For over a year, the $100 billion-plus State Teachers Retirement System of Ohio has refused to disclose critical information regarding its riskiest investments— information requested by tens of thousands of deeply concerned school teachers whose promised retirement benefits have been slashed. Public scrutiny of the state fund’s investments has been effectively thwarted by pension officials working in concert with Wall Street money managers to avoid legally-mandated transparency. Worse still, stonewalling has enabled the fund to potentially mislead participants regarding the fees, risks, and performance related to its investment portfolio.
“Read the prospectus before you invest” is the oft-stated mantra of every federal and state securities regulator. That’s unquestionably sound advice, but if prospectuses are withheld from disclosure by state pensions—even after investment decisions have been already made—participants can’t possibly read and understand the fees and risks related to the investments they depend upon for their retirement security.
A Year of Pernicious Stonewalling
In early 2021, I was retained to conduct a forensic investigation of the $100 billion-plus State Teachers Retirement System of Ohio on behalf of 20,000 members of the Ohio Retired Teachers Association (ORTA).
ORTA members were deeply concerned—for good reason—that slashing of Cost of Living Adjustment (COLA) benefits they had been promised was due, in whole or in part, to mismanagement of their pension’s investments. The retired teachers wanted a “second opinion” by a nationally-recognized expert—one of their own choosing—who had far more experience in pension matters than STRS’s largely lay board of trustees and staff responsible for overseeing and managing the investments.
A deep-dive into the pension’s investments necessitated accessing the relevant investment documentation through a public records request since the information was unavailable on the pension’s website.
On February 19, 2021, former Ohio Attorney General, Marc Dann, filed a request pursuant to Ohio Revised Code Section 149.49, et seq. with the State Teachers Retirement System of Ohio for an opportunity to inspect or obtain copies of public records related to the Ohio pension’s investment managers, investment consultants, performance compliance auditor, investment cost monitor, financial auditor, and custodians, as well as board and staff.
This public records request, filed on my behalf, included critical information regarding the pension’s riskiest “alternative” investments, such as prospectuses, offering memoranda, subscription agreements, limited partnership agreements, sideletters and tax returns.
In response to my public records request, I got none.
Not a single document I had requested regarding the riskiest investments was provided to me to review on behalf of retirees.
Accordingly, on May 21, 2021, former Ohio AG Dann filed a complaint for writ of mandamus with the Supreme Court of Ohio seeking some of the public records we had been denied and Dann is preparing to file additional actions relating to other records.
In June 2o21, after months of stonewalling at STRS regarding the investment documents requested—and with no end to secrecy in sight—I chose to issue a Report of Preliminary Findings entitled The High Cost of Secrecy. The Report noted:
“Alarmingly, our investigation reveals that STRS has long abandoned transparency, choosing instead to collaborate with Wall Street firms to eviscerate Ohio public records laws and avoid accountability to stakeholders. Predictably, billions that could have been used to pay teachers’ retirement benefits have been squandered over time as transparency has ceased to be a priority.”
The investigation revealed there were ample funds available to pay the COLA retirement benefits promised to teachers—had pension assets been prudently managed.
More recently I filed a complaint with the Ohio Department of Commerce, Division of Securities regarding the STRS failure to disclose prospectuses and other offering materials to participants. Last I heard, the Division of Securities was investigating my complaint.
Since release of my Preliminary Report, the only two STRS board members possessing financial expertise have publicly agreed with its damning findings and the State Auditor has determined the Report provided a “reasonable basis” for a special investigation on his part. While the State Auditor has requested the very same information from STRS that I requested, it remains to be seen whether STRS will provide the Auditor with documents it has denied teachers whose retirment savings are at risk.
Secrecy Conceals Incompetence and Mismanagement
It’s no secret why public pensions in Ohio and elsewhere embrace secrecy: because transparency and public scrutiny will expose incompetence and mismanagement. For example, STRS staff has represented to retirees that, contrary to SEC pronouncements, investment performance fees are not fees and that the fiduciary standards the state pension is subject to are every bit as comprehensive as those under the federal law applicable to corporate pensions, ERISA— also utterly false. That’s what I call “gross malpractice generally practiced” in my book, Who Stole My Pension?
As I concluded in my Preliminary Report, “Transparency, which would add not a single dollar of cost to the pension, would (through exposure) swiftly cure all that ails it—excessive fees, reckless risk-taking, unaddressed conflicts of interest, gross mismanagement and potential malfeasance.”
It’s common sense: the only reason to oppose transparency is because you have something to hide.