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COLUMBUS, Ohio — After watching the dysfunction at the Ohio retired teachers’ pension fund for nearly a year, lawmakers are grappling with how to curb alleged corruption and possible mismanagement of the nearly $100 billion system. For one education policy leader, it’s taking away the voting powers of elected board members.
Some legislators fear the fund will be decimated and fail under current STRS board leadership, especially since it has become increasingly difficult to hire people to help run the fund.
Through a records request, I found out that STRS is paying more than $700,000 for their acting head, more than double their previous two. While one retired teacher sees that as the board’s mismanagement, a business law professor shares that it could be a sign that the fund is toxic, prompting other qualified candidates to steer clear.
A long recap
STRS is in chaos. In summary, there has been constant fighting, two board resignations and allegations of both a public corruption scheme and mishandling of funds. There has been a senior staff dismissal and at least two senior staff resignations.
In May of 2024, Attorney General Dave Yost filed a lawsuit to remove two members of STRS, stating they are participating in a contract steering “scheme” that could directly benefit them. Yost started the investigation after documents prepared by STRS employees alleged that Wade Steen and Chair Rudy Fichtenbaum have been doing the bidding of investment firm QED.
QED was started by former Deputy Treasurer Seth Metcalf and consultant Jonathan (JD) Tremmel. In 2020, they set their eyes on STRS, according to the 14-page memo Yost received.
The documents claim that they — despite having no clients and no track record — tried to convince STRS members to partner with them.
They couldn’t impress the board members, mainly because of their lack of experience and also because QED was not registered as a broker-dealer or investment adviser. The men also didn’t own the technology to “facilitate the strategy,” the documents said.
Steen and Fichtenbaum had allegedly been bidding continuously, pitching QED’s direct documents to board members and proclaiming the company’s talking points to other staff.
The pair should be removed because they broke their fiduciary duties of care, loyalty and trust when “colluding” with QED, according to Yost’s case.
Click here to learn more about the lawsuit.
We have covered this controversy from the beginning, including over a dozen recent stories dealing with the latest problems around the alleged corruption plot. Watch and read the story below for a more in-depth recap.
RELATED: Chaos-filled day at Ohio teachers’ pension board leading to even more ethical concerns
This fight began from a debate on how STRS should invest money — through the current system of actively managed funds versus an index fund. Active funds try to outperform the stock market, have more advisors and typically cost more. Index funds perform with the stock market, are seen as more passive, and typically cost less.
In short, “reformers” want to switch to index funding, while “status quo” individuals want to keep actively managing the funds. Recent elections have allowed the “reform-minded” members to have a majority of the board.
Reformers want a cost-of-living adjustment, or COLA. The COLAs were suspended for more than 150,000 retired Ohio teachers for five years starting in 2017. They were reinstated, but there has been a suspension of increases, significant for retirees who need this money and are dealing with inflation.
STRS staff have explained that they know the COLA is essential and are working to get it back. They added that the system is functioning well — better than any of the other pension systems in the state. A report by the Ohio Retirement Study Council found that STRS has a higher return than any of the four other state pension systems.
The reformers also believe that this is a “sham” investigation meant to prevent democratically elected individuals from choosing what they want to do with their pension money.
Steen and Fichtenbaum have repeatedly brought up how quick the turnaround time was between Yost receiving the memo and filing the civil suit. The timeline is unclear, but government officials received the documents in early May. Yost said he was investigating on May 9, and by May 14, a lawsuit had been filed in Franklin County Court of Common Pleas.
In late August, Yost filed a slew of subpoenas against QED and others allegedly involved in this scheme.
The same month, QED spoke out to us for the first time, and so did the AG.
Following that interview, Fichtenbaum did an interview to defend himself. In this one-on-one interview, Rudy Fichtenbaum explained his side — and why he is still considering a deal with the investment firm at the center of the scandal.
RELATED: Ohio teachers’ pension fund chair still considering deal with controversial firm at center of scandal
As of now, Steen has termed off his board seat and got a tearful goodbye from pensioners in September.
DeWine has appointed attorney Jon Allison to the board, a former top aide for Former Gov. Bob Taft.
I broke the news in September that Acting Executive Director Lynn Hoover and CIO Matt Worley had resigned.
RELATED: Both acting head and CIO of Ohio retired teachers’ pension fund resign amid controversy
In late September, our investigation revealed that STRS was, once again, moving to hire a firm that allegedly had a lack of experience and personal ties to the board leaders, according to senior staff.
I revealed in October that Scott Hunt, the appointee of the Department of Education and Workforce, is now no longer on the board. Carolyn Everidge-Frey has replaced him.
Then, I reported that the board chose not to move forward with the controversial consulting firm that has been the subject of my investigations.
In November, Interim Executive Director Aaron Hood took over.
New year, same situation
Mary Binegar, a retired educator of 35 years, fears that chaos under the STRS board will end up causing her monthly payments to vanish.
When the reformers took control of the board, they had a mission to change how the $94 billion fund is invested — and cut the pay of investment staff members to save money.
Binegar is not a so-called reformer. She wants a COLA, like the reformers do, but she fears the other faction has fallen for “misinformation” from reform leaders Wade Steen, Rudy Fichtenbaum and QED.
However, the board could function differently in the coming months.
“The last thing we need to do is put those funds in severe jeopardy,” Senate Education Chair Andrew Brenner (R-Delaware) told me.
He and other lawmakers, like state Sen. Mark Romanchuk (R-Ontario), have been watching the controversy unfold. It’s time for the lawmakers to get involved, Brenner said.
“I would propose, probably, to have at least a bipartisan study committee of the General Assembly take a look at it… And come back with recommendations for improvements,” the lawmaker said.
I brought up the fact that some educators don’t trust the lawmakers, to which Brenner said the commission could be totally independent.
“If it’s done in an open, public, transparent process, I think that’s a process that if everybody can see it, they understand it, then I think they would be a little more comfortable with whatever the results are, the recommendations are, at the end,” he said.
Along with putting together a commission to study not only the board but also their investment performance, he is open to removing the voting power of the educators on the board.
“There are trustees on that board and those trustees usually have good financial backgrounds,” he said. “And those are the trustees that actually do the votes.”
Although Binegar doesn’t trust the current board, she also doesn’t want her perspective removed.
“It’s important for educators to have that sense that there are other educators watching out for them,” she said. “I still want those educators there because they know their fellow educators, they know what they’re going through now and they know what they may face in the future.”
Also, the legislature doesn’t always have a great “track record for success,” she said.
I have continued to cover the threats to public school funding this General Assembly. Already, GOP leaders are saying that fully funding education is “unsustainable,” which is likely to hurt another cause that STRS board members are about to lobby for.
The board decided that this G.A., they will ask the state to raise employer contributions to STRS, something that could cost Ohio more money but would benefit teachers.
“Would you as a lawmaker, as an education policy leader in the state, give more money and increase the contribution rates to a fund that is debating giving two-thirds of —” I attempted to ask, before getting cut off.
“Absolutely not,” Brenner interrupted. “I would want to make sure there are proper checks and balances in there because the last thing we want to do is take additional, potentially billions of dollars, and have them vaporize overnight.”
He does not want QED anywhere near the money, nor does he want Steen.
Many reformers said Steen should become the permanent executive director. Brenner said that won’t be happening.
“The state would probably need to step in again, and if we had to change the law — we may have to do that,” he said.
Even if Steen wanted it, there may be some possible legal issues around the timeline due to ethics laws in the state. Although he abstained from voting to dismiss the former E.D. Bill Neville, some experts said that he still helped open that position.
According to several reformers, they hope Steen will take over the CIO or CFO position.
Binegar and many members of the Ohio Education Association do not, but they also are wary of the legislature.
“I don’t have a lot of confidence that they’re gonna do a whole lot better job,” the retired teacher added. “It would most likely not necessarily be a friend of education because the majority of our lawmakers are not friends of public education right now — sad to say.”
So, how has STRS been going?
Financially, the numbers have been good in comparison to the other funds.
Board management? Not so much.
They are looking to hire a new CFO, but according to Hood, that hasn’t been going well.
“Did you run into a problem with the CFO… That person was leery because they didn’t know who they’d be working for? Is that gonna be a problem for us attracting candidates?” board member Michelle Flanigan said during the January special meeting.
There are plenty of reasons why they can’t hire, Hood responded. Their compensation structure is damaged, “if not broken.” There are 11 open investment staff positions.
“There’s a reason why we have 11 open investment staff positions because we half broke our comp structure, we don’t know who the CIO is gonna be, and they don’t believe that we’re gonna get through the season and reestablish comp structure in an appropriate matter — so that’s the fact of life” he said. “We have trouble getting service providers to work with us for what should be relatively obvious reasons.”
And Hood isn’t cheap
Through records requests, I found out Hood is making $13,500 per hour, or more than $700,000 per year. That is double that of Hoover and Neville’s contracts, which were roughly $300,000.
Binegar’s jaw dropped when I told her.
“It’s insane, and it’s been well hidden,” she said. “So that makes me even angrier because the folks that are the ‘reform people’ who were ‘cutting costs,’ — if they agreed to have someone come in at twice what the other one made, then how dare they say they are making too much money.”
The board utilized the search firm Korn Ferry, a well-known executive recruitment firm, to get Hood.
“The arrangement with Korn Ferry recognizes the unique challenges of an interim role, which requires the experience and skillset necessary to assume the day-to-day responsibilities of managing the system without the benefit of a long-term transition plan,” Fichtenbaum told me when I asked about the payment amount. “The board is obviously sensitive to the overall cost and will continue to assess all aspects of the arrangement moving forward.”
However, while waiting for a comment from the STRS board, an unrelated lawmaker called me to speak highly of Hood. I questioned why he was doing this, considering he wasn’t involved and didn’t write nor accept the contract. An official at STRS had informed him of my then-upcoming story, seemingly so he could defend their $702,000 contract.
Instead, I spoke to a business law expert about hiring.
“To get high-quality individuals to fill certain roles, sometimes you do have to pay superstar pay,” Case Western Reserve University business law professor Eric Chaffee said. “In regard to STRS, there has been so much controversy surrounding it that actually taking on an executive director role might potentially be something that a lot of people don’t want to do.”
Also, it is likely that Hood isn’t taking home $700,000, he added. Korn Ferry will take a percentage of the paycheck.
That doesn’t matter to Binegar, though, because at the end of the day — STRS is still paying that amount of money for the director. They probably wouldn’t need to pay that much if it wasn’t for the fact that STRS is toxic, she added.
“If [the pay is] because of controversy, it’s because [the reformers] stirred up the controversy,” she said.
STRS has board meetings open to the public on both Tuesday and Wednesday this week.
To ask questions or provide comments about STRS, please email Morgan.Trau@wews.com with the subject line “STRS COMMENT.”
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