Mr. Steen and Mr. Fichtenbaum support a bonafide best practice, which used to be all Ohio allowed.
Controversy abounds at the State Teachers Retirement System of Ohio and soon all of the Ohio public pension systems, as state lawmakers are lobbied for big increases in employer contributions which must be funded by taxpayers.
Attorney General Dave Yost is suing to expel two STRS board members claiming they tried to steer a contract to invest $65 billion to an untested firm with no clients.
While it would have taken $65 billion to provide the benefits promised by advocates, the proposal rejected in November of 2021 was for a $250 million test of the concept.
The idea copied a successful strategy by the Healthcare of Ontario Pension Plan and the Columbus startup behind the plan purported to have the HOOPP managers who created and managed the program joining their firm.
The size of the investment and the experience of the firm have been materially misrepresented. If the truth was as portrayed by AG Yost and Gov. Mike DeWine who originated the complaint, it would have been addressed in 2021 when the events were unfolding.
The attempt to remove STRS board members Wade Steen and Rudy Fichtenbaum is an effort to protect the status quo and keep the investment strategy that enriches pension staff with six-figure bonuses and dark money political action committees with donations from Wall Street money managers.
Mr. Steen and Mr. Fichtenbaum want to take the pension portfolio back to the days before Ohio’s legislature opened the door to private pension investments [Am Sub S.B. 82 1997] that could not be transparently valued and easily sold.
The legislature’s pension oversight body, the Ohio Retirement Study Council, has created a special subcommittee on STRS that meets for the first time Monday. Members would be wise to fix a pension mess of their own making that affects all state pensions, even the funds that aren’t in the headlines.
The Center for Retirement Research at Boston College has just released a study of public pensions from 2000 to 2023, comparing the returns for complex actively managed funds using private investments for a large portion of their portfolio and the traditional stocks and bonds only which Ohio used to require by law.
The study finds the simple 60-40 split between stocks and bonds, using the broadest possible market indexes, match the results of the complex and costly active managed private market investments.
The Boston College experts conclude: “If public plans cannot reasonably anticipate higher long-term returns from a complex active approach they should stick with a simple transparent strategy.”
Mr. Steen and Mr. Fichtenbaum support a bonafide best practice, which used to be all Ohio allowed. Nearly all state pension controversy stems from the 1997 decision to change Ohio law allowing the complex portfolio that has been good for politicians and pension staff but harmful to beneficiaries and taxpayers.
If Ohio lawmakers fix the pension problem they created and mandate a return to nothing but transparent and liquid investments, the possibility to steer management contracts for personal or political benefit will be gone and public confidence will be restored.
Toledo Blade Editorial Board July 8, 2024
The newly formed ORSC STRS Subcommittee will meet today at 1:00 pm ET. You can watch the livestream of the meeting on the Ohio Channel: https://ohiochannel.org/live/ohio-retirement-study-council
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