Controversy over 'Retirement at Risk' continues, suggesting that investment staff have received bonus payments that the data do not support.

The recent academic paper published in the Journal of New Finance by Mendenhall and Sutter titled ‘Retirement at Risk’ has created quite a stir in both the statehouse and at STRS. Although STRS was quick to dismiss the paper’s findings, the ORSC which oversees all public pensions in Ohio is seeking clarification on what the paper alleges.

In simple terms the paper alleges that STRS uses self-reported investment returns to justify payment of PBI (bonus) to its investment staff while the audit driven returns are far less than what STRS uses to award bonus payments to staff. The audit driven returns are significantly lower than the returns calculated by STRS staff, suggesting that investment staff have received bonus payments that the data do not support.

ORSC Chairman Bird asked the staff at ORSC to dig into the discrepancy between the staff reported returns and the audited returns. What is interesting to me is that OPERS (Public Employees Retirement System) uses a similar approach to determine investment performance to the one STRS uses. In the case of OPERS the numbers produced by OPERS staff and the audit driven numbers are quite close. The variance in the OPERS staff produced numbers varies both ways, i.e., sometimes the audited numbers are lower than the staff numbers and sometimes the audited numbers are higher than the audited numbers. The authors state that in the OPERS data the staff generated numbers are higher eight times in twenty years. And the variance in the OPERS numbers is small. With STRS the staff generated numbers are higher than the audited numbers in nineteen of twenty years. The variance in the STRS comparisons is much larger.

Why does this matter to STRS members? It matters because the only data that really matters is the audited return numbers as that is the amount of money that STRS has to pay benefits. It also matters because STRS members should not make bonus payments on returns that are overstated from the audited returns.

I am sure the controversy over this paper will continue. ORTA will do its best to keep our members updated on any current information. If you are interested, you can read the paper at https://jnf.ufm.edu/journal/vol4/iss1/2/.

ORTA met with STRS leadership to discuss our concerns with the findings of the paper during the August 2026 STRS meeting. STRS’ responses to our questions are provided below.

STRS Response to ‘Retirement at Risk’ Paper

I was able to sit down with leadership at STRS to discuss the concerns that ORTA has with regards to the recent academic paper that is critical of STRS reporting on investment reporting. The questions ORTA has and the response from STRS are listed below. As with any significant disagreement, there are two sides to the argument. ORTA is interested in knowing what we can learn about the allegations the authors made in the paper.

ORTA asked why STRS uses a GIPS return to calculate investment returns instead of using an audited number to determine the performance of the investment team. STRS responded that Ohio law requires them to use the GIPS return (which is higher in 19 of 20 years) and that STRS is not allowed to use audited numbers. Of course, this is confusing to STRS members as both numbers are calculated each year. Common sense tells us to use audited/verified numbers, but STRS says ORC 3307.15 requires them to use GIPS returns.

ORTA asked why the difference between the GIPS data used to measure performance (and pay PBI bonus) resulted in returns that were higher in 19/20 years. The same calculations are reported by OPERS’ retirement system, and the variance is much smaller and the returns OPERS uses are sometimes higher and sometimes lower than audited returns. It would seem that if both systems use estimates that the variance in STRS numbers and OPERS numbers would be similar. They are not. The STRS numbers on self-reported data were higher than the actual performance in 19 of 20 years while the OPERS numbers were much closer and were higher in the self-reported returns in 8 of 20 years. STRS’s response was that they are confident in the returns reported by STRS, but they could not comment on OPERS data. Since they do not work with OPERS, they did not know how OPERS calculated their self-reported return figures.

ORTA asked how STRS investments could fail to meet the Total Funded Blended Benchmark for four consecutive years (2023, 2024, 2025, and 2026) but still receive PBI payments. We explained that the only investment number that matters is how much did our team make. If we failed to reach the total fund blended benchmark it seems crazy that we would pay bonus. STRS' response was that PBI payments are based upon individual asset class performance. If an asset class met its benchmark, such as domestic equity, that group is entitled to its PBI. Or if real estate investments met their benchmark, they would receive PBI payments. Our questions remain. However, STRS reminded me that each asset class is judged or measured by their asset class benchmark. Their point is well taken, however, ORTA remains committed to using the total fund benchmark as the appropriate measure for PBI decisions.

I want to say that ORTA appreciates the time and effort spent answering our questions. I am convinced that STRS management wants to collaborate with its members and believe that the PBI system in place is necessary to get the best returns possible.

Although we disagree with the PBI system in place, I think STRS ‘hears’ our concerns and are willing to work towards a solution to the disagreement.

Dr. Robin Rayfield Executive Director, ORTA