COLUMBUS, Ohio — A member of Ohio State’s troubled Teachers Retirement System board has resigned amid continuing controversy, potentially shifting the balance of power within the system.
Steve Foreman, known as “the reformer,” told me he resigned on Friday evening.
The information comes as the board obtained now-archived video conferences that prove Ohio Attorney General Dave Yost’s claims that board members were pushing a $65 billion partnership with an investment firm that lacked “legitimacy.”
summary
The State of Ohio Teachers Retirement System (STRS) Board of Trustees is made up of 11 members: five elected endowed faculty members and two elected retired faculty members. The Governor may appoint one investment expert. The Speaker of the House and President of the Senate may jointly appoint an expert. The Secretary of the Treasury and Secretary of Education and Labor may both appoint experts.
There is debate over how STRS should invest its money, namely the current system of actively managed funds versus index funds: actively managed funds aim to outperform the stock market, have more advisors and usually have higher costs, while index funds track the stock market, are considered more passive and usually have lower costs.
To get a better understanding of the situation, we held a Q&A with our viewers.
Answering viewer questions about the Ohio Retired Teachers Pension Fund mess
Related: Answering viewer questions about the Ohio Retired Teachers Pension Fund mess
In other words, the “reformers” want to switch to index funding, while the “status quos” want to continue to actively manage their money.
Some retired teachers, known as reformers, believe the STRS board has mismanaged the $94 billion pension fund and are seeking to get their money back.
STRS lost $5.3 billion in 2022 alone. In 2023, it lost $27 million on an investment in the failed Silicon Valley Bank. On top of that, cost-of-living adjustments (COLAs) for more than 150,000 retired Ohio teachers were suspended for five years starting in 2017. In 2012, the number of years of eligible retirement was changed from 30 to 35. Last year, this was changed to 34 years. The board then approved $10 million in bonuses for employees.
Reformers also want transparency. click here To learn more about the Reformers.
The Ohio Retirement Research Council released a report comparing STRS to other statewide public pension systems from 1999 to 2022. During that period, the average annual return for STRS was 6.85%, compared to 6.14% for the Ohio Public Employees Retirement System (OPERS), 6.52% for the Ohio School Employees Retirement System (SERS), 6.76% for the Ohio Police and Fire Retirement Fund (OP&F) and 5.88% for the Highway Patrol Retirement System (HPRS).
STRS officials have repeatedly pointed to this data to argue that the fund is not failing, as critics say.
“Callan, the investment consultant for STRS Ohio, announced that STRS Ohio funds’ total returns outperformed their benchmarks and ranked in the top 10% of public funds tracked by Callan over the three-, five- and 10-year periods ending June 30, 2023,” STRS spokesman Dan Minnich said.
click here To learn more about STRS staff and current affairs.
In May, Attorney General Dave Yost filed a lawsuit to remove two STRS commissioners, alleging that they participated in a contract-inducing “scheme” that could directly benefit them. Yost began his investigation after documents prepared by STRS officials alleged that commissioners Wade Steen and Rudy Fichtenbaum were following the orders of a private investment group called QED Systematic Solutions.
click here To learn more about the lawsuit.
Yost files lawsuit seeking removal from Teacher Pension Board
Related: Attorney General Yost filed suit to remove the members of the Teachers Pension Board from their positions, accusing them of breaching their fiduciary duties.
QED was founded by former Deputy Treasurer Seth Metcalf and Jonathan (JD) Tremmel, who worked for Josh Mandel in a variety of roles, including as general counsel, and they turned to STRS in 2020, according to the 14-page Maine memo.
They tried to convince STRS members to partner with them despite having no clients or a track record, the documents said.
The main reasons they failed to impress the board were a lack of experience and the fact that QED was not registered as a broker-dealer or investment adviser. They also did not have the technology to “facilitate their strategy,” according to the documents.
QED was then evaluated by the Board’s outside consultant, Cliffwater, who strongly recommended not to follow QED’s project and not to use QED.
The bid was allegedly made by Messrs. Steen and Fichtenbaum, who continually touted QED’s direct documents to executives and proclaimed the company’s claims to other staff.
The attorneys general say the pair should be removed because they breached their fiduciary duties of care, loyalty and trust when they “conspired” with QED.
click here To find out more about the Reformed movement’s alleged connection to QED.
Suspicion of “secret ties” between retired teachers’ pension fund and investment company
Related: Suspicion of “secret ties” between retired teachers’ pension fund and investment company
2021 Conference
In November 2021, board members proposed an unprecedented idea.
“STRS will be partnering with QED,” Fichtenbaum said.
I obtained a now-archived video recording of a STRS meeting in which members Fichtenbaum, Steen, and former member Bob Stein are heard proposing changes to the fundraising system to work with the investment firm QED.
“If fully implemented, this agreement will bring in more than $4 billion a year in benefits to STRS, more than employee and employer contributions combined,” Fichtenbaum said.
This was blocked by almost everyone at the meeting.
“I wouldn’t even invest my own money in this,” former board member Rita Walters said, noting how the system is a Ponzi scheme. “Why would I invest a lot of money that we collect from Ohio teachers?”
Yost’s lawsuit says board members want to give $65 billion to QED to reinstate COLA.
“The $65 billion reference is patently false,” Steen said at the board meeting in May. “It was never proposed by me or by any other director.”
Steen felt so strongly about the matter that in a June 20 court filing against Yost, he denied that he and Fichtenbaum ever proposed investing $65 billion in STRS.
But that hasn’t happened in the 2021 records.
“We’re going to have $65 billion in inventory to execute on this strategy,” Fichtenbaum said.
This wasn’t a one-off either: Reformers were forced to mention the $65 billion multiple times as other members and STRS staff were aghast at the proposal.
“If you want to make $4 billion in profits, $65 billion is the right number,” Fichtenbaum said.
Reform advocates repeatedly acknowledged that they needed $65 billion to make any gains.
“You don’t put all $65 billion in one manager,” Matt Worley, STRS’s chief investment officer, said with a laugh. “That would be crazy.”
Fichtenbaum seemed frustrated by all the questions and interruptions.
“I don’t feel like I’m being treated fairly and I don’t feel like I’m being given the opportunity to just present,” he said. “If you don’t want to make $4 billion or you don’t think this is going to work, that’s fine.”
The reformers seemed upset that STRS staff wouldn’t stop bringing up the QED.
“You’re just picking one thing here,” Stein said.
“That’s why I’m looking at QED. I’m looking at this issue because I’m hearing more discussion about the organizations that we engage with, rather than the strategies that we implement,” Worley said.
That said, $65 billion wasn’t the only thing reformers proposed.
“I only said $65 billion total, but we could start with $250 million,” Fichtenbaum added.
This isn’t being presented as “all or nothing,” he added.
“The case was made, sure, if they want to make $4 billion a year in profits, they need to put in $65 billion. And by the way, that doesn’t mean giving them $65 billion. It means access to inventory,” he said. “You can’t write somebody a check for $65 billion. That would be insanity.”
Executive Director Bill Neville, who is currently on leave, asked Fichtenbaum for clarification on that point.
“But do I understand the strategy to essentially sell $65 billion of assets and buy government bonds? Is that the first step of the strategy? Or am I misunderstanding even the original concept?” Neville asked.
“Yes,” Fichtenbaum confirmed that Neville had gotten it right.
This is a startup company looking for funding, said board member Claudia Herrington, simplifying the situation for those in favor of the status quo.
Reform advocates argued that the entire presentation was unfair because their views were not taken seriously.
reaction
Eric Chafee, a business law professor at Case Western Reserve University, said he was skeptical of the reformers’ response and understood why the attorney general was investigating.
“QED has no track record,” Chaffee said, “so it’s unclear why officials are so focused and committed to this particular organization.”
And until Friday, the board was free to propose any policy it wanted, but the sudden resignation changed that.
Reform leader Steve Foreman announced his resignation after Friday’s meeting. He told me he wasn’t yet ready to be interviewed about his decision to step down, but that he planned to do so later this week.
We obtained his resignation email, which cited “retirement” as the reason. In his memo, he added that it had been an “honor” to work with and know the reformers.
Below is the email he provided to Fichtenbaum.
“Serving Ohio’s educators has been a special honor for me, and I am humbled by the trust they have placed in me to serve. Additionally, I will always consider working with Wade, Liz, Pat and Julie to have been the best experience of my career. I am deeply rooted in the belief that helping one person may not change the world, but it can change the world for them. This drives everything I do. I truly believe that each of you have demonstrated that you emulate this principle through your persistent service and actions. It has been an honor to know you all.”
Foreman did not respond to questions about whether his resignation was related to turmoil within the board.
With this new imbalance, and speaking generally, Chaffee believes anything could happen.
“It makes you wonder what on earth is going on here,” he said.
There are currently two vacancies: Foreman’s seat and that of former Speaker Dale Price, who resigned after reformers removed him from the speaker position.
Price’s term is due to end this summer, so an election has been held to choose his successor, with reform candidate Michelle Flanigan due to take over in the coming months.
Foreman’s seat is not up for re-election until August 2026, so the board will need to start accepting applications for his replacement.
One of his final acts on the board was to vote not to give STRS staff a pay increase, which educators applauded.
Chaffee added that both the STRS board and QED’s current situation could be bad options, and both victimize former educators.
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