Ohio STRS Executive Director Offers Apology To Retirees

July 10, 2003 (PLANSPONSOR.com) - Herb Dyer, the embattled executive director of Ohio's State Teachers Retirement System (STRS), publicly apologized for making insensitive remarks to retirees as the rest of STRS board held a closed-door session to discuss his future.

In his apology, Dyer said he regrets comments made to retirees who were worried they would not be able to afford steep increases in health insurance costs. He acknowledged that he told retirees to go out to eat less often and go on fewer vacations, according to a Cleveland Plain Dealer report.

Dyer was scolded by several board members for making “unacceptable” comments to retirees, to justify all employee hirings since 1998 and fund the system at current levels.  Aside from the insensitive comments about rising health care cost, Dyer also made comments in a letter written to one retiree that the teachers’ pension fund belongs to STRS board members “to distribute as they see fit.”

The harsh words could not have come at a worse time, as many retired teachers will see their health insurance premiums more than double next year, from $66 a month to $135 a month.   Spouses will have to pay as much as $427 a month to continue their health coverage.

The apologetic remarks came as Dyer addressed the Ohio Retirement Study Council about his desire to restore trust in the pension fund and his regret for the comments some people found offensive. “I said things like their budget would have to adjust,” Dyer said, “comments that were insensitive and some thought condescending.   I spoke as a statistician, not a counselor,” Dyer continued. “I apologize to anyone who has been offended by my remarks.”

Crow Pie

Yet this may turn out to be a classic case of too little, too late.     A total of 105 state lawmakers have called for Dyer’s resignation, a group that was also joined by Ohio Attorney General Betty Montgomery, who sits on the STRS board.   However Dyer has no intention of going quietly into the night, telling reporters he does not plan to resign and is not negotiating a severance package with the STRS board.

This poses a bit of a quandary for the STRS board, and was one of the reasons for Wednesday’s closed-door session to determine his future.     If the board fired Dyer tomorrow, he would walk away with a $533,620 check.   Even if he changes his mind and tenders his resignation, he would still get at least $133,405 because he must give STRS a six-month notice; a figure that does not include pay for any unused sick or vacation time.

These seemingly large buyouts are due to Dyer’s 6 1?2 -year contract, which ends June 30, 2005, which must be paid out unless the board can prove “malfeasance, misfeasance or nonfeasance.”

In addition to the payout clause, Dyer’s salary grew handsomely over the last few years due to the contract’s provisions for his pay to be adjusted annually based on the Consumer Price Index (CPI) of the previous year or 3.5%, whichever is higher. However, the index has not been above that level since 1991 and Dyer has received raises to his base salary above 3.5% every year since he got a new contract in February 1997.

In 2001, his base salary was $236,000 and rose 8.6% in 2002, according to STRS documents. It went up again this year to $266,810, a 4.1% increase.  

Additionally, Dyer has received annual bonuses for meeting performance goals. His bonus is based on the weighted average of bonuses given to the STRS investment department multiplied by a percentage obtained from his annual evaluation. In other words, the higher the bonuses paid to the STRS investment staff – whether the portfolio did well or not – the higher Dyer’s bonus.

Costly Bonus

It is lavish expenditures like the bonuses, along with artwork purchases and travel over three years that landed the entire STRS board in hot water recently and has some calling for Dyer’s head (See    Ohio Pension Fund Hit for Lavish Spending Practices).  While the board was paying $15 million for these expenses over that time, the system’s investments plummeted by $12.3 billion and health care contributions by retirees jumped significantly.

Responding to criticisms of its lavish spending and compensation practices, STRS voted late last week to freeze employee bonuses, while the system’s board members promised a full review of policies on out-of-state travel and fringe benefits.  The immediate effect of suspending bonuses will cost the investment staff, at least for now, discretionary bonuses that were scheduled to be handed out next month. The bonuses – which come in addition to “performance-based” bonuses – totaled $1.75 million in 2000, $2.2 million in 2001, and $1.46 million in 2002 (See  Ohio Fund Wants A Closer Look at Bonuses ).

Additionally, the retirement study council voted 7 to 0 Wednesday to start the process of hiring an independent consultant to do a full performance audit of STRS.   The audit will cover management, compensation, hiring and investment policies at STRS, said Senator Lynn Wachtmann, a northwest Ohio Republican and chairman of the council.