"You need to keep the promises to the people" - Keith Faber to ORSC 3.9.2023

From STRS Ohio Watchdogs 

"You need to keep the promises to the people" - Keith Faber to ORSC

Watch Ohio Auditor of State Keith Faber defend his Special Audit of STRS Ohio during the March 9th, 2023 meeting of the Ohio Retirement Study Council (ORSC).

Link for the video: https://www.ohiochannel.org/video/ohio-retirement-study-council-3-9-2023

Key findings from Faber's written testimony:

• A lack of transparency, whether actual or perceived, has spawned the distrust, misunderstandings, and accusations that made this special audit necessary."
• "It would be beneficial to revisit how or whether bonus payments are offered to investment staff."
• "STRS should strive to be as transparent as possible regarding the funds held in their trust. Reconsidering trade secret provisions that shield investment decisions from scrutiny would eliminate much of the distrust harbored by many beneficiaries toward STRS investment staff."

Faber made comments after his presentation, in response to questions from ORSC Board members. Watching the recording of the meeting, and using closed captioning, we did our best to accurately transcribe Faber's comments.

• "To avoid most of those concerns about alternative fees and structures, you get rid of alternative investments. And there is a proposal that we looked at that would do that. If you get rid of that, you're not going to have to worry about what you're paying fee managers."
• "You need to keep the promises to the people who were made [reliant] based on those promises. I said that when I was a legislator, I'll say it when I'm your state auditor. The fact of the matter is, people who made reliances based on those promises, and structure their life accordingly, certainly as they approach receiving the benefits of those promises, as they approach retirement, should be entitled to the benefit of that bargain. And that's what this body is designed to do."
• "It would be beneficial to revisit how or whether bonus payments should be made to investment staff. I think it's a fair discussion as to whether investment retirement plans should pay bonuses to investment staff. If you're going to have bonuses, you need to have a fair discussion as to what those bonus structures should be."
• "I think it is a very valid discussion to say bonuses can lead to other issues and maybe it is a better decision just to pay your investment staff at amounts that are necessary to get good people and frankly, firing people who don't hit their expected performance. Maybe that's a better strategy, but that's for you to decide, and for the plans' boards to decide."
• "And the one thing that we really flagged was that the benchmark in determining whether those bonuses are paid, was a benchmark that was made internally by STRS. The question is, should you use your own internal benchmark or should you use a national standard benchmark in making those determinations."
• "But candidly, it is a fair discussion to say you should just pay your investment personnel accordingly and not have 50% of their salary potentially made up of bonuses."
• "There's a big discussion about whether bonuses should be paid when you lose money."
• "Remember, the state is the financial guarantor of the plans, right? I'm looking for all the directors to shake their heads. That is the issue."