Edward Siedle: Ohio Governor Rushed To Rescue Wall Street From State Teachers Pension Reforms

DeWine will be richly rewarded by Wall Street for intervening to thwart popular teacher pension reforms that would have exposed gross gouging and mismanagement.

By Edward Siedle
MAY 22, 2023

Ohio Governor DeWine’s unprecedented intervention on the eve of a landslide election victory that would have shifted control of the board of the State Teachers Retirement System of Ohio and exposed longstanding looting by Wall Street and pension investment staff, blatantly violated applicable pension law.

Under both federal and state law, pensions are required to be managed for the “sole or exclusive benefit” of participants and beneficiaries. This means the fiduciaries who run a plan may not engage in transactions on behalf of the pension that benefit parties related to the plan—other than participants and beneficiaries. With respect to state and local government pensions, there is always the danger that elected officials who influence pension decision-making may use public monies—in this case, state teachers retirement savings—to lure campaign donations from Wall Street money managers seeking to manage state pension assets.

Ohio Governor DeWine’s unprecedented radical intervention earlier this month on the eve of a landslide election victory that would have shifted control of the board of the State Teachers Retirement System of Ohio (STRS), exposing longstanding looting and mismanagement by Wall Street and pension investment staff provided no benefit whatsoever to participants or beneficiaries of the plan. It’s obvious that only DeWine himself and his Wall Street supporters benefited. As a result, the governor blatantly violated applicable pension law.

By way of background, the Ohio Retirement for Teachers Association (ORTA), along with many other teacher advocacy organizations, have long been actively advocating for reform at STRS. As revealed in the findings of my 2021 forensic investigation of the pension, The High Cost of Secrecy, mismanagement of pension investments has resulted in lost Cost of Living Adjustments and broken promises for retired teachers while active teachers have been forced to pay more and work longer for less benefits.

Hoping to end the mismanagement, teachers had elected pro-reform candidates to the STRS board in each of the past five elections. But reform-minded board members had not yet reached a majority of the 11-member board needed to bring about real change.

The 11-member STRS board is composed of seven teacher-elected members (five active teachers and two retired teachers). The other four members are appointed by various state officials, including the Governor.

On the morning of Saturday May 6th, it was announced that the pro-reform candidate Pat Davidson defeated incumbent Arthur Lard in a landslide – 70 percent to 30 percent. Davidson was endorsed by ORTA, the STRS Ohio Watchdogs and the STRS Ohio Member Only Forum Facebook group.

Ohio teachers had made their voices clearly and forcefully heard. Teachers overwhelmingly supported Davidson’s candidacy and its platform of reform, transparency and accountability. Davidson’s victory was the fifth board election in a row in which pro-reform challengers defeated anti-reform incumbents. Davidson will take office in September 2023.

Just when it looked as if STRS would become the very first state pension in America to restore full transparency regarding its investments, including private equity funds—the key element of the reform agenda—late Friday afternoon, May 5th, the Governor “revoked” his appointment of pro-reform STRS board member Wade Steen. Steen was the founder of the reform board and was originally appointed by the Governor to the board in 2016 and again in 2020. His appointment was not slated to end until September 2024.

Just when it looked as if STRS would become the very first state pension in America to restore full transparency regarding its investments, including private equity funds, Governor DeWine intervened on behalf of Wall Street.

The revocation of Steen’s longstanding appointment to the board of the pension—without cause—on the eve of an unprecedented vote by teachers to restore transparency and potentially expose widespread wrongdoing should have been an obvious “red flag” to law enforcement. Nevertheless, on May 17th, Ohio Attorney General Dave Yost sent a letter to Steen simply stating:

“On May 5, 2023, Governor DeWine’s office sent a letter to STRS Ohio Executive Director Bill Neville indicating your appointment to the State Teachers Retirement System (STRS) was revoked, effective immediately. The Governor’s office then announced the appointment of G. Brent Bishop to the STRS Board. Pursuant to the letter from the Governor’s Office and the appointment of Mr. Bishop, as of May 5th your appointment to the STRS Board has been terminated.”

Yost, the chief law enforcement officer of the state, somehow saw nothing to investigate. That’s hardly surprising.

Ohio Attorney General Dave Yost, the chief law enforcement officer of the state, somehow saw nothing to investigate.

As I wrote in Who Stole My Pension?:

“Another problem with state and local government pensions in the United States is that no federal or state regulator, or law enforcement agency is monitoring or policing these plans. Crooks need not worry about the feds—the Department of Labor or the FBI—coming after them and even state Attorneys General are reluctant to get involved in public pension matters due to political concerns.”

Ohio’s Attorney General acted as all other state AGs have historically—he looked the other way, as opposed to acting immediately to protect the retirement savings of state teachers.

As noted by Steen’s counsel, Norman Abood, Yost did not provide any “articulation of the statutory, regulatory or even common law basis for Governor DeWine’s claimed authority to issue such an edict, and more importantly, the legal basis upon which the Board is required to follow the Governor’s unilateral proclamation.”

DeWine’s office offered the following justification for his removal of Wade Steen from the State Teachers Retirement System board and his subsequent appointment of G. Brent Bishop:

“The State Teachers Retirement System (STRS) oversees an ongoing financial commitment to Ohio’s retired teachers for retirement benefits for their service to our local schools and their students.

“I agree with retired teachers who have voiced their anger and disagreement with recent decisions by STRS regarding investments and benefits. I am in favor of retired teachers getting a cost-of-living adjustment from STRS. I supported Auditor Faber conducting a forensic audit on the system. I’ve questioned how staff have received raises and bonuses when the retirees they serve got nothing. I believe STRS should consider investment strategies to increase returns. And, I believe that changes to investment vendors should be made through a competitive and transparent public process.

“I am not for tipping the scales in favor of select money management firms. Most critically, I am not in favor of board members failing to advocate for our retired teachers and the long-term health of their retirement funds.

“I made a change in my appointee to STRS in part because, since September, this appointee missed three meetings and only partially attended three others. You cannot be a voice for retired teachers if you are not in the meetings to be that voice.

“I was also concerned this previous appointee was viewed as acting as an advocate for a specific investment firm at the expense of a thorough, competitive, and public process.

“Consistent with his fiduciary duties, I advised my new appointee–and I recommend to all STRS board members–to take a fresh look at the investment strategies and vendors employed by STRS, with an eye on the long-term health of STRS funds, reducing waste, and fulfilling the promises made to our retired teachers on issues such as cost-of-living adjustments. If that fresh look results in changes to the money management firms employed by STRS, so be it.

“Ohio’s retired teachers deserve nothing less than full attention to these issues.”

Curiously, months ago, Governor DeWine did indeed (as he stated above) support State Auditor of Ohio Keith Faber’s “forensic audit” of STRS—a special investigation which was prompted by complaints his office received following the findings of my expert forensic investigation conducted on behalf of participants. Faber’s staff acknowledged to me they had no expertise in pension matters and had, for some reason, hired an unidentified actuarial firm to assist in an investigation of the pension’s investment practices. That made no sense—providing further evidence Faber’s office didn’t know anything about pension investment management.

However, most importantly, Faber agreed that the pension should be fully transparent with respect to all of its investments—including private equity and hedge funds. Faber recommended the pension end its secrecy practices and provide teachers with the prospectuses and other documents related to their retirement savings. Providing prospectuses and other key fund documents to teachers and other government workers whose retirement savings are at risk is precisely what regulators demand—yet remarkably no public pension in America, including STRS Ohio, does it.

Providing prospectuses and other key fund documents to teachers and other government workers whose retirement savings are at risk is precisely what regulators demand—yet remarkably no public pension in America, including STRS Ohio, does it.

So, if DeWine really wants to do what’s best for participants, his new designee to the STRS board should immediately call a vote for full transparency regarding the pension’s investments—ending decades of Wall Street-mandated secrecy. If the transparency vote is successful, that’s all DeWine needs to do to restore public accountability and expose potential wrongdoing. Armed with these crucial investment documents, the teachers will be prepared to battle corruption and Wall Street looters. On the other hand, if his new designee fails to immediately call for transparency, it will be clear DeWine acted to protect Wall Street, not teachers.