board simply ignored the document for a few months.

When Steve Ohlemacher was given a copy of this document, he himself went to STRS and verified all of the allegations Dr. Leone had listed within his document. Steve actually uncovered 4 more issues not found by Leone. Steve’s findings became front page news for the Plain Dealer. In my opinion, the corruption and mismanagement has never ended. Ref: https://kathiebracy.blogspot.com/2008/06/flashback-from-five-years-ago-teacher.html  

In 2004, STRS drastically reduced the promised fully paid health care coverage for benefit recipients and their dependent children. There was no grandfathering for those already retired. That benefit had been in place for many years. To retirees’ detriment, STRS failed to provide a dedicated flow of income to keep the fund financially secure.

The result was that benefit recipients had their subsidy reduced by 25% and all of the subsidy for spousal and dependent children was removed. Retirees still had access to the coverage, but had to shoulder the cost for their family. Retirement without a strong HC program is no retirement at all.

In 2013, the Legislature changed ORC 3307.67 law which had provided for a 3% COLA to nearly all STRS benefit recipients between 1979 and 2012. In turn the Ohio Retirement Study Counsel (ORSC), which is the oversight of all 5 Ohio pension systems, willingly gave the STRS Board the responsibility of determining whether or not to provide STRS retirees with a once promised COLA.

In 2017 the STRS Board decided to eliminate the COLA for all STRS BR’s. The Board would not even consider “grandfathering” those already promised the 3% COLA at retirement, which some of the other 4 pensions system did do.

STRS has for years manipulated the numbers used to determine the unfunded liability of the STRS. Thus, the STRS Executive Staff and Board have claimed that the unfunded liability is not within the State mandated guidelines. Consequently, the Board justified removing various promised benefits retirees were provided at retirement, the greatest of which was our much needed COLA.

Consequently, since 2017 STRS retirees have suffered a huge loss in income and the buying power of our pension check continues to be eroded every year. This is very daunting to us. Retirement without a COLA is no retirement at all. Many retirees have had to go back to work do to the loss of our COLA.

STRS retirees beg of you to please review what information you have on hand from 2003 and beyond concerning the mismanagement and misspending at STRS and consider an investigation of your own.

The results of the forensic audit performed by Attorney Ted Siedle with be available on the ORTA webpage on Tuesday, 6.8.21.

Thank you for your time.

Sincerely,

Tom Curtis