COLUMBUS, Ohio — We have been getting dozens of requests to break down the chaos inside the State Teachers Retirement System of Ohio. So, we have answers to some of the most asked questions.
Can you simplify the situation?
We can try to, with help from Case Western Reserve business law professor Eric Chaffee.
This fight hinges on two major issues: finances and transparency.
There is a fight about how the State Teachers Retirement System (STRS) should invest money — through the current system of actively managed funds versus an index fund. Active funds try to outperform the stock market, have more advisors and typically cost more. Index funds perform with the stock market, are seen as more passive, and typically cost less.
"They want to make sure that their retirement is keeping up with what their cost of living is gonna be in the future," Chaffee said. "But certainly, what's going on with the attorney general at this point, we're likely to see some pretty substantial allegations of misconduct."
More people are being elected to the board that are in favor of an index fund, called the reformers. The reformers are fighting against the members who are nicknamed "status quo."
But Attorney General Dave Yost filed a lawsuit Wednesday to remove two board members, saying they must be removed from their roles for breaching their fiduciary duties. The accused reformers deny all allegations.
Why is this happening right now?
This is a multi-part answer.
Why is there upheaval on the board?
STRS is a $90 billion pension fund — and has been involved in controversy for years.
It lost $5.3 billion in 2022 alone. In 2023, it lost $27 million invested in the failed Silicon Valley Bank. In addition to those — the cost of living adjustments, or COLAs, were suspended for more than 150,000 retired Ohio teachers for five years starting in 2017. In 2012, the qualifying retirement number was moved from 30 years to 35 years. Last year, this was changed to 34.
Then, the board approved $10 million in bonuses for their staff.
"I'm hoping that with a change that, you know, maybe we'll get our COLA eventually," retired Columbus teacher Sharon Parker said.
Lately, the reformers are growing in size through the election process and getting more access to the board, a good thing, said the dozens of retirees I spoke to at the board meetings.
"If teachers aren't happy, if teachers are struggling, then that should be a call to STRS," Cleveland-area teacher Terry Caskey said. "But it's crickets. They are not acting in the best interest of teachers."
Why is there a lawsuit happening now?
Last week, Yost started an investigation after anonymous documents alleged that two board members, Wade Steen and Rudy Fichtenbaum, have been doing the bidding of private investment group QED. According to the suit, the firm asked board members for $65 billion so that they could allegedly restore the COLA.
"We have strong evidence that there were serious discussions about taking two-thirds of the money and putting it in a very, very untested programming," Gov. Mike DeWine told reporters Wednesday.
Yost filed suit Tuesday morning, accusing them of being a part of an attempt "to hijack" the pensioners' retirement accounts.
Steen and Fichtenbaum "seek to steer" as much as 70% of current STRS assets, which is $65 billion, to a "shell company" that has "backdoor ties" to the members, Yost argued.
Both men have strongly denied all allegations.
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Why are Gov. Mike DeWine and AG Yost getting involved now when people have been asking them for years to investigate STRS?
This depends on who you ask.
"Now we have a super majority and now we can get all the information we need that they've been covering up or not being transparent about," Caskey said.
DeWine is covering up for his Wall Street friends, she and other reformers added — but she is also concerned that this is a corruption scheme.
Caskey doesn't trust DeWine at all and believes the whole investigation into STRS board members and their relationship with QED is a "ruse."
"I also think that the governor is going to pull out every stop to make sure that he has control of the STRS fund because I think that's a cash cow," she said.
Originally appointed by John Kasich, Wade Steen is an outspoken reformer. He was reappointed by DeWine, but the governor asked him to resign last year. Steen refused, so DeWine removed him. DeWine cited Steen’s alleged poor attendance at board meetings as reasoning.
Steen filed a motion in Ohio’s 10th District Court of Appeals demanding to be reinstated — and he was. He returned to his job in April.
Caskey believes that this was the governor's way of silencing Steen from achieving reform, which she believes would have provided more transparency — and also a way to prevent administrative kickbacks. There is no evidence that we have found of any administrative kickbacks.
Both the governor and attorney general denied that they are only getting involved now to disrupt the reformers' plans.
DeWine's spokesperson, Dan Tierney, denied that the timing of this is suspicious.
"We didn't choose when we received documents, but the announcement of what we were doing with them... occurred after all ballots had been cast, but before the results were made public," Tierney said. "You can't say that they were done in reaction to anything because we didn't know the results. You can't say they were being done to influence the way people cast their ballots because it was done after the ballots were being cast."
He also rejected the claim that the governor's office hadn't been interested in investigating STRS when educators begged him to for years.
"What they were talking about resulted in an audit being conducted by Auditor of the State Keith Faber," Tierney said. "Additionally, the Ohio Retirement Study Council conducted a similar audit that resulted in a number of recommendations for governance changes to be made."
The audits found there were no significant problems with how STRS was being run, but did have suggestions on how to make the system better and more transparent.
In fact, DeWine doesn't even have an opinion on what the STRS board does — he just cares that it is done ethically.
We asked the AG's office similar questions.
"This is an ongoing investigation. Like I said yesterday, this lawsuit allows us to obtain the discovery documents necessary to finding answers to the allegations. This is a step in the process to ensure that we continue to fight to protect teachers’ hard earned retirement dollars," Bethany McCorkle, communications director for Yost, said in an email.
Who sent the "anonymous" documents?
Tierney told me that he believes they were prepared by multiple STRS staff members.
What is the problem with QED?
Yost accused QED of "colluding" with board members to contract steer.
QED was started by former Deputy Treasurer Seth Metcalf and Jonathan (JD) Tremmel. Metcalf worked under Josh Mandel in multiple capacities, including as general counsel. In 2020, they set their eyes on STRS, according to the main 14-page memo.
The documents claim that they — despite having no clients and no track record — tried to convince STRS members to give them $65 billion so that they could allegedly restore the annual COLA and reduce how much pensioners have to pay into the system.
They couldn’t impress the board members, mainly because of their lack of experience and also the fact that QED was not registered as a broker-dealer or investment adviser. The men also didn't own the technology to "facilitate the strategy," the documents say.
Then, an evaluation of QED was done by the board's outside consultant, Cliffwater. The company highly advised not to follow their project or use them.
Once facing major roadblocks, QED allegedly changed strategies. The documents state that it would “replace board members and staff with those who would support their proposal.” This is allegedly what happened with Fichtenbaum's campaign. He denies this.
We asked Yost if he was investigating any pay-to-play type behavior. McCorkle said that this is an ongoing investigation to get the documents needed to evaluate the allegations.
"Anytime that you have a financial interest in a business that's doing or conducting affairs with the pension plan, that's a problem," Chaffee said.
Are we still going to use QED even though other people can do the same job and haven't been involved in controversy?
I actually asked this to Steen Wednesday.
"Now, I'm not even advising QED or anyone — what I'm advising is we need to look at index funding," Steen responded. "We really need to take a look at that that would dramatically reduce our costs."
Fichtenbaum declined to answer this question to reporters on Wednesday.
Isn't supporting someone's campaign in exchange for a contract illegal?
Very much so.
Ohio learned that the hard way. In March 2023, a jury found that former House Speaker Larry Householder and former GOP leader Matt Borges, beyond a reasonable doubt, participated in the racketeering scheme that left four men guilty and another dead by suicide. Two other men are going through the court process currently — and the third died in April, with his death also being a suspected suicide.
Householder took a $61 million bribe in exchange for legislation to give utility giant FirstEnergy a $1 billion bailout, named H.B. 6, all at the expense of the taxpayers. After he was caught, faced a jury and found guilty, he was sentenced to 20 years in federal prison.
The bribe money came in the form of campaign contributions, dark money donations, that are nearly impossible to track due to Ohio's lax campaign finance disclosure laws.
More questions will be addressed as they come. This story was just the initial wave of more preliminary questions. To ask questions, please fill out the form below or email Morgan.Trau@wews.com with the subject line "STRS QUESTION."
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