Under a State Retirement System? Might Want to Read About the Chaos in Ohio.
 

STRS, the State Teachers Retirement System of Ohio, is under serious controversy with some big questions about finance and transparency. ‘CHAOS’ is the word being used in some headlines in the Buckeye State.

WCPO in Cincinnati has a May 16 article on their site that addresses the reasons for the questioning of those who have been handling the investments of the fund’s $65 Billion.

Even if you are not a retired Ohio teacher but are someone whose retirement funds are in someone else’s hands, you should probably read about this mess.

Boomer

PS: All Bogleheads and other index fund investors will appreciate the part about those “actively managed” funds. Not only Bogle, but also the famous book “A Random Walk Down Wall Street” by Burton Malkiel prescribed index funds decades ago.

The mess in Ohio is looking like a classic example of what can happen if the wrong people get their hands on other people’s money. “Where there’s smoke” ??? ……..

When it comes to choosing who gets to invest other people’s money, scrutiny of the advisory is of top importance. Too many wolves out there merrily guarding lambs. BILLIONS! EEK! I guess we will see where this one goes.

The under funding and mismanagement of public pension funds could very well be a very large financial disaster waiting to happen, all too much political influence in the management of those funds, being public retirement funds they have a different set of federal regulations governing them, many would have gone into receivership due to the funding levels if they were private retirement funds but being public retirement funds it is assumed they can always raise taxes to cover their obligations, rather than spend money on future obligations municipal managers would rather of course spend money on more important things, kicking the can down the road gets more and more difficult and dangerous as the unfunded liabilities get bigger and bigger, the cascading effect of default could make the 2008 housing meltdown a minor blip by comparison , or so some will tell you

I tried to understand better what you are saying. I don't know what a "boglehead" is. I found this article from the Cincinnati Enquirer. Can you try to clarify a bit more?

https://www.msn.com/en-us/money/othe...d=BingNewsSerp

Gracie, a Boglehead is basically an index fund investor.

This book is highly informative about their investment philosophy which follows that of Jack Bogle, the founder of The Vanguard Group.

John C. Bogle - Wikipedia

Amazon.com

Boggle
 

Hi Graciegirl, nice to hear from you!!
Below is a link to the community for bogleheads, ..fyi
Bogleheads Investing Advice and Info

For that huge amount of money nobody watches performance?

A good read if you are unfamiliar with public pensions....


https://www.google.com/url?sa=t&sour...9ibT2RDJuVl72b

Gracie, I like the Bogleheads‘ philosophy. They can see through the obfuscation that surrounds so much in the world of financial advisory where advisors can be very highly incentivized by the funds or other investments they can choose to use for their clients. (Like everything else, there are some good and some bad advisors.) I follow the Boglehead podcast and their forum sometimes. I think the article on the WCPO site can give you more detail about the stink in Columbus that is hitting the fan right now. You might want to look at that article. It takes a short scroll down to find it at wcpo.com.

Thank you, manaboutown and HandyGrandpap for providing the links to more about the Bogleheads. I mentioned them in passing because an early paragraph in the article referred to index funds.

And, Stu, somebody is trying to “watch performance” and this is not the first time Ohio teacher retirement has been questioned. There is a lot of finger-pointing going on right now, added to the can-kicking

Boomer

Not to worry they get bailed out just like GM and banks too big to fail. It’s only paper money being printed. :shrug:

California
 

California’s system was denied a federal bailout, how would you think Ohio had any chance of a bailout? The teachers never supported the federal system, there is really no leg to stand on.

The state will figure itself out.

Citizens of Ohio will have to make up the difference I would think

I didn't think the state could default on pension and retirement obligations but maybe they can if a second great depression occurs.

The important lesson is that in the absence of a dedicated judicial process for preserving the governmental functions of a state in debt renegotiations, sovereignty may offer meager protection for the interests of the general public and public employees. In the event of a severe state fiscal crisis, all parties may have to share the burden of putting the state’s fiscal house in order.
When States Default: Lessons from Law and History

Here's the Oregon story about their PERS Public Employee Retirement System. There are several tiers.

With the original Tier 1, there was a guaranteed rate of return of approximately 7% per year, and a very short period of time to get vested. Worse, the pension benefit was determined not by total contributions, but rather by the average pay of the last 3 years before retirement.

Even more worse, if market returns were more than 7%, then all that money was credited to the employees retirement account. If market performance was less than 7%, then taxpayers made up the difference to credit the pension acct.

So...a person could be in a low paying job for most of those early years, with smaller contributions, but only the average pay of those last e years would determine benefit, not their actual contributions over their employment.

Another "benefit" was that there was an uplift in pension benefits if one remained in Oregon after retiring, to help pay Oregon's high state income taxes.

There are now several tiers to help Oregon reduce its liability, but bottom line is that the PERS system is extremely underfunded, and it's beneficiaries receive a benefit far higher than employment contributions have funded.

So glad to no longer be paying taxes to Oregon.

The coming default on the National Debt is a bigger problem. The two choices are direct default with a total loss of available credit (supply chains get frozen) or printing money until it takes a wheelbarrow of cash to buy a loaf of bread. Printing money seems to be more popular.

Actually STRS manages 93 billion. The teachers have been protesting for several years and just this year have managed to get a majority on the board. Last year one day before the election results were announced Governor DeWine replaced an appointed board member so that the reformers would not have a majority. That board member was reinstated by the courts in April. This month, days before another reform candidate was elected (85,000 to 3,000 votes), the Governor and State Attorney General filed charges against two board members who four years ago had put forth a proposal for another investment company to manage some of the funds. This was based on an anonymous letter from someone at STRS. Nothing happened. i.e. there were no funds invested. There is a history of risky investments in private equity, hedge funds, downtown buildings that are now empty, international holdings with lavish bonuses for Wall Street. Teachers are suspicious that the politicos have something to hide. I just watched the entire board meeting. I am a confirmed Boglehead and the teachers have been asking for indexed funds. Someone posted that Nevada has 2 employees. Ohio has 500. State media have not covered the story well. Stay tuned.