James Carr on what happens when you underperform to the tune of $90 billion (which STRS did)

By James Carr, MOF

May 25, 2023

When you underperform by the sum of 90 billion dollars against the S & P 500, in retrospect, it only becomes more obvious that the STRS investors missed a golden opportunity to replenish our funds from 2010 to 2020. You've got to make hay when the sun shines. They had their chance to "make hay" while the market was booming over a 10 year span and they blew it.  

Instead of rewarding them with new performance bonuses, perhaps it would be more appropriate for the STRS Board to ask for a refund on the bonuses they've already been given.

Because of their failure, we lost our annual COLA and we lost 30-and-out.  The only thing the investors lost was our money.

James Carr: Getting rid of Wade Steen was just a convenient way to protect Bill Neville.

By James Carr

May 24, 2023

Coincidences rarely happen in politics. When Mike DeWine intervened and fired Wade Steen, it had nothing to do with Wade's attendance record. Mike DeWine has a lot more important things to do than keep track of a Board member's attendance.

The question that should be asked is this: Why would DeWine risk pissing off thousands of teacher's to save Bill Neville's butt from being fired by a reform-dominated Board?

The most logical explanation is money, lots and lots of money in the form of "fees, bonuses, gifts, and donations". Our money is going everywhere: to politicians, to STRS employees, to STRS investors, and to Wall Street money managers. Bill Neville directs the flow of that money. There are too many influential people who depend upon the STRS Gravy Train to let Neville go without a fight. They will look for any excuse they can find to protect the man who is lining their pockets with our money. Getting rid of Wade Steen was just a convenient way to protect Bill Neville.

Toledo Blade Editorial: Make pensions transparent

Toledo Blade 

Editorial Board

May 23, 2023

Senate Banking Committee Chairman Sherrod Brown, (D., Ohio) is on the right track in demanding more legally required disclosure from shadowy private equity funds in which Ohio’s public pensions have way too much invested.

Mr. Brown and seven fellow Democrats have written to Securities and Exchange Commission Chairman Gary Gensler asking for quick work on a rule to bring necessary transparency to private equity financial reports.

Private equity managers have nearly $14 trillion, mostly supplied by public pensions like Ohio’s five funds which have $28.6 billion invested in this asset category. In theory, private equity funds buy businesses, make management improvements, and sell for a profit.

Mr. Brown is properly skeptical of private equity asset valuations which have been far out of step with all other market indicators. The SEC is proposing requirement of an annual outside audit to verify values the private equity firms now provide without oversight.

The Ohio Police & Fire Pension Fund reported a 54.5 percent gain in private equity in the last year. All other Ohio pensions claim gains above 20 percent except the Ohio Public Employees Retirement System which reported a more realistic 4.79 percent loss.

These are hard to believe as the stock market value of private equity giants fell dramatically.

“Because private fund advisers’ fees are calculated based on fund asset valuations, the accuracy and transparency of fund asset valuation practices is crucial to prevent overcharging of investors and to mitigate conflicts for private fund advisers,” Mr. Brown wrote.

Inflated claims of performance are used to justify the fees and expenses that are paid to private equity managers. Since 2018 OPERS has paid its private equity fund managers almost $1.3 billion.

Private equity managers typically take 20 percent of a fund’s investment profit. In the last five years OPERS has provided those fund managers $608.2 million. The conflict of interest Mr. Brown details is obvious when you understand those profit shares were based on valuations set by the fund managers collecting the bonus.

There has been no transparency requirement on private equity because large investors like Ohio’s pension funds are assumed to be sophisticated and have no need for protection by the SEC.

But the beneficiaries of these pensions and the taxpayers who fund them are endangered financially by untrustworthy financial statements.

Read the rest of the article here. 

https://www.toledoblade.com/opinion/editorials/2023/05/23/editorial-make-pensions-transparent/stories/20230523027 

"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."

Joe Lupo: A commentary on an excerpt from Dan MacDonald and Rob Walters' report on the May 18, 2023 STRS Board meeting

From Joe Lupo

May 22, 2023

"Board member Sellers asked why Wade Steen wasn’t present. Executive Director Neville replied that the governor made a new appointment and that was all he knew. It is statements like this that cause members to have no trust in Neville."

STRS knew the election results on Tuesday prior to FirstEnergy DeWine's press release on Friday regarding his illegitimate removal of Wade Steen, Who would have more to gain than Neville himself by maintaining a majority of six members in his favor? That would be what they call job security for him.

It doesn't take a rocket scientist to put 2+2 together to know that Neville was involved directly or indirectly. Either way, he miserably fails the smell test. Does Neville really think that like his "majority board members," starting with Carol Correthers and Dale Price, that we buy into his never-ending dog-and-pony shows?

Neville is so cavalier in what he says and does, that his actions and words cry for further scrutiny.

Robin's admonition to certain STRS Board members: 'Lead, Follow, or Get the hell out of the way'

From Robin Rayfield

Comments to STRS Board

May 18, 2023

My name is Robin Rayfield. I am the Executive Director of ORTA. I speak on behalf of myself representing tens of thousands of STRS members, active and retired.

The results of the spring election for STRS trustee point to a continued lack of confidence in the current direction of our pension system from our members. This is the 5th seat in a row that has been decided in favor of change at STRS. When coupled with the recent failed vote of confidence in the current management at STRS most people would be convinced that changes are long overdue.

Prior to governor DeWine’s last second, illegal action to overturn the will of the membership the table was set for sweeping changes at STRS. None the less as the legality of DeWine’s move to protect his political cronies, is litigated, the people have spoken. By a nearly 3-1 majority, the members of STRS have spoken… again. Just like they did in 2022.

To the remaining members that are standing in the way of reform, please stand aside. Stop drinking the STRS management’s Kool aid and allow the reformers a chance to lead. It was under your watch, or lack of oversight that the mess we are in has taken place. You are directly to blame for the current situation. You could, this very day, take action to begin correcting this contentious, dysfunctional pension system. Four steps are necessary:

1. Increase transparency – stop accepting the phony transparency awards you receive from the people you pay. Open the books on the alternatives portfolio. Allow the members to know what fees we pay; how much is invested and what the ‘real value’ of our illiquid assets are. Better yet transition out of alternative investments altogether.

2. Move to a passive investment strategy. Don’t lose to the market for yet another decade while actives are paying in more than their pension is worth and retires fall further and further behind without their promised COLA increases.

3. Eliminate the PBI/bonus system that rewards investment staff for losing money.

4. Eliminate any benefit expenditures that do not benefit the members. Eliminate the daycare center, cafeteria, and fitness center.

It should be very clear by now that the reforms at STRS are necessary and are going to happen. As a successful wrestling coach, I lived by the motto ‘Lead, Follow, or Get the hell out of the way’. We have leaders that will lead the reforms necessary, we have followers as evidenced by the last five elections. Its time that the members on this board that want to hold on to the old ways need to Get the hell out of the way.

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.

Joan Bellner: Some words of wisdom for the STRS Board going forward

Joan Bellner's speech to STRS Board

May 18, 2023

I learned many important lessons early in my adult life -- two stand out. The first is that people, and entities, who are truly great -- NEVER have to tell people they are great -- Others. Just. Know.

The second lesson, is what Henry Ford told us: "If You Always Do What You've Always Done, You'll Always Get What You've Always Got."

If there's one thing the Pandemic taught us, it's that times change...

Just because some practice was discussed and rejected in the past, doesn't mean it shouldn't be revisited. And, just because a practice worked before, does not mean it works now.

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Many members were disappointed after the last Board meeting... when budget figures were presented that confirmed we cannot afford an ongoing COLA -- or even a decent one-time COLA -- OR reduction in years of service, at this time.

The big questions, for me, are

1) How do we cut costs, examine investments, improve income, and continue to decrease, or better yet, eliminate our negative cash flow?

2) How do we get back to 85% or higher funding, ASAP?

In my opinion, these two things should be a priority -- and, the main focus of this Board.

The huge issue -- which no one brings up -- is NOT the fact that we are a mature system. It's the fact that our membership, as of March 2023, is made up of 33%active, 31% inactive and terminated, and just 30% retired. 

Roughly ONE-THIRD of our membership is people who have either been terminated or have left the field of education early. .. While their money is still in the fund for now, and being used to earn interest on investments; they are not contributing -- and won't be contributing -- any new money. 

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I was encouraged when a board member made a suggestion at the April Board meeting... to have a portion of every Board meeting devoted to what's being done for the membership.

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This does not mean staff bragging about customer satisfaction rates from meetings with counselors... or similar presentations.

It means rolling up sleeves and digging into the ongoing work that needs to be done to actively restore funding to sufficient levels -- restoration of which is required by law -- ...so that "enhancements" also can be restored... including, decent ongoing annual COLAs... and reduction of required service time to earn unreduced benefits.

We do not need 100% funding levels to afford ongoing annual COLAs... and we should not wait another 11 - 14 years, until the system is 100% funded, to provide them. 

If the authentic agenda addition of... "what's being done?" --- does not happen organically, I encourage every Board member to make a motion, second it, and vote in favor of mandating that it be a part of every month's agenda, going forward.'

Thank you.