Governance consultant firm AON leaves STRS

Pensions&Investments

May 1, 2024 

Ohio State Teachers loses Aon as consultant amid board turmoil 

By Rob Kozlowski

Ohio State Teachers’ Retirement System, Columbus, has lost Aon as a governance consultant after the firm resigned from the assignment, according to people familiar with the matter. 

The $94 billion pension fund’s board recently tilted to a majority of self-proclaimed reformers who want to gut investment staff and move the pension fund to all index funds, citing a desire to restore a permanent 3% cost-of-living adjustment. 

At the April 18 board meeting, Trustee Wade Steen reclaimed his seat after the 10th District Court of Appeals earlier that day ruled that Ohio Gov. Mike DeWine did not have the authority in May 2023 to remove Steen as his appointed investment expert on the STRS board before the completion of his four-year term. 

DeWine originally appointed Steen for a term beginning Nov. 25, 2020, and ending on Sept. 27, 2024.

Steen has been vocal in his support of a grassroots movement of retirees and active Ohio teachers angry about reduced or eliminated annual COLAs. After DeWine appointed G. Brent Bishop as Steen’s replacement, Steen filed suit in June and stated in his complaint that Bishop “has wrongfully taken and is acting in, the position of the Governor’s appointed ‘investment expert’ to the STRS Board, the public office position to which Mr. Steen is legally entitled and from which Mr. Steen has been wrongfully removed.” 

Steen’s restoration to the board creates a 6-5 majority in favor of the reformers. 

Aon's fiduciary services practice was retained to implement recommendations by board governance consulting firm Funston Advisory Services, which conducted a fiduciary performance audit on the system in May 2022. Recommendations, which Funston said in its report were solely to “improve fiduciary performance to benefit current and future STRS members and beneficiaries,” included improvements in STRS’ use of committees, including a “revitalization” of investment and audit committees and the creation of a board governance committee.

Aon had already made recommendations on committee structure and made a presentation at the April 18 board meeting on enterprise risk management recommendations, and it had the development of a long-term strategic plan as part of an agenda of future actions. 

That meeting ended following Steen’s return to the board. Steen halted proceedings at the meeting, citing a desire to take a ceremonial oath of office from a retired teacher despite having taken the oath from a STRS official when he originally took the board seat, according to a video of the meeting. 

Shortly afterwards, Board Chairman Dale Price adjourned the meeting to protest from the reform trustees. Price said in a May 1 statement that the pension fund "was notified last week that Aon is terminating its agreement for the provision of board governance consulting services. The board may discuss next steps at the retirement board’s meeting next month."

In its 2022 report, Funston Advisory Services in its key conclusions and recommendations said that “continued board dissension may demoralize staff and lead to failure to retain/attract needed talent.” 

With Aon’s resignation following the April meeting, STRS now currently has no firm to assist the fractured board in improving its governance practices. An Aon spokesperson declined to comment. Rick Funston, managing partner of Funston Advisory Services, could not be immediately reached for comment. 

Read the article online here.

 "Board governance: a term that comprises the systems and processes governing the behavior of a board of directors and the organization they represent, the scope of responsibilities of the board themselves, and a framework for board decision-making."

Move Over, STRS, You Have Some Corruption Competition With The Chicago Teachers Pension Fund

From John Curry

April 30, 2024

Ohio STRS Member Only Forum member Chris Tobe says about the Chicago Teachers Pension Fund, "My report was mostly covered up by the Chicago media. I think Maria is understanding the problems. I think the corruption and no independent counsel or audit will be allowed."

Note from John: looks like STRS doesn't have a monopoly on corruption, doesn't it?

Déjà vu for STRS Ohio members - look what's going on now in Minnesota!

Frustrated Minnesota teachers paying lawyer $78,000 for pension review 

Story by Josie Albertson-Grove, Star Tribune

April 26, 2024 

Minnesota teachers who started working after 1989 have a far stingier pension than their older colleagues, and are hoping an outsider can address their worries. 

Frustration with the two-tier system has been growing and reached a boiling point when state lawmakers did not use last year's budget surplus to fund the pension system. Teachers have been testifying in St. Paul and organizing online, but teacher Katie Dickerson said the younger teachers have felt so frustrated and ignored that they decided to seek help from a lawyer to scrutinize the fund.

"We're not getting answers that we want," Dickerson said. 

Dickerson said the Teachers' Retirement Association, which runs the pension fund, has felt opaque to members. Meetings are held Wednesday mornings, during school hours, and have not been recorded. Dickerson said members' questions go unanswered.

The association did not respond to an emailed request for comment. 

Members of a 19,000-member Facebook group found reports on other states' pension funds criticizing their management. Dickerson and a few others decided to put out a call for donations to hire the lawyer who wrote those reports to scrutinize the Minnesota pension fund. Dickerson said it took less than three weeks to raise $78,000.

The lawyer, Edward Siedle, has spent years critiquing pension funds' investments with private equity and managers who charge steep fees. 

As public pensions have invested more in private equity funds, they have paid more in fees, which Siedle calls "excessive." Even a percent or two could add up over the years of a teacher's career, he said.

The president of a Rhode Island AFSCME council, J. Michael Downey, said he was thrilled with Siedle's work. "It's probably the best thing the union ever did," Downey said. 

State employees and retirees were frustrated after Rhode Island's 2011 pension-reform bill cut cost-of-living adjustments, raised the retirement age and transitioned newer hires to a defined-contribution plan more like a 401(k) than a defined-benefit pension. At the same time, then-state treasurer Gina Raimondo pushed the pension fund to invest more in private equity, terming the strategy a hedge against the weak post-recession stock market. 

Downey said he did not think the cuts helped the pension fund, though the unfunded liability is lower than it was a decade ago. "What they did with the pension changes in Rhode Island certainly did not save the pension. It helped Wall Street," Downey said. The Providence Journal reported the union paid $20,000 for their report in 2013.

Siedle's report accused Rhode Island officials of withholding information about how much fund managers were being paid. But state officials there have said they publish information about how the pension funds are invested and management costs online. 

Siedle made similar accusations in a report about the Ohio State Teachers Retirement System. A group of teachers there paid $75,000 for a report.

The Ohio retirement system issued a scathing response, noting Siedle is not an accountant nor an auditor. The system called the accusations "baseless" and counted 60 times Siedle's report used the phrase "in our opinion." 

A state auditor's report in Ohio reviewed dozens of claims in Siedle's report, but found no wrongdoing on the part of the retirement system. The report also found Ohio had lower management costs than similar retirement systems.

Instead, the report recommended "rethinking" bonuses for investment staff, and making public more information about investments rather than guarding them as "trade secrets."

The auditor's report states that the retirement system could negotiate with investment firms to allow for greater transparency. 

The Minnesota Teachers Retirement Association was worth $26.8 billion and reported 8.9% returns in 2023. Per an annual comprehensive financial report, management fees in 2023 totaled just over $24 million — less than a tenth of a percent of the money being managed.

Siedle said he just started requesting documents.

"If nothing else we're going to be discussing a lot of things," Siedle said. "It'll get a lot of attention."

Read the article online here. [Note: The spelling of Edward Siedle's last name has been corrected in this post.]

Editorial, Toledo Blade: Ohio’s five public pensions should be prohibited from investing in private equity.

From ORTA Staff

April 30, 2024

Blade Editorial: Unions not the issue 

"Ohio’s five public pensions should be prohibited from investing in private equity. Not only would it stop Ohio from profiting off of unsavory business practices but it likely would result in better long term growth for the state’s public pension funds." 

A little-noticed event at the White House last week should serve as an opening to the important question of whether private equity funds — known for leveraged buyouts — should be operating with money from public pensions. 

The White House convened public pension funds and private equity firms on April 23 to discuss worker rights. And while the meeting reached some accommodation in requiring private equity investors to be neutral when it comes to union organizing, it didn’t go far enough.

Private equity, to a disturbing extent, is profitable because of its unique business model: it buys existing low-debt businesses and saddles them with debt, which often then drives these businesses into failure. 

Public employee pensions should not be financing their members’ retirements based on rapacious practices like this. 

Ohio’s five public pensions should be prohibited from investing in private equity. Not only would it stop Ohio from profiting off of unsavory business practices but it likely would result in better long term growth for the state’s public pension funds. 

At the White House meeting, National Economic Adviser Lael Brainard and Acting Secretary of Labor Julie Su brought in pension funds with a trillion dollars invested in private equity for a lecture on labor neutrality. 

The Biden Administration message was that union workers would make the private equity business model more politically palatable. 

The better message would have been for public sector pensions to get out of private equity investments entirely. 

State pension dollars allow private equity to pay top dollar to buy up businesses. The equity is stripped and replaced with tax deductible debt, completing the circle of subsidy from working class to the rich. 

There’s no worse abuse than in nursing homes, where a National Bureau of Economic Research study shows resident deaths in private equity-owned facilities are 10 percent higher than all other facilities. 

Toledo has sad experience with this reality. HCR ManorCare was bought by private equity and stripped of value by selling off nursing home facilities to generate cash, but added huge new expenses for rent, and then sold to ProMedica. The subsequent failure of the nursing home business, compounded by the dynamics of the pandemic, contributed to a financial crisis for ProMedica that has had far-reaching consequences for Toledo. 

The business model of high debt and low staff is deadly to elder care but not unusual thanks to capital provided by foolish state pensions like Ohio’s five funds. 

The Biden Administration has acknowledged the problem but without the needed resolution, which is to prohibit public pensions from investing in private equity. 

Read this editorial online: https://eblade.toledoblade.com/.pf/showstory/20240429004/1 

UNREAL: Mr. Peppers announces adjournment of the chaotic April 2024 STRS Board meeting as per "Sunshine Rules" after Chairman Dale Price unceremoniously walks out

From John Curry

April 28, 2024

What a frigging joke. The guy who claimed he ended the meeting with the "Sunshine Rules" (no such thing) is a Mr. Peppers from the AG's office.

Mr. Peppers doesn't know his arse from a hole in the ground....pardon my French! 

Here is a link to this farce which is being passed off as a Board meeting! 

Chairman Dale Price, Vice Chair Carol Correthers and STRS Staff sabotage board meeting (youtube.com) [shown after the "blackout" part]