House Pensions, Investments, & Financial Services Interim Report to the 87th Legislature

The House Committee on Pensions, Investments, & Financial Services has released its interim report to the 87th Legislature. Recommendations in the report concern implementation of new legislation, new Teacher Retirement System programs, small business pension plan programs, the actuarial soundness of the Employee Retirement System and TRS, and the State Auditor’s report. For more information please see the full report here.

The report also includes recommendations and statements from Reps. Barbara Gervin-Hawkins and Gary Gates.  Rep. Gervin-Hawkin’s letter recommends considering the issue of Districts of Innovation alongside healthcare costs and the need to provide quality health care, as well as urges addressing the state pension system in a more exhaustive manner. Rep. Gate’s individual recommendations are included in the spotlight below.

Spotlight on Recommendations

Interim Charge #1 – Monitor the agencies and programs under the Committee’s jurisdiction and oversee the implementation of relevant legislation passed by the 86th Legislature

• As fintech reaches more and more of the market, the state’s regulatory strategy may need to adjust to keep up.
• Evaluate the appropriateness of the $1,420 cap on loans made under Finance Code 342(F). A cap set too low effectively pushes customers from a licensed and regulated environment into an unlicensed, unregulated environment to meet their needs.
• Increase the fusion center funding to allow for an appropriate number of dedicated FTEs. The fusion center is the most efficient use of resources to combat this type of crime.
• Explore methods to allow gifts or donations to fund the fusion center. Private companies recognize the obvious benefit that the center brings to their industry, and will likely provide aid if allowed.
• Evaluate the need for outside analysis of public pension systems to fulfill the requirements of SB 322.
• Explore ways to grant the PRB enforcement capabilities to step in when public pension plans become detrimental to their members.
• Explicitly prohibit rolling amortization periods. – Evaluate methods for ensuring that all public pension plans maintain a maximum of a 30 year amortization period.
• Require that sponsors are tied to the funding policy requirement. Having all parties working from the same roadmap will increase the chances of successfully implementing the funding policy.

Interim Charge #2 – Monitor the Teacher Retirement System’s actions in implementing high deductible regional plans for certain school districts interested in providing alternatives to the current TRS-ActiveCare options.

• Explicitly prohibit independent school districts from using District of Innovation status a method for opting out of TRS-ActiveCare.
• Continue evaluating state and district contributions to member’s healthcare plans.

Interim Charge #3 – Study pension plan and personal retirement savings options for small businesses in order to be competitive with state and larger employers

• Encourage state agencies to perform education and outreach of private, state and federal retirement programs available to all Texans
• Evaluate the Setting Every Community Up for Retirement Enhancement (or SECURE) Act and identify measures that agencies can take to leverage the greatest benefit for Texans looking to enhance their retirement options.

 

Interim Charge #4 –  Review and evaluate the actuarial soundness of the Employees Retirement System and TRS pension funds. Examine the cost and potential strategies for achieving and maintaining the actuarial soundness of the funds. Examine the effect unfunded liabilities could have on the state’s credit. Examine the state’s investment policies and practices, including investment objectives, targets, disclosure policies, and transparency.

• Statutorily include TRS and ERS to SB322 and SB2224 requirements. Although both plans voluntarily submitted most of this information, it is not required of them unlike other public pension plans.
• Evaluate the need for outside analysis of public pension systems to fulfill the requirements of SB 322.
• Evaluate the composition of the ERS Board of Trustees. Unlike TRS, which requires its 3 gubernatorial appointees to have demonstrated financial experience, ERS has no equivalent statutory qualification requirement. Amend Board of Trustee appointments to require relevant experience of appointed members of the board.
• Should the legislature opt to fund a public pension plan with a lump payment, require enhanced reporting requirements every 1 to 3 years down the road.
• Explore adding stress testing requirements as a method for measuring the resiliency of public retirement plans. Stress testing provides a forward-looking outlook of possible future market distress scenarios. Many plans already implement some form of stress-testing.
• Require adherence to actuarially determined contribution rates.
• Require that sponsors are tied to the funding policy requirement. Having all parties working from the same roadmap will increase the chances of successfully implementing the funding policy.

Interim Charge #5 – Monitor the State Auditor’s review of agencies and programs under the Committee’s jurisdiction.

• No Recommendations

COVID-19 Pandemic Impact

• Allow for a waiver of cooling off periods and three-day waiting periods after closing before fund disbursements of a home equity loan are made during a disaster. These standards can limit access to a consumer’s major asset when they need it the most.
• Allow for a waiver of the one-year waiting period between closing and refinancing during a disaster.
• Revisit face-to-face requirements for home equity and real estate closings. Particularly during a disaster. Not only a disease pandemic, but flooding or other large scale disasters can significantly limit the ability of consumers to travel and meet in person.
• Revisit the requirements for in-person transactions. In a post-pandemic world, more business is expected to be conducted online, and the need for a physical location is diminished. As customer preference moves to online transactions, the industry should be able to follow.

Representative Gary Gates Further Recommendations

Employee Retirement System

• Explore raising both the constitutional cap on the state contribution rate to the Employee Retirement System and raising the employee contribution rate to levels that bring ERS into actuarial soundness.
• Explore placing new state employees into a defined contribution plan, a cash balance plan, or a hybrid plan which would combine parts of a defined contribution plan and defined benefits plan.
• Explore basing the assumed rate of return for the Employee Retirement System fund to within 300 to 400 basis points of 30 year Treasury Bills.

Teacher Retirement System

• While TRS made a good-faith effort to inform members of the Legislature and this committee during the hearing in March, closer examination of this process during the 87th Legislative Session may be in order. As part of their overall investment strategy, TRS should make future efforts to identify additional office space within the Austin-Round Rock-San Marcos MSA that strikes a balance between the agency’s need for highly skilled employees and their fiduciary responsibility to clients. The impact of COVID-19 on the private sector, particularly in the banking and investment sector and its employees, should also be taken into account to develop new and innovative strategies to retain and better manage client funds. Future strategies may include remote work for appropriate IMD employees or relocation outside of downtown Austin altogether, and should be explored by both TRS and the Legislature.