Robin Rayfield outlines reasons why change is needed at STRS
Comments by Robin Rayfield, Executive Director of the Ohio Retired Teachers Association: Reasons Why Change is Needed at STRS
Originally published in January, 2022 in an annual mailer put out by ORTA
January of 2022 feels a lot like January of 2021. We are
still waiting to get out of the grips of the pandemic. If there is any
consolation, it appears (for now) that the virus that we are fighting today is
less deadly than the virus we were battling in 2021. I have weathered some
health issues, but the doctor tells me I am doing well.
What I have provided below are a number of reasons significant
change at STRS is imperative:
1. Mr. Siedle’s 128 page report The High Cost of
Secrecy identified several issues with the operations of STRS. Most notably
is the lack of transparency that is pervasive at STRS. The fact that members
are not allowed to know details about our investment program is bad enough, but
this lack of transparency extends to our trustees as well. How can our trustees
perform their duties as fiduciaries if they are not permitted to know the
details about our investments?
2. Although STRS has rejected Mr. Siedle’s report
in its entirety, the Auditor of State in Ohio has launched an investigation
into STRS. The auditor is digging into whether fraud has been committed.
Instead of taking a closer look at their own at their practices and culture,
STRS management attempted to discredit Mr. Siedle. Now, understand that Mr. Siedle
is the preeminent authority on forensic audits of public pensions in the world.
Public pension employees are fearful of Mr. Siedle as he knows the tricks that
pension leaders use to make themselves look better than they are. He also knows
the consultants that are known through the industry as the consultants that
will write a positive report… as long as the payment is large enough.
3. Board member Wade Steen (appointed by the
governor) has been an outspoken critic of the performance incentives for a few
years. He asked that the ‘bonuses’ paid to STRS staff be delayed that a through
review could be conducted to determine if the bonuses had been earned. STRS
management and a thin majority of the board would not delay the payment of the
bonuses. After the payment, board members learned that the staff and
consultants had not been straightforward and honest in their discussions with
the board. People were paid bonuses despite not having met any external
benchmark.
4. Retiree elected board member Dr. Rudy
Fichtenbaum wrote a detailed report that contradicts STRS staff’s claim that
STRS staff added $100,000,000 to the STRS portfolio through their ‘active
management’. Dr. Fichtenbaum’s report indicates that STRS staff’s efforts reduce
the portfolio by $400,000,000. This loss instead of gain is confirmed
by an independent analysis by leading economist Richard Ennis.
5. Former board member Bob Stein has also joined in
the discussion of problems with STRS management and STRS consultants offering
that he is no longer convinced that board members are receiving accurate
information from STRS.
6. An analysis of ‘risk and return’ over the last
20 years from Cliffwater (a highly paid consultant to STRS) shows that STRS has
much higher risk and much lower returns than many public pensions in the US.
This directly contradicts the claim that STRS has lower risk and higher
returns.
7. We know that active STRS members have the worst deal in the U.S. Active members pay 14% in contributions but receive a pension that is only worth 10.5%. Where does the money go? NOT TO RETIREES! Retirees were promised (in writing and in Ohio law) a 3% COLA. STRS has not lived up to their promise. On the other hand, STRS employees have the best deal in the US. More employees at STRS are in the top two hundred of all public pensions, regarding compensation; more than any other pension in the country.
8. STRS has not had a state-required audit in over
16 years (the law requires that the legislators conduct an audit every 10
years). The last audit (2006) resulted in eighty-eight recommendations. STRS
addressed many of these recommendations, however, STRS did not address several
‘big' recommendations. Two of these recommendations that were ignored were:
a. Bonus payments need to be tied to an external
benchmark. Using your own performance as a benchmark is not acceptable. STRS
still uses its own performance as a benchmark. In other words, bonus is earned
regardless of the performance of our investment staff.
b. STRS consultants must disclose potential
conflicts of interest with Wall St. investors reducing the possibility that
consultants could be paid by the investor (STRS) and the firm investing the
money from STRS. This recommendation has not been addressed.
I recognize that our current situation is frustrating. It
seems like the employees at STRS and the majority of the board at STRS do not
care about retirees or active members. If you go to the meetings and observe
our board, this indifference is apparent. I can offer some hope. At the last
few STRS meetings the board has looked at what can be done to improve the
situation for retirees and for active contributors. Some form of lowering the
contribution rate coupled with some form of COLA have been discussed at length.
STRS expects to receive a report from their external actuary that will shed
light on how STRS has performed compared to the projections. If all goes well,
we may know the real possibility of what can be done in March.
In the meantime, there are a few things to watch for:
· The Auditor of State’s special audit report
· A class action lawsuit filed by two retirees is
in state court
· Our forensic audit has sought to receive public
records not provided by STRS through legal means at the Ohio Supreme Court
· Ohio’s legislators are conducting a fiduciary
audit of STRS. (Unfortunately, the ORSC has hired a company that is closely
connected to STRS’s current consultant to do this fiduciary audit)
Please know that ORTA will remain engaged in this battle to stop the constant reduction of our pension benefits. Your continued support and assistance at growing our membership will strengthen our voice.
posted by Kathie Bracy at 10:59 PM
