TRS Board Meets, Discusses How Covid-19 Has Affected Agency Operations and the Pension Fund, Tim Lee Answers Member Questions About WEP Reform

Executive Summary:

  • TRS Board met via videoconference due to Covid-19 restrictions, an historic first for the agency
  • TRS reassured members their monthly annuities will be paid on time and it is business as usual while most employees work remotely
  • The pension fund value sits at approximately $150 billion today, down from $164 billion in February
  • The Sunset Commission Report on TRS is now available for the public to view
  • TRS facilities planning, office space lease decisions mostly on hold until market conditions stabilize
  • Tim Lee hosts Facebook Live event answering member questions about WEP

The Teacher Retirement System of Texas (TRS) Board of Trustees met Friday, April 17, 2020 via videoconference to address standard TRS business as well as changes made in TRS operations since the advent of the Covid-19 (coronavirus) pandemic.

TRS Executive Director Brian Guthrie explained the agency’s response to recent stay-at-home orders, stating that about 90 percent of TRS employees are now working remotely. The TRS headquarters building on Red River is closed to the public, and all counseling sessions are being conducting virtually or over the phone. As of today, this will continue through at least May 8, 2020 per the Governor’s order.

Guthrie reassured TRS members that all TRS staff have maintained production levels to ensure that there is no impact to members’ monthly annuity payments. “It is business as usual, and we believe that we can sustain this for the next several months,” he said.

How Covid-19 Has Impacted the Pension Fund

Guthrie provided a report on the pension fund’s investment activities. “Obviously, the markets have taken a hit,” he said. However, he reassured board members that the fund’s diversification protects it over the long-term.

“Today, the fund balance is hovering around $157 billion,” Guthrie said, mentioning that in February of this year prior to the pandemic the fund was at $164 billion.

“Your annuities are safe, and they are being paid on time,” Guthrie stated. The market decline does not impact the trust’s ability to pay benefits and has performed in line with expectations during the crisis.

Chief Investment Officer Jase Auby said the estimated return for the first quarter of 2020 is negative 8.3 percent. He said TRS has key advantages as a large public pension fund that will allow it to push through the pandemic.

“We are able to weather market drawdowns,” said Auby, adding that the trust is “well-diversified and also liquid with large amounts of cash, government bonds and public equities available to meet its obligations.”

Auby also stated that the ability for the Investment Management Division (IMD) to work from home is another advantage. The transition was “pretty much seamless” and the team is responding opportunistically to the market.

“The bottom line is our plans (for handling down markets) are working exactly as we intended,” said Auby.

Sunset Advisory Commission Staff Report on TRS Now Available

Guthrie then discussed the results of the Sunset Advisory Commission report on TRS. The Sunset Advisory Commission is an agency of the Texas Legislature that evaluates state agencies and makes recommendations to the legislature on the need for, performance of, and improvements to agencies under review. TRS has been under review by the commission since late 2019.

The commission released its report earlier in the month about the agency’s operations. The full report may be read here.

The report identified four issues and included 14 recommendations.

Issue 1 – TRS Needs to Repair Its Relationship with Its Members by Focusing on Their Needs.

  • Recommendations: 1.1 Require TRS to develop a communication and outreach plan to better help members and employers plan for retirement. 1.2 Require TRS to make improved efforts to return contributions to inactive members before funds are forfeit. 1.3 Direct TRS to adopt a member engagement policy to increase transparency on key decisions.

Issue 2 – TRS Needs More Effective Contract Management and Oversight.

  • Recommendations: 2.1 Direct TRS to fully centralize contracting functions and clarify roles and responsibilities between central contracts department staff and division staff managing contracts. 2.2 Direct TRS to enhance its contract monitoring process. 2.3 Direct TRS to include standard remedies in contracts and consistently apply enforcement tools. 2.4 Direct TRS to require staff who procure or manage contracts to complete the comptroller’s contract training.

Issue 3 – As One of the Largest Public Pension Funds in the U.S., TRS Would Benefit from Additional Oversight and Greater Transparency of Its Investment Practices.

  • Recommendations: 3.1 Direct TRS to perform a cost-benefit analysis of implementing an enhanced investment accounting system to provide increased oversight of the custodian bank’s accounting data. 3.2 Direct TRS to have its Internal Investment Committee review internal investments and strategies. 3.3 Direct TRS to include clear, easily understandable information about alternative investments in its Comprehensive Annual Financial Report.

Issue 4 – TRS’ Statutes Do Not Reflect Some Standard Elements of Sunset Reviews.

  • Recommendations: 4.1 Update the standard across-the-board requirement related to board member training. 4.2 Abolish three, modify two, and consolidate two of TRS’ reporting requirements. 4.3 Update TRS’ statute to reflect the requirements of the person-first respectful language initiative. 4.4 Direct TRS to develop and maintain a system for receiving and responding to complaints.

“For the most part, we agree with their recommendations,” Guthrie said. He said that most recommendations don’t require legislation to be enacted. TRS is working on implementing many of them already and will have several improved systems in place by the end of the calendar year.

“We do need to improve our communications with our members and reassure them that we are working for them every day and in their best interests,” Guthrie said.

The TRS management response to the report is due April 30. There will be a public hearing about the review. The commission is tentatively looking at adding TRS to their July 8-9, 2020 schedule and the date is subject to change.

TRS also plans to address several issues included in their Self-Evaluation Report in their appropriations request for the upcoming 2021 legislative session and with legislators. These include Employment After Retirement, Disability Retirement Requirements, Enhancing Investment Flexibility: Real Estate Provisions, and TRS-Care and TRS-ActiveCare Affordability and Viability.

Long-Term Facilities Planning Update: Leases at Indeed Tower and 816 Congress

The Covid-19 pandemic has changed real estate markets, and there has been a halt in new office leasing activity across the TRS portfolio. Timing and potential costs of subleasing the Indeed Tower have changed.

Guthrie said that the efforts regarding long-term facilities planning has “paused.” He said that even after the pandemic, working from home will be “far more significant,” and he expects 10 to 20 percent of TRS employees to continue to work from home.

TRS’s plan to increase their leased space at the 816 Congress location where the Investment Division has been housed for several years is also at a standstill. No further work can be done on the 816 Congress lease renewal until markets have stabilized because the negotiated rental rate was based on a market conditions prior to the pandemic. However, due to the recession, lower real estate values may mean lower rental rates. TRS hopes to know more by their July board meeting.

Tim Lee Hosts Facebook Live Answering Member Questions on WEP Reform

Tim Lee, the Texas Retired Teachers Association’s (TRTA) Executive Director, hosted a Facebook Live event today. He answered viewer submitted questions about the Windfall Elimination Provision (WEP) throughout the event. The recorded video is available here. You don’t need to be a Facebook user to view the video.

During the video, Lee answered questions about why the WEP is receiving so much attention, the cost for reforming the WEP, why it’s been so difficult to fix the WEP, and much more.

If you haven’t already, be sure to like TRTA’s Facebook page. Lee will continue to host Facebook Live events going forward, and he’s scheduled to meet with the TRS Chief Health Care Officer Katrina Daniel. You won’t want to miss that conversation!

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