Friday, August 27, 2021

Edward Siedle/Forbes: Legislative Oversight Of Ohio Pensions Fails Again, Controversial Consultant Hired For Long Overdue Audit 

Legislative Oversight Of Ohio Pensions Fails Again, Controversial Consultant Hired For Long Overdue Audit
"Let me emphasize: the Council is not required to actually perform any of these audits. The Council is merely responsible for picking up the phone every ten years and hiring outside firms to do the work. It’s that easy. Yet even making those calls to prospective auditors once a decade has apparently long proven to be too burdensome for the Council’s 14 overworked members."
" When asked recently why the audit is already five years late, State Rep. Rick Carfagna, the assistant majority floor leader of the Ohio House and the new chairman of the Council said in a statement to NBC News that the delay was due to state pension reform in 2013 and...are you ready for this... Covid-19."
Edward Siedle,
August 27, 2021
Once again demonstrating the Ohio Retirement Study Council’s apparent inability to provide intended legislative oversight of the five state pension systems in Ohio, the Council recently—following years of growing public outcry—finally commissioned a long-overdue fiduciary performance audit of the State Teachers Retirement System of Ohio. The last fiduciary audit of the pension in 2006, took an unimaginable two years to complete thanks to repeated sharing of draft versions of the auditor’s report as well as discussions with both pension and Council staff who provided written comments. Many of the most serious deficiencies noted in 2006 have not been addressed to this day.

Bad enough that the Ohio Retirement Study Council somehow seemingly forgot to commission the audit of the near-$100 billion pension within the statutorily-mandated period (10 years), the consulting firm finally selected by the Council last week to perform the audit, Funston Advisory Services, is currently facing criticism in connection with its work at the $67 billion Pennsylvania Public School Employees’ Retirement System which the FBI has been investigating for possible investment performance fraud. The Pennsylvania pension’s contract hiring Funston reportedly included provisions that troubled other corporate governance experts. It stipulated that the fund’s senior staff would monitor Funston’s review “without limitation” and that the firm’s reports would be subject to pension management’s review, consideration and approval.
The Ohio Retirement Study Council was created by the Ohio Legislature to provide legislative oversight of Ohio’s five statewide public pension systems with combined assets in excess of $200 billion and over 2 million members, beneficiaries and recipients. The Council is composed of 14 members, including the five executive directors of the state retirement systems. Why the five executive directors are included as members (albeit non-voting) of a Council created to provide legislative oversight of the pension systems they administer is a mystery to me. Sounds way-too-cozy. Not surprising, decisions of the Council are decidedly pro-administration and pension staff—as opposed to being based solely upon the best interests of pensioners.
The Council is statutorily required to have conducted by an independent auditor at least once every ten years a fiduciary performance audit of each of the pensions, as well as actuarial audits.
Let me emphasize: the Council is not required to actually perform any of these audits. The Council is merely responsible for picking up the phone every ten years and hiring outside firms to do the work.
It’s that easy.
Yet even making those calls to prospective auditors once a decade has apparently long proven to be too burdensome for the Council’s 14 overworked members.
Despite the statutory requirement of fiduciary and actuarial audits at least every 10 years, it has been approximately 15 years since the last such audits of the State Teachers Retirement System commissioned by the Council.
As I noted in the findings of my recent forensic investigation  of STRS:
When statutorily mandated, critical audits designed to protect the integrity of a near $100 billion retirement plan are not commissioned, and delayed year-after-year, it is inexcusable. An investigation into the failures to audit—by the Council, as well as STRS’s failure to demand such audit results—is warranted, in my opinion.
To be clear: no one “forgot” about the statutory requirement to commission these critical audits. Local media repeatedly questioned the Council about the delays, yet the Council time and again failed to act.
When asked recently why the audit is already five years late, State Rep. Rick Carfagna, the assistant majority floor leader of the Ohio House and the new chairman of the Council said in a statement to NBC New that the delay was due to state pension reform in 2013 and...are you ready for this... Covid-19.
I also noted in the findings of my forensic review that when audits are neglected, any mismanagement or malfeasance which could have been exposed years earlier through timely audits may be allowed to persist, potentially resulting in great risk and cost to the plan. I identified approximately $20 billion in underperformance losses that might have been prevented had the audits been commissioned in compliance with applicable law.
That’s right— an estimated $20 billion squandered as a result of failure to audit.
Finally, in my report I observed that the Council’s failure to audit was especially troubling because it indicated a lack of diligent legislative oversight potentially impacting all $200 billion-plus in Ohio public pensions and over 2 million 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 fiduciary audit due 2016 had never happened; and the actuarial audit of the Ohio State Highway Patrol Retirement System was 21 years overdue.
Read the rest of the article here
Edward Siedle, Pension forensics expert and record-setting whistleblower award winner, 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. His preliminary report on his forensic investigation of STRS, The High Cost of Secrecy, was released June 7, 2021.

Benchmark Financial Services Response to STRS Ohio Staff "Analysis for Discussion with Board" at August 19, 2021 Meeting

Ted Siedle's Rebuttal to STRS Ohio Staff "Analysis for Discussion with Board" at August 19, 2021 Meeting

Siedle's list of questions for STRS Board (see article above)

Editorial commentary: A letter to an STRS stakeholder who feels my blog posts pertaining to our COLA are one-sided

August 26, 2021

You know, if I could trust STRS, I would never have started my blog in the first place. Remember all the stuff [that was] uncovered in 2003? STRS knew exactly what was going on then, and ENCOURAGED all the misdoings of the Board. Why? You tell me. 

A leopard doesn't change its spots. I decided years ago where there’s money, there’s greed. STRS brags about how wonderful they are and how much money they're bringing in. OK, where IS all that money? And why did it take them THREE YEARS to tell their own Board they had lost OVER HALF A BILLION DOLLARS TO PANDA? No WONDER we lost our COLA!!

If people want STRS "facts", they can look for them on STRS's website, not mine. STRS has plenty to hide. Why else does it take the Ohio Supreme Court to make them turn over requested FOI papers to Ted Siedle? It's OUR money they're playing with. I believe we have a RIGHT to know what's happening with it. They STILL aren't producing all the requested documents Mr. Siedle needs to complete his investigation. Where's the transparency? Why so much secrecy? Why all the smoke-and-mirrors?

I will gladly post items from those I trust: people like Wade Steen, Rudy Fichtenbaum, Bob Buerkle, John Damschroder, Dean Dennis, Robin Rayfield and others. They do the investigating and run the numbers. I don't see any of them hiding a thing. They are the ones who are uncovering the discrepancies and demanding answers, so of course I will post their findings. I know them and I trust them.

The longer I live, the less I trust ANYTHING STRS puts out. If they're hiding documents, what else are they hiding? And where is all that money going? A lot of it, right into THEIR pockets! That's one fact we DO know. Those numbers have been posted. You can find them online.

If STRS is hiding stuff from us then how can we believe anything they tell us? How can ANYONE believe them? The Board? The ORSC? The media? 

And by the way, why has the ORSC broken the law by not performing an audit on STRS every ten years? It's been FIFTEEN years, and they're doing it now because WE EXPOSED THEM. Gee, you don't suppose STRS might have been rewarding them handsomely to look the other way, do you? 

And what about the state auditor, the governor and all the other legislators? I used to wonder how all those people got so rich performing a public service that doesn't pay the kind of money they seem to have. Where's it coming from? No doubt from many sources, for many reasons. I haven't trusted politicians since Watergate. And I haven't trusted STRS since [someone] uncovered what was going on there in 2003. They've only gotten better at hiding it. 

I'll gladly post the facts when I GET the facts from STRS. But until there's complete transparency, there's no way I can get at the truth. What are they holding back, and why? Where there's smoke, there's fire. We may need an oceanful of water to put this one out. As for my blog, heck, nobody has to read it if they don't like what's in there. That's OK with me.

MAYBE I can find reason to trust STRS when they release those documents to Ted Siedle so he can complete his investigation, but not a minute before. I would LOVE to find out I've been wrong all along, and that STRS's intentions and actions have been nothing less than pristine all these years. Mea culpa? Could be, but I doubt it. 

Kathie Bracy

STRS retiree to Toledo Blade: It is time to return the COLA to the retired teachers

Toledo Blade

AUG 27, 2021
I have been a teacher in public schools for over 30 years. One phrase I heard over and over was, “The only constant in education is change.” Embracing this concept has made me a much better teacher. It is time for STRS (State Teachers Retirement System) Ohio to embrace the idea that change is constant.
STRS Ohio must embrace transparency. They should release all the information requested by the retirees for a private audit. It’s the retirees’ and active teachers’ money.
STRS Ohio must embrace how they invest the money. “Alternative investments” are risky investments that many successful pensions are abandoning. STRS Ohio was recently forced to reveal that STRS investors lost $500 million when Panda Power went bankrupt.
STRS Ohio must embrace how they pay their staff. Huge salaries, bonuses for mediocre returns, and out of control perks do not meet with STRS mission. This year alone, STRS Ohio approved bonuses of $6.7 million. -
Finally, STRS Ohio must embrace listening to voices of thought other than their own. It is a fool who listens to the echo of his own voice.
Change for the sake of change is not advisable. But change that improves STRS Ohio’s mission is necessary. STRS Ohio cannot continue with business as usual, it is time to return the COLA to the retired teachers. STRS Ohio must face change. STRS Ohio must embrace change.

Thursday, August 26, 2021

John Damschroder: Pension tension over big bucks bonus

Damschroder: Pension tension over big bucks bonus
Fremont Messenger
August 25, 2021
John Damschroder
Ohio teachers may want to re-read “A Tale of Two Cities” as they are living through the worst of times, while watching the best of times, financed with their money.
Thursday, the State Teachers Retirement System of Ohio approved $6.7 million in performance bonuses for investment staff, over the objection of Fremont native Wade Steen, a certified public accountant appointed to the STRS Board by Gov. Mike DeWine.
Retired teachers traveled from across Ohio and outside the state, to oppose those bonuses as evidence of misaligned pension priorities. While STRS investment staff collect bonuses plus six-figure salaries annually, and while all STRS staff work in an opulent building with operating costs nearly double what other public pensions spend, retired teachers have gone without a cost of living adjustment-COLA since 2017.
The situation is just as grim for current Ohio teachers, paying 14 percent of their salary to STRS, with more than 3 percent used to subsidize current retiree benefits.
Message: Their sacrifice should be shared
During the short public comment portion of a daylong STRS Board meeting Thursday, multiple retired teachers made it clear they consider their pension fund to be parasitic, feeding lavishly excessive compensation for staff and hired consultants while callously ignoring the teachers paying those bills.
Their message was sacrifice should be shared, through a salary freeze and elimination of bonuses, so long as STRS is unable to pay a COLA and requires a subsidy from current teachers.
The good news of STRS 29.2 percent gain in the fiscal year ending June 30, the best performance since 1983, was mostly lost to the anger, mistrust and loud taunts from the capacity crowd of protesting teachers.
Where STRS leadership was celebrating a great performance, clearly convinced bonuses were well earned, the teachers focused on a 2006 fiduciary audit of STRS, recommending extra payments only if returns are 5 percent above the Russell 3000 index, which earned 43 percent in the fiscal year.
Tactics used to meet the bonus benchmark is behind the most serious conflict at STRS. A forensic audit by  securities attorney and author Edward Siedle, commissioned by the Ohio Retired Teachers Association-ORTA, concluded STRS did not report millions of dollars in costs to boost performance.
Board member Steen went so far as to release a 10-point map to financial data showing investment costs manipulated so a negative return became positive, allowing bonuses to be paid. Using the bonus benchmark recommended in 2006 would make the debate irrelevant. It’s a rare to non-existent event for any STRS asset category to beat the market index by 5 percent.
STRS Executive Director William Neville was adamant that investment results are truthfully recorded, “I don’t lose sleep over the management of our assets but I do worry about misinformation,” said the teacher’s pension boss. “That’s why we put our meetings online.”
'You've earned our loss of trust through secrecy'
ORTA Executive Director Dr. Robin Rayfield, speaking during the public comment period told Neville and the board, “You’ve earned our loss of trust through secrecy.” Rayfield wants to see records that prove Neville’s assertion on fully and honestly reported financial results.
Because STRS couldn’t, or wouldn’t provide records proving actual costs, CEM Benchmarking added $23 million to the STRS supplied data to make it plausible as correct. Both Neville and CEM told the STRS Board they stand behind their number on 2018 investment costs.
In rebutting the Siedle report, Neville described multiple layers of oversight in Ohio law as adequate, perpetuating the myth that they actually exist in practice. The Ohio Retirement Study Council oversight exists in state law, but as I’ve pointed out before, the body routinely ignores that law, without sanction.
The inspection of the Ohio Auditor of State and the firm selected as partner in that task, was also cited by Director Neville as evidence that STRS financial reports are validated. Neville did not mention the disclaimer by the state auditor and the outside firm saying STRS is responsible for the accuracy and completeness of all financial information, as reported here last week.
Auditor Keith Faber has the Steen document through the legally required fraud reporting system. That law requires him to post a public document detailing how the potential fraud was handled, unless there is a criminal investigation.
To restore faith that the teacher’s pension really is subject to oversight and the fraud tip has been investigated, Faber needs the specificity of unreleased documents to give his conclusion any credibility.
John Damschroder, a Fremont native who worked in Gov. George Voinovich’s administration, writes about business and economic development in Ohio.

Monday, August 23, 2021

From Edward Siedle:  Review of comments regarding ERISA in Edward Siedle's report entitled 'The High Cost of Secrecy' and the August 19, 2021, paper entitled 'STRS Ohio Response to BFS Report'.

Bob Buerkle's speech to STRS Board August 19, 2021

STRS Board Speech for 08/19/21 by Bob Buerkle
Nobody can be right all of the time, despite the STRS Management’s thinking that they are.  Due to STRS mistakes, intentional or not, you have failed our Retirees, the Active and Inactive teachers, the Money Purchase Retirees, the DC plan Participants and the ARP plan participants for University Professors, for whom you assess a 4.47% mitigating tax when they should be entitled to the 14% of employer contributions.  As former Director Nehf stated in a news article, the DC and ARP Plans create no liability to the system but we still charge participants 4.47% of their total income level, which provides them with no additional benefit.
Next, I call your attention to this Cheiron report from your June 17, 2021 Board Meeting.  The title on page 3 is “Why the discount rate is so critical to the Plan.”  The first bullet says “It’s the most important assumption in measuring a plan’s health.”  I agree with that!  The next bullet says “If your discount rate is unrealistic, you get a false reading of the plan’s health.”  Again, I agree with that.  However, Callan LLC., your Investment Advisor, is the one providing STRS with inaccurate projections.  This has crippled our retirees and over taxed our active teachers.  While Callan told you to assume lower earnings 10 years ago, suggesting you lower the discount rate from 8% to 7.75% and then 5 years ago to 7.45%.  STRS actually reported earnings of over 10% for the decade.  Now comes Callan again, spouting the same prediction for the next 10 years, assuming that STRS might only earn 7% and that would be at the high end of their earnings estimates.  The Board voted to accept this, despite earning over 29% last year.  This Board must remember that predictions like these, cut both ways.  Callan was wrong, you were wrong and retirees and actives have been paying the price for inaccurate projections.  STRS actually outperformed the Callan predictions by 25-30%.  If STRS had left the Discount Rate at 8%, which is what Ohio Police and Fire assume for their returns, we would likely be over 100% funded.
I believe STRS should dump Callan and seek more accurate advice from a firm that can better predict future earnings. Nobody can be right all of the time but Callan hasn’t been right anytime!
Finally, since STRS is now over 85% funded, we want to see this Board discussing the restoration of our COLA and not discussing some supplemental benefit that will not increase our pension base. Remember, the past supplemental benefits paid out in the 1980’s and 1990’s have hurt our current pension funding position, shortchanging today’s portfolio value by over $8 billion dollars. 
I’d like to end with a memorial tribute to the over 37,000 retirees who have passed away without ever receiving their promised COLA after 2013.  Many of my Union brother and sister colleagues from Cleveland have died in the last year, including their former president and wonderful leader, Rich DeColibus.  Every 2012 and earlier retiree deserved, but lost, their promised COLA’s and today they are 21% behind in the purchasing power that they were promised.  Management at STRS should have immediate pay cuts of 21% and Investment staff should receive no bonuses until the COLA is fully restored.


 August 2021

"By the Board electing Rita Walters as the retiree member representative, clearly documents that they will continue their unrelentless purge on the STRS members both active and retired.
"The STRS Board is not part of the solution, as they once again proved today that they are clearly part of the problem. They have now openly and by their own actions told every STRS member that they don't count and that the Board will continue to do whatever they want regardless of the member input and concerns.
"We now know conclusively that we are on our own and in fact, they have given us the green light to abandoned the chain of command and take our fight wherever necessary to inform others of the current atrocities being inflicted on both current and future retirees. While the battle with the Board by their own actions is over, we must now take the initiative and expend every ounce of energy to expose the STRS Board, Ohio Legislators and other elected officials responsible for the oversight of the Ohio Public Pension Systems.
"We now have little or no choice but to take our concerns to the street to inform the voting public of Ohio exactly what is going on at STRS. After all, taxpayers do have an interest as their tax dollars are used by Boards of Education to pay their contribution to STRS for each employee. That in and of itself might have a very interesting outcome."
~    ~    ~    ~    ~
"The vast majority in that Board room today (you know who I mean) proved without a doubt that you don't need brains, scruples or integrity to rob thousands of people who DO possess those qualities of millions or billions of their hard-earned money to make themselves rich beyond our wildest dreams! "Hate" is a strong word I don't like to use, but today I'm wondering how it feels to be a part of what may well be the most hated board on the planet right now. They have sold their souls to the god of greed."

Sunday, August 22, 2021

Dan MacDonald's speech to STRS Board, August 19, 2021

Good morning. I am Dan MacDonald, STRS teacher retiree, 38 years, and Executive Director of Local 279-R, NEO AFT retirees.  

I. It is wonderful to be back making the public participation section of the Board meetings once again public. We never hear anything from correspondence submitted to the Board for public participation.

2. Let’s briefly go back to 2017 when the Board deemed it necessary to eliminate the retirees’ COLA so that no liability had to be reported. The STRS financial picture gained 12 billion dollars, and let’s see, what else was happening? Oh, Texas-based Panda Power Enterprise filed bankruptcy April 2017 causing a loss of minimally $525 million to our general fund. Did that come up publicly by the Finance Department, the Investment Department or any Board member, two still sitting before us? No, the Board speaks with one voice and, obviously, has silence with one voice.
In August and September 2017, I was wailing about the elimination of COLA and a 13th check not being comparable during Public Participation. A half billion-dollar loss combined with the elimination of COLA would make for greater public discussion. Would the Board have pulled the lever if actives/retirees knew about the loss?
Retirees want our COLA restored. If ANNUAL merit-based 3 percent salary increases are good enough for STRS staff for the last 20 plus years in addition to ANNUAL Performance Based Incentives which include half billion-dollar losses, a 3-percent COLA needs to return after a 29 percent plus FY20 gain with over 11% percent average returns for the past 10 years. Were we all hoodwinked by STRS in 2017? Our organization, STRS Ohio, was hiding its loss, covering it up. The question now is who on the Board then knew the facts and didn’t bother to share them with the actives and retirees. If our two, seated active Board members were not told by staff about the loss, it is time to speak up; STRS staff need to publicly be told hiding losses is not acceptable. Where are the Board’s fiduciary responsibilities to its members? 
Finally, 3. It is time to put into Board policy that Board meetings be run under Robert’s Rules of Order. In June, when the Board Chair was challenged over a motion, the interpretation by the Board’s lawyer was that the rules are “a guide,” “not required,” that the Board has “flexibility.” Enough. Enough. Address transparency. Address Panda. Address COLA. Address Robert’s Rules. Address returning benefits to actives. 
Thank you.
Larry KehresMount Union Collge
Division III
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