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Losing billions, Ohio pension system pays millions in bonuses

By   /   March 19, 2013  /   5 Comments

You have the wrong job.STRS-logo2

The Cincinnati Enquirer reported yesterday that the State Teachers Retirement System has “paid out $38.6 million in bonuses to its roughly 80-member investment staff” since 2005.

By comparison, the larger Ohio Public Employees Retirement System has paid $10.7 million, not including 2012.

“Millions of dollars went to employees even when the system’s portfolio did poorly,” the newspaper reported, but the Enquirer didn’t explain just how poorly the fund has been performing.

Between July 1, 2007 and July 1, 2012, STRS lost almost $7.2 billion, going from $66.7 billion to $59.5 billion.

That’s a five-year return of negative 10.7 percent. Most of that was due to the market collapse of 2008, but even the four-year bull run since then hasn’t been enough to restore the losses. As bad as the market has performed, STRS has been worse – a full seven points below the Dow Jones Industrial Average for the five years.

Worse, STRS’ liabilities have been increasing relentlessly in the meantime, going from $81.1 billion to $106.3 billion. That means that an unfunded debt of $14.5 billion has metastasized into a $46.8 billion cancer.

And that’s using STRS’ own numbers. The debt would be nine figures if it were calculated with the same rules that companies use.

STRS’ funding ratio has slipped to a nearly hopeless 56 percent. It’s legally required to get on a 30-year path to full solvency, but hasn’t met that requirement since 2009. Last year, the Legislature cut benefits over the next 30 years by 36 percent, while increasing teacher contributions from 10 to 14 percent, and even that wasn’t enough to get the fund back on the 30-year track.

In the last fiscal year, the assets under STRS’ management grew by just $1.3 billion, while liabilities increased by $7.5 billion. That’s the situation fund managers will be in year after year, as they try to hit targeted returns of $8 billion, $9 billion, or $10 billion a year, with capital of just $60 billion. The only way to do that is by taking on dangerous levels of risk.

Or, the fund managers could turn from that temptation and embrace their own mediocrity (as in, 2.2 percent returns in FY2012). The Enquirer found that fund managers “received bonuses in fiscal 2012 as high as 77.6 percent of their salaries. In other years, employees earned as much as 125 percent of their salaries. Assistant Director of Investment Mary Ellen Grant, for example, received $512,842 in salary and bonus in 2011 as the top earner in the department.”

— Jon Cassidy


Jon Cassidy is a reporter for Watchdog.org. He used to report for The Orange County Register and The Hill, and his work has been published by Fox News, Reason, The American Spectator, The Federalist, Human Events, and other publications.

  • tony windholtz

    How does this happin?????????????

  • Snowglobe716

    They cutout giving members bonuses at Christmas several years ago and they’re giving out these exorbitant bonuses to these people! I’m not a happy person!!!!

  • thunderbolt

    It is socialist politicians, thinking they can confiscate other people’s money, via taxing, for their benefit.

  • Terry

    Thank you for the canned reply.

    With 75% of its investments using internal managers I would think that a guaranteed job with benefits would result in a huge drop in the $39 million bonus money paid out since 2005. It is common sense to understand that with such a large investment portfolio, STRS is in a position to better control bonuses that averaged $487500 per employee. These individual bonuses average out to almost $61000 per year per employee, not counting their base salary. This amount is greater than my yearly benefit after 30 years of teaching and I have never received any bonus at all from STRS, so how dare you give away our money!

    I do not care about investment industry standards. That group has been fleecing America and the world for far too long. I would suggest that the entire group of decision makers at STRS, OEA, and OEAR read a few books on the topic. One that comes to mind is, Greedy Bastards: How We Can Stop Corporate Communists, Banksters, and Other Vampires from Sucking America Dry Ratigan, Dylan (Book – 2012)

    I do not see any comments related to the excesses of the STRS building which I also helped pay for. Once again, who is making the extravagant decisions that are wasting our hard earned money. I am disgusted with the poor decisions being made that appear to be set up to make a handful of people rich while working in luxury accommodations. I would suggest that the STRS artwork and building be sold, investment bonuses greatly diminished, and executives of STRS replaced.


    From: ContactUs
    Sent: Monday, March 25, 2013 2:29 PM
    To: Terry
    Subject: RE: STRS- mismanagement

    Thank you for contacting STRS Ohio. Below is a statement from Michael J. Nehf, Executive Director of STRS Ohio, in response to the recent article. This statement is available on our website at https://www.strsoh.org/whatsnew/news17.html. If you have further questions, please let us know.

    We at STRS Ohio understand that our members and the public at large are interested in seeing a well-managed retirement system that maximizes investment returns and minimizes expenses in a responsible manner. Recent media reports unjustly criticized the investment program and compensation practices at STRS Ohio. STRS Ohio is a $67 billion pension fund whose purpose is to provide retirement security to Ohio’s public educators. About 75% of members’ benefits are provided by investment returns, so our Retirement Board, staff and all stakeholders have a strong interest in maximizing investment performance. Here are a few key points that you should know about the investment program:
    · The media reports indicated that STRS Ohio is paying investment incentive payments while the fund is losing money. It’s important for our members and stakeholders to know that investment returns are positive over both short- and long-term time periods. STRS Ohio currently pays about $6 billion in pension and health care benefits each year to retirees and beneficiaries of the system, while taking in about $2.9 billion in contributions from members and employers. This results in more than $3 billion per year in negative cash flow. During fiscal year 2012, the total fund return of +2.34% beat the system’s benchmark return, but was not enough to offset the negative cash flow from the pension and benefit payments.
    · STRS Ohio runs a very cost-effective investment program, managing about 75% of its investments using internal managers — a higher percentage than any other Ohio pension fund, as well as most others in the country. Studies by CEM Benchmarking have shown that STRS Ohio has saved more than $900 million during the past 10 years by managing these funds with internal staff versus using more costly external managers. STRS Ohio pays a higher total incentive amount than the other Ohio systems primarily because it has more in-house investors, which is less expensive to the members overall. The most accurate way to measure these programs is by including both internal and external investment costs — or total investment costs. That is what the CEM Benchmarking study does, and in 2011, this study showed that STRS Ohio’s total investment cost was the lowest in its peer group.
    · STRS Ohio’s 10-year total fund return is among the best in the industry. A recent report by the State Teachers Retirement Board’s outside investment consultant, Callan Associates, shows STRS Ohio’s 10-year total fund return of 8.37% ranked in the top 20 percent of the Callan Public Fund Sponsor Database. As a long-term investor, it’s important to note that this return exceeded STRS Ohio’s long-term actuarial assumed rate of 7.75%. STRS Ohio’s 30-year rate of return of 9.3% is comfortably ahead of the assumed rate of return.
    · STRS Ohio’s compensation program is in line with other private and public institutional investors. Eligible investment staff has a compensation program that is comprised of a base-pay component and a variable or “at risk” component that is paid only when investment performance exceeds standard industry benchmarks. These performance-based (PBI) plans are commonplace in the investment industry. Last April, the Retirement Board revised the PBI program for eligible Investment associates. The new program includes a graduated reduction of the incentive when the total fund returns are negative for a given year (the fiscal year 2012 return was +2.34%, though media reports stated that the fund lost money) and implements an additional cutback provision when the smoothed actuarial return is below 7.75%.
    · STRS Ohio’s investment in Facebook does not have a “paper loss of $5.6 million.” One media source reported on STRS Ohio’s investment in Facebook. This investment provided a good return when STRS Ohio sold some of its shares on the day of the initial public offering (IPO). While the stock price diminished following the IPO — hitting a low of just under $18 per share in September 2012, the price has rebounded nicely since then, now at about $27 per share. After factoring in the gains from some of STRS Ohio’s early sales of Facebook, as it stands today, this investment is slightly negative. Institutional investors like STRS Ohio own nearly every stock in the index. Some will make money; others will not. While Facebook could continue to climb and be profitable for STRS Ohio, it’s worth noting that the pension fund’s overall return was +13.6% for calendar year 2012. Click here to view STRS Ohio’s 2012–2013 Annual Investment Plan.
    To maintain the current benefit structure in place for active and retired educators, STRS Ohio must manage a strong investment program designed to attract and retain top performers, although it must pay significantly less than private sector investment professionals. STRS Ohio members and stakeholders should know that our investment program provides solid, professional investment management at below average cost.
    If you have further questions or concerns, please let us know.


    Member Services
    STRS Ohio

    From: Terry Pirman [mailto:turtle9658@gmail.com]
    Sent: Saturday, March 23, 2013 6:06 PM
    To: ContactUs
    Subject: STRS- mismanagement
    Importance: High

    It is with disgust and dismay that I have read the STRS article in the Cinci Newspaper:

    “The Cincinnati Enquirer reported yesterday that the State Teachers Retirement System has “paid out $38.6 million in bonuses to its roughly 80-member investment staff” since 2005.
    By comparison, the larger Ohio Public Employees Retirement System has paid $10.7 million, not including 2012.”

    Combined with the Taj Mahal building of the STRS office along with excessive bonuses based upon poor performance and mismanagement of our funds, who is watching the henhouse? This is a huge mess on which we must get a grip before it is too late. What are this boards plans to resolve this huge issue? What are you doing to notify the membership of both OEAR and OEA of this extreme problem?

    STRS is the elephant in the room with extreme excesses while we the members that own it, are left holding the bag.

    Please respond and let me know what steps are being taken to get STRS back in line.

    Members of the STRS Retirement Board and its Executives may be reached via email at ContactUs@strsoh.org or by mail at 275 E. Broad St., Columbus, OH 43215-3771. Your electronic message should not contain confidential information as “ContactUs” is not a secure email address.
    STRS Ohio is managed by an executive director, three deputy executive directors and seven senior staff members, and employs about 605 associates.
    Michael J. Nehf
    Executive Director
    Sandra L. Knoesel
    Deputy Executive Director — Member Benefits
    Stephen A. Mitchell
    Deputy Executive Director — Investments
    Robert A. Slater
    Deputy Executive Director — Finance
    Chief Financial Officer
    Marla E. Bump
    Director, Governmental Relations
    Rhonda L. Hare
    Retirement Board Liaison
    Andrew J. Marfurt
    Director, Human Resource Services
    William J. Neville
    General Counsel
    David Tackett
    Chief Audit Executive, Internal Audit
    Gregory A. Taylor
    Director, Information Technology Services
    Nicholas J. Treneff
    Director, Communication Services
    OEA Retired: Board of Directors oearac@gmail.com
    OEA: execweb@ohea.org;exdirweb@ohea.org;communic@ohea.org;govtsrv@ohea.org;legalweb@ohea.org
    OFFICERS – execweb@ohea.org
    Contact OEA’s elected officers, including the President, Vice President and Secretary-Treasurer.
    BOARD OF DIRECTORS – execweb@ohea.org
    Contact your OEA Board liaison.
    EXECUTIVE DIRECTOR – exdirweb@ohea.org
    Contact the office of OEA’s Executive Director.
    COMMUNICATIONS DEPARTMENT – communic@ohea.org
    Contact the department that is responsible for the development and coordination of OEA’s internal and external communications programs.
    Contact the department that coordinates OEA’s legislative program and lobbying activities at the Ohio Statehouse.
    LEGAL SERVICES DEPARTMENT – legalweb@ohea.org
    Contact the department that provides legal assistance, liability coverage, and insurance protection to OEA members and local associations.

  • Disappointed with STRS

    All the other public employee systems in Ohio are doing it right. Why can’t STRS? This is criminal activity. I have no choice but to contribute to this corrupt system. The federal government needs to take over this system. I don’t trust their competence or character.