Ohio Retirement Systems

Robert M. Beck, Chair
Ohio Police and Fire Pension Fund
140 East Town Street
Columbus, Ohio 43215
Telephone: (614) 228-2975

Charlie Adkins, Chair
Public Employees Retirement System of Ohio
277 East Town Street
Columbus, Ohio 43215
Telephone: (614) 222-0030

Eugene E. Norris, Chair
State Teachers Retirement System of Ohio
275 East Broad Street
Columbus, Ohio 43215
Telephone: (614) 227-4001

Barbara J. Miller, Chair
School Employees Retirement System of Ohio
300 East Broad Street, Suite 100
Columbus, Ohio 43215
Telephone: (614) 222-5853

The Honorable Bob Taft
Governor, State of Ohio
Vern Riffe Center
77 South High Street, 30th Floor
Columbus, Ohio 43215

The Honorable Doug White
President, Ohio Senate
Statehouse, Room 201
Columbus, Ohio 43215

The Honorable Larry Householder
Speaker of the House
Vern Riffe Center
77 South High Street, 17th Floor
Columbus, Ohio 43215

Dear Governor Taft, Senator White and Speaker Householder:

As chairpersons of the five Ohio Retirement Systems, we are providing you comments on two significant pieces of legislation affecting the public pension systems, Sub. H.B. 227 and Sub. S.B. 133. Each contains provisions that strengthen the functioning and monitoring of the retirement systems, and provide for open and transparent financial disclosure. We endorse these checks and balances and stand ready to comply with these provisions.

However, we are adamantly opposed to two provisions contained in Sub. H.B. 227. The first is the mandate affecting the retirement boards’ investment authority and fiduciary responsibility to manage the retirement systems’ assets; the second is the provision that gives the Treasurer of the State the authority to hire and fire the executive director of each system.

Will result in exorbitant costs to the systems. The fiscal impact on the systems of the investment mandates together with putting the control of the systems in the hands of only one elected public official would literally cost hundreds of millions of dollars in additional expenditures for the systems. Collectively, we have estimated that the investment mandates alone could cost the retirement systems as much as $180 million, and that does not include transition costs. That diverts $180 million that would otherwise be available for retirement and health care benefits. The State Treasurer has already asked for an increase in his budget to cover the cost of these additional responsibilities, and these funds would presumably come from the retirement systems. What started as a bill to reduce spending has now become a spending bill.

Impedes trustees’ fiduciary duty. The investment mandates run counter to our responsibility as trustees of the systems. Imposing pre-determined quotas could limit the ability of the trustees to act in a manner which is in the best interests of their members. The retirement systems are created in statute to have the independence they need to serve in the best interests of their members. Our investment decision-making is appropriately removed from political considerations. As a result, our investment programs have been professionally run to get the best investment returns for members and retirees. Giving the Treasurer of the State, who is a term-limited elected official, the power to name executive directors and control their actions has the potential of bringing politics right through the front door and into the piggy banks of the systems.

Disrupts checks and balances. Current Ohio law puts the authority for running the systems with the trustees. Sub. H.B. 227 gives this authority to the Treasurer of State and takes the authority away from the board that was duly elected to represent the membership. The current board structure requires joint decision-making with automatic checks and balances that prevent any one person from gaining control over investment matters. Ohio has been recognized for having some of the most fiscally sound and financially responsible systems in the country.

Threatens the tax status of the systems. For the systems to remain qualified trusts under the Internal Revenue Code — and thus defer taxation of the contributions and earnings until a benefit is paid — the funds in the systems must be held in trust for the sole benefit of the members of the plans. The erosion of investment authority to act in the sole interest of the membership together with giving the State Treasurer responsibility for the oversight of the retirement funds jeopardizes this favorable tax treatment by the IRS. The Ohio Retirement Study Council made this point in its analysis of the bill and voted down both the investment mandates and Treasurer authority.

In short, we recognize the members of the Legislature and the Ohio Retirement Study Council for their efforts to provide additional oversight of the systems. However, we are opposed to any mandates that keep us, as trustees, from fulfilling our responsibility of acting in the best interests of our members.

Respectfully,