TMRS Highlights from the October 31 Board Meeting

The TMRS Board meeting scheduled for Thursday, October 31, ended up being an abbreviated meeting due to the illness of the Board Chair Bill Philibert, who was at the meeting not feeling well. Also, as a result, the scheduled meeting for Friday, November 1, was canceled.

Things are in full swing to find a replacement for current TMRS Executive Director David Gavia, who has announced his retirement for May 2020. At the Board meeting, a representative from Hudepohl & Associates (executive search firm) updated the Board on the search. Hudepohl & Associates is currently working on a draft position specification and an advertising plan. Once these are complete, the Board authorized Chair Bill Philibert and Vice-Chair David Landis to give final approval for both items. Assuming both items are approved, the official search will begin on November 18. Hudepohl & Associates stated that the number of applicants for a search like this normally results in an average of 47 applicants. The plan is to narrow all applicants down and interview the top five candidates. It’s anticipated that this will be a four to six month process.

Gearing up for 2020, TMRS Finance Director Rhonda Covarrubias gave a brief presentation of the 2020 Draft Operating Budget. Highlights:

  1. Addition of six new positions: three investment department positions (one deputy CIO and two investment analysts), one Quality Assurance/Quality Control Analyst, one business process analyst, and one internal auditor. The six additional positions (salaries and benefits) are projected to cost $892,000.
  2. Approximately $270,000 of additional funds allocated for merit adjustments (mid-year).
  3. Additional funds of $759,000 for contract labor/temporary assistance for the pension administration system modernization project.

A complete, line-item budget will be presented at the December meeting for final approval.

Gabriel, Roeder, Smith & Company (GRS) shared the initial results of their Experience Study.  Overall, they are recommending minor adjustments, which will increase contribution rates an average of 28 basis points system-wide, starting in 2021. They noted that the national investment return median assumption for pensions has dropped from 7.75 percent to 7.25 percent since they last did a study in 2015. They believe that TMRS’s 6.75 percent return is still appropriate. Mortality expectations are increasing slightly, meaning we will all live a little longer in retirement. Now, due to a large number of TMRS retirees, they can base mortality assumptions on TMRS-specific data with some data supplemented by the Employees’ Retirement System of Texas. Payroll growth assumptions will decrease from three percent  to 2.75 percent due to the changing workforce – over half of the TMRS active workforce can retire within the next ten years. Also, S.B. 2 impacts were considered in that change. GRS feels that ultimately, this assumption will be lowered down to the two to 2.25 percent range. The most significant change of note is that starting in 2020, the amortization of unfunded liabilities will change from 25 years to 20 years, and ad hoc benefit amortization will change from 15 years to 12 years.

TMRS staff member Dan Wattles briefed the Board on the current request for proposal process for the Board’s governmental relations consultant. The current governmental relations consultant has been engaged with TMRS since 2004. At this point, there seem to be two potential firms that are interested. Part of Mr. Wattles briefing included requesting the Board’s approval to involve the Legislative Committee in the request for the proposal process. The Legislative Committee will receive periodic updates during the process.

Finally, Madison Realty Capital was recommended for investing in real estate. Approval was recommended for a re-up to $100 million. Madison Realty Capital is raising its next fund to originate and acquire commercial real estate loans, real estate mezzanine loans, preferred equity investments, and to acquire liens, most of which are expected to be backed by real estate located in the New York City tri-state area, Los Angeles, and urban Florida. Additionally, Abacus Multi-Family Partners was recommended for investing in real estate. Approval was recommended for a re-up to $100 million. Abacus Multi-Family Partners focuses on properties that have relative affordability in markets and sub-markets, showing favorable multi-family housing demand trends.

The next TMRS Board meeting is set for December 5-6, 2019, at the TMRS headquarters in Austin.

Casey Srader
TMRS Advisory Board Representative