Pages

Friday, February 23, 2018


Still Having Trouble Getting Your 

Money Back? You're Not Alone

By Jonathan R. Davidson, guest columnist


Over the last decade, we have checked in periodically on the state of claims administration in securities class actions for United States public pension funds. At every turn, we have seen challenges confront the public pension community, making it harder to recover their respective share of proceeds from these cases. From difficulty maintaining historical data necessary to perfect a claim form, to the proliferation of cases being litigated around the globe post-Morrison v. National Australia Bank, claims administration continues to be a thorny issue for public pension funds. This article will examine what is happening in today, review current issues for investors, and provide some best-practice suggestions 
The Current State of Claims Administration

According to NERA Economic Consulting, between 2005 and 2016, over $62 billion dollars in securities class action proceeds were made available to investors. While public pension funds have a fiduciary duty to take reasonable steps to recover these funds, claims filing participation remain strikingly low. Recent estimates suggest only about 35 percent of eligible institutional investors file claims in U.S. settlements.

Recent Issues Causing Grief for Public Pension Funds

To add to the challenging claims administration process, new issues have arisen to further muddy the water.

Change of Custodian
Custodial change can give rise to an overlooked issue in the claims administration process. When a class period in a securities case spans the time of the custodial transition, the former custodian and the new custodian might each have insufficient data to file a complete claim on the client’s behalf.  When this happens, and two claim forms are submitted (one by each custodian), the claims are frequently rejected by the claims administrator as deficient.  If these deficiencies are not remedied (which we believe is almost always the case), the result can be a significant lost opportunity for the pension fund.

Former Custodians No Longer Filing Claims
Many custodians are simply getting out of the claims filing business altogether for former clients (or charging fees for this service).  This presents public pension funds with a difficult choice.  If a fund has all of their transaction history in-house, they might be able to work with their current custodian to construct a claim form which requires both older and newer transaction history.  If the institution does not have the old transaction data, they are at the mercy of the former custodian – either pay a fee to have them file or give up a percentage of the recovery.  Neither scenario is particularly attractive and gives rise to the risk of failure to recovery proceeds. 

Current Custodians Outsourcing Claims Filing
Some custodial banks are now outsourcing claims filing responsibilities to third-party filers, which begs the question: was this disclosed to the Board?  We have seen multiple instances where a public fund was not aware their custodian was not handling the claims filing process in-house.  While the end result may not prove harmful, at a minimum, public funds should know which vendor is doing this work.  Further, we have observed significant differences in the accuracy of claim filing by paid third-party filers – making this potentially more than a simple disclosure problem, and an issue which could result in the failure to recover. 

What Can Public Pension Funds Do To Improve?

The claims administration process continues to evolve. So must the processes that public pension funds have in place.  A few suggestions:

  • Discuss how much money you have received from securities class action settlements/judgments?  What claims have been submitted and are awaiting distribution?  Did you miss out on submitting a claim for a U.S. case? Were you not able to participate in the recovery of a non-U.S. jurisdiction settlement because you never registered for it?
  • Conduct a historical and on-going audit of your custodial bank/third-party filer to check their claims filing accuracy.  If missed claims are identified, immediately contact the claims administrator to see if you can submit a late claim/remedy a deficient one.  This can often be done as long as settlement proceeds have not been distributed.
  • To avoid an issue when changing custodians, consider including a provision in all custodial agreements to ensure your transaction data is returned at the end of the contractual relationship. 

Conclusion

Claims administration will never be Agenda Item #1 at your Board meeting -- public pension funds simply have more important issues to deal with in running their plans.  That being said, with the truly global nature of securities litigation in this post-Morrison world, public pension funds should continue to be vigilant in this area. The significant proceeds generated from securities class action settlements/judgments are an asset owed to you – do what you can to ensure you are getting it back.
The views expressed do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Kessler Topaz Meltzer & Check, LLP, or TEXPERS.

About the Author
Jonathan R. Davidson
Jonathan R. Davidson, a partner of the Kessler Topaz Meltzer & Check, LLP, concentrates his practice in the area of shareholder litigation. Davidon currently consults with institutional investors from around the world, including public pension funds at the state, county and municipal level, as well as Taft-Hartley funds across all trades, with regard to their investment rights and responsibilities.  
Davidson assists clients in evaluating and analyzing opportunities to take an active role in shareholder litigation.  With an increasingly complex shareholder litigation landscape that includes securities class actions, shareholder derivative actions and takeover actions, opt-outs and direct actions, non-U.S. jurisdiction opt-in actions, and fiduciary actions, he is frequently called upon by his clients to help ensure they are taking an active role when their involvement can make a difference, promote corporate accountability, and to ensure they are not leaving money on the table.  





Assessing the Merits of 

long-only equity allocations


By Marlena Lee, guest columnist

Investors continue to search for effective ways to structure their long-only equity allocations.

Many passive approaches have offered diversified exposure at low management fees with a minimal governance burden. However, concerns about the potential for a sustained period of lower returns have prompted some investors to revisit their decision to index and contemplate adding factors to their portfolios. Assessing the merits (and limitations) of any “factor-based” approach requires asking some seemingly fundamental but important questions:

  • Why should there be differences in expected returns across stocks? The chance that all stocks have the exact same expected return is virtually zero. There is a multitude of reasons why different stocks should have different expected returns, such as differences in risk or differences in investor preferences.
  • How can you identify these differences in expected returns? A good rule is that investors should not rely solely on back-tested results. There is a saying in statistics – if you torture the data long enough, it will confess to anything. A sound theoretical and empirical framework reduces the chance that a coincidental pattern in historical stock data will affect our conclusions.Valuation theory suggests the price of a stock depends on a few variables. One is what the company owns minus what it owes (book value). Another is what investors expect to receive from holding the stock (expected profits) and the discount rate they apply to those expectations (the investor’s expected return). This framework provides very useful insights. One insight is that the expected return investors demand for holding a stock drives its price. Another is that combining price with book value and expected profits allows us to identify differences in expected returns across stocks. For a given level of expected future profits, the lower the price, the higher the discount rate. For a given price, the higher the expected future profits, the higher the discount rate. Empirical analysis is also important – it can help inform expectations about the magnitude of premiums and build confidence that the premiums we see in the historical data are not there by chance. There are numerous studies documenting size, value, and profitability premiums using many different empirical techniques on large data sets—90 years of US data, 40 years of non-US developed markets data, and 30 years of emerging markets data. If we can expect premiums and have a good way of identifying them, we still need to assess how best to capture them.
  • How confident are you that premiums can be captured? What are the risks? If the premiums can be pursued in a well-diversified strategy, this improves the likelihood they can be captured by investors. Why? If results are driven by a small group of stocks or a small percentage of market cap, it is more likely to be a chance result. Additionally, less diversified strategies pursuing premiums are likely to have higher turnover and higher costs.  

Our experience is that using current market prices is important in identifying and capturing premiums. Combining current prices with company fundamentals creates an instantaneous snapshot of differences in expected returns. At that specific instance in time, stocks with lower relative prices and/or higher profitability have higher expected returns. If there is a spread in relative prices at any point in time, we should expect a value premium. This implies we can use current prices to continually focus on higher expected returns.

This does not mean that higher expected returns will be realized continuously, or even consistently.  For example, it is not unprecedented to see value stocks trail growth stocks over a 10-year period. A period of underperformance like this, however, is not by itself compelling evidence that one should no longer expect a value premium in the future. While there is a non-zero probability that any realized premium can be negative over any given investment horizon, that probability decreases over longer investment horizons.

While we encourage a long-term focus, we acknowledge that doesn’t make any underperformance over the short term less disappointing. Asset owners must be willing to accept that uncertainty as part of investing in premiums, just as they do investing in equities. Asset managers can help by not adding to that uncertainty through chasing chance results or inefficiently targeting premiums.

We believe a strong partnership with clearly set expectations, a long-term focus and expertise in implementation can translate to better outcomes for intermediaries and, ultimately, plan participants.

Dimensional Fund Advisors LP, an investment advisor registered with the Securities and Exchange Commission, receives fees for investment management services provided to client members of TEXPERS. There is no guarantee of strategy success. This information should not be construed as investment advice.

About the Author
Marlena Lee
Marlena Lee is co-head of research and vice president at Dimensional Fund Advisors in Austin. As co-head of research, Lee helps manage the firm's general research efforts. She shapes the research agenda by working with clients and the Sales and Investment teams to identify research topics on a variety of investment-related matters that may be useful to clients, including asset pricing, asset allocation, and retirement. Lee is also a member of the Investment Research Committee. Prior to joining Dimensional, she worked as a teaching assistant for Nobel laureate Eugene Fama, a professor at the University of Chicago Booth School of Business. Lee earned her doctorate in finance and a master's degree from the Chicago Booth School of Business. She also holds a Master of Science in agricultural and resource economics and a Bachelor of Science in managerial economics from the University of California, Davis.

A Case for Midstream Hybrids

By Shalin Patel, guest columnist

We view midstream hybrid securities as an attractive investment for enhancing yield (6-10 percent) and total return to a portfolio without taking on significant underlying equity volatility or commodity price uncertainty.  
Hybrids are attractive to issuers since rating agencies assign them partial equity treatment, allowing companies to issue debt-like securities without jeopardizing their credit ratings.  Hybrids provide investors with a better yield than the relevant issuer’s senior debt and a higher position in the capital structure compared to the equity along with positive correlation to interest rates (post coupon reset to a floating structure). 
Click image to enlarge.
Hybrid Securities Overview
Hybrids have historically been utilized by Financial/Insurance and Banking issuers to lower their cost of capital and comply with the requirements of Basel 3 guidelines but have gained prominence amongst other sectors in recent years.
Click image to enlarge.
Since 2011, midstream companies have raised $126 billion in equity through unit issuance while raising $40 billion through hybrid issuance through 280 equity deals vs. 87 hybrid deals. However, the issuance of hybrids picked up significantly in 2016/2017 (52 equity deals vs. 44 hybrid deals) as the equity performance of midstream companies remained volatile. 
Click image to enlarge.
Cost of Capital (MLPs vs. Hybrids)
Since 2011, midstream companies have issued $40  in hybrids with an average cost of capital differential of ~300bps (higher in 2015-2016) compared to equity yield. Given the recent rise in equity cost of capital for midstream companies and leverage concerns, we believe hybrids will continue to be a preferred avenue to raise capital. 
Click image to enlarge.
Click image to enlarge.
Pros/Cons of Hybrids
  • Solid Yield Differential: In our study, we found that hybrids are trading at a spread of +179bps (range of ~60bps to ~400bps) to their respective senior note’s yield-to-worst.  In our view, this yield differential is significant given that an investor is not taking duration risk (unlike longer dated bonds) and the ratings differential is minor (1-2 notches below senior notes). 
  • Strong position in the capital structure: Unlike equity units where there is distribution/dividend cut risk, hybrid issuers cannot cut coupons. Hybrids do offer the issuer the option to defer interest for a certain period.  However, in the event the issuer chooses to defer the interest on the hybrids, it is forbidden to pay any distribution/dividends or engage in any dividends.
  • Positive correlation to interest rates: Hybrids have a floating rate component embedded in their coupon structure and usually float at LIBOR plus a fixed spread. Given the rising rate environment, hybrids offer investors an attractive way to earn a decent cash yield and rising correlation to interest rates without stepping out on the duration curve. 
The views expressed do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all BlackGold Capital Management or TEXPERS.

About the Author
Shalin Patel
Shalin Patel joined BlackGold Capital Management LP in 2010 and is the director of research, overseeing the research efforts of the investment team while covering the Midstream sector. Mr. Patel also serves on the Investment and Risk Management Committees. He has over 9 years of energy high yield, distressed, and equity experience. Prior to BlackGold, he was in graduate school at Tulane University. While at Tulane, he was the Associate Director of Research at Burkenroad Reports, an equity research program at Freeman School of Business. Prior to Tulane, he worked as an equity analyst at Khandwala Integrated Financial Services, a brokerage firm in India. Mr. Patel graduated from Tulane University with a master's degree specializing in Finance and Energy and holds a Bachelor of Science in management concentrating in Information Technology from Gujarat University.




China A-Shares: Is Your Emerging-Market Manager Ready?



By John Lin, guest columnist

With the celebration of the Chinese New Year last week, investors welcomed the year of China A-shares, soon to be included in the MSCI emerging-market benchmarks. But put careful consideration into determining which funds are actually ready to join the festivities.

Index provider MSCI plans a gradual integration for the vast onshore market, whose $8.3 trillion market capitalization is second only to that of the US. Though A-shares will initially account for just 0.7 percent of the MSCI Emerging Markets Index, it’s a major step toward assimilating China’s vast onshore equity universe into global capital markets. At full inclusion of 500 stocks, A-shares are likely to account for more than 20 percent of the benchmark, according to many sell-side estimates. Over the long term, the index revisions are expected to unleash $100 billion of investment in A-shares through EM vehicles.

Increasing Exposure to Chinese Markets
But are emerging market funds ready for the change? Overseas investment funds have been increasing exposure to China, according to a recent Bloomberg report. Yet even though 87 percent of mutual and index funds invest in Chinese equities—and some A-shares are already accessible—their holdings remain concentrated in offshore H-shares, traded in Hong Kong, and US-listed American depositary receipts, or ADRs.

Click image to enlarge.
Nearly three-quarters of the funds don’t hold any onshore shares. China A-shares account for only $14 billion (or 1.7 percent) of assets under management in emerging market funds (Display, left). And only 10 emerging market funds hold more than 10 percent in onshore equities (Display, right).

There are good reasons to be cautious about A-shares. Investors need to navigate structural imbalances in China’s debt-laden economy, concerns about the government’s macroeconomic stewardship and the large contingent of state-owned enterprises in the market.
Ignoring A-shares, however, means missing the full potential of China’s expansion. For example, the onshore market is full of growing healthcare companies serving the country’s aging generation. Many technology firms from the Shenzhen market are inaccessible offshore. The market also provides access to China’s explosive consumer growth and local brands popular with the growing middle class; shares of Kweichow Moutai, the distiller of a popular grain liquor, more than doubled on the Shanghai Stock Exchange over the last 12 months due to swelling demand.

What Does It Take?
But what does it take to invest effectively in China A-shares? We think three key competences will determine success:
  • Boots on the ground—There’s no substitute for research heft. Funds must be armed with field research from professionals with deep experience on the ground in China. These teams need to be fully versed in the nuances of China’s growing economy, know the players inside and outside the companies, and be able to identify firms with good governance. It’s also important to make sure that an EM fund has enough analysts to cover the market effectively.
  • Quantitative capabilities—There are more stocks listed in the China A market than in either the Nasdaq Stock Market or New York Stock Exchange. MSCI’s inclusion of 222 A-shares into its EM benchmark increased the number of stocks in the index by more than 25%. Moreover, there are now more than 1,900 A-share stocks accessible to foreign investors through the Stock Connect scheme, more than doubling the universe of investible equities in China. This favors research teams already familiar with the onshore landscape, in our view. We also think funds that know how to combine quantitative tools with fundamental analysis will have an edge when combing the vast pool of A-shares to identify portfolio candidates.
  • Active advantagesResearch shows that active investing strategies are especially effective in emerging markets, which are less efficient than developed markets. In China’s A-share market, which is dominated by retail investors, inefficiencies abound. These retail investors often lack critical information about company performance, and information dissemination is imperfect. For example, it can take months for the market to respond to sell-side analyst upgrades. This environment favors a hands-on approach that focuses on long-term fundamentals and investment themes.

A-Shares Are Different
Investing effectively requires a thorough understanding of how China’s top-down politics ripples through the economy. Though politicians’ rhetoric can be discounted in Western markets, China’s political class often sets the rules in the market.

For example, the government’s focus on reducing air pollution is creating winners and losers in the transportation industry. A curb on diesel trucks is benefiting Chinese rail operators and vehicle manufacturers that meet emissions standards.

Funds must be able to identify companies with interests that don’t align with minority shareholders. Many state-owned enterprises will prioritize public responsibilities over profit maximization. Meanwhile, professionals need to be familiar with tycoons who might siphon off profits for side projects.

To pilot a portfolio through these challenges, familiarity with the onshore landscape is indispensable. But we think many emerging-market investors may not be equipped with what it takes to find stocks with the strongest return potential. Ask your fund manager the right questions to find out whether they are ready—or not—to fully participate in a new year of opportunities across all of China’s stock markets.


The views expressed do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams or TEXPERS.

About the Author

John Lin
John Lin is a portfolio manager for China Equities and also serves as a senior research analyst, responsible for covering financials and real estate companies in China. He joined AllianceBernstein in New York in 2006 as a research associate for US Small and Mid-Cap Value Equities and transferred to the Hong Kong office in 2008. Previously, Lin was an investment-banking associate at Citigroup. He holds a bachelor's degree in environmental engineering from Cornell University and a master's degree from The Wharton School at the University of Pennsylvania.

Investing in the Emerging Millennial Boom


In China, 35 percent of people born in the 1990s is expected to graduate from college,
up from just 4 percent among their parents, according to a Goldman Sachs report. 

By guest columnists Laurent Saltiel, Sergey Davalchenko, Naveen Jayasundaram and Kate Huang

Millennials are becoming a powerful force in emerging markets. Understanding the social and consumer dynamics of this generation can lead to surprising investment opportunities in diverse sectors.

People born in the 1980s and 1990s are coming of age. Commonly known as millennials, this segment of the population is becoming increasingly important as contributors to society and drivers of consumption growth.


Click images to expand.
In emerging Asian countries, the millennial engine is racing ahead. Millennials account for a larger portion of the population (Display 1) and are wealthier in aggregate than their developed-market peers (Display 2). Since they’re often better educated than their parents, they enjoy brighter job prospects. And Asian millennials have vastly different habits and tastes from past generations. Businesses that successfully cater to this generation can enjoy prolonged growth, in our view.

China Leads the Way
China deserves special attention. With 415 million millennials and a relatively high per capita income, spending power of the younger generation in China is much greater than in other emerging countries.

In China, 35 percent of people born in the 1990s is expected to graduate from college, up from just 4 percent among their parents, according to a Goldman Sachs report. Since 70 percent of Chinese millennials already own a home, they have more disposable income than young Americans, who are typically saddled with student loans. It is no surprise that recent surveys show greater optimism about the future among emerging market millennials than their western counterparts.

Private Education Is Booming
Education is a top priority. Owing to cultural norms in Asia, parents spend a disproportionate amount of their income on education (Display 3).

Click image to expand.
China stands out for several reasons. First, as a result of China’s “one child” policy, families are often willing to spend handsomely to ensure their child’s success. Second, the number of high-quality universities is limited. Third, older Chinese millennials who have reaped the benefits of a better education are keen to invest heavily in their child’s future.

Private companies have stepped up to serve needs not addressed by the country’s public school system. Examples include New Oriental Education & Technology Group, a household name in K–12 after-school tutoring in China. Many millennials send their young children to New Oriental’s early-education classes. As they grow older, these kids join the company’s tutoring programs for hypercompetitive exams that are a prerequisite to enter China’s best universities.

Travel Bug Is Spreading
Beyond education, Chinese millennials are also passionate about travel. In 2016, Chinese people aged 18 to 34 made 82 million trips abroad, accounting for 60 percent of the country’s foreign travel and spending more than $150 billion. By comparison, Americans of all ages made 75 million journeys abroad last year. As more young people enter the workforce, we expect Chinese outbound tourism to grow at more than double the global rate over the next five years.

Young Chinese also have travel preferences that are more similar to those of their western peers. For example, over 70 percent of Chinese millennials rely on online resources to plan their trip. They increasingly shun popular destinations like Paris and Tokyo in favor of unique experiences like watching the Northern Lights in Finland. While older Chinese may spend a chunk of their travel budget on a Louis Vuitton bag, Chinese millennials seek to invoke similar envy among their friends by instantly sharing their travel experiences on social media platforms like WeChat and Weibo.

For example, Ctrip.com, the country’s leading online travel agency, serves as a one-stop shop for all travel needs from air and hotel booking to packaged tours and corporate travel. The company is also investing in travel guides and alternative accommodation (like TripAdvisor and Airbnb).

Millennial dynamics vary from country to country. In India, for example, large lenders like HDFC Bank are capturing market share by creating online banking tools that fit the lifestyle of a millennial customer. In Vietnam, shopping mall operators like Vincom Retail are catering to millennials’ preference for modern retail over traditional wet markets and mom-and-pop stores, as well as their desire for international brands and entertainment venues.

For investors, the millennial boom is an exciting opportunity. But it requires a long-term perspective on cultural and consumer nuances of individual markets. By focusing on the constantly changing needs of young people, we believe investors can discover companies poised to benefit from demographic trends that will unfold over a generation or more.


The views expressed do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams or TEXPERS.

About the Authors

Sergey Davalchenko
Sergey Davalchenko has been a portfolio manager for Emerging Markets Growth since March 2012. He also served as a portfolio manager on the International Large Cap Growth team from 2011 to early 2017. Before joining AB in 2011, Davalchenko was a senior international analyst at Global Currents Investment Management, a subsidiary of Legg Mason. Prior to that, he worked as a portfolio manager at Fenician Capital Management, where he was a partner. Early in his career, Davalchenko specialized in international equities in various analyst and portfolio-management roles for the State of Wisconsin Investment Board and Oppenheimer Capital. He holds a Bachelor of Science in finance from the University of Wisconsin.


Kate Kuang

Kate Huang is a research analyst on the Emerging Markets Growth team, a position she has held since 2014. Huang was previously a research analyst at Asian Century Quest Capital. Prior to that, she was a senior research associate at AB Bernstein and, before that, a counterparty credit risk analyst at Bear Stearns/JPMorgan Chase. Huang began her career as a counterparty risk analyst at Barclays Capital. She holds a bachelor's degree n economics and statistics from Mount Holyoke College and a master's degree in finance from Columbia Business School.




Naveen Jayasundaram
Naveen Jayasundaram joined AB in 2014 as a research analyst on the Emerging Markets Growth team. He was previously a junior engagement manager in the corporate finance practice at McKinsey. Jayasundaram began his career as a product manager at Microsoft. He holds a Bachelor of Science in electrical engineering from the University of Texas at Austin and a master's degree from the Kellogg School of Management at Northwestern University.






Laurent Saltiel
Laurent Saltiel has been chief investment officer of Emerging Markets Growth since March 2012. He also served as chief investment officer of International Large Cap Growth from 2010 to early 2017. Prior to joining AB in 2010, Saltiel spent eight years at Janus Capital, where he most recently led several international and global growth portfolios. Before that, he worked as a research analyst covering the materials and consumer sectors, as well as a broad range of stocks in Brazil and India. Saltiel was previously a research analyst at RS Investments, where he covered technology and healthcare. Prior to entering the investment business, he spent seven years as a marketing executive at Michelin, where he held full-time roles in Japan, Mexico and his native France. Saltiel holds a bachelor’s degree in business administration from the École Supérieure de Commerce de Paris and a master's degree from Harvard Business School.

Wednesday, February 21, 2018

TEXPERS Conference avoids spring break with mid-April schedule

Only at the TEXPERS Conference - Education, networking and time to enjoy beautiful South Padre Island
Yes, it will be springtime but that doesn't mean spring breakers on South Padre Island during the TEXPERS conference. Many colleges have spring break in March; others have scheduled it to coincide with the Easter holiday. TEXPERS avoided both with this mid-April event! And it's a near-perfect time to enjoy this amazing Island!
You don't want to miss this!
Visit the website and download the preliminary agenda for details

Conference topics include: global economic outlook, ESG, media training, leadership, fund staffing, corporate governance, cyber-security concerns, minimizing the cost of DROPs and much more! (provides several hours of PRB CE credit)

Monday Luncheon Keynote - 24 Hours Inside the President's Bunker on 9/11/01: The White House
Lt. Col. Robert Darling, USMC (ret.)

Advanced Trustee Training: Ethical Decision Making and a Deep Dive into Stocks and Bonds (provides four hours of PRB CE credit)

Running Better Board Meetings - pre-conference workshop for non-golfers (no additional charge). (provides two hours for PRB CE credit)

Member Beach Party Monday Evening - featuring Rockstar Denied, a south Texas band that will perform a wide variety of favorites.
Facebook   Twitter

Tuesday, February 20, 2018

News Briefs

Fund approves new member benefit calculations


TEXPERS Staff Report

The Amarillo Firemen’s Relief and Retirement Fund is using a second-tier calculation for benefits earned by new firefighters.

Members of the fund authorized trustees to change the formula for the calculation of retirement, death, disability and employee termination benefits for future fund members. Approved by a ballot vote held in October, fund members also approved changing the definition of average salary. The changes began for members hired after the first of this year.

“The membership voted on two ballot issues that amended the plan,” says Laura Storrs, the fund’s administrator, in an email. “We also had the plan’s attorney do a full review of the plan document, so we made some minor recommended changes that were basic cleanup to the document.”

Before the changes, a member’s retirement benefit equaled 3.45 percent of highest three-year average salary multiplied by the member’s service, according to a fund document outlining the ballot measures. The new formula calculates a new member’s retirement benefit to equal the sum of 3.25 percent of highest five-year average salary multiplied by service up to 20 years plus 2.50 percent of highest five-year average salary multiplied by service in excess of 20 years.

The benefits, according to the fund, would be paid for the member’s lifetime. If a member dies, two-thirds of the benefit would go to a surviving spouse for the remainder of that person’s life.

The fund’s death, disability and vested termination benefits are also based on the fund’s new retirement benefit formula. According to the system, the new benefits formula does not change contributions for fund members. New members contribute at the same rate, 13 percent of pay.

Fund members also voted to change the definition of average salary for existing fund members. According to fund documents, a member’s retirement, death, disability or vested termination benefit was calculated based on the member’s highest consecutive three-year average salary. As of Jan. 1, a current member’s benefit is calculated using a highest consecutive five-year average salary.

However, each member’s highest consecutive three-year average salary, as of Jan. 1, 2018, would be preserved for purposes of calculating the member’s benefit. Meaning, when a member retires, dies, becomes disabled, or is fully vested at termination, a current member’s benefit is calculated using the greater of the member’s current highest consecutive five-year average salary or the member’s highest consecutive three-year average salary as existed as of the effective date of the plan change.

In other Texas pension news:

Public Safety Officers’ deduction could reduce retiree incomes up to $3,000


Its tax filing time, and a good opportunity for public pension system administrators and trustees to remind their retired members of a deduction that could help reduce their gross incomes up to $3,000.

Called the Public Safety Officer’s deduction, the IRS allows for the exclusion. Claiming it, retired firefighters, law enforcement officers, chaplains or members of a rescue squad or ambulance crew may reduce their incomes based on their medical, dental and vision insurance premiums, which are deducted directly from their retirement checks.

According to an Austin Firefighters Relief and Retirement Fund notice to its membership, IRS form 1099-R, used to report distributions from annuities and retirement plans, will not automatically reflect the exclusion. The instructions for taking the deduction is on Line 16b on Form 1040. To take the deduction, qualifying retirees simply reduce the otherwise taxable amount of their pension by the amount excluded.

The deadline to file 2017 taxes is April 17. Some Texas residents impacted by Hurricane Harvey may qualify for an extension. For more information, visit www.irs.gov or talk with a professional tax preparer.


Arick Wray elected to vacant spot on board of Amarillo firefighters’ retirement fund


Members of the Amarillo Firemen’s Relief and Retirement Fund elected Arick Wray to fill a vacant spot on the plan’s board of directors.

Wray fills an expired term on the board and is a fire driver for the Amarillo Fire Department.
A total of 270 members were eligible to vote during the election but only 155 cast their votes between Dec. 12 and Dec. 20 to fill the board position. Wray received 80 votes beating out his opponent, Derek Johnston, by five votes.

Wray takes over the board position from Jerome Dreup, who served three years as a trustee.