DeWine raises ‘red flag’ about Ohio teachers pension after new board takes over

COLUMBUS, Ohio – Gov. Mike DeWine has forwarded over a dozen documents about the pension system for hundreds of thousands of Ohio teachers to state investigators, saying that he believes the information could show potential wrongdoing.

The State Teachers Retirement System has been mired in a fight for control of the pension. DeWine recently lost a court fight over a seat on its board.

But in a statement sent to the media late Wednesday afternoon, DeWine said his concerns have taken on a new urgency since Aon, an Irish consulting firm with U.S. offices in Chicago, notified the retirement system that it plans to sever its contract to provide assistance with governance matters.

Calling the loss of Aon a “red flag,” DeWine also said in the statement that he had sent documents to the Ohio State Ethics Commission, Ohio Attorney General Dave Yost and other officials for investigation into potential wrongdoing. One of those documents suggests that the pension system is being targeted for a “hostile takeover” by “private interests.”

“Our state pension systems have an obligation to retirees to ensure their investment portfolios and accounts are stable and financially sound, so that they have the financial resources to serve retirees, both now and in the future,” he said.

For years, contention over STRS’ retirement fund, how it’s managed and how retirees are paid have pitted a group of retirees against STRS management, some members of its board and in more recent recent years, DeWine.

The pension is worth around $94 billion, according to Pension & Investments.

From 2017 to 2022, retirees received no cost-of-living raise, causing financial hardship for many former teachers, who said they had been modestly paid when they were in the classroom and were feeling the squeeze. This was at a time when no other Ohio pension fund deployed similar austerity measures. STRS spokesmen at the time said the pension was managed differently than other state pensions.

A group of retired teachers hired a Florida pension expert who is suspicious of fees the pension has paid to Wall Street money managers, especially for alternative investments, which includes private equity, real estate, venture capital and hedge funds.

The retired teachers group also has worked in recent years to add people to the board who promise to be reformers, although DeWine is concerned about some of the reforms that the board members are considering – arguing they will hurt the pension fund over the long term.

The pension board is made up of both elected members and members appointed by the governor. Wade Steen, a former Cuyahoga County fiscal officer, was appointed by former Gov. John Kasich, then reappointed by DeWine. Steen was vocal about change. About a year ago, when the reformers had gotten a majority on the board, DeWine asked for Steen’s resignation. Steen refused and DeWine removed him by appointing a suburban Columbus investor, who was later replaced by another DeWine appointee.

Steen sued and over the course of the year, after different court decisions and appeals, a state appellate court said he court be reinstated April 18.

Now control of the board has tipped back to the reformers, 6-5.

The turmoil may be too much for Aon, the consultant. Cleveland.com/ The Plain Dealer reached out to the company’s U.S. spokesmen for comment about why it wants out of STRS.

Aon was hired after a May 2022 audit requested by the Ohio Retirement Study Council, a board that has oversight over all the public pension systems. The audit found issues with STRS board governance, including it needing to commission future audits in a more timely manner, gaps in policies over how the board governs, a need for improved stakeholder engagement and communications, and clarification over how authority is delegated.

DeWine, in the late Wednesday statement, said that Aon’s leaving STRS is an “implication is that the governance issues at STRS are so concerning that Aon could not continue its contract in good faith. STRS may now be out of compliance with portions of audit recommendations due to Aon ending the contract.”

Dan Tierney, a spokesman for DeWine, further added: “The implication of them pulling out of this contract is that things are so bad at STRS that Aon could not continue providing those services. And that’s a huge red flag.”

The documents that DeWine forwarded to the Ethics Commission, Yost, Ohio Auditor Keith Faber, the Ohio Retirement Study Council, Ohio Treasurer Robert Sprague and others include a document that was written anonymously by someone DeWine’s staff thinks are multiple employees of the STRS system, alleging the reformers for the past four years have been pushing STRS to hire a private investment entity lead by one leader who had less than five years of experience when STRS administrators looked into the firm.

The company was not registered as a broker-dealer or investment advisor, and didn’t have any existing clients or track record in 2020. It also didn’t own the technology to facilitate its investing strategy.

“In fall 2020, board member Wade Steen began raising concerns about STRS performance, benchmarks, and cost that mirrored (one of the investing company’s partners) claims,” the anonymous letter said. “Steen also began pushing STRS investment staff and the board’s external investment consultant to find ‘new ways to make more money.’”

Steen, in the letter, escalated his concerns and pitch, the letter states. Cleveland.com/The Plain Dealer has reached out to Steen for comment.

Laura Hancock covers state government and politics for The Plain Dealer and cleveland.com.