COLUMBUS, Ohio (WCMH) – Ohio auditors found no evidence of illegality in the State Teachers Retirement System but suggested the group bolster its transparency.
In a 71-page special audit released Thursday, Auditor Keith Faber’s office said a “limited review” revealed no evidence of fraud, illegal acts or data manipulation connected to the $90 billion pension fund managed by STRS, which serves about 500,000 public school teachers in Ohio. The fund’s structure, environment and operations “are suitably designed and well monitored,” Faber said.
However, the audit – which was prompted by a 2021 report that claimed STRS “squandered” its members’ money – said the pension fund should review its policies to be more transparent to the public and rethink how or whether it awards bonuses to staff.
“STRS should be striving to be as transparent as possible on the funds held in their trust,” Faber said. “That means fully disclosing how these funds are being invested and the returns or losses on those investments.”
Audit follows allegations of ‘serious deficiencies’ in STRS balances
After an oversight committee failed to audit STRS for 16 years, the Ohio Retired Teacher Association commissioned its own report titled “The High Cost of Secrecy: Preliminary Findings of Forensic Investigation of State Teachers Retirement System of Ohio.”
Tasked with investigating STRS was Ted Siedle, a Florida-based pensions forensic auditing expert with a bestseller called “Who Stole My Pension?” He said he found “serious deficiencies” in STRS’s finances, coupled with lavish bonuses for its investment staff while teachers’ cost-of-living-adjustments, or COLAs, sat stagnant.
“The pension money was being squandered, that there were all kinds of investments that raised serious questions, and that the fees that the pension was paying were extremely high,” Siedle told NBC4 in February.
STRS Executive Director Bill Neville said in a statement that Faber’s audit disproves “much of the inaccurate information circulated about STRS Ohio over the past two years,” including allegations raised in Siedle’s report.
Nick Treneff, a spokesperson for STRS, touted the audit’s findings that the pension fund routinely outperforms similarly-sized funds in comparable states, a reassuring sign for Ohio teachers.
In his report, Faber wrote that STRS “has realized substantial cost savings” compared with its peers by internally managing, as opposed to externally managing, most of its real estate assets. Although its real estate returns sank below its peers in recent years, Faber said STRS’s investment earnings ranked in the top 25% of its peers.
“It should give them some comfort that the system is operating and performing at a high level, and STRS Ohio really remains dedicated to providing financial security to the current and future generations of Ohio’s educators,” Treneff said.
Audit calls for review of bonuses, defers COLA conversation
Although the audit did not find evidence of unlawfulness, Siedle said Faber’s call for greater transparency is a “huge victory” for Ohio teachers, whose voices catalyzed the state audit into STRS.
“I think it’s a shot that will be heard around the world,” he said. “This is the first time in history that the state auditor, the auditor of any state, has done a forensic investigation of the state pension, so that’s a real milestone.”
Faber suggested STRS adopt a few measures to improve its management. After finding the pension fund failed to meet the state’s auditing requirements, he urged STRS to implement safeguards to ensure reviews are conducted in a timely manner. STRS should also eliminate trade secret provisions, which serve to shield investment decisions from the public, the audit said.
As for bonuses awarded to investment staff, Faber said STRS should rethink its procedures. The pension fund drew ire from retired teachers after paying $10 million in bonuses to staff in August, the same year its pension fund lost over $5 billion.
“If you are going to have bonuses, should they be predicated on things that are easily attainable or things that drive true performance?” Faber wrote.
It remains unclear whether retired teachers can recoup regular cost of living adjustments, as from 2013 to 2017, STRS eliminated the COLA as a cost-saving measure. The board approved a one-time, 3% COLA for teachers earlier this year.
Faber said STRS acted legally in adjusting teachers’ COLAs but indicated there may be future conversations regarding the annual adjustments.
“There will be further consideration of COLAs for STRS members by the Board and legislature, as inflation is an ongoing issue,” Faber wrote. “Similar analyses should be provided for consideration of any future changes to benefits.”
Treneff, who noted that STRS won the auditor’s highest possible rating for open and transparent government in 2020 and 2021, said the pension fund is reviewing Faber’s recommendations to determine its next steps.
Siedle tipped a metaphorical hat, both to Ohio’s retired teachers, who he said have led the fight for enhancing their pension fund’s accountability, and to Faber, whose special audit challenged “Wall Street’s corrupt practices, saying, ‘Enough, Let’s stop the secrecy.’”
“This is a huge victory, not only for teachers in Ohio and government workers in Ohio, if this transparency era is ushered in, but for government workers and taxpayers across the globe,” he said. “Because, as I point out in my book, ‘Who Stole My Pension?’, there are trillions being squandered in public pensions operating in secrecy. So this could be a real game-changer.”