COLUMBUS, Ohio — A member of the chaotic teachers' retirement pension fund board in Ohio has resigned amid the ongoing controversy — possibly changing power dynamics within the system.
Steve Foreman, known as a "reformer," stepped down as of Friday evening, he told me.
This tip came as we obtained a now-archived video meeting proving Ohio Attorney General Dave Yost's claim that board members were promoting a $65 billion partnership with an investment firm that lacks "legitimacy."
Recap
The State Teachers Retirement System of Ohio (STRS) board is made up of 11 members. There are five elected contributing teachers and two elected retired teachers. The governor gets to appoint one investment expert. The speaker of the House and the Senate president get to jointly appoint an expert. The treasurer and director of the Department of Education and Workforce both get to designate an expert.
There is a debate on how STRS should invest money — through the current system of actively managed funds versus an index fund. Active funds try to outperform the stock market, have more advisors and typically cost more. Index funds perform with the stock market, are seen as more passive, and typically cost less.
To get a larger overview of the situation, we did a Q&A with viewers.
RELATED: Answering viewer questions about Ohio's retired teachers' pension fund chaos
In short, "reformers" want to switch to index funding, while "status quo" individuals want to keep actively managing the funds.
Some retired teachers, called reformers, are trying to take back their money, believing that the STRS board has mismanaged their $94 billion pension fund.
STRS lost $5.3 billion in 2022 alone. In 2023, it lost $27 million invested in the failed Silicon Valley Bank. In addition to those — the cost of living adjustments, or COLAs, were suspended for more than 150,000 retired Ohio teachers for five years starting in 2017. In 2012, the qualifying retirement number was moved from 30 years to 35 years. Last year, this was changed to 34. Then, the board approved $10 million in bonuses for their staff.
The reformers are also pushing for transparency. Click here to learn more about the reformers.
The Ohio Retirement Study Council posted a report that compared STRS with other statewide public pension systems from 1999-2022. During this time period, the average annual STRS return was 6.85%, while the Ohio Public Employee Retirement System (OPERS) was 6.14%, the School Employees Retirement System of Ohio (SERS) was 6.52%, Ohio Police & Fire Pension Fund (OP&F) was 6.76% and Highway Patrol Retirement Systems (HPRS) was 5.88%.
STRS staff members have pointed out this data on numerous occasions when addressing that the fund isn't failing like critics say it is.
"STRS Ohio’s investment consultant, Callan, shared that STRS Ohio’s total fund return outperformed its benchmarks and ranked in the top 10% of public funds tracked by Callan for the three-, five- and 10-year periods ending June 30, 2023," STRS spokesperson Dan Minnich said.
Click here to learn more about the STRS staff and status quo.
In May, Attorney General Dave Yost filed a lawsuit to remove two members of STRS, stating they are participating in a contract steering "scheme" that could directly benefit them. Yost started the investigation after documents prepared by STRS employees alleged that Wade Steen and Chair Rudy Fichtenbaum have been doing the bidding of private investment group QED Systematic Solutions.
Click here to learn more about the lawsuit.
QED was started by former Deputy Treasurer Seth Metcalf and Jonathan (JD) Tremmel. Metcalf worked under Josh Mandel in multiple capacities, including as general counsel. In 2020, they set their eyes on STRS, according to the main 14-page memo.
The documents claim that they — despite having no clients and no track record — tried to convince STRS members to partner with them.
They couldn’t impress the board members, mainly because of their lack of experience and also the fact that QED was not registered as a broker-dealer or investment adviser. The men also didn't own the technology to "facilitate the strategy," the documents say.
Then, an evaluation of QED was done by the board's outside consultant, Cliffwater. The company highly advised not to follow their project or use them.
The bidding has been allegedly done by Steen and Fichtenbaum, continuously pitching QED's direct documents to board members and proclaiming the company's talking points to other staff.
The AG states that the pair should be removed because they broke their fiduciary duties of care, loyalty and trust when "colluding" with QED.
Click here to learn more about the alleged ties between the reformers and QED.
RELATED: The alleged ‘backdoor ties’ between retired teachers’ pension fund and investment firm
2021 meeting
Back in November of 2021, board members proposed an unprecedented idea.
"It entails STRS forming a partnership with QED," said Fichtenbaum.
I obtained a video recording of a now-archived STRS meeting, one that shows members Fichtenbaum, Steen and former member Bob Stein proposing to change their funding system to work with investment firm QED.
"The full implementation of this agreement could earn STRS more than $4 billion a year, which is more than the employee and employer contributions combined," Fichtenbaum said.
This was shut down by nearly every other person at the meeting.
"I wouldn't even invest my own money in this," former board member Rita Walters said, referencing how this seems like a Ponzi scheme. "Why would I invest that kind of money from the teachers of the State of Ohio?"
According to Yost's suit, board members want to give $65 billion to QED so that they could allegedly restore the COLA.
"The mention of $65 billion is patently false," Steen said at a board meeting in May. "That was never proposed by me, never proposed by any other board member."
Steen felt so strongly about this that in a June 20 court filing in response to Yost, he denied that he and Fichtenbaum ever proposed that STRS invest $65 billion in QED.
But that isn’t what our recording from 2021 shows.
"We would make available $65 billion in our inventory in order to implement this strategy," Fichtenbaum said.
This wasn't a one-off either. The reformers were forced to address the $65 billion on numerous occasions because the other members and STRS staff seemed flabbergasted by the proposal.
"The $65 billion number, if you want to earn $4 billion, is correct," Fichtenbaum said.
The reformers repeatedly acknowledged that the $65 billion is what is needed to get the return.
"We would not invest all $65 billion with one manager," Matt Worley, STRS chief investment officer, laughed. "That would be crazy."
Fichtenbaum was seemingly not happy with all of the questions and interruptions.
"I don't feel that I am being fairly treated and being given the opportunity just to make the presentation," he said. "If you don't want to make $4 billion, or if you don't think this will work, that's fine."
The reformers seemed annoyed that the STRS staff wouldn't stop bringing up QED.
"You're picking out one thing here," Stein said.
"That's why I'm focused on QED. That's why I'm focused on this issue, because I'm hearing more discussion about an entity with whom we'll be involved as opposed to a strategy we would implement," Worley said.
That being said, the $65 billion wasn't the only thing the reformers proposed.
"I think I only said $65 billion for the total implementation, but that it could start with $250 million," Fichtenbaum added.
This wasn't presented as an "all-or-nothing," he added.
"What has been presented is that, yes, if you want to make $4 billion a year, then we would need to commit the $65 billion... That doesn't mean give them, by the way, $65 billion. It means access to the inventory," he said. "You're not writing somebody a check for $65 billion, which would be insane."
Bill Neville, the executive director who is currently on leave, asked Fichtenbaum to clarify that.
"Do I understand the strategy, though, that we would essentially sell $65 billion of our assets and buy treasuries? Is that the first leg of the strategy? Or do I misunderstand even the initial concept?" Neville asked.
"Yeah," Fichtenbaum said, confirming Neville understood correctly.
This is a startup that's looking for funding, board member Claudia Herrington said, simplifying the situation for the status quo members.
This whole presentation wasn't fair, reformers argued, because they weren't being taken seriously.
Reaction
Case Western Reserve University business law professor Eric Chaffee says the reformers' answers are questionable and understands why the AG is investigating.
"QED has an unproven track record," Chaffee said. "It's unclear as to why exactly these board members are focusing on this particular entity and doing it so strongly."
And up until Friday, the board was set to be able to put forward whatever policy they wanted — until a sudden resignation changed that dynamic.
Reformer Steve Foreman put in his resignation effective after the Friday meeting. He told me he wasn’t ready to do an interview on why he decided to step down but would do one later this week.
We obtained his resignation email, which cited his reasoning as “retirement.” He added in the note working alongside and knowing the reformers was “an honor.”
This is the email he provided to Fichtenbaum:
"It has been my distinct honor to serve Ohio's educators. I am humbled by their confidence in electing me. Additionally, working alongside you, Wade, Liz, Pat, and Julie, has been what I will always consider to be the pinnacle of those experiences that encompass my career. I play it close to the vest, my belief that helping one person may not change the world, but it could change the world for that one person. It drives everything I do. I believe, to my very core, that each of you has proven through your tenacious service and actions that you each emulate this principle. It is it an honor to know you all."
Foreman did not respond to questions about whether the resignation had anything to do with the chaos inside the board.
With this new imbalance, and just in general, Chaffee thinks anything can happen.
"It makes you wonder what exactly is going on here," he said.
Right now, there are two vacancies — Foreman's seat and former Chair Dale Price's seat. Price resigned following the reformers removing him as chair.
Price's term expires this summer, so there was an election to find his successor. Reformer Michelle Flanigan is set to take his place in a few months.
Foreman's seat wasn't up for reelection until Aug. of 2026, so the board will need to start taking applications for his replacement.
One of his final acts on the board was voting not to give STRS staff raises, which educators applauded.
Chaffee added that it's possible that both the status quo of the STRS board and QED are bad options — all coming at the expense of former educators.
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