Controversy continues to roil the State Teachers Retirement System of Ohio, and the fund’s board is divided between two factions, including a reformer faction that wants to switch the fund’s assets to passive index funds.
The reformer faction also seeks to implement more cost-of-living adjustments for fund beneficiaries and is critical of tens of millions of dollars set aside for investment staff bonus compensation, something the board of STRS rejected for fiscal 2025.
At a Monday meeting of the legislative oversight agency, the Ohio Retirement Study Council, state representative Phil Plummer proposed consolidating the five major state pension systems in response to some of the STRS governance issues.
The council advises the state legislature on benefits, funding, investments and administration of the plans, which include: the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System, the School Employees Retirement System of Ohio, the Ohio Highway Patrol Retirement System and the Ohio Police & Fire Pension Fund.
As of January 1, 2023, the five systems had combined assets of approximately $225 billion, with approximately 655,000 active contributing members, 1,100,000 inactive members and 486,000 beneficiaries and recipients, according to the council. That combined asset size would create one of the largest defined benefit pension funds in the U.S.
“There are five different processes. Certain boards can do this, certain boards can do that, certain systems are getting [cost of living adjustments], certain systems aren’t: Maybe we ought to look at combining some of these systems,” said Plummer at Monday’s ORSC meeting.
Plummer pointed to the overhead costs of running five different pension systems with five different investment staffs, saying the state’s taxpayers cannot afford to give more money to the pensions.
Bethany Rhodes, director and general counsel of the Ohio Retirement Study Council, noted that any merger of the pension funds would look more like a receivership, in which the board of one pension fund would run the others. “If you were to put STRS with PERS, the PERS board would effectively run STRS, until such time as they can be merged in,” Rhodes said.
Multiple Ohio pension funds declined to comment on the proposal.
“STRS Ohio staff has ongoing conversations with state lawmakers and will provide legislators with all requested information as they continue their discussions about the governance of the pension system,” a spokesperson for the pension fund told CIO, noting that STRS’ performance for the past 20 years was in the 97th percentile of investment consultant Meketa’s plan sponsor peer group.
No legislation has been introduced to merge the systems. A spokesperson for SERS Ohio told CIO the proposal is unnecessary, as “the problems [the] proposed solution seeks to address do not exist at Ohio SERS,” the spokesperson said. “Our financial condition is solid. We have reduced liabilities and improved our funded status. And we have not requested, and do not need, additional employer contributions. There is nothing broken at SERS that needs to be fixed.”
Earlier this year, Wade Steen, a board member of STRS, was reinstated to his board position by an Ohio court after he had been removed by Ohio Governor Mike DeWine. Steen and fellow board member and reformer Rudy Fichtenbaum were accused by DeWine and Ohio Attorney General Dave Yost in a lawsuit of planning to transfer $65 billion of the pension fund’s assets to a private investment entity known as QED Systematic Solutions, to which the lawsuit claims Steen and Fichtenbaum are connected.
Following the reinstatement of Steen to the board, STRS consultant Aon abruptly resigned. STRS board member Steve Forman, a reformer, resigned at the end of June, following a meeting of the STRS board.
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Tags: Bethany Rhodes, Dave Yost, Mike DeWine, Ohio, Ohio Police & Fire Pension Fund, Ohio Public Employees Retirement System (OPERS), Ohio School Employees Retirement System (OHSERS), Ohio State Teachers Retirement System (OSTRS), OP&F, Rudy Fichtenbaum, Steve Foreman, Wade Steen
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