Ohio Pension Fund Hit for Lavish Spending Practices

June 6, 2003 (PLANSPONSOR.com) - The Ohio State Teachers Retirement System (STRS) may have lost 21% of its investment assets in the past three years, but that apparently didn't mean system employees had to forgo certain rewards.

According to a Cleveland Plain Dealer news story, fund employees got a total of $14 million in bonuses during the asset decline.

In 2001, STRS handed out a total of $6.1 million in bonuses to 345 employees, according to the report, citing STRS documents. One employee’s base salary of $164,000 was bumped to $342,880. It was the same year the fund lost 5.66% of its assets, more than any of the four other public employee pension funds in Ohio, according to the Ohio Retirement Study Council, which oversees the funds.

Pricey Artwork

According to the Plain Dealer story, the STRS spending includes a $94.2-million office building adorned with $869,000 in artwork, generous fringe benefits for STRS employees, and frequent out-of-state travel for pension board members.

The new seven-story office building also has a child-care center that cost $818,000 and a $426,000 fitness center, according to STRS documents. In 2002, the pension board paid $487,560 to subsidize the child-care center so employees could get discounted rates for their children. Workers with a family income of up to $66,000 are eligible for subsidies.

In addition to heat from system members, STRS also is getting criticism for such spending from unlikely sources: two public officials who sit on the nine-member board that controls the pension fund. Ohio Attorney General Jim Petro and Susan Tave Zelman, state superintendent of public instruction, said STRS ought to rein in its spending. Both promised to be more diligent in monitoring the fund in the future.

“At a time when there are shrinking resources, you don’t give bonuses,” Zelman told the Plain Dealer. “When times are good people tend not to look at these things. You can rest assured, now I’m going to be more aggressive in looking for ways to have a more efficient system.”  Petro said he is a big supporter of performance bonuses. But, he said, the STRS bonuses appear excessive, considering the fund was losing billions of dollars a year.

Talent Retention

STRS Executive Director Herb Dyer said the pension board is simply trying to recruit and keep good investment staff in a competitive profession that pays well and offers good benefits. “I appreciate that people who don’t do that kind of work for a living might not understand it, but that’s the reality of the professionalism involved,” Dyer told the newspaper.

The investment staff also is eligible for discretionary bonuses distributed from a pool of money generated from investment profits. Dyer said the pool would run out of money after bonuses are paid next month, unless the investment portfolio is profitable this year.

Ohio’s four other public employee pension funds offer bonuses to employees, but none are nearly as large as the ones paid by STRS. For example, the Ohio Public Employees Retirement System spent $765,252 on employee bonuses last year, compared with $5.7 million at STRS, according to figures provided by both funds.