John Damschroder: Ohio STR spells conflict

https://www.thenews-messenger.com/story/news/2021/11/24/damschroder-ohio-str-spells-conflict/8679909002/ 

Fremont News Messengeer

November 24, 2021 

Damschroder: Ohio STR spells conflict

John Damschroder, Columnist

This is probably the most important agenda item in the history of the pension system.”

When 12-year  State Teachers Retirement System of Ohio Board member Robert Stein, a three-time chairman of the body, began his presentation to former colleagues, framing the issue before them as an existential question, STRS became the site of hand to hand bureaucratic combat.

The long awaited investment proposal from STRS board member  Wade Steen, a Fremont Ross graduate, calling for the restoration of the cost-of-living-adjustment (COLA) stripped from pension beneficiaries  since 2017 and smaller payroll deductions from active teachers, was finally getting its public explanation.

Steen proposed a proof of concept partnership with $250 million from STRS managed by a start-up Columbus investment company called QED, fronted by Huron native Jonathan Tremmel and former Ohio Public Employees Retirement System board member Seth Metcalf.

TEACHERS FORCE AUDIT Damschroder: Ohio teachers use Facebook to force pension audit

The attack from dissenting STRS board members and STRS staff was intense, probing for illegal connections between presenters Steen, Stein and the newly elected economics Ph.D Rudy Fichtenbaum, and QED. When the recently resigned Stein reported he had an Ohio Ethics Commission opinion on his revolving door and information confidentiality requirements and dealings with QED have crossed no legal boundaries, the attack shifted to the youth and potential enrichment of Tremmel and Metcalf.

It was all about painting the public record with what STRS Chief Investment Officer Matt Worley called “normal due-diligence.” But over time, it was revealed the STRS board and staff has known for months that Robert Goobie, portfolio manager  of the Healthcare of Ontario Pension Plan , and Jim Keohane, the recently retired  president and CEO of HOOPP, also would be part of the QED company, making the attack on credentials and track record a distortion of reality.

Lack of good faith on full display

As Robert Stein kept pointing out, HOOPP achieved high enough returns to pay full benefits with a 19 percent surplus, while taking much less investment risk than STRS or any other Ohio public pension.

The presence of the chief architects of the plan in Ohio was held close to the vest by the presenters so as to protect Goobie’s employment. His name was made public by board member Jeffrey Rhodes to make sure HOOPP knows a key employee is willing to leave for Ohio and help launch a business startup.

This lack of good faith was on full display when STRS investment consultant, Cliffwater CEO Steven Nesbitt cited “no past experience,” and “lack of performance record,” as reasons not to do business with QED, despite his knowledge of HOOPP’s performance and the experience its top leadership would bring to Ohio.

Nesbit’s conclusion that there is “regulatory risk of significant magnitude,” is true and should have been a springboard to clear explanation of the opportunity Steen, Stein and Fichtenbaum want to test with a quarter billion dollars. The shorthand version is Ohio would wholesale money to Goldman Sachs so they could mark it up to retail clients that would be impossible for STRS to deal with directly.

Idea is called index-plus

The idea is called index-plus, as they would take a small piece of the cash and buy a contract paying STRS the returns from a market index for the $250 million. The rest of the STRS money would be United States Treasury Bills, considered by financial industry accounting regulations the safest investment in the world.

Ohio would help Goldman maintain the capacity to make high profit trades for their clients by swapping the higher risk investment for the T-bills, collecting a significant payment and a contract to buy the risk assets back. Goldman would show very safe assets on their balance sheet, STRS, with none of the regulatory issues Goldman has, would have a new source of cash and a contract Goldman couldn’t escape, to buy back the risk assets, unless they go bankrupt. Regulators follow Goldman Sachs because it’s a Global Systemically Important Financial Institution (GSIFI), officially designated as too big to fail.

STRS CIO Worley says back testing the index-plus concept since 2009 shows it would have brought a 45 percent loss and cost STRS $21 billion dollars. But Worley also claims STRS has been doing rate return swaps like the QED proposal for 3 decades, so he’s already playing with fire.

The irony is that the marked-up money Goldman Sachs sells, is purchased by exactly the sort of alternative investments already stacked in the STRS portfolio. Now, STRS pays that cost, as fees to borrow money are passed on to the limited partners. If Ohio won’t switch from paying fees to collecting fees, Dr. Fichtenbaum says some other state surely will.

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

Rudy gives Cliffwater an F in elementary math

From Rudy Fichtenbaum

November 22, 2021 

CEO of Cliffwater Gets an F in Elementary School Arithmetic

 Rudy Fichtenbaum 

In the coming days and weeks, I will have more to say about what transpired at the STRS Board meeting. But for now, I want to comment on an exchange I had with Steve Nesbitt, CEO of Cliffwater, who is the STRS consultant for alternative investments. In my attempt to make a presentation, I compared U.S. pensions with a Canadian pension for their rates of return and the standard deviations, the latter being a measure of risk. Specifically, I said that over a 20-year period, the Health Care of Ontario Pension Plan (HOOPP) had a greater rate of return and took far less risk than STRS. Mr. Nesbitt then criticized my analysis for not accounting for currency differences.   

The rate of return is a ratio where the numerator and denominator have the same units of measurement. For example, take a door that is 72” high and 36” wide. The ratio of the height to the width is 2:1. Measuring the same door using the metric system it would be 182.88 cm by 91.44 cm, and the ratio would still be 2:1. 

The table below shows an example, calculating rates of return for a hypothetical pension. A rate of return is money earned and dividing it by money invested. In the left half of the table, we use US dollars (U.S. $); the right half of the table is expressed in Canadian dollars (CA $). The exchange rate for the Canadian $ is 1.26. (That is, CA$1.26 = $1. So, if you are Canadian and planning to visit the U.S. and you want to convert Canadian $ to U.S. $ you will have to give C$1.26 to get $1 U.S. Conversely, a U.S. resident going to Canada would give about $0.79 U.S. to get C$1.) 

But the currency in use (U.S. dollar or Canadian dollar) has no bearing on rates of return and their standard deviations. Why? Whether you measure money earned (the numerator) and money invested (the denominator) in US dollars $ or Canadian $ (C$) or euros or rubles, the outcome of the division – the rate of return – is the same. The rate of return is thus a “pure number”, one not entailing units (like US dollars or CA$, etc.) at all. 

A standard deviation has the same units of measurement as the underlying variable (the rate of return). In this case, since rates of return have no units of measurement, their standard deviations also have no units of measurement. Since, rates of return are pure numbers, their standard deviations are pure numbers, too. Currencies just don’t matter. It appears the CEO of the firm that advises STRS on alternative investments doesn’t understand basic arithmetic. Perhaps that explains why we lost $0.5 billion investing in Panda Energy and more importantly why our alternative investments can’t beat a real benchmark.  

(Q.E.D), quod erat demonstrandum, Latin for "Which was to be demonstrated."

Dr. Rudy Fichtenbaum is Professor Emeritus of Economics at Wright State University. He has been an elected member of the STRS Ohio Board, filling a retiree seat since September 2021.

Ohio teacher featured in new NBC News documentary

NBC correspondent Hallie Jackson talks to Ohio retired teacher Jan Stewart about how the suspension of the COLA is affecting her budget and her life.

https://youtu.be/EUwqJ7zJoS0?t=2525

A few comments from Mr. Simpson

Oversight? I don't see no oversight. Do you see any oversight? We don't need it, anyway. We do jist fine without it. Heck, you should SEE the money rolling in from all them teechers! No wonder the AVERAGE salary in this fancy palace is six figures! Remember, that "average" figures in everybody's salary, from the highest-paid leech to the lowest-paid gofer. Didn't I hear the other day there's something like 200 people in this place that make six-figure salaries? That sounds pretty cool when you realize that represents close to 40% of the people on the payroll!

I hear that big union next door does pretty well, too. They have a humongous payroll; again, tons of six-figure salaries; but then they charge their teachers a FORTUNE in dues to pay those folks! Between that place and the palace, and now out-of-control inflation, I don't see how them poor teechers who have survived that corona virus and havin' to teech in those classrooms with their masks on and then havin' to go home and create them virtual lesson plans out of thin air can even afford to put food on the table, let alone keep up with their mortgage payments. And I bet a bunch of them are still strapped tryin' to pay off their student loans, too.

Oh well, that ain't my worry. I'm busy enough trying to keep that Board and all them stakeholders in the dark, thinkin' we don't have enough dough to worry about a little thing like a COLA. Would you believe a bunch of them Board members actually believe it? Trouble is, there are a few really smart guys on that Board that's figured out what's really goin' on, but since the rest of them don't know squat about the real workings of this place, and they think them staff people walk on water, I still don't feel inclined to worry since they have the majority vote. Even one or two of them ladies are pretty outspoken, which works out great in our favor because it makes them look important, at least in their minds, even if they don't have a clue what they're talkin' about. That don't matter as long as it pleases them staff people and the big boss that runs the whole circus (the lord of the manor, who works in mysterious ways).

Dan MacDonald reports on the November 18, 2021 STRS Board meeting

From Dan MacDonald

November 22, 2021 

This is my personal summary of the STRS November Educational & Planning meeting. STRS’s E-UPDATE has yet to appear. November’s STRS Board meeting is called the Educational & Planning meeting and it is not your typical Board meeting. It is to be a little like a workshop. Information shared. Discussion. Self-evaluation. No Public Participation. This year’s was quite special.

Wow, what can be said about the November Education & Planning Meeting other than debate, tension, accusations, and a split on the Board. The status quo, and other ways to do things, all under attack. Consultants for Cliffwater, Callan, and Cheiron were present. David Mustine, another consultant and new to Board meetings, was the quiet facilitator for this Educational & Planning Meeting. He opened with three key observations: the Board is highly professional and has a heavy lift; there are recent relationships and process issues on the Board, and COLA. [No reactions by anyone, move on. It is more than COLA.] The STRS staff or Cheiron presented on the “Scope and Timing of Current and Upcoming Studies,” “An Actuarial Audit,” a “Fiduciary Performance Audit,” an “Asset-Liability Study,” and a “Five-year Actuarial Experience Review.” The next presentation was “Ethics Provisions Applicable to Ohio Public Pension Officials.” This was a timely presentation with information used later to attack former Board member Robert Stein, and current Board members Wade Steen and Rudy Fichtenbaum. To be accurate, this is a yearly presentation but its timeliness with a later-in-the-day presentation was useful to status quo members to threaten, and we will probably see if Ohio Revised Code was violated. [My thought, the threat was there both from Board and Staff to the future 3 presenters.] The ensuing presentation was “Plan Governance and Fiduciary Duties.” Again, this is a yearly presentation, but this year there was push back. Steen questioned if any of STRS’s consultants, the “expert advisors,” had ever been held accountable for bad/poor advice. No one could remember a time of that happening or even being brought up. Under Board policies – Governance Process, was when contentiousness began and continued. “One voice” was raised, actually “one unified voice.” Trust was brought into discussion. A Board member social media post was brought up, even though the Board member was not yet on the Board. Diversity of opinion was challenged once a Board vote was made. Board member Fichtenbaum pointed out that he thinks there is an erosion of trust to members and Board more than to Board and staff. [Basically, most of the Board members think that once a vote has taken placed, shut up and fall in line; defend the decision to the public, actives and retirees.]

The succeeding presentation was an “Investment Proposal” by Board members Steen and Fichtenbaum plus former Board member Robert Stein. The presenters requested that the presentation be made with questions at the end. That never happened. Fireworks started immediately. Cliffwater challenged the use of its slides as “work product” and their use. Board members pointed to plagiarism and what would happen in their classrooms. Attacks of who knew whom, how, what, when. Were the presenters’ part of the proposal? What were the presenters getting of value for making the proposal? [Apparently two investment start-up individuals had previously made an Executive Session presentation to the Board. I surmise that at an Executive Session the Board requested Cliffwater vet the individuals and the Board followed Cliffwater’s recommendation.] Strategy or proposal accusations, allegations of unauthorized taping of conversations, transparency, honesty, finger pointing, he said; she said, and much more turned this one-hour allotted presentation into a 3 plus hours fiasco with slides having sources removed and a let’s move on to lunch request ending this portion of the meeting at 2:20 p.m. [It was difficult to keep up. You should sign into STRS and listen to this portion of the meeting. I will personally say that the 65 billion needed to fully fund the strategy/proposal for a return of 4 billion in fees, was a little much for me, but 250 million was another figure out there. The figure used depended on the side being argue, or thrusted in your face. From the strategy/proposal, my understanding banks make a plethora of money by charging fees, the same concept would somehow use/lend STRS general fund moneys for far less risks than the stock market. Wish I could be clearer, but all of us, actives and retirees, should print the presentation slides and listen to this portion of the meeting. Go to www.strsoh.org under “About Us”]

When the meeting resumed, Routine Matters were voted. Under new business, Board member Fichtenbaum made a motion, seconded by Steen, providing a 2% COLA for two years and a reduction of contribution of 1-2% for two years. A motion to table indefinitely was made and passed therefore the first motion was not voted. The last presentation was by a Keith Brainard, Research Director, National Association of State Retirement Administrators, on the “Current State of Pensions in the United States.” Basically, pension funds are struggling with an aggregate funding level of about 73%. The meeting quickly ended after the presentation with closing comments by Board leadership and adjournment. The next Board meeting will be Thursday, December 16, 2021. YOU should try to attend virtually or in person.

Transparency at your friendly pension system

Alfred

Like Father, Like Son: The next major scandal is reflective of Party ethics set by the State Central Committee

https://jonmorrow.substack.com/p/like-father-like-son?utm_medium=email&utm_campaign=cta&fbclid=IwAR1OPKJ67gu0U2byMyLZBK3kOT0_

Uq91iWXLnexD_HKmYqakuudizA_KLy8  

Like Father, Like Son 

The next major scandal is reflective of Party ethics set by the State Central Committee

The Republican Reformist

November 20, 2021

THE NEXT BIG OHIO SCANDAL IS BREWING

The Ohio Retirement Study Council was created by the Ohio Legislature to provide legislative oversight of Ohio’s $200 billion-plus statewide public pension systems. Absolutely like the Ohio Republican State Central Committee, for decades, it has epically failed to perform its limited statutorily-mandated duties.

The Ohio Retirement Study Council (ORSC) was created by the Ohio Legislature in 1968 to provide legislative oversight of Ohio’s statewide public pension systems. The five retirement state systems have combined assets of approximately $203 billion with approximately 2 million members, beneficiaries and recipients. The ORSC is comprised of three senators, three representatives and three governor’s appointees.

REPUBLICANS SHOULD NOT BE AFRAID OF AUDITS

The ORSC is statutorily required to have conducted by an independent auditor at least once every ten years a fiduciary performance audit of each of the pension systems and actuarial audits of the pensions. The purpose of a fiduciary performance audit is to critically review and evaluate the organizational design, structure and practices of the systems. An actuarial audit provides an independent review of the systems’ consulting actuary. The ORSC also reviews the annual operating budgets for each of the pensions. In addition, the ORSC hires its own independent investment consultant to perform the statutorily required semi-annual performance review of the policies, objectives and criteria of the systems’ investment programs.  

INEXCUSABLE AND UNETHICAL CONDUCT

Despite the statutory requirement of an independent fiduciary performance audit and actuarial audit at least every ten years, it has been approximately 15 years since the last such audits of the $93 billion State Teachers Retirement System (STRS) commissioned by ORSC.

When statutorily mandated, critical audits designed to protect the integrity of a $90 billion retirement plan are not commissioned, and delayed year-after-year, it is inexcusable.

Any mismanagement or malfeasance which could have been exposed years earlier through timely audits has been allowed to persist, potentially resulting in great risk and cost to the plan. Worse still, the last fiduciary performance audit in 2006 revealed multiple serious deficiencies which have never been addressed over the past 15 years.

YOU WON’T SEE ORP (OHIO REPUBLICAN PARTY) CHAIR PUSH FOR AN AUDIT BECAUSE THE PARTY’S OWN BOOKS HAVE NOT BEEN AUDITED FOR 16 YEARS. This is not how a company or a state is supposed to be run. The ORSC’s failure to audit is especially troubling because it indicates a lack of diligent legislative oversight potentially impacting all $200-plus billion in Ohio public pensions and millions of citizens. The fiduciary audit for Ohio Public Employees Retirement System was not performed by an independent auditor (as required under applicable law) and was three years late; the Ohio Police & Fire Pension Fund is only now requesting proposals for the fiduciary audit due 2016; and the actuarial audit of the Ohio State Highway Patrol Retirement System is 21 years overdue.

Clearly, legislative oversight has been compromised for decades.

That’s bad news for Buckeyes.

According to ORSC, “decisions about public pension plans typically involve significant long-term costs, such as 30-year pension obligations. If not made carefully and with foresight, such decisions can seriously threaten the budgetary stability of state and local governments years later when the pension obligations become due. Those decisions can also result in an unfair burden on future generations of taxpayers and adversely affect the credit rating of the state or local government’s debt.”

When asked recently why the audit is already five years late, State Rep. Rick Carfagna, the assistant majority floor leader of the Ohio House and the new chairman of the ORSC said in a statement to NBC News that the delay was due to state pension reform in 2013 and Covid-19.

OHIOANS ARE STANDING UP AND DEMANDING REFORM!

It seems, on the one hand, no one with authority over pensions wants to see improvements and, on the other, participants whose retirement security is at risk have no say as to how their savings are invested.

As Ohio Republicans are banding together to demand better of their State Central Committee, Ohio promises to be the first state where citizen reform may be realized, to end decades of pay-to-play, good ole’ boy backroom sweetheart deals.

Through a grassroots donation campaign that began late last year, the Ohio Retired Teachers Association (ORTA) engaged a forensic auditing firm to conduct an independent expert forensic review of the $90 billion-plus State Teachers Retirement System of Ohio. According to ORTA, the decision to engage in this project was driven by a lack of trust between retirees and those managing their pension system. The investigative findings, The High Cost of Secrecy were released June 2021 and were widely reported in NBC News, Bloomberg and local media. David Sirota’s The Daily Poster hour-long podcast detailed the wealth transfer. The purpose of the high-impact limited forensic review was to readily identify, at a reduced cost, deficiencies which would significantly improve investment management and performance results.

The party in charge cannot be proud that this is the only participant-funded investigations of state pensions ever undertaken. It goes to the unprecedented unethical behavior being exhibited in the Ohio Republican Party - this needs to be fixed.

WHAT WAS DISCOVERED IN THE AUDIT?

Ohio STRS (State Teachers Retirement Systems) have some of the highest and outrageous compensation in the nation among public pension employees despite a lower cost of living and private salary competition in the Columbus Ohio area. On top of the highest salaries in the nation is a thoroughly disgusting bonus program, that these overpaid public employees actual help set and control, with little oversight or transparency.

The latest Ohio Checkbook website maintained by the Ohio State Treasurer and Budget office, only shows STRS salaries for 2019. Other Ohio plans have disclosed 2020 salaries. This is a major violation of transparency that should not be tolerated.

The Ohio Retirement Study Council (ORSC) which is supposed to provide legislative oversight has not in this case, but this general lack of accountability is not unusual and is broadly documented in the ORTA Forensic Audit of June 2021.

For 2019 for total compensation STRS had seven investment officers making over $500,000 a year. Another seven made between $400 - $500,000 a year. Sixteen making between $300 - $400k a year. Thirty-five make between $200k-$300k a year. STRS has sixty-five people making over $200 thousand a year which is at the top of US public pensions compensation.

In adjoining states - Michigan has only five investment officers making over $200 thousand a year. Indiana and Kentucky have only two (CIO & ExDir) making over $200 thousand.

STRS 2019 base salaries are much lower but still way above national averages.

Read the rest of the article here. 

Online Public Disclosure Room: A place where you can look up salaries of all your union officials (particularly OEA; find out where your hefty dues money is going and who's getting it)

From John Curry

November 21, 2021

 ...just an FYI. Losing membership for 3 years in a row but gaining "Total Assets" during these same 3 years? Gee...I wonder if dues have decreased during these same 3 most recent years? This link came from the U.S. Department of Labor. All unions have to file these LM-2 reports annually.

You can look up the salaries of all OEA officials by going to the U.S. Dept. of labor and entering in the OEA's employer number 512-490 while doing a search of LM-2 forms. When you get to the OEA 2020 report click on it and scroll on down to "Schedule 11" and "Schedule 12" for the salaries data. If you are wondering about the OFT similar data their employer number is 513-310. There is a "night and day" difference in their payrolls. This search page is not user friendly! Here is the link:

Online Public Disclosure Room 

(https://www.dol.gov/agencies/olms/public-disclosure-room)