TMRS Highlights from the December 5-6 Board Meeting

The TMRS Board Meeting scheduled for Friday, December 6, was canceled due to a lack of a quorum. However, many of the items on the agenda that were scheduled for Friday, December 6, were covered during the Thursday, December 5 meeting.  

Gearing up for a new year, the TMRS Board approved the 2020 TMRS Operating Budget after a final presentation was given by TMRS Finance Director, Rhonda Covarrubias. Highlights of the 2020 Operating Budget:

  1. Addition of six new positions: three investment department positions (one deputy CIO and two investment analysts), 1 QA/QC analyst, 1 business process analyst, and one internal auditor. The six additional positions (salaries and benefits) are projected to cost $774,000.
  2. Approximately $270,000 of the “new” funds are allocated for merit adjustments (mid-year).
  3. “New” funds of $625,000 are for contract labor/temporary assistance for the pension administration system modernization project. The total 2020 Operating Budget is $35,769,960.

Approximately every five years, TMRS issues a request for proposal soliciting consultants to assist in alternative investments. The process started back in August, and TMRS staff reported that the evaluation process was complete. Albourne America, LLC, was recommended as the top primary investment consulting firm. Albourne is a global, multi-asset class non-discretionary consultant serving a diverse client base and focuses on absolute return, real return, real estate, private equity, and private credit.

At the December meeting, there was a follow-up discussion from the August board meeting regarding proposed amendments to the Board of Trustee Bylaws as it relates to board officer terms and roles. A few of the more significant changes to the existing bylaws include the TMRS board chair position will be a one-year term with no term limit, and the TMRS board vice-chair is not required to become the eventual chair, as is the case currently. Also, another change is that the TMRS Board chair does not necessarily have to chair the legislative committee, as is current practice, but is required to be a member of the legislative committee. A motion was made and passed to accept these changes.

Also included in the December meeting was a follow-up discussion from the September meeting whereby Gabriel, Roeder, Smith & Company (GRS) shared the results of their experience study. Some of the changes as a result of the Study include increasing 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 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 percent 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. A motion was made and passed to incorporate these changes into the funding policy.

Parthenon Capital Partners was recommended for investing in private equity. Approval was approved at $50 million. Parthenon Capital Partners is a private equity firm that makes growth-oriented buy-out investments in the financial services, healthcare, and business services sectors across the United States.

Finally, due to a current vacancy on the TMRS Board, they chose to extend the current officer positions through the first Board meeting in February 2020. At that time, new officer positions will be selected. Also, TMRS Board meeting dates were designated for 2020. A list of these dates is available on the TMRS website.

The next TMRS Board meeting is set for February 13-14, 2020, at the TMRS headquarters in Austin.