From ORTA Newsletter

Ohio Retirement for Teachers Association

June 2024

Message from ORTA President Dean Dennis with some great explanations to help you understand "The Mess" (at STRS) 

Greetings, Members!

I hope everyone enjoys the summer months ahead of us.

This is usually a time when everything slows down, and we can relax. I think all of us are looking forward to being able to do so, but there are a few things ahead of ORTA that are very important and need to be shared.

Watch for ORTA in the news, as our presence is steadily increasing. We’re making waves with our advocacy work, and our positions of transparency in investments are being recognized more than ever. However, whenever a change is called for, it is often met with resistance. This has been the case. Last year, when the reform-minded ORTA-endorsed candidate won the STRS Board seat, Governor DeWine unsuccessfully tried to replace him. It was strongly suspected that STRS management lobbied the Governor for this change. However, the STRS executive director claimed that wasn’t the case. 

When the ORTA-endorsed candidate won the STRS Board seat this year, the press reported that an “anonymous” 14-page STRS management letter was delivered to the Governor’s office. The Governor sent the 14-page “anonymous” letter to the Ohio Attorney General’s (AG) office to investigate. Without so much as contacting any of the parties mentioned in the “anonymous” letter, the AG filed a lawsuit against the two reform-reform-minded Board members named in the letter.

The “anonymous” STRS letter also insinuated that ORTA was involved in what was claimed to be “a hostile takeover of a public. system by private interests.” The STRS rhetoric was ridiculous; the pension system belongs to members, not to the STRS management. Members have made it clear through their votes that they support transparent investments, not the opaque investment practices that have led us down the path of clawing back promised benefits.

So why is STRS management suddenly so afraid of ORTA? This fear has been slowly building. As our members suffered the significant repercussions of their benefits being clawed back, ORTA stepped up their advocacy for members. Over the past few years, ORTA has reinvented itself to inform members and the public how STRS members are suffering from a system that is on a path to survival by reneging on benefits while continuing with the same investment practices. 

In 2021, the ORTA website garnered 5,445 webpage views for the entire year. Last month, in May of 2024, the ORTA website received 12,097 webpage views alone, more than double the views for the entire 2021 year. ORTA is clearly getting its message out to members and the public. Recently, ORTA released the following Position Statement to quell rumors and fears and make matters clear:

ORTA’s mission is to monitor, advocate for, and protect its members’ pension and benefits. The Association shall encourage individuals to improve the social and economic changes and issues relevant to their retirement.

ORTA will endorse STRS Ohio Board Candidates who actively advocate for transparency of investments and business practices for the State Teachers Retirement System of Ohio Pension System. Transparency of Investment practices shall not conflict with Ohio Revised Code 3307.15. In particular, Section 3307.15. (e), states, “Any statement of financial position distributed by the board shall include the fair value, as of the statement date, of all investments held by the board under this section.”

ORTA believes that once elected, Board members serving as our fiduciaries must adopt the prudent investor approach and avoid any investments where the investment’s fair value cannot be independently determined. ORTA supports Board Members and STRS Management in exploring investments and investment approaches that might bring additional revenues into the pension plan to restore, maintain, or enhance member benefits. ORTA encourages the Board to predetermine a reasonable dollar allocation while vetting such investments or approaches so as not to jeopardize the fiscal integrity of the pension system."

I’ll circle back to why STRS management is at odds with ORTA. To simplify, STRS has an active management model. This means STRS is more hands-on in investments. This results in hiring a larger investment staff. This staff tries to beat the market. STRS staff now has over 20% of your monies in Private Equity investments and nearly 10% in Real Estate (the majority in commercial real estate in large cities). Commercial Real Estate investments are dropping in value and are largely ill-liquid. Private equity investments have high fees and non-disclosure agreements, so they cannot be audited by our board. STRS is top-heavy in these risky investments compared to other public pension systems. 

ORTA knows that over 90% of all investment firms lose to the market when trying to beat it. No one beats the market every year. So, ORTA takes issue with how the STRS investment staff seems to beat their performance-based benchmarks every year and earns large bonuses while members suffer. ORTA also has difficulty understanding why STRS members in the Defined Contribution Plan, who select their investments from an array of transparent index fund investment choices, fare better than the members in the Defined Benefit Plan under active management who don’t have access to these investments. For example, last year’s Total Fund Return for the members in the Defined Benefit Plan was 7.55%. 

However, members in the Defined Contribution Plan selected from index investment choices that produced returns that ranged from 18.16% in Large-Cap equities, 14.84% in Mid-Cap, 12.23% in Small-Cap, and 17.30% in International equities. The worst targeted blend choice in the Defined Contribution Plan returned 9.07%. ORTA endorses trying to match the market while being diversified and paying the least amount of fees possible. This is the path we need to move towards. So, what is happening now?

There was an Ohio Retirement Study Council (ORSC) meeting a few days before this writing. You can find it online by looking for the Ohio Channel and the June 13, 2024, Ohio Retirement Council meeting. [Link: https://www.ohiochannel.org/video/ohio-retirement-study-council-6-13-2024] The ORSC meeting clearly focused on STRS’s problems, but what problems? While watching the meeting, I had a question: what are they reacting to? They seemed focused on the actions of the STRS Board and seemed to be questioning their governance. Members know all too well that the mess at STRS has been going on for years. This is why the problems at STRS are currently front and center. 

The mess at STRS stemmed from the boards’ collective governance over the past 10 to 15 years. The new current “reform-minded” board had nothing to do with the mess of the past. This board has effectively been in existence for approximately 2 months. At the ORSC June 13 meeting, the main invitee was from Funston Advisory Services, primarily led by Chief Operating Officer Randall Miller. I found him knowledgeable but was concerned about the questions being directed toward him by ORSC members. 

Too many of the questions seemed based on the anonymous 14-page STRS letter to the Governor. The questions should have been more focused on how STRS got to the point where a $90 billion pension system is the only one of five in Ohio pension systems that cannot provide a COLA. It was curious how many times ORSC members alluded to legislative action. It was interesting when ORSC Chair Romancuk asked Fuston about the makeup of public pension boards. Funston stated that they believed having member representation on a board was important. In my mind, the ORSC questioning led Randall Miller from Funston to eventually say, “Sometimes you have to change the rules of the game.”

At the end of the meeting, ORSC Chair Romanchuk appointed himself to an ORSC STRS Subcommittee. Chair Romancuk also named Vice Chair Phil Plumber, Representative Brown Piccolantonio, and Governor DeWine appointee Dr. Podojil. It looks like we will find out if Governor DeWine is sincere about fixing our pension or will try to maintain the status quo.

On an optimistic note from the ORSC meeting, Funston clarified that the COLA in the hands of the STRS Board, instead of in the hands of the Ohio Legislature, was unusual and likely a mistake. Funston also noted that a lack of transparency in Private Equity investments and identified their fee structure as a problem. Another problem identified was that our employer’s contribution rate significantly lagged other state pension systems, and it’s impossible to control benefits and unfunded liabilities if not given the proper tools. As always, ORTA is fighting for you and a safe pension.