The Pension Review Board met on June 27, 2019, to take up a number of items including Legislative updates, rule review, budget appropriations, and actuarial reports. See agenda here.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Agenda item 4 – Legislative Committee – Receive reports on the following items – Chair Leibe

  • TAB 2A Pension legislation passed during the 86th Regular Session, including the following – Ashley Rendon and Mariah Miller.
    • 17 bills followed by the PRB were either signed by the Governor or filed without signature. 4 bills will be discussed.
    • SB 2224 (relating to requiring a public retirement system to adopt a written funding policy) – Effective on September 1, passed unanimously by both chambers.
      • All systems achieve funding ratio equal to or greater than 100%.
      • Systems must have a written funding policy proposal.
      • PRB is working on guidance to help systems create their written funding policies.
    • SB 322 (relating to the evaluation and reporting of investment practices and performance of certain public retirement systems) – Signed on June 10 and went into effect immediately.
      • Fee disclosures for 3rd party investment managers engaged by the retirement system.
      • Requires an investment performance evaluation to be conducted by an outside party. Report of the first evaluation must be submitted by May 1, 2020 for each system.
      • Evaluation will be conducted annually for systems with $100m or more in assets, every 3 years for systems with $30m-$100. Evaluation will not be required for plans with less than $30m.
      • Vice Chair Brainard – What were the votes on this bill, were they unanimous?
        • Anumeha Kumar – They were not. Opposition was based on the cost to go to an outside service. The bill authors added language that would allow systems to use their in-house investment consultants.
      • SB 12 (relating to the contributions to and benefits under the Teacher Retirement System of Texas) – Signed June 10, effective immediately.
        • Increases contributions for members and employers who do not contribute to Social Security.
        • Provides a one-time increase in supplemental payments to certain annuitants with a cap of $2,000.
      • HB 2763 – (relating to the police pension fund in certain municipalities)
        • Substantially changes the plan in statute.
        • Risk sharing mechanism to share burden of unexpected costs.
        • City contributions set in statute at 18%. Employees set at 12%. Both numbers are set until 2025.
        • Several governance changes, including to board composition. Board is increased from 7 members to 8. Will include 4 members representing the police and 4 selected by the city.
        • Brainard – Would be helpful to know what other plans provide contributions pursuant to the actuarily determined rate.
      • TAB 2B PRB budget appropriation for Fiscal Years 2020 and 2021 under General Appropriations Act, 86th Legislature (H.B. 1) – Anumeha Kumar
        • Received all exceptional items requests and will maintain all critical agency positions.
        • Will hire an investment analyst to implement requirements under SB 322.
        • Have struggled with β€œbudgetary limitations” over the years. Thankful to the Legislature for providing funding in order to properly support retirement systems.
      • Revised Government Code – Anumeha Kumar
        • New requirements under SB 322 and SB 2224.
      • TAB 2C PRB rule review – Texas Administrative Code, Title 40, Part 17, Chapters 601, 603, 604, 605 and 607 – Anumeha Kumar
        • First step to post revised plan in Texas register and then staff will start conducting the review.
        • Staff will come back to October meeting with results of rule review, those will be implemented with the board’s support.
        • Brainard – Are there no rules right now or are we revising existing rules?
          • Kumar – Will be revising existing rules.
        • Richards – Will the rule review be a Committee or voted on by the whole board?
          • Kumar – Full Board.
        • Farina-Strauss – Today we are reviewing the plan for rule review. Will look at the results of that plan in October.
        • Brainard – Motion to adopt rule review plan as presented.
          • Motion passes.
        • Need for additional rules and/or guidance to implement statute, including new reporting requirements enacted by 86th Legislature – Anumeha Kumar
          • Member – Agree with the way the staff will work to provide guidance on fee disclosure and investment reviews. Would like to see that guidance focus on asset allocation and setting benchmarks by asset class, and how plans evaluate manager selection.
            • Kumar – Will make sure the actuarial committee elaborates on those points.
          • Member – Motion that staff be directed to work with the Actuarial Committee on fee disclosure and investment reviews associated with SB 22 and any other relevant legislation that has been passed.
            • Motion passes.
          • Item reopened by Kumar at the end of the meeting. Staff is currently conducting research β€œfull throttle’ in order to prepare for the September Committee meeting in order for members to consider the proposals.

 

Item 5 – Actuarial Committee – Discuss and consider the following matters – Keith Brainard

  • TAB 3A Actuarial Valuation Report – Kenny Herbold
    • This report does not reflect changes to TRS, Galveston Police, and others who have had changes recently made by the Legislature. Changes to TRS, etc. will be reflected in the next report.
    • McGee – Impressed with how far down the liability weighted mean assumed return came with the TRS plan. That is a great service to the state and will help with the health of the plan. That allowed TRS to get appropriate funding, other systems should take notice.
    • McGee – What was the resultant amortization period for TRS based on the changes made?
      • Herbold – Went to around 30 years from around 81 before the changes.
      • McGee – That is a big move, going from 81 to 30 years with a lower discounts rate.
    • TAB 3B Public retirement system reporting and compliance, including noncompliant retirement systems under Section 801.209 of the Texas Government Code – Bryan Burnham
      • 91 out of 99 plans are currently compliant. 2 are over 60 days non-complaint.
      • Amortization period movement has been slight. Of note there is one additional plan that has moved into an infinite amortization period.
      • Nacogdoches Hospital and Northeastern Medical Center have been notified of their non-compliance.
      • Dush – How many are above $100m, how many between $30-$100, and how many under $30m? How many will be subject to new evaluation requirements.
        • Burnham – At least 60-70% of plans will be over $30m and will be affected by the new evaluation requirement.
      • TAB 3C Update on the retirement systems subject to the Funding Soundness Restoration Plan (FSRP) requirement, including compliance – Reece Freeman
        • Gave a review of FSRP changes that will be required of various retirements systems, mostly fire departments.
        • Brainard – For Fort Worth, they made reforms but are still not under the threshold. Will they continue to work to get under the threshold?
          • Freeman – They have a risk sharing plan and will be implementing other changes.
          • Brainard – So we will wait a few years and see how that plays out?
          • Freeman – Yes.
          • McGee – We are seeing a trend where plans and sponsors are being clear about what their goals are and what will happen if they do not hit their goal. Would encourage PRB staff to continue to be explicit about goals.
        • Update on Texas Public Pension Data Center – Anumeha Kumar
          • Could bring more info to the board about traffic and downloads that people are making.
          • Will continue to fine-tune the data center and are open to suggestions from retirement systems and board members.
          • Want to make sure data is easily accessible both to the public and to the legislature.
          • Brainard – This is a great resource, staff have done an excellent job getting this up.
        • TAB 3D System Intensive Reviews – Kenny Herbold
          • Worst-quartile plans by each measure are highlighted in the report.
          • Odessa and Paris Firefighters Funds are under review. Anticipate presenting those reviews at the next Actuarial Committee meeting.

Item 6 – Education and Research Committee – Discuss and consider the Minimum Educational Training

(MET) Program for trustees and system administrators pursuant to Section 801.211 of the Texas

Government Code, including the following – Judge Cable

  • TAB 4A Receive update on MET compliance reporting – Joey Evans
    • 2 non-complaint plans, both are over the threshold.
  • TAB 4B Receive report on PRB online training utilization in comparison to other MET sponsors and approved courses – Joey Evans
    • Gave overview of utilization of MET training by various retirement systems.
    • Brainard – In the future could you let us know which retirement systems are offering this in-house?
      • Evans – Yes.

 

Item 7 – Review and discuss report from the Executive Director on the following matters – Anumeha Kumar

  • TAB 5A 2019 Evaluation of PRB Educational Services
    • Discuss the response rate of the report and survey.
    • Overall satisfaction with educational services the ratings were close to 90 percent and one common comment was that people are looking for training the PRB provides.
    • The survey was all electronic.
  • 2019 TEXPERS Summer Educational Forum
  • TAB 5B Updated Fiscal Year 2019 Operating Budget
    • Kumar – On track with 2019 budget. No money outside what was given by the Legislature has been spent.
  • TAB 5C Approval of Fiscal Year 2020 Operating Budget
    • Motion to approve budget as presented.
      • Motion passes.

 

Item 8 – Personnel matters, including the evaluation, compensation, and performance of the Executive Director – Chair Leibe

  • Board went into closed session for this item.
  • No action was taken in closed session.
  • Increased the salary for the executive director to the highest amount for executive director Effective in Sept 2019.
    • Motion Passes.

Β 

Public Comment

  • Name, Sage Advisory – SB 322 is a great opportunity for plans to have an evaluation. The problem is it needs to be a true independent consultant, not consultants who are currently in-house. Would urge the board to create guidelines to encourage systems to bring in true outside consultants.