ORTA and its members are deeply distressed that the STRS investment fund shows a negative return for the fiscal year 2008. This fund has paid for teacher pensions since its inception in 1920. We expect it to continue indefinitely.

Reports from other pension funds throughout the U.S. reveal that all of them have been negatively impacted, some more than others, almost all worse than our own STRS Ohio system.

For instance, the Illinois pension programs are under funded by $43 billion and will soon surpass $50 billion. (That's larger than the state budget). New Jersey, Pennsylvania, Colorado, Maine, California, West Virginia and Kansas are experiencing public pension shortfalls and unfunded liabilities of epic proportions due to investment losses.

These states face scenarios that are typical throughout the country. According to the Center for Retirement Research at Boston College, state and local pension programs nationwide lost one trillion dollars from October 2007 to October 2008. It puts our situation in the same predicament as those throughout the country.

There are some differences between STRS Ohio and some of these systems:

ORTA wants to emphasize to our members that we are confident that STRS Ohio is solvent and able to pay pensions far into the future. Financial experts throughout the country predict that the present recession will continue into 2009 and will take five or six years to recoup the paper losses, but it will happen. STRS can absorb the value decline in assets because that is exactly what it is...a decline in the value of the assets that they own. STRS will not lose actual funds unless they cash in assets at a lower value than what they paid for them. That kind of thing happens to short-term investors or people who need to live on the returns immediately. STRS is a long-term investor.

So while ORTA is dismayed at the turn of events, we feel that the system must be given enough confidence to do the job effectively and balance that confidence against the need for transparency, public scrutiny and our comfort level ( the need to know that the investments are being handled in our best interests).

The second issue is the bonuses for investment staff - Performance Based Incentives - (PBIs) as they are called by STRS. ORTA urges the board and Executive Director Nehf to seriously study these policies. The math seems simple enough. The bonuses for the 2008 fiscal year to 87 staff members totaled $6 million. $50,000,000,000 in assets vs $6,000,000 in bonuses equals .00012% of the fund, a ratio of 8,333 to 1! ORTA views that as not a large percentage. However, ORTA asserts, and STRS must acknowledge, that the PERCEPTION of the number - $6 million, is a troublesome number. It is difficult for retirees to understand the concept of people on the investment staff receiving bonuses that doubled their salary, some to over $500,000 for the year. STRS retirees cannot fathom that amount of salary and bonus, especially in times of downturn and value losses. Teacher retirees in Ohio have never worked on an incentive plan basis. The system for Ohio teachers' salaries has always been based on experience and longevity.

In good times and bad, the system needs to retain and attract the best minds possible. The $6 million bonus figure must be evaluated against the $100 million that STRS saved in the calendar year 2007 by using inside investors versus outsourcing the investment function. ORTA is wholeheartedly in favor of using inside investors. The $94 million saving by employing and giving bonuses to inside investment staff is good stewardship. The downturn in the market has followed on the heels of unprecedented increased value in STRS assets. We applauded the investment staff during those times. It is difficult not to applaud them now for minimizing the losses and beating composite benchmarks by over $200 million.

That being said, we believe that good judgment and diligent study of the policy involving PBIs should be undertaken and that the balance of job effectiveness, public perception and members' comfort level be taken into account.