In Ohio STRS power shift, teacher-elected trustees lose majority

The change is unprecedented and extraordinary, says one industry veteran. Meanwhile a

pension fund expert says the board composition change fixes none of the inherently

flawed characteristics of U.S. pension fund boards.

The Ohio State Teachers Retirement System, based in Columbus, will see a new majority of government appointees rule its board of trustees this fall after a controversial last-minute amendment was added to the state’s fiscal year 2026 budget signed into law on June 30 by Gov. Mike DeWine.

The change effectively ends a years-long effort by active and retired teachers to radically reconfigure the structure of STRS’ investment management in response to what they deemed as inadequate cost-of-living adjustments.

The change is unprecedented and extraordinary, says one industry veteran. Meanwhile a pension fund expert says the board composition change fixes none of the inherently flawed characteristics of U.S. pension fund boards.

The $97 billion pension fund’s 11-member board will see its membership rise to 15 members on Oct. 1, when four additional trustees will be appointed by government officials as a result of the amendment. That will give those appointed trustees an 8-7 majority over trustees elected by active and retired teachers.

That membership will gradually slide back to the current level of 11 trustees over the next three years as terms expire for four elected trustees who will not be replaced. So by September 2028, when the final term expires, government-appointed trustees will have a significant 8-3 majority on the board.

A radical reconfiguration

The culling of more than half of the elected trustees on the board comes just over a year after a social media-driven effort to elect like-minded reformers to the board resulted in those reformers taking a majority in the spring of 2024.

Led by retiree advocacy organization Ohio Retirement for Teachers Association, those efforts were the result of the STRS board voting not to award COLAs every year between 2017 and 2022. The board had previously cut the COLA to 2% from 3% for five years beginning in 2012. Before 2012, retirees automatically received an annual 3% COLA.

What led to the lower COLAs was a pension reform law passed in 2012. The legislation was designed to address a funding crisis that developed at the pension fund as a result of the global financial crisis.

As of June 30, 2012, STRS’ funding ratio was 56% and the amortization period for its unfunded liabilities became infinite.

One of the law’s major moves was to remove the automatic COLA and give the STRS board the authority to reward COLAs on an annual basis, provided the pension fund’s actuarial consultant calculated doing so would not impair the fiscal integrity of the pension fund.

Because of the actuary only approving limited benefit changes in the past 12 years, the pension fund’s funding ratio improved to 82.8% as of June 30, and the amortization period is now less than the statutorily required 30 years.

Still, there is no guaranteed annual COLA in sight, despite the presence of a majority of reformers holding the board for over a year. Their dreams of culling investment staff and moving solely to passive investments ostensibly to save money and enable an annual COLA have not seen fruition.

An extraordinary overhaul

Notably, one of the features of the new law is that elected trustees will now be prohibited from serving as chair or vice-chair of the board.

Rudy Fichtenbaum, the board’s current chair and who has been among the most vocal of the reformer trustees since his first election in 2021, said in an email that the legislative change in the composition of the board “totally undemocratic.”

“It was done in the middle of the night as part of the budget reconciliation process, although neither the House nor the Senate budgets had any proposals on changing the make-up of the Board,” Fichtenbaum said. “There were no hearings, no opportunities for the public to weigh in on this legislation before it was passed.”

The change in the composition of STRS’ board is extraordinary, said Keith Brainard, research director for the National Association of State Retirement Administrators. “I don’t recall seeing a change in governance that is so significant ever,” Brainard said. “This change at STRS Ohio came about pretty quickly, and it seems to have been sort of a last-minute arrangement. It’s interesting that it was part of the budget bill, as opposed to being its own legislation, which is unusual.”

Brainard said changes to board governance are not that common, and when they do occur, they’re more incremental in nature.

Kentucky overhauled the Kentucky Retirement Systems governance structure in 2020. But that change, which split oversight of the system into three boards was the result of years of discussion and debate, and reflected a hard-fought consensus. “This (Ohio change) is an overhaul,” he said.

Interestingly, he said, the new board composition makes STRS an outlier from the other four Ohio state pension plans, which are the $118.1 billion Ohio Public Employees Retirement System, $19.7 billion Ohio School Employees Retirement System, $19.5 billion Ohio Police & Fire Pension Fund and the $1.1 billion Ohio Highway Patrol Retirement System, all based in Columbus.

“There is consistency among the board compositions of the Ohio retirement systems, which is different than the national norm,” Brainard said. “The Ohio systems have a majority of elected members, higher than most other retirement system boards around the country.”

NASRA maintains a pool of data on 100 boards of the largest state retirement systems. The average board has about one-quarter of its trustees elected by participants, Brainard said.

By contrast, the five Ohio pension funds have around two-thirds of their trustees elected by participants. Ohio retirement systems also have fewer appointed trustees, he said.

“So under the new board structure, STRS will be an outlier relative to the other four statewide systems,” Brainard said.

Brainard notes that NASRA does not have a position on appropriate governance “other than board members be allowed to operate as fiduciaries and that their fiduciary duty be respected.”

“I don’t know that there’s compelling evidence that one board arrangement is better than another,” Brainard said. “But the suddenness of the STRS change is unusual, and the dramatic shift from a board with a majority of elected members who are members of the system, to a board with a majority of appointed members, who are not members of the system, is remarkable.”

Ohio state Rep. Sean Patrick Brennan, a Democrat and member of the Ohio Retirement Study Council, the legislative agency that oversees the state’s five pension funds, said ina July 1 statement on his website he believes the last-minute provisions included in the state budget, including the STRS board change, may violate the Ohio Constitution.

Brennan cites Article II, Section 15(C) of the Ohio Constitution, which states every bill must be considered by each chamber on three different days unless rules are suspended by a two-thirds vote.

“In this case, these new provisions were never subjected to the required three-day readings, and the General Assembly did not properly vote to suspend the rules to bypass that requirement,” Brennan said. “That is why, in my view, they should not have the force of law.”

Brennan could not be immediately reached for further comment, and any legal challenges to the board changes have yet to be announced. Ohio state Rep. Adam Bird, a Republican and chair of the Ohio Retirement Study Council, introduced the amendment and he did not respond to requests for comment.

Board governance issues

The motivation behind the last-minute amendment is unclear.

However, government officials have taken issue in the past with the reform trustees’ vocal attempts to alter the system’s investment management structure, claiming it is the cost of investment management that have prevented retirees from receiving COLAs.

Most notably, Ohio Attorney General Dave Yost in May 2024 filed a lawsuit against Fichtenbaum and Wade Steen, an appointed trustee whose term expired in September, alleging they sought “to steer as much as 70% of STRS’s current assets (about $65 billion in teacher pension funds) to a shell company that lacks any indicia of legitimacy and has backdoor ties to Steen and Fichtenbaum themselves.”

Fichtenbaum and Steen in 2021 promoted the idea of the system investing with a company called QED Management LLC, which had no track record, no assets under management and wasn’t registered with the SEC as an investment adviser. Yost’s lawsuit is still pending.

Fichtenbaum, a retired professor at Wright State University, has been a vocal critic of both active management and private equity since joining the board.

In a July 5, 2022, post, he said “public pensions should give up active investing and adopt index investing. Active investing beneIts investment staff, consultants and Wall Street at the expense of pension members,” and in a Feb. 2, 2023, post sharing an op-ed by David Sirota, a columnist and former speechwriter for Bernie Sanders, critical of private equity stated “this is an excellent article that shows the real problems with opaque private equity ‘investments.’”

Another reform trustee, Michelle Flanagan, a government, economics and financial literacy teacher at Brunswick City School District, campaigned for her election on a platform that included the shift away “from questionable, high-fee private equity investments.”

Keith Ambachtsheer, president of KPA Advisory Services and director emeritus of the International Centre for Pension Management, a Toronto-based global network of pension organizations, said in an interview that board members campaigning for changes in the investment management of the systems they serve is “totally wrong.”

In his 1998 book “Pension Fund Excellence” co-authored with Don Ezra, he said: “Pension boards are responsible for the governance of the fund, but do not conduct its day-to-day activities themselves. Rather, they enunciate the mission, establish the goals and policies, design a fiduciary structure with appropriate decision rights, and monitor the ‘what’ and ‘why’ of the fund’s achievements.”

In his interview, Ambachtsheer said the concept of a board providing oversight and not management is “basically wise management logic,” citing Peter Drucker’s 1976 book ”The Unseen Revolution: How Pension Fund Socialism Came to America."

“There’s basically a consensus out there as to what is an effective organization, regardless of what businesses look like. It starts with purpose clarity, and then No. 2, you need some people who understand that purpose and are willing to put together the organization to actually make that happen,” Ambachtsheer said. “Then who does oversight? That’s the board. And then the management function is a CEO, CIO (and) CFO, the operational people that are accountable for various functions in the organization.”

“Then you need a score-keeping method. ... What value are you getting and what are you paying, and how does that compare to your peers?”

Ambachtsheer said regardless whether the STRS majority consists of elected trustees or government-appointed trustees, the same governance issues that affect U.S. public pension funds still remain.

In his interview, he said Canadian pension funds follow Drucker’s principles, keeping politics out of board compositions.

For example, the C$714.4 billion ($525.8 billion) Canada Pension Plan Investment Board, Toronto, board members are selected by the federal finance minister in consultation with participating provinces with the assistance of a nominating committee consisting of a federally appointed chair and representatives of each province.

“The nomination process is designed to ensure that only those with expertise in investment, business and finance are appointed to the Board,” according to CPPIB’s website.

“I think there’s a sense in the U.S. that you’ve got this decision-making process in the public sector, it’s got a president, it’s got Congress, it’s got states, and it works its way through, and then where it gets fuzzy is with organizations that really need to create value but are not part of the private sector,” Ambachtsheer said. “They’re public sector, not for proIt, but they still are organizations that need to be effective at what they do. Pension funds are a classic example of that kind of organization. And what we’ve been able to do in Canada is to get consensus that keeps the politics out of it. If you want a well-run pension fund, it can’t be political.”

Rob Kozlowski, Pensions & Investments July 8, 2025

Read this article online at https://www.pionline.com/institutional-investors/pension-funds/pi-ohio-state-teachers-board-of-trustees-legislation-overhaul-dewine/

"It is interesting that Keith Ambachtsheer, president of KPA Advisory Services is quoted in this article. He is a founder of CEM, the very management firm that suggested STRS management was under-stating their investment costs. When Board members address this problem, are they being good fiduciaries, or are they being political? One would think members and the public would want this issue resolved and in a transparent manner." - Dean Dennis, Chair, ORTA Executive Council

Contrary to what has been repeatedly and erroneously reported in the media, Rudy Fichtenbaum did not suggest, during the November 2021 STRS Ohio board meeting, that $65 billion be invested in an alternative investment strategy. That amount was part of an answer to a question from then Executive Director William Neville, that we believe was constructed before the meeting and intended to elicit a very specific response from Fictenbuam, that was subsequently used as a basis for the Ohio AG's lawsuit against Fichetnbaum and Steen.