Reform at STRS: Rudy Fichtenbaum, STRS Board Chair, answers questions many have had since the June 2025 board meeting

Reform at STRS

By

Rudy Fichtenbaum 

In the aftermath of the Board vote on PBI at the June meeting, there have been many questions raised as to why I supported PBI, having previously voting against them. The purpose of this memo is to explain why I voted in a way that I thought was in the best long-term interest of our members.

What are the key issues facing STRS? The first issue is restoring an ongoing COLA that will cover all active members when they retire and cover current retirees who have seen the value of their pensions decline roughly 30% since 2017. The second major issue is reducing the number of years active teachers need to get an unreduced retirement. All other issues pale in comparison to these two issues. If reformers on the Board had a magic wand and waved it to just solve these two problems and nothing else, I would venture to say that discussion in the MOF would be entirely different.

Let me also remind everyone that since electing reformers to the Board we have had a 3% COLA, a 1% COLA, a supplemental payment and a 1.5% COLA. Just to be clear this means that current retirees have had some form of inflation protection in each of the last 4 fiscal years (FY 23, FY 24, FY25, FY26) which run from July 1 - June 30 each year. In addition, we have reduced the number of years for full retirement from 35 to 32 temporarily with the intention of making that permanent in the next five years. Is it enough? No! But given the constraints we face it is the best we can do. What else has changed? We have a new Executive Director, a new Chief Financial Officer, and soon will have a new Chief Investment Officer.

Discussion in the MOF focuses primarily on expenses of one sort or another. Salaries for STRS staff, artwork in the building, the cafeteria, the gym, the cost of watering plants etc. The item that receives the most attention is PBI (aka bonuses).

Every move the Board makes we have advisors and lawyers tell us that in making this decision or that decision we might be violating our fiduciary duty. In response, the Board now has its own fiduciary attorney who has helped guide us, so that as we bring change to STRS we have assurances that we are acting lawfully. We have had top elected officials in the State insert themselves into the ED search at the 11th hour, while at the same time they held hearings on whether to reduce the number of elected members on the Board so we would be a minority.

The kind of changes we can get with seven votes are telling members the truth that right now active members who contribute 14% of each check to STRS are earning benefits each year that are equivalent to about 10.4% of their salary. That is the worst deal in the country among large public pensions. We can stop the gaslighting and the propaganda that in the past has been a staple at STRS for many years. We can publish all our investment fees, which now happens once a year. We can report net returns and only use net returns in evaluating performance. We can increase transparency. We can improve the benchmarks we use to evaluate performance. These are all changes that have happened because of the efforts of reformers.

Changing Board policy, that pays PBI to investors, is extraordinarily difficult. Can we eliminate the program? According to our fiduciary attorney, if we eliminated the program, we would have to replace it with an alternative or we would breach our fiduciary duty.

Setting aside the legal issues board members would face by eliminating PBI, our members should be aware that no amount of expense cutting will make a material difference when it comes to benefit restoration. In other words, even with 7 votes, we would not be able to pass a motion to instantly restore 30 years for active members and give both active and retired members a 3% ongoing COLA.

Why? Because under Ohio law restoring benefits that were taken away as part of “pension reform”, a euphemism for pension cuts, requires that STRS’s actuary certify that changes to the pension will not “impair the fiscal integrity of the system.” But what about all the unnecessary expenses! Surely if we eliminated those expenses, we could make significant changes. Right?

Unfortunately, the answer is no. The only way that STRS will be able to restore benefits is to make more money and take less risk. This has been a constant refrain that I have repeated on numerous occasions since I have been on the Board.

To understand why, let's look at a basic equation that displays the flows of money that come in to and are paid out of a pension each year. That equation is:

C+ I = B + E.

C stands for contributions, both employee and employer contributions. I is commonly called interest, but it really stands for all investment income. B is benefits. E stands for expenses. Now in reality the equality does not have to hold. If C + I < B + E, the pension takes in less than it pays out; similarly, if C + I > B + E, the fund takes in more than it pays out. Since STRS has a significant unfunded liability, it is important that it take in more money than it pays out over time to reduce the unfunded liability.

Expenses at STRS receive a lot of attention in the MOF. As a Trustee, I agree that STRS should do everything it can to reduce unnecessary expenses. However, reducing expenses alone will not restore benefits.

To see why, let’s look at the relative magnitude of C, I, B and E. I am going to use numbers for the defined benefit plan (DB) only; these numbers apply to fiscal year 2023, which ended last June 30.

(C) Contributions for the DB plan in 2023 were approximately $3.6 billion: $1.7 billion in member contributions, $1.8 billion in employer contributions, plus $0.1 billion coming from transfers from the defined contribution (DC) program and other retirement systems.

(I) Investment Income was $7.0 billion. This is gross investment income; see (E) below for expenses associated with this investment income.

(B) Benefit payments, including refunds to members who withdrew their money, were $7.5 billion.

(E) Expenses. Investment expenses were $283 million ($41 million in internal investment expenses plus $242 million in external investment expenses), and administrative expenses were approximately $73.5 million. So, altogether E was $356.5 million, which for simplicity I will round to $400 million, i.e., $0.4 billion.

Here is what our equation C + I = B + E looks like with the four numbers above plugged in. All four numbers are in billions of dollars.

$3.6 + $7.0 = $7.5 +$ 0.4 

which by arithmetic reduces to

$10.6 = $7.9

The truth of course is that $10.6 is not equal to but much greater than $7.9. That is, in 2023, the incoming money side of our equation – C+I – was much bigger than the outgoing money side of our equation – B+E. What happened to all that money? Most of it went toward reducing the pension’s unfunded liability. In 2022 the inequality was reversed; that is, C+I was much less than B+E; in fact, in 2022 the DB plan spent $8.5 billion more than it took in contributions and investment income.

Here is a key point to understand. In a typical year, the DB plan will pay out approximately $7.9 billion but will take in only $3.6 billion in contributions; so, just to break even, it needs to earn $4.3 billion in investment income. In round numbers the pension needs to earn a minimum of 5.1% on investments just to break even, since it has approximately $83.7 billion in assets. (These numbers are just for the DB plan in 2023).

Expenses are approximately $400 million ($0.4 billion). But even if expenses were zero, the pension would still need to earn $3.9 billion every year just to break even, i.e., keep the unfunded liability from increasing. Another way to put expenses into perspective is that even if all the $400 million in expenses were eliminated, $400 million is not enough to provide even a

1% one-time COLA! And obviously we cannot run a $96 billion pension system and eliminate all expenses.

Every year that STRS does not break even or better, it must sell assets to meet its obligations, and that lowers the level of assets available to pay benefits and earn investment income. When the pension had assets of $90 billion and it would have needed to earn $3.9 billion even if expenses had been zero, which translates to a 4.3% return on investments. With $83.7 billion in assets, it would need to earn 4.7% (again assuming zero expenses). Every time the level of assets goes down, it increases the rate of return needed just to break even. This is known as volatility drag.

Going back to our example from 2023 – in which the plan had $83.7 billion in assets, took in $3.6 billion in contributions, paid out $7.5 billion in benefits, and had $0.4 billion in expenses – it needed 5.1% in investment earnings to break even. But suppose a miracle occurred, and STRS could somehow have cut expenses in half; that would have reduced expenses from $0.4 billion to $0.2 billion, cutting the total outflows (B+E) to from $7.9 billion to $7.7 billion. With current expenses, we would still need to have earned 4.9% to break even!

Should we reduce unnecessary expenses? Yes! Where are the biggest expenses? About 79% of STRS’s expenses are investment expenses. But even if we were to reduce unnecessary expenses to zero, would we have enough money to restore 30 years active members and pay an ongoing 3% COLA for active and retiree members? The answer is clearly no!

Relative to many large pensions, STRS has a moderately high funding ratio. But it also has one of the largest cash outflows relative to the size of its assets. This along with fixed rate employer contributions, which are among the lowest in the country in non-Social Security states, poses a real threat to STRS. In almost all other states, when investment earnings are down there is a mechanism to increase employer or state contributions, which greatly reduces the chance that the pension could find itself in a circumstance where there is a spend down from which the pension cannot recover.

Therefore, the focus of members needs to be on building a mass movement to support increased employer contributions, which should be funded by increased appropriations for school districts or by a separate appropriation from the state. Ultimately this means voting and working to elect state officials who care about public education and understand that teacher’s working conditions are student’s learning conditions. Ultimately, to have a healthy pension, we need to replace fixed rate employer contributions with variable rate contributions making us comparable to almost every public pension in the U.S.

There is an old joke about a guy who is looking for his lost keys under a streetlight. Another person walks up to him and asks, “What are you doing?” The guy replies, “I am looking for my keys.” So, then the person asks, “you lost them right about here, eh?” The guy replies, “No, I lost them across the street.” And the person asks, “So why are you looking for your keys over here?” The guy replies, “Because this is where the light is.” If we want to restore benefits, we need to start looking where we can find billions of dollars and focus less on saving a few million dollars that we can find under a streetlight!

Robin Rayfield to STRS board: It may be time for the majority on this board to simply use their majority to force the changes desired.

Robin Rayfield's comments to STRS board

June 12, 2025

Good morning,

My name is Dr. Robin Rayfield, Executive Director of ORTA and a retired member of STRS.

On behalf of ORTA, I welcome Board Member Lynn Sautter Beal to the STRS Board. We wish you well in your efforts to improve the STRS pension system.

ORTA also welcomes Steve C. Toole as the executive director of STRS. Our success is dependent on Mr. Toole's success as he works to fix the many problems with our pension.

As our elected and appointed board, you deserve credit and acknowledgement for the slow but steady change in the operations at STRS. I think everyone can look back from this point and readily see that the discussions at the board level are filled with robust dialogue and energy. To think that only 6 years ago there were no discussions about any matters of importance. The board simply did as the management team and consultants directed.

With a majority of board members committed to change at STRS, it would seem like these changes would be simple. After all, for decades former board members simply used their majority to carefully construct a pension system that rewards the management team, the investment staff, and the consultants at the expense of the members.

The current majority, however, is different. It is comprised of teachers! Teachers always seek consensus or compromise. Solutions that have more staying power and are mutually satisfying. Political appointees, on the other hand, not so much. Politics is about power. Politics is a filthy profession. If a politician has one more vote than the other side, it is considered  a mandate!

It may be time for the majority on this board to simply use their majority to force the changes desired. For example, the PBI issue. With ample evidence that active management of our investments have not produced the value added as claimed by the people receiving bonuses, and the years long concerns related to phony benchmarks and or made up benchmarks that no one understands, it is time that STRS joins the vast majority of pension systems that pay no incentives.

I recognize the reluctance to 'wrestle with the pigs of politics' but there are times when it is impossible to stay out of the mud.

In closing, to support my contention that the STRS system enriches the employees at the expense of the membership, please refer to the chart from this morning’s presentation. Total compensation and benefits have grown 5% per year for a total of 25% over the last 5 years. Benefits, on the other hand, have grown just 5.5% over the same time period, 1.1% per year. [Please note the live link below the chart; the one in the chart is part of the photo.]

Live link: https://www.strsoh.org/_pdfs/2025-06-board-meeting-report-from-the-finance-department-presentation.pdf

Robin Beebe to STRS board: I have been very busy today looking for elephants in this room. Perhaps we all must be vigilant and "look out" for something else???? Has anyone seen any SNAKES IN THE GRASS???

Robin Beebe's remarks to STRS board

June 12, 2025

My name is Robin Beebe. Retired Master's Degree Teacher of mainly 4th Graders, 2nd Graders, Kindergarteners, a smattering of other elementary grades and eight summers of Migrant Education. 35 years. Fremont City Schools and Perrysburg Schools. Retired 16 years. Denied my full 3% COLA's. Denied approximately $120,000. KISS. IT. GOODBYE.

I have been hearing much talk of elephants in the room. In some cultures, elephants signify strength, wisdom, good luck and protection. Elephants are revered for their gentle nature, intelligence, using their strength for REMOVING OBSTACLES and NEGATIVE FORCES and bringing PROSPERITY. Elephants live long lives and have GREAT MEMORIES (like teachers that I know). What can we learn from any elephants in this STRS Boardroom?

Aha....(pull out small, grey elephant statue). Here is the elephant known as the "It's Your Fault" Elephant.  Teachers are blamed for not contributing enough. IT'S YOUR FAULT. Teachers are blamed for living too long. IT'S YOUR FAULT. Really????? What happened to the PREFUNDED Contribution Rates for the normal cost of the benefit including the guaranteed 3% COLA???? Where has all this PREFUNDED money gone??? Has this been diverted and applied to the unfunded liability???  Or somewhere else??? An elephant never forgets. Neither do we teachers!!!

Aha....(pull out small, pink, fluffy elephant). Here is the "Make It Go Away" Elephant. It is time to rescind the 2021 ORC Resolution and take away the power of the Executive Director to override the STRS Board's decisions. Please, will just one Board member use your strength and power and make a motion on this? Call for a vote to rescind it? Break this shackle and release your true Board power for self determination.

Aha...(pull out medium wooden elephant silhouette). Here is the "Ohio Audit $90 Billion Elephant". Faber's long overdue and very tardy audit suggested that had STRS invested in diversified index funds rather than hedge funds and alts, our pension fund would be worth an approximate $90 Billion more. That is Billion with a "B". Elephants signify wisdom and bring prosperity.

Aha...(pull out big stuffed grey elephant). Here is the Biggest Bull(y) Elephant in the room of ALL. It is the potential PARADIGM SHIFT of EPIC proportions that may be about to take place. This is the looming threat of the ORSC legislators to remove the elected active and retired STRS teacher Board Members and replace them with their appointed people. It will TOTALLY take away our teachers' power and voices. This PARADIGM SHIFT simply must not happen. To quote Dr. Martin Luther King, "The arc of the moral universe is long but it bends toward justice." I just have to believe this is true.....

Lastly, I have been very busy today looking for elephants in this room. Perhaps we all must be vigilant and "look out" for something else???? Has anyone seen any SNAKES IN THE GRASS??? ( Hold up 3 foot long stuffed toy snake).

Susan Brannan to STRS board: The Fiduciary responsibility of the 11 on this Board is to manage the STRS pile of CATNIP worth $95 Billion for Actives & Retirees.

Susan Brannan's speech to STRS board

June 12, 2025

Hello,

My name is Susan Brannan. I retired in 1995 with 30 years experience as a public school classroom teacher.

Speakers during the Public Participation portion of Board Meetings have “beaten the following issues to death”: 14% Active contributions, COLA, years of service for retirement, types of investments, use of STRS facilities, & operational expenses. We Actives & Retirees truly appreciate the efforts of ALL Board members, both elected & appointed, whose expertise & experience work to solve problems in order to keep STRS solvent.

That having been said . . . All Board Members seem to be operating between a rock & a hard place. Elected Educators who have “skin in the game” are criticized for not providing change fast enough. The Appointed, who are licensed, experienced professionals must obey the laws, be mindful of their fiduciary role, & stay within certain political lanes. Harsh? I say this because an appointee can be removed during a 4 year term, encouraged to quit, or charged & taken to court.

I taught American History which included economic, social, & of course, political history . . . all history is political! As a teacher, I'm saying that when one of two major political parties controls all 3 branches of government . . .well, you fill it in. It makes no difference whether it is the Republican or Democratic Party.

After many years, it appeared that no changes to contribution rates, years of service for full retirement, reinstating a COLA, & reining in expenses, etc. were in the foreseeable future. The Membership decided to take constructive action. Candidates for elected board positions were vetted for financial experience, education, & willingness to learn.

Here at STRS, elected, so called “Reformers” now number 7 out of 11. This has alarmed some at ORSC. Too many elected? Perhaps more should be appointed.? Never mind that some appointees have sided with “Reformers”. Also, if board composition is so key to control, why has the seat which is appointed jointly by the Speaker of the House & President of the Senate been vacant for 6 months, only to be filled about 20 days ago?

Speaking TRUTH TO POWER! Who has & where is the POWER over the $95 Billion STRS Pension Fund? May I suggest that it is NOT in this room.

Especially since the passage of Citizens United in 2010, Pension Funds across the nation, have become CATNIP to investors, politicians, & others.

The Fiduciary responsibility of the 11 on this Board is to manage the STRS pile of CATNIP worth $95 Billion for Actives & Retirees.

Trina Prufer: "In the culture of STRS, the highest paid non-contributors actively work in secret against the contributors. Behind the scenes slanted information is fed to legislators, the media and politicians. The non-contributors prosper when the system puts contributors last."

By Trina Prufer

May 9, 2025

Tribalism 

One way of looking at how STRS operates is through the lens of tribalism. There are essentially two camps of workers who rely on STRS for their livelihood: 1) those who contributed to the system (members) and 2) those who did not. Strangely, in the world of STRS, those who did not are much better off than those who did. Let’s call them the “contributors“ and the “non-contributors”.

STRS uses a different set of rules and norms for the non-contributors. Their salaries, bonuses and working conditions are compared to “averages” in private and public corporations. We are told that in order to get the “best“ people, STRS must be competitive; if board members object, they are not being good fiduciaries, and can be personally sued.

What is the reference group used by STRS to determine if the contributors are being treated fairly? There isn’t any. STRS cares not one whit what happens to Ohio’s educators and spends almost no time looking at equity.

If STRS operated as a normal public retirement system, what would be its reference group (or groups) when looking at equity for the contributors?  It would be BOTH the 13 or so other public teacher retirement systems without social security, and the four other public retirement systems in Ohio. We know what the findings would be… STRS provides the worst benefit structure, and has the worst outcomes in regard to a diminishing replacement rate as compared to both reference groups. Although not perfect, the norm is to provide a tiered benefit structure, keeping in place the promises made to retirees at the time of retirement.

Where is the STRS Executive Director in all of this? He tells us where he stands at every town hall meeting.

What does this have to do with tribalism? In the culture of STRS, the highest paid non-contributors actively work in secret against the contributors. Behind the scenes slanted information is fed to legislators, the media and politicians. This is evidenced by the anonymous letter, the firing of Wade Steen, the court case against Wade and Rudy and the AG‘s office supporting the non-contributors. The non-contributors prosper when the system puts contributors last. This is a nasty game that affects every aspect of our lives.

What a messed up system!

Trina Kay Prufer is a retired Ohio teacher. She regularly attends STRS Ohio Retirement Board meetings and speaks during Public Participation. She is an All-Star Contributor to the Facebook group Ohio STRS Member Only Forum.