Jim Provance, The Blade, Toledo, Ohio Mon, May 3, 2021/
May 3—COLUMBUS — About 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 Siedle — 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. Siedle 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, or COLA, 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. Siedle 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. Siedle 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. Siedle 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.”
First Published May 2, 2021, 12:00pm