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The High Cost of Secrecy, Preliminary Findings of Forensic Investigation of State Teachers Retirement System of Ohio

This page contains The High Cost of Secrecy Preliminary Findings of Forensic Investigation of State Teachers Retirement System of Ohio, Commissioned by Ohio Retired Teachers Association, and conducted by Edward "Ted" Siedle and Benchmark Financial Services, Inc., June 2021. 

Also on this page, you will find documents and articles that address the forensic audit.

< Click to open the forensic audit report as a PDF.

Key Findings

  • STRS has long abandoned transparency

  • legislative oversight of the pension has utterly failed 

  • Wall Street has been permitted to pocket lavish fees without scrutiny

  • investment costs and performance may have been misrepresented

  • failure to monitor conflicts may have undermined the integrity of the investment process, as billions that could have been used to pay retirement benefits promised to teachers have been squandered.

Here are some excerpts from the report regarding the COLA and increases in active teachers' contributions and years of service required for retirement.


In our opinion, a more accurate assessment would be that the alternatives have massively underperformed the Relative Return objectives across all periods. For example, over the last 10 years alternatives returned 9.79 percent vs. 14 percent for the Relative Return Objective; for the last 5 years alternatives returned 6.66 percent versus 9.97 percent. Use of the recommended Russell 3000 plus 500 basis points as the benchmark would reveal that since the 2006 fiduciary audit (not including the massive underperformance in the 5 years prior to the audit), the Alternatives have dramatically underperformed, 8.26 percent versus 11.91 percent.The alternatives underperformance losses for the period amount to $8.6 billion or $2.5 million per trading day for 14 years. Restoring the COLA benefit would cost less than $1 million ($890,000) per day. For additional perspective, total active teacher contributions since the 2006 Fiduciary Audit amount to approximately $18 billion. $8.6 billion alternative investment underperformance equates to $61,000 per retired teacher.


To put the hidden, unreported fees—alone—into context, they amount to $2.75 million per school day, and more than twice the $210 million required to fund STRS COLAs annually.


Assuming STRS pays fees of 2 percent on total unfunded commitments, this amounts to an annual waste of approximately $143 million - enough to restore the COLA to 2 percent.


Most objectionable was the loss of a promised Cost of Living Adjustment (COLA) in 2013 with no resumption in sight. (11) In 2013, STRS did not pay the annual COLA; in 2014, 2015 and 2016 the COLA was reduced from the promised 3 percent to 2 percent. In 2017, the COLA benefits were reduced to zero supposedly “to preserve the fiscal integrity of the retirement system.” With approximately $7 billion paid out in annual pension benefits, elimination of the 3 percent COLA saved the pension approximately $210 million annually. When pressed for answers by ORTA, STRS leadership has simply stated the pension will only consider providing any COLA after it has reached a funding level of 85 percent. The problem is, ORTA notes, in over 100 years of existence STRS has rarely been at funding level of 85 percent or above and has not been at such level in the past decade.  (11) STRS retirees were promised an annual cost of living increase (COLA) at the time of their retirement. This promise was also codified in Ohio law (ORC 3307.67).


At the same time that retirees were experiencing a loss of promised benefits, active teachers saw an increase of 40 percent in their contributions to STRS. Active teachers also witnessed an increase in the number of years required to receive full retirement benefits. These changes resulted in many teachers paying more, working longer, and not receiving the level of benefits previously promised. Finally, while benefits to retirees were slashed, active teachers were required to pay more and receive less, the STRS board voted to increase salaries and pay nearly $10 million in performance incentives for the STRS investment staff. The performance incentives have been paid annually, despite no clear benchmarks for earning these so-called “bonuses.”


Forensic Investigation Of Ohio Teachers’ Pension Reveals Widespread Failures And Mismanagement
By Edward Siedle, Contributor, Forbes
June 29, 2021

Earlier this month, the forensic investigation of the $90 billion-plus State Teachers Retirement System of Ohio commissioned by the Ohio Retired Teachers Association and performed by my firm, was completed. The damning preliminary findings have now been reported to Ohio legislators, regulators and law enforcement.

The report concluded the state pension has long abandoned transparency; legislative oversight of the pension has utterly failed; Wall Street has been permitted to pocket lavish fees without scrutiny; investment costs and performance may have been misrepresented; and failure to monitor conflicts may have undermined the integrity of the investment process, as billions that could have been used to pay retirement benefits promised to teachers have been squandered.

Read Siedle's article at

Forensic Expert Edward Siedle Responds to STRS Ohio Rebuttal of High Cost of Secrecy Investigative Report

By Edward Siedle
June 13, 2021

As the nation’s leading expert in pension forensics, I would have liked to conclude in my report released last week, The High Cost of Secrecy, that the State Teachers Retirement System of Ohio is professionally-managed and the retirement security of those who depend upon the pension is assured.

Unfortunately, I could not then and cannot now. Nothing the pension has said to rebut my findings is remotely persuasive. In my opinion, STRS insiders and their Wall Street helpers either don’t know what they’re doing or, worse still, are fully aware their actions are not in the best interests of stakeholders but simply don’t care.

To recap:

There is only one reason to oppose transparency and embrace secrecy: Because you have something to hide.


STRS apparently believes it has plenty to hide. Over the past six months, the pension has failed to respond to the overwhelming majority of my requests for documents. Only the most mundane records have been released, in an effort to distract from the fact that all—100 percent—of the critical investment documents I requested detailing widespread industry abuses and potential violations of law have been withheld.

STRS disingenuously claims to have provided more than 800 documents and 22,000 pages in response to my records requests. In the words of economist and newly-elected STRS board member, Dr. Rudy Fichtenbaum: Claiming that you are being transparent by counting pages is absurd.Transparency is not merely about the quantity of information it is also about the quality of information.

Since commencement of my investigation, one board member I interviewed has resigned and two others have openly expressed their own frustrations obtaining information from the secretive pension. STRS isn’t even transparent with its own board!

There is only one reason to delay statutorily-mandated fiduciary audits year-after-year: Because you have no intention of curing the longstanding deficiencies you know the audits will expose.

There is only one reason to refuse to fully disclose all investment costs: Because the all-in fees the pension pays Wall Street are unjustifiable and far too high.

How to defend paying Wall Street $143 million for doing nothing?

Keep it secret.

There is only one reason to use bogus “actual” performance so-called “benchmarks” for the riskiest investments and mystery custom peer group comparisons: Because the true investment performance results are dismal.

There is only one reason to misrepresent to stakeholders that GIPS compliance verification for a pension which invests heavily in alternatives (that are not themselves GIPS compliant) provides any meaningful benefit: Because GIPS compliance verification presents some perceived public relations advantage to a pension widely distrusted. That is, to STRS, the appearance of integrity is more important than diligent oversight of investments.

There should be no reason to ignore external investment consultant conflicts of interest that may have cost STRS over $1 billion annually or approximately $20 billion over a ten-year period—an amount nearly equal to the under-funding of the pension. Yet—despite specific warnings dating back to 2006—compliance with conflicts of interest safeguards has never been enforced at STRS. You have paid the price— your COLA slashed and then outright eliminated—for this willful neglect.

You deserve better.

Later this week I will release my recommendations for action to hold those responsible for the mismanagement and billions in losses accountable. If your retirement security is important to you, prepare to join with others to take action.

My Response to 'STRS Ohio Responds to Report on the Pension Fund'

By Rudy Fichtenbaum, STRS Ohio Board Member - Elect
June 11, 2021

I want to begin my comments by saying that it is apparent that many of us have a have a trust problem when it comes to STRS. Beyond that I want to make some general observations about STRS’s response to the Siedle report and also provide one more piece of specific evidence regarding STRS performance. This response is not a point-by-point examination of the response. I will leave that to others.

The general approach taken by the STRS staff in responding to Siedle’s report is not to provide real evidence but to use a basic fallacy that gets taught to every college student who takes a course in logic and that is the “appeal to authority.” The appeal to authority fallacy is making a statement that something is true or false because an expert says it is true or false. Something is true or false, not because an expert declares it to be true or false, but because there is evidence. The point of having an expert look at something is he or she is supposed to know exactly what evidence is needed and to have the expertise that is needed to look at the evidence, analyze the evidence and present the results. When experts present evidence it is generally peer reviewed and it is now common practice in scholarly journals to provide one’s data so that peers reviewing the evidence can check the work of experts when they make claims based on their analysis of data.

The STRS response is long on appeals to authority and short on evidence. Let me provide just a few examples to illustrate my point. "Independent review shows STRS Ohio’s 10-year return exceeds 88% of public fund peers, among the best over multiple time periods” How do we know this is true? Is it possible to independently verify the claim? The answer is no because the data used by experts is proprietary.

"ACA Group annually examines and verifies STRS Ohio investment performance reporting is in compliance with GIPS® standards.” They examine and verify. What exactly does that mean? All of you should listen to the exchange between Wade Steen, ACA and the STRS staff on this very point when he asked whether the returns that STRS were “audited”. If someone says I made $4 in the last two days because I sold $2 worth of goods today and $2 worth of goods yesterday that can be verified by hiring a Ph.D. in math and getting them to check that 2+2=4. But that is not really what is important. What we really want to know to evaluate the validity of the claim is whether the person making the claim actually sold $4 worth of goods over a two- day period.

Suppose I went to a doctor, and he/she ordered some tests, made a diagnosis and recommended a course of treatment. But I am concerned about the treatment and ask for a copy of the test results so I can get a second opinion. What if the doctor responds telling me, look I am an expert? I went to the best medical school in the country and last year my colleagues voted and gave me the doctor of the year award. You should just trust me. I won’t give you your test results because they are proprietary information. What’s happening here. This example uses a basic fallacy in logic, the “appeal to authority” in place of providing real evidence. I am the expert and so you should trust me, and I don’t have to give you real evidence.

Claiming that you are being transparent by counting pages is absurd. Transparency cannot be measured by counting pages. Again, anyone with just a high school education would know that if they made an information request and received 1 million pages with one word on each page, they would not be getting any useful information. Transparency is not merely about the quantity of information it is also about the quality of information. Transparency means that the signal to noise ratio is high enough that useful information can be obtained when information is transmitted.

Now I want to turn to one specific claim made in the STRS response and show why it is 1) not verifiable using publicly available information and 2) why it is misleading i.e., meant to deflect your attention away from the real issue. "Alternative investment performance of 12.17%, 11.68%, 10.99% and 8.46% over the past three-, five-, 10- and 20-year periods ending March 31, 2021, respectively, exceeded STRS Ohio’s total fund performance and have been additive to STRS Ohio’s total fund returns.”

First, how convenient to use a date of March 31, 2021, for which there is no data available to validate this claim. March of 2021 is FY2021, and that fiscal year is not over until June 30, 2021, and it will be months until we get the 2021 CAFR. But setting that aside for the moment, let me call your attention to page 13 in the 2020 and 2015 CAFRs which, shows 5-year returns by asset class.

The 5-year return for alternative investments for 2016-2020 is 6.66% and the total fund return is 6.97%. So, for this 5-year period it is not mathematically possible to make the statement that alternatives were additive to the total return. (This would be true even if we used the total return net, which was 6.77%). For the 5-year period from 2011-2015 the alternative investments return was 13.01% and the total return was 11.93%, so alternative returns were additive to the total fund return (total fund net is not reported in the 2015 CAFR). So at least one statement in the STRS response is not true that being the 5-year return is not additive to the total return. What about the 10-year return? Mathematically, that is possible but there is no way to verify that claim given the data in the CAFRs. In fact, there isn’t even a way to verify a 1-year total return given the data in the CAFR. The reason is that the CAFR gives returns for domestic equities, international equities, fixed income, real estate and alternative investments, but does not give returns for cash and short-term investments, which accounted for 2.6% of total investments in 2020. Moreover, if you take a weighted average of the returns using each asset class, where the weights are the percentages shown at the bottom of page 13 under investment distribution by fair value, the return is 2.70% not 3.14%. But we know the 2.7% is wrong because it assumes a 0% return for cash and short-term investments. What would the return on cash and short-term investments have to be to get a return of 3.14%? The answer is mathematically 16.93%. Clearly that is absurd. If STRS could earn that much on cash and short-term investments, we would not have an unfunded liability. So, there are lots of numbers, lots of information but there is no transparency because we cannot independently verify the claims being made in the CAFR.

Perhaps the more important point, however, is that the statement in the STRS response was a form of misdirection and is therefore misleading, because it is addressing the wrong question. The fundamental problem with the alternative investments is that from 2011-2015 they returned 13.01% and the alternative investment blended relative return objective (blended benchmark) was 18.19%. From 2016-2020 alternatives returned 6.66% and the alternative investment bended relative return objective (blended benchmark) was 9.97%. So, in both 5-year periods (2011-2015 and 2016-2020), alternatives underperformed their benchmarks by 3.31% and 5.18% respectively. So, while it is mathematically possible that they were additive over a 10-year period, the total return for the 10-years would have been significantly higher, if the alternative funds were invested passively. The claim that alternative investments are good for STRS would be like a coach in a post-game interview telling reporters that we had a terrible game in the first half and a terrible game in the second have but overall, we played a great game.

Higher returns would have increased the plans assets and reduced the unfunded liability and that is what matters when it comes to the ability of the pension to meet the promises that were made to members.


Rudy Fichtenbaum has been elected to the STRS Ohio Board. His term will begin September 1, 2021.

STRS Ohio responds to report on the pension fund
June 10, 2021

Earlier this week, STRS Ohio received a report about the system’s investments, commissioned by Ohio Retired Teachers Association. Many of the conclusions in the report are offered with little support other than the author’s opinion. While the author is entitled to his opinions, STRS Ohio does not want the report to unnecessarily concern our retirees, stakeholders and other interested parties. As detailed below, STRS Ohio’s investments have achieved strong performance, with low costs and lower than average risk.


Read this document online at

John Damschroder: New pension study confirms our reporting

By John Damschroder
Fremont News-Messenger
June 9, 2021

Since 2016 I have been reporting facts in the state pension financial documents that contradict former Gov. John Kasich’s campaign-calculated claim that Ohio pensions are “rock solid.” 


The State Teachers Retirement System (STRS) defended Kasich’s premise, asserting in the News Messenger that CEM Benchmarking data shows them as a low-cost, high-performance, value-adding pension system.

Now comes Edward Siedle, the former SEC lawyer turned whistleblowing crusader, to say STRS is misleading citizens through the selective use of limited CEM data. The Ohio Retired Teachers Association (ORTA) commissioned a forensic audit — a limited, high impact, inspection of STRS — that produced a finding that fully disclosed CEM data shows the $279 million in fees STRS reports are actually at least $463.6 million.

Read this story online at

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