Audit: Ohio teacher pension fund should review bonuses

There is no evidence of fraud or illegal activity in the State Teachers Retirement System of Ohio, but its system for staff bonuses warrants reform, according to the findings of a state audit released Thursday.

State Auditor Keith Faber conducted a "limited review" of the pension fund in response to a critical report on STRS unveiled last year. The system oversees $94.5 billion invested for 500,000 Ohioans who do not participate in Social Security, making the state pension their primary retirement fund.

Faber's audit found that the structure and operations of STRS are generally sufficient and the fund saw better returns than many others across the country. At the same time, he said the system could be more transparent about its investments and failed to meet auditing requirements outlined in state law.

Faber also encouraged pension managers and lawmakers to rethink how bonuses are allocated for investment staff. The recommendation is a nod to anger among teachers over nearly $10 million in bonus pay awarded to about 100 employees who manage investments.

"If you are going to have bonuses, should they be predicated on things that are easily attainable or things that drive true performance?" Faber said.

Report follows months of infighting at STRS

The auditor's report came after months of sparring among board members and retirees over how the fund is regulated.

Some members raised concerns last year that STRS investment staff miscalculated bonus pay and argued information was being withheld from the board. Before that, the Ohio Retired Teachers Association hired a former Securities and Exchange attorney to conduct an audit of the system.

That review suggested STRS suffers from a lack of transparency, underperforming investment returns and bloated investment fees. It also criticized the pension fund for not disclosing the fees and costs associated with alternative investments STRS holds, which the system says are exempt from disclosure under Ohio law.

STRS leaders say Faber's report disproved many of their critics' allegations.

"It is noteworthy that the special audit's findings refute much of the inaccurate information circulated about STRS Ohio over the past two years, and the report provides extensive detail and analysis in support of its conclusions," executive director Bill Neville said in a statement. "I want our members to know that STRS Ohio remains steadfast in our dedication to ensuring the sustainability of the pension fund and providing financial security to current and future generations of Ohio's educators."

The teachers' association, meanwhile, said the findings confirm that the system is broken and warned they'll push for changes to the board this spring.

"Although finding no direct evidence of criminal activity, the Auditor confirmed that the board allowed the staff to use an accounting gimmick to pay themselves $10 million in bonuses despite losing $5.3 billion last year," executive director Robin Rayfield said. "For years, the board's bad policies have yielded bad results for teachers, who are working longer and paying more for less, while enriching STRS staff."

Should retirees get annual COLAs?

One issue left unresolved is whether retired teachers are entitled to regular cost of living adjustments. The pension fund cut annual adjustments from 2013 to 2017 until it finally eliminated them altogether in an effort to reduce costs. Earlier this year, the board approved a one-time, 3% COLA as inflation weighed on people's wallets.

State law allows the board to change the COLA and Faber's report said they legally made the changes based on studies from an outside consultant. But it also indicated the conversation may not be over.

"There will be further consideration of COLAs for STRS members by the Board and legislature, as inflation is an ongoing issue," the report stated. "Similar analyses should be provided for consideration of any future changes to benefits."

Reporter Laura Bischoff contributed to this report.

Haley BeMiller is a reporter for the USA TODAY Network Ohio Bureau, which serves the Columbus Dispatch, Cincinnati Enquirer, Akron Beacon Journal and 18 other affiliated news organizations across Ohio.