Lawsuit filed to force teachers' pension records

May 25—COLUMBUS — A lawsuit filed with the Ohio Supreme Court accuses the pension fund for teachers of hiding behind "trade secrets" when it comes to complying with an outside forensics audit financed by its members.

The litigation, likely just the first of a series, asks the high court to order the 500,000-member State Teachers Retirement System to turn over un-redacted documents related to investment earnings, fees paid to outside money managers, and comparisons of the system's performance with similar systems across the country.

The lawsuit specifically targets reports from Toronto-based CEM Benchmarking, Inc., a consultant hired by STRS to conduct an annual cost effectiveness analysis. The filing contends that information supplied by CEM was heavily redacted to protect what it claims is proprietary information.

"We know already...that STRS staff does not know the costs of all the investments that they have made," said Ted Siedle, president of Benchmark Financial Services and a former Securities Exchange Commission attorney who was hired by the Ohio Retired Teachers Association to conduct the forensic audit.

"They are incapable of telling CEM Benchmarking, Inc., what those costs are," he said. "Therefore, CEM Benchmark is using certain guesstimates or estimates. In my opinion—and I believe it's well settled law—that the fiduciaries of a pension fund must know, must monitor the investment costs to determine them to be reasonable. If they don't even know what they are, they clearly cannot have fulfilled their fiduciary duty."

Some 1,000 current and retired teachers raised about $75,000 to finance their own investigation into the books of their $90 billion public pension fund.

Many retirees have been angered by the fund's decision to reduce and then eliminate annual cost-of living adjustments beginning in 2013 as part of a state-ordered plan to improve its long-term solvency.

"We received some of those documents...," said attorney Andrew Engel, who filed the lawsuit Friday with former Ohio Attorney General Marc Dann. "The problem, however, is that CEM has redacted large portions of the data and other information within these reports, rendering them virtually useless.

"Much of that data relates to information is entirely STRS'," he said. "This is very problematic for us, because it basically allows CEM to claim it has protected trade secret in the data of STRS."

In its response to the public records request that was included in the lawsuit, CEM said the information is available only to its paying clients. The information is proprietary, it said.

"This data and database is not available from other public sources and forms the basis for our analysis," it said. "It is key to our business model that the data not be publicly released."

Among the items redacted from the reports were the identities of the other public employee pension funds to which the performance of STRS was being compared.

The independent audit being funded by the retired teachers is looking at how STRS investments are performing and whether it has been paying excessive fees or taking excessive risks with hedge fund investments at a time when the stock market had been setting records.

"These hedge funds operate in darkness," Mr. Dann said. "Essentially, the STRS and their very well paid investment staff simply rely on what those funds tell them the performance is and don't even in their own reporting factor in some of the costs that are associated in fees...

"There's a reason why this happens," he said. "The investment managers are all on bonuses at STRS...We're concerned that nobody is taking a close look at those."

One of the things the audit will examine is whether the reductions in COLA were necessary or should be reversed.

"STRS Ohio has provided more than 800 documents in response to the public records request we received in late February — totaling more than 22,000 pages," STRS spokesman Nick Treneff said. "We have fully complied with the law in response to this request. I have not seen the lawsuit, so I cannot comment on specifics."

STRS is one of five pension funds serving public employees in Ohio and is among the largest in the nation.

First Published May 24, 2021, 4:15pm