TMRS Highlights from the March 24 Board Meeting
Casey Srader, TMRS Advisory Board Representative
The TMRS Board met on Thursday, March 24, in Austin. The meeting was open to the public at the new TMRS building. I was able to attend in-person. All TMRS Board members were present.
Executive Director David Wescoe gave a report on some internal happenings, retirements, and staff updates, one of them being the TCMA City Management Clinic. He also reported that planning is underway for the 2022 Annual City Training Conference scheduled for September 13-14. Wescoe reported the TMRS currently has 907 participating cities and continues to grow. Finally, Wescoe recommended to the Board that an ad hoc committee be established to review and give an evaluation of the current Investment Policy Statement (IPS) and report back to the Board. The current thought is that the existing IPS is more of a procedure statement as opposed to a policy statement. Vice-Chair Bob Scott will lead the effort in this IPS review, and Board Member Anali Alanis will assist.
Legal staff presented for adoption the final changes to Chapter 129 of the Texas Administrative Code as well as repeal of the current Chapter 129 of the Texas Administrative Code. As a refresher, Chapter 129 of the Texas Administrative Code applies to domestic relations orders attempting to divide TMRS benefits (such as a court order in a divorce proceeding) and the requirements an order must meet to be a qualified domestic relations order (QDRO). The substantive amendments in the new Chapter 129 rules include:
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- Adding a provision stating that TMRS has pre-approved QDRO forms designed to allow parties to properly divide a member’s benefits under the TMRS Act, and that TMRS may reject a domestic relations order that in not based on one of TMRS’ forms.
- Adding language to provide that, if a pre-retirement QDRO is not clear how to divide future interest credited on accumulated contributions after the date of divorce until the time benefit payments begin, then the portion of benefits awarded to the alternate payee will be allocated its proportionate share of future interest.
- Rearranges the rule’s structure and more clearly describes how existing processes work if a member is pre-retirement or post-retirement when TMRS received a domestic relations order and determines it does not meet the QDRO requirements.
- Adding procedures regarding possible holds on payments and shortens the period for the person contesting the determination to begin pursuing action in court for review and clarification of the order.
The process to implement these rules changes consisted of sending to the Governor’s Office, publishing the rules in the Texas Register for a 30-day period, and then bring back to the TMRS Board for final adoption. The Board did adopt all changes to Chapter 129 of the Texas Administrative Code.
Legal staff also presented to the Board a list of possible TMRS Act amendment topics for the upcoming 88th Legislative Session in 2023 which consists of three benefit design topics and seven administrative topics. As a refresher, here are the three benefit design items:
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- Cost of Living Adjustments (COLA) – Add 90 percent as an additional choice to the existing 30 percent, 50 percent, and 70percent options cities have when adopting an ad-hoc or repeating CIP-based COLA.
- Updated Service Credit (USC) and COLA Coverage – Amend the Act to allow cities to choose to provide retirees with a COLA without being required to provide USC for active employees. In other words, “de-link” the two. The thought here is to provide an easier path for some cities and more than anything, provide more options.
- Supplement Death Benefit (SDB) – Amend the Act to allow cities to provide a SDB for retirees without providing an SDB for active employees.
The Board felt that none of the seven administrative topics were critical to TMRS’ operation and none require pursuing legislative action at this time. The three benefit design topics will continue to be researched going forward and discussed with the Advisory Committee on Benefit Design.
The Board received a report from Gabriel, Roeder, Smith & Company (GRS) who recommended crediting the Benefit Accumulation Fund (BAF) interest equal to approximately 12.26 percent which will be credited based on the beginning of year market value BAF balance for each city. This will maintain the initial Interest Reserve Account at $310 million to allow for unanticipated changes in the market values as all investments are finalized. In addition, it was recommended that a credit of five percent interest be allocated to each of the Supplement Disability Benefits Fund and the Supplemental Death Benefits Fund. For 2021, the TMRS Total Fund performance ended at 12.8 percent, net of fees. Per TMRS Financial Policy, the goal performance is 6.75 percent. Annually, the difference between actual and expected credits at 6.75 percent is smoothed over a 10-year period to determine the amount of excess/shortfall to recognize in a given valuation. As a result of this excess, cities can expect a slight decrease of approximately 0.26 percent in contribution rates for 2023 from the 2021 investment performance.
According to TMRS staff, during 2021, the Supplement Death Benefits (SBD) Fund decreased by $7.2 million, from $12.6 million to $5.8 million. Gabriel, Roeder, Smith & Company (GRS) and TMRS staff recommend $7.5 million be transferred into the General Reserves Account to cover any SBD Fund deficiencies that may occur. The $7.5 million will still be invested as part of the Trust; therefore, the transfer between reserve accounts will have no impact on TMRS’ investment earnings.
CIO Dave Hunter reported that preliminary overall Total Fund market returns were 12.80 percent, net of fees, for the year ended December 31, 2021. This preliminary return exceeded the Actual Allocation Benchmark AAB by 61 basis points. Both the Private Market and Real Estate markets did very well in 2021. Hunter also gave the Asset Allocation Update. As of December 31, 2021, actual allocations were within approximately 1 percent of target with exceptions for Public Equity (overweight 2.3 percent), Private Equity (underweight 2.3 percent) and Hedge Funds (overweight 3.3 percent). There was discussion that the overweight in Public Equity and the underweight in Private Equity were off-setting each other and that was OK. Finally, Hunter reported that TMRS has less than $10 million in Russian investments and thus, a very minimal impact. Hunter raised this issue due to the crisis in the Ukraine.
Finally, RVK Consulting gave the Quarterly Investment Report. The Total Fund returned 3.71 percent net of fees in the fourth quarter of 2020 and 12.80 percent in calendar year 2021. The long-term Total Fund rate of return goal is 6.75 percent. As of the end of the fourth quarter (2021), the Total Fund market value was $37.8 billion, an increase of over $4.1 billion from the end of 2020.
The next TMRS Board Meeting is set for May 26, 2022, at the TMRS headquarters in Austin.