Ohio Retirement Systems

Richard Curtis
Executive Director
Highway Patrol Retirement System
6161 Busch Blvd., Suite 119
Columbus, Ohio 43229
Telephone: (614) 431-0781

William Estabrook
Executive Director
Ohio Police and Fire Pension Fund
140 East Town Street
Columbus, Ohio 43215
Telephone:  (614) 228-2975

Laurie Hacking
Executive Director
Public Employees Retirement System of Ohio
277 East Town Street
Columbus, Ohio 43215
Telephone:  (614) 466-2822

Damon Asbury
Interim Executive Director
State Teachers Retirement System of Ohio
275 East Broad Street
Columbus, Ohio 43215
Telephone: (614) 227-4090

Thomas R. Anderson
Executive Director
School Employees Retirement System of Ohio
300 East Broad Street, Suite 100
Columbus, Ohio 43215
Telephone: (614) 222-5853

Honorable Charles R. Blasdel, Chair
House Committee on Banking, Pensions and Securities
Ohio House of Representatives
77 South High Street
Columbus, Ohio 43215

Dear Representative Blasdel:

The Ohio General Assembly has historically been very protective of the security and independence of the retirement systems, recognizing that a million Ohioans depend on them.  We would like to thank you for your past leadership and guidance in pension legislation.  We also understand that in tight economic times there is often pressure on public retirement systems to “share” their wealth with others.  To that end, we are writing to share our grave concerns with Sub.H.B.227, which would mandate that the Ohio retirement systems utilize pre-approved Ohio securities agents in the execution of not less than 70 percent of securities transactions and when using external managers put 50 percent of the assets with pre-approved Ohio agents. Any attempt to put limitations on the trustees’ control over the investments of the retirement systems is cause for concern.  If the primary goal of Sub.H.B.227 is to assure strong fiduciary duty and oversight of Ohio retirement systems, then we believe this reversal from prudent person guidelines takes away from fiduciary duty. We do not believe Sub.H.B.227 is in the best long-term interest of Ohio for the following reasons:

Runs counter to prudent person standard. After a long struggle, S.B. 82, effective March 1997, instituted prudent person language and eliminated restrictions on the investment decisions of the Ohio retirement systems boards. The vast majority of states have freed funds to use prudent person rule of investing. The trustee may not be guided by the interest of any third person or entity. It is critical that the system trustees have the freedom to administer the system as prudent fiduciaries.

Higher returns through best execution.  One of the potentially harmful consequences of restricting the systems to Ohio-based brokers may be a negative impact on our returns over time. The biggest concern for the systems is making sure we receive the kind of execution we need on our trades from the brokers. Because of the very large size of the systems’ portfolios and very large size of individual trades, we need institutional traders and sales reps, not personal brokers. The local retail broker is not capable of efficiently handling such trades, and assuring best execution, the most favorable price for the system.  In addition, the larger brokerage houses have access to buyers and sellers and can handle large blocks of securities, and trade efficiently without releasing information that would work against the systems getting the best price at the lowest reasonable cost.

Many “Ohio” brokers may actually sub-contract the work out to the brokerage companies the systems currently use. As a result, another layer of fees could be added without improving the quality of the execution.  While the biggest brokerage houses may be willing to set up an institutional sales rep in Ohio, many other firms will not.

Current statute already exists to direct the board to give consideration to investments that enhance the general welfare of the state and to use minority agents, all things being equal.  We believe a mandate benefits particular financial institutions at the expense of trust participants.  We believe permissive language, rather than a mandate, is appropriate.

Potential for creating undue anxiety among retirees. The elderly as a group are neither affluent nor politically adventurous, yet their pension funds are often targeted as appropriate to bear the costs of an investment strategy that sacrifices financial for special interests.  The scandals that have plagued the markets recently have been a result of corporate fraud and financial industry misdeeds by accounting firms, banks and security dealers.  And while no current or future public retiree in Ohio needs to worry about their pension, attempts to mandate direction of the funds or restrict them in any way would serve only to increase their level of concern.

In closing, the mission of all the Ohio retirement systems is to provide financial security for Ohio’s public employees.  It is incumbent on the retirement board members, most of whom are elected by the participants that their primary duty as fiduciaries is to work for the exclusive benefit of those same participants.  Any legislation with a primary goal of benefiting others — be it the state or private entities — goes against the systems’ fiduciary duty to act prudently for the exclusive benefit of participants of the plan.

Respectfully,

cc:        Honorable Bob Taft, Governor
            Members, 125th Ohio General Assembly