Thursday, March 8, 2012

STRS Time Bomb: Facing Reality

This is the fourth article* I've written about the precarious condition of the State Teacher's Retirement System (STRS). It is prompted by a recent article by Kathie Bracy, an activist for the concerns of retired Ohio public school teachers (Ms. Bracy is a retired 30-year veteran of Columbus City Schools).

She writes about a recent special meeting of the STRS Retirement Board, during which they received a report from their actuarial consultant, Price Waterhouse Coopers. It wasn't good news.

Actuaries are highly specialized financial professionals who use a mixture of finance, accounting, statistics and risk analysis to determine if organizations can honor their future financial obligations. Their work is especially associated with insurance, where one must figure out if the money taken in over time (premiums), plus investment returns on the collected funds, will generate enough cash to pay future claims. One could think of a pension system as being just another kind of insurance.

But no one knows exactly what the future will bring, so actuaries have to make guesses - well reasoned as they may be, but guesses nonetheless - on pretty much all of these variables.

So what did PWC have to say to the STRS Board?

Inflation:  They said that they believe current and future inflation rates will be less than previously assumed. This is mixed news. The good side is that the lower the actual inflation rate, the less the investment rate of return will need to be. But low inflation also means that interest rates on current investments will be lower.

Today is kind of an insane time, when the 'safe' sovereign debt instruments like short term US Treasury Bills and German government bonds have near zero - and in some case negative - rates of return.

Mortality: People are just living longer. I've heard it said that Social Security was designed around the assumption that people would retire at 62 and die before they reached 70, which may well have been the average life expectancy 80 years ago. Today, most of us expect to live well into our 80s. In the case of teachers, who can potentially retire in their late 50s with 30 years of service, the time span of retirement can equal the length of their working career.

This may be good news is most contexts, but in the case of a retirement system - it's a big problem.

Investment Returns: STRS has been assuming that it could make 8% return on its investments.

One of the core tenants of investing is that Risk and Return are inversely related. Students of finance have long been taught that the "riskless" return rate in our country should be the rate one can receive investing in US Treasury Bills, with the assumption that the US government would never default on its debt. That's the reason it was such a big deal when Standard & Poors, one of the world's most influential debt rating agencies, downgraded its rating of US Treasury debt a few months ago. They were in essence saying that there is some risk of default by the US government. Fortunately, most investors have ignored that, and are continuing to buy record quantities of US Treasury Bills.

STRS has been assuming for a long time that it could earn 8% on its investments. That's perhaps no big deal when US Treasury bills are paying 5% interest, as they we so many years ago. One doesn't have to take a lot of risk to earn 3% more than that.

But with 'riskless' interest rates near zero, an 8% annual return requires finding investments that pay 8% more - a relatively large 'spread.'  It's like saying you can make 13% every year when Treasury rates are 5%. Not easy, and not without risk. (Here's what the New York Times wrote about this).

STRS was reminded of that recently, when its portfolio heavy in stocks and real estate lost nearly half its value - from $80 billion in 2007, to $47 billion in 2009. They're lucky the stock market has recovered a lot of what they lost, and the portfolio value now sits at $63 billion.

But they're still down nearly $20 billion from their peak portfolio value. Not only that, but since their assumption was that they would make 8% on their portfolio, they're down $45 billion from the $109 billion the portfolio should be worth had they made 8% every year since 2007 when the portfolio was worth $80 billion. That's $45 billion they should have had to pay for future benefits, but now don't.

PWC has advised STRS to lower its expectations of investment earning from 8% to 7.75%. That may not sound like much, but one would have to deposit 9% more today to generate the same dollar amount 35 years from now, assuming just 0.25% less in annual return. Think about raising the contribution rate from the current 24% of salary (10% by the teacher and 14% by the taxpayers) to 33% 26%. We're talking millions of dollars more per year.

Salary Growth Assumptions:  The teachers retiring now were paid peanuts 30 years ago when they started their careers. But most are now being paid in the neighborhood of $90,000/year in their final years. Their annual pension is determined by their final pay, not their lifetime earnings, and for a teacher retiring right now under current STRS rules, with 35 years of service, the annual pension will be about $80,000/yr - for life - plus  annual cost of living increases.

What about a teacher being hired right now?  Under the current collective bargaining agreement with the teachers' union, the starting salary for teacher with no experience and only a Bachelor's degree is $38,362. If we assume the salary grid structure stays as is for 35 years (ie 4.15% steps and 6% raises for additional education), base pay increases are 1% every year (they were 3% or more from 2004-2010), and the teacher reaches the Masters+ level by the 10th year, then the final pay of such a teacher at 35 years of service would be about $136,000, and the pension would be about $103,000 per year.

click to enlarge
Don't overreact to that.

We don't know what's going to happen to compensation outside the realm of public education. Maybe private sector salaries will increase at an even greater pace than this. Maybe it will be less. Over a period of three decades, we're apt to have both boom and bust times. We don't know. But for the purpose of analyzing the state of STRS right now, the actuaries have said salaries have increased in recent times faster than they assumed they would, which means more benefits will have to be paid out than had been planned for. That's not good.

The sum of all this is expressed in a single statistic STRS calls the "funding period."  It is the amount of benefits that will be paid out in the future (I think they mean the 'present value' of the future benefit costs) divided by the current annual contribution rate (ie what working teachers and the school boards are paying into the retirement system each year - currently a total of 24% of salary). By law, this is required to be 30 years or less.

Think of it as being a calculation of how long it would take to pay off your credit card balance given monthly payments of $X, understanding that each month the credit card company will charge to the account another 18% or so of the unpaid balance for interest.

We all know that if you make only the minimum required payment on your credit card balance, it will never be paid off.

This is the case with STRS right now as well. The "funding period" is infinity - there simply isn't enough money being taken in to pay what will be owed to current and future retirees, even with an aggressive assumption of investment earnings rates.

So What?

As stated at the beginning of this article, the main variables relative to a pension plan is the amount of money being contributed, the size of the current fund, the earnings rate on investments, and the amount being withdrawn to pay benefits. For a pension fund to pay out all the benefits promised, those factors have to be in balance.

Right now they are not. Not even close. Too much has been paid out and the investments haven't generated as much earnings as expected. In fact, they have lost tens of billions of dollars in recent years.

Changes have to be made - soon - or the fund with go bust, leaving both retired teachers and teachers yet to retire with no benefits.

The question is who is going to bear the cost of fixing things. There are only so many options:
  • Make the currently employed teachers pay more: They already pay 10% of their salary into the retirement system.
  • Reduce the benefits to retired teachers: Take back some of the benefits the teachers already retired now receive. That might not seem fair, but one could argue that teachers now retired are receiving far more than the system was designed to pay them, largely because of the rapid ramp-up of teacher salaries in the past decade or so. Remember that pension benefits aren't determined by lifetime earnings - only what the teacher was paid in the last 3 years of service.
  • Reduce benefits to future retirees: Reduce the payout percentage, or calculate the final pay by averaging more years. An increase from 3 years to 5 years is already being considered. Require teachers to work more years before being eligible for retirement.
  • Make investments that might generate higher return, but carry more risk: At what point does investing become speculating, or just plain gambling with the teachers' pension money? I think that chasing even 7.75% returns means taking an unacceptable amount of risk.
  • Make the taxpayers pay more: As taxpayers, you and I already pay 14% of all the teachers' salaries into the retirement system. Note that this means that the dollar amount we contribute each year goes up with the all the increases the teachers receive: base pay, steps and degrees.

    The taxpayer share could be made to increase via several ways. The General Assembly could simply mandate that the school district pay a higher percentage of salary. That will eat up budget dollars, and contribute to larger and more frequent levies, or cuts in programming and services.

    Or the General Assembly could divert some of the state budget to augmenting the contribution stream. But if they do this for STRS, they'll have to do it for OPERS (Ohio Public Employees Retirement System), SERS (State Employees Retirement System), and the Police and Fire Retirement Fund. That will require an increase in our state taxes, or further cuts in state services and funding to local goverments (like school districts, which would in turn cause us to cut services and programming or raise local taxes).
What do you think needs to happen? What combination of the above do you think is fair?

*Prior Articles:
Dec 2008: Time Bomb
Sept 2009: Still Ticking
Nov 2009: Beginning to Understand


  1. Paul,
    You make some intersting points....and many of them are "right on the money." One point I find hard to believe however is this statement about current educators' salaries in their final years, "But most are now being paid in the neighborhood of $90,000/year in their final years." Where did you get the figure of $90K? This figure may be close to the salaries of many principals in their last 3 years but certainly not close to the final average salaries of classroom teachers in Ohio. Some superintendents in Ohio doen't even make $90K per year. What is the Final Average Salary of an educator in your local school system?

    John Curry
    a contributor/researcher to Kathie Bracy's blog
    a retired educator and stakeholder of STRS
    a member of CORE (Concerned Ohio Retired Educators)

  2. John: Good to hear from you. I've seen your writing on Kathie blog often. I'm a member of the School Board in Hilliard (suburban Columbus), and a long time observer of public school economics.

    Our top pay for teachers is $90,363, for Masters+15 and 23 years of service. Approximately 10% of our teachers are paid $90,000 or more, which is one reason we offered an early retirement incentive package this year. About 150 teachers were eligible, and just over half accepted the deal.

    Our pay scale is comparable to the other suburban districts in Franklin County. I don't know how we stack up to comparable districts around the State (and comparing pay scales is almost fruitless because each has unique steps and columns), but this is the price of doing business around here.

    To illustrate how rapidly the final salary has increased in central Ohio, note that in 2002 our top salary was $69,092, but it reached the current $90,363 figure in 2010 - an increase of $20,000 in just eight years.

    There's no way the current parameters of the STRS formula can withstand that kind of run-up.

  3. Thanks for your quick and accurate reply. I'm not sure how the cost of living in Hilliard compares with the Ohio average but I must say that your teachers have quite a handsome salary schedule. What has really killed STRS since 1999 is the fact that they have been paying out at 88.5% of the Final Average Salary for 35 years of service when ALL the other retirement systems (OHP, Police and Fire, SERS and OPERS)only paid out 77% for that same 35 years of service. This was reflected in the premiums STRS charged their retirees (and especially spouses) as compared to the other systems. Case in point, with my 30 years service an 80/20 PPO for myself and my spouse (through STRS) is over $1,300 per month premiums whereas if I would have driven a county dumptruck for that same 30 years of service with OPERS my current premium for the same insurance coverage for myself and my spouse would only be $80 per month. By only paying out 77% (for 35 years service) OPERS can currently put four times the STRS amount of employer contributions (1% vs. 4%) into their health insurance for their retirees. Guess I shouldn't have gone to college, eh?

  4. John: Interesting comments on a couple of fronts.

    I suspect that the extraordinary investment returns enjoyed by STRS during the 80s and 90s lured the Board and the General Assembly into becoming overly generous on the payouts, which included not only the higher payout rate you mention, but also the so-called "13th paycheck."

    But the market goes in cycles, and the Board and the fund managers should have banked those extraordinary returns for when times would be leaner, like now. So now STRS has a much-diminished fund balance during a period of very meager returns. Double whammy.

    And so the question is, who's going to pay to make STRS solvent again?

    My perspective is that the taxpayers have already contributed what they agreed to contribute, and that should have been enough to make things work had the payouts not been cranked up.

    It was the STRS membership who decided to jack up the benefits, to make risky investments, and to ignore the fact that the rapid run-up of final salaries had rendered the system insolvent.

    The taxpayers had nothing to do with these decisions, and should not be expected to make STRS whole again - at least not without significant concessions in other area of compensation and benefits, for both active teachers and retirees.

  5. I hear what you are saying. I would add that $1,000 + monthly health insurance premiums on the shoulder of retirees ARE "significant concessions" for retirees that have been conceded for years now.

  6. My understanding is that STRS was not designed to be a health insurance program as well as a pension vehicle, and that choosing to add health coverage was made possible again by the extraordinary investment earnings of the 80s-90s.

    I know it's hard not to feel like extraordinary returns are a "new normal," as folks were often saying in the 90s, but any student of economics knows there is always a boom and bust cycle. The trick is having the discipline during the boom to store away most of the extraordinary returns so as to be able to survive the bust.

    The political reality is that voters will not be inclined to bail out STRS at a time when the voters are themselves trying to survive the greatest economic shock of their lifetime, and any reasonable pension is looked at with envy.

    We can talk about history, and what's fair, but that doesn't count for much when it comes to politics.

    The whole reason this blog exists is that the 'public school industry' in general does such a horrible job of public education/public relations. They can't process things with a historical perspective because they were never exposed to (or interested in) this stuff as it happened.

    In the ignorance (and apathy) most voters are filling in the blanks with bad information. I'm hoping - with the help of thoughtful commentors like you - to get the truth out there.

    That's the only way we'll find sustainable solutions.

  7. Paul,

    Actually, STRS began their health care insurance program well before the "80s-90's" as they realized the need for health care and began offering health insurance to their retirees more than a decade 1974. The other four Ohio pubic pension systems also added health care insurance before thoe extraordinary investment earnings of the 80s-90's. Then, health insurance was much more affordable for both public servants and those workers in private enterprise. A major difference today is that many of those in the private sector lost their employer health coverage and didn't fight to keep it from being taken away from them. Ohio's public servants including teachers, firemen, policemen, nurses etc. have fought to keep their retirees' healthcare and continue to fight for their benefits. The drubbing of Issue 2 is evidence that not only educators but other public servants will not stand idly by and see their future stolen from them. Because these public servants still have this insurance we are now seeing what is called "pension envy" by those working in the private sector. My fellow retirees, active educators and myself gave up 4-5 years of income generation just to get a college degree to enable us to become licensed educators. We gave up 4-5 years of our working lives so that we could work for less than other college graduates with similar degrees on other fields requiring college degrees. We love teaching but we participated in a trade-off, a trade-off of less wages in our early income producing years for assured benefits upon retirement which included a Defined Benefits retirement and healthcare. When I started teaching in 1970 I was offered a job at Ford Motor Company for triple the wages I began teaching. I chose teaching becaused I loved the vocation AND because of the retirement I knew that would be there when I was but now that dream is in jeopardy. There are current politicians who would love nothing better than to turn Ohio STRS (and the other 4 public systems) into a 401(k) model so that they and their friends can get their hands on the billions of dollars in these 5 public retirement systems. If they get their way, their friends (the investors) will become enriched and will reward these legislators with copious campaign contributions and the vicious cycle will our expense.

    1. John: Not sure if you're still following this comment thread, but I'd be interested in hearing you reaction to the Dispatch story today re the possibility of dropping the health insurance coverage from STRS retiree benefits.

      It seems to me that this would be the most concerning for teachers eligible to retire and receive STRS pension payments, but not yet eligible for Medicare/Medicaid. I predict that it would force teachers to try to work closer to 40 years, just to stay on their employers health plan.

      And I predict that this would cause school boards to pay more attention to the upper years of their salary schedule. This could simultaneously suppress their retirement benefits - a double whammy.

      This is how the deflating of a speculative bubble works its way through the economy. Eventually, everyone takes a haircut...

  8. Thanks for the clarification re STRS healthcare provisions.

    In most of the private sector, what degree you have - or even if you have a degree - is most useful only when applying for a job. After that, it's what you actually contribute to the organization. Sometimes a person with no degree but a true passion for the work outperforms someone with a PhD in the field.

    I'll suggest that degrees are important in the education industry mostly because we don't have a good way to measure effectiveness. If we did, we'd probably require a degree to get started, but then afterword would care much less about whether a teacher had advanced degrees than if the teacher was effective.

    We each choose our own paths through life. I started my vocation when I was 19, and finished college at nights while on the job. What happened after that had little to do with degrees. It wasn't necessarily the best way to go, and unquestionably I was paid less in the early years than my classmates who finished their degrees straight after high school.

    I also knew that my firm didn't offer any retirement programs when I was offered a job there. Didn't matter to most of us as we were in our 20s when the company was started and retirement was decades away. That's the path we chose and are now living with that choice.

    I don't begrudge you your pension any more than I did my father his, or his father's before him. I thought SB2 was flawed, signed the petition to get the referendum on the ballot, and voted against it in the Nov election.

    I'm not a teacher-basher. One of my kids is a teacher by the way. But we've got to stop the chest-thumping, name-calling and blame-casting like we saw going on at the Statehouse last fall, and start working on equitable solutions -- and soon.

    Have you heard the story of what happened in WV (my home state) and their introduction of a defined-contribution plan for teachers?

    Back when the stock market boom was creating 401(k) paper millionaires, the WV teachers started complaining that they were being left behind. So the legislators gave teachers the option to convert to the DC plan, and a pretty good chunk of them did.

    Then the stock market tanked, and those teachers saw their retirement savings evaporate. So what did they do? They claimed that the stock brokers running the DC plan had duped them into buying bad investments, and wanted the State to return them to the DB system, making them whole for their loses.

    The last I heard, the legislators agreed to do just that, and were going to make a special assessment to every school district in the state to cover the losses. Not sure where that stands.

    Interesting that you fear that if the politicians convert STRS over to a 401(k) system, it would be to make their stock broker friends a pile of money. There are of course people now making a ton of money off management of the STRS portfolio, be they the internal fund managers, or the brokers through whom they deal.

    Political patronage isn't about IF someone gets rich off the taxpayers, it's WHO gets rich. The Republican vs Democratic battleground isn't about which political philosophy wins, it's about whose buddies get paid off. Of course, many political contributors place bets on both horses...

    Again, thanks for the dialog.

  9. Paul,
    Just for clarification, STRS invests approximately 80% of their investments by the use of their very own employees and not private investment houses. OPERS has their own investors and these OPERS investors handle over 50% of the OPERS moneys that are invested. The other three Ohio public systems "hire out" all of their investing. And...yes....this makes for a more clear understanding where both of us are coming from. Too bad that the pols on the national and state level can't sit down and do the same thing!

  10. John: STRS makes their investment decisions inhouse, but the actual trades are executed by licensed brokers, and the securities are held by licensed custodians (likely the brokers and custodians are the same investment bank).

    While STRS undoubtedly gets a very much discounted rate for transactions and custodial services, when you're talking about tens of $billions of assets, their investment bankers makes a boatload of money off STRS.

  11. Paul, I'll take your word on this aspect as i am not "investment minded" and would never trust my "feelings" on what to invest in. I've always trusted STRS staff investors to make the best decisions. They have made a lot of wise decisions. Of course they have made some bad decisions and...... (to my understanding) those in private enterprise who make good or bad investment decisions (UNLIKE STRS INVESTORS) don't always have their very own state pension(OPERS) to fall back on when they also retire even if they make many bad investments. Come to think of it....I doubt that those in the private investment business world (as opposed to STRS investors) are rewarded(performance bonuses) for losing less moneys than their fellow investors and collect a handsome bonus for doing such. Maybe you can shed some light on that area.

  12. John: As a private investor, I can choose to pay my financial advisor in one of two ways: a) a commission on each buy/sell transaction I ask him to make on my behalf; or, b) a percentage of the total value of the portfolio I keep with his institution.

    The one I choose is determined mostly by who I have make the investment decisions. If I'm making the decisions, I'll usually choose the transaction model, because I need my advisor to serve only as the broker (to find the other party to the transaction).

    When I ask my advisor, or sometimes a third-party "money manager" to make the investment decisions, the "% of assets" approach is typically used to compensate the advisor. This is the approach used in mutual funds as well - the mutual fund manager each year charges its clients a fee which is a percentage of the total value of the portfolio.

    One of the downsides of the fee system is that no matter whether the portfolio value goes up or down, the advisor/manager still collects the fee. Certainly the fee is large if the manager makes a lot of money for the client, but even when they lose money for the client, they get their fee.

    With its inhouse investment staff, STRS chose to base the bonuses on performance relative to some well-known index, such as the SP500 index. I'm sure this was implemented when the stock market was growing like crazy.

    You may have heard the phrase "all boats rise with the tide." This is shorthand for saying that it's not hard to make a pile of money in the stock market when the whole market is rising.

    Many pension funds like STRS thought it was overly generous to pay their investment team big bonuses for making a 15% annual return when the market in general was going up 12% anyway (all these numbers are made up for illustration), so the governing Boards would modify the bonus plan to recognize only the amount the investment team 'beat the index.' In this case, you'd say that the market got them 12%, and they were responsible for only 3% growth.

    The problem is that the STRS Board didn't think through what that meant if the market was going down. So if the SP500 index went down 50%, but the value of your portfolio went down only 25%, might that not mean your investment team was especially good at what they do? Had they just plunked your $billions into SP500 index options, you would have made 12% on the upside, and lost 50% on the downside.

    Instead - in this example - you made 15% on the upside and only lost 25% on the downside. Doesn't that deserve some reward?

    Put another way, if you want to burn them when the market in general goes down, even if they keep you from suffering as much as everyone else, then it seems like you shouldn't constrain their reward when the market is going up.

    Instead, it seems like you want the best of both worlds - to suppress their income opportunities when the market is going up, and to make them suffer the full burden when the market is going down.

    I'll suggest that many of you teachers - because of your ignorance about the financial markets and investing - treated your STRS investment team with same kind of selfish disdain that you accuse the general public of directing toward you.

    Empathy is an increasingly scarce commodity in our world...

  13. Paul, a question re. the above. Do the majority of investors you refer to have a state retirement system to fall back on when they retire? If so, is their final average salary determined by including the bonuses that they were awarded during their "best 3 years" or some other time period?

  14. kicking the can injects ....

    Back to the posed question at the end of this post. I think a simple solution would be to scale back all levels of Comp & Benies to those of 2002. Thus , Cranking on the RED KNOB !! This is the ONLY way to get any control of this unsustainable spending. I just want to know why all the Westerville teachers were cheering and going crazy after the Levy squeeked by ..... was it really for the Kids ????

  15. John: I'm not clear whether you're asking about investment managers, or individual investors, but I'll assume the former.

    I guess it all depends on how each pension plan is set up. STRS has chosen to operate with an inhouse investment team, and it sounds like those investment managers have been defined as state employees and are eligible for PERS or SERS pensions.

    My guess is that the STRS Board did it that way because they thought it was cheaper than outsourcing the fund management to a big investment house like TIAA-CREF, Morgan Stanley or Goldman Sachs. Sounds to me like maybe it's not cheaper after all, if you are begudging them the pay they are due according to the employment contracts you set up, and they agreed to work under.

    If their bonuses count toward their retirement benefits, that's part of the cost of having inhouse staff as well. Maybe it's time to re-examine the wisdom of that choice.

  16. Paul,

    I am talking about all the investment employees at STRS (approx. 78) who do the investing. Not their managers, all of the above...managers plus their underlings. All of them are eligible for bonuses. Yes, all of them have been paying into OPERS and are paying into OPERS for their retirement when they serve for 30 years and are eligible for full state retirement benefits with OPERS. Yes, their bonuses count in the FAS (final average salary) to determine their monthly retirement check amount.

  17. "Investment manager" is a generic team that would apply to all those folks, regardless of whether they are in supervisory capacities. Presumably a person wouldn't be eligible for a bonus unless he/she plays a part in making investment decisions.

    My point stands: their employment deal is the one the STRS Board and the investment managers agreed to. Negotiate a new deal if you want, but live up to the one everyone signed.

    My understanding is that the investment team waived bonuses they had already earned according to the terms of their employment contracts. That's probably a smart move on their part, because it lessens the chances that the STRS Board will feel taken advantage of, which in turn lessens the chances that you'll fire them all and outsource things.

    It's been my observation that STRS and OEA don't treat their employees with the same respect that the demand for their members.

    It's that empathy thing again.

  18. To those of you STRS people who are retired or who are reasonably close to retirement, you have my sympathies. No one wants the rules changed in the middle of the game. I believe you, John, when you say you chose teaching and the accompanying lower initial salary because of the passion for your work, and for the defined, secure benefits, including retirement.

    Yes, things have changed, but not just for you. So for those who are NOT reasonably close to retirement, DO NOT look to me, the taxpayer, to make you whole! Are you covering my losses? In addition to Social Security contributions, which the federal govt.freely admits was never intended to be enough to live on, we have to prepare on our own for retirement. We contribute easily much more than 10 percent of income to retirement investments, when Soc.Sec. payments are included.

    And the reason health care is such an issue for retired teachers is because so few of them ever work until the age of Medicare. When was the last time you ever saw a 60 year old teacher still working? You have a great deal. Yes, you work for it, and yes, you contribute towards it. But private sector workers rarely have anything close to what you do. I'm looking at working until I'm 67. Younger teachers get no sympathy from me and I certainly hope they don't expect additional financial support from me for retirement.

  19. I wanted to comment from the perspective of one in the private sector.

    I too chose to give up 5 years of earning power to pursue a college degree and Paul's right, that degree was worthwhile but only for that initial few years. After, it's been all about what I've done since. In fact, my degree is in design and I work as an engineer.

    You mentioned that teachers and other public sector folks have chosen to fight for their benefits while the rest of us have not. Perhaps I misunderstand your intent, but that shows a gross misunderstanding of the working conditions outside the public sector and I'm struggling to resist taking offense at it. I get the healthcare my employer offers, period. If I don't like it, tough, change jobs. I work in a company of 30 people, ony 5 or so with the same basic job as me. Even if we were able to stand together, our power to negotiate is nill. If we chose to strike or anything like it, we will simply be replaced.

    The vast majority of college educated folks have no means of fighting for their health care, we simply must take what is offered us.

    The same goes for our salaries. I get the raise my employer determines I should get, assuming he can afford to give raises. I've gotten none for 6 out of the last 10 years and one year I took a pay cut. Compared with inflation, I make substantially less today than I did when I started with my company 10 years ago. I do not have the luxury of a contract that guarantees more money each year, simply because the calendar page flipped. If I want a raise, I need to do well, document that and go toe to toe with the boss, or (even harder) hit the streets and get a new job.

    With regards to retirement, I pay in one form or another nearly 100% of my retirement. Social security comes 100% out of my wages (half is paid by the employer, but I see that as income not given before taxation) and anything else comes from my own ability to save. We do have a modest employer match at my wife's company.

    I've been in the workforce for 20 years. As a teacher, I'd be 10-15 years from a very comfortable retirement. Based on my current savings, I don't foresee retirement for at least 20 years, likely longer, and even then it will be at a reduced income level. That is my fault in large part for the rate I've saved, but it makes it hard to be sympathetic. I don't think my situation is all that uncommon.

    My point is that you and the other teachers have it exceedingly good from where I sit. that may sound critical or bitter, and I'll confess that I struggle with that, but my point isn't sour grapes. What I'd really like is some understanding from both side of the other's perspective. From where I sit it means acknowledging how good it's been for teachers compared to other workers.

  20. Old Hilliard & Salguod - nicely put.

    Last year I took a 10% percent cut and lost my 401k to help save my job. This week I received notice that my health plan contibution would increase an additional 10% and instead of feeling angry I let out a sigh of relief that it wasn't cancelled altogether. I've worked 35 years and have only dreamed of knowing what a pension might be. My choices have helped lead to this point and I can't expect anybody to help make my situation whole

  21. Dont want to stray too far off topic, but I'm a bit "Socialist" when it comes to this topic. I think it's so ridiculous that two identical workers could have dramitcally different retirement outcomes based on which box they checked on their 401k enrollment form.

    The teachers should not be in the business of retirement planning. They should transition to the Social Security Administration, just like the rest of us.

    Oh and if anyone asks, I always say go with the Index Fund. I truly believe that OVER TIME, managed funds will trail the indexes by their fees. Unless you have someone one the inside, you're better off playing craps, where at least you know the house advantage.

  22. T: Of course, the benefits under Social Security and a retirement system like STRS are vastly different. I get those periodic statements from SSA that tell me what my retirement benefits would be once I start taking them.

    In round numbers, the STRS retirement benefit is probably 3-4 times the benefit one would have given identical income histories under both systems. Granted, the contribution to STRS would be about double that of FICA taxes, but that's still a pretty favorable deal - 2x in to 4x out.

    The point here isn't whether or not STRS is a good thing. It's part of the employment deal we make with our public educators.

    The question is who should bail it out, now that it's become insolvent from an actuarial perspective.

  23. Paul, that bail out should absolutely NOT come from taxpayers. NO ONE has helped to make up my retirement investment losses. STRS people are on their own.

    School districts such as Hilliard, though, need to also realize that if future retirement benefits are lowered, but salary scales are not controlled, those upper level income teachers will have no incentive to take retirement buyouts. Teachers will have incentive to work for more years, instead of retiring at, say, 58. So it seems to me that STRS issues will also impact Hilliard's long term expense projections.

    The demand for more tax money never ends. But it's enough for me to work and plan for my retirement. Surely, teachers don't expect me to make up their losses, too, do they?????

  24. I agree - the taxpayers have done their part to fund the system. Occasionally I hear folks say that the taxpayers have been putting the same amount into STRS for years. That's a distortion at best. The taxpayers have been contributing a constant 14% of salaries for many years - while salary have escalated very quickly.

    I don't know that we'll have another time when an early retirement incentive makes sense. We had right set of factors coming together in this case: a) a large fraction of our teachers at the top end of the pay scale and near retirement; b) the deal the teachers accepted (the $40,000 incentive) made sense; c) the cash available from a newly-passed levy to fund the incentive; and the greatest factor in my opinion: d) the likelihood that STRS benefits will change in the near future, and it's better to retire under the current rules than to chance what might happen in the future.

    In most cases, early retirement plans just give extra cash to folks who were going to retire soon anyway.

  25. ".....extra cash to folks who were going to retire soon anyway." Now there's good stewardship of taxpayer money. And some people still wonder why taxpayers are angry. The district seems to be run by a bunch of elitists who have no sense of caring at all about how hard it is to be in a district that is so casual with throwing away money!!!

  26. Paul, the only sensible solution is to use a % of the top 3 suggestions. Asking individual homeowners via levys of probably 10 mills or more even short term should be off limits.

    We also should provide new jobs to potential educators.
    supt, principals etc instead of allowing double dipping.
    This will allow a newly graduating educator an opportunity instead of holding on to existing so called talent

    On another topic I am hopeful you will address as well as the board is the new district rating guidelines as it looks that there was some INFLATION going on and real results were not what they appeared. Also where can we access the latest remediation rates for each district.
    Funny how there is lots of reporting and challenges butno admittance by the districts that there is a remediation issue
    that needs to be taken care. HOw can any district be rated
    Excellent with Distinction with 20% remediation rates and some are higher.
    Be sure to recycle the current signage and put up the upcoming to be published letter grade.

    And by the way a B is not bad, but is a far cry from the propoganda of the Distinction we have heard about.

  27. Rick:

    Thanks for your thoughts. Good points all.

    Worthington School Board member Marc Schare recently wrote a good article about grade inflation. It's worth the time to read.

  28. See these recent story from the Wall Street Journal. This is the kind of action which we need all over America.

  29. Back to the matter of STRS: According to this story in the Dispatch, it looks like the resolution is going to be a mixture of additional contributions on the part of the teachers (from 10% to 14%) and reduced benefits to both current retirees (reduced COLA increases) and those yet to retire.

    I'm glad the resolution doesn't include raising the 14% contribution taxpayers already make.

  30. Paul - a quick point here:

    You made an error on your calculations about the effect that going to a 7.75% from the 8.0% rate of return. Your 9% increase in contributions today from such a change is approximately right - its actually about 8.44%, but thats relatively immaterial here.

    However, you then stated that such a change would require a change in contributions from 24% of salary to 33%. That isn't correct. Its a 9% increase in contributions, not an increase of 9% of salary. The correct contributions rate would be:

    1.0844*.24 = 26.02% of salary. That's a far cry from the 33% you quoted.

    1. Thanks for the math check! I've corrected the article. pl

  31. Paul –
    It has been awhile since I said read your posts on STRS’s proposed reform and said I’d like to talk analysis of the deal. Well, I finally got around to it.

    You questioned the value of the pension relative to what the rest of us (myself included) get in private industry with social security and a 401(k). That is a very intriguing question, and it is critical to how generous or stingy we can say the pension benefit is. The problem is very difficult to analyze effectively, given that we can look at the past, but we can’t foresee the future, both in what will happen to salaries, inflation, social security, tax law, etc.

    So I went to calculate the value and inherent return of the pension plan under some basic assumptions:

    1) I took a teacher in Hilliard starting at age 23 and working until age 60 under the current payscale

    2) That teacher would then receive benefits from age 60 through age 83 (life expectancy at age 60 per social security tables for a female – males would receive less years expected payments and therefore less generous benefits).

    3) The teacher would at some point in their career move from bachelors to masters pay scales. I ignore the masters plus pay column for simplicity (the problem gets very complex very quickly the more we add)

    4) Base pay on the pay scale would be increased by some percentage on a constant, year-to-year basis. Ie, bump all pay on the scales up 1% per year, thus giving step+base increase to the teacher each year. This amount of bump in base pay, however, is treated as a variable for the analysis, though it remains constant over the whole career

    5) Inflation is a constant.

    6) Social security benefits would be based on current PIA bend points adjusted for this inflation rate, and wage indexes are based on the same rate.

    7) Social security benefits will not be equal to current scheduled benefits, but some reduced amount, no worse than 75% of current scheduled benefits (worst case per social security acutaries where congress does nothing)

    8) Net contribution rate (employee + employer percentage of base pay) is somewhere between 23.2% (14% for employee contribution under STRS plus 6.2% representing the employer share of social security and an average 3% employer 401(k) match) and 28% (current STRS employee + employer contribution to the pension system (remember – system, not an individual account).

    9) Tax effects and other benefits are neglected. STRS contributions are currently 100% deferred compensation and 100% taxable upon withdrawal, while SS contributions are partially taxable now and partially taxable upon withdrawal. SS also has different disability benefits that are very difficult to evaluate.

    10) To calculate the value of the employee pension, I treat the contributions as if 12.4% of net contributions is redirected for social security, the rest placed in a 401(k), and the pension benefit is based on the 401(k) withdrawals only from age 60-67, followed by social security supplementing this from 67+, with the sum of these equaling the STRS scheduled pension benefit. Social security COLA is the same as the inflation rate.

    11) Rates of return on investment for the 401(k) portion are constant. When I calculate the cost to the state, this similar rate of return is similarly constant.

  32. So in summary, the experiment was set up with 5 variables, with names and ranges as follows:

    1) Age at which teacher shifts from BS to MS scales : shift [23,60]

    2) Rate of inflation: inf [0,0.05]

    3) Rate of base pay increase : inc [0,0.05]

    4) Net contribution rate : cont [0.232, 0.28]

    5) Percent of currently scheduled social security benefits that will be paid : disc [0.75,1]

    Now, I ran experiments testing these values. For each experiment, I calculate the pension benefits based on the 5 year final average salary using the 2% non-compounded COLA starting after 5 years of pension benefits. I look at the pension benefit payments and the contribution history (so a 23-83 age range) and determine the rate of return needed such that the NPV of the pension over the entire career equals $0. There are two rates that this gives – one rate such that the NPV of the pension with a reduced contribution (12.4% lower) supplemented by social security benefits (reduced by the disc variable) equals $0, and a second rate where the 12.4% reduction is not taken and the state invests it all. This is critical for analyzing the pension, because social security’s rate of return on its trust funds is set by treasuries, which are a low rate of return, meaning that the state’s necessary return for an NPV of $0 is typically below the necessary return for someone in the private sector with social security in the wage range of teachers (hence the argument for privatizing some social security funds). I think its fair to say that a “fair” deal would be one that doesn’t provide for a benefit typical of a 401(k) with outlandish returns supplemented by social security, but also one with a fair rate for the state, along with a few other considerations.

    In any case, using these variables, I ran a 100 run latin hypercube DOE to extract the necessary returns. Using these results, I estimated the main effects, 2nd, and 3rd order interactions and a simplified prediction (the overall analysis being too complex to simply show in an equation). With 5 variables, this gives some confounding without additional runs, but fits were generally very good (r-squared values of ~0.98 and errors in the prediction formula typically within 10 basis points on the rate of returns.

  33. So what did I find? “Simply” put:

    Necessary rate of return in a 401(k) to get equivalent benefits supplemented by social security:

    1.235*inf - 0.01969*disc - 0.5736*inc - 1.186*cont - 0.003055*shift + 1.204*disc*inc - 1.343*disc*inf + 13.18*inc*inf + 1020.0*inc*inf^2 - 710.4*inc^2*inf + 1.795*cont^2 + 7.444*inc^2 - 15.88*inf^2 - 406.8*inf^3 + 9.044e-5*shift^2 - 8.211e-7*shift^3 + 0.2857

    Necessary rate of return for the state to balance the benefits:

    0.5502*cont^2 - 0.4155*cont - 5.16e-7*shift^3 + 5.864e-5*shift^2 - 0.002028*shift + 0.5909*inc + 0.1258

    So a few things I noticed through this:

    1) The age at which a shift from bachelors to masters (if it even happens) occurs matters, but it is a relatively minor factor, about equal to the effect of social security cutting benefits 25%. The other 3 factors dominate.

    2) The necessary return for the state is typically well below what the 401(k) equivalent would need to be

    3) The necessary return for the state is typically well below the 8% STRS is depending on (ie, young employees and districts subsidizing retirees and near-retirees – which is not the same thing as teachers getting outlandish benefits promised to them)

    4) Using historic inflation rates and rates of base pay increases state-wide over the past 20 years, these rates are about 7.58% for the equivalent 401(k) at a 5.21% cost to the state, assuming that social security isn’t fixed and faces a 25% cut in benefits (disc=0.75) and a net contribution rate of 23.2% (equivalent to 14% of teacher salary+6.2% company ss contribution + 3% average 401(k) match) plus a shift to masters pay at age 33.

    5) NPVs at these rates of each year’s contributions to future expected benefits are typically negative from age 23 to the late 40s – meaning any teachers that start young and leave early are getting much lower rates of return. In effect, there’s a trap that’s formed where after you’re vested, leaving the profession before your mid 50s means that your equivalent IRR is significantly lower than those rates given above.

    6) Higher inflation rates drive up necessary rates of return for the 401(k) equivalent side, but have no effect on necessary state returns, as those are solely based on pay increases. Of course, higher inflation rates means higher bond rates and those necessary state returns are easier to achieve.

  34. So my thoughts? The necessary returns for the state for these newer teachers is actually pretty modest. It’s equivalent to a pretty good rate of return (though historically below average) in a 401(k) supplemented by social security. Of course, if you got 8% annualized in a private sector 401(k), you'd be doing significantly better..

    Personally, I feel the 8% return to the state that they are relying on to fix STRS is too high, and will inevitably result in further cuts / increased costs to these younger teachers, meaning these equivalent rates of return are likely pretty optimistic from those teachers’ point of view. They’re likely not going to get even that good of a benefit. Now the question is what is fair? As I said, that equivalent return is pretty good, though it comes at a fairly low risk to the state (5.21% isn’t that far above current 20 year AA corporate bond rates, and those are at near historic lows). Overall, that seems like a good compromise to me on that point. You could argue that a return equivalent of a lower rate of return might be better, but I question how much the state should ride on the backs of teachers if the necessary rate is already pretty low. I also would consider the equivalent rate a decent compromise considering that you’re essentially trapped into the position for your entire career in order to obtain it (remember the negative NPVs of early years). That isn’t the case for private sector work. There, if you don’t like your job, you can simply leave and your retirement isn’t affected. Personally, I think the best solution would be ending the pension plan as it exists and replacing it with one which accounts for the entire career salary history – removing the negative NPVs at the beginning of the career and the positives at the end. Fix it with a reasonable rate of return so that each and every year’s earned pension benefits have an NPV of $0. That promotes flexibility for teachers, removes penalties for working a limited career early in your life rather than late, and with reasonable built in returns, would be far more transparent to the taxpayer what sort of deal the employees actually are getting, along with being more solvent and at (eventually) lower cost, too.

    Your thoughts?

    1. Wow... I'm envious of the kind of analytical tools you must have at your disposal. You didn't do that with just a spreadsheet do you? I miss having access to that kind of software, and my programming skills are way out of date (unless someone has a FORTRAN compiler I can use!).

      I'm not all that worried about 'fairness' of STRS benefits vis a vis what the rest of us might get. Rather, my question is who should bear the cost of putting STRS back on a sustainable track from an actuarial standpoint.

      My viewpoint is pretty simple:

      History has demonstrated repeatedly that investment markets have cycles of up years and down years. To pull a constant flow of cash out of a fund over a long period of time, you need to pick a withdrawal rate that somewhere between the highest rate of return and the lowest rate of return that's realized.

      When the STRS Board decided that the long bull market of the 90s was a 'new normal' and assumed that meant they could increase the withdrawal rate - which they did primarily with the 35yr kicker - they bet wrong. The stock market and the real estate market (their two primary investment vehicles), both tanked.

      Meanwhile they were obligated to pay the 35yr kicker (88% of final average pay) to the big wave of teachers who were hired to teach the Baby Boomers, and whom started retiring in droves in the past decade.

      The actuarial parameters are out of whack. They need to do some combination of having working teachers and employers (taxpayers) put more in, have already-retired teachers get less out, promise less to working teachers and/or making them contribute more, or take a more aggressive investment strategy and hope it works out.

      The first thing they've done is pretend that they can make extraordinary investment returns. That's just denial. Eventually they'll have to ease back on this assumption.

      So that leaves three players:
      1. Retired teachers
      2. Working teachers
      3. Taxpayers

      The proposed adjustments to STRS go after the working teachers, asking them to both contribute more and get less - notably with an elimination of the 35 year kicker.

      I believe the taxpayers should be excused from this situation. We've paid enough over the years via the employer's contribution to have made the numbers come out - had STRS not kicked up the benefits.

      Nor do I believe the working teachers should have to bear more than what it takes to fund the benefits they can expect to receive when they retire. We might still need to adjust what those benefits should be, using more reasonable actuarial parameters, but working teachers should not, in my opinion, be asked to bail out those who came before them.

      That leaves the retired teachers...

    2. ...But we have to think of retired teachers as being in two categories: those who got the 88% kicker, and those who retired before that was available.

      Teacher pay escalated rapidly in the last decade, at least in the better funded districts. But the older retirees, and especially those from the less well funded districts, don't have a lot to live on.

      I have a good friend who retired from an Appalachian district with a Masters+ and 32 years of service. Her final pay was $42,000 (about what we pay a 3rd year teacher with just a BA). Her pension was $30,000/yr (2.2% x 32 years) when she retired, and she's received some COLA since then.

      Compare that to a Hilliard teacher who retired last year at M+ and 35 years, when the kicker engages: Final pay = $90,000, pension = $79,000 (2.5% x 35 years). Without the 35 year kicker, this teacher's pension would have been $69,000. So the kicker is worth $10K/yr for life in this case, ignoring the great disparity in the pay scales when working.

      S who should take the haircut to fix STRS?

      That dialog is going on within the community of STRS members, and many seem to be pointing the finger at the recent retirees as being the beneficiaries of a benefit that should never have been created, and therefore should bear the brunt of the cost of fixing things.

      I appreciate that this is an extremely difficult dialog. All I ask is that the taxpayers be left out of it. This is a problem created by STRS and it needs to be fixed by STRS.

    3. And in defense of the retired teachers, they view their retirement package as part of a deal of lifetime compensation, accepting lower salaries when they worked for the promise of a generous pension when they retired.

      Whether or not one agrees with that perspective is irrelevant. It's what they believe, and they'll fight to keep what they believed they earned.

      Not an easy conversation, but like the one we need to have on in regard to all of our government entitlement programs...

    4. Husband of a Gahanna Teacher w/ 23 yrs who also works for a big local Insurance company (who give's 1-2% raises at best, 1.0-1.5% annual bonuses (that get taxed at 50% and do nothing to increase my annual salary, and offer health insurance that is pathetic). My wife will retire w/i the next 7 years. She's pushing to get to 30, I'm not so sure she should wait that long for different reasons (Pension reform, stress, etc). I wish people who think that teachers concerned about the the whole "pay based on performance" understood what goes on w/i the schools. Principals have a tendency to give the youngest, most popular, and poorest performers the weakest load while the best teachers are asked to do waay more. (by this I mean they get the most difficult children or those with the most difficult parents). I agree with taxpayers not bailing STRS out. They 9we) have our own problems weel worse than what teachers have to deal with. I'm fortunate to have a teacher as a wife. Over the years, because my wifes pension was either "all in, or all out", if we hit rough times, my pension deferrals were adjusted (down) so between the two of us our "total package" will efectively probably be about 80% from my wife's plan and 20% mine (even though I'll probably have 5 years more in the workforce than she). No teacher should have ever been given the opportunity to collect 88% of their salary by putting in 35 years. That was a big mistake by somebody. The current AND future retirees need to bail out the STRS with that group currently getting currently 88% at the front of the line. I've never really taken the time to understand the whole "double dipping" thing but NOONE, in ANY state job (teachers or whatever), should be allowed to do this. Every single person I know or have ever talked to (save those double dipping) feels this way. Somehow, that needs to stop. My 2 cents (ok, maybe 99 cents.)

    5. Thanks for weighing in.

      I'm a little conflicted about double-dipping. From the perspective of the retiree, it allows pension benefits to be locked in, while the retiree continues to work and receive a paycheck. The consequence is a reduction in lifetime pension benefits in exchange for more current income.

      Let's say that the STRS plan said simply that a retiree gets 2.2% of the final average salary times the number of years of service. A retiree making say $75,000 at 25 years of service would get a lifetime pension of $41,250/yr. Then working for 5 more years, that person would collect another $375,000 of income.

      If the person just waited to retire at 30 years of service, the pension would be $49,500/yr (assuming no raises). Of course, that in no way makes up for the extra $375,000 of income realized by double-dipping.

      But what does this cost the taxpayer? The school system gets the continued service of a valuable employee (or they wouldn't rehire), and the retiree gets a nice extra shot of income.

      The argument is that a person who retires early yet continues working should instead be required to continue working and contributing to the retirement system, rather than taking money out.

      That's an actuarial choice. As long as the members of the retirement system are all willing to contribute enough to fund the cost of a certain number of double-dippers, why should the employers/taxpayers care?

      Ah, but that's the rub. If such policies jeopardize the solvency of the pension fund, who will bail them out? If the members have to pay for their own misjudgements, e.g. with the 35yr/88% fiasco, that's okay with me. But the taxpayers shouldn't be bailing them out.

  35. Paul - I agree with a whole lot of what you said. I care about the fairness to everyone. I don't think that the comparison to social security and a 401(k) is unfair to make, simply because I would believe that a system that promised teachers the equivalent of a 401(k) with a (hypothetical) guaranteed rate of return of 15% combined with a social security benefit would be unfair to taxpayers even if it only resulted in the state/district coming up with a 9.2% match and a 3% rate of return. The equivalent return should be competitive with the 401(k)/social security, with savings going to the state.

    I think what STRS has moved to is actually pretty fair for everyone. I'm guessing at where the values for those 5 variables will be, and I see a relatively low rate of return that the state needs to get (good for the taxpayer) that would allow a benefit equal to that of a 401(k) with a good, steady return (good for the teacher).

    The problem is the system has been grossly mismanaged, and is in the hole big time right now. I think you and I are in complete agreement that they're being too optimistic on the 8% return. We also agree that benefits *were* much too generous. We also agree that working teachers should not be asked to bail out those that came before them - and that's my concern - that when (not if) the 8% is not achieved, the solution will be to make them bail out the teachers that came before them because the public won't understand that the benefit for working teachers (particularly young ones) wasn't exactly generous under the new plan - just fair.... and the fair plan will become unfair. It has become too common (IMO) for people to push pain onto others whenever possible regardless of facts and a simple question of fairness. Hopefully when future adjustments are made, they are made such that the actuarial value of each working teacher's pension isn't unfairly harmed.

    The good news is that eventually all teachers will be under the new plan and so long term, the necessary rate of return for full funding will drop from 8%. If they would be able to get to 100% funding, the necessary return would actually really be the state return I showed above, not the 8% (which is there simply to close that funding gap). That means long-term, tax rates SHOULD be able to drop.

    BTW - the basic analysis was done in Excel (great for calculating NPV, IRR, and with goal seek, easy enough to do). The curve fits and experimental design were done in JMP.

    1. I just saw this on Kathie Bracy's blog. The assertion is that STRS bought 3 million shares of Facebook for $114 million, or $38/share - which would mean that they got in on the presale and were a first buyer.

      If this is true, then at today's price of $19.20, they're down $56.4 million on this "investment."

      I can find no SEC filings that confirm this trade, but this may be below the reporting threshold. I'm sure Ms. Bracey will let us know what is found out.

    2. Sigh....

      This news sickens me, because that is exactly the sort of behavioral trap I expect to see them fall into while desperately chasing 8% returns. And the sad fact about this is that the failure to get that return will likely end up biting the youngest (and future) teachers and trashing their benefits, while the older teachers who have received MUCH more generous benefits (like the kicker you correctly point out) will get off with little to no pain.

      Honestly, they should have killed off STRS and had a "plan B" pension in place to move younger teachers into - because I believe (and hope you would as well) that the hair over 5% returns necessary to balance out their promised benefits based on a 9.2% total district match (again, equivalent of average corporate costs) is pretty modest.

      I am at least somewhat relieved to see STRS's response that based on a price of $19.34, the unrealized loss is $5.6 million (because of earlier sales), an entire order of magnitude below your estimate.

      I don't know James Stoll (the man who seems to have caught this), and don't necessarily agree with his positions he took when he ran for STRS, but it gives me the first impression that he'd be better at making rational decisions than the people running that dog and pony show....

    3. According to the most recent STRS earnings report, the realized return for FY12 was 2.34%. In order to catch up with an 8% long-term goal by the end of FY13, it would be mean this year's earnings would have to be 14%.

      I'm not saying they should try to catch up in one year of course, only that there is a double whammy going on here: 1) the fund is down $15 billion in value from its 2007 peak; 2) that reduced amount of capital is earning much less than the goal of 8% per year.

      Kathie Bracy's blogKathie Bracy's blog reports more on this Facebook trade by the way...