Thursday, August 16, 2018

Dr. Dennis Leone Addresses the STRS Ohio Retirement Board - August 16, 2018

Members of the Board, my name is Dennis Leone. I served on this board in 2006, 2007, 2008, and 2009. I recall some of my fellow board members not taking their oversight responsibility seriously. I remember board members pretty much blindly accepting the recommendations and conclusions of staff and outside “expert” consultants on very important matters pertaining to payroll growth assumptions and investments. Are board members still doing this today, when perhaps they should not? It is so easy to accept, isn’t it, what you are being told by staff and so-called “experts.” It is lot harder to call into question what you are being told, and to say, “no, I do not accept this and it is my conviction that we need to do better.”

I recall vividly in 2008, when the total STRS assets hit $81 billion, and when the DOW stood at 14,400. Yes, the stock market went south and we went down to $65 billion, but isn’t is curious to the board that today – 10 years later – the DOW stands at 25,000, but we STILL are not quite where we were in 2008 when the DOW reached a high of 14,400. 

Here is something I do recall from 2008, and you need to listen to this: We lost a ton of money with our Enron stock. I recall asking during board meetings in this room why we had not bailed from Enron, when so many others had. The answer the board was given by the staff was “no, our consultants tell us that is not the right things to do………we need to hang in there.” So we didn’t bail, as we should have, and we lost millions and millions more. I recall pushing for a new policy in 2008, which I could not get, that would have required STRS to pull back from stocks that were losing a certain percentage of their value. No, the staff and “expert” consultants did not want to do that either, so we didn’t. 

The data and recommendations the board accepted in the past for annual payroll growth assumptions have been embarrassing. In the 8-year span between 2005 and 2013, we received a miserable annual average of 1.33%.....not even close to the 3.5% assumption the board was told by staff and “experts” to use. Did the staff survey Ohio superintendents or treasurers and ask them to share what they thought might be the base raises and step increases during those years. Never, not once. In my 23 years as a superintendent in Ohio, I never once received such a survey from STRS. The board, instead, accepted conclusions from staff and outside “experts,” who – quite frankly – did not know what the hell they were talking about in this area.

Are there investment recommendations you have accepted that you should not have? Is it wrong for you to conclude that we should being doing better, and producing more investment revenue to support retirees and undo the board’s absolute broken promise to 143,000 retirees for an annual COLA. The has been the only way many retirees have been able to keep up with increased costs for home insurance, car insurance, and health insurance. It is sinful that you have given bonus checks to staff when you have given no increase, nothing, to retirees. But I guess if you continue to accept what you are told that the bonuses are necessary in order to keep the best and the brightest employees, then indeed you have fallen for the same malarkey that many board members did during my 4-year term.

Please study carefully the attached Bloomberg report, which offers 5 meaningful suggestions for pension boards to juice up their investment returns. 

But my suggestions are more simple. As board members, YOU need to take a leadership role and provide better oversight, which means not just questioning, but challenging and requiring meaningful improvements to help retirees receive the COLA they were promised and so very much deserve.

Thank you.

Dennis Leone
August 16, 2018