The Toledo Blade Recommends Legislators Investigate Ohio and Minnesota State Pension Fees, Not Just ESG
On Saturday, The (Toledo) Blade Editorial Board recommended Ohio Legislators investigate a far greater problem than ESG for state pensions: exorbitant fees secretly paid to Wall Street.
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Dec 30, 2024
“As we found out when STRS leaders were called upon to help the Minnesota pension fund rebut critics, dubious financial records with impossible to believe fund management expenses are a problem way beyond Ohio. Congressman Jordan could inquire as to Minnesota’s $83 million reported fee for management of $134.7 billion in the context of IRS oversight failure.
THE BLADE EDITORIAL BOARD
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The anti-ESG legislation is part of a multistate Republican effort. Ohio Congressman Jim Jordan is using the House Judiciary Committee to investigate more than 60 Wall Street firms for collusion to promote this agenda.
Ohio Republican lawmakers and the DeWine administration aren’t totally ignoring the investment practices of the state’s five public pension funds. But they’ve addressed a culture war issue instead of pension solvency. The combined holdings of the Ohio public pensions total nearly a quarter trillion dollars. This month, on a straight party line vote, the legislature passed and Governor DeWine signed a change in law to bar state pensions, the Ohio Bureau of Workers Compensation, and university endowments from ESG investing.
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That is shorthand for the political correctness of building a portfolio based on environmental, social, and governance issues.
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Predictably, ESG is measured through a liberal lens, with environmental goals to minimize fossil fuel production and consumption, social goals to promote labor unions, and governance standards that emphasize diversity.
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ESG has become controversial because the Wall Street investment managers for giant institutional clients like the Ohio funds routinely impose these requirements on corporate America through the power of dollars supplied by states that oppose the governance goals. Ohio’s new anti-ESG law simply requires all state investment funds “make investment decisions with the sole purpose of maximizing the return on its investments.”
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The Blade Editorial Board finds it regrettable that Republican lawmakers and the governor don’t use the same all-that-matters-is-return-on-investment criteria when it comes to managing, or even monitoring, the exorbitant fees paid to Wall Street fund managers.
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As documented by reform board members at the State Teachers Retirement System of Ohio and reported exclusively on The Blade Editorial page, fees paid to alternative fund managers by STRS over the last two years are nearly $1 billion more than reported on their Annual Comprehensive Financial Report. Pension expert Richard Ennis wrote in The Blade of his study showing higher than reported investment management fees caused STRS to trail the return they could have earned from a low-cost index fund by an average of 1.62 percent for 13 years. The $12.5 billion opportunity cost to STRS is a much bigger Ohio problem than ESG.
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The anti-ESG legislation is part of a multistate Republican effort. Ohio Congressman Jim Jordan is using the House Judiciary Committee to investigate more than 60 Wall Street firms for collusion to promote this agenda. If the GOP was really interested in serving the retirement needs of pension beneficiaries as they are in blocking a liberal political agenda powered by the economic clout of massive state pension funds, they would also be investigating huge fees paid to Wall Street shielded from scrutiny by false financial records.
As we found out when STRS leaders were called upon to help the Minnesota pension fund rebut critics, dubious financial records with impossible to believe fund management expenses are a problem way beyond Ohio. Congressman Jordan could inquire as to Minnesota’s $83 million reported fee for management of $134.7 billion in the context of IRS oversight failure (emphasis added).
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All state pension plans are tax exempt as qualified plans, but fictitious reporting to the IRS on financial records is enough to threaten tax free status. Congress should take a look at the collusion between state pensions and Wall Street funds to hide true expenses. The Ohio General Assembly should require total transparency on all fees and expenses paid by all state funds covered by the new anti-ESG law.
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Pension Warriors by Edward Siedle is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
Blade Editorial: Follow reformers’ lead
While reform board members of the State Teachers of Retirement System of Ohio have not fully implemented transparency of investments and expenses, they have done far more than any of the other state officials who are supposed to be watching Ohio’s public pensions.
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The reform board members forced a deeper dive on investment costs using the services of an alternative investment verification specialist and the results are enormous but not surprising.
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Where STRS reports total investment management expenses of $264 million in the Annual Comprehensive Financial Report for 2023, released in late November, the consultant’s report at the December board meeting shows STRS spent $708.9 million solely for their alternative investment management.
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The two-year total discrepancy between STRS financial reports and what the expert consultant found is more than $910 million. These are huge numbers that align closely with the 2021 investigation performed for the Ohio Retirement for Teachers Association by pension expert Edward Siedle.
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Ohio’s other public pension funds also use high-cost alternative investments and their reported financial figures are taken at face value by the Ohio Retirement Study Council, the state’s pension oversight body, just as STRS numbers have been. The same scrutiny STRS reformers have instituted should be applied to all Ohio pensions.
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The ORSC is best known for ignoring the actuarial and fiduciary audits of the pensions that are their chief purpose for existence. In a high-functioning state government it wouldn’t take reform board members to implement credible cost accounting on the hundreds of private investments in the pension portfolios. ORSC would have done this years ago.
Now lawmakers could, and should, require full transparency as a rule of law from every pension investment. The Auditor of State could, and should, use the power to require total detail of each pension investment.
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But that is very unlikely to happen so the ORSC should simply follow the STRS reformers’ good example and extend the fee verification consulting contract to all of the other Ohio funds.
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Toledo Blade Editorial Board December 18, 2024
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Despite heavy opposition from cities and business groups, Ohio lawmakers advanced a plan to increase money for the police and fire retirement fund
Despite heavy pushback from cities and business groups, the Ohio House voted 66-25 on Wednesday in favor of a bill to require local governments to pay more into the public pension system that covers police and firefighters.
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The rate hike would cost local governments an additional $80 million a year.
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The Ohio Police & Fire Pension Fund says it needs more money from employers or it'll be forced to cut benefits for police officers and firefighters.
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Under House Bill 296, the employer contribution rate for police officers would climb to 24% of payroll, up from the current 19.5%. The employer contribution rate for firefighters in the pension fund is currently 24%.
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Employees currently pay 12.25% toward their police and fire pension. The bill calls for increasing the employee contribution rate to 12.5%.
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The Ohio Municipal League and Ohio Mayors Alliance pleaded with lawmakers to hit pause on the bill and consider alternatives to shoring up the pension fund finances. Increasing the pension contributions will cut into cities' ability to hire new officers and offer pay raises, they said.
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Mayors urged lawmakers to consider finding a chunk of state money to help Ohio Police & Fire Pension Fund, take a deeper look at the pension's assumptions and data and discuss reducing the cost-of-living adjustments given to retired first responders.
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"We need to make sure that this very complex issue is handled with care and precision to make sure that it is sustainable and that we are being good stewards of Ohio's taxpayer dollars," said Findlay Mayor Christina Muryn. "This is not something that can just be easily fixed and we don't think that just throwing a pile of money from the communities at this is going to be the solution."
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Lawmakers weren't interested in earmarking state money for the pension fund. State Rep. Bill Seitz, R-Cincinnati, warned that that would set a bad precedent and open the door for other pension funds to also ask for financial support from the state.
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The Ohio Police & Fire Pension Fund has been lobbying for an increase in employer contribution rates for years. A similar bill introduced last legislative session to shore up the police and fire pension fund failed to pass.
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The last increase in the employer contribution rate came nearly 40 years ago.
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The fund reduced its assumed annual rate of return − how much it expects to make each year from investments − from 8% to 7.5%. That move caused its unfunded liabilities to increase on paper.
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The bill now moves to the Ohio Senate for consideration. Any bills that don't receive approval from both chambers by Dec. 31 would have to be reintroduced next year.
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Ohio has five public pension systems that serve 2.28 million current and former government employees and retirees. Public employees in Ohio do not participate in Social Security so the state pension systems are their main retirement funds.
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In 2012, lawmakers approved a pension reform package that required employees to work longer for lesser retirement benefits.
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Laura A. Bischoff Columbus Dispatch
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The Jon Stewart Show March 2022: Spotlight On Ohio Teachers Pension Fund Massive Wall Street Wealth Transfer (The title is a link to an internet video.)
Nov 2
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https://pensionwarriorsdwardsiedle.substack.com/p/the-jon-stewart-show-march-2022-spotlight?utm_source=post-email-title&publication_id=1498647 &post_id=148868795&utm_ campaign=email-post-title&isFreemail=true&r= 2vipzs&triedRedirect=true&utm_medium=email
A forensic investigation funded by Ohio teachers exposing Wall Street looting caught the attention of Stewart's show.
This battle is all about whether Wall Street private equity managers can continue to loot Main Street public pensions in secret--flouting state laws requiring public scrutiny.
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Pension warriors participating in the State Teachers Retirement System of Ohio have done a masterful job over the past 5 years organizing (through their Facebook groups and without union support), investigating and advocating for transparency at their pension. They have fought valiantly to restore integrity to a state teacher fund that has increasingly operated in secret for the financial and political benefit of others, including its bloated, richly compensated staff and Ohio elected officials. That’s not the way pensions are supposed to be run, i.e., for the sole or exclusive benefit of participants.
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But this is far more than an Ohio story.
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At this moment, STRS Ohio participants are leading a national crusade to eliminate Wall Street secrecy schemes at all public pensions across the nation. (For example, Ohio teachers are currently working with Minnesota teachers to reform that state’s $28 billion teacher plan.)
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At this moment, STRS Ohio participants are leading a national crusade to eliminate Wall Street secrecy schemes at all public pension across the nation.
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Although disappointing, it is no surprise that Ohio elected officials who depend upon Wall Street for campaign donations to fund their political ambitions have hastily—within days—united to thwart a valid pension board election and oppose overwhelmingly popular teacher transparency reforms. Prompted by bogus claims of a “hostile takeover” of the pension by Governor DeWine, Ohio politicians have predictably rallied to support Wall Street billionaires who have been looting the nation’s public pensions for nearly two decades.
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Let’s review what has happened in Ohio in the last few years.
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After years of growing distrust, teachers sought out and paid for—with their own funds—a forensic investigation of their pension conducted by the leading pension forensic expert in the world, a former SEC lawyer who has investigated over $1 trillion in retirement plans. Frustrated by lack of answers, they legitimately sought a “second opinion” as to whether the billions set aside for their retirement were being prudently managed.
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Who can argue with teachers scrutinizing the fund they depend upon for their retirement security?
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The damning findings of that investigation were broadly disseminated to pension stakeholders, including provided to all state officials in Ohio—politicians who implicated in the wrongdoing identified and who did nothing in response to the 127-page expert report. The report was also provided to federal officials at the SEC and FBI.
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The Report rightly identified widespread fiduciary breaches, apparent violations of law and mismanagement. For example, the $90 billion pension had not been audited—as required under Ohio law—for the past 16 years. The Ohio Retirement Study Council—as to which Attorney General Yost served as Legal Counsel since 2019—had utterly failed to do its job, leaving the teacher pension and tens of billions in two other Ohio pensions at risk. No Ohio politician disputed this finding—a fiduciary audit was hastily undertaken, entirely in response to the teacher’s forensic investigation. The ORSC actually blamed the 16-year delay on Covid-19 and no state officials, including the Attorney General, was held accountable for this collosal failure.
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The forensic audit prompted the State Auditor to conclude it provided a “reasonable basis” for a Special Audit by his office. The Special Audit inauspiciously began by his staff admitting to me they knew nothing about pensions.
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True to their word, they knew nothing.
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Nevertheless, the Auditor agreed the pension should be fully transparent and that had it been prudently managed, pension assets would have doubled over time from $90 billion to $180 billion today.
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There are no secrets here: Since 2021, Ohio teachers have openly fought a “hostile takeover” of their pension by staff, politicians and Wall Street. Looting in secrecy is rampant at public pensions across the nation. Ohio teachers are pension warriors leading the fight against it.
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Pension Warriors by Edward Siedle is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
The Greatest Teacher Retirement Crisis in History - John MacGregor, Ted Siedle
(Also, Dean Dennis, Pres. ORTA and two retirement reformer teachers from Minn.)
“JM – Full Disclosure Podcast”
https://www.youtube.com/watch?v=U0XSJwm WU0U&ab_Channel =TheRichDadChannel
Magistrate Orders Ohio Teacher Pension To Release Investment Documents--Finally
For over 3 years, the Ohio Pension has fought hard to keep its dealings with Wall Street hidden from public scrutiny.
Jul 27
Sunshine is long overdue at highly secretive $90 billion State Teachers Retirement System of Ohio.
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In 2021, I was retained by the Ohio Retired Teachers Assocation to conduct a forensic investigation of the State Teachers Retirement System of Ohio—the pension system ORTA’s members rely upon for their retirement security. In connection with my investigation, on February 19, 2021, I filed a request pursuant to Ohio law for an opportunity to inspect or obtain copies of public records related to the pension’s investment managers, investment consultants, performance compliance auditor, investment cost monitor, financial auditor, and custodians, as well as board and staff.
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Over 3 years ago, my journey to inspect the pension’s records began.
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The overwhelming majority of the most critical disclosure information I requested was summarily denied. That is, STRS simply permitted the investment firms involved to unilaterally determine whether the information I sought on behalf of stakeholders had to be disclosed under Ohio law. Not surprising, most firms granted the opportunity to oppose public scrutiny of their financial dealings with STRS, chose to do so. Most disturbing, not a single prospectus or offering document required to be provided to all investors under our nation’s securities laws was provided to me in response to my public records request. As a result of the extensive denials of important public records requests, it was impossible for STRS stakeholders to evaluate the investment strategies, performance, fees, risks, and conflicts of interest related to the pension’s investment portfolio.
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Accordingly, on May 21, 2021, I filed a complaint for writ mandamus with the Supreme Court of Ohio seeking certain STRS public records I had been denied.
As I noted in my investigative findings:
This lack of cooperation by STRS is all-the-more surprising given that STRS is well-aware that this forensic review of the pension was commissioned, as well as paid for, by tens of thousands of participants, with the stated objective of improving management and oversight of the pension. Pension fiduciaries solely concerned with the best interests of participants and beneficiaries should welcome, not oppose, a free independent review by nationally recognized experts in pensions. Further, given the profound fiduciary breaches and disclosure concerns stakeholders (and even STRS’s own commissioned experts) have long raised, it is clear STRS could benefit from an independent review by experts—this time not of its own choosing.
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And now for the good news...
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Just yesterday the magistrate assigned the case found:
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Siedle has established a clear legal right to the production of public records sought in the first investment managers request and the first Panda Investments request. STRS was under a clear legal duty to comply with these public records requests. Accordingly, it is the decision and recommendation of the magistrate that this court issue a writ of mandamus ordering STRS to comply with Siedle's first investment managers request in the February 19, 2021 letter.
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Now that the magistrate has confirmed that I (and the public) has a “clear legal right” to the pension investment contracts, I trust that STRS Ohio will comply with its “clear legal duty” to provide them. The time has come for its members and taxpayers to see what the pension has been hiding for so many years.
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I look forward to learning the secrets STRS Ohio has fought so hard for so long to keep from the public.
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Further, these documents will confirm whether the alternative investments STRS Ohio has made are plagued with the same industry abuses that were identified in my High Cost of Secrecy report, as well as whether the pension may be able to recover any funds pilfered— funds that could be used to pay benefits promised.
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Finally, public scrutiny of these heretofore “Top Secret” documents will reveal whether the “Special Audit of STRS conducted by Ohio Auditor Keith Faber in 2021 was thorough. Faber did not review these contracts for his report, and his staff candidly admitted to me that—even if they had the documents—they lacked the expertise to do so. (When I offered to review any such contracts for his staff, they never responded.) Therefore his so-called “audit” failed to address any concerns regarding fraud related to these investments.
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Pension Warriors by Edward Siedle is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
What Are We Paying For?
ORTA Stands Ready to Help!
Dean Dennis, ORTA President, addresses the STRS Ohio Retirement Board during Public Participation on April 18, 2024.
The STRS Ohio Watchdogs recently asked retirees to tell their story in 500 words or less about why they had to unretire. Here is the first submission:
“Without the promised COLA from STRS and increasing inflation, I was forced to go back to work to pay my bills. I initially began using my savings to pay for the costs above what my pension covered but soon realized that it wouldn’t sustain me for long. It was at that point that I had to go back to work. I never envisioned having to continue working, probably for the rest of my life, but that is the position I was put in by STRS when they broke their promise to their retirees.”
Retirees can no longer go without inflation protection. Since 2017, inflation has grown to nearly 27%, and this is compounded year over year. Retirees have only had 4% Simple COLA added to their retirement base. Since the Draconian COLA changes in 2012, nearly 50,000 retirees have died without seeing the inflation protection they and their families were promised upon retirement.
Where have STRS lobbyists been? It appears between our outside firm of Calfee, Halter, and Griswold and our internal lobbyist we have a half-dozen lobbyists and are spending easily between a quarter and half million dollars a year. How have members benefited from this annual spending?
In April of 2000, twenty-four years ago, Substitute Senate Bill 190 was signed into law. STRS supported this legislation. Within this legislation was a provision that made sure that retiree benefits were “increased to a minimum of 85% of the purchasing power of the original benefit based on changes in the Consumer Price Index. In twenty-four years we have gone from almost nobody being 15% below their purchasing power, to almost everyone being 15% to 30% below their original purchasing power.
Note, twenty-four years ago, our portfolio was 46% in Domestic Equities and 1% in Alternative Investments. Today, we are 26% in Domestic Equities, and 20% in Alternative Investments. We need another Senate Bill 190, an Employer Contribution Increase, and a revamping of our investments. ORTA stands ready to help!
Dean Dennis, 35 years Cincinnati Public Schools, President of ORTA, Founder of STRS Ohio Watchdogs, and Ohio STRS MOF member.
We deserve better than this!
Why can OPERS continue to pay a 3.0% / 2.3% COLA (depending on date of retirement)? Why can OPERS actives retire with full benefits after 32 years of service? Why can OPERS do this, while STRS can't? These questions have plagued me for a while.
Is if because STRS pays out more each year than they bring in? No. Although that is a problem that will likely precipitate the need for increased employer contributions in the future, that is not the answer. Why? Because OPERS is in a very similar negative cash flow situation.
Is it because OPERS is not as well funded as STRS? No. That is not the answer either. Both STRS and OPERS have been over 75% funded since 2017.
The answer lies in investment perfomance, as the graph shows. There are a couple of important things to note about this graph. 1) It does not start at $0 but rather at $40 billion, and 2) STRS and OPERS have different fiscal years. STRS's fiscal year ends on June 30th while OPERS's fiscal year ends on December 31st. Thus, the fiscal year end numbers are 6 months apart, making yearly comparisons invalid. However, what is valid and important here is the trend over time.
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After the great recession of 2008, OPERS had a quicker recovery and continued to grow their Net Plan Assets at a greater rate than STRS. The result is an OPERS fund that has been $20-30B greater than STRS since 2017. This is why STRS retirees have gone without a COLA and actives are working longer and paying more.
Unfortunately, we can't turn back the hands of time. But going forward, we don't have to sit back and blindly accept STRS's strategies for our money. We deserve better than this.
Michelle Flanigan, a former financial analyst for American Greetings, teaches government and economics, including AP government and politics, at Brunswick High School, where she has taught for 26 years. She is an active member of the Ohio STRS Member Only Forum (MOF) on Facebook, where she posts about the investment practices of STRS Ohio.
The Columbus Dispatch
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Ohio teachers pension fund leaders have no real plan, only propaganda
"What STRS doesn’t admit is the truth: They have no real plan to restore benefit cuts and to provide a COLA for retirees."
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The recent article “Ohio teacher pensions: Control of the board, $95B at stake in election” is certainly correct in making the statement that the State Teachers Retirement System of Ohio board election — which is now taking place — is a pivotal moment for the State Teachers Retirement System.
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However, the issues in this election centered around an “unproven investment strategy” are incorrect. If anything, the issues center around the current STRS investment strategies, which have failed to deliver the resources needed to keep the promises made to Ohio’s teachers.
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Recently, investment expert Richard Ennis, who was hired by Ohio to help clean up the mess at the Bureau of Workers Compensation in the aftermath of “Coingate," wrote a Toledo Blade essay that explained how STRS had “underperformed a passively investable benchmark by 1.62 percentage points per year for ... 13 years...” and “much of the underperformance could be attribute to unrecouped investment expenses incurred by STRS.”
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Active teachers are working longer and paying more, but will receive less when they retire.
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A large part of what they will not receive is their guaranteed cost-of-living adjustment, which the STRS Board eliminated. How will active teachers fare over time, since they will not receive Social Security in retirement and will also not have a COLA?
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Those who are already retired did so with the promise that they would receive a COLA; however, after making that irrevocable decision, they have found over the last decade that the STRS Board reneged on its promise. Retirement for active teachers and for those already retired without a COLA is a formula for impoverishment.
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In Ohio, a non-Social Security state, asking active teachers to work longer, pay more, receive less, and retire without a COLA is asking them to take a vow of poverty in their golden years.
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This hurts all Ohioans. It will also surely drive the best and the brightest teachers, who are among the most educated individuals in Ohio, to look for work elsewhere or to choose a different profession. That is what is truly at stake in this election.
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What also is at stake in this election is a lack of transparency and an investment staff that feels entitled to millions of dollars annually in bonuses while the pension loses billions of dollars each year.
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What is at stake in this election is the senior leadership of STRS, which continuously releases a stream of propaganda, telling members, the public, and the Ohio Legislature that everything is okay and that STRS is one of the best pensions in the country.
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They paint a picture that members are happy; indeed, they are not. What STRS doesn’t admit is the truth: They have no real plan to restore benefit cuts and to provide a COLA for retirees.
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STRS Ohio loses around $320 million a month (approximately $10.7 million per day) because expenses are greater than contributions. This difference needs to be made up from investment income.
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What STRS senior management and their Board member supporters don't say publicly is that STRS cannot invest its way out of this crisis. In other words, active teachers will have to continue to work longer, pay more, receive less, and retire without a COLA. Teachers currently retired are left worrying if they can make it without any inflation protection.
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The truth is, STRS Ohio needs more money to keep its promises and that money will not come from the proven failed investment strategy that STRS is using. At the end of the day, this election is about transparency and facing the truth. It is about electing Board members that will hold staff accountable. It is about electing Board members who are willing to face up to the problems the pension has and are willing to look for real solutions.
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Dean Dennis is a retired Cincinnati Public Schools teacher. He is president of the Ohio Retirement for Teachers Association