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Ohio teachers concerned after Auditor report raises retirement fund transparency issues

State Teachers' Retirement System confirms it has more than $27m invested in failed Silicon Valley Bank
Ohio teachers concerned after Auditor report raises retirement fund transparency issues
Posted at 11:05 PM, Mar 15, 2023

CLEVELAND — Some Northeast Ohio teachers like Terry Caskey have growing concerns about the health of the Ohio teachers' retirement system after learning STRS has $27.2 million invested in the now-collapsed Silicon Valley Bank.

Caskey, who has 25 years working with the Parma school district, is calling for changes after STRS lost $5.3 billion in 2022, yet still issued more than $10 million in bonuses to its employees.

“It really has come down to mismanagement of funds over time," Caskey said. “They have the responsibility first to the teachers, the actives and the retirees, if they’re not okay, then nobody should be receiving any bonuses.”

STRS was the subject of a March 9 special audit report released by Ohio Auditor of State Keith Faber after teachers and retiree groups raised serious questions about the funds alleged lack of investment transparency and bonus structure.

Faber made it clear his audit found no indication of fraud, but he did stress his effort identified several governance issues which should be addressed. Faber called for a review of pension system policies.

"Such a review should include bonus payments to staff and improving transparency on investment strategies and investment fees,” Faber said. “A lack of transparency, whether actual or perceived has spawned distrust and accusations that have made a special audit necessary.”

Faber made his report in front of the Ohio Retirement Study Council and its Chair, Sen. Kirk Schuring with Ohio's 29th District, which are to provide oversight into STRS practices.

“We found considerable issues with transparency with regard to STRS’s operations," Faber said. “The one thing that we really flagged was the benchmark that determined whether the bonuses are paid was a benchmark that was made internal by STRS."

Schuring responded immediately to our story, defending STRS fund performance over the past decade.

“The previous 12 years straight in a row they had a gain, not a loss," Schuring said. "In fact, in 2021 their rate of return was 29%, over the last 10 years their rate of return was 8.9%, and over the last 20 years, 7.8%.

Still, Schuring told News 5 the Ohio Retirement Study Council will be discussing STRS issues of transparency and bonus structure raised by the Ohio auditor during its next meeting on April 13.

STRS spokesperson Dan Minnich also responded to our story concerning the auditor's findings with the following statement:

The performance-based incentive program and actual payouts under the program are approved by the STRS Ohio board each year. In fiscal year 2022 alone, STRS Ohio investments outperformed the board-approved benchmarks and added approximately $1.8 billion, net of all fees, costs and expenses. CEM Benchmarking estimates STRS Ohio saves about $100 million per year ($117 million in 2020) through internal management.

Increased fee transparency is an industry-wide issue, and STRS Ohio is addressing the issue in a number of important ways. STRS Ohio recently retained a consultant to assist with private market fee validation services. STRS Ohio continues to broadly support the SEC’s efforts to increase disclosure and transparency of general partner fee reporting, and is a member of the CFA Institute’s working group to provide comments to the U.S. Securities and Exchange Commission’s proposed rules to enhance transparency of alternative investment costs

STRS also addressed its investments with the now failed Silicon Valley Bank with the following statement:

As of last Wednesday, STRS Ohio held shares of Silicon Valley Bank (SVB) worth $27.2 million or 0.03% of STRS Ohio’s total fund. Many other public pension funds held shares of SVB, the nation’s 16th largest bank and a component of both the S&P 500 and Russell 3000 indices. STRS Ohio did not own shares of Signature or Silverlight—two other financial institutions involved in the current crisis.  

The collective actions taken by the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation to insure and backstop deposits have helped to mitigate the situation facing the banking industry. STRS Ohio continues to monitor and assess the impact of these developments

However, Dean Dennis, Administrator of the Ohio STRS Watchdogs web and Facebook pages believes it's crucial key charges are made at STRS as soon as possible.

“We have people who have gone 11-years without a cost-of-living adjustment. We’re a non-Social Security state, so we’re really at the point where retirees are having trouble participating in Ohio’s economy," Dennis said. “I personally think that this is the largest pension scandals in the history of the United States.”

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