TMRS Highlights from the March 28-29 Board Meeting

Texas Municipal Retirement System Highlights: March Board Meeting
Casey Srader, TMRS Advisory Board Representative

As previously reported, for calendar year 2018, the Texas Municipal Retirement System (TMRS) total fund performance ended at -2.43%, net of fees.  Dismal investment returns in the last quarter of 2018, especially in December, negatively impacted the overall calendar year investments.  Despite the lower last quarter investment returns, in comparison to TMRS peers, TMRS fared better than most for 2018.  Now, final actuarial results are in and participating TMRS cities can expect an increase in contribution rates of approximately 0.18% (18 basis points) for 2020 from investment performance (will vary slightly by city).

TMRS investment staff continue to pursue new investment opportunities in the area of private equity, as outlined in the TMRS investment policy.  TMRS staff also gave an overview of current asset classes as well as initiatives for the future.  Currently, all TMRS equity portfolios are performing in accordance within expectations, and TMRS investment staff and RVK Consulting concur that no changes are immediately needed.  TMRS staff also gave an overview of TMRS’ use of both investment consultants and non-investment consultants.  Currently, there are four investment consultants and five non-investment consultants that were identified.  An internal review team will be established to review the current consultants used and try and determine whether or not all consultants add value.  The non-investment consultants will be reviewed first, and additional information will be brought to the board in future board meetings.

The TMRS Board underwent some on-going trustee training conducted by Gabriel, Roeder, Smith & Company (GRS).  GRS gave a presentation on procedures an actuary should follow when performing actuarial services as set forth by the Actuarial Standards Board (ASB).  It was discussed how the ASB sets standards for appropriate actuarial practice in the United States through the development and promulgation of Actuarial Standards of Practice (ASOPs).  In addition, TMRS staff gave an audit overview and report which included a review and assessment of the internal investment department as well as the TMRS internal control structure as it relates to new account set-ups.  In both cases, controls and procedures were excellent and followed recommended practices appropriately.  Finally, TMRS Board members participated in a discussion on governance, governance structure and responsibilities, and investment beliefs – all of which are leading up to a governance workshop which will be held in July.

Every two years, TMRS audit staff does a “deep dive” into a risk assessment to determine any and all risks facing TMRS.  The TMRS Audit Plan is designed to provide coverage of key risks, given existing staff, contracted external auditors, and approved budget.  Internal Audit completed a risk assessment for the purpose of developing the Audit Plan of operations.  The Audit Plan incorporates the Board and management’s input and risk assessment results and is designed to assure that management has established internal controls to address identified risks.  Part of the outcome was that TMRS would continue to have two auditors on staff and professional contracts for outside firms for specialized audits.

TMRS staff gave an update on the pension administration system assessment.  TMRS will implement an entirely new pension software system in the future that will both enhance and add greater website capabilities for TMRS members.  After going through a complete RFP process, a vendor finalist was selected to begin the assessment.  LRWL was chosen as the top vendor, and a contract has been executed.  A final assessment report from LRWL is anticipated in August.

Finally, on a very exciting note, the TMRS bill (S.B. 1337 and H.B. 2821), which was crafted by TMRS legal staff, was filed in the Texas Senate by Senator Joan Huffman and the House by Representative Dan Flynn.  Both bills were filed simultaneously.  The bills contain the TMRS Board of Trustees’ recommendations for administrative changes to the TMRS Act.  As a refresher, the topics of the five board governance and legal proposals include:  1) board meetings, 2) immunity and liability protection, 3) legal advisor, 4) confidential information/audit working papers, and 5) investment of assets – definition of security.  Topics of the four city-related and administrative proposals:  1) amortization periods, 2) prior service credit and updated service credit, 3) providing information electronically, and 4) occupational disability.  On March 25, the Senate State Affairs Committee passed a committee substitute for S.B. 1337 by an 8-0 vote and recommended that the bill be placed on the Senate Local and Uncontested Calendar for consideration by the full Senate.  H.B. 2821 was heard in the House Pensions, Investments, and Financial Services Committee on April 4 and left pending for future action.  As of this writing, this TMRS bill has been passed in both the Senate and the House, and the House bill was recommended for the Local and Consent Calendar.  Stay tuned for the final outcome in my next edition.

The next TMRS Board meeting is set for May 30-31, 2019, at the TMRS headquarters in Austin.  This meeting serves as the joint meeting with the Advisory Committee on Benefit Design.