Dan MacDonald's report on May 15-16, 2024 STRS Board meeting

From Dan MacDonald

May 25, 2024

MAY BOARD SUMMARY

Rob Walters and Dan MacDonald attended the May STRS Board meeting of May 15th & 16th. Wednesday meeting at 1 pm’s agenda was minute approval, governance and Board policy discussions and executive session. An immediate visual change was obvious in the room, the Attorney General Office and Parliamentarian had seats where outside consultants and presenters usually were located.

All Board members were present. The April minutes were not immediately approved. Some members argued the meeting was never officially adjourned and that the Chair walked out. To be truthful, we are not sure of the final language. Something to the effect of the meeting adjourned without a vote.

Ultimately the minutes passed 6-5 as amended with the more newly elected Board members and appointed Board member Steen in the majority. Board member Sellers then moved to replace the Chair and Vice Chair. Chair Price moved the motion out of order, but that was defeated. After much discussion by all Board members along with AG and Parliamentarian input [maybe don’t do it and fiduciary duty threats] Chair Price and Vice Chair Correthers were replaced by new Chair Fichtenbaum and Vice Chair Jones [both retirees]. Again a 6-5 vote.

A 20-minute break then occurred during which time heavy media presence interviewed Wade Steen and some of the Board members. STRS’s chief legal officer then presented on the loss of outside consultant Aon and the seeking of new fiduciary council. Some discussion. The Board proceeded into Executive session.

The Board meeting resumed on Thursday at 8:30 a.m. to a full audience of retirees. Chief Legal Office Wideman opened the meeting with the approval of committee charters and reports. The audit, investment, legislative and governance committees gave their reports, which were accepted by 10-0 votes [Steen was not present]. The approval of Board policy updates, which Board member Davidson asked to postpone, was defeated 5-5; Steen absent. The updates were not approved.

Benefits were then discussed regarding aligning the health care subsidy with the recent pension change allowing retirement with 29 years of service (YOS) with reduced benefits. This moved the subsidy from 60% to 72.5% for non-Medicare and from 52.8% to 63.8% for Medicare. This impacts only those with 29 YOS. 30 YOS or more are at 75%. Vote 10-0 Steen absent.

The Investment Department saw a preliminary March return of positive 2.05% with a preliminary total fund return for the fiscal year at positive 8.81%. April was not strong. The net return for April was a negative 2.04%, reducing the total fiscal year return to a positive 6.63%. [Remember the goal is to be above, as far as possible, 7% by the end of June.) Total investment assets ended April approximately $92.6 billion.

Acting Executive Director Hoover then gave April and May Director reports. The Ohio Retirement Study Council released a report on all 5 pensions. STRS was found to be under good stewardship [Forget that the Governor and AG are attacking two Board members]. STRS is preparing a website covering the push for an increase in employer contributions [4% addition spread over 8 years bringing the employer rate to 18%]. Board member Davidson emphasized this as a win/win for actives and school districts. Other areas were covered.

Outside actuarial consultant Cheiron then presented live modeling of potential plan changes with modeling reflecting the Sustainable Benefit Plan, de minimis, plan changes, and asset performance. Board member Davidson emphasized that no member on the Board desired the destabilization of the general fund. He also pointed out that an assumption discount rate of 7.25% would allow COLAs and 33 YOS. Ten-year economic projections do not allow 7.25% according to Cheiron. Numbers were placed into the live modeler and discussions followed.

Fifteen people addressed the Board during Public Participation including active, just elected to the Board, Michelle Flanigan, whose term starts in September 2024. Speakers addressed STRS concerns including the AG’s just announced investigations into Steen and Fichtenbaum not fulfilling fiduciary duties; all seen as BS and the Ohio government not appreciating the reversal of minority to majority.

After lunch/executive session, Acting Director Hoover presented the 2025 Performance-Based Incentive (PBI) plan. Hoover pointed out that only 15% of total STRS employees are eligible for performance-based incentives. She mentioned that for every $1.00 spent there was a $57.00 return. Much discussion followed. Lots of probing questions. Board member Falls pointed out that the investment staff costs are .0035 of a 94-billion-dollar business. No motions made. No vote taken.

Acting Director Hoover followed with the proposed fiscal 2025 budgets. The operating budget was up 2.3%. Of the 2.3% increase, “3% is budgeted for merit increases compared to the national average of 3.85%, OPERS at 6.5% and SERS at 4%.” [quote from handout] Davidson suggested giving non-investment staff a bigger pay raise, the $50,000 to $70,000 personnel. Capital budget was up 1.7%. Discussion. No motions made. No vote.

Routine Matters followed.

Under Old/New business, the meeting remained active for an additional hour. Former Board members Perera and Bishop’s legal expenses were paid by STRS; current Board member Steen’s had not. The AG stated that he hadn’t requested payment, and he should talk to his lawyer. The AG representative explained that there is a wall between enforcement and advising and that the AG is fair. Sellers moved that Fichtenbaum’s and Steen’s legal fees be paid by STRS.

The “advising” AG representative stated that no information had been shared regarding the AG’s filing to remove Steen and Fichtenbaum from their Board seats for failure in their fiduciary duties. The representative said she found out during yesterday’s Board meeting. [This action to remove would reverse current voting patterns of 6-5]. Ultimately, motion and second were withdrawn.

Steen reported threats of violence to his family and his person if he remained on the STRS Board. Sellers sought information of the 14-page, anonymous letter sent and delivered to the Governor’s office. AG warned of whistleblower’s protection. [Comments were made that the letter was written by STRS staff and delivered by a STRS staff member].

Davidson proposed that a de minimis amount be determined in October or November for FY 2026 budget to determine whether a check might be issued December 2024 [think 13th check; think it is one time only and does not permanently affect your pension] and a COLA for 2026. Vote 8-2; 1 abstention.

Another vote was taken, allowing Neville to remain on leave until June 30, 2024, and that Hoover remains acting director during that time. Vote 9-2.

Another vote was taken calling for a Special Board meeting on May 30, 2024, at 1 p.m. to discuss the Board Election Policy and allow an Executive Session. Other agenda items were suggested. The Chair will set the agenda.

The next regular Board meeting is scheduled for June 20 & 21.