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.
Over the past decade, it has provided a 14.8% return on investments, while the system’s alternative investments have provided 11.84% once fees are subtracted, Treneff said.
So why make a substantially worse-performing investment with teachers’ money? To avoid putting too many eggs in one basket, Treneff said.
“The goal is to build this (pension) fund as fast as you can without taking wild risks,” he said, adding, “you don’t want one downturn in the stock market to destroy you.”
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