The TMRS Board met on Thursday, June 24th in Austin and this meeting was open to the public at the TMRS building. I was able to attend in person. The majority of the TMRS Board Members were present at the meeting while one Member participated via Zoom.
TMRS Executive Director David Wescoe gave a report on some internal happenings, retirements, staff updates, various presentations given by TMRS staff, etc. One noteworthy upcoming retirement is that of Eric Davis, Chief Service Officer, who has served TMRS for 34 years. He also reported that the one benefit design proposal, Return to Work, was passed in both the Texas House and Texas Senate of the 87th Legislative Session (SB 1105) and has been signed by the Governor and will become effective Sept. 1, 2021. Finally, Mr. Wescoe announced that TMRS once again received GFOA’s Outstanding Achievement in Popular Annual Financial Reporting award.
TMRS staff member Dan Wattles reported that the 87th Legislative Session (regular Session) has concluded and a total 1,180 Bills passed during the session. Like Mr. Wescoe, Dan reported that TMRS’ Return to Work legislation (SB 1105) was signed into law by the Governor and will become effective Sept. 1, 2021. HB 4068 was passed which allows 24 City of Dallas Police and Fire employees who manage the Dallas Police and Fire Pension System to become part of TMRS. Dan also mentioned 2 other Bills of note: SB 13 which relates to state contracts with and investments in certain companies that boycott energy companies and also SB 19 which deals with contracts with companies that discriminate against the firearm or ammunition industries. It is unknown at this time whether either or both of these Bills will have any impact to TMRS.
External auditors, Clifton Larson Allen (CLA), gave a report on the 2020 Financial Statement Audit results to the TMRS Board. CLA reported on the 2020 TMRS Financial Statements which received an unmodified “clean” opinion that the financial statements are presented fairly and in conformity with GAAP. Limited procedures were performed, and an unmodified “in relation to” opinion was rendered on the other supplemental schedules. Also reported, the 2020 TMRS Schedule of Changes in Fiduciary Net Position by Participating City received an unmodified “clean” opinion that the financial statements are presented fairly and in conformity with GAAP. Finally, an unmodified “in relation to” opinion was issued on the individual city information presented in the Schedule.
Clifton Larson Allen (CLA) also gave a report on the System and Organization Controls (SOC) results to the TMRS Board. The 2020 TMRS SOC Report received an unmodified “clean” opinion that the controls implemented by TMRS were fairly presented, adequately designed, and operating effectively to meet the stated control objectives for the period May 1, 2020 thru April 30, 2021. In addition, no exceptions noted for the 10 control objectives tested. Also, CLA gave a report on the required auditor communications to the Board of Trustees and the required governance communications are in compliance.
TMRS staff gave an overview of the 2020 TMRS comprehensive annual financial report. Notable takeaways: 7 new cities joined TMRS – 895 total participating cities – 205,596 total members; $1.5 billion in retirement benefits paid; average annual benefit was $19,264; $1.2 billion in City and $479 million in member contributions; one-year gross time-weighted rate of return – 7.65%; TMRS as a whole is 89.5% funded as of 12/31/20 (up from 88.0% in 2019); Pension Trust Fund increased by $2.47 billion or 7.8%; City contributions increased by $261.5 million or 28.1% primarily due to lump sum contributions; retirement benefit payments increased by $98.5 million or 6.8% primarily due to number of retirees increasing from 61,266 in 2019 to 64,121 in 2020; Independent Auditors’ Report gave an unqualified clean opinion; Supplemental Death Benefits Fund decreased by $1.5 million or 10.6%; electronic format (pdf) of the comprehensive annual financial report is available on the TMRS website; and Distribution of Schedule of Changes in Fiduciary Net Position – by Employer (GASB 68) is available as a package in electronic format (pdf) on the TMRS website.
RVK Consulting and TMRS Chief Investment Officer TJ Carlson led a “deep dive” discussion on TMRS current asset classes and target asset allocations. This “deep dive” is done very 3 years. After lengthy discussion amongst the Board, the following asset classes and target allocations were updated/approved: Global Equity (35%); Core Fixed Income (6%); Non-Core Fixed Income (20%); Other Public & Private Markets (formerly Real Return) (12%); Real Estate (12%); Hedge Funds (formerly Absolute Return) (5%); Private Equity (10%); and Cash Equivalents (0%). Initially, Cash Equivalents was proposed to have a 1% target allocation. However, TMRS Board Member Bob Scott voiced his concern with this proposal as that would mean having too much non-investment cash on hand. Instead, he proposed moving this 1% target allocation to Core Fixed Income for a total of 6%. A motion made to adopt this these revised asset classes and target allocations, allowing for a 0% – 3% stipulation range for Cash Equivalents and a 0% – 10% stipulation range on all other asset classes, with an effective date of July 1, 2021. This approved change will also impact the Investment Policy Statement.
Finally, TMRS Investment staff gave both the annual Real Estate investment review and the annual Real Return (Other Public & Private Markets) review. The TMRS Real Estate portfolio is reaching target allocation (10% previously but will be raised to 12% effective July 1, 2021) with a steady growing pace in the previous 5 years. The 2021 goal is to commit $800 million of capital in Real Estate. The TMRS Other Public & Private Markets portfolio target allocation was 10% previously and has now been raised to 12% effective July 1, 2021. The current portfolio weight is 3.75%. Going forward, there will be a continued focus on private real return investment. The 2021 goal is to commit $600 – $800 million of capital in Other Public & Private Markets.
The next TMRS Board Meeting is set for September 23, 2021 at the TMRS headquarters in Austin.