Texas Pension Review Board – July 14, 2022

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The Texas Pension Review Board met on July 14, 2022, to discuss regular agenda items. A copy of the agenda can be found here. A copy of the materials referenced in the meeting can be found here. A recorded video archive of the meeting can be found here.

This report is intended to give you an overview and highlight of the various topics taken up. It is not a verbatim transcript of the discussions 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.

Item 3: Administrative matters

May 12, 2022, board meeting minutes
- Motion to suspend reading of meeting minutes and approve as circulated; passes
Excusing the board member absence from the May 12, 2022, meeting
- Motion to excuse absent members from May 12, 2022, meeting; passes

Item 4: Recognition of past executive staff

Board Members read multiple resolutions honoring past executive staff

Item 5: Actuarial Committee

Actuarial Valuation Report, David Fee –
- Corpus Christi Fire, city contributions increasing through 2025 until city rate is double the member rate
- Corsicana Fire, payroll decreased after city moved to private EMS, recommends city increase contribution rate
- Galveston Fire, upcoming FSRP submission due in 2025
- Irving Fire, $80M pension obligation bonds sold, members will pay up to 13% of pay toward ADC, with city paying remainder
- Longview Fire, $46M pension obligation bond passed, not yet sold
- Paris Fire, considering closing plan to new hires, new hires would join TMRS
- Marcia Dush – It is striking that the highest median expected return are the TLFFRA plans at 7.5% and they have the lowest funded ratio at 61%
  - Based on the trends from Feb-July, we would have expected more to decrease their rate, but we will see
- Christopher Gonzalez – Do you happen to know national average for median expected return?
  - 06%
- Keith Brainard – How is a plan with an infinite amortization period reflected on the chart on page 9?
  - They are at the 120 mark
- Law Enforcement & Custodial Off Sup. Ret. Fund and Judicial Retirement System of Texas Plan Two both will require Legislative action, possibly in next session
- Dush – Beaumont considering a new tier would just mean lower benefits for new employees, can’t imagine that alone will do anything to move amortization period, Longview?
  - Correct
- Brainard- Regarding the two statewide plans, the unfunded liabilities is much smaller, and the state could potentially wipe them out, different from other plans on list, size of the problem varies greatly
- Dush – Particularly worried about systems with funded ratios below 50%, believes they should be put on docket for intensive review
- Christopher Zook – If someone has an employee funded ratio less than 100%, the only way those employees will have their pensions funded is if the city makes up the shortfall, exceptional investment performance not expected, or barring from current employees?
  - Correct
- Dush – If you are not 100% funded, you are kicking the plan down the road and asking members or taxpayers to fund past services, we are creating generational inequities
- Brainard – Is there any legal requirement these plans communicate these numbers with participants?
  - There is legislation in past that requires systems to alert their members when there is an insufficient contribution going on, with FSRP rules, plans will have to alert members if they fall below
- Brainard – Adequacy of contribution is required to be presented?
  - Correct
- Gonzalez – How does this list of systems compare with all plans?
  - Only compiled list of plans where total funded ratio is below 50%, I can compile for next meeting
- Gonzalez – Anything below 100% is of concern, is there a threshold that is not as concerning, maybe 80 or 90%?
  - Arguably something around 80% would give you a level of comfort, anything below that would be worrisome
- Zook – It is a moving target, would like to see lowest funded employee ratios with total funded ratio next to it
- Dush – We probably should be looking at plans below 65%, since that is an FSRP trigger
- Brainard – Does this require calculation on your part or is this a data point?
  - Most require calculation
- AG Office staff – There is a provision in Section 802.106 requiring a public retirement system to notify members of a summary of the financial conditions of the system, if an actuary determines a financing mechanism is inadequate it must be presented to membership
- Dush – It would be helpful to see which actuaries commented the funding mechanism for their plan is inadequate, that is a requirement in ASOP 4?
  - We can reach out to actuaries to go over this
- Nacogdoches County Hospital has no more funding sources
- Dush – If there is no money coming in, that is an inadequate funding source, they should be alerted?
- Brainard – Cautionary tale, they privatized the hospital and did not include funding of pension plan in negotiations to go private, fortunately it is well funded, but employers need to keep this in mind
- Systems whose members pay more than 100% of member portion are losing pay
- Dush – If you overestimate return of assets early on, it has to be made up later, this is an example of assumptions being set to optimistically and everyone is paying price
- Brainard – Systems whose members pay more than 100% need further discussion by Board
- Gonzalez – The par value of the dollar of contribution is greater than the par value of the benefit payments to that member, correct?
  - Yes
- Gonzalez – Is this disclosed anywhere to members? How would a member know they are paying 166% of member portion?
  - Unless they were watching this, I don’t know how they would know
- Gonzalez – What is a reasonable percentage of member portion?
  - Not for us to say, but you would assume a pension would be an enhancement of pay, not reducing pay
- Robert Ries – Do you know average of member portion for state?
  - Do not know, but you can see median value for different groups, median for statewide is 60%
- For employer percent of recommended contribution, ideal would be 100%
Systems subject to the Funding Soundness Restoration Plan (FSRP) requirement including compliance, David Fee –
- Triggered FSRP requirement: Galveston Fire
- Added to systems at risk: Austin Employees, Corsicana Fire, Odessa Fire
- Removed from systems at risk: Texas City Fire
- Removed from systems with Amortization Periods between 30-40 Years: Abilene Fire and Harlingen fire
- Brainard – Have all systems been notified of this?
  - Yes
- Dush – Detailed amortization period can change very rapidly, Brownwood Fire, Texarkana Fire, and Corsicana Fire for example
- Dush – These 31 plans that have averaged 6-7% in this incredible market environment, are these small dollar plans? Many plans have not provided good service to members
- Zook – Worrisome that plans are not communicating to members
- Dush – Plans should be investing more conservatively, do not see this in portfolio
Rulemaking relating to the updated FSRP requirements under Texas Government Code Sections 802.2015 and 802.2016, Madilyn Jarman –
- Nearing completion of rulemaking process initiated from legislation
- Presenting proposed rules for submittal to the Texas Register, goal is to have proposed rules in Register by end of this month
- Changes in rules include specified timing of strikes and updates, refined function of compliance corridors, and updated informational graphics to match current info
- Dush – There was a concern about the funding policy guidance not including update from last session requiring funding policies
- Clarifying the meaning of specific terms, in the rules or statute to prevent confusion, Ex: “Target Date,” “Valuation date,” etc.
- Removed language regarding the compliance corridors
- Section 610.15 – Clarifies that the existing notification requirement under §802.106(d), TGC, applies if an AV shows a funding period above the maximum allowed under FSRP statute
- Section 610.20 – Establishes the methods the PRB will use to determine an L-FSRP system is still compliant, including the L-FSRP compliance corridors
- Section 610.21 – Establishes when a system will complete their L-FSRP
- Section 610.22 – Clarifies that the revision exemption takes effect in 2025 once it is possible for a system to trigger an RFSRP
- Dush – With respect to funding period corridor, for determining whether you get the exemption, suggests not starting at 5 years and 10 years instead, 1 year increments
- Section 610.30 – Description of the required FSRP contents
- Section 610.31 – First update for systems that are currently subject: Sept. 1, 2023
- Section 610.32 – Establishes compliance corridors for new FSRPs in order to qualify for the pre-2025 branch of the exemption
- New board would need to be formally adopted at PRB meeting after rules take effect
- Once board-approved draft is ready, the materials will be submitted to the Texas Register for posting, July 29 issue
- PRB will send a notice out to stakeholders with the public comment period information once the Texas Register issue is posted
- Motion to authorize Executive Director to publish the rules in Texas Register after incorporating comments of the Board; passes
Public retirement system reporting and compliance, including noncompliant retirement systems under Section 801.209 of the Texas Government Code, Matt Featherston –
- Compliance happens 10 days after plans end, total net assets of plans have increased to $60B from last board meeting
- Overall compliance has improved since last meeting, investment expenses and PRB-1000 are two most common missing reports
- Nacogdoches County Hospital District Retirement Fund still working on 2021 audit
- Capital MTA plans have communicated they are working on reports
- Dush – This year we are preparing a report for Legislature, should we emphasize the chronically noncompliant plans?
  - Yes, will make sure this is known
- Dush – PRB has no enforcement capabilities, this really needs to be highlighted in our report to the Legislature, something needs to be done about the lack of enforcement
  - An additional step allows the Board to invite plans not in compliance to a board meeting
- Update on the intensive review of the Midland Firemen’s Relief and Retirement Fund, Robert Munter –
  - City council and Midland Fire’s board voted to move forward with the audit
  - RFQ issued and completed in January 2022
  - Selected Weaver for both forensic and governance audits at March meeting
  - April 12, 2022, City authorized services with Weaver
  - Completion target August 2022
  - Dush – Weaver is the plans normal auditor, and they said they could do an independent audit of the plan?
    - Yes
  - Brainard – Weaver is the plan’s auditor, not the cities?
    - I am not sure for the city, but they are the normal auditor for the plan
  - Brainard – There needs to be a wall there to ensure a proper audit, was it a joint decision between the city and the plan?
    - I believe it was joint
  - Brainard – The forensic and governance audits are not proceeding at this point?
    - There is an engagement letter and scope set up, but we have not heard any progress
  - Brainard – Do we communicate with the plan or the city? Or both?
    - We communicate with both, but the city is more responsive, at this point, if little progress is made, the August deadline will probably not be met
  - Dush – Great they hired someone for this audit, but this is a poorly funded plan and they are many years behind on an FSRP, very concerning there is no sense of urgency
  - Brainard – Requests that representatives of the City of Midland and the Midland pension fund to appear before the board at the next meeting
  - Gonzalez – Concerned if there is conflict with the regular audit and the forensic and governance audits having the same auditor
  - Brainard – If we find out it is not separate teams performing these audits, we should invite the auditor to appear before the Board as well
  - Liebe – An update of the review has been sent to key Legislative offices, Members from those areas, as well as Chairs of relevant committees and Speaker’s office

Item 6: Investment Committee

Update on Investment Committee activities
- Zook – Working with staff to draft best practices, not trying to tell plans where they can invest, but provide best strategies to be successful
- Dush – Would this include suggestions toward looking at pooling assets?
  - Zook – It could, we want standards for plans, if a plan is not meeting standards, we should consider making that suggestion and seeing where it leads
- Brainard – There is a need for this
- Motion for Board to direct staff to work with Investment Committee to determine best practices and develop guidelines to assist systems with investment matters as laid out under Investment Practices and Performance Provision; passes

Item 7: Education Committee

Update on PRB Core and Continuing Education course offerings and Learning Management System transition update, Ashley Rendon –
- Updating four courses this year for updated reporting requirements and best practices
- Continuing education courses, may retake core courses for CE credit, staff is working to develop two CE courses by the end of the year
- Learning management system transition – Currently using SoftChalk to manage course content and participant data, transition to LifterLMS in progress
- Zook – The videos that you talked about will be very helpful to increase utilization and retention, will that be also inside that LMS so that it is tracked in the same manner and it has popups like defensive driving?
  - We have looked at some things that the elements can offer
  - It is very much like an online course where it saves your progress
- Leibe – Wants to comment about CE, says there are many different possibilities so we have talked internally about having live webinars through zoom where people can interact with us, as well as other possible ideas
  - Hopes it will be a good opportunity to help timely topics
- Zook – One of the things we discussed on the investment side is to provide ongoing education
  - So much material that would be able to aggregate into that from third party sources

Item 8: 2022 Customer Service Survey, Ashley Rendon –

Gives background and methodology of customer service survey
Looks into general results they have received and the action items because of the fact
Received feedback from participant for lack of understanding, showing we need the agency to be more educational and spread more awareness of the fact
Staff is working on providing course updates, new courses, and the new LMS will help with the new certificate problem
Participants looking for more support from the agency
Our general conclusion is that none of our survey questions averaged a negative response
Results of the survey help guide our future programs
- Do take feedback seriously and prioritize the user/stakeholder
Switched to box.com internally which has helped with file sharing problems
- Testing new ways to utilize this format
Updating our core courses and working on shifting to the new LMS which is going to help create the new CE and improving that learning experience
Using social media, and hoping that those who are unaware of what we are doing can be notified because of this
Conducting more research and developing more educational materials
- Going under the governance study soon
Zook – On the new website, do we have a video that walks through where people can get information?
- Right now, we do not
Zook – If we could have a very simple tutorial video to say where you could get things it could really get people started

Item 9: Executive Director Report

Overview of the upcoming report
Update on the IT projects for the PRB
- Rebuilding database and portal to receive reports from pension systems and provide information
- Big picture of IT is to make several improvements both small and big
- Launching new website
- Still working on decommissioning an online server
Databases rebuild project is most complex, a big deal because our data base is the heart and soul of PRB
- Currently in the development phase – a few months behind in the project because of search for new developer
- As of July 6^th, do have a programmer on board
Have a portal to build an interaction with the pension systems
- Using box to test some basic workflows
- Portal would have much more capabilities
Discusses reports that have been completed since last February
- Submitted 2-23 to 2027 strategic plan
Published the Biennial TEXPERS report
- Provides comparative information on the forty-two most complicated plans in the state
Update on PRB’s participating in the TEXPERS conferences and educational events
- Effort made to update the conference participants
Vice Chair Brainard presented an analysis of pension systems funding with statewide and national data information
In August, Ashley and she will be attending the TEXPERS summer educational forum in El Paso
Leibe – was there any feedback that you and your staff received during this?
- Back on the presentation itself I am not sure.
- Doesn’t remember any overall and specific feedback
Brainard – Has also asked TEXPERS the evaluations regarding his presentation, and has been told the results are forthcoming
- As staff we can check up on that and see what the results on those are
Leibe – We can follow up on this and see if the information that was provided was informative and helpful or if there were any areas of improvement going into the next educational forum
- We will certainly try
- The presentation will be somewhat different and more into the nitty gritty
Staff updates with introduction of new staff
Leibe – What is the anticipated surplus for jobs?
- It is significant because we are looking at updating new equipment such as computers
- Will investigate it after meeting and send it to you
Leibe – move a motion to approve the 2023 operating budget as presented
Brainard – Were there overarching guidelines relating to legislative budget proposals
- That would be with the legislative budget proposals coming next
Motion to approve the FY 23 operating budget as presented; passes
Discussion of the 2024 and 2025 legislative appropriations request
- Wants to increase funds for staff salaries to provide additional merit increases as well as general increase
PRB oversees pension systems, wanting to be able to keep the staff that they have so that they can be an effective agency
- Want to request funds to not hire more staff, but to compensate those that they have
Leibe – Salary increases for staff is necessary
- Including an exceptional item in the LAR is not only needed but warranted
- Staff increases for the ED would exceed the ruling of this motion and would have to come from a third vendor party
Brainard – The unexpended balance is a capitol project; you don’t want it to be finished only half done
Brainard – I certainly hope the legislature will see it that way
Leibe – Wanted to follow up on the statement about encouraging the board to follow up on assigned written statement
- That could be provided to the legislature kind of signifying the board’s work over the past few years
- Is that something that we could include within the motion and make it feasible and practical
Staff – I believe if the letter merely reflects the action, you are taking today then you don’t run against that problem
- There is a problem against the open meetings act when the board distributes a letter for everyone to sign that enacts something outside of a board meeting
Leibe – Motion to direct staff to work with chair and vice chair to finalize the 2024 and 2025 legislative appropriation request
Staff – If there is a specific range or level for the ED that you will be including in the letter that may be something the board wants to address
- If you believe the letter will include that much detail than the board should include it today
Brainard – Not ready to identify a specific number
Motion to finalize the 2024-2025 Legislative Appropriations Request; passes

Item 10: Remembrance of Bob May, former board member

Discussion of deceased board member, Bob May

Item 11: Future meetings: agenda items, dates, locations, and other arrangements