Saturday, July 09, 2022

"Let them eat cake"

From John Curry

July 9, 2022

On the lighter side.....did you ever get the feeling that the STRS administration cares far more about themselves and their constantly improving employee benefits than they do the rest of us? They have never gone without a raise and (for the retired administrators) a COLA from OPERS.

Thursday, July 07, 2022

Retired teachers go to court for Ohio pension records

Ohio Capital Journal

July 7, 2022

By Marty Schladen

An analyst working for Ohio retired teachers went to court last week seeking records relating to the state pension funds. 

The analyst is trying to determine whether teachers’ pension money is being squandered on high-fee “alternative” investments such as private equity and hedge funds. He is also investigating whether external consultants directing such investments are also being paid by the firms in which retirement system money is being invested.

Edward Siedle is president of Benchmark Financial Services, which investigates pension funds on behalf of their members. Last week, former Ohio Attorney General Marc Dann filed for a writ of mandamus on Siedle’s behalf to get records from the State Teachers Retirement System. 

If successful, Ohio’s 10th District Court of Appeals will order the teachers retirement system, or STRS, to turn over a boatload of documents relating to its investments.

In an interview, Dann said Siedle has been seeking the records since last year.

“We’re not some gadfly trying to throw a wrench in the operation of STRS,” Dann said. “These are members of STRS who hired a professional to analyze the work that STRS is doing on their behalf. We want documents that will help that expert give an honest and accurate analysis.”

He added, “To the extent that they say our requests are trade secrets or are too voluminous, it makes you think maybe they don’t want us to look so closely at this.”

However, STRS spokesman Nick Treneff said that his agency has been working with Siedle and has already turned over many records.

“We did try to work with Siedle on his request,” Treneff said.

In a report last year, STRS said it had already turned over a boatload of information.

“Over a period of three months, from February to May 2021, STRS Ohio sent 24 emails and a thumb drive to counsel, amounting to 812 documents and over 22,000 pages,” it said, adding that remaining requests are “overly broad.”

Lawyers for Ohio state agencies commonly use such language in response to records requests. It will be up to the court to determine whether in this case STRS is using it, as Dann says, to stonewall. 

But the stakes are pretty high.

STRS is managing $92 billion on behalf of 166,000 active members. And, as benefits have become stingier, some of those members have become suspicious that the agency is making dubious investments through politically connected entities.

The governor and the leaders of the General Assembly appoint “investment experts” to the STRS board of directors, and many of the state’s retired teachers believed the investments made on their behalf have underperformed.

The distrust was evident in a newsletter written last August by Robin Rayfield, executive director of the Ohio Retired Teachers Association.

“STRS has overstated investment returns while under-reporting the fees and costs associated with those investments,” he said.

Part of the distrust surely stems from the fact that the pension fund stopped paying cost-of-living increases in 2017 — although it is planning a 3% increase this year.

Treneff, the STRS spokesman, said the freeze was due to new rules set down by the legislature in 2012. State and local governments were still reeling from the Great Recession and there were nationwide concerns about unfunded pension liabilities.

The retired teachers association points out that the General Assembly hasn’t increased its contribution rate to the pension fund in 38 years.

But it did act to shore STRS up by cutting benefits. The cost-of-living hike was cut from 3% to 2% and teachers were made ineligible for any increases until they’ve been retired for five years. 

The General Assembly also required that the system have enough assets to pay off any liabilities within 30 years. In 2017, when the fund didn’t appear likely to meet that requirement, the living increase was suspended. 

Treneff said it was due to reduced investment-return assumptions, longer lifespans and lower-than-expected payroll growth.

“That was painful for sure,” he said. “It wasn’t an easy decision.”

But with five STRS employees making salaries and bonuses totaling more than $500,000 in 2020 — and with 64 making more than $200,000 the same year —  frustration and suspicion among Ohio teachers and retirees was perhaps predictable.

And, with the U.S. Securities and Exchange Commission in January finding a raft of problems with the transparency and honesty of private equity funds, it’s also probably understandable that pension fund members have turned their suspicions on its alternative investments.

Treneff, the system spokesman, was quick to point out that those investments are providing the system’s second-best returns. 

The best? The American stock market. 

Read the rest of the article here

Monday, July 04, 2022

Toledo Blade Editorial: Editorial: Ohio’s public pension funds need scrutiny

Toledo Blade

July 3, 2022 

The Blade Editorial Board

It’s time for an independent examination of the State Teachers Retirement System of Ohio and the state’s other public-employee pension funds.

The fees and expenses charged by professionals paid by the funds require vetting. That examination must include a determination of the values of investment funds and the direct investments made on behalf of the pension funds.

Why? The answer is Panda Power. That investment lost $525 million. A big zero remained from the initial investment. The right person to oversee that investigation is the state auditor. The independence of the auditor’s office to dig into the numbers is the only way taxpayers and contributors to the pension fund can know they’re not being shafted.

For their part, STRS is moving fast to implement the key recommendation in a recent fiduciary audit. The near $100 billion retirement fund is seeking outside professional aid to validate fees, expenses, and profit shares on 430 investment funds and 50 direct investments. That’s a start. More, though, remains to be done.

The verification of asset values in the $21 billion STRS alternative portfolio, also called for in the fiduciary audit, is not included in the retirement fund’s request for bids. Alternative investments contrast with the usual investments in stocks and bonds. They might include hedge funds, private firms, real estate, and infrastructure, according to the CFA Institute, an organization of financial analysts.

Together, the five Ohio pensions have about 20 percent of their $266 billion portfolio in alternative investments where returns on those investments are in the hands of outside fund managers. The pension fund-investment staffs picking the outside funds have a financial interest in the highest possible valuations.

They receive performance bonuses based on the results. Those bonuses typically outpace their salaries.

It’s a conflict of interest when consultants paid by the funds provide performance reports on investments. Those reports often paint a rosy picture of the reality. The S&P 500 just turned in the worst first half performance since 1970. With market indexes down nearly 12 percent for the June 30 fiscal year, the value of much less liquid alternative investments are subject to big losses. That’s why it’s essential to get the true value of the investments right.

Ohio law gives the state auditor the power to compel documents and witnesses tied to any public funds. An outside vendor working with the auditor has more authority to acquire investment data and far more credibility than individuals paid by the funds. So far, the auditor doesn’t want any part of it.

“This type of activity goes well beyond the nature of an audit. The gathering of this information and data would involve a daily accounting service plus validation, which requires a full-time accounting staff. This activity is a function for management of the pension system with oversight by the Ohio Retirement Study Council,” Auditor Keith Faber said.

Read the rest of the article here.

Larry KehresMount Union Collge
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