Michelle Flanigan

Reform Candidate for STRS Ohio Retirement Board

How does Michelle plan to achieve these goals?

• Begin by asking the actuaries to reexamine assumptions for rates of return, funding goals and timelines.  Slight tweaks to these assumptions could free up funds for benefit restoration.

• Look at other funds and states to provide examples of investment structures that give the greatest returns for the lowest cost and risk.  There are options if you look for them.

• Insist upon reductions in administrative expenses and eliminate spending that is not focused on providing teacher benefits.

Why should you vote for Michelle?

• For the past 15+ years the majority of Board members have voted to pay millions in bonuses and exorbitant salaries. Some STRS investment staff received 40+% raises this year while teachers are required to work longer and get less. This wasteful administrative spending runs three to four times higher than that of other states. 

• The majority of Board members haven’t explored lower cost investing strategies. Additionally, they have refused to consider reducing commercial real estate and private equity holdings. Many investment experts, including Warren Buffett, believe that private equity has no place in public pension funds.  Missing out on bull market gains, combined with high fees on investments, are one of the reasons teachers work longer, pay more and get less.

• While I appreciate the service of former Board members, I do not understand why, when so many teachers were unhappy, they continued to support the status quo at STRS.  Are you happy with the current state of your pension fund and benefits?  If your answer is “no”, please consider voting for me.

The time to return to 30 years for full retirement benefits is now!

(Michelle Flanigan addressed the STRS Ohio Retirement Board during Public Participation on December 14, 2023.)

My name is Michelle Flanigan and I have taught Government, Economics and Financial Literacy at Brunswick High School for 25 years. 

Time.  Financial plans require time. For teachers, the financial plan was to retire with 30 years of service and 66% of their salary.  Now, at 30 years of service, teachers only get 46% of their salary.  STRS has taken away 20% of teachers’ annual income for the rest of their lives. To add insult to injury, these teachers also don’t know if they will ever receive a cola in retirement.

You think teachers should work longer.  That is not an advisable option. Teaching is a job that is mentally, physically and emotionally draining.  After 30 years of service, most teachers have given all that they have to give.  Tired, languishing teachers are not good for students.

In November, Cheiron estimated that a return to 30 years would take STRS’s funding percentage from roughly 80% and 10 years to fully funded, down to 77.5% and 13 years to fully funded.  A change of only 2.5% and 3 years! According to Ohio law, the path to 100% funding does not have a due date. Ohio law only requires STRS to maintain a funding period below 30 years. Perhaps by adjusting some policies, it can be shown that the vital return to 30 can be achieved without causing material harm to the plan.  The rush to 100% funding has caused material harm to teachers and material harm to students.  You have the power to end this harm.

Recently, I read an article in Kiplinger Personal Finance, quoting Bill Hallmark, a consulting actuary for Cheiron.  Mr. Hallmark stated “The perception that public pensions are in imminent danger of collapse is overblown.  There is nothing magical about  80% funding. This is a myth that actuaries have been working to debunk. The real concern is whether the plan has the resources to pay for any shortfall over time.” (https://www.kiplinger.com/retirement/601999/are-there-cracks-in-your-pension, paraphrased)

Time. Let me conclude by coming back to the issue of time.  STRS has time, as the fund is designed and managed to continue in perpetuity.  But teachers don’t live forever.  Kids aren’t students forever.  Teachers can’t be effective in a classroom for over 30 years. The rush to 100% funding has had devastating results.  You can fix this. The time to return to 30 years for full retirement benefits is now.

STRS claims to give us the real story. But Ohio teachers deserve the complete story. They also deserve a better retirement.

On the STRS homepage, there is a button in the lower right corner that says “Misinformation has been shared about STRS lately. Get the real story.

Well, they give us a REAL story. What they don’t give us is the COMPLETE story. Let’s take a closer look.

Real Story: $91.1 billion in assets, approximately 500,000 educators, 11.4 years to 100% funding.

But what is the complete story?

The fact that they are only allowing 11.5 years to reach 100% funded is taking money away from paying COLAs or reducing years of service. This timeline could be increased without materially affecting the safety of the fund. In 2013 they set a 30 year timeline. PERS and OP & F did not adopt this policy. Taking until 2043 to reach full funding would free up money for teacher benefits. Teachers are suffering to make their ratios look good.

Real Story: Investments are distributed among equities, real estate, alternative investments, fixed income instruments and cash. .

But what is the complete story?

The $18.7 billion alternative investments category contains about $11 billion in private equity investments. The fee structures of these investments are not transparent. The value of these investments is determined by the private equity firms themselves, not by the market. One of the most knowledgeable investors of our time, Warren Buffett, has repeatedly warned about the risk of these types of investments and has said that they do not belong in a public pension portfolio.

Much of the $8.8 billion in real estate is in commercial real estate, a segment of real estate that is generally thought to be inflated in the post Covid work from home world. What is the real market value of this real estate portfolio? STRS recently disclosed a Chicago commercial building that was purchased for $280 million in 1999 is now worth $92 million.

Real Story: The state special audit found no evidence of fraud, illegal acts or data manipulation. .

But what is the complete story?

Per the state special audit: “...despite the trade secrets law STRS relied on to classify these items (private equity investments) as trade secrets, STRS could elect to negotiate with their investment firms to allow more transparency. Some PE firms have indicated that they would cease working with pension funds if they are required to disclose the fees they charge.” Special Audit report, p. 6. No surprise that Warren Buffett would advise against investements that refuse to disclose fees.

Real Story: Changes to the COLA were enacted in response to the great recession and to meet state requirements of obtaining 100% funding in 30 years.

But what is the complete story?

Changes to the COLA would not have been so drastic if not for investment losses like Panda Power ($525 million) and missing out on $90 billion in bull market gains for 2012-2021 (audit report p 28). For the period June 2022- June 2023, the S and P 500 was up 16.1%. STRS’s investment portfolio was up 7.55%.

Real Story: The state auditor found that STRS Ohio’s diversified portfolio outperformed the S&P 500 index from 1999-2021 as noted on Page 27 of the state auditor’s report.

But what is the complete story?

The state auditor’s report also found that If you look at the years 2012-2021, STRS missed out on $90 billion in potential bull market gains (p. 28 auditor’s report) The time frame of reference makes a difference.

Real Story: The audit found STRS Ohio’s compensation to be consistent with peers and noted “the attraction and retention of talented staff is essential to the success of STRS’ internal investment management strategy.”

But what is the complete story?

In 2022, STRS staff was paid $10 million in bonuses on $5.2 billion in investment losses. Each year STRS staff earns bonuses while STRS members go without COLAS and work longer. Shouldn’t there be some “shared sacrifice” here? Ohio teachers deserve better.

Michelle Flanigan
September 15, 2023