Friday, May 07, 2021

Ohio Retired Teachers Association Sues Ohio STRS for Transparency

 From Chief Investment Officer, May 6, 2021: 
"Rayfield said that based on their responses, Steen concluded that the pension’s audits are not actual audits, but merely reviews of the information that Ohio STRS feeds the company performing the service. And when Steen sought facts to back up Ohio STRS’ claims that fund manager bonuses are based on performance benchmarks, Steen determined that there are no actual benchmarks used to determine bonuses."
Read the article here.

Tuesday, May 04, 2021

Edward Siedle: Your Pension Board Thinks It’s Smarter Than Warren Buffett—It’s Not

May 1, 2021
By Edward Siedle
Your Pension Board Thinks It’s Smarter Than Warren Buffett—It’s Not
Your pension board is doing the exact opposite of what legendary investor Warren Buffett has told it to do—with predictably disastrous results. To protect your retirement security, you need to regularly remind the people managing your pension to follow Buffett’s expert advice and give up trying to outsmart him.
In case you’ve been living under a rock your entire life, Warren Buffett, the chairman and CEO of Berkshire Hathaway, with a net worth of $100 billion (making him one of the wealthiest people), is considered one of the most successful investors in the world.
Over the years, Buffett has had a lot to say about how corporate and government pensions should be prudently managed.
If pensions ignore Buffett’s advice, it would have to be because they believe they are smarter than Buffett. Right?
Well, they’re not.
As I explain in Who Stole My Pension? tragically, corporate shareholders and public pension stakeholders— taxpayers and government workers—pay the price when pensions ignore the best advice and choose instead to follow the herd, i.e., gross malpractice generally practiced.
So, what advice has the Oracle of Omaha had to offer to pensions?
Buffett has been an outspoken critic of pension accounting practices in the U.S., and, particularly, the investment returns corporate and government pensions assume they’ll earn on their investments. For example, in an oft-cited 2007 annual letter to Berkshire Hathaway shareholders, Buffett noted corporate pensions on average assume they will earn nearly 8% a year, while, says Buffett, 6% would be more realistic.
Buffet also noted that some companies have pension plans in Europe as well as in the U.S. and, in their accounting almost all assume that the U.S. plans will earn more than the non-U.S. plans.This discrepancy is puzzling, says Buffett:
“Why should these companies not put their U.S. managers in charge of the non-U.S. pension assets and let them work their magic on these assets as well? I’ve never seen this puzzle explained. But the auditors and actuaries who are charged with vetting the return assumptions seem to have no problem with it.
What is no puzzle, however, is why CEOs opt for a high investment assumption: It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won’t come home to roost until long after they retire.”
More often than not, America’s state and local pension projected rates of returns have proven to be overly optimistic. For example, from 2000 to 2018 state pensions collectively returned just 5.87 percent, badly trailing their own 7.75 percent return assumption over that same timeframe.
The historical performance shortfall—with annual returns over the 18-year period falling almost two percentage points below public pension assumptions—contributed greatly to a decline in state and local government pension funding ratios from close to 100 percent (i.e. holding all the funds needed to provide promised retirement benefits) in 2000 to just 73 percent in 2018.
To make matters worse, as public pensions failed to meet their overly optimistic return assumptions over the past two decades and dug themselves into a deepening funding hole, they allocated ever-greater assets to the highest-cost, highest risk investment ever devised by Wall Street—hedge and private equity funds.Like Las Vegas gamblers who have lost big, public pensions decided to “double-down” on the riskiest of investments—at the suggestion, and to the delight of, Wall Street.
Wall Street’s solution to every investor problem is and will always be, “pay us more in fees.
Read the rest of the article here

Monday, May 03, 2021

Toledo Blade: Members of teacher pension fund planning lawsuit to force transparency

Members of teacher pension fund planning lawsuit to force transparency

Jim Provance
The Blade

May 2, 2021

COLUMBUS — Nearly 1,000 current and retired Ohio educators skeptical of the true financial shape of their $90 billion state pension fund are preparing to sue to force greater cooperation with a $75,000 self-funded investigation of its books.
The forensics audit, financed through money raised from members, is being undertaken by pension investment expert Ted Seidle — a former Securities Exchange Commission attorney, financial forensics investigator, and co-author of the book “Who Stole My Pension?”
The public records lawsuit will ask the Ohio Supreme Court to force the State Teachers Retirement System, serving some 500,000 active, inactive, and retired members, to release information that investment firms have claimed is proprietary or a trade secret.
“The fundamental definition characterizing a public pension fund is transparency...,” Mr. Seidle said. “Any investment not willing to comply with full transparency is by definition inappropriate.”
The audit is at least partly driven by the STRS decision to reduce and then eliminate retirees' annual cost-of-living adjustments beginning in 2013 as part of a broader plan to bolster its solvency under state law. The audit — separate from audits conducted by firms hired by the pension fund and the legislative Ohio Retirement Study Council — is described as a “deep dive” into STRS financials and management practices.
“We receive regular updates from fund managers as prescribed in the agreements with the managers...but the contracts limit what is public record,” STRS spokesman Nick Treneff said. “We received the public records request in late February.”
He said the system has turned over thousands of pages and believes it is in full compliance with the law. There have also been some talks to try to narrow what STRS considers requests that are overly broad, he said.
STRS has a negative cash flow of roughly $4 billion a year between what it receives in employer and employee contributions and what it pays out in benefits. Both employers and employees contribute 14 percent of salaries.
The fund counts on investment earnings to make up the difference. While investment returns are running well above estimates right now, Mr. Treneff said the system has been advised by experts to lower its average annual return assumptions for the next decade below the current 7.45 percent.
Mr. Seidle said the audit will address the question of whether the COLA changes were necessary and whether they should be restored as part of a much broader look at STRS.
What was the investments' true performance? Were there conflicts of interest in investment decisions? Were excessive fees paid and were the risks spelled out? Was there collusion between fund managers and the system to shield such information from the public?
Mr. Seidle said STRS has been minimally cooperative in providing requested information, particularly documentation from investment firms that the lawsuit will claim are public record.
“We have the most transparent public pensions in the world, but across the United States over the last 15 years, Wall Street, working together with these funds, ushered in a new era of secrecy that has eviscerated all of the states' public records laws,” he said.
Cleveland attorney Marc Dann will file the lawsuit on behalf of the retirees in coming weeks.
“The retirees are not picking on the staff there,” he said. “The system needs to be more transparent. Whether we're talking about retired teachers or not, the private equity firms have been opaque, and that's a real policy question...
“There are 1.5 million public employee retirees who rely on pension funds to eat out of a state population of 11.5 million,” Mr. Dann said. “That's a potential political force if they mobilize around this issue.”
STRS is one of five pension funds serving public employees in Ohio, the others covering highway patrol, police and fire, other school employees, and public workers.
Among the largest public pension funds globally, it is governed by a board that includes representatives of active and retired members, the state superintendent of education, and investment experts appointed by the governor, General Assembly, and state treasurer.
Teacher suspicions were heightened by the fund's delayed revelation that it likely lost every penny of a $525 million investment in the Panda Power Funds, a private equity firm, between 2011 and 2013.
Word of the loss — combined with suspension of the cost-of-living adjustments, increased employee contributions, and bonuses paid to in-house investment staff — only fueled retirees' ire.
“You can't trust their numbers,” said Dean Dennis, a former Cincinnati Public Schools teacher and administrator with the Ohio Retired Teachers Association. “Teachers can't trust their numbers. They state one thing, and then when it needs to be different, they state the opposite.”
Mr. Dennis, who retired after 35 years with city schools, is a plaintiff in a lawsuit filed in U.S. District Court to try to force STRS to restore the 2 percent annual COLA that was wholly eliminated in 2017 and make retirees whole retroactively for lost benefits.
The lawsuit challenges the assumptions made by the pension fund's board that the COLA elimination was necessary for the fund to maintain its fiscal integrity. Filed two years ago, the lawsuit claimed that some 145,000 retirees had lost their COLAs as of that time.
Mr. Seidle said his findings, likely to be released via several reports beginning this fall, will also address the perennial question of whether public pension funds should be investing in equity firms, hedge funds, and other alternative investments in the first place.
Even with the Panda loss, Mr. Treneff said the fund's alternative investment class had a 10-year average return of just over 11 percent as of the end of 2020.
“Service to our members is what we do,” Mr. Treneff said. “We understand they have made sacrifices. Active teachers are working longer before they can retire. There's the final year salary calculation. The COLA was suspended. We understand their frustration.
“But what we want is to ensure a stable, reliable system for all our members and retirees,” he said. “We have a duty to all our system members to improve strength and sustainability of the fund.”
Larry KehresMount Union Collge
Division III
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