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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