Since 2005, the STRS paid out $38.6 million in bonuses to its roughly
80-member investment staff. OPERS paid $10.7 million, which does not include
2012.
That irks some who rely on the system, among them James A. Stoll, the
athletic director of Sycamore Community Schools and a contributor to the
pension. Stoll, who ran unsuccessfully for the STRS governing board in 2009, has
been studying the bonus issue for more than three years.
“This really bothers me,” he said.
The money to pay those bonuses comes from investments and out of the
pockets of the system’s 470,000 active, inactive and retired teachers –
including 53,000 in Southwest Ohio – and ultimately taxpayers who indirectly
contribute to STRS through taxes that pay educators’ salaries.
In Ohio, public school districts provide 14 percent of an educator’s salary
for retirement purposes. Employees contribute 10 percent. Beginning July 1, the
employee contribution climbs to 11 percent and adds another 1 percent each year
through 2016 to eventually match the employer contribution.
The Enquirer found those who manage the STRS portfolio of $65.4 billion
received bonuses in fiscal 2012 as high as 77.6 percent of their salaries. In
other years, employees earned as much as 125 percent of their salaries.
Assistant Director of Investment Mary Ellen Grant, for example, received
$512,842 in salary and bonus in 2011 as the top earner in the department. She
oversees real estate.
Gov. John Kasich’s salary that year was $139,417, according to the state
treasurer’s office.
OPERS’ top salary for 2011 went to Chief Investment Officer John C. Lane at
$587,073.
One of the three other Ohio public pension systems, the School Employees
Retirement System, also awards bonuses to its investment staff using a formula
similar to that of the teachers’ pension.
“It sounds like a lot of money relative to what the typical Ohioan sees,”
said William Even, a professor of economics at Miami University in Oxford. “At
the same time, if they were to manage that kind of money for a mutual fund, they
would probably be looking at similar kinds of salaries.”
In other states, a bonus backlash
The bonuses at STRS aren’t the only ones to raise eyebrows in state
capitals.
In 2010, for example, investment staff in Georgia’s teacher retirement
system got pay boosts of more than 35 percent, according to The Atlanta
Journal-Constitution.
Last year, the California Public Employees’ Retirement System, the nation’s
largest pension, froze executive pay and cut bonuses, but didn’t eliminate them,
when investment returns dropped.
Other bonus skirmishes have occurred in Pennsylvania, Colorado, North
Carolina, South Carolina, Massachusetts and Texas.
Stoll speaks out
[Click
here to see what Sycamore’s Jim Stoll has to say
(video)]
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The other Ohio pensions
Ohio Public Employees Retirement System: The largest
pension system in the state and the 11th largest public retirement system in the
country. Assets $80.3 billion Bonuses: Based on a formula over three years. New
employees may not be eligible.
According to Executive Director Karen Carraher, OPERS “has always been
within the 30-year funding guideline” set by law. She said its investments
earned 14.52 percent in 2012 and posted an annual investment return of 8.57
percent over the past 30 years.
Ohio Police and Fire Pension Fund: Assets: $12.9 billion
all externally managed. Bonuses: None
School Employees Retirement System: Assets $11.2 billion
all externally managed, but 10 investment staff manage the managers. Bonuses:
Based on a three-year formula.
The pension system came under fire from legislators in late February for
approving the travel of three board members to a convention in Hawaii, according
to Gongwer news service.
Referring to the 2003 investigation of STRS, state Rep. Lynn Wachtmann,
R-Napoleon, said, “I am not going to go through this crap again with another
board that’s spending their members’ money. Do they have any clue that some of
us are very, very unhappy about it?”
Highway Patrol Retirement System: The smallest of Ohio’s
public pensions systems does not have in-house investment staff, but does have a
chief investment officer. Assets: $720 million.
Winning and losing at
STRS
The STRS investment staff rarely does day-trading primarily because of the
high risk. But on May 18, 2012 it used $114 million to buy Facebook stock
(2,175,000 shares) at $38 per share on the day the company went public. STRS
broke even on a strategy that required trading Facebook nearly minute-by minute.
On paper, however, the investment has been a money loser because STRS continues
to hold stock in the company and that stock declined in value significantly
since May. Here’s what happened:
11:30 a.m. 1.5 million shares sold at $42 per share.
11:32 a.m. 300,000
shares sold at $40.50.
11:36 a.m. 50,000 shares sold at $40.
11:43 a.m.
50,000 shares sold at $41.
1:50 p.m. 150,000 shares sold at $39.59.
3:35
p.m. 125,000 shares sold at $38.87.
The stock reached a high of $45 that day, but STRS did not sell any shares
at that price. Had it sold all of the shares at 11:30 a.m. instead of waiting,
it would have nearly doubled its profit.
Still, the pension system hung onto and purchased more shares. It continues
to hold shares in Facebook, waiting for its stock price to climb from its
current $27.72 per share.
STRS spokesman Nick Treneff said the pension fund broke even so far though
there’s a “paper loss” of $5.6 million because stocks are still be held. Paul
Justice, director of fund research at Morningstar, said it was “not typical” for
a pension fund that is interested in long-term results to trade stock so
quickly. “It seems odd to me,” he told The Enquirer. “It’s out of the norm.”
Bonuses at STRS
Here is the amount of STRS investment staff bonuses for the past eight
fiscal years and the top earning employee in the investment department. (Click image)
..................................................................
STRS Board members
There are 11 members of the governing board of the State Teachers
Retirement System of Ohio. Of the seven elected members, two of the seven
represent retirees and the others represent active members. The board includes
three members appointed by the governor, Legislature and state treasurer. The
state’s superintendent of public instruction serves as a non-voting member. The
positions are unpaid except for expenses. They can be contacted via the STRS
website,
www.strsoh.org.
Michael J. Nehf, the system’s executive director, is the only employee with
a contract. All others are at-will employees. (Click image)
Where money comes from; where it goes
For fiscal year 2012, the State Teachers Retirement System of Ohio lost
$2.5 billion. Here’s where the money comes from and where it goes.
Contributions (in thousands)
Members…$1,099,473
Employer…$1,479,476
Health care premiums…$246,264
Other…$125,771
Investments…$1,152,489
Total…$4,103,473
Deductions (in thousands)
Benefit payments…$5,725,859
Health care coverage…$627,890
Refunds to
members…$183,768
Administrative expenses…$61,328
Other…$15,183
Total…$6,624,028
Not the first time
• This isn’t the first time bonuses for employees at the State Teachers
Retirement System of Ohio have come under scrutiny.
• An investigation by
the Canton Repository in 2003 found STRS spent $16.7 million on bonuses, artwork
and travel over three years.
• It also found the bonus for the system’s
then-executive director, Herb Dyer, was linked to the bonuses of employees. The
higher their bonus, the more he got.
• Dyer famously said the money sent to
STRS by educators and their employers belonged to the system to do with what it
wanted. In the freewheeling days of 2000 to 2003, STRS board members spent
millions on art, parties, travel and bonuses. Dyer and the head of the
investment department, Steve Mitchell, had hard-to-break contracts that almost
guaranteed their jobs no matter what.
• As a result of the investigation,
Dyer was forced out, though at a six-figure price because his contract was
bought out to avoid a lawsuit. He and six pension board members were convicted
of violating state ethics laws. Bonuses were dropped for non-investment and some
investment staff.
• The Legislature passed a pension reform package that
added more financial experts to all five state pension boards, among other
items.
