By Casey Srader, TMRS Advisory Board Representative
The TMRS Board met June 25-26. Due to the coronavirus, Thursday’s meeting was closed to the public but made available via webcast; Friday’s meeting was executive session only.
The purpose of Friday’s meeting was to conduct executive director interviews to replace David Gavia, who retired.
The TMRS Board is currently developing a “work plan” in conjunction with Mosaic Governance Advisors. The work plan will run in conjunction with the strategic plan and other Board priorities. A partial-year draft work plan was proposed to the Board. The draft work plan includes the recent committee changes, investment model, strategic initiatives, and required action items.
Mosaic Governance Advisors also led a discussion about investment beliefs as it relates to the Governance and Investment Policy. The overall goal for the Investment Beliefs Project is to arrive at Board consensus on 8 to 12 investment statements which encompass the following four categories: 1) investment policy and governance, 2) risk, 3) portfolio construction, and 4) implementation. Once the statements are finalized, they will be incorporated into the investment policy statement. The Board wants to learn more about sustainability – environmental, social, and governance (ESG) factors as it relates to investment practices. ESG will be a topic of discussion for the Board at its August meeting.
TMRS legal staff member Christine Sweeney reported on the continued proposal of new rules and rule amendments as it relates to Chapter 123 of the Texas Administrative Code (rules adopted by the TMRS Board). Ten new rules were discussed:
- A new definition for “compensation” – to include items such as car allowances, uniform costs, etc.
- A new definition for “spouse” – clarification as it relates to divorce.
- Bona-fide termination of employment – clarifies to receive TMRS benefits and clarifies consequences if no bona-fide termination.
- Return to work – make clear to the employer and employee.
- Restricted prior service credit – as it relates to the status of the member.
- Payments due upon death of final annuity – as it relates to the designated beneficiary.
- Beneficiary causes death of member or annuitant – clarifies when the beneficiary did not mean to cause harm or death.
- Calculation of supplemental death benefits of active member – clarifies documentation required.
- Disbursements from fund – as it relates to electronic fund transfers and partial lump-sum distributions.
- Affidavits of heirship – clarifies and qualifies who the heir is.
The TMRS Board expressed an interest in re-looking at proposed rule number nine (disbursement from fund) from an operational and administrative standpoint. They want to make sure that the member has as much flexibility as possible to change the designation of lump-sum distributions. A motion was made to advance the adoption process of the ten new rules except proposed rule number nine. More analysis and research will be conducted by TMRS staff before advancing.
External auditors, Clifton Larson Allen (CLA), presented outcome reports on control and process testing. This is the second year for CLA to present audit findings. CLA reported on the 2019 TMRS financial statements which received an unmodified “clean” opinion that the financial statements are presented fairly and in conformity with GAAP. CLA also reported on the 2019 TMRS schedule of changes in fiduciary net position by participating municipality, which received an unmodified “clean” opinion that the financial statements are presented fairly and in conformity with GAAP. The 2019 TMRS system organization and controls 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, 2019, thru April 30, 2020. Net overall position of the Fund in 2019 ended at $31.9 billion compared to $27.7 billion at the end of 2018 representing an increase of $4.1 billion or 14.9 percent.
TMRS staff gave an overview of the 2019 TMRS CAFR. Notable takeaways: one new city joined TMRS; $39.1 billion in assets as of December 31, 2019; one-year gross time-weighted rate of return was 14.96 percent; TMRS as a whole is 88 percent funded as of December 31, 2019 (up from 87.1 percent in 2018); independent auditors’ report gave an unqualified clean opinion; balance sheet net position decreased $4.1 billion, or 14.9 percent, from December 31, 2018, to December 31, 2019; income statement net decrease in net position (additions less deductions) – $4.1 billion increase for 2019 – due to $4.3 billion net investment income; supplemental death benefits fund: $14.1 million net position at December 31, 2019 – decrease of $3.2 million, or 18 percent, from December 31, 2018 ($17.3 million), due to benefit payments exceeding contributions; at December 31, 2019, all asset classes were within target ranges; during 2019, the Board conducted an asset/liability study and an asset allocation study – as a result, a new target allocation was adopted, reducing the public equity allocation and increasing the private equity allocation, and electronic format (pdf) of the CAFR is available on the TMRS website. Finally, every city’s Distribution of Schedule of Changes in Fiduciary Net Position – by Employer (GASB 68) is now available as a package in electronic format (pdf) on the TMRS website.
To follow best governance practices, the TMRS Board directed staff to begin the process for issuing a Request for Information (RFI) at the May 2018 meeting for a governmental relations consultant. The Board then authorized a limited issuance of the RFI at the October 31, 2019, meeting. The governmental relations consultant provides legislative advice and support to the Board. After a review by the staff of potential consultants, the RFI was issued to five firms on November 18, 2019. In the end, two finalists were selected: Ron Lewis & Associates and Davis/Kaufman LLC Law Firm. Both firms made presentations to the Board at the meeting in the open session. Both firms received various questions from TMRS Board members during their respective presentations. The TMRS Board went into executive session to make their final selection. The firm selected was Ron Lewis & Associates. Ron Lewis & Associates has been the consultant providing that service since 2004.
The next TMRS Board meeting is set for August 20-21, 2020, at the TMRS headquarters in Austin.