All state pensions in Ohio have dramatically underperformed for decades due to rampant political corruption and gambling on Wall Street’s riskiest investments. State politicians have profited from Wall Street campaign contributions as active government workers and retirees have seen their benefits slashed. The staggering cost of this mismanagement amounts to $46,000 per Ohio taxpayer. That’s more than the state’s $34,500 average annual per capita income.
A key finding hidden on page 28 in a Special Audit by the State Auditor of Ohio of the Teachers Retirement System of Ohio (STRS) was that an investment in the Standard & Poor’s 500 index fund would have provided the pension with $90 billion more than it has earned gambling on the highest-cost, highest-risk, most secretive investments ever devised by Wall Street—so-called “alternative” investments, such as private equity, hedge, venture and real estate funds. Faber’s findings mean the pension’s size would have doubled had it been prudently managed.
Ludicrous pension gambling is nothing new in Ohio—only the magnitude of the losses.
As an Editorial in the Toledo Blade recently stated:
“Until Ohio lawmakers bought into the fiction that they could beat the market over the long run with secret sauce from Wall Street money managers the issues addressed in Mr. Faber’s special audit did not exist. The money lost on rare coins and Beanie Babies, exposed by The Blade in the 2005 Coingate investigation, is small change compared to the tens of billons in unearned returns by STRS, chasing similar dubious investments that routinely produce annual bonuses for the staff that selects them.”
STRS staff bonuses aside, the main beneficiaries of public pension gambling in Ohio (and nationally) are Wall Street billionaires who target these funds—generally regarded as the “dumbest investors in the room”—with alternative investments which charge the highest of fees.
Ohio’s five state pensions have combined assets of approximately $266 billion. All of these plans have steered ever greater percentages of their assets into alternative investments that have dramatically underperformed market indices. Based upon my experience as the nation’s premier pension forensic investigator, I estimate that the assets in each of these five plans—like Ohio STRS—would have doubled had the retirement savings been prudently managed, as opposed to misdirected based upon political considerations. That amounts to $266 billion that rightfully belongs to Ohioans—not state politicians and Wall Street.
Ohio’s population of approximately 11.8 million is the seventh largest in the nation and represents roughly 3.5 percent of the total U.S. population. From 2000 to 2021, Ohio’s population grew a measly 3.8 percent. Total taxpayers in the state amount to 5,795,588.
Do the math. That means every Ohio taxpayer could be nearly $46,000 richer if state pensions were prudently managed in low-cost, fully transparent investments. It’s that simple.
Bear in mind, $46,000 is greater than the average annual per capita income of Ohioans— $34,500.
But the real economic boost to Ohio related to the return of the $46,000 squandered by pensions comes from the fact that the overwhelming majority of benefits paid by Ohio funds stays in the state. Retired government workers have historically spent their savings locally.
Doing nothing is not an option. If political corruption and mismanagement doesn’t stop, count on a transfer of wealth (greater than the average annual per capita income) from pension stakeholders continuing.