Just after giving out $10M in bonuses, teachers retirement system announces $5.3B in losses
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The Ohio State Teachers Retirement fund in August voted to give its employees $10 million in bonuses even though it estimated that it had lost $3 billion during the fiscal year that ended July 1.
On Thursday, the official numbers came in showing that the fund’s losses were actually much larger — $5.3 billion — and that has the union that represents the state’s retired teachers hopping mad.
In August, the union urged the system’s board to delay bonus decisions until the actual numbers for the fiscal year came in, but it did not.
“It was bad enough that STRS rushed to award $10 million in staff bonuses after only losing $3 billion last year,” Robin Rayfield, executive director of the Ohio Retired Teachers Association, said in a statement. “With this new data, we know now that STRS actually lost $5.3 billion last year and still awarded millions of dollars in bonuses to almost 100 bureaucrats.”
The retirement system has a large, well-paid staff that directs investment strategy that has almost $90 billion in teacher pension funds under management.
With bonuses, in the 2021-2022 fiscal year 33 of the system’s employees made more than $300,000 and nine made than $500,000. Between those employees and outside consultants, STRS is betting in essence that it can do a better job investing teachers’ pension money than mega-advisors such as the Vanguard Group.
The losses announced Thursday follow $22.3 billion in gains a year earlier, according to the system’s financial statements. To a large extent, the recent losses reflect downdrafts in the overall economy, with stocks sliding more than 20% over the six months ending June 30.
However, the retired teachers union argued, if staffers are going to do well in times of plenty, they should do less 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.
STRS spokesman Nick Treneff has said that by policy, the board votes on bonuses in August because new board members are appointed in September. That means that if they waited until final numbers for the fiscal year came in, one of a new board members’ first votes would be on bonuses, Treneff said.
Asked on Wednesday about the retired teachers’ claim that the bonuses were premature, Treneff referred to an answer he gave to a similar question on Sept. 27.
“STRS Ohio did NOT ‘rush’ performance-based incentive (PBI) payments nor delay reporting investment returns. PBIs were paid in August in accordance with board policy,” he said then. “The board has voted on PBI payments in August during each of the past three fiscal years (again, in accordance with policy). STRS Ohio reports investment performance and prepares its financial statements in accordance with applicable industry standards. All investors in private market assets (including CalPERS, CalSTRS, Ohio Public Employees Retirement System, etc.) receive lagging valuations.”
In follow-up questions Treneff was asked exactly what the system’s formula was for deciding bonuses. He didn’t respond directly.
“The performance-based incentive (PBI) policy and payouts under the program are approved by the State Teachers Retirement Board each year,” he said. “The PBI program is for eligible investment associates and is based both on one-year and five-year investment performance at the total fund, asset class and portfolio/industry levels. Incentives are more heavily weighted toward five-year returns, aligning with STRS Ohio’s interests as a long-term investor. Only quantitative goals are utilized.”
As to why the retirement system lost so heavily in the just-completed fiscal year, Treneff said it was partly due to the system’s “alternative” investments in hedge funds and the like.
“The $5.3 billion figure includes some of the lagged returns for private markets…,” Treneff said in an email Wednesday. “That quarter of lagged returns will be included in the current year performance-based incentive calculation.”
The retired teachers have questioned the way in which the system has valued such investments and why they’re necessary, given that the system often pays large fees in making them. Treneff has said that they help diversify the system’s portfolio.
The retired teachers distrust the retirement system partly because of the big salaries it’s paying to its employees — and partly from the fact that the pension fund stopped paying cost-of-living increases in 2017 — although this year it is paying them a 3% increase.
Treneff has said the cost-of-living freeze was partly 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.
The retired teachers association points out that the General Assembly hasn’t increased its contribution rate to the pension fund in 38 years.