The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.
The State Teachers Retirement System of Ohio has been flagging the results of a special audit conducted in response to complaints from some teachers and retirees. But for its part, the group representing the state’s retired teachers isn’t backing down from its critiques of the system.
The examination, conducted by state Auditor Keith Faber, was prompted by retirees who have received few cost-of-living adjustments in recent years while retirement system employees have gotten big salaries and bonuses. And, in the most recent fiscal year, they did so as their investments lost billions.
In a Dec. 29 statement, the retirement system noted that the probe found no evidence of illegal conduct.
“The special audit found no evidence of fraud, illegal acts or data manipulation related to the funds held in trust by STRS Ohio for its members,” the statement said.
It added, “The special audit’s findings include, ‘STRS’ organizational structure, control environment and operations are suitably designed and well monitored, both internally and by independent experts. These experts help assure that STRS follows applicable asset and liability measurement, reporting, investing and cash management laws, professional standards, and best practices. Our conclusions are consistent with the findings of these independent firms.’”
The same statement quoted STRS Executive Director Bill Neville as saying, “It is noteworthy that the special audit’s findings refute much of the inaccurate information circulated about STRS Ohio over the past two years, and the report provides extensive detail and analysis in support of its conclusions.”
However, at least some of the complaints retirees have been raising don’t involve claims of criminality.
At least 200 of the retirement system’s 500 employees make more than $100,000 a year. And, with bonuses, in the 2021-2022 fiscal year 33 of the system’s employees made more than $300,000. Nine made more than $500,000.
Meanwhile, the average public teacher salary in 2022 is $67,000 a year, according to the Ohio Department of Education.
The retirement system manages about $90 million in teachers’ assets. The system makes traditional investments, while also putting money into high-fee “alternative” investments such as private equity and hedge funds.
In making such investments, the system is effectively trying to beat the stock market. STRS spokesman Nick Treneff has said alternative investments also allow for a more diversified portfolio, which can help to manage risk.
But over at least the medium term, the stock market has proven to be the better investment.
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 in July.
Retirement system salaries and bonuses have grown large as retiree benefits have stagnated.
The latter group got a 3% cost-of-living bump in their benefits last year — their first since 2017. Treneff has explained that 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.
In addition, the General Assembly hasn’t increased its contribution rate to the pension fund in 38 years.
But what really has retirees incensed is the way the STRS board handled staff bonuses last year. In August, it awarded $10 million in bonuses even though it estimated that it would lose $3 billion in an environment that was brutal for investors.
Then in October, the actual numbers for alternative investments came in. System losses were 77% higher than original estimates — $5.3 billion.
For perspective, the losses follow $22.3 billion in gains a year earlier, according to the system’s financial statements.
However, the retired teachers union argued, if staffers are going to do well in times of plenty, they shouldn’t do so well when times are bad. Also, the group argued, the system’s board should have delayed awarding bonuses until after the actual loss figures came in instead of using a big underestimate.
In light of those occurrences, the Ohio Retired Teachers Association wasn’t mollified by a clean audit
“As expected, the State Auditor confirmed that a broken system yields broken results,” ORTA’s Executive Director Robin Rayfield said in a statement. “Although finding no direct evidence of criminal activity, the Auditor confirmed that the board allowed the staff to use an accounting gimmick to pay themselves $10 million in bonuses despite losing $5.3 billion last year. For years, the board’s bad policies have yielded bad results for teachers, who are working longer and paying more for less, while enriching STRS staff. The only way to change bad policies is to change the STRS board, which teachers will do in this Spring’s election.”