Ohio State Teachers Pension Drama Continues! Board Turmoil!
This is unlikely to get the COLAs back or improve fund governance at all
Let’s check in with the Ohio Teachers Retirement System.
The Columbus Dispatch: Ohio AG files lawsuit to remove two state teachers' pension board members
Ohio Attorney General Dave Yost filed a lawsuit on Tuesday to remove two board members of the State Teachers Retirement System, saying they breached their fiduciary duty to protect the pension fund.
Yost filed the case in Franklin County Common Pleas Court just before the 11-member board begins its monthly meeting today [Wednesday, May 15, 2024].
Yost is seeking removal of Wade Steen, who is the governor's appointee to the board, and retired Wright State University economics professor Rudy Fichtenbaum.
….
Over the past few years, activists have been mounting a board takeover, electing members who are more sympathetic to their complaints about transparency, senior leadership, investment staff bonuses, and the suspension of the cost-of-living allowances for retirees.
The board is made up of five teachers and two retired teachers elected by system members, three investment experts appointed by the governor, state treasurer and Ohio General Assembly and the director of the Department of Education and Workforce.
The text of the lawsuit is here.
From the complaint:
3. Defendants Wade Steen and Dr. Rudy Fichtenbaum must be removed from the State Teachers Retirement Board (“STRS Board”) because they have breached their fiduciary duties.
4. Upon information and belief, Steen and Fichtenbaum seek to steer as much as 70% of STRS’s current assets (about $65 billion in teacher pension funds) to a shell company that lacks any indicia of legitimacy and has backdoor ties to Steen and Fichtenbaum themselves.
5. Upon information and belief, the owner of this shell company continues to peddle to STRS a secretive and untested investment scheme while his own condominium is in foreclosure.
6. While this scheme may benefit Steen and Fichtenbaum, it may spell disaster for Ohio teachers who have retired or hope to retire someday.
There are other items in the complaint, which you can read for yourself.
This piece at Cleveland.com by Laura Hancock, dated May 12, 2024, traces many of the ins-and-outs of the disputes: What’s at the bottom of the state teachers retirement dispute between reformers and Gov. DeWine?
But to many retired teachers, the contention started in 2017. That was the first of five consecutive years retired teachers received no cost-of-living increase as part of austerity measures that no other Ohio public pension imposed. Retirees became angry as they saw staff and money managers continue to pocket bonuses during those lean years. They began to organize, research, file lawsuits and call for change. As a result, retirees elected the reformers.
At the core, it’s the lack of COLAs (cost-of-living adjustments) that have spurred the teachers to vote what they see as their interests. The piece is quite long, and does go over much of the history I wrote about in the immediately prior post.
Separately, here is Fichtenbaum’s response to the earlier anonymous letter, dated May 14, 2024. I will circle back to this letter at the end of this post.
Composition of the Board of Ohio STRS
So, to keep it clear: there are 11 board members for Ohio STRS.
Of the 11 members, 5 are working teachers (called “contributing members”) and 2 are retired teachers (called “retired members”) — these 7 are voted on by members of the retirement system.
Of the remaining 4, 3 are appointed (by various politicians) to be investment experts. One is a board member by virtue of his appointed office (Director of the Department of Education and Workforce for Ohio), but has no particular investment expertise.
The way this is set up, if the working and retired teachers are annoyed enough about their retirement plan, they could elect enough members of the board to control policy. Their 7 would outnumber the appointed 4.
In this case, it was one of the appointed investment experts, Wade Steen, who is supposedly the issue, along with a retired teacher member, Rudy Fichtenbaum.
Recent Board Election
There was an election for one of the teacher members on May 11, 2024.
Michelle Flanigan, 22,917 votes
Sandy Smith Fischer, 3,932 votes
Write-Ins, 72 votes
The term of office for Michelle Flanigan will begin on Sept. 1, 2024, and will end on Aug. 31, 2028.
Looking at dates, I believe Michelle Flanigan will be replacing Dale Price as a board member (more on him in a moment).
NBC4i: Teacher-backed candidate wins seat on Ohio retirement board
With multiple investigations launched into the State Teachers Retirement System, results for its latest election for the board were certified.
In what active and retired teachers in Ohio are calling a “mandate for reform,” STRS announced the certified results of the election for the board seat controlled by active teachers who are currently paying in to the pension system.
Brunswick City Schools teacher Michelle Flanigan overwhelmingly defeated Sandy Smith Fischer, an Intervention Specialist in the Streetsboro City Schools District, by a vote of 22,917 to 3,932.
Flanigan, who teaches Government, Economics and Financial Literacy and once worked as a financial analyst, was backed by a group of retirees and teachers who are demanding reform of the $92 billion pension system. Smith Fischer was endorsed by the Ohio Education Association.
As NBC4 has reported, a group of angry retirees has been working for nearly six years to ensure reform-minded candidates will be elected to the eleven-member board. The retirees are demanding transparency on investments, an end to exorbitant bonuses for the investment staff, and a return of promised cost of living increases they were denied for years.
Comment from ORTA (Ohio Retirement for Teachers Association):
Michelle Flanigan elected in sixth straight victory for reform candidates
COLUMBUS, OH – Ohio active teachers elected high school government teacher Michelle Flanigan to the STRS Ohio board with a convincing 85 percent of the vote. This is the sixth straight election where a reform-minded teacher has earned the trust of their colleagues. Ms. Flanigan's blowout victory further cements the reform majority on the STRS board and reinforces the will of membership for transparency and accountability. Ms. Flanigan's four-year term will begin in September.
ORTA Statement on the election of Michelle Flanigan:
"Once again, Ohio teachers have made their voices abundantly heard with their election of a reform-minded candidate. For years, our educators have been cheated and dismissed by a STRS culture that resists transparency and thrives on power and self-enrichment. Reformers now have a clear and convincing mandate to institute real change and restore trust. Ms. Flanigan's voice and stewardship will be critical in that effort.
"ORTA Statement on STRS staff referring to reformers' success at the ballot box as a "hostile takeover":
The arrogance of STRS staff to characterize the election of reformers in the past six elections as a "hostile takeover" is unapologetically self-preservationist and shameful. In this country, fair and democratic elections are the foundation on which our institutions are held accountable. Ultimately, Ohio law vests the administration of STRS to the board, not to the staff. For years STRS Ohio has failed our teachers while enriching STRS staff. This is not a hostile takeover, it is a teacher takeover through fair and free elections."
They’ve got a full slate in play, and even if Steen and Fichtenbaum get yanked, that’s just one of the teacher members down. That would mean it would just take one more year for the teacher “activists” to get another candidate in. And given the board election results, I’m sure they could get a similar result next year.
Because the teachers are angry about the COLA situation.
Whether they would go forward with any investment proposal is another matter, but that they would continue in this direction is likely.
Ohio STRS Board Meeting Materials
By the way, the Ohio STRS Board meetings resources and materials can be found on this page: https://www.strsoh.org/about/retirement-board/board-meetings.html
I was kind of busy during the STRS board meeting (some very important spreadsheets to update, doncha know), but it seems they do post videos of their meetings. Hmmm.
I just thought I’d share one of the slides from the meeting that was planned for today:
There’s another day of agenda for tomorrow.
All that said, I have no idea what direction that went in, as the chair and vice-chair got yanked:
News5Cleveland: AG Yost files lawsuit to remove members of teachers' pension board, accuses them of breaching fiduciary duties
[AG Dave Yost] filed just a few hours before the STRS board meeting, one that resulted in chaos due to already high tensions and the attorney general's latest involvement.
This is a "sham investigation," Steen said, to applause from people in the gallery.
The majority of the board members seemed to agree, voting 6-5 to remove the current chair and replace him with Fichtenbaum.
Finally, I’m circling back to something that Fichtenbaum had written before this lawsuit filing. He responded to the anonymous letter, and this paragraph stood out to me:
On page 9. “Fichtenbaum also increased his calls for indexed based investing – a necessary step in implement QED’s “Index+” solution.” In fact, when I ran for my seat on the Board, candidates were asked the question, “How would you prioritize the key issues that the State Teacher’s Retirement Board should focus on?” My response was, “Consider more passive management of investments to reduce costs and increase returns.” I provided that response before I ever met anyone from QED. I went on to say, “The current approach to solvency has been to increase risk and reduce transparency. Almost 30% of STRS investment are in “alternative” investments and real estate. Many of these are very risky, expensive and impossible to value with certainty. A better approach to reaching solvency is to raise employer contributions, while working to reduce costs and increase returns by considering more passive (rather than active) management of assets.” So, it should surprise no one that I have continued calling for more passive, i.e., index investing.
I bolded the “raise employer contributions”.
Because that is a more likely path to getting COLAs back than anything else.
This is obviously not over — the lawsuit was just filed, there is another day of board meetings, and who knows what tomorrow will bring?
Can't wait to see what happens in Illinois!
It looks like the OSTPS is run by the pilots/crew on Airplane. Unless there is more paid in, then more can't be paid out. The high management fees are a killer to the growth of not only these managed funds, but unfortunately occur with small amount private investors.