Ohio State’s Nearly $100 Billion Teachers’ Retirement System never tires of telling its members about the past transparency awards it has received from the Auditor General. State of Ohio, Keith Faber. The fact that Faber’s office is currently conducting a special investigation into pension transparency practices, following legal action and numerous complaints from members – the results of which could, according to the auditor, affect the system’s rating of retirement in the future – is not disclosed by retirement.
In April 2022, Board News under the headline “STRS Ohio Earns Top State Auditor’s Rating Through Transparency for Second Year”, the State Teachers Retirement System of Ohio website boasts:
“Last month, Ohio Auditor Keith Faber released the results of the annual Sunshine Law compliance review. The auditor’s office launched its STARS (Star Rating System) program to promote transparency In fiscal 2020 and 2021, STRS Ohio received the Highest Achievement Award in Open and Transparent Government, the highest possible rating from the Auditor’s Office.
Perhaps unsurprisingly, this self-proclaimed transparency model does not brag about the following ugly facts provided to me by the auditor’s office in a recent email:
“In October 2021, State Auditor Keith Faber informed the STRS that his office was launching a special audit after receiving numerous complaints, following the release of a report by Benchmark Financial Services Inc. Investigation into the system State Teachers’ Retirement Plan,” commissioned by the Ohio Retired Teachers Association.
The audit work that led to the current rating of STRS by StaRS was completed for the year ended June 30, 2021, before the launch of this investigation (emphasis added). The state auditor’s office plans to complete its special audit of the STRS later this year. The results could affect the pension system’s StaRS rating in the future (emphasis ours).”
It is important to note that the above-mentioned preliminary forensic investigation of STRS Ohio commissioned by members of the Ohio Retired Teachers Association – some of whom apparently filed complaints about the pension with the auditor’s office – was made public by my firm in June 2021. The findings included that the pension had long since abandoned transparency.
As stated in the report:
“On February 19, 2021, we filed a request pursuant to Ohio Revised Code Section 149.49, et seq. for the opportunity to inspect or obtain copies of public records related to the managers of investment, investment consultants, performance compliance auditor, investment cost controller, financial auditor and custodians, as well as the board of directors and staff. of the most critical disclosure information we requested was summarily denied. In other words, STRS simply allowed the investment firms involved to unilaterally determine whether the information we sought on behalf of stakeholders should be disclosed under the Ohio law. Unsurprisingly, most companies that have had the opportunity to opt out of public scrutiny of their financial dealings with the STRS have chosen to do so. area.
Even more troubling, not a single prospectus or offering document required to be provided to all investors under the securities laws of our country has been provided to us in response to our request for public registration. Due to numerous denials of important public records requests, it is impossible for STRS stakeholders to assess the investment strategies, performance, fees, risks and conflicts of interest of the portfolio of pension investment.
As a result, on May 21, 2021, we filed a writ of mandamus with the Ohio Supreme Court to obtain certain public STRS records that we were denied.
The lack of cooperation from the STRS is all the more surprising since the STRS is well aware that this forensic examination of the pension was commissioned, as well as paid for, by tens of thousands of participants, with the stated objective of improve management. and pension control. Pension trustees solely concerned with the best interests of participants and beneficiaries should welcome, not oppose, free independent review by nationally recognized pension experts. Moreover, given the deep fiduciary breaches and disclosure concerns that stakeholders (and even the STRS’s own experts) have long raised, it is clear that the STRS could benefit from independent expert review. , this time not of his own choosing.
Tellingly, in the pension’s mission and vision statement; current strategic objectives; Overview of STRS and its impact on the state; Statement of investment objectives and policy; and Fund Governance Statement, the word “transparency” does not appear once. There is not a single mention of transparency requirements, no discussion of the benefits of transparency, and no commitment to it. In our view, transparency, which would not add a single dollar of cost to the pension, would quickly remedy (through exposure) all of its ills: excessive fees, reckless risk-taking, unresolved conflicts of interest, poor flagrant mismanagement and potential malfeasance. ”
Clearly, Faber did not read these damning findings in our report released in early June 2021 (and was unaware of our public records lawsuits filed in May 2021) before issuing his latest Transparency Award. pension for fiscal year 2021, or disagrees that The concealment of fundamental investment information regarding tens of billions in pension assets from public scrutiny is a serious concern. We will find out soon enough, when the Auditor publishes the results of his special investigation in the near future.
Will the rating of the teachers’ pension system by the state auditor be changed? What about the other four Ohio retirement systems that also allow Wall Street to keep their riskiest and most expensive investments secret? Will their grades be reviewed and inevitably downgraded? If so, what are the policy implications? Are Ohio voters good with their state gambling player’s most important funds, including taxpayers, money in secrecy, shielded from public scrutiny?
To paraphrase King Mongkut of Siam in Rodgers and Hammerstein’s musical The King and I, I am ‘puzzled’ as to how a state pension that is supposed to prudently invest the retirement savings of hundreds of thousands of teachers could refuse to disclose how their money is invested and still considered transparent – even win a prestigious state auditor award! A perplexity.
As I recently said to his office, “In my view, the fact that the pension is touting its past transparency awards when it is currently undergoing a special transparency audit is, at best, grossly misleading. I encourage the auditor to let the pension and/or the public know whether, in their opinion, such incomplete disclosure is misleading or not.
When I asked Faber’s office what the StaRS notation was, I was told:
“StaRS was created to assess how well public agencies comply with state open meeting and recording laws, assigning single stars for basic compliance with Sunshine Act provisions and additional stars for additional best practices implemented by agencies.
The StaRS part of auditing a public entity was never intended to assess the content and legality of every public records response, just that the agencies were in compliance with the law. The legality of the answers is left to the courts to determine.
In other words, it appears that the State Auditor’s Transparency Rating System simply asks whether a public agency has transparency policies and procedures, not whether the agency is, in fact, , transparent in its dealings with the public in accordance with applicable laws. Such a rating system is of limited value to stakeholders, in my view, and runs the very real risk of being misinterpreted, as well as being unduly relied upon by the public.
As a former regulator, I think the state auditor should consider whether statements by state agencies — including Ohio’s five state pensions — about their StaRS ratings may be misleading to the public, particularly in the case of STRS Ohio which does not disclose that it is currently under investigation by the auditor.
The truth is that STRS Ohio, along with the other Ohio retirement systems holding $250 billion in assets, long ago – as they increasingly embraced secretive private investing – abandoned transparency. . If you don’t believe me, ask for the “alternative” investment documents from one of the funds and see what you get.