[Mid-October 2005 special pension issue of Substance, Page One] By George N. Schmidt

“What’s at stake?” Patricia Knazze paused during one of several interviews and discussions about Chicago’s huge teacher pension fund.

“I don’t want to take the low road — like some people are doing in this race. What’s at stake is really whether the fund will continue to be governed with independence, integrity, and with a clear eye towards our fiduciary and moral duties that we have as trustees towards the teachers whose present and future are bound up in the integrity of this 108-year-old fund. But these duties are also bigger than that...”

Knazze presently serves as president of the $10.6 billion Public School Teachers Pension and Retirement Fund of Chicago, one of the largest and best-managed public pension funds in the United States.

Despite the fact that she has served as a trustee for the fund for nine years, she is currently facing a second election to hold her seat on the fund and is facing — David and Goliath style — the apparatus of the Chicago Teachers Union, which is supporting candidates less qualified than she is.

Knazze’s fears about the independence of the fund were echoed by her fellow candidates — incumbents Rose Mary Finnegan and Earnestine Murphy. Also running with Knazze is (non-incumbent) Jacquelyn Price Ward, who attended every meeting of the trustees while she served as recording secretary of the Chicago Teachers Union from 2001 to 2004.

By the beginning of October 2005, the four candidates (three of them incumbents with unblemished records for integrity in the performance of their duties at the fund) were restrained but barely able to control their anger. With each passing day, the discrepency between the records upon which they were running and the version of reality being promulgated by officials of the 36,000-member Chicago Teachers Union grew.

Ultimately, they decided not to respond to their critics, but to take the opportunity in these pages — and in a longer version of this series of interviews to appear on the World Wide Web —to present a positive case for their candidacy and to ignore, insofar as possible, the negatives that had been growing across the city as October 28 draws near.

If a record of integrity during one of the most corrupt times in U.S. financial and investment history isn’t enough to qualify a candidate for re-election to the board of a major pension fund, then something is rotten here in Chicago, all of the candidates agreed. Three qualified incumbents were snubbed during a controversial vote in the Chicago Teachers Union House of Delegates early in September. Now the union’s 36,000 members are being barraged by campaign literature on behalf of candidates who have controversial records on the pension board — or no record at all.

During more than eight hours of interviews, the four candidates featured here all asked that their positions not include “taking the low road.” These interviews all took place before the publication of the October issue of the Chicago Union Teacher, which they maintain deliberatley distorts their positions both in its “news” columns and in a half-page advertisement for their opponents. Substance has also learned that union staff members were crisscrossing Chicago in the days prior to the vote, amplifying the union’s talking points while in most cases ignoring the issues facing teachers in the schools every day.

“I don’t know how anyone expects us to do our jobs if we are not staying up to date on the latest ideas from investment people,” Knazze said, citing one criticism she had heard. “There have been a great many scandals in the investment world the past five years or so. The only way we can stay on top of the issues is to have a broad range of information to each of us.”

Other candidates interviewed by Substance talked about learning to read investment fund balance sheets and the financial press while holding down full-time teaching jobs, a considerable challenge they take on.

Noting Enron and other examples, Knazze insists that trustees of the fund have to develop independent knowledge of investments in addition to ensuring that the fund hires the best people to manage its investments. She cited the example of the Florida teachers pension fund, which lost a great deal of money when its investment strategy was dominated by a couple of people who were beholden to politicians. The Florida fund invested in Enron when the stock began to tumble, buying more Enron stock as the stock plunged. Because the Florida fund was dominated by political patronage, it took an enormous loss on the Enron debacle.

“The pension trustees are responsible for maintaining the future for all teachers — new teachers, veterans, retirees. The union should have no say over the internal workings of the pension fund,” Knazze went on. “Independence and experience are key issues in this election.”

She notes that one of the candidates in this year’s election (Maria Rodriguez) is now a full-time employee of the union, while the union has ended its longstanding policy of not having employees also serve as trustees of the fund.

“I’ve served as president since January 2004,” Knazze went on. “I’ve served as a trustee since 1996. My goal was to make sure that the pension office ran efficiently and that our investments were of the highest quality. I wanted contrbutors to come down and get the best service that could be. We have instituted quite a few new things that have achieved both those goals.

“My greatest concern is making sure that we are able to pay benefits. That’s done by making sound and prudent investments. We want to be sure that we can offer health insurance rebates to our retired teachers. Currently the rebate is at the 70 percent level. It went down as low as 52 percent a year and a half ago. These may sound like technical things, but they have an impact on the lives of thousands of retired teachers and the futures of thousands of working teachers.”

Knazze has also been working with the full-time staff at the pension office to improve services to all members. “I organized the board into sub-committees. Prior to my becoming president, I had served as acting president when Mary Sharon Riley retired. I was booted out as president in November 2002, when Maria Rodriguez took over. Maria was president 14 months. Then people suggested I do a term as president. Jackie Price Ward was liaison and asked me to serve as president. I told her I’d been kicked around and wasn’t sure, but Jackie convinced me.”

Knazze hoped the current election would make more teachers aware of the complexities of their retirement fund. “An example: Legislation must have all three entities signing on in Springfield before the political leaders will vote for it,” she continued. “These are the teachers union, the pension board, and the Chicago Board of Education. Teacehers who think we can do whatever we want with the fund are mistaken...”

Looking at the current campaign, Knazze said she was pleased that teachers could democratically select their own representatives on the fund, but worried about the price of running for office. “The union should not be spending our dues endorsing candidates,” she said.

All of the candidates continued to return from the chores of campaigning for the offices they sought to the duties of trustees. “I look at the fact that if an investiment is not doing well, we have to do what’s in the best interest of the fund,” Knazze said. “We fired a manager this past spring. We have several managers on our watch list. I’d need to check my data, but we have some pretty good procedures to ensure that the fund is managed properly. I’d hate to think what would happen if those were trumped by petty politics...”

Knazze is also proud of how the trustees have been working as a team since she became president nearly two years ago. “We finish every every agenda at every meeting, which is something we dind always do. Trustees get a day’s leave for pension business for the monthly meeting. We are also granted leaves from CPS for attending conferences in the city. We have in our bylaws a mechanism for trustees to attend three educational conferences per year. And we can carry one meeting over each year. The board can approve additional meetings. The more educated a trustee is, the more empowered a trustee is. You can never learn too much. We are not money managers or investment people by education — we are teachers and proud of that. We’ve become stronger and stronger in our role as trustees as time goes on. We hone our skills when we attend investment conferences. It’s a lot of work to go to every session. Investment professionals really take these things seriously. The material is very technical. It’s labor intensive to get through. The more a teacher or a lay person can learn, the better for the members of the fund. Our constituents are better served by the more we know.

“I have been teaching since May 1972. I’m in year 33 (and five months) of my career. I would not have traded it for anything. I always wanted to be a teacher. I had a couple of college professors who suggested law and things like that. Teaching was a true calling. I always wanted to be a teacher. It’s been tough. Urban teaching is tough. Some of us could have gone to Homewood Flossmoor — to these suburban places. We stayed in Chicago. We cut our teeth on Chicago teaching. ‘I wouldn’t take nothin from my journey’, to quote Maya Angelou.

“It’s been great, it’s been hearbreaking, but I wouldnot trade my life as a teacher. I have touched a lot of lives, and a lot of kids have touched my life. I change schools when I felt I have outlived my usefulness [at one school].”

It’s certainly not the money. “We are compensated for attending each meeting, but it’s $55,” Knazze laughed. “We’re overseeing a fund that is just below $11 billion in total assets. Public pension funds are a huge part of the economy. My dad was a laborer with streets and sanitation. My mother was a clerical at the police department. Both were union folks. Both enjoyed a good pension. Dad died in 1992.

“The defined benefit plans are under attack. When you meet with the state legislators and these really important people throughout the country. I’ve met with these people. I think back to my roots as a kid who spent elementary years in public housing (the Ickes Homes). My parents worked hard. I stand on the shoulders of hard working people who came up through generations. They worked hard and took care of their kids. I could not work for anything but the best for working people. I think about my parents and people who built this country.

“People made sure that this kid could get a job teaching and then go on to this, too. I could go somethwere right now and make a better salary. But I’m committed to protecting our pensions. Working to insure that teachers get a minimum pension of $18,000 a year minimum. There are people who are receiving very low pensions. RTAC has an aid fund because of this.”

Knazze asked that special mention be made of the fact that the Chicago fund is now a national leader in promoting women and minorities as managers.

“The ‘women minority emerging manager’ initiative that we intiated in 2004 has been very successful,” she said. “There has been a big push in Illinois to be more inclusive when it comes to women, investing through groups that push this. We have been in the forefront. We were honored last July for our proactive stance in this area.” ?