Saturday, October 25, 2008


From a retiree, October 25, 2008
Perhaps this should be one of the videos shown when you meet with the STRS Counselor

A tale of two stories: Which is it...'routinely mailed' or 'hand delivery'?

From John Curry, October 25, 2008
Subject: A tale of two stories?????? Which is it..."routinely mailed" or "hand delivery?"
This quote re. Medical Mutual's lost disks comes to us courtesy of "Medical Mutual said it was notified by the retiree systems when the disks failed to arrive at their Columbus offices. The disks were contained in packages routinely mailed monthly by Medical Mutual for claims reconciliation purposes to the affected parties' central offices in Columbus from the health insurer's Columbus offices."
and...this story comes to us courtesy of the OFT newsletter: "Medical Mutual said it was notified by the retiree systems when the disks failed to arrive at their Columbus offices. Although Medical Mutual’s release indicated that the disks were contained in packages routinely mailed monthly to the affected parties’ central offices in Columbus, STRS officials said prior to this month such disks were received by hand delivery. The information is provided to the retirement systems for claims reconciliation purposes."
Methinks that someone is stretching the truth!

Friday, October 24, 2008

Condolences are extended to Dennis and Nikki Leone and family in the loss of her father, Ivan H. Trusler, on October 24, 2008. Dr. Trusler, who resided in Florida, was Professor Emeritus at Bowling Green State University, serving as Director of Choral Activities at that institution from 1966 to 1985. Nikki also lost a brother in August.

Obituary, Panama City

Rich DeColibus to STRS Board: You're handling this as well as Nixon handled Watergate

From Rich DeColibus, October 24, 2008
Subject: PBI
Dear Gentle(wo)men:
I am a bit confused about the recent PBIs given to our STRS Ohio Investment associates. Perhaps you can enlighten me. According to your most recent newsletter ("STRS Ohio News", October 2008), the criteria for PBIs are (1) total investment fund performance, and (2) the individual goals over the previous year.
Being as we lost $25 billion over the last year, it seems fair to assume our overall investment strategy was not to lose $25 billion. Indeed, taking a wild guess, I would venture our overall strategy was actually to make money, not lose it. Unless we are somehow exuberant we didn't lose $35 billion, and only lost $25 billion, perhaps we need to be a little more optimistic in our expectations. I suppose if you set the bar low enough, even crippled ants will be able to crawl over it.
For the sake of argument, I will assume we really didn't want to lose money. This brings us to point number two: the other justification for PBIs totaling $6 million dollars was individuals meeting their goals. At this point, then, one of three things can be true. (A) Some individuals actually had the approved goal of losing money for the system; if this is the case, then, yes, they have met the PBI criteria. (B) Some individuals had positive approved goals and despite the general decline in the capital markets managed to actually make money for the system, again meriting PBIs. However, given the $6 million payout, either a very few of them got a lot of money, or this simply didn't happen because it's not possible for many to have ended up positive and still lose $25 billion. (C) The third possibility is few, if any, individuals made their goals but it didn't matter, they got PBIs anyway.
Actually, what bothered me the most were the second, third, and fourth paragraphs of the article in question, all of which amounted to justification of the unjustifiable. It was, in political terms, "spin", and my suspicion is most readers saw it that way. Most of the individuals I communicate with are not upset about losing $25 billion; they understand it's a paper loss and the lower the market, the better the opportunity for future gains. They are upset about the PBIs, and they are especially upset about the bogus justification. Look, you guys (gender inclusive) screwed up with these PBIs, and you're handling it as well as Richard Nixon handled Watergate.
Rich DeColibus

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New job for Paul Kostyu

October 24, 2008
Business First in Columbus gets new reporter
Paul Kostyu, 614-220-5482, is a new general assignment reporter for
Business First: The Greater Columbus Business Authority.He will write for the Inside Report section. For more information, call 614-461-4040.

Note: Paul produced dozens of articles exposing past mismanagement and misspending practices at STRS while writing for the Canton Repository. Paul is an award-winning journalist and was nominated for a Pulitzer Prize.

Barb Garwood to STRS Board: Cancel all bonus payments

From Barb Garwood, October 24, 2008
Subject: bonus payments
Dear STRS Board members,
It is of utmost importance that no bonus payments be made during this time of economic upheaval. Clearly every dollar must be safeguarded, and paying any bonus is not consistent with saving money. I urge you to cancel all bonus payments.
Thank you.
B. A. Garwood, Ph.D.

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Lack of postage?? Give me a break!

October 24, 2008
From a CORE member re: the loss of STRS members' data
There is registered mail, certified mail, and insured mail. All require a signature and can be traced. UPS, DHL, and FedEx also provide delivery service that can be tracked.
I doubt if they could send that much data for a 1 or 3 months period via T1. Why were all 5 systems in the same package? That does not make sense.
Again, the associates are not at risk. It is the good old retirees.

Laura is hopeful! (Heck, I coulda given 'em another stamp)

State retiree data lost in the mail
Insurer says 11 computer disks may have lacked postage; 36,000 people affected
Friday, October 24, 2008
Suzanne Hoholik
Computer disks that contain personal information about 36,000 Ohio retirees have been lost in the mail, Medical Mutual of Ohio told the state's five retirement systems yesterday.
The 11 disks contain information about members of the School Employee Retirement System and its employees, the State Teachers Retirements System, Ohio Police and Fire Pension Fund and the Ohio Highway Patrol Retirement System.
Medical Mutual officials said no medical information was on the disks, but declined to give any more details.
The disks were mailed from Medical Mutual's Columbus office to the systems' central offices in town.
The retiree systems notified the company that the disks hadn't arrive.
Medical Mutual contacted the U.S. Postal Service last week that one package was missing, said Ray Jacobs, spokesman for the Postal Service. Yesterday, the company told the Postal Service that 11 packages were lost.
Company executives believe the disks are somewhere in the system -- not in criminal hands -- and will be located.
"We ask Ohio retirement system members not be alarmed," Jared Chaney, chief communications officer and executive vice president, said in a written statement.
"Our investigation, so far, indicates that insufficient postage was placed on the envelopes, therefore we believe they are likely to still be safe within the postal system."
Jacobs said there is no way to confirm that the packages were even mailed and no way to track them.
The mail recovery center in Atlanta already has been searched, Jacobs said. The Postal Inspection Service and the U.S. Inspector General's Office are investigating.
"We're on high alert to recover them if they're in the mail stream," he said.
If the disks aren't located, Medical Mutual will provide credit monitoring services and free credit reports for those affected by the loss. The company also said that it will create a hot line for people with questions.
Laura Ecklar, spokeswoman for the State Teachers Retirements System, said she is hopeful the disks will show up.
"Medical Mutual is working very hard to try to find these disks," she said.
Affected members with questions can call Medical Mutual at 1-800-854-8139 or go to the company's Web site,

For want of a stamp, 36,000 records are lost?

Thursday, October 23, 2008

Debbie Roush: Now what do we do about this mess?

From Debbie Roush, October 23, 2008
Subject: The STRS Mess
John, Molly, and Kathie, Ok, now what are we going to do about this mess. What is it going to take for the STRS Board to understand what we want from our retirement system?
You know what really bothers me is that the STRS newsletters have not mentioned anything about the losses: 13 billion in '07 or the 25 billion in '08. The Board did indicate how they plan to remain sound through the use of long-term investments. The newsletter is another waste; I don't think I've ever read anything worthwhile in those issues. It is just the same old mundane news; I think they have them preprinted for the whole year, and just send them out each month.
The last issue of the ORTA Quarterly that was sent to all retired teachers in Ohio never indicated a $25 billion loss, but did mention a -5.44% decline and projections of -1.2% for fiscal year 2009.
I wrote to Governor Strickland after he was elected and ask if there was any agency that could oversee the spending practices of the STRS Board. I never received a reply to my questions. I thought there was an agency that served as a "watchdog" for retirement systems.
Another question for the Legislators, Governor, STRS Board and retirees: If STRS is a retirement system, why is it not controlled by retirees? The majority of the STRS Board doesn't have a clue about the life of the retired teacher. We really have only one seat looking out for us.
The composition of the STRS Board...maybe it needs to change. What act of God would this take to change a "sacred cow"? It is embarrassing that the Board doesn't heed the warnings and accept Dennis Leone's invaluable experience. Does anyone know how to change the structure of a state agency? Is it a Referendum? Any history teachers out there with the procedure?
Does anyone besides Dennis care about what has happened and continues to happen? What is $68,965?
Debbie Roush

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Golden parachutes over Broad Street

Jim Wagner: They didn't cause the downturn. And they don't cause the upturn.

From Jim Wagner, October 23, 2008
Subject: RE: Bonuses
I Agree 100%. True: They didn't cause the downturn. They don't cause the upturn either.
Jim Wagner

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Jeffrey and Nancy Settles to STRS Board: We are sure there are many investors who would LOVE a position with STRS

From Jeffrey and Nancy Settles, October 23, 2008
Subject: Staff Bonuses

This is the year to have the balls and not give bonuses to OUR investors who lost billions of dollars. I have lost money and there is no one giving me a bonus. If they are unhappy I'm sure there are many investors who would love a position with STRS.

Jeffrey and Nancy Settles

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Message to STRS Ohio Members From Executive Director Michael Nehf

From STRS, October 23, 2008
The events taking place in Washington and on Wall Street are unprecedented. We are being bombarded with news reports that describe the current economic situation with terms like "crisis," "meltdown" and "slow-motion crash."
Many Americans are seeing the direct effects of this on their own personal investment accounts and are worried about their future. At times like this, the value of the defined benefit plan that we offer to our members is more apparent than ever. Every month, we have thousands of retirees who can count on receiving a pension check from STRS Ohio - regardless of market fluctuations.
This has not come about by chance. It has come about through the prudent management and ongoing oversight of funds by board and staff. Going forward, we will continue to be proactive in managing the current and future responsibilities we have to our members by taking all factors into consideration to ensure the long-term solvency of our pension fund. Under my leadership, your management team is closely monitoring what is happening in the markets and is assessing both the short- and long-term impacts.
It also means that we will continue to be prudent as an organization in managing our own expenditures. When I took this job, I stated that I wanted STRS Ohio to be the best-managed retirement system in the country. That goal transcends market fluctuations. My intention is to be sure we continually implement operating improvements and efficiencies to make sure every dollar we spend is spent wisely - whether the market is up or down.
In the past few days, we have received some e-mails from STRS Ohio members who question how we could award Performance-Based Incentive (PBI) payments to eligible Investment associates in this time of steep market declines and challenging economic conditions for many Americans. We have frequently shared information about our PBI Program with our members, including most recently in the October 2008 issues of our member newsletters; postings on the STRS Ohio Web site in August and September 2008; messages sent to more than 44,000 subscribers to our e-mail news service, also in August and September; and handouts at a number of speaking engagements this fall.
We would like to take this additional opportunity to share information with you. Here are some major points about the PBI Program you may find helpful:
- The $6 million paid to 87 Investment associates in September 2008 was for the period from July 1, 2007-June 30, 2008 (also known as fiscal year 2008). During this period, active management by these associates and external managers beat the benchmark return by +.35%, resulting in an additional $215 million for the pension fund than if assets were passively indexed.
- STRS Ohio Investment associates internally manage about 80% of STRS Ohio's investment assets; third-party studies have shown that internal management is extremely cost-effective for STRS Ohio, saving $100 million in external fees in calendar year 2007 alone.
- The PBI Program for fiscal year 2008 was approved by the State Teachers Retirement Board more than 1½ years ago, in March 2007. Applicable PBI payments were discussed at the August 2008 board meeting, approved by the Retirement Board at its September 2008 meeting, and paid later that month. Given the extraordinary market downturn since then, the Retirement Board has accelerated its annual review of the PBI Program usually conducted in March, and has been conducting discussions this fall.
- The PBI Program is very transparent to both STRS Ohio members and the Legislature.
* Permitted by state statute;
* Reviewed by the Ohio Retirement Study Council (ORSC) and the Joint Committee on Agency Rule Review (JCARR);
* Included as a separate line item in the budget presentation made annually to the ORSC prior to adoption by the Retirement Board;
* Communicated to the membership through newsletters, postings on the STRS Ohio Web site, messages sent to subscribers to STRS Ohio's e-mail news service, and handouts at speaking engagements; and
* Included in the monthly posting of the STRS Ohio budget on the STRS Ohio Web site (both budgeted amount and actual expenditure).
- Including a PBI as part of an overall compensation program for Investment associates is an appropriate and commonly accepted practice in both the public and private sectors. As noted in a study of STRS Ohio's program conducted by Aon/McLagan in March 2005, "STRS' incentive plan for Investment Associates can be considered 'mainstream' relative to competitive practice."
- The PBI Program is only available to eligible Investment associates; no other STRS Ohio staff members participate.
- References to a $25 billion loss reflect the period from mid-October 2007 through mid-October 2008, which covers portions of two fiscal years. Losses recorded in fiscal year 2008 are reflected in the September 2008 payments; investment results for fiscal year 2009 will be reflected in any applicable September 2009 payments.
As STRS Ohio's new executive director, I endorse the compensation program we have established for our eligible Investment associates. It is an accepted and appropriate practice within the investment industry to provide investment professionals who earn more than the benchmark return with a form of performance-based compensation. This outperformance is critical and directly benefits your pension fund.
Thank you for letting me share my thoughts with you.

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Article: Retirees running out of time

Today’s economic crisis is tomorrow’s nightmare for millions of aging Americans whose nest eggs are suddenly cracked.
By Ted C. Fishman
USA Today, October 23, 2008
In early October, on one of the days the stock market was falling to where it was 10 years ago, I called my plumber in Chicago, Gil Boersma, to stop a drip in my sink, but he had another leak on his mind. Unlike "Joe the plumber" made famous in the last presidential debate, Boersma does own his business and, at 66, he is seeing his retirement fund dwindling. Made up of money he had saved in cash and certificate of deposits, the fund was rejiggered four months ago by a financial adviser to take advantage of the "income opportunities" of stocks. I caught him just as he was considering his next move.
"I thought I'd retire soon," Boersma said. "Now I'll keep working." He paused for a minute to consider the lot of his generation. "Americans need to see a total of all the retirement savings that have been lost in this meltdown."
The next day, when the Dow Jones Industrials were around 10,000, the Congressional Budget Office obliged with the figure: In the past 15 months, the markets have siphoned $2 trillion from U.S. retirement accounts. The number leaves out trillions of dollars in assets that vaporized outside those accounts. The CBO also affirmed that many Americans will be forced to put off retirement.
One of the sobering realities bared in the crisis is how the public and private guardians of our financial lives have long oversold the promise of stock portfolios as the economic bedrock for our later years. Stocks have never been the long-term wealth builders championed by the financial press, brokers, financial planners and even our political leaders.
In Warren Buffett's 2007 letter to his investors, he dissects the voodoo economics of mainstream retirement strategies. Most investment pros tell clients the stock market has reliably delivered returns of 10% or better to investors willing to stick it out for the long term. Over the century ending in 2007, which Buffett notes has been a very good century for investors, the Dow Jones Industrials have delivered a compounded annual return of only 5.3%. If you trade a moderate amount and pay commission, taxes or invest in mutual funds or other vehicles that demand small fees, you'll earn far less in the long run.
The waiting game
Whether the stock market delivers for your retirement depends very much on when you need to draw down the money you have invested. If you retire this month and move your money from stocks — money that over the past 10 years has delivered less than nothing in profit — into safe, but meagerly lucrative investments to preserve your nest egg, you might never get close to whole. People who, late in their working careers, invested their retirement money in stocks during the bear market of the late '60s and '70s were similarly trapped, because stocks didn't begin to move meaningfully up until the early '80s. Back then, conventional wisdom preached that prudent people exit stocks when they exited the workforce. Prudence is a bitter pill when one has to lock in big losses.
Today, Americans live longer they did 30 years ago. Among husbands and wives who are both 65, for instance, there is roughly a 50-50 chance one will live to 95. In recent years, financial advisers commonly told their retired clients that unless they kept a good chunk of money in the stock market — and less in bonds — they risked running out of money in their frail old age. But history also shows that bear markets can also send stocks backward for years.
Of course, most retirees have to pull out money to live on. Most of us, unlike Buffet, occasionally need that cash to pay for things we require before retirement, such as health care, education, care for a fragile parent or to pay bills between jobs. In the past year alone, one out of five U.S. workers stopped contributing to retirement plans because of financial hardship. Today, workers in retirement are required to pull money from their tax-deferred retirement accounts, forcing them to cave at the current whims of the market when they might otherwise choose to hang on. People near or at retirement realize the need to work. The fading of retirement security in the U.S. is reflected in a recent AARP survey. Sixty-nine percent of Americans said they expect to spend less time in retirement.
Workers are willing to work longer because they have to, but will employers hire them? A higher percentage of Americans older than 65 is working than a generation ago. Yet, in an economic downturn, companies are likely to try to drive down the age of retirement with employee buyouts, not push it up. In the past year, unemployment among workers 55 or older climbed 30%.
Better incentives to save would help create a firmer safety net. The current crop of self-directed plans, such as IRAs and 401(k)s, do not encourage people to save enough to get through the multiyear economic lulls we know to expect.
In the Netherlands, the vast majority of workers are forced to save on the job, and the system leaves the population on solid footing. The World Bank advocates mandatory savings. Participants in traditional, defined-benefit pension plans are sleeping far easier than their self-directed peers. We can steer the self-directed into hybrid financial tools that allow individuals to simulate the security and steady income of the defined-benefit plans still available to employees of the government and many large corporations. Such tools exist today for individuals, but the high cost in fees and commissions erodes their value.
Keep seniors employed
Fostering a job market that allows older workers to stay active a few more years could make a huge difference. People who earn money in their 60s, 70s and beyond will not need to draw down their savings. And, they can ride out the longer downturns to give markets a chance to bounce back.
Finding work for millions of aging Boomers requires new thinking. My plumber owns his business, is in good health and has loyal customers, so he can keep going. One in six older workers is self-employed, but many risk all to start their businesses, and many fail.
A support system for older entrepreneurs might boost the success rate. Micro-lending circles could spread the risk and expertise. Salaried jobs that offer flexible and reduced hours could keep older workers employed. Age discrimination hurts such workers, but some differentiation could also help them stay employed. If a 67-year-old makes five sales calls for every 10 made by a 27-year-old, then perhaps the older worker's pay could be adjusted accordingly.
The presidential candidates have dodged the big questions on how they'd handle the financial meltdown, ignoring altogether the plight of tens of millions of people in or near retirement. They dwell instead on tax breaks that would deliver little to most families and less to people winding down their work lives.
Time to call my plumber. He knows what happens if you ignore a leak.
Ted C. Fishman, author of the best-seller China, Inc.: How the Rise of the Next Superpower Challenges America and the World, is a member of USA TODAY's board of contributors
Submitted by John Bos

Dave Parshall to Ruth Weeks: Why aren't you asking questions?

From Dave Parshall, October 23, 2008
Subject: RE: Ms. Weeks, Rube Goldberg would be proud!
Ms. Weeks,
I worked for HB 315 last year and met with most of the house members and discussed the need for HR 315. Not one mentioned that STRS was mismanaged. The only comments were directed at the present pension enrichment (the 88 %) rule. They said that made 315 a hard sell with the constituents. OEA continues to put their head in the sand. There are 55,000 persons on Wall Street looking for work. I think it is all too appropriate to question our bonus policy at this time or at any time.
The entitlement mentality and greed of those who handle other people’s money has to stop. We need a new policy not only at STRS but also in the financial world as a whole. CORE has gotten letters from a STRS employee telling us that some of the STRS members of the investment department have been overheard bragging about their perks and the great new cars, etc., they have purchased.
The OEA that I worked for in the 60’s and 70’s would have been asking the questions we are asking. Why aren’t you? I have never heard any CORE member say anything put praise for STRS employees. It is the board that we question.
Yours truly,
Dave Parshall,
President of CORE

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What happens when someone who is unformed gets their 'info' from someone else who is uninformed; this person presents NO facts or research

From John Curry, October 23, 2008
Subject: Ms. Weeks, Rube Goldberg would be proud!
Rube Goldberg invention (click to enlarge)

From Molly Janczyk, October 22, 2008
Subject: STRS board
Don't you love it? It is those complaining who are responsible for HB315 not being popular with school boards; NOT STRS' ACTIONS! Gee, guess no one would know what goes on at STRS if it wasn't for us pesky complainers. Guess the Ohio Retirement Study Council (ORSC) who oversees the pension systems would miss all this even though we have to report to them with budgets. What the legislators and school boards would have noticed FAVORABLY is STRS cutting back and being sensitive to its shareholders in this yet another crisis we face. But, once again, it is OUR fault that OUR retirement system chose the lavish use OUR money during times that warrant frugal thoughtful and prudent (in the ORC: PRUDENT, I believe) use of funds SOLELY ON BEHALF OF ITS MEMBERSHIP. In times like this , the membership can't swallow extravagance when we face untenable costs. Looks like the same 'ol spending style approved by the same 'ol mindset to me at STRS.
From Molly Janczyk, October 22, 2008
Subject: RE: STRS board
This email below about folks complaining is from Ruth Weeks, OEA loyalist and member of Fairview Park RTA which is very resistant to outside thinking, in my opinion, having talked with them for several years. The fact is that this will only show legislators that STRS IS not being mindful of their money, Ruth, during difficult times. It isn't like we are telling them something unknown.
Dennis Leone to Ruth Weeks, October 22, 2008
Subject: RE: FW: STRS board
You are right. STRS is one of the best retirement systems in the nation. It won’t be, however, if the STRS Board continues to give out enormous bonus checks to staff right after we drop $25 billion in assets in just 12 months. If it happens again over the next 12 months, you better worry about whether you’ll receive your same pension check. We’ve dropped 31.25% of our total value, and you best believe me when I tell you that we cannot drop another 31.25%. It plainly was unwise and unnecessary for the board to vote on bonus checks for fiscal year 2009 this past March, right after we dropped $8 billion in assets over the previous 4 months, and 3-4 months BEFORE the end of fiscal year 2008 (when we dropped another $2 billion). Yes, HB 315 is affected, but not for the reasons you think.
Dennis Leone
From Ruth Weeks
Subject: Re: FW: STRS board
You people who complain about the STRS are cutting off your noses to spite your faces. When I approached a school board member to try to convince him to give HB 315 a chance, he countered with the fact that if STRS were better managed we wouldn't need a dedicated stream to pay for our health care. Apparently he had heard some of your comments complaining about mismanagement. STRS is one of the best retirement systems in the nation.

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Jean Waggoner to STRS Board: What are you thinking??

From Jean Waggoner, October 22, 2008
Subject: Wow, are we upset with YOU!
Dear Board Members,
Is it true that you are considering giving bonuses to the investment folks who just lost $25 BILLION of our investment money??? What in the world are you thinking?? You've already given them over $6 Million this year....let's hold up a bit here and think this over. After you think it over please decide NOT to give them any bonuses. We are watching what you do very carefully. You play an extremely important role in our financial futures. Please act responsibly and do NOT give any bonuses when there are losses. We've lost too much already! Thank you.
Jean Waggoner

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Looks like we aren't the only ones having this kind of conversation!

Bailed-Out Banker Compensation: A PR Disaster in the Making?
by: Roger Ehrenberg
October 23, 2008
A good friend of mine raised this very question, and I have to admit it gave me pause. Sure, we're all aware of certain limitations placed on executive compensation within the Economic Stabilization Act of 2008. The rules are specifically geared towards towards institutions that take advantage of the Troubled Asset Relief Program [TARP]. But when you look at these rules they really lack teeth; you will still have bailed out executives making seven-figure sums. And when you juxtapose this against a backdrop of economic weakness, rising unemployment, and a population that is growing less fond of the bailout by the day, it could make for a toxic cocktail of disbelief, hostility and rage. TARP has created an odd situation where those doing the bailing out (the US taxpayer) may well be funding compensation 10x, 20x, 50x greater than their own, with an average employee at a bailed out firm making, say, 4-8x more than their ostensible sugar daddies. This math just doesn't seem to add up.
Remember how irked both media and the general public got when it came to light that AIG was funding a party for its top producers? And this totaled around $400,000. How about TARP-benefiting firms with bonus payments - in the billions! How are people going to feel then? Uh, I shudder to think. The backlash could be harsh and swift, encouraging Congress to attempt to show that they're on the case by imposing some ill-fated dictum with unintended consequences. Just what we need. Not.
The whole issue of executive compensation - both on and off Wall Street - needs a redo. I have a hard time with the concept of large single-year cash payouts. Senior executives should be paid for value creation over time. Just like hedge fund managers. If you want to be assessed on creating long-term value, which should be every Board's goal, than executive compensation needs to fit this mold. Same with hedge fund managers. With performance comes payout, and if performance is long-term then payout should be long-term as well. With hedge funds implementation would be easy; only pay management fees currently and pay performance fees either based upon P&L realization (as opposed to P&L realized and unrealized that is the model for most) or over a time horizon that approximately matches holding period (which could be 3-5 years for certain long-term value managers with concentrated positions).
WIth corporations it is somewhat harder, as the concepts of realization and holding period are difficult to apply. That said, long-term stock options with long-dated cliff vesting comes pretty close to achieving this objective. I like the idea of senior executives holding 10 year options with 5 year cliff vesting (meaning that they fully vest only after 5 years; if they resign or get fired before 5 years they leave it all behind). This, I believe, closely aligns senior management with stockholders, and specifically avoids quarterly manipulation that is the hallmark of large option grants that vest on a short-dated schedule. But this only works if almost all of executive compensation is in these options, such that the cash portion isn't so large as to incentivize bad behavior and the quarterly earnings manipulation mentioned above.
For instance, consider a guy like Dick Fuld. In my scheme Dick would have been holding a portfolio of these 10 year maturity/5 year cliff-vesting options, meaning that he has 5 years of stock compensation cumulatively tied up in the company at all times. Now consider if this total compensation was weighted, say, 80-90% in these options, such that he got enough cash to live very, very well, but that almost all of his net worth was tied up in the stock. Tied up for 5 years. All the time. It is very hard to keep a fraud going for 5 years, to fool the market for 5 years. So Dick, in my example, would have lost almost everything when Lehman went down. Which is as it should be.
Highly compensated traders should be paid the same way, specifically to avoid the kind of "swing for the fences" attitudes that permeated Wall Street and amplified risk to reckless levels. All in the name of current year compensation. This has been and will continue to be a recipe for disaster unless a wholesale revamping of executive and highly-compensated employee compensation is undertaken.
This then leaves us with hedge funds. Now is the time for LPs to push back on current pay for future value. Because most managers aren't going to volunteer a pay cut in order to better align their interests with those of their LPs. Few are masochists, and even fewer are pure enough such that they would choose intellectual honesty over cash. For the system to be truly revamped reform needs to cut across Wall Street, hedge funds and corporations alike. And Government regulation isn't the way to do it. But it may be well imposed if those in the positions of power and responsibility don't act with their brains. Boards need to discharge their fiduciary responsibilities and wake up. LPs need to discharge their fiduciary responsibilities and wake up. Compensation is broken, and it is far beyond a PR issue. It is a value creation issue, an issue that will plague our economy until something is done about it. Now.

Wednesday, October 22, 2008

Jim N. Reed to the Lancaster Eagle-Gazette: Anybody home at STRS?

From Jim N. Reed, October 22, 2008
Sent to the Lancaster Eagle-Gazette
STRS Members-Anybody Home?
"How much more must be lost before we all receive letters telling us our retirement pensions are being recalculated?" A State Teachers Retirement System retiree recently posed this question in a letter on Too dramatic or a realistic consideration for all active and retired educators?
The basis for this disturbing question is the loss of $25 billion dollars in STRS assets in the past year. Many Americans have lost value in their pensions.
A more searing question is why, during these troubling retirement losses at STRS, would the board approve $6,027,249 in Performance Based Incentives (bonuses) to investment staff?
One official STRS spokesperson suggested the answer is that the bonuses are a "long-standing tradition." That is correct. Post 9-11 witnessed the board awarding millions of dollars in bonuses even though STRS membership lost $13 billion dollars while healthcare costs exploded and ethics charges resulted in the removal of six board members and an executive director.
Watchdog board member Dr. Dennis Leone, the only board member to vote against the PBIs, poses another pertinent question. "Would any teacher in America qualify for a bonus check if he/she argued that since the decline in student test scores in his/her class was less than any other classes in the building?"
Some retirees may remember the "13th check." It was withdrawn a few years ago when the board decided STRS could not afford to continue a bonus for members.
Ohio Revised Code 3307.15, which directs board members as to their duties to the membership, states"...The board and other fiduciaries shall discharge their duties with respect to the funds solely in the interest of the participants and their beneficiaries...and in defraying reasonable expenses of administering the system..." Pretty clear.
The welfare of STRS membership (not OEA or ORTA or any other organization) must be the primary fiduciary responsibility of the board.
Members must do their homework and become STRS-literate. Further information is available at and educators can contact the STRS board at
Jim N. Reed
Baltimore, Ohio

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News you can use.....

From Molly Janczyk, October 22, 2008
Subject: RE: RX
Sure does. Thanks, Lynne!
From Lynne Matthaes, October 22, 2008
Subject: Re: RX
Giant Eagle also does this and sometimes you can get a coupon in the doctor's office for .50 cents off a gallon of gas up to thirty gallons. We use these when we can get them and that is a big savings on gas. We also buy gift cards at Giant Eagle when we know we are going out to eat or need to shop for gifts, this also saves us on gasoline. Every little bit helps.
From Molly Janczyk, October 22, 2008
Subject: RE: RX
I calculated all our meds and for us this did not save anything. Some of our 90 day RX's are under $10. It turned out to be about the exact same for us. But, THANKS, because for some it is very useful. Depends on the meds.
From Teresa Pressler, October 22, 2008
Subject: RX
A doctor told me about Kroger having RX generic meds for 90 day supply for $10.I can get all of mine but one for $10.This is cheaper than STRS mail order.Thought I would pass the info.She saved me money by mentioning this.I thanked her.What used to cost me $75 now cost me $30.Teresa

Andrew Cuomo: 'FREEZE!' STRS Board: 'Let 'er rip! Heck, it'll make us feel good!'

From a retiree, October 22, 2008, October 22, 2008
Subject: investment staff bonuses
Oct. 22 (Bloomberg) -- American International Group Inc. agreed to freeze $19 million due to its former chief and $600 million in compensation for other executives amid criticism of such payments in light of the collapsed insurer's U.S. bailout.
New York Attorney General Andrew Cuomo announced today that AIG will withhold severance and bonus payments from former Chief Executive Officer Martin Sullivan and will not distribute funds from the $600 million deferred compensation and bonus pools of AIG's Financial Products subsidiary.
Cuomo last week demanded that AIG, once the world's biggest insurer, stop ``extravagant'' expenditures and recover millions of dollars in unreasonable payments, or face legal action. The New York-based insurer submitted to a U.S. takeover last month and already has tapped two-thirds of its $122.8 billion Federal Reserve credit line.
``Until the taxpayers recoup their investment in AIG, which is now in excess of $120 billion plus interest, there should not even be any contemplation of bonuses for executive performance,'' Cuomo said today in a conference call with reporters.
Shouldn't this apply to STRS?

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So just how do they plan to break the news to us?

From a Certified Project Manager of a large US corporation, 10/21/08
Subject: Re: STRS comes up with a figure that "nobody supposedly knew or cared about"...on the very next day! Imagine that!!!!!!!!
I am always amazed that any organization that trades electronically and in massive quantities can respond to market swings in seconds, yet when asked for a very basic number like this always scratch their heads and tell you that will take days/weeks/months to provide? Sounds to me like they need time to determine "how" they are going to say it.

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Remind you of a board you know?

Letter from nine retirees: The outrage continues

October 22, 2008
To the STRS Board Members, Mr. Nehf and Ms. Ecklar:
As retirees who are suffering from the downturns in the economy, we are appalled by the continuing practice of giving bonuses to the investment advisors.
We find it hard to believe they are less well-compensated than their counterparts in the private sector. With today's economy, we feel confident in saying the advisors are fortunate to be employed by STRS. In the private sector, they would be holding their breath waiting and wondering if/when their jobs would disappear. Certainly, they would not be receiving humongous bonuses.
We support Dennis Leone's contention that bonuses should not be given while we face tremendous financial losses. It doesn't matter if the bonuses amount to less than allocated, as stated by Laura Ecklar. The bottom line is that STRS has suffered major losses. Bravo, Dennis for standing up for the retirees!!
The time has long passed for changes to be made at STRS, not only regarding the bonuses but also the benefits package.
The STRS employees should be covered by the same health insurance policy as the retirees. This would help ensure that the best possible package is negotiated for both medical and prescription since they would have a stake in its quality and cost.
The STRS employees work for the retirees and need to remember this. It is our money which is funding their paychecks and all the other perks they receive.
Linda Meinelt
Birgitta Ker
Leslie Snyder
Larry Snyder
Cyndee Schoenhoff
Evelyn Wampler
Keith Wampler
Robert Shoemaker
Jane Shoemaker

Labels: , , , don't suppose he trained at STRS, do you?

Mike Matthaes to STRS Board: Wake up!

From Mike Matthaes, October 20, 2008
Subject: Bonuses
To STRS Board:
I find it amazing that the Board would even consider giving the Investment Staff a bonus in this economy! STRS has lost considerable money and yet you wish to reward the staff for this! It is ludicrous!!! As a retired teacher who has helped put money into the system and continues to see the cost of health insurance increase not to mention everything else, it is time STRS tighten their belts and that includes bonuses to the Investment Staff along with all the other perks given to STRS employees while we, the retirees, continue to have to tighten our belts, go back to work, etc. We are all paying close attention to what you are doing! If the investment staff wishes to leave then let them, their are plenty of others who would like to work for an organization where there are so many perks. In this environment today everyone should just be happy to have a job. My wife's company is not paying bonuses this year, nor are they giving pay increases. Our children's employers are laying off, foregoing bonuses, etc. and they are big corporations here in Columbus! Wake up STRS!!!
Mike Matthaes
Retiree, 1997

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Linda Sauer: Small teacher pensions and STRS bonuses

From Linda Sauer, October 19, 2008
Subject: Investments
Hello to the board.
As one of thousands of Ohio Retired Teachers, I am very concerned with how STRS oversees investments and how the money is spent.
I am aware that several years ago, a beautiful new and extremely expensive building was built in Columbus to house STRS. I would love to have had a chance to teach in a school that was half as nice as that building. But coming from Southeastern Ohio, of course I didn't. Because of where I live and taught, my STRS pension is considerably lower than what it would have been if I had happened to live in any other area of Ohio.
If I read some recent information correctly, I am led to believe that those who invest STRS' money to benefit teachers has recently or will receive some kind of bonus for their work. After the horrible financial climate of our country, including Ohio, I certainly hope that those involved in this area of STRS will want to hold their heads high and not misuse profits that should go to the clients (us). I'm sure that being an STRS employee/investor is very hard work and I'm not saying that there should be no benefit to those in that position. BUT the rest of us are trying live on the small amount that we receive as a pension and there should be a way to even things out!!
Please consider my message and remember all of us who are depending on STRS to keep us afloat, even the difficult economic times that we are living in.
Linda G. Sauer
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Linda Rothman: Fannie Mae and STRS bonuses

From Linda Rothman, October 22, 2008
Subject: Money Management
Dear Board Members,
I am writing today to express my concern over your mismanagement of my money! I am extremely concerned about the 30 some percent reduction in the value of the STRS portfolio. I am aware that the whole market is down and that some of it was beyond your control; however, I have heard that Fannie Mae stock was purchased after it was in trouble and that the investment staff got BONUSES for their work this year. I strongly disagree with this! I taught for 38 years in the public schools of Ohio and never once did I receive a bonus. The only time I believe that ANYONE employed by STRS should get a bonus, is after the teachers, who gave you the money to invest, get a bonus (e.g.: 13th check - which I have never received!)
I am concerned for my future and the future of STRS. I retired 14 months ago with the assurance that I would get a certain monthly income from STRS. Are you going to be able to fulfill that commitment? You won't if you continue to build lavish buildings filled with expensive art work and pay bonuses to employees, who already make a salary that I am sure is more than I ever made! Thousands of retired teachers are depending on you to protect our money and provide us with the future we were promised.
I know that times are difficult for all of us. Please think carefully before you make each decision about my money. I worked in inner-city and Appalachia all of my career, not making a lot of money, but helping a lot of students. I would like to feel that I can depend on you for my future, as my students were able to depend on me.
Linda Rothman

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Vern and Ele Allen: This is insane!

From Vern and Ele Allen, October 19, 2008
Subject: bonuses for losing OUR $ ????
Dear Board,
I am outraged, to say the least, that once again those who sit in that unnecessarily posh building expect to receive bonuses from those of us who have entrusted them with our retirement money---and that only a few years since they lost another ton of teachers' money and rewarded themselves, can you seriously be considering rewarding them again?????!!!!! My husband and I fully agree with a large number of working and retired teachers who think this is completely insane in the worst financial crisis this nation has seen in decades. The financial advisors do not deserve a bonus on top of their already substantial salaries, perks, and benefits. We agree with the email from Richard DeColibus in regard to this, and am happy that he has forwarded us your email address.
Vern & Ele Allen

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Georgia Dunn: If the fund has lost money, the board cannot justify paying bonuses on money not made

From Georgia Dunn, October 19, 2008
Subject: STRS board
I am extremely upset to hear that the STRS board is considering bonus checks for its 100 investment managers despite the fact that the downturn in the market caused STRS to lose 25 billion dollars or so.
I realize these people work hard and that they often receive bonuses for the increased income they generate for the system. I believe in the past three years they have received large bonuses. They probably deserved them then; however, not now.
I know that the economic crisis is not the investment managers' fault; nevertheless, if the fund has lost money, the board cannot justify paying bonuses on money not made. I have retirement money invested in the market and I lost about 30% of its worth, also through no fault of my own; I will need to
live on my retirement check from STRS without pulling any additional funds. The investment managers will need to do the same: live on their generous salary and benefits without a bonus.
The board's duty is to run the STRS board efficiently; paying bonuses when no additional revenue has been generated for the fiscal year is less than efficient: it seems to border on negligent.
What can the governor's office do to head off this travesty which will make for terrible press coverage if the board actually proceeds with the bonuses? I think among Ohio's teacher retirees (like me) this would be tantamount to the sales leader benefits that AIG paid out after the government "bailout."
Georgia Dunn
Retired Teacher
South Lebanon, OH

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Tuesday, October 21, 2008

Missouri teachers pension fund living it up.... hey, wonder if they took their cue from Ohio?

From John Curry, October 21, 2008
Subject: We educators in Ohio can say, "been there - done that," can't we?
Missouri educators are now experiencing what Ohio educators went through several years ago. Will the Missouri experience result in board members and an executive director being convicted of ethics violations? Will the board members have to "give back" their credit cards? Will expensive hotel stays be prohibited?
Since the award-winning former investigative reporter for the Canton Repository, Paul Kostyu, is unemployed (as of my last discussion with him) maybe we could do both Paul and the Missouri educators a favor by suggesting to him to "go west, young man" as entitlement with the public dime seems to know no geographical boundaries. John, October 21, 2008
Newspaper: Mo. pension fund officials living it up
The Associated Press
The top executives of Missouri's teachers pension fund are spending thousands of taxpayer dollars on such things as expensive dinners, bar tabs and stays at luxury hotels, The Kansas City Star reported Sunday.
The Star also reported that three of the top executives for the Public School and Education Employee Retirement Systems of Missouri have company cars with free gas, even for personal use. And records show all three men - Steve Yoakum, the system's executive director; chief investment officer Craig Husting; and assistant executive director Robert Rust - logged more personal mileage on them than business.
The Star also found that some retirement system executives openly accept gifts, meals and travel from investment companies that they are in charge of hiring and firing. In many other states, such actions are prohibited and in some cases have led to criminal charges.
However, the ethics policy for Missouri's system - adopted in 2006 - doesn't prohibit board members or its employees from accepting gifts.
"I am stunned," said Robert Stern, president of the Center for Governmental Studies in Los Angeles and an architect of California's conflict of interest law. "It is totally unethical and should be illegal for them to accept gifts."
Yoakum defended the system's spending practices and relationships with investment managers.
"We really stress fiduciary independence," Yoakum said. "Then we say, as a check on that, don't do anything that you don't want to read about on the front page of The Kansas City Star. ... And generally, that works for us internally on our staff and it works for the board as well. Just don't do anything stupid."
The system includes employees in the state's public school districts - except Kansas City and St. Louis, which have their own retirement systems - and most public community colleges. The system has about $27 billion in assets and more than 200,000 members.
While the retirement system was overfunded with a surplus from 1996 to 2000, it was only 83.5 percent funded last year, The Star reported. That left it with an unfunded liability of $5.3 billion, even before the current market turmoil. The overall investment return for the Missouri teachers pension fund for the first quarter of fiscal year 2009, which ended Sept. 30, was -9 percent.
However, retirement system executives said that because of diversification the fund was weathering the storm on Wall Street better than other public funds.
While the teachers retirement system's ethics and expenditure policy requires that employees keep their expenses "reasonable," it sets no spending limits.
"We just tell people to try to be reasonable and to document what they do. I haven't seen any that I consider outrageous," Yoakum said.
Among The Star's findings from credit card receipts and expense reports:
- Every December between 2001 and 2006, the retirement system held a dinner for former board members and management staff at Meadow Lake Acres Country Club in New Bloomfield, Mo. Food costs exceeded $5,500 and the bar tab was $1,600. Yoakum said there should not have been an open bar but noted that the average cost of alcohol per person was only $4.38 in 2005 and $5.86 in 2006.
- Employees sometimes were reimbursed for meals that included alcoholic drinks, although Yoakum said that's prohibited. Yoakum also said that the retirement system recently implemented new financial controls that make it easier to catch improper charges.
- The retirement system's total travel costs jumped 49 percent from fiscal 2005 to fiscal 2008 - from $180,000 to $269,000. Top executives sometimes stayed at posh hotels that cost more than $300 a night, although the agency's policy says employees and board members should stay at "moderately priced hotels." For example, on Dec. 5, 2007, Husting stayed in New York City, costing the retirement system $604.39 for one night.
- Last year, Rust reported driving only 2,489 business miles, but he put 17,207 personal miles on his company vehicle. Husting put 7,926 business miles on his vehicle, but he reported driving 16,024 personal miles. Yoakum put nearly 100,000 personal miles on his company cars between 2001 and 2007. Yoakum noted that the pension fund's seven-member board approved the company cars and gasoline as part of the executives' compensation package and that such perks are considered taxable income.
- Some of the retirement system's employees used the pension fund's credit cards to make personal purchases. However, officials say those charges were reimbursed and most credit cards were eliminated in 2003.
The Star also found that system's ethics policy doesn't require executives and board members to file personal financial disclosure statements with the Missouri Ethics Commission, something required by other public retirement systems. If the executives and board members did, they would have to report any gifts worth more than $200, lodging or travel expense paid by a third party, and substantial ownership interests or involvement in a business that could create a conflict of interest with the retirement fund's investments.
The Star also found that the state auditor is required to review only the system's own independent audits. Those reviews are to be done at least every three years, but the last audit was in 2004.
Some teachers and ethics experts said they were surprised at some of the spending.
"Those people are taking advantage of us," said Oren Bates of Peculiar, who retired from teaching in the Hickman Mills School District in 1992. "I see and hear and read of that in the big corporations, but in this case, it's my money and the taxpayers' money that they're spending."
John Hood, president of the John Locke Foundation, a public policy think tank based in North Carolina, said he had never heard of a similar car policy.
"You either get mileage or you get a car. But you don't typically get a car plus whatever fuel you want," Hood said.
Information from: The Kansas City Star,
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