Expanding Awareness of Public Pension Issues
Monday, February 24, 2020
Tuesday, February 18, 2020
Pension Review Board Adds New Reporting Rules to Texas Administrative Code
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Joe Gimenez/Photo
Christopher Zook, second from left, listens during a Feb. 6 meeting of the Texas Pension Review Board.
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By Joe Gimenez/Guest Contributor
During its Feb. 6 meeting, the Texas Pension Review Board followed through on legislative bills passed last year by adding rules to the Texas Administrative Code for the reporting of investment fees. The Board also adopted staff proposals for categorizing asset classes and a template for investment expense reporting.
On June 10, Gov. Greg Abbott signed Senate Bill 322, mandating public pension funds to provide a “comprehensive analysis of the retirement system’s investment process that covers all asset classes,” according to the text of the law. The bill requires pension funds to begin reporting, by May 1, how much they spend seeking returns through bonds, stocks, hedge funds, real estate, private equity, and cash. The law and the rules for such disclosures do not require pension funds to provide the name of the investment managers who manage the asset class.
The Board also approved a rule decreasing by half the reporting requirements for trustee and administrator training. Before the rule change, systems reported twice a year on the four hours of training their trustees and administrators obtained over a two-year cycle. PRB staff believe that yearly reporting will suffice to meet the statutory requirements of its Minimum Education Training, which the Board established in 2013. From now on, public retirement systems will need to inform the PRB of training its trustees and staff have received by Sept. 1.
Also, during the meeting, agency staff reported on key statistics of actuarial health for the 99 systems which the agency monitors. Staff actuary Kenny Herbold noted that 30 pension funds updated their stats from an Oct. 17 report, thereby providing a better sense of overall pension system health. The number of pension systems not meeting the PRB’s recommended amortization period of 30 years or less declined by one system, from 37 to 36. But the number of systems in an infinite amortization condition increased by five to 13, indicating that the 2018 market declines are now being factored into the PRB’s actuarial report. According to the actuarial report, only three of Texas’ 99 systems now target a return of 8 percent or higher. This is a multi-year low.
PRB actuarial staff also presented a new chart showing the distribution of target rates among categories of plans. Board members Keith Brainard and Marcia Dush seized on the fact that most plans organized under the Texas Local Firefighters’ Relief and Retirement Act still target higher rates of return than other types of systems.
The 42 TLFFRA funds average a 7.52 percent rate, while the Texas average is 7.29 percent and the national average is 7.27 percent. They noted how the high rates might not be in the systems’ best interest, considering that payroll growth assumptions and expectations for city contributions have not been met in recent years. The Board also noted how the district and supplemental plans’ target rates average 6.96 percent, significantly below the Texas and national averages.
The Texas Pension Review Board is mandated to oversee all state and local government public retirement systems in Texas regarding their actuarial soundness. The next meeting of the Pension Review Board will be on Jun. 30. Meetings of the investment and actuarial committees are likely to be held in March and April, according to agency sources.
During its Feb. 6 meeting, the Texas Pension Review Board followed through on legislative bills passed last year by adding rules to the Texas Administrative Code for the reporting of investment fees. The Board also adopted staff proposals for categorizing asset classes and a template for investment expense reporting.
Investment Fees
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| Click chart to enlarge. |
However, newly appointed PRB board member Christopher Zook suggested that a fee reporting template encourages such detail in the interest of full transparency. Zook is the founder, chairman, and chief investment officer of CAZ Investments, a firm that invests its personal capital with those of its clients on a performance basis. The Board also appointed Zook to chair a new Investments committee, which will convene sometime before the next full Board meeting in June.
Read our guide to the new rules in a past edition of TEXPERS' Pension Observer membership magazine.
Training
The Board also approved a rule decreasing by half the reporting requirements for trustee and administrator training. Before the rule change, systems reported twice a year on the four hours of training their trustees and administrators obtained over a two-year cycle. PRB staff believe that yearly reporting will suffice to meet the statutory requirements of its Minimum Education Training, which the Board established in 2013. From now on, public retirement systems will need to inform the PRB of training its trustees and staff have received by Sept. 1.
TEXPERS is offering training May 2, the day before its annual conference, May 3-6, on Galveston Island. Click to register for Basic or Advanced trustee training.
Actuarial Health
Also, during the meeting, agency staff reported on key statistics of actuarial health for the 99 systems which the agency monitors. Staff actuary Kenny Herbold noted that 30 pension funds updated their stats from an Oct. 17 report, thereby providing a better sense of overall pension system health. The number of pension systems not meeting the PRB’s recommended amortization period of 30 years or less declined by one system, from 37 to 36. But the number of systems in an infinite amortization condition increased by five to 13, indicating that the 2018 market declines are now being factored into the PRB’s actuarial report. According to the actuarial report, only three of Texas’ 99 systems now target a return of 8 percent or higher. This is a multi-year low.
Target Rates
PRB actuarial staff also presented a new chart showing the distribution of target rates among categories of plans. Board members Keith Brainard and Marcia Dush seized on the fact that most plans organized under the Texas Local Firefighters’ Relief and Retirement Act still target higher rates of return than other types of systems.
The 42 TLFFRA funds average a 7.52 percent rate, while the Texas average is 7.29 percent and the national average is 7.27 percent. They noted how the high rates might not be in the systems’ best interest, considering that payroll growth assumptions and expectations for city contributions have not been met in recent years. The Board also noted how the district and supplemental plans’ target rates average 6.96 percent, significantly below the Texas and national averages.
The Texas Pension Review Board is mandated to oversee all state and local government public retirement systems in Texas regarding their actuarial soundness. The next meeting of the Pension Review Board will be on Jun. 30. Meetings of the investment and actuarial committees are likely to be held in March and April, according to agency sources.
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Friday, February 14, 2020
When it comes to retirement,
public employees are looking for security
It’s St. Valentine’s Day and the Texas Association of Public Employee Retirement Systems asked a few of the nonprofit’s board members to share their love of defined-benefit retirement plans.
Based
on their comments, their earnings represent their commitment as police officers
and firefighters to their communities. Their retirement benefits are
hard-earned after putting in years of often dangerous work and contributing
their own funds to their programs. The benefits allow them to have a safety net
of income for spouses when Social Security may not provide enough or anything
at all when they die.
If
your unfamiliar with defined-benefit pensions let’s give you a brief
description. Essentially, it is a retirement safety net that firefighters,
police officers, educators, and millions of other state and local government
workers in Texas earn in exchange for their job dedication – and honestly,
often low wages. Providing retirement benefits help state and local governments
compete with the private sector in the recruitment and retention of public
employees.
Studies
have shown that 401(k)s and other defined-contribution plans are not as
successful in ensuring public employees have a secure retirement. Those
investing into 401(k)s or similarly constructed defined-contribution pension
plans on their own also are not investing enough and do not know how to invest
their hard-earned money properly. Plus, Social Security either won’t provide
enough retirement income or, in many cases, none because some public employees
do not qualify for the federal benefit.
Also consider that millions of Texans have not saved enough for retirement. Without
enough income, older adults will not be able to afford the resources that
enable them to live independently, pay for medical and other health care
expenses, and continue to contribute to society. Defined-benefit pension plans
provide a consistent and predictable stream of revenue to public employees –
the men and women who have dedicated their careers to the public sector (to
you).
A
defined-benefit plan delivers retirement income with little effort on the part
of public employees while providing retirement security. And unlike
private-sector workers, public employees share in the cost of their retirement
benefits. A public employee’s contributions typically make up a set percentage
of their salaries.
How
critical is the need to offer public servants a secure retirement? Retirement benefits
is an essential job feature, even more so than salary, according to a newnational poll by the nonprofit, nonpartisan National Institute on Retirement Security.
In a published report
on its findings, nearly all state and local workers (93 percent) indicated in
the survey that pensions incentivize public workers to stay with their jobs.
Even more agree that a pension is a useful tool for attracting and retaining
employees. NIRS published the results of their polling in a report, State and
Local Employees Views on Their Jobs, Pay and Benefits, in November.
Here is what else the
NIRS poll found:
- Cutting benefits could have severe workforce consequences. Seventy-three percent of respondents indicated they would be more likely to leave their jobs if their pensions were cut.
- Nearly 92 percent of all state and local employees believe that abolishing secure-retirement plans for public employees would weaken a government’s ability to attract and retain qualified workers. A majority also indicates that doing away with pensions would undermine public safety and the U.S. education system.
- Among Millennials, those who reached young adulthood in the early 21st century and are collectively known as “dissatisfied job hoppers,” 84 percent working in state and local government indicate they are satisfied with their current jobs. Nearly 74 percent claim that a pension benefit is a significant reason they decided to work in the public sector, and 85 percent said they plan to stick with their current employer until they are eligible for retirement or can no longer work.
That’s enough
statistics. Let’s hear from some of TEXPERS’ own board members, who have or
still work in public-sector jobs:
"I love my pension because it represents the years I worked as a firefighter for the City of Big Spring, Texas. The City of Big Spring Fire Department first initiated the pension plan back in the late 1930s and early '40s. Through the many years of change, the trustees have made steady improvements to the plan with the help of city leaders. The retirement plan provides security for my family and me."
- Paul Brown, TEXPERS Board President
Big Spring Firemen's Relief & Retirement Fund
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Here are a few job-specific fact
sheets provided by NIRS:
Firefighters (double click images to expand)
Police (double click images to expand)
Teachers (double click images to expand)
State Employees (double click images to expand)
Tuesday, January 14, 2020
Continuing education provides public pension fund fiduciaries with core competencies
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| Photo/jatenipit from Pixabay.com. |
Managing a pension system is a complicated task that requires a fund’s board of trustees to establish the strategic direction of the system, hire necessary staff and consultants, adopt investment policy, and understand governance. As trustees and administrators of public pension plans, you aren’t expected to be know-it-alls, but you should obtain education that provides and improves core competencies as fiduciaries.
It is essential for pension system trustees and administrators to stay current with the latest industry developments, gain a better understanding of rules and regulations, and expand your leadership skill sets through continuing education. Trustees and administrators of retirement systems are often scrutinized for the decisions they make in handling the funds of public employees. The public inspection is warranted because the job of managing a retirement system isn’t to be taken lightly. After all, the secure retirements of a fund’s active and retired participants are at stake.
Educational opportunities abound, especially at the Texas Association of Public Employee Retirement Systems. We host conferences, educational forums, and training sessions geared to public funds and others that focus on investments. These are in-person programs geared to both novice and tenured pension board members and plan administrators.
TEXPERS is the largest provider of pension trustee training and continuing education for pension system trustees and administrators in Texas. Its programming caters to public pensions and are great ways for trustees to learn the ins and outs of the pension industry. At the same time, the association’s events introduce trustees to potential business contacts and mentors.
The association provides several outlets for its members to improve their board and administrative skills. TEXPERS hosts a membership conference as well as an educational forum every year. Also, the association offers continuing education opportunities such as its Basic Trustee Training class, which fulfills requirements established by the 83rd Texas Legislature in 2013.
The state legislature instructed the Pension Review Board to establish a Minimum Educational Training Program for trustees and system administrators of Texas public retirement systems. The state’s minimum requirements include core and non-core topics. The core topics focus on the fundamental competencies of public pensions necessary for trustees and system administrators to successfully discharge their duties. Topics include fiduciary matters, governance, ethics, investments, actuarial issues, benefits administration, and risk management. The non-core covers items that go beyond the basics to allow trustees and administrators to gain further expertise in additional areas related to their duties. Those topics include compliance, legal and regulatory matters, pension accounting, custodial issues, plan administration, the Texas Open Meetings Act, and the Texas Public Information Act.
TEXPERS is an accredited education sponsor by the Pension Review Board. That means the state board reviewed the association’s Basic Trustee Training. Along with Basic Trustee Training, TEXPERS periodically offers Advanced Trustee Training, which meets the continuing education requirements of the Pension Review Board. In addition to these classes, some sessions at TEXPERS’ conferences also meet continuing education requirements of the Pension Review Board.
Education assists trustees in maintaining their knowledge of state-of-the-art pension fund management techniques and changes in the law or court decisions concerning pension funds. Also, educational opportunities serve as a focal point for the exchange of ideas and best practices among participating members.
A public pension fund’s board of trustees is responsible for overseeing the operation of the system, development of an investment strategy, and assuring the fund’s conformance with law. The board ensures that its organization upholds the interest of the public employees – those members it serves pre- and post-retirement.
When you joined TEXPERS, you gained the ability to continually sharpen your skills and gain fresh insights into the public pension industry. You’ll be able to expand on your skill sets again May 3-6 in Galveston, Texas, during the association’s 31st Annual Conference at Moody Gardens Hotel & and Convention Center. This year, our theme is Pensions in 20/20: Focusing on Secure Retirement. We are now in the process of planning the various sessions, workshops, keynote and motivational speakers, and networking opportunities.
Registration opens this month. Visit www.texpers.org for details as they become available, including a draft of our program. We are now accepting conference sponsorships. For details, email texpers@texpers.org or call our offices at 713-622-8018.
Pension funds should track their educational hours their trustees obtain and align educational goals with any training the state requires. Public pension system boards should consider establishing a trustee training policy that affirms the importance of education to the success of fulfilling their fiduciary duties to prudently administer the retirement system. Policy should begin with ensuring individual trustees have continual access to education. Boards that are strong on education are in a better position to be successful.
An entire board should be exposed to continuing education; otherwise, the result is a handful of players driving all the decisions which defeat the point of deciding by board consensus.
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