Friday, June 25, 2021

Hey, Scott, why are you just NOW jumping on the bandwagon, after we already raised $75,000 for the audit and had strong support from OFT and ORTA? A little late, aren't you? You call that leadership?

From Scott DiMauro, OEA President

June 25, 2021

Distribution: All Local Presidents, Board of Directors, District Leaders, UniServ Leadership Council Chairs, OEA-R Advisory Council, and all OEA Staff
Dear Colleague –
As you may have heard from social media or conversations with others, the Ohio Retired Teachers Association (ORTA) recently commissioned what they are calling a “forensic audit” of the State Teachers Retirement System of Ohio (STRS) and raised $75,000 to pay an outside consultant named Ted Seidle to conduct the study. Seidle’s report, entitled “The High Cost of Secrecy,” was recently released and alleges that STRS is not sufficiently transparent in providing information on investment fees and suggests that changes in STRS investment strategies could save money in a way that could help contributing and retired members of the system.
OEA urges the STRS Board to take the report seriously and fully investigate the claims. Maximizing investment returns while minimizing both fees and risk are in the best interest of all members of the system.
Further, we expect STRS to communicate openly with its members about the report. Do the allegations have merit? Why or why not? Where deficiencies have been found, what actions are being taken to improve performance? OEA has confidence that the elected members of the Board will closely look at STRS investment practices and respond to the report so that STRS members know their pension dollars are invested prudently.
It is important to note that STRS investment performance, verified by third parties, has been strong and among the top 25% of public pension funds. Utilizing internal investment staff helps to minimize fees paid to Wall Street brokers. Additionally, alternative investments, net of all fees, have outperformed the rest of the portfolio and posted strong returns over the past 20 years.
Ultimately, the most important thing is that the financial condition of STRS continue to improve. This helps to secure the long-term retirement benefits of active and retired teachers alike. As conditions improve, OEA wants to see restoration of COLA payments for retirees and lower employee contributions for active teachers. In the current fiscal year, STRS investments are up over 25%. Clearly, STRS is having some measure of success, and nobody should pretend otherwise. Conversely, investment returns should not be used as an excuse to evade tough scrutiny of STRS practices and performance. Each dollar entrusted to STRS is precious. As fiduciaries, the STRS Board and staff should take this opportunity to thoroughly review its investment program in all areas and communicate openly with members of the system about that process.
We share this information with you to provide some context regarding inflammatory and one-sided social media posts you may be seeing and to assist you in answering questions from members. As we learn more about the situation, we will keep you updated. In the meantime, please know that OEA will continue to advocate for the protection of our defined benefit pension plans for current and future retirees and ensuring benefits are reliable and adequate to provide economic security in retirement.
In solidarity,
Scott DiMauro
Ohio Education Association
225 E. Broad Street,
Box 2550 Columbus, OH 43216-2550

Wednesday, June 23, 2021

John Damschroder: Prosperity is possible without integrity

June 23, 2021
Fremont News-Messenger
John Damschroder: Prosperity is possible without integrity
Excerpt from the article: 
"A look at the FBI website tells us why they’re suddenly all over Ohio. 'Public corruption, the FBI’s top criminal investigative priority, poses a fundamental threat to our national security and way of life. It can affect everything from how well our borders are secured and our neighborhoods protected to how verdicts are handed down in courts to how public infrastructure such as roads and schools are built. It also takes a significant toll on the public’s pocketbooks by siphoning off tax dollars — it is estimated that public corruption costs the U.S. government and the public billions of dollars each year.'
"Ohio’s State Teacher’s Retirement System-STRS is good place to look for billions that potentially have gone missing. The STRS Board wouldn’t even discuss the Ohio Retired Teachers Association forensic audit conducted by the nation’s foremost public pension whistleblower, Edward Siedle. Fremont’s Wade Steen, a DeWine appointee to the board, unsuccessfully attempted to force reaction to findings that cost the pension at least $410 million a year. Steen pointed out that Ohio teachers are the only public employees in the country contributing more to their pension than it is worth.
"The Siedle forensic audit hit at STRS investment consultants paid by both the state pension and the funds they recommend. It’s a conflict of interest the last fiduciary audit of STRS in 2006 noted. The remedy of contractually required disclosure hasn’t been met. Siedle concludes the below market performance at STRS because of investments marred by conflict of interest totals more than $20 billion since the teachers’ pension began aggressive alternative investing.
Alternative investments must be taken on faith
"Unlike transparent market investments, alternatives must be taken on faith. At the board meeting Steen proclaimed a loss of faith. 'I have completely lost confidence in the staff’s ability to invest money, and even worse their willingness to tell us the truth about the results.'"
The rest of the article may be read here
John Damschroder, a Fremont native who worked in Gov. George Voinovich’s administration, writes about business and economic development in Ohio.

Tuesday, June 22, 2021

Edward Siedle points out catastrophic failures on the part of the Ohio Retirement Study Council affecting STRS and the other Ohio pension systems 

Jun 22, 2021
Ohio Legislative Oversight Of Five State Pensions Has Epically Failed
Edward Siedle, Contributor
The Ohio Retirement Study Council was created by the Ohio Legislature to provide legislative oversight of Ohio’s $200 billion-plus statewide public pension systems. For decades, it has epically failed to perform its limited statutorily-mandated duties.
The Ohio Retirement Study Council (ORSC) was created by the Ohio Legislature in 1968 to provide legislative oversight of Ohio’s statewide public pension systems. The five state retirement systems have combined assets of approximately $203 billion with approximately 2 million members, beneficiaries and recipients. The ORSC is comprised of three senators, three representatives and three governor’s appointees.
The ORSC is statutorily required to have conducted by an independent auditor at least once every ten years a fiduciary performance audit of each of the pension systems and actuarial audits of the pensions. The purpose of a fiduciary performance audit is to critically review and evaluate the organizational design, structure and practices of the systems. An actuarial audit provides an independent review of the systems’ consulting actuary.
The ORSC also reviews the annual operating budgets for each of the pensions. In addition, the ORSC hires its own independent investment consultant to perform the statutorily required semi-annual performance review of the policies, objectives and criteria of the systems’ investment programs.
Lack of Fiduciary and Actuarial Audits
Despite the statutory requirement of an independent fiduciary performance audit and actuarial audit at least every ten years, it has been approximately 15 years since the last such audits of the $93 billion State Teachers Retirement System (STRS) commissioned by ORSC.
When statutorily mandated, critical audits designed to protect the integrity of a $90 billion retirement plan are not commissioned, and delayed year-after-year, it is inexcusable. An investigation into the failures to audit—by ORSC, as well as STRS’s failure to demand such audit results—is warranted, in my opinion.
Any mismanagement or malfeasance which could have been exposed years earlier through timely audits has been allowed to persist, potentially resulting in great risk and cost to the plan. Worse still, the last fiduciary performance audit in 2006 revealed multiple serious deficiencies which have never been addressed over the past 15 years.
The ORSC failure to audit is especially troubling because it indicates a lack of diligent legislative oversight potentially impacting all $200-plus billion in Ohio public pensions and millions of citizens. The fiduciary audit for Ohio Public Employees Retirement System was not performed by an independent auditor (as required under applicable law) and was three years late; the Ohio Police & Fire Pension Fund is only now requesting proposals for the fiduciary audit due 2016; and the actuarial audit of the Ohio State Highway Patrol Retirement System is 21 years overdue.
Read the rest of the article here.
Edward Siedle is a former SEC attorney, investment banking and securities industry professional, and longtime Forbes writer. He is the nation's leading expert in forensic investigations of money managers and pensions, focusing upon excessive and hidden investment fees and risks, conflicts of interest and wrongdoing. He was named as one of the 40 most influential people in the U.S. pension debate by Institutional Investor Magazine for 2014 and 2015.

Monday, June 21, 2021


June 17, 2021

"The Board wasted hours of everybody's time today, when they voted down every proposed policy change, including the substantial legal-team time that had gone into the preparation for the meeting. I feel sorry for Wade Steen, who had proposed a number of desirable changes, including better "Transparency." Funny, that's exactly what Ted Siedle said STRS needed, but the Board voted that proposal down also."

 ~    ~    ~    ~    ~ 
June 17, 2021
"The STRS Board Meeting was an embarrassment. In summary, our current Board might be the most tone death Board ever. They voted against Wade Steen's motion of putting the word "TRANSPARENCY" in Board Policy. In my opinion, they reacted defensively to the suggestion. They voted down a motion (Wade Steen's motion) that would allow those of us who travel hundreds of miles, round trip, to speak to the Board a merely 2 additional minutes of public speaking time. The time would have increased the time from 3 minutes to 5 minutes. There's more, outgoing Board Chair, Rita Walters, made this comment about COLA, "I think since we pay a benefit month after month, that is preserving member's purchasing power." I think 150,000 retires feel differently. At another point, the fact was brought up that currently a retired teacher who goes back to work for a school system, isn't allowed to run for either a Retiree Board seat or an Active Board seat. Believe it or not, outgoing Rita Walters stated then, 'give up your job if you want to be on the Board.'"
~    ~    ~    ~    ~
June 18, 2021
"Remember when Dennis Leone had to put up with a Board like this one? I'm beginning to think prospective Board members should be required to take an IQ test (Steen and Fichtenbaum can set the benchmark) before being allowed to run for election. That would have weeded out some of the ones who are sitting up there today."

Rudy Fichtenbaum shares his letter to the HPA with all STRS stakeholders

Will the HPA be part of the problem or part of the solution?

From: Rudy Fichtenbaum
To: STRS stakeholders
June 21, 2021
For those of you who may not know, there is a coalition of stakeholder groups that aims to influence STRS decisions. It is called Healthcare and Pension Advocates of STRS or just "HPA." I've been representing the AAUP as part of HPA for more than a decade. Here is a message I sent to the group ahead of a special meeting that we're having today about the Ted Siedle report:

From: Rudy Fichtenbaum
To: Healthcare and Pension Advocates of STRS (HPA)
June 18, 2021
HPA members:
I have never heard a Board meeting like the one I listened to Thursday, and I have sat through many Board meetings for different organizations. I have never seen an organization where Board members cannot add items to a Board agenda. I can tell you that no University Board operates that way, union Boards do not operate that way at least not in the AAUP nor on the Executive Board of the Miami Valley AFL-CIO. It is part of the way that the staff try and control the agenda of the meeting because they are afraid. I will not speculate as to why they are afraid but I think that is a fact.
Voting on items as a group is certainly contrary to Robert’s rules unless a group of changes is common e.g., let’s change this word to another word throughout the document. But when voting on distinct items, any parliamentarian (and I have had the opportunity in AAUP to work with a professional parliamentarian) will tell you that you should have separate votes on items to allow members to vote one way on a particular item while voting another way on another item. Incidentally, in another life, I also served as President of the Faculty Senate at WSU twice, chaired almost all the major University-wide faculty committees and I was President of the National AAUP for more than 8 years, so I know a thing or two about running the meetings of deliberative bodies. When the question was raised about whether STRS follows Robert’s Rules of Order, we were informed that they use them as a guide. I am not sure what that means. Does it mean you used them when it is advantageous to those who are running the meeting to control the meeting but not use them when it might threaten their control? You either use Robert’s Rules or you don’t. Yes, I know the STRS Board is not required to follow Robert’s Rules, so no policy, regulation or law was broken. But there is a reason why organization use Robert’s Rules and that is because they ensure fairness, orderly meetings and promote democratic decision making. That part of the meeting was a total embarrassment. It is what I imagine meetings to be like in the Kremlin or in a Banana Republic. You can have any view you want as long as it is the view sanctioned by a dictator.
I am not sure why it is hard to find common ground on a set of facts. After all facts are just facts. Part of the problem is STRS staff has lots of facts that they are unwilling to share. I am not going to speculate as to why they will not share the information but it is a fact they will not share a great deal of information that would put us all on the same footing. Nevertheless I think there are facts we agree upon.
Our pension is the only public pension in the U.S. where the normal cost is less than member contributions. So active members are getting screwed. It is a fact that a significant number of retirees are very, very upset about the elimination of the COLA. They feel that they were promised a COLA when they made the decision to retire and now that they have made an irreversible decision, the rug was pulled out from under them. So far, I don’t think anyone will argue with the facts as I have stated them in this paragraph.
The pension has significant cash outflows and fixed contributions that can only be changed through legislative action. This along with some previously stated facts means that the pension is very vulnerable to a significant downturn in the market. Such a downturn could trigger an irreversible spiral down from which STRS could not recover ultimately leaving the pension insolvent. Checking in again on the facts, I don’t think any staff, current Board members or members would disagree, although many members do not understand the risk for the pension. Again, so far, I don’t think I have said anything controversial.
Given the investment strategy of STRS if the Board reduces risk, they will reduce returns and right now although 2021 has been a great year they cannot afford to reduce returns. There is also a lot of unmeasured and unmeasurable risk in the STRS portfolio. There is a lot of liquidity risk because of the significant part of the portfolio in alternatives and real estate. This last statement probably starts to boarder on a fact that some might not agree with but it doesn’t seem very controversial to me.
I think it is a fact, that STRS needs to increase its returns and I have heard several current board members and former board members make this statement and I have not heard any Board member or staff member disagree with that statement. There are only two ways to increase returns, reduce investment expenses or other things equal increase returns (gross returns). At the end of day the pension needs more money. How am I doing so far?
It is also a fact that a proposal to increase returns, reduce expenses and reduce risk exists and the staff of STRS are aware of it. That is a fact. I have seen an email from an STRS staff member asking questions about how to implement this proposal from written to an employee of another pension has been implementing these strategies for years and I would be willing to produce a copy of that email if anyone doubts it. The email is exploring the possibility of STRS using liquidity monetization (LM) strategies to enhance STRS earnings. So, I will consider this a fact.
At yesterday’s Board meeting Wade Steen, the governor’s appointee said, “A solution exists to restore COLA and lower both employee and employer contributions.” That is additional evidence that at least some members of the Board know about LM. Steen goes on to say that “STRS senior staff have gone to great lengths to prevent the board from discussing this solution. The reason for this obstruction is likely because of the inherent conflicts of interest - the staff are unwilling to confess their performance failures and recommend a solution which jeopardizes their employment with STRS.” Now I think I have gotten an area that will be controversial, because here Wade Steen is speculating about motives. But forgetting about motives, it is a fact, that there is a proposal that could be helpful, but it can’t get in front of the Board because that decision is controlled by the Chair and the senior management staff.
The fact that no Board members were willing to comment on Siedle’s report except for Wade Steen is deeply disturbing. Board members who spoke in response to Steen’s request sounded like school children giving excuses like my dog ate my homework, when trying to explain why they had not “had time to read the report carefully.”
When a sitting board member says that his information requests have been denied, how can the STRS staff say with a straight face that they are being transparent? The three items that Wade Steen mentions should have been given to him immediately (that’s my opinion, not a fact). If they are not being transparent, what are they trying to hide? (That’s just a question, not a fact or an opinion). When a sitting member of the Board of one of the largest pensions in the world says he has read the Siedle report and found it deeply disturbing and gives out the phone number of the FBI in a public meeting, I would say it is a fact that there is trouble in paradise.
If we are going to save the pension, we need help. At some point you either have to be part of the solution or you are part of the problem. I am hoping that HPA can be part of the solution.

Rudy Fichtenbaum is Professor Emeritus of Economics at Wright State University.  In May, 2021, he was elected to a retired seat on the STRS Board, effective September 1, 2021.
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