"Retirement at Risk"- ORTA's takeaway

“Retirement at Risk” uses Ohio’s State Teachers Retirement System as a case study to argue that public-pension problems are often caused not simply by weak markets or insufficient contributions, but by governance structures that give administrators incentives to report results in the most favorable way possible.

The authors’ central finding is that STRS Ohio’s publicly reported investment returns were higher than its CPA-audited returns in 19 of the 20 fiscal years from 2003 through 2022.

They calculate:

• An average annual difference of approximately 0.33 percentage points

• Only one year—fiscal year 2020—in which the reported return was not higher

• An estimated $9.3 billion cumulative overstatement when those differences are compounded over time

  
  

The authors contrast STRS with the Ohio Public Employees Retirement System. OPERS had much smaller discrepancies—approximately 0.08 percentage points—and those differences went in both directions. They interpret that pattern as ordinary measurement variation, whereas STRS’s consistently one-directional differences suggest a systematic reporting or incentive problem. 

The article does not necessarily accuse STRS of fabricating investment earnings or losing $9.3 billion. Rather, it argues that STRS emphasized one return calculation publicly and in its incentive-compensation process while audited financial statements produced a lower return figure. The $9.3 billion represents the authors’ estimate of the compounded difference between those measures—not necessarily missing or stolen pension assets.

The authors connect this issue to STRS’s performance-based incentive program. Their argument is that when bonuses are based on internally calculated or unaudited performance measures, investment employees have an institutional incentive to favor the calculation that produces the better result.

Their main recommendation is relatively narrow: STRS performance bonuses should be based exclusively on CPA-audited investment returns calculated from the pension system’s audited net fiduciary position. They contend that this would make the compensation system more transparent and reduce disputes over which investment-return figure is legitimate. 

How the article mentions ORTA

ORTA—identified as the Ohio Retired Teachers Association—appears primarily as an organization that helped initiate scrutiny of STRS’s investment practices and governance.

The important sequence is:

1. ORTA commissioned the 2021 Benchmark Financial Services forensic review, titled The High Cost of Secrecy: Preliminary Findings of Forensic Investigation of State Teachers Retirement System of Ohio.

2. That report raised concerns involving investment costs, transparency, performance measurement and STRS’s payment of staff performance bonuses.

3. Complaints arising from the ORTA-commissioned report helped prompt the Ohio Auditor of State to conduct a special audit of STRS. The state auditor expressly said its examination resulted from complaints contained in the Benchmark report commissioned by ORTA. 

4. The article treats the ORTA-commissioned investigation as part of the background that exposed or elevated broader governance concerns. In other words, ORTA is not presented merely as an interested retiree organization; it is portrayed as an important outside accountability force that funded research, questioned STRS’s practices and helped trigger official review.

5. ORTA’s concerns about performance bonuses are closely aligned with the article’s conclusion. ORTA has argued that STRS incentive benchmarks were opaque or inappropriate and that staff bonuses should not be awarded using unclear performance measurements. The article provides an academic and economic framework supporting that concern by showing how unaudited performance measures can create what the authors view as a predictable conflict of incentives. 

The strongest ORTA takeaway

A fair ORTA-focused description would be:

The article lends academic support to concerns ORTA has raised for several years about STRS transparency, investment-return reporting and performance bonuses. It credits the ORTA-commissioned Benchmark investigation as part of the chain of events that brought these governance questions to the attention of state auditors and policymakers.

ORTA is therefore presented favorably as a watchdog and catalyst for oversight, rather than as the source of the authors’ financial calculations. The new 19-of-20-years analysis and the estimated $9.3 billion compounded difference appear to be the authors’ own analysis, while ORTA’s earlier work helped establish the factual and political background for examining STRS.

Click here to read Retirement at Risk: The Political Economy of Public Pension Governance