The Ohio Retirement Study Council is joining the party of state officials awakening to their responsibility to safeguard the public pensions they have mismanaged or ignored for years.
A special subcommittee of the ORSC legislative oversight body has been created to address issues at the State Teachers Retirement System of Ohio.
Gov. Mike DeWine and Attorney General Dave Yost claim board members Wade Steen and Rudy Fichtenbaum violated their fiduciary duty through advocacy for an investment with a Columbus startup investment firm. The idea never got beyond the proposal stage.
Somehow, Governor DeWine, A.G. Yost, and the ORSC all ignored the issue when it occurred in November of 2021. The issue is raised now in a court case to remove Mr. Steen and Mr. Fichtenbaum because the balance of power on the STRS board has shifted to members who favor changing the investment portfolio to low-cost index funds and who want full transparency on the contracts STRS has with outside fund managers.
If Mr. Steen and Mr. Fichtenbaum are banished, power will be returned to the status quo protective board members. For STRS investment staff, individual bonuses totaling hundreds of thousands of dollars depend upon defeating efforts to use market indexes.
STRS is currently seeking a 28.5 percent increase in pension contributions from Ohio taxpayers driven by under performance in investment returns. Yet, in April ORSC released a report concluding STRS investment returns have been “remarkable.”
What’s remarkable is Ohio’s blind acceptance of a pension investment strategy that lags market returns and costs much more to implement.
Since Ohio law changed in 1997 to allow the high cost, low liquidity investments STRS and the other Ohio pensions have become overly dependent upon, the S&P 500 has returned an annualized 9.22 percent, well above the assumed rate of return the pensions need to stay on track.
Ohio pensions provide Wall Street soothsayers more than $60 billion without even knowing what investments they’ve purchased.
The ORSC had a long presentation on fiduciary duty last week as a result of the STRS controversy. It begs the question, how can fiduciary oversight exist when a large portion of the investment portfolio is totally blind to the board?
Saturday the Wall Street Journal detailed a 15 percent average discrepancy between values claimed by private equity managers and prices paid when the assets were sold. The story indicated pensions across the country are endangered by this fact.
STRS is not unique in its investment portfolio or need for more money from Ohio taxpayers. State lawmakers can grant the pensions request for a billion dollars a year increase to the more than $5 billion currently collected without taking the blame.
Schools and local government’s would be the tax collectors for a long-term failure by state government.
The Ohio Retirement Study Council can finally succeed at oversight by simply proclaiming full transparency, as sought by the STRS reformers, is the required standard for fiduciary oversight.
First Published June 18, 2024, 4:00 a.m.
