Ohio treasurer plays with fire by keeping control of pensions
In approving a package of bills last year to improve the financial health of Ohio’s five public pension funds and keep them solvent, the General Assembly made it clear that no taxpayer dollars would be used to prop them up.
But, what if the declining health of the public pension funds can be directly linked to the actions of state Treasurer Josh Mandel?
It’s a question prompted by a Columbus Dispatch story over the weekend that says the pension funds could be losing millions of dollars a year because of a little-known arrangement that allows the state treasurer to pick where their money is deposited and what bank fees the funds must pay.
The story cited a study that shows the obscure law might be costing the School Employees Retirement System more than $900,000 a year. The potential losses for the four other funds have not been calculated.
State Treasurer Mandel’s involvement in the management of about $180 billion in pension funds may be unique in the nation, according to the consultant who performed the SERS study.
Yet, Mandel, a Republican, has made it clear he will fight any effort to remove the treasurer from the process.
His spokesman contends that removing him would be “financially irresponsible, unsafe and harmful to taxpayers.”
“The treasurer acts as a watchdog of Ohio taxpayer dollars, and we agree with the state legislature that the state treasurer should maintain its custodial responsibilities of Ohio’s pension funds because the treasurer is directly accountable to the people,” Chris Berry told the Dispatch.
But what if Mandel’s actions regarding where the money is deposited and how much in fees the pension funds must pay result in huge losses?
The trustees of the funds will certainly seek to cover the losses with taxpayer dollars. They aren’t going to be as cooperative as they were last year when they agreed to adjustments in benefits, premiums and eligibility requirements, including in some cases the age and service level at which participants will be eligible to retire.
During the deliberations, House Speaker William Batchelder commissioned a study by Pension Trustee Advisors and KMS Actuaries, which confirmed that reforms were needed and that the changes adopted by the Senate were necessary.
Given the controversy brewing over Mandel’s tight grip on public pensions, an independent evaluation is in order.
Batchelder should rehire Pension Trustee Advisors and KMS Actuaries to conduct the analysis.
Among the questions to be answered: Is the state treasurer in the best position to select the banks to serve as depositories for the pension money and to decide on the fees to be paid? If his actions result in losses in the funds, will the trustees have a legal basis for demanding taxpayer dollars to replenish their accounts? Is Mandel’s contention that having a watchdog answerable to the people is essential to the proper administration of the funds? Are the states that do not have the direct involvement of the treasurer in the investment of pension money fraught with corruption?
Even though the General Assembly adopted a bipartisan solution to the five pension funds’ difficulties, the future health of the overall system remains an unknown. The rising cost of health care, an increase in the number of retirees and a lackluster return on investments remain threats to the funds.
Treasurer Mandel’s involvement could easily become a point of contention.