Defining Fees: PRB Staff Offers Guidelines for SB 322
By Joe Gimenez/G3 Public Relations
Senate Bill 322, the Texas Legislature’s new law requiring pension funds to report investment fee expenses, is taking form. Pension Review Board staff has drafted informal guidance and presented it to the actuarial committee of the Board, but reporting deadline dates and asset class definitions may cause future challenges.
The PRB’s lead researcher, Ashley Rendon, told PRB actuarial committee members on Sept. 20 in Austin that fee disclosures should be part of the annual or fiscal year financial reports plans submit to the state agency, pursuant to the legislation. And, Rendon said, while the PRB is authorized to establish rules for date deadlines for including fees in comprehensive annual financial reports, pension funds have different fiscal years, which will make a rule difficult to develop.
“Even specifying a date might be already too late for a plan to include in it an annual financial report, but then they can include it in the next one," Rendon said.
PRB staff recommendations define investment expenses as direct and indirect fees and commissions respective of investment consulting, custodial services, investment-related legal services, and investment research. Securities lending would not be reported.
While the law does not require pension funds to name the firm which receives the fees, it does require separating fees and commissions by asset class. The staff categorized assets into five categories, but PRB members Keith Brainard and Marcia Dush had their own thoughts.
PRB staff recommendations define investment expenses as direct and indirect fees and commissions respective of investment consulting, custodial services, investment-related legal services, and investment research. Securities lending would not be reported.
While the law does not require pension funds to name the firm which receives the fees, it does require separating fees and commissions by asset class. The staff categorized assets into five categories, but PRB members Keith Brainard and Marcia Dush had their own thoughts.
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Dush noted that fees for mixed funds, like a stock-bond fund, would challenge those categories. And Keith Brainard said he considers private equity to be an alternative investment. Dush echoed Brainard’s thought for private debt, saying it should be in the alternatives category.
Anumeha Kumar, the PRB’s chief executive, tried to resolve the matter by saying that staff can do more research on the topic and may break out a separate policy document for asset classes. By doing so, and avoiding rulemaking around the topic, pension funds will have more latitude in describing how they assigned fees for complex assets.
The staff’s guidelines suggested that the reported management fees should include fees paid to managers from the group trust as well as fees netted from returns at the fund level. These should be distinguished from one another in a fund’s comprehensive annual financial reports.
And performance fees also will require special treatment. Carried interest and profit sharing fees should be reported. Brokerage commissions should be calculated on a per share basis and divided among the asset classes for which they are incurred.
The draft guidelines will be provided to the full Board in October for the rulemaking process, with a public comment period following that decision, and then possible final approval by the Board in January.
The staff’s guidelines suggested that the reported management fees should include fees paid to managers from the group trust as well as fees netted from returns at the fund level. These should be distinguished from one another in a fund’s comprehensive annual financial reports.
And performance fees also will require special treatment. Carried interest and profit sharing fees should be reported. Brokerage commissions should be calculated on a per share basis and divided among the asset classes for which they are incurred.
The draft guidelines will be provided to the full Board in October for the rulemaking process, with a public comment period following that decision, and then possible final approval by the Board in January.
The board will meet from 8 to 11 a.m. Oct. 17 at the Capitol Extension, committee Room E1.012 at 1400 N. Congress Ave. in Austin. Click here for more information.
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