The TMRS Board met on Thursday, March 25, in Austin. This meeting was open to the public at the TMRS building. I was able to attend in person. Some of the TMRS Board members were present at the meeting, while other members participated via Zoom.
TMRS Executive Director David Wescoe reported on some internal happenings, retirements, and staff updates. He also noted that TMRS received GFOA’s Certificate of Achievement for Excellence in Financial Reporting. This makes 33 years that TMRS has received this accomplishment. Wescoe also reported on the 2020 Senior Staff Action Plan results and the 2021 Senior Staff Action Plan. He reported that all ten items in 2020 were accomplished, and he’s developed ten more items/goals to accomplish on the 2021 Plan. Finally, he announced that TMRS would be moving its headquarters to a new location in Austin. The new location will be close to MoPac and 45th Street. This relocation will occur later in the year and should serve the needs of TMRS staff as well as member visits in a more efficient manner.
TMRS legal staff led a discussion on the final adoption of proposed TMRS rule changes as it relates to Chapter 125 of the Texas Administrative Code. Back in October, the Board discussed various amendments/additions to Chapter 125 of the Texas Administrative Code. The proposal was to re-adopt five of the seven existing rules, add two replacement rules, and add five new rules. The five new rules proposed address elected officials roles, collection of city contributions (electronic funds transfer), various internal processes, ordinances (sets effective dates), COLAs and USCs, and the portal system and use by member cities. All amendments/additions were submitted to the governor’s office and also to the Texas Register for publication. Non-substantive comments were received, and the comment period has now ended. The next step is to file with the secretary of state and with the Texas Register for a 20-day period, and then it will be published.
The TMRS Board received a report from Gabriel, Roeder, Smith & Company (GRS), who recommended crediting the benefit accumulation fund (BAF) interest equal to approximately 7.45 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. For 2020, the TMRS total fund performance ended at 7.05 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 in contribution rates for 2022 from the 2020 investment performance.
TMRS staff gave an overview of the 87th Texas Legislative Session, which is currently underway. TMRS filed one benefit design proposal piece of legislation that includes: return to work which would codify the bonafide termination, do away with the current eight-year gap for employees, and provide for a one-year bonafide termination with the same city. In the House, the legislation was referred to the Pension Committee and was referred to Representative Raphael Anchia (H.B. 3902). In the Senate, the legislation was referred to the Senate Finance Committee and was referred to Senator Brian Hughes (S.B. 1105). Hearings have been set on both sides, and at this point, all seem favorable and non-controversial.
External auditors, Clifton Larson Allen (CLA), reviewed and outlined all upcoming duties/activities that will be administered: engagement team and scope, required governance communications, work plan including the system and organization controls (SOC) audit, and work plan including the financial statement audit. The calendar year 2020 engagement scope will include an audit of TMRS’ financial statements as of December 31, 2020; audit of TMRS’ schedule of changes in fiduciary net position by participating municipality (GASB 68 schedule) as of December 31, 2020; audit of TMRS’ pension management system for the period May 1, 2020 to April 30, 2021; and written communications with the board. The financial statement and GASB 68 audit reports will be presented in June 2021.
TMRS chief investment officer gave the annual asset class review on global equities. Global public equity has a 30 percent target allocation in the TMRS portfolio. TMRS is currently slightly over this target for several reasons: the current economic backdrop is highly supportive of equity markets in the near term with massive fiscal stimulus and loose monetary policy, and this allocation helps offset the total return impact on the TMRS portfolio by being underweight in private equity. Low-interest rates also contribute to being over the target. Performance for 2020 underperformed the benchmark by 1.79 percent. Part of the reason for this underperformance was due to the unprecedented market volatility in February, March, and April of 2020. As a result, under-performing active managers were eliminated; the portfolio was transitioned to a single index fund provider to save fees and increase the alignment with the benchmark; team assignments were adjusted to align with the updated portfolio; and TMRS staff will monitor the current active equity investment relationships and adjust their size as necessary.
Finally, RVK Consulting gave the quarterly investment report. The total fund returned 6.91 percent net of fees in the fourth quarter of 2020 and 7.05 percent in the calendar year 2020. The long-term total fund rate of return goal is 6.75 percent. As of the end of the fourth quarter (2020), the total fund market value was $33.7 billion, an increase of over $2.2 billion from the end of 2019.
The next TMRS Board meeting is set for May 27, 2021, at the TMRS headquarters in Austin.
Representative, TMRS Advisory Board
Senior Budget Manager, City of Plano