Rudy responds to News 5 article of 8/23/2024

RESPONSE TO THE ARTICLE POSTED ON NEWS 5 ON AUGUST 23, 2024

By Rudy Fichtenbaum

August 25, 2024

When I ran for a seat on the STRS Board, I listed six goals in my campaign statement:

· Restore the COLA (cost-of-living adjustment)
· Increase employer contributions
· Reduce management & administrative costs
· Critically examine the use of risky and opaque “alternative investments” and real estate
· Consider more passive management on investments to reduce costs and increase returns
· Increase transparency

Before I decided to run for the Board, I had already realized that STRS had a cash flow problem. That is, month after month, it pays out more in benefits than it collects in contributions. To solve this problem, I advocated using passive (index) investing to increase returns and lower expenses. But I recognized that this alone would not provide enough funds to restore COLA. That is why I called for an increase in the employer contribution.

Although I called for an increase in the employer contribution, I was not naive enough to believe that this would happen anytime soon.

So, when I was introduced to JD Tremmel and Seth Metcalf (QED), and they pitched their idea about how STRS could earn more money by using its balance sheet to generate fees, I listened. Initially, I was deeply skeptical. But as an academic, having spent 35 years teaching and doing research, I try to keep an open mind when someone presents a new idea. As a fiduciary, I thought it was my responsibility to consider any ideas to provide funds that could be used to restore the cuts that had been made to our pension.

Why did I use Signal as a communications platform? Because it was recommended to me by Tremmel and Metcalf. I accepted that recommendation without critically appraising it, and certainly without realizing that some years in the future, a misguided plaintiff might be seeking to recover that information for his or her own purposes, based on an anonymous letter from the STRS staff only interested in protecting their jobs.

I certainly did not use Signal to hide any wrongdoing on my part! I knew I was not doing anything wrong and saw no need to preserve those communications. I was never offered and therefore never accepted any money or anything else of value.

All the more so, I have not tried to hide the fact that I was looking for ways that STRS could earn more money without taking more risk; I regard that as a key to my fiduciary duty, and I have been quite open about that.

A few months ago, I was confronted with the requirement that I preserve all communication, and subsequently I stopped using Signal. But, to repeat, I did not begin using Signal as a way of hiding anything, and I did not get out of it because of any concern I did something wrong. I did not.

But back to QED. I talked with current and former Board members who thought QED’s idea had merit. Of course, I realized that JD Tremmel and Seth Metcalf had their own personal interest in mind, but that does not mean their proposal was a bad idea. In truth, the only people who work for STRS without compensation are the Trustees. More than a few others, especially the STRS investment staff, along with STRS’s many consultants and vendors, are extraordinarily well paid. No doubt some investment staff saw QED’s idea – not to mention switching from costly active management of STRS’s investments to passive management – as a direct threat to their livelihood.

Early on, when my work for STRS’s members began to come under attack, I was falsely accused of proposing to give $65 billion to QED. The record – the minutes/recording of the one STRS Board meeting (November 2021) at which QED was discussed – shows that this accusation is indeed false. Of course, I realized that changing how STRS invests the many billions that members and employer have contributed would be required to do substantial good. However, the actual proposal discussed in November 2021 – conservative in keeping with my academic roots – was to see what QED could do with $1/4 billion on a trial basis.

I have no doubt that the rest of the Attorney General’s accusations will likewise be dismissed. Meantime, neither he nor the Governor have lifted a finger on behalf of STRS’s members. They have taken no action to restore the COLA for current and future retirees or to restore the right to retire with full benefits after thirty years of service. If they had spent even a fraction of the hours I have devoted to STRS members, some good might have been accomplished by now.

Read the News 5 article here or here.