TMRS Highlights from the June 2020-2021 Board Meeting

By now, many of you have probably heard that TMRS Executive Director David Gavia has announced his retirement, effective May 2020.  David will be missed as he has done a tremendous job during his tenure.

One very exciting thing to report is that the TMRS bill (S.B. 1337), which was crafted by TMRS legal staff, was signed by Governor Greg Abbott on June 14.  S.B. 1337 is the bill which was filed in the Texas Senate by Senator Joan Huffman and the House by Representative Dan Flynn.  This legislation amends the TMRS Act and provides for administrative and operational efficiencies.  The bill will go into effect on January 1, 2020.

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 and 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.  TMRS staff recommended honoring both Senator Joan Huffman and Representative Dan Flynn via a resolution for their hard work in sponsoring and helping to pass the TMRS legislation.

While not authored by TMRS, there were two other pension-related bills that passed and will have a direct impact on TMRS.  The first bill is S.B. 322, which requires retirement systems in Texas to report on investment practices to the Texas Pension Review Board, which oversees all state and local public retirement systems in Texas.  TMRS will solicit guidance from the Texas Pension Review Board to ensure compliance.  It is anticipated that TMRS will not have any issues with obtaining the required compliance.  The second bill is S.B. 2224, which requires a retirement system in Texas to adopt a written funding policy.  TMRS is already in full compliance with this requirement.

Gabriel, Roeder, Smith & Company (GRS), TMRS’ actuary, gave an overview of various studies conducted on behalf of TMRS.  During this overall funding process review, the question for TMRS becomes:  “Where will the money come from to pay all benefits to its members?”  There are three studies to address this question:  1) experience study; 2) asset allocation study; and 3) asset and liability study.  As part of the on-going compliance process, each of these studies is conducted at various points in time.  GRS also reported that there are a lot of current policies and procedures under review this summer and into the fall.

 

The TMRS Board underwent some on-going trustee training conducted by Mosaic Governance Advisors.  Part of this training consisted of discussions with the Board and staff regarding governance, governance structure and responsibilities, and investment beliefs – all of which are leading up to the Governance Workshop with the Board to be held in July.  The Board discussed desired outcomes for the July Governance Workshop as well as translating those outcomes into reality after the workshop.  Another topic to be addressed in the upcoming workshop is establishing a framework for revisiting Board responsibilities in light of executive director responsibilities.  Differentiating between significant duties of the Board and the executive director is essential.

Newly contracted external auditors, Clifton Larson Allen (CLA), presented outcome reports on control and process testing.  CLA reported on the 2018 TMRS Financial Statements, which received an unmodified “clean” opinion that the financial statements are presented fairly and in conformity with GAAP.  In addition, the 2018 TMRS Schedule of Changes in Fiduciary Net Position by Participating Municipality received an unmodified “clean” opinion that the financial statements are presented fairly and in conformity with GAAP.  The 2018 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, 2018, thru April 30, 2019.

 

TMRS staff gave an overview of the 2018 TMRS CAFR.  Notable takeaways:  five new cities joined TMRS; the system has $28 billion in assets as of 12/31/18; one-year gross time-weighted rate of return – (2.11%); TMRS as a whole is 87.1% funded as of 12/31/18 (down from 87.4% in 2017); independent auditors’ report gave an unqualified clean opinion; balance sheet net position decreased $965 million, or 3.4%, from 12/31/17 to 12/31/18; income statement net decrease in net position (additions less deductions) – $3.4 billion increase in 2017 compared to $965.8 million decrease in 2018; supplemental death benefits fund:  $17.3 million net position at 12/31/18 – decrease of $1.6 million, or 8%, from 12/31/17 ($18.9 million), due to benefit payments exceeding contributions; at December 31, 2018, all asset classes were within target ranges; 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.

The next TMRS Board meeting is set for August 22-23, 2019, at the TMRS headquarters in Austin.

Casey Srader, TMRS Advisory Board Representative

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