Pensions join government transparency website, but funding data still cloudySep 14, 2016
Ohio’s five retirement systems made news yesterday by posting their operating expenses on ohiocheckbook.com. Although the state’s pension leaders should be applauded for their transparency, they also should be asked why a critical piece of information was not included in their submitted data: fees paid to investment managers.
In a recent article, John Damschroder, a former Voinovich Administration official, noted how Ohio’s public pensions are taking a “reckless gamble” by putting too much of their portfolios in alternative investments, including hedge funds. In turn, across all of the state systems, Ohio’s public pensions spent more than $730 million in investment management fees (each pension’s Comprehensive Annual Financial Report, or CAFR, is below).
Of course, it is not surprising the public pensions used outside investment advisors. That’s typical. What Ohioans should be more concerned about is the issue of scale and the need by the state’s pensions to achieve very high rates of return in order to meet their statutorily required funding ratios.
Are those fees reasonable? Are the returns commensurate with those fees? Unfortunately, the public does not have easy or complete access to this information because it was not submitted to Treasurer Josh Mandel’s office—which, by the way, has done a yeoman’s job increasing transparency in Ohio’s public institutions.
Though overall investment fees are included in the CAFRs, these documents are not user-friendly and typically are presented as general sums that are not broken down by investment adviser. This greatly limits their utility and leaves an impression of a lack of complete transparency. Given Damschroder’s concerns, this cannot but raise questions about the health of the state’s retirement systems. Without better and more detailed information, Ohioans can’t know with absolute certainty if the pension plans are on as sound of a fiscal track as they are assured by pension officials.
In the long run, Ohio’s public employees do need more flexible retirement options – with stable funding plans – that better reflect the dynamism of today’s economy. Such reforms to public pensions will eventually be needed to assure good outcomes for all of Ohio’s public employees while avoiding the risk that taxpayers may be forced to foot the bill for unexpected declines in investment returns.
Treasurer Mandel is working to get the information needed to fully inform these future policy discussions. For the security of public employees and taxpayers, pension fund leaders should expand on the information they’ve provided and do so in a way that any taxpayer can easily review it.
By joining ohiocheckbook.com, the state’s pension systems have shown they are willing to embrace transparency and, for that, they deserve recognition. But more information is needed on the pension funds going toward alternative investments so that Ohioans can see the respective health of each more clearly.
OPERS CAFR (Ohio Public Employees Retirement System)
STRS CAFR (State Teachers Retirement System)
SERS CAFR (School Employees Retirement System)
OP&F CAFR (Ohio Police and Fire Pension Fund)