Board Special Meeting
Schedule Wednesday, March 31, 2021 9:00 AM CDT Venue Virtual Meeting held in compliance with Open Meetings Act as amended by SB1031 - Zoom videoconference meeting - Public Access Link: https://www.facebook.com/OkTRS/live/ Description This meeting will be held with the following trustees attending remotely via Zoom videoconference for all agenda items including executive sessions: Chairman Vernon Florence; Vice Chair Roger Gaddis; Judie Harris; Tim Allen; Randy McDaniel; Rod Boles; Lisa Henderson; Michael Kellogg; Brandy Manek; Stephen Harpe; Steve Massey; Brandon Meyer; Chris Rector; Mathangi Shankar; Joy Hofmeister; Stephen Streeter; Drew Williamson; Dr. Greg Winters; Marcie Mack. Also, TRS Staff Tom Spencer; Sarah Green; Phyllis Bennett; Kim Bold; Joe Cappello; Dixie Moody; Sam Moore; John Santos; Kirk Stebbins. Also, Jack Evatt; Doug Anderson; Peter Brown; Bill Hickman; Josh Brock; Hilaire Johnson; and Kevin Wright. Materials will be available March 31 at https://www.oklahoma.gov/trs/about_us/board_information/mee ting_materials.html. Please note: If audio connection is lost, the meeting will be stopped and reconvened in 15 minutes. If the attempt to reconvene fails, the meeting will reconvene when possible.
Agenda
1. Roll Call for Quorum
2. Discussion and Possible Action on Approval of Minutes from February 24, 2021, Board Regular Meeting
2-Mins-Feb.24.2021.BdRegMtg-wSG.TS.pdf 1
3. Discussion and Possible Action on Investment Consultant Monthly Performance Report for February 2021 3-2021-02-28-TRSO-MonthlyPerformanceRpt.pdf 13
4. Discussion and Possible Action to Resolve into Executive Session Pursuant to 25 O.S. Section 307(B)(1) for the Purpose of Discussing the Employment, Evaluation, Compensation, Hiring, Appointment, Promotion, Demotion, Disciplining, Termination or Resignation of the Executive Director a. Vote to Resolve into Executive Session b. Vote to Return to Open Session
5. Discussion and Possible Action on Items Discussed in Executive Session
6. Discussion and Possible Action on Committee Reports:
6.1. Audit Committee Discussion and Possible Action on Stinnett & Associates RFP Audit Report
TRS - Invest Consult RFP Review Report (FINAL).pdf 29
6.2. Executive Committee Discussion and Possible Action on Executive Search Firm Selection
ExecSearchRFP StaffMemoToBd.pdf 33
6.3. Governance Committee Discussion and Possible Action on Review of and Possible Amendments to Chapters 4 and 6 of the Board of Trustees Policy Manual
6.3-Ch4andCh6.pdf 35
7. Discussion and Possible Action on Epic Charter Schools Blended Learning Charter School Application for TRS Membership
7.a-Epic_Memo_for_BLC_Membership(002)(1).pdf 67 7.b.1-Epic-Superindent-Letter-02.22.2021.pdf 69 7.b.2-Contract-Epic_BCS-Rose_State_College-Executed.pdf 70 7.b.3-Minutes-Epic-Blended-Board-Mtg-12-7-2020-.pdf 75
2500 N. Lincoln Blvd., 5th Floor, Oklahoma City, OK 7.b.4-EPIC_BLC_Salary_Schedule.pdf 93
8. Discussion and Possible Action on Staff Recommendations on Proposed Legislation for the 2021 Session
8-Leg.Rpt.3.31.2021.TRS.bills.pdf 94
9. Discussion and Possible Action on Agency Reports:
9.1. Client Services
9.1-MonthlyRetirementStatus_3-21.pdf 100
9.2. Human Resources
9.2-HR_Report_2021-03-31.pdf 102
9.3. Finance
9.3-Finance.pdf 103
9.4. Deputy Director of Operations
9.4-March2021MtgDepDirRpt.pdf 110
9.5. General Counsel
GC Report March 21.pdf 111 9.5.2-HB2293_points.pdf 112 9.5.3-OTRS-Federal_Funding_of_Positions-4813-8188-2078_v-c.pdf 113 9.5.4-Rep_Roberts_Letter_of_Counsel(1).pdf 119
9.6. Executive Director
BoardReport2-23-21 to 3-29-21.pdf 123 10. Questions and Comments from Trustees
11. Adjournment
Next meetings: April 27, 2021, 1 p.m. - Board Special Meeting April 28, 2021, 9 a.m. - Board Regular Meeting MEETING MINUTES FEBRUARY 24, 2021 BOARD OF TRUSTEES REGULAR MEETING TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA
A regular meeting of the Board of Trustees of the Teachers’ Retirement System of Oklahoma was called to order by Vernon Florence, Chairman, at 9:05 a.m. February 24, 2021. This meeting was a Zoom videoconference meeting, held in compliance with the Open Meetings Act as amended by SB1031. Public Access Link: https://www.facebook.com/OkTRS/Live/. The meeting notice and agenda were posted in accordance with 25 O.S. Section 311(A)(9).
TRUSTEES PRESENT: Vernon Florence, Chairman Brandon Meyer* Roger Gaddis, Vice-Chairman Chris Rector* Tim Allen Mathangi Shankar Rod Boles Stephen Streeter Judie Harris Drew Williamson* Mike Kellogg Greg Winters Steve Massey
TRUSTEES ABSENT: Lisa Henderson Brandy Manek
TRS STAFF PRESENT: Tom Spencer, Executive Director Dixie Moody, Director of Client Services Sarah Green, General Counsel Sam Moore, Director of Finance/CFO John Santos, Deputy Director of Operations Kim Bold, Director of Human Resources Haley Drusen, Legislative & Policy Director Joe Cappello, Sr. Investment Officer Kirk Stebbins, Chief Investment Officer Phyllis Bennett, Executive Assistant
OTHERS PRESENT: Doug Anderson, AndCo Consulting Christian Metten, L&B Realty Peter Brown, AndCo Consulting Dan Plumlee, L&B Realty Jack Evatt, AndCo Consulting Vanessa Dutton, Eide Bailly Justin Ellsessor, AndCo Consulting
* Denotes late arrival or early departure
ITEM 1 - ROLL CALL FOR QUORUM: Chairman Florence asked the recording secretary to call roll to determine if a quorum was present. Trustees responding as present were Mr. Massey, Mr. Boles, Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Kellogg, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter, Dr. Winters. A quorum was present.
ITEM 2 – SWEAR IN NON-VOTING TRUSTEE STEVE MASSEY: Chairman Florence introduced Mr. Massey, who will serve as a non-voting member on TRS’ Board of Trustees for Calendar Year 2021. Mr. 1
Page 1 of 123 Massey, a member of Oklahoma Retired Educators Association, also served on the Board in 2019. He read the Oath of Office and said he would get better acquainted when in-person meetings resume.
ITEM 3 – DISCUSSION AND ACTION ON APPROVAL OF MINUTES FROM THE NOVEMBER 12, 2020, BOARD REGULAR MEETING:
A motion made by Dr. Winters with a second made by Mr. Rector to approve the minutes of the November 12, 2020, Board Regular Meeting as presented carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter and Dr. Winters.
Mr. Williamson arrived at 9:17 a.m.
ITEM 4 – DISCUSSION AND POSSIBLE ACTION ON INVESTMENT COMMITTEE REPORT: Chairman Florence asked Ms. Green to explain why there was no Investment Committee meeting the day before. Ms. Green said the agenda for the regularly scheduled February 23 Investment Committee meeting was not posted within the 24-hour time limit as required by the Open Meetings Act so the meeting had to be canceled. All Investment Committee agenda items were already included in today’s Board Regular meeting agenda which was posted as required. Instead of the Board hearing motions on items discussed in the Investment Committee, discussion will take place before the full Board and motions will come from the full Board, which does not preclude Investment Committee members from making motions. Chairman Florence asked Investment Committee Chairman Roger Gaddis to present the Investment Committee report items. Mr. Gaddis said instead of presenting summaries from a previous Investment Committee meeting, full discussions will be presented.
4.1 – DISCUSSION AND POSSIBLE ACTION REGARDING FUND UPDATE AND COMMITMENT TO L&B GOLDEN DRILLER FUND: Investment Consultant to the Board Peter Brown of AndCo Consulting gave the background of the Golden Driller fund and explained that one of the three senior housing centers making up the portfolio sold in 2019 with a 17% IRR. The remaining properties are Wellington Crossing in Florida and The Preston of Park Cities in Dallas. Regulatory delays in opening and slow leasing due to COVID-19 resulted in revenue shortfalls for the Preston and a need for additional commitments to cover operations. L&B Realty’s President and Chief Investment Officer, Dan Plumlee, introduced himself and Christian Metten, L&B’s Executive Vice President and TRS’ portfolio manager for Golden Driller. Mr. Plumlee explained the state of the two properties since COVID-19 regulations. He said there was soft interest from an investment manager to buy The Preston, but he does not recommend selling it at this time. Mr. Metten presented their report and reviewed the properties’ timelines, 2020 performance and forecasts. Mr. Metten reported on COVID cases, protocols and vaccinations in the facilities. In response to a question by Mr. Brown, Mr. Metten listed Golden Driller partners, and described the process they will follow if someone offers to buy a property. In response to questions by Mr. Rector, Mr. Metten said they got around $200K in stimulus funding for PPE, and he talked about debt and lenders. In response to comments by TRS Chief Investment Officer Kirk Stebbins, Mr. Metten talked about the state of assisted living centers, and when Golden Driller properties might stabilize and can be sold. He said the fund needs at least $4M in capital for 2021, but he recommends $5M to avoid another request.
Mr. Rector left at 10 a.m.
A motion made by Mr. Florence with a second made by Mr. Meyer to invest $5M in the L&B Realty Golden Driller fund carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms.
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Page 2 of 123 Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters.
4.2 – DISCUSSION AND POSSIBLE ACTION REGARDING AMENDMENTS TO THE INVESTMENT POLICY STATEMENT: Mr. Stebbins reviewed the proposed amendments to pages 39, 42 and 48 of the Investment Policy Statement and explained why the amendments are needed.
A motion made by Mr. Streeter with a second made by Mr. Florence to approve the proposed amendments to the Investment Policy Statement as presented passed by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters.
4.3 – DISCUSSION AND ACTION REGARDING AMENDMENT AND COMMITMENT TO FRANKLIN PARK’S PRIVATE EQUITY AND CO-INVESTMENT FUND V: TRS’ Senior Investment Officer Joe Cappello reported that TRS finalized the terms to invest in Franklin Park’s Co-Investment Fund V. He gave an overview of the co-investment fund and reviewed the negotiated terms.
A motion made by Mr. Florence with a second made by Dr. Winters to commit $160 Million to Franklin Park, with $125 Million being invested in the Franklin Park C-Investment Fund V and $35 million being invested in the OTRS/FP Fund, subject to final document negotiations carried by a unanimous voice vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters.
4.4 – DISCUSSION AND POSSIBLE ACTION ON INVESTMENT CONSULTANT REPORTS
a. Quarterly Performance Report for Period Ending December 31, 2020: Investment Consultant to the Board Doug Anderson presented a letter from AndCo’s president looking back on 2020, and he gave an update on the firm. Mr. Anderson reviewed his Quarterly Executive Summary pointing out that the TRS’ Total Fund increased to $19,774,520,380.00, gaining 12.2% and beating the benchmark by 0.1%, and the Total Equity Composite gained 18.5%, outperforming the benchmark by 2.5%. He explained why two managers will be removed from AndCo’s watch list; reviewed AndCo’s activities related to TRS; and recommended a total commitment of $260 Million to Franklin Park to maintain allocation to Private Equity. Mr. Anderson reviewed the fund’s allocation by segment; the gain/loss summary; comparative performance; asset compliance; the plan sponsor total fund allocation vs. all public plans total fund; the plan sponsor peer group vs. all public plans; risk return and statistics; annual asset class performance over 15 years; total fund net returns; and performance by segments over various periods. There was a discussion about the manager watch list. No action was taken.
A break was taken from 11:20 to 11:49 a.m.
Mr. Williamson left at 11:20 a.m.
Upon returning from break, Chairman Florence asked for a roll call to determine if there was a quorum. Trustees responding as present were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter and Dr. Winters. A quorum was present.
Continuing the Investment Consultant Reports, Mr. Brown reiterated recommendations to replace some managers on the watch list and reallocating the proceeds. He presented his Alternatives report for the quarter ending September 30, 2020, and explained the report lags one quarter because it takes a lot of 3
Page 3 of 123 time to aggregate data from the alternative managers. The value of the total private assets gained about $69M in value, there were returns of 4.4% for the quarter, and a return of 5.7% for a one-year period, fueled by the Private Equity portfolio which had a return of 16.4%. Opportunistic Fixed Income was down -6.44% and the Real Estate Composite fell -2.68%. There were distributions from Opportunistic Fixed Income portfolio of almost $45M, and distributions from Core Real Estate, which was income from the L&B fund. There were contributions and distributions from Non-core Real Estate, capital calls of over $19M from seven Real Estate managers, and distributions of over $12M from over 5 managers. Franklin Park distributed $18M from a couple of managers in underlying funds within the portfolio. In the fall, TRS committed $100M to Franklin Park and added another $260M today. TRS also committed $150M to Starwood Fund XII, a follow-on investment fund. Private Equity, Core Real Estate, Non-core Real Estate and Opportunistic were positive for the quarter. Mr. Brown reviewed performances by manager and said new funds are in a good position regarding the market. Franklin Park, which was up 7.5% for the quarter, has 61 underlying funds, 14 of which made distributions near $100M over the past six months. He recommended TRS maintain its allocation to Private Equity. No action was taken.
b. Monthly Performance Report for January 2021: Mr. Anderson presented his market update for January pointing out that small cap stocks outperformed large cap stocks. Fixed income was down but interest rates are rising and oil rose from 48.6 to 52.2. He reviewed the Asset Allocation Compliance Summary, and Financial Reconciliation, showing the total fund was down slightly for the month with a total of $19.8B, but last night, its market value was close to $20.5B. He reviewed Asset Allocation Performance which showed mixed results with the highest losses coming from the Total Fixed Income Active Duration Composite. No action was taken.
Mr. Williamson returned at 12 p.m.
4.5 – DISCUSSION AND POSSIBLE ACTION TO SELECT FINALISTS FOR INVESTMENT CONSULTANT REQUEST FOR PROPOSALS: Mr. Gaddis reminded Trustees that selecting an investment consultant to manage TRS’ $20 Billion investment portfolio is the most important thing they can do on the Board. He said the staff made a recommendation and the Board makes the final decision. TRS Executive Director Tom Spencer said he designated a team from staff to draft the RFP, which was approved by the Board in November, and to review, rank, and score the seven proposals, and ultimately agree on the final recommendation. TRS Chief Investment Officer Kirk Stebbins added that this RFP was issued by Board policy as the Investment Consultant contract is coming due July 1, and this RFP does not reflect on satisfaction with AndCo Consulting. He said this RFP was an opportunity to look at firms suited to TRS’ needs going forward as the fund has grown to over $20B, a marquee account for even the best consulting firms in the world. He said the incumbent consulting firm’s proposal is included in the results and he expressed thanks to the respondents for their work on this RFP. He added that TRS’ team diligently went through the responses, taking the work seriously and maintaining integrity of the process. TRS General Counsel Sarah Green shared the report on screen while Mr. Stebbins reviewed it. He pointed out the fee structure which shows TRS can save roughly $400K per annum, or $2M over the 5-year contract. Ms. Green reiterated to the Board this RFP is the biggest decision it makes for TRS, and as Trustees they are fiduciaries to the system, required to administer the system for the exclusive benefit of the members and beneficiaries of the system and doing that while defraying reasonable expenses of the system. She added that it is not only Board policy, it is the law, in Title 70 Section 17-106.1. She said the decision cannot be made to for our own personal benefit, or for the benefit of our friends, or our community, only to benefit members of the system and their beneficiaries. She shared a section of TRS’ procurement policy from the Board of Trustees Policy Manual and reiterated Mr. Gaddis’s statement that it is the Board’s ultimate decision. She reminded Trustees that per Board policy, the RFP process is used for investment consultants, custodial banks and any Board contract. She said the staff is recommending the Board interview three finalists at the April meeting, Aon, Callan and Meketa. 4
Page 4 of 123 Mr. Gaddis said he appreciates the work staff and management has done on this RFP, and he wants the Board to talk about and consider the results before they make a motion. He commended and thanked AndCo for its high level of service while managing the portfolio for 20-plus years placing TRS in the top decile or quartile of returns. He said he was surprised that AndCo wasn’t selected to be interviewed and he suspects other Trustees are equally surprised. He said sitting on the board for eight-or-so years, when you work with people closely you become friends, so relationships have been established. He said he understands his fiduciary duty is to the Board and its mission, not to AndCo or any vendor. He added that AndCo is a known entity and the TRS’ relationship with Mr. Anderson goes back over 20 years. He said he is sad that he didn’t ask his committee to take a bigger role to help draft and analyze this RFP. He expressed his thoughts on the ratings and said he would like the Board to consider allowing AndCo to interview, whether or not they scored the highest, but because they are the incumbent, and to let the three finalists compete with our current consultant. He said the majority of the Board probably has not read the proposals and are getting information from a presentation and there is a huge impact with board members voting to say which company will guide and manage TRS’ $20B fund for five more years. Mr. Gaddis talked about scoring the seven respondents and Ms. Green reminded him that actual scoring isn’t disclosed until the contract has been awarded. He replied we don’t know if those scores reflect that a provider cannot give us a report or service that exceeds our needs. He reviewed information about the firms’ asset liability studies experience and professionals on staff and said we should think about capabilities going forward, not what they did in the past, and interviews can uncover which firm is capable of meeting our needs and more information that isn’t reflected on paper. He said adding AndCo to the interviews will cause Board members to focus on four candidates instead of three, and it might cost the Board another hour or two of time to compare what we know to what we don’t know. He said it makes sense for the Board to invest more hours before making a decision to commit to for the next five years. He suggested interviewing the firms staff recommended as well as AndCo because they’re the incumbent.
Chairman Florence expressed appreciation to AndCo for its work, and to staff. He said he appreciates Mr. Gaddis’ comments and his positions on the RFP. There was discussion about the Board’s options, per Board Policy, regarding action that can be taken on the RFP item. Mr. Green advised the Board it may vote to accept or reject the recommendation of staff or take any other action outlined in the Board Policy Manual. If the recommendations of staff are rejected, the Board policy provides Trustees may review the submissions independently and make finalist selections at the March Board meeting which would still be in time for the finalists to be interviewed at the April meeting.
A motion was made by Mr. Gaddis to reject the recommendation from executive staff and for the Board to review all RFP materials and come back with a recommendation to consider at the March 31 Board Special meeting. Getting no second to the motion, Chairman Florence said the motion could not go forward.
A motion by Mr. Williamson with a second made Dr. Winters to accept the recommendations of the staff for Investment Consultant RFP finalists. Trustees responding yes were Mr. Florence, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Mr. Streeter, Drew Williamson and Dr. Winters. Mr. Gaddis voted no. Ms. Shankar abstained.
Chairman Florence and Ms. Green reviewed the next steps in the RFP process: Staff will do reference checks and schedule the finalists’ interview for the April Board meeting.
4.6 – DISCUSSION AND POSSIBLE ACTION ON INVESTMENT DEPARTMENT REPORT: Mr. Stebbins announced that in the interest of time, he will not give a report.
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Page 5 of 123 ITEM 5 – DISCUSSION AND POSSIBLE ACTION FOR SPECIAL INVESTMENT COMMITTEE AND BOARD MEETINGS IN MARCH 2021: There was discussion about scheduling a special Board meeting the last week of March to allow the Executive Committee time to review RFPs for an executive search firm. It was decided it would not be necessary to schedule a special Investment Committee in March.
A motion made by Mr. Meyer with a second made by Dr. Winters to schedule a special Board meeting Wednesday, March 31, carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter and Dr. Winters.
Mr. Williamson left at 1:30 p.m.
A break was taken from 1:35 to 1:45 p.m.
Upon returning from break, Chairman Florence asked for a roll call to determine if there was a quorum. Trustees responding as present were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Meyer, Ms. Shankar and Dr. Winters. A quorum was present.
Mr. Kellogg and Mr. Streeter returned at 12:50
ITEM 6 – DISCUSSION AND POSSIBLE ACTION ON COMMITTEE REPORTS:
6.1– GOVERNANCE COMMITTEE: Ms. Green said there was no report this month.
6.2 – AUDIT COMMITTEE: Audit Committee Chair Dr. Winters reported that audits in progress include the disaster recovery plan, cybersecurity, retirement payment process, risk assessment and 3-year-audit plan, and information technology controls in ALICE. The retirement account events review has been completed. The prior audit follow-up has not started. Stinnett is working with OMES and TRS to get and update on prior cyber recommendations from OMES and a report will be presented to the Board in April. The internet project and formal project with Stinnett, TRS and MyConsulting kicked off in February. No action was taken.
6.3 – EXECUTIVE COMMITTEE: Discussion and possible action to approve issuing a Request for Proposal for a search firm for position of Executive director: Chairman Florence said the Executive Committee, made up of Board officers and committee chairs, worked with TRS’ executive staff on the Executive Search Firm RFP. Mr. Spencer explained that before this RFP could be issued, he had to get an exemption from using Central Purchasing’s two executive search firms that are under mandatory state contract. Those firms do not have experience in searching for executives in the pension or financial industries as several search firms do. It is important for a firm to search for executives with contacts with some of the best pension executives in the country and those with experience in administering public plans. These firms have Human Resources staff who can look at the job description. He said TRS also had to get permission from the Human Capital Management division of OMES to change the pay band of the executive director. The pay band was moved from 10 to 15, with a range of $142,800 to $214,200, giving TRS the ability to attract someone from a different plan. Mr. Spencer mentioned benefits of using a relevant search firm and he reviewed the RFP’s contents and timeline. Chairman Florence said the responses would be returned in time to review at the March Board Special meeting and urged any Trustee wanting to be part of this RFP process to let him know.
A motion made by Mr. Kellogg with a second made by Mr. Meyer to approve issuing the Executive Search Firm RFP as presented carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter and Dr. Winters. 6
Page 6 of 123 ITEM 7 - DISCUSSION AND POSSIBLE ACTION ON BOARD SELF-ASSESSMENT POLICY AND QUESTIONNAIRE: Mr. Spencer reminded the Board that after Stinnett & Associates completed a governance audit, they recommended the TRS’ Board do a periodic self-assessment survey. A sample of a Board self- assessment survey provided by Stinnett was reviewed at the November 2020 Board meeting. He shared the proposed self-assessment policy and explained the Board will adopt the survey document every other year and Trustees will complete the survey and return it to the Board chair, another Trustee or the Executive Director. The survey summary will be discussed at the Board retreat every other year allowing Trustees to share any concerns they have.
A motion made by Dr. Winters with a second made by Ms. Harris to adopt the proposed amendment to Chapter 4 of the Governance Policy carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter and Dr. Winters.
ITEM 8 - DISCUSSION AND POSSIBLE ACTION TO APPROVE THE GASB 68 “SCHEDULE OF EMPLOYER ALLOCATIONS AND COLLECTIVE PENSION AMOUNTS” AND GASB 75 “SCHEDULE OF EMPLOYER ALLOCATIONS AND COLLECTIVE OTHER POSTEMPLOYMENT BENEFIT AMOUNTS” PREPARED BY EXTERNAL AUDITOR EIDE BAILLY: Vanessa Dutton of Eide Bailly said GASB is the Governmental Accounting Standards Board that created GASB 68 for pensions and pension liabilities and GASB 75 for other postemployment benefits, or OPEB. For TRS, OPEB is the subsidy paid to retirees to help pay for health insurance premiums. Ms. Dutton summarized the reports which she said are almost identical. The pension is $9.5B net pension liability offset by the trust assets. These reports are an audit to be posted on TRS’ website so the school districts and universities can pick up the employer portion of the pension and OPEB liability on their financial statements. Nothing unusual popped up on either report. TRS received unmodified clean opinions, which is the type TRS wants. The reports show allocations by employers based on contributions those employers paid in. An AU260 letter is provided to TRS as Board oversight. The letters for both audits are identical but required for auditors to communicate to TRS the status of the audit. TRS Finance Director Sam Moore prepares the schedules and provides them to the auditor who applies their audit procedures over them and makes sure they are presented properly in accordance with the standards. Eide Bailly confirms and contacts the employers for additional information each year. Any significant accounting policies are described in Note 1 to the audit reports and there were no changes to bring to the Board’s attention. Eide Bailly is required to let the Board know of any kind of significant accounting estimates, and by far the largest estimate used in preparation of these audits is the actuarial liability, the ultimate amount that is going to be paid out for the pension or the OPEB. No matters were brought to Eide Bailly’s attention, there were no audit or past audit adjustments, and there were no difficulties or disagreements with management in the course of the audit. She reiterated that June 30, 2020, numbers are used for employers’ June 30, 2021, audits.
A motion made by Dr. Winters with a second made by Ms. Harris to accept the GASB 68 “Schedule of Employer Allocations and Collective Pension Amounts” and the GASB 75 “Schedule of Employer Allocations and Collective Other Postemployment Benefit Amounts” as presented carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter and Dr. Winters.
Mr. Meyers left at 2:15 p.m.
ITEM 9 - DISCUSSION AND POSSIBLE ACTION TO SET CONTRIBUTION RATE FOR FEDERAL AND GRANT MATCHING FUNDED POSITIONS FOR FY 2022: TRS Executive Director Tom Spencer explained that by statute, TRS must review the Federal and Grant Matching contribution rate by April 1 each 7
Page 7 of 123 year and notify employers of the rate. TRS’ actuary makes the calculation and the rate went from 7.7% last year to 7.9% for FY 2022. If an employer uses grant money from any source that funds positions, it has to pay this additional contribution. This is a surrogate for the dedicated revenue that we are not getting when someone donates money. He said the biggest grantor to education is the federal government. This makes sure local employers get reimbursed for the full cost of the pension benefit and remits it to us. Mr. Spencer added that there is a bill that would take the private grant out of this statute, but if it passes, the federal government could say TRS can’t collect it from them either because of a non-discrimination provision in the federal rules. The bill passed out of the House committee earlier this week.
A motion made by Mr. Kellogg with a second made by Mr. Boles to adopt the employer federal and grant matching contribution rate for FY 2022 at 7.9% carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Ms. Shankar, Mr. Streeter and Dr. Winters.
ITEM 10 – DISCUSSION AND POSSIBLE ACTION ON FINAL ADOPTION OF PERMANENT RULES: 715:1-1-4[REVOKED]; 715-1-1-8[AMENDED]; 715:1-1-15[AMENDED]; 715:10-1-4 [AMENDED]; 715:10-9-1[AMENDED]; 715-10-11-1 [AMENDED]; 715:10-19-1[REVOKED]; 715:10-19- 2[REVOKED]; 715:10-19-3[REVOKED]; 715:10-19-4[REVOKED]; 715:10-19-5[REVOKED]; 715:10- 19-7[REVOKED]; 715:10-19-8[REVOKED]; 715:10-19-9[REVOKED]; 715:10-19-11[REVOKED]; 715:10-19-12[REVOKED]; 715:10-19-13[REVOKED]: Ms. Green reminded Trustees that these are the rules the Board has reviewed a couple of times and are now in the final adoption phase of the rulemaking process. If adopted by the Board today, they go to the governor and the Legislature for review and approval.
A motion made by Dr. Winters with a second made Ms. Harris to adopt the proposed permanent rules for submission to the Governor and Legislature carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Ms. Shankar, Mr. Streeter and Dr. Winters.
ITEM 11 – DISCUSSION AND POSSIBLE ACTION ON STAFF RECOMMENDATIONS ON PROPOSED LEGISLATION FOR THE 2021 SESSION: Mr. Spencer introduced Haley Drusen, TRS’ Legislative and Policy Director, and talked briefly about her background. Ms. Drusen said a record 3,000 bills were filed for this legislative session that began February 1. She reviewed some bills that impact TRS: • SB 1031, the only bill signed by the governor thus far, allows state agencies to convene virtual meetings due to COVID. • HB 2293 would remove the requirement that employers pay matching contributions on funds provided by external grants, with the exception of the matching contributions on federal funds. However, the federal government cannot be asked to pay an obligation as all grants have to be treated the same. TRS received over $28M in matching contributions for FY 2020. • SB 683 removes the requirement that full-time, non-classified, optional personnel, generally support personnel, have to wait a year before they can join TRS. We amended the bill to allow them to join TRS upon hiring, and drafted language to make sure the statute complied with IRS rules. The committee passed the bill and it is now before the Senate. • SB 267 reframes the exemption on retiree earnings that passed a few years ago. Retired employers could work at a public school without limits on their salary for a period of 3 years. These would have to be retirees before this bill goes into effect and they would have to be retired for a year before they could go back without a limit on their earnings. This doesn’t encourage teachers to retiree as it affects only current retirees. This bill passed its Senate committee and is on the Senate general order. • SB 933 essentially allows two extra years of retirement credit for teachers who worked this year on school property and proceed to work for the next three years. This bill will impact the system’s ratio if it 8
Page 8 of 123 is unfunded so it is being considered by the actuary to see what it will cost TRS and bring it back up in committee next year. In reply to a question by Dr. Winters, Ms. Drusen explained the reason for this bill is to reward teachers who taught in person 130 days on school property during the pandemic. She said there are questions about if the credit includes teachers who go to their school but teach virtually. If the bill passes, TRS will have to look at teachers’ attendance records to see when they are on property. There was some further discussion about the bill. • SB 934 would grant a 2% increase in benefits on July 1, 2022, to any person receiving TRS benefits on June 30, 2021. The author of the bill, Sen. Lonnie Paxton, wants this to go to the actuary to see what the cost will be. It might come back up in December. • HB 2686 would change the minimum vesting period from 7 years for new employees back to 5 years. It’s a fiscal year bill, a two-year process that will get an actuary report. A shorter vesting time can encourage teachers from others states to come in and teach for a few years so they can vest.
Ms. Drusen pointed out there are bills related to other state pension plans in her report if Trustees want to look through them. No action was required.
ITEM 12 – DISCUSSION ON 2020 SECURITIES LITIGATION REPORT: TRS General Counsel Sarah Green gives the Board an annual report on how much money TRS has received from class action settlements the previous year. In 2020, TRS received $149,637.70 in class action proceeds. She said Trustees can refer to the report if they want to see details. No action was taken.
ITEM 13 – DISCUSSION AND POSSIBLE ACTION TO RESOLVE INTO EXECUTIVE SESSION PURSUANT TO 25 O.S. § 307(B)(1) FOR THE PURPOSE OF DISCUSSING THE EMPLOYMENT, EVALUATION, COMPENSATION, HIRING, APPOINTMENT, PROMOTION, DEMOTION, DISCIPLINING, TERMINATION OR RESIGNATION OF THE GENERAL COUNSEL.
A. Vote to convene into Executive Session
A motion made by Mr. Kellogg with a second made by Mr. Boles to resolve into Executive Session carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Ms. Shankar, Mr. Streeter and Dr. Winters.
B. Vote to return to Open Session
A motion made by Ms. Harris with a second made by Mr. Boles to return to Open Session carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Ms. Shankar, Mr. Streeter and Dr. Winters.
ITEM 14 – DISCUSSION AND POSSIBLE ACTION ON ITEMS DISCUSSED IN EXECUTIVE SESSION
A motion made by Dr. Winters with a second made by Ms. Harris to increase TRS General Counsel Sarah Green’s compensation to $134,000 carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Kellogg, Ms. Shankar, Mr. Streeter and Dr. Winters.
ITEM 15 - DISCUSSION AND POSSIBLE ACTION ON AGENCY REPORTS:
9
Page 9 of 123 15.1 – TRS Client Services Director Dixie Moody reported November 2020 metrics: Client Services received around 400 estimate requests, which is line with 2019. The Information Center received 6,000 calls, an increase of around 1,000 from the year before. Of the 6,000 calls received, around 70% were answered by an Information Center agent within 20 seconds; 26% opted to go through menu options; and 3% abandoned their call after waiting approximately 20 seconds. Client Services received and responded to 277 emails, and 533 members were added to the Member Portal. There were 159 retirements effective December 1, 2020, up from 87 the year before. Of the 159 retirements, 3 were disability retirements approved by TRS’ Medical Board. There were 214 annuities terminated due to death compared to 142 the year before.
December 2020 metrics: Client Services had over 400 estimate requests. The Information Center received almost 8,000 calls, 63% of which were answered by an Information Center agent within 25 seconds; 34% opted to go through menu options; and 3% abandoned their call after waiting approximately 20 seconds. Client Services received and responded to 412 emails, and 327 members were added to the Member Portal. There were 215 retirements effective January 1, 2021, up from 207 the year before. The 4 disability retirements were approved by TRS’ Medical Board. There were 183 annuities terminated due to death compared to 159 the year before.
January 2021 metrics: Client Services had over 650 estimate requests. The Information Center received over 11,000 calls, 53% of which were answered by an Information Center agent within 20 seconds; 43% opted to go through menu options; and 4% abandoned their call after waiting approximately 16 seconds. Client Services received and responded to 412 emails, and 590 members were added to the Member Portal. There were 104 retirements effective February 1, 2021, up from 96 the year before. The lone disability retirement was approved by TRS’ Medical Board. There were 221 annuities terminated due to death compared to 195 the year before.
15.2 – TRS Human Resources Director Kim Bold reported for November, December and January. The business analyst position was filled after being left vacant by a retirement. In January, TRS hired a Legislative and Policy Director. One employee passed away in December after working at TRS for two months. Her position was filled by another person that had been interviewed previously. Under Miscellaneous Payments, in an effort to keep employee salaries comparable to the market, TRS asked HCM to conduct a market study for all staff. The study resulted in 14 of 38 employees receiving a pay adjustment effective February 1. Under Pending Items, one Information Center Retirement Planning Consultant resigned, and the Data Management Analyst position is open due to a promotion. Ms. Bold announced that after 35 years at TRS, and having a new grandbaby, she will retire July 1, along with Mr. Spencer.
15.3 – Finance: TRS CFO Sam Moore said as of December there were no missing employer contributions.
Mr. Moore reported that the January Balance Sheet showed TRS at $19.9B, up $2.1B since the September report. On the Statement of Revenues, Expenditures ending January 31, Mr. Moore pointed out that Dedicated Revenue was down -15%, Retirement Benefits were up 6.13% due to the COLA, and Investment Expense is down 21.74% due to the Investment Department negotiating lower fees. On the Comparison of Actual Expenditures for FY 2020 through FY 2021, Payroll is down -2.7% due to vacancies, and Travel and Per Diem Expenses are down -92.8% due to the pandemic. The Budget to Actual shows TRS is far below actual. The last pages of his report were claims for expenditures for November, December and January.
15.4 – TRS Deputy Director of Operations John Santos reviewed issues he has worked on since November: 1. Annual member statements were mailed, for the first time since 2011. They were generated last year and posted in the Member Portal, but not mailed. 2. 71,539 1099 Forms were generated and mailed by the January 31 deadline. This contributed to an annual increase in calls in January and February. 10
Page 10 of 123 3. TRS’ website, along with 24 other agencies’ websites, was redesigned and moved to an Adobe platform in December. Some modifications are being done by the marketing firm TRS hired last year. Most state websites are converting their websites to this platform. 4. TRS experienced several service interruptions to its software and telephone system in the past couple of months. Some issues were due to OMES making network changes as part of an upgrade related to disaster recovery operations. 5. There has been a large volume of retirement inquiries in the last two months. There are over 1,800 retirement applications pending action by members. Many members requested information for multiple retirement dates and TRS will get final decisions of those requests at the end of the school year. Retirements increased approximately 8.5% from CY 2019 (2,453) to CY 2020 (2,661). 6. There was an increase of 156 (33.4%) in deaths of retired members in the period of December to January 2019/2020 compared to the period of December to January 2020/2021.
15.5 – TRS General Counsel Ms. Green updated the Board on projects she has been working on: • The Harvey Parkway Building has a new tenant moving into a 2nd floor space. Their lease begins May 1. Floors 2, 3, 4 and 5 are completely occupied, 6 still needs a tenant, and there is a little space vacant on 1. • Permanent Rulemaking goes to the Governor and Legislature for approval. • TRS is still waiting on an Attorney General Opinion on the Federal/External Grant Matching statute. • TRS has been working with Epic Charter Schools on the state auditor’s findings and TRS has conducted an independent audit specific to TRS. Epic would like to apply for membership for their blended learning center in March. An update on Epic will be given at the March meeting.
15.6 – TRS Executive Director Tom Spencer shared some of his activities from November 10, 2020, through February 22, 2021: 1. The entire office moved in about three days from the Oliver Hodge building to the Harvey Parkway building two weeks before Thanksgiving. There were a lot of details to work through. 2. a. Interviewing for hiring new staff is being done by Zoom, but testing is still done on site. TRS needs some staff to work on site with imaging and processing mail. b. The Executive Director recruitment process has started, and Mr. Spencer has no one in mind. 3. Monitoring legislation is more difficult with limited space in meeting rooms which is frustrating if a question comes up. The Legislature doesn’t want to hear from the agencies, which is not good because there have been mistakes in a bill’s description with no way to correct the record. 4. The 403(b) Plan was legally dead January 31, but there are some loose ends and paperwork to wrap up. 5. Communications and PR: The Popular Annual Financial Report sent out with some improvements, such as more investment information, benchmarks, and a picture of the new building. b. Mr. Spencer was said he was honored to be a judge for Teacher of the Year and it made him excited about education. Chairman Florence said his son was also a judge on that panel.
ITEM 16 – QUESTIONS AND COMMENTS FROM TRUSTEES: Chairman Florence said it had been a very long day and he was impressed with the quality of work done by Trustees and staff.
ITEM 17 – NEW BUSINESS: There was none.
ITEM 18 – ADJOURNMENT: Chairman Florence adjourned the meeting at 3:19 p.m.
By:
11
Page 11 of 123 ______Vernon Florence, Chairman
ATTEST:
By:
______Judie Harris, Secretary
12
Page 12 of 123
Teachers' Retirement System of Oklahoma
Page 13 of 123 Executive Summary As of February 28, 2021
Market Summary . U.S. equity markets were mostly positive during February. The S&P 500 gained 2.8% for the period while the Russell 2000 was up 6.2%. . Growth and value stocks posted widely different returns during February. The Russell 1000 Growth declined by ‐0.02% while the Russell 1000 Value gained 6.0%. . International equities returns were also varied during the month, with the MSCI EAFE gaining 2.2% and the MSCI EM gaining 0.8%. . The 30‐year U.S. Treasury bond yield rose 0.4% during the month, ending with a yield of 2.2%. Year to date, the 30‐year bond yield has risen 0.5% . U.S. corporate high‐yield bonds returned 0.4% during February, outperforming U.S. corporate investment‐grade bonds which were down ‐1.7%.
Portfolio Summary (returns shown net of fees) . The value of the Total Fund increased by $399,671,255 to $20,219,286,660 for the month. . The Total Fund returned 2.3% for the month which outperformed the policy benchmark by 0.3%. . The Total Fund’s fiscal year to date return was 21.8% vs. 21.2% for the static policy benchmark. . The Total Fund posted a three‐year annualized return of 9.6%, which trailed the policy benchmark’s return by 1.2%.
Watch List Managers (returns shown net of fees) . Hotchkis & Wiley Mid Cap Value: 13.8% return for the month vs. 7.8% for their benchmark index. Despite the recent outperformance, the portfolio’s three‐year trailing return lags the benchmark by 5.0%. . Wellington International Small Cap: 2.6% return for the month vs. 2.7% for their benchmark index. Despite the recent outperformance, the portfolio’s three‐ year trailing return lags the benchmark by 4.7%. . Shapiro Capital Enhanced Small Cap: 5.5% return for the month vs. 6.2% for their benchmark index. The portfolio’s three‐year trailing return lags the benchmark by 5.6%. . Frontier Capital Small Cap Value: 12.8% return for the month vs. 9.4% for their benchmark index. The portfolio’s three‐year return trailing return lags the benchmark by 0.9%. . Neumeier Poma Small Cap Value: 4.9% return for the month vs. 6.2% for their benchmark index. The portfolio’s three‐year return trailing return lags the benchmark by 2.7%. . Allianz Best Styles Int’l All Country: 3.0% for the month vs. 2.0% for their benchmark index. The portfolio’s three‐year trailing return lags the benchmark by 2.8%. . SSGA Emerging Markets Small Cap: 5.0% return for the month vs. 6.0% for their benchmark index. The portfolio’s three‐year trailing return lags the benchmark by 1.3%.
Recent Activity (February 2021) . 13 due diligence/portfolio update calls with investment managers. . 3 calls with TRSO Staff. . 1 Board meeting.
Recommendations • Recommendations provided in quarterly report
Page 14 of 123 TRSO Manager Watch List As of February 28, 2021
Manager Asset Class Market Value Date Reason Next Steps (2/28/2021) Added
Hotchkis & Wiley Domestic Mid $467,348,172 09/30/2019 Performance . Review of domestic Cap Equity . Total return (net) trails the benchmark over the trailing equity allocations 3‐year period. pending.
Wellington Management International $315,896,573 09/30/2019 Performance . Continue to Small Cap . Total return (net) trails the benchmark over the trailing monitor Equity 3‐year period.
Shapiro Capital Domestic Small $1,121,220,275 7/31/2020 Performance . Review of domestic Management Cap Equity . Total return (net) trails the benchmark over the trailing equity allocations 3‐year period. pending.
Frontier Capital Domestic Small $264,596,607 9/30/2020 Performance . Review of domestic Management Cap Equity . Total return (net) trails the benchmark over the trailing equity allocations 3‐year period. pending.
Neumeier Poma Domestic Small $322,324,053 12/31/20 Performance . Review of domestic Investment Council Cap Equity . Total return (net) trails the benchmark over the trailing equity allocations 3‐year period. pending.
Allianz Global Investors International $1,240,600,789 12/31/20 Performance . Continue to Large Cap . Total return (net) trails the benchmark over the trailing monitor Equity 3‐year period.
Other Manager Notes: . Wasatch announced Roger Edgley’s retirement from the firm. . Loomis Sayles announced final retirement date of Jae Park and Dan Fuss. Both will retire on March 31, 2021.
Watchlist does not include private market investments. Page 15 of 123 TRSO Manager Watch List As of February 28, 2021
Manager Asset Class Market Value Date Reason Next Steps (2/28/2021) Added
State Street Global Emerging $337,844,506 12/31/20 Performance . Continue to Advisors Markets Small . Total return (net) trails the benchmark over the trailing monitor Cap Equity 3‐year period.
Other Manager Notes: . Wasatch announced Roger Edgley’s retirement from the firm. . Loomis Sayles announced final retirement date of Jae Park and Dan Fuss. Both will retire on March 31, 2021.
Watchlist does not include private market investments. Page 16 of 123 Market Update February 28, 2021
Index Returns (%) Russell Indices Style Returns * 3 Yr 5 Yr Equities Month 3 M YTD 1 Year VBG VBG Ann Ann S&P 500 Total Return 2.76 5.63 1.72 31.29 14.14 16.82 L 5.1 2.0 -0.8 L 2.8 20.9 38.4 Russell Midcap Index 5.57 10.22 5.29 36.11 13.74 15.87 Russell 2000 Index 6.23 21.23 11.58 51.00 14.87 17.92 M 7.5 5.3 1.4 M 4.9 17.0 35.5 Russell 1000 Growth Index (0.02) 3.80 (0.76) 44.26 20.97 22.22 Russell 1000 Value Index 6.04 9.10 5.07 22.22 8.23 12.02 S 15.1 11.6 8.3 S 4.6 19.9 34.5 Russell 3000 Index 3.13 7.29 2.67 35.33 14.97 17.41 MSCI EAFE NR 2.24 5.86 1.15 22.46 4.59 9.73 YTD 2020 MSCI EM NR 0.76 11.49 3.85 36.05 6.35 15.24
Index Returns (%) Levels Mod. Adj. Yield to Fixed Income Month 3 M YTD 1 Year Currencies 02/28/21 12/31/20 12/31/19 Duration Worst U.S. Aggregate (1.44) (2.02) (2.15) 1.38 6.31 1.42 Euro Spot 1.21 1.22 1.12 U.S. Corporate Investment Grade (1.72) (2.56) (2.98) 2.79 8.57 2.05 British Pound Spot 1.39 1.37 1.33 U.S. Corporate High Yield 0.37 2.59 0.70 9.38 3.79 4.25 Japanese Yen Spot 106.57 103.25 108.61 Global Aggregate (1.72) (1.28) (2.58) 4.33 7.34 1.08 Swiss Franc Spot 0.91 0.89 0.97
Levels (%) Levels Key Rates 02/28/21 12/31/20 12/31/19 12/31/18 12/31/17 Commodities 02/28/21 12/31/20 12/31/19 US Generic Govt 3 Mth 0.03 0.06 1.54 2.35 1.38 Oil 61.50 48.69 55.00 US Generic Govt 2 Yr 0.13 0.12 1.57 2.49 1.88 Gasoline 2.72 2.25 2.59 US Generic Govt 10 Yr 1.40 0.91 1.92 2.68 2.41 Natural Gas 2.77 2.54 2.29 US Generic Govt 30 Yr 2.15 1.64 2.39 3.01 2.74 Gold 1,728.80 1,899.60 1,187.30 ICE LIBOR USD 3M 0.19 0.24 1.91 2.81 1.69 Silver 26.44 26.47 16.50 Euribor 3 Month ACT/360 (0.53) (0.55) (0.38) (0.31) (0.33) Copper 409.25 352.40 283.50 Bankrate 30Y Mortgage Rates Na 3.25 2.87 3.86 4.51 3.85 Corn 547.50 483.25 415.50 Prime 3.25 3.25 4.75 5.50 4.50 BBG Commodity TR Idx 182.07 166.63 172.00
YTD Sector Returns 2020 Sector Returns 30.0 50.0 27.30 43.75
25.0 40.0 33.19 30.0 20.0 23.54 20.67 20.0 18.33 15.0 13.41 11.02 10.71 10.0 9.54 10.0 0.52 0.0 4.81 5.0 -1.75 -2.16 2.29 2.08 1.72 1.39 -10.0 0.28 0.0 -20.0 -0.53 -0.72
-5.0 -30.0
-6.51 -6.94 -33.60 -10.0 -40.0
Source: Bloomberg & Investment Metrics. For informational purposes only and should not be regarded as investment advice. Information is based on sources and data believed to be reliable, but AndCo Consulting cannot guarantee the accuracy, adequacy or completeness of the information. The material provided herein is valid only as of the date of distribution and not as of any future date. *Heat maps are displayed utilizing a 9-color scale, with green as the highest return for the time period noted and red as the lowest return for the time period noted. Color scales within each time period are mutually exclusive.Page 17 of 123 Asset Allocation Compliance Summary Total Fund As of February 28, 2021
Executive Summary
Domestic Equity $9,833,172,820.0 (48.6%)
International Equity $3,634,734,521.0 (18.0%)
Fixed Income $3,712,395,483.0 (18.4%)
Real Estate $1,212,959,861.1 (6.0%)
Private Equity $1,652,369,555.9 (8.2%)
Cash & Cash Equivalents $173,654,419.0 (0.9%)
0.0% 6.0% 12.0% 18.0% 24.0% 30.0% 36.0% 42.0% 48.0% 54.0% 60.0%
Policy Target In Policy Above/Below Target Range
Asset Allocation Compliance Asset Current Target Differences Minimum Maximum Rebalance to Rebalance to Rebalance to Allocation ($) Allocation (%) Allocation (%) (%) Allocation (%) Allocation (%) Target Minimum Maximum Domestic Equity 9,833,172,820 48.63 43.50 5.13 36.50 50.50 -1,037,783,123 0 0 International Equity 3,634,734,521 17.98 19.00 -1.02 14.00 24.00 206,929,944 0 0 Fixed Income 3,712,395,483 18.36 22.00 -3.64 17.00 27.00 735,847,582 0 0 Real Estate 1,212,959,861 6.00 9.00 -3.00 6.50 11.50 606,775,938 101,293,772 0 Private Equity 1,652,369,556 8.17 6.50 1.67 4.50 8.50 -338,115,923 0 0 Cash & Cash Equivalents 173,654,419 0.86 0.00 0.86 0.00 0.00 -173,654,419 0 -173,654,419 Total Fund 20,219,286,660 100.00 100.00 0.00 - - - - -
Page 18 of 123 Financial Reconciliation Total Fund 1 Month Ending February 28, 2021
Financial Reconciliation Market Value Management Other Apprec./ Market Value Transfer In Transfer Out Contribution Distributions Income 02/01/2021 Fees Expenses Deprec. 02/28/2021 Total Fund 19,819,615,435 9,410,901 -9,410,901 63,581,295 -103,000,000 -186,475 -66,504 25,023,084 414,319,825 20,219,286,660
Total Equity 12,949,548,323 - - 1,728 - - -1,049 14,633,722 503,724,617 13,467,907,341
Total Domestic Equity 9,418,321,789 ------12,495,608 402,355,423 9,833,172,820
Total Domestic Equity Active (ex AllCap) 3,370,762,247 ------2,570,199 212,529,491 3,585,861,937
Total Domestic Equity Active Mid Cap 1,133,502,448 ------980,755 85,248,377 1,219,731,580
Total Domestic Equity Active Small Cap 2,237,259,791 ------1,589,444 127,281,114 2,366,130,349
Transition Account 8 ------8
Total Domestic Equity Indexed 6,047,559,542 ------9,925,409 189,825,932 6,247,310,883
Total Domestic Equity Index Cap Wgt 3,343,665,425 ------4,906,671 123,489,591 3,472,061,687
Total Domestic Equity Indexed NonCap 2,703,894,117 ------5,018,738 66,336,341 2,775,249,196
Total International Equity 3,531,226,534 - - 1,728 - - -1,049 2,138,114 101,369,194 3,634,734,521
Total International Large Cap Equity 2,484,492,966 - - 1,728 - - -1,049 1,794,636 71,973,326 2,558,261,607
Total International Small Cap Equity 1,046,733,568 ------343,478 29,395,868 1,076,472,914
Total Fixed Income 3,792,118,139 - - 13,800 - - - 10,046,204 -89,782,660 3,712,395,483
Total Fixed Income Core Plus 2,971,097,952 - - 13,800 - - - 9,105,080 -25,690,368 2,954,526,464
Total Fixed Income Active Duration 821,020,187 ------941,124 -64,092,292 757,869,019
Please note: Total monthly cash flows of plan $103M ($85M + $10M + $8M). Reflected above is cash basis (dependable on when $103M hits account and is paid out).
Transfer In/Out columns reflect flows between accounts in the portfolio. Contributions and Distributions represent all other cash flows. Page 19 of 123 Financial Reconciliation Total Fund 1 Month Ending February 28, 2021
Market Value Management Other Apprec./ Market Value Transfer In Transfer Out Contribution Distributions Income 02/01/2021 Fees Expenses Deprec. 02/28/2021 Total Alternatives 2,869,798,613 2,396,892 -6,614,158 - - -186,475 -65,455 - - 2,865,329,417
Total Opportunistic Fixed Income 304,433,403 - -5,679,644 ------298,753,759
Total Real Estate 1,211,749,413 2,396,892 -934,514 - - -186,475 -65,455 - - 1,212,959,861
Total Core Real Estate 740,514,607 ------740,514,607
Total Non-Core Real Estate 471,234,806 2,396,892 -934,514 - - -186,475 -65,455 - - 472,445,254
Total Private Equity 1,353,615,797 ------1,353,615,797
Total Cash 208,150,360 7,014,009 -2,796,742 63,565,767 -103,000,000 - - 343,158 377,868 173,654,419
Please note: Total monthly cash flows of plan $103M ($85M + $10M + $8M). Reflected above is cash basis (dependable on when $103M hits account and is paid out).
Transfer In/Out columns reflect flows between accounts in the portfolio. Contributions and Distributions represent all other cash flows. Page 20 of 123 Asset Allocation & Performance Total Fund - Net As of February 28, 2021
Asset Allocation & Performance Allocation Performance(%) Market Inception Value MTH QTR FYTD 1 YR 3 YR 5 YR 10 YR Inception Date $ Total Fund 20,219,286,660
Total Fund Composite NT (Net) - 2.26 6.56 21.76 22.33 9.62 12.11 9.13 9.19 12/01/1991 Total Fund Policy 1.92 5.85 21.16 24.70 10.77 12.76 9.23 -
Total Equity Composite 13,467,907,341 4.00 9.95 32.96 33.28 9.89 14.56 10.69 10.95 04/01/1990 Total Equity Policy 2.83 7.58 28.54 32.85 11.97 15.59 10.80 9.35
Total Domestic Equity Composite 9,833,172,820 4.40 10.24 33.77 34.12 12.22 16.03 12.18 11.06 04/01/1990 Total Domestic Equity Policy 3.13 7.29 28.58 35.33 14.97 17.19 13.60 10.48
Total Domestic Equity Active Composite 3,585,861,937 6.38 17.76 49.20 45.22 14.65 17.64 12.71 9.39 12/01/1998 Total Domestic Equity Active Policy 6.00 17.31 47.33 45.75 16.75 18.27 14.13 7.80
Transition Account 8
Total Domestic Equity Active Mid Cap Composite 1,219,731,580 7.61 14.44 44.24 44.88 14.65 16.92 12.33 10.47 12/01/1998 Total Domestic Mid Cap Equity Policy 5.57 10.22 35.68 36.11 13.74 15.87 12.34 10.19
Hotchkis & Wiley Mid Cap Value 467,348,172 13.83 28.78 75.95 46.14 3.95 10.17 9.14 10.70 08/01/2002 Russell Midcap Value Index 7.75 12.47 37.75 27.72 8.94 12.45 10.65 10.75
Wellington Mid Cap Growth 752,383,408 4.07 7.04 29.72 44.10 22.12 22.63 13.16 11.66 09/01/1998 Russell Midcap Growth Index 1.71 6.23 31.96 46.25 20.11 20.49 14.52 10.86
Page 21 of 123 Asset Allocation & Performance Total Fund - Net As of February 28, 2021
Allocation Performance(%) Market Inception Value MTH QTR FYTD 1 YR 3 YR 5 YR 10 YR Inception Date $ Total Domestic Equity Active Small Cap Composite 2,366,130,349 5.76 19.55 51.90 45.37 13.12 18.14 11.75 9.76 02/01/1998 Total Domestic Small Cap Policy 6.23 21.23 53.81 51.00 14.87 17.92 11.86 8.76
Geneva US Small Cap Growth 309,842,430 2.58 11.60 32.26 44.20 19.70 21.38 - 16.65 06/01/2013 Russell 2000 Growth Index 3.30 18.40 50.39 58.88 18.95 21.15 13.80 14.82
Frontier Small Cap Value 264,596,607 12.82 24.37 57.65 40.04 9.28 12.77 - 10.16 06/01/2013 Russell 2000 Value Index 9.39 24.27 57.49 41.06 10.14 14.22 9.65 9.79
Neumeier Poma Small Cap Value 322,324,053 4.92 15.89 43.45 33.19 11.65 16.01 - 13.75 06/01/2013 Neumeier Poma Policy 6.23 21.23 53.81 51.00 14.34 16.81 10.89 11.39
Shapiro Enhanced Small Cap Value 1,121,220,275 5.45 23.28 62.59 46.51 9.28 17.64 11.59 10.06 02/01/1998 Russell 2000 Index 6.23 21.23 53.81 51.00 14.87 17.92 11.86 8.76
Wasatch Small Cap Core Growth 348,146,984 5.44 15.61 44.27 57.94 24.93 24.80 - 17.32 06/01/2013 Russell 2000 Growth Index 3.30 18.40 50.39 58.88 18.95 21.15 13.80 14.82
Total Domestic Equity Indexed Composite 6,247,310,883 3.30 6.34 26.27 28.46 12.45 15.41 - 12.27 07/01/2015 Russell 3000 Index 3.13 7.29 28.58 35.33 14.97 17.41 13.44 13.74
Total Domestic Equity Index Cap Wgt Composite 3,472,061,687 3.84 7.72 29.93 34.64 14.86 16.68 - 14.21 04/01/2012 Russell 1000 Index 2.90 6.36 27.01 34.28 14.98 17.37 13.58 14.34
Northern Trust Russell 1000 2,251,630,543 2.92 6.38 27.01 34.05 14.91 - - 14.64 12/01/2017 Russell 1000 Index 2.90 6.36 27.01 34.28 14.98 17.37 13.58 14.71
Northern Trust Russell Midcap 1,220,431,144 5.58 10.27 35.71 36.22 - - - 33.02 02/01/2020 Russell Midcap Index 5.57 10.22 35.68 36.11 13.74 15.87 12.34 22.23
Total Domestic Equity Indexed NonCap Composite 2,775,249,196 2.64 4.67 21.96 21.53 9.96 14.43 - 13.17 05/01/2012 SciBeta US High FactorExposure Index ------
SciBeta US HFE MBMS 2,775,249,196 2.64 4.67 21.96 21.53 9.96 - - 9.33 12/01/2017 SciBeta US High FactorExposure Index ------
Page 22 of 123 Asset Allocation & Performance Total Fund - Net As of February 28, 2021
Allocation Performance(%) Market Inception Value MTH QTR FYTD 1 YR 3 YR 5 YR 10 YR Inception Date $ Total International Equity Composite 3,634,734,521 2.93 9.16 30.83 31.06 5.07 10.97 5.97 8.05 02/01/1996 Total International Equity Policy 2.22 8.18 28.39 27.78 5.93 11.80 5.43 5.88
Total International Large Cap Equity Composite 2,558,261,607 2.97 9.15 29.46 28.59 5.67 11.58 - 6.53 10/01/2014 Total International Large Cap Equity Policy 2.22 8.18 28.39 27.78 5.93 11.80 5.43 6.35
Allianz Best Styles AC Intl Equity 1,240,600,789 2.96 9.47 27.47 23.58 3.14 - - 9.78 07/01/2016 MSCI AC World ex USA 1.99 7.79 27.30 26.73 5.94 11.73 5.25 10.83
Causeway Intl Opportunities 613,611,165 5.49 10.00 33.52 28.73 4.26 10.42 5.67 8.56 05/01/2003 Causeway Intl Policy 4.36 10.03 28.63 18.93 1.34 9.03 3.97 7.96
Wellington International Quality Growth 704,049,653 0.89 7.85 29.60 37.63 11.72 - - 15.01 07/01/2016 Wellington Intl Quality Growth Policy -0.36 5.54 25.93 33.82 10.31 13.52 7.78 12.93
Total International Small Cap Equity Composite 1,076,472,914 2.84 9.19 34.18 37.22 4.38 10.26 - 10.05 12/01/2011 Total International Small Cap Equity Policy 3.63 10.73 35.75 34.83 5.91 12.23 6.60 9.40
SSGA Emerging Markets Small Cap 337,844,506 5.03 13.20 40.18 35.23 3.33 - - 8.16 09/01/2016 MSCI Emerging Markets Small Cap Index 5.97 14.31 45.34 42.27 4.59 11.73 3.97 9.13
Wasatch International Small Cap Growth 422,731,835 1.33 6.07 28.65 42.17 10.25 13.80 - 13.15 12/01/2011 MSCI AC World ex USA Small Cap 3.63 10.73 35.75 34.83 5.91 12.23 6.60 9.40
Wellington International Small Cap Equity 315,896,573 2.61 9.36 35.79 33.12 0.82 8.22 - 9.23 12/01/2011 Wellington Intl Small Cap Policy 2.66 9.30 32.42 31.66 5.56 12.15 8.14 10.99
Page 23 of 123 Asset Allocation & Performance Total Fund - Net As of February 28, 2021
Allocation Performance(%) Market Inception Value MTH QTR FYTD 1 YR 3 YR 5 YR 10 YR Inception Date $ Total Fixed Income Composite 3,712,395,483 -2.10 -2.68 1.00 3.43 6.87 6.20 5.52 6.92 04/01/1990 Total Fixed Income Policy -1.29 -1.57 0.34 2.13 5.45 3.86 3.73 5.98
Total Fixed Income Core Plus Composite 2,954,526,464 -0.56 0.37 5.84 7.27 6.61 5.52 4.87 5.57 11/01/2004 Total Fixed Income Core Plus Policy -0.91 -0.63 2.93 3.71 5.60 3.95 3.77 4.26
Loomis Multisector Full Discretion 1,024,851,118 -0.28 0.83 7.29 12.02 7.65 6.64 5.52 6.34 08/01/1999 Total Fixed Income Core Plus Policy -0.91 -0.63 2.93 3.71 5.60 3.95 3.77 5.04
Lord Abbett Core Plus Full Discretion 953,146,028 -0.72 -0.03 4.69 3.28 5.68 4.60 4.50 5.14 11/01/2004 Total Fixed Income Core Plus Policy -0.91 -0.63 2.93 3.71 5.60 3.95 3.77 4.26
Mackay Core Plus Extended Discretion 976,529,318 -0.69 0.26 5.46 6.66 6.48 5.30 4.57 5.22 11/01/2004 Total Fixed Income Core Plus Policy -0.91 -0.63 2.93 3.71 5.60 3.95 3.77 4.26
Total Fixed Income Active Duration Composite 757,869,019 -7.69 -12.96 -14.27 -8.47 9.51 4.40 7.32 6.59 11/01/2004 Total Fixed Income Active Duration Policy -1.81 -2.98 -3.39 -0.13 4.96 2.91 3.25 3.94
Hoisington Macroeconomic FI 757,869,019 -7.69 -12.96 -14.27 -8.47 9.51 4.38 8.07 7.21 11/01/2004 Total Fixed Income Active Duration Policy -1.81 -2.98 -3.39 -0.13 4.96 2.91 3.25 3.94
Total Opportunistic Fixed Income Composite 298,753,759
PIMCO Bravo Fund 556,582
PIMCO Bravo Fund II 38,528,273
PIMCO Bravo Fund III 199,905,353
PIMCO Corporate Opportunities Fund II 59,763,551
Total Core Real Estate Composite 740,514,607 0.00 1.35 2.09 -0.63 1.82 4.13 - 5.58 06/01/2015
AEW Core Property Trust 333,667,817 0.00 1.67 1.85 0.68 4.30 5.52 - 8.25 08/01/2011
Heitman America Real Estate Trust 323,690,946 0.00 1.68 2.80 -1.00 2.36 4.46 - 8.40 05/01/2011
L&B Core Income Partners 83,155,844 0.00 -1.08 0.35 -4.16 -2.82 1.40 - 5.53 05/01/2011
Page 24 of 123 Asset Allocation & Performance Total Fund - Net As of February 28, 2021
Allocation Performance(%) Market Inception Value MTH QTR FYTD 1 YR 3 YR 5 YR 10 YR Inception Date $ Total Non-Core Real Estate Composite 472,445,254
American Strategic Value Realty Fund 72,963,087
AG Realty Value Fund X 23,237,404
Lyrical - OTRS Realty Partners IV 60,656,248
Artemis Real Estate Partners Fund III 7,842,787
Dune Real Estate Fund III 41,909,883
Dune Real Estate Fund IV 17,389,347
FCP Realty Fund IV 24,584,274
GreenOak US II 30,699,825
GreenOak US III 23,132,340
Harbert Euro Real Estate Fund V 24,277,905
Invesco Strategic Opportunities III 14,189,189
L&B Golden Driller 74,729,996
Landmark Real Estate Partners VII 9,837,248
Starwood Opportunity Fund X 15,357,119
Starwood Opportunity Fund XI 24,338,601
Property ACQ Fund 7,300,000
Total Private Equity Composite 1,353,615,797
OTRS Legacy P-E Assets Fund LP 11,527,879
Franklin Park Private Equity 1,342,087,918
Cash 172,319,444 0.01 0.03 0.11 0.33 1.66 - - 1.70 01/01/2017
Terminated Managers 1,334,975
Page 25 of 123 Benchmark History Investment Policy Benchmarks As of February 28, 2021
Total Fund Policy Actuarial Assumption (Current 7%) Allocation Mandate Weight (%) Allocation Mandate Weight (%) Feb-2001 Dec-1991 Russell 1000 Index 17.00 8.00% Annualized Returns 100.00 Russell Midcap Index 13.00 Russell 2000 Index 10.00 Jul-2015 MSCI AC World ex USA (Net) 17.50 7.50% Annualized Return 100.00 Blmbg. Barc. U.S. Aggregate Index 17.50 Jul-2020 Russell 1000 + 4% 5.00 7.00% Annualized Return 100.00 NCREIF Fund Index-ODCE (VW) 7.00 Alerian MLP Index 7.00 ICE BofAML High Yield Master II 6.00
Oct-2016 Russell 3000 Index 40.00 MSCI AC World ex USA IMI Index 17.50 Blmbg. Barc. U.S. Universal Index 23.50 Russell 2000 + 4% 5.00 NCREIF Property Index 7.00 Alerian MLP Index 7.00
Apr-2017 Russell 3000 Index 38.50 MSCI AC World ex USA IMI Index 19.00 Blmbg. Barc. U.S. Universal Index 23.50 Russell 2000 + 4% 5.00 NCREIF Property Index 9.00 Alerian MLP Index 5.00
Oct-2019 Russell 3000 Index 43.50 MSCI AC World ex USA IMI Index 19.00 Blmbg. Barc. U.S. Universal Index 22.00 Russell 2000 + 4% 6.50 NCREIF Property Index 9.00
Page 26 of 123 Disclosures
AndCo compiled this report for the sole use of the client for which it was prepared. AndCo is responsible for evaluating the performance results of the Total Fund along with the investment advisors by comparing their performance with indices and other related peer universe data that is deemed appropriate. AndCo uses the results from this evaluation to make observations and recommendations to the client.
AndCo uses time-weighted calculations which are founded on standards recommended by the CFA Institute. The calculations and values shown are based on information that is received from custodians. AndCo analyzes transactions as indicated on the custodian statements and reviews the custodial market values of the portfolio. As a result, this provides AndCo with a reasonable basis that the investment information presented is free from material misstatement. This methodology of evaluating and measuring performance provides AndCo with a practical foundation for our observations and recommendations. Nothing came to our attention that would cause AndCo to believe that the information presented is significantly misstated.
This performance report is based on data obtained by the client’s custodian(s), investment fund administrator, or other sources believed to be reliable. While these sources are believed to be reliable, the data providers are responsible for the accuracy and completeness of their statements. Clients are encouraged to compare the records of their custodian(s) to ensure this report fairly and accurately reflects their various asset positions.
The strategies listed may not be suitable for all investors. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. Past performance is not an indication of future performance. Any information contained in this report is for informational purposes only and should not be construed to be an offer to buy or sell any securities, investment consulting, or investment management services.
Additional information included in this document may contain data provided by from index databases, public economic sources and the managers themselves.
This document may contain data provided by Bloomberg Barclays. Bloomberg Barclays Index data provided by way of Barclays Live.
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This document may contain data provided by Morningstar. All rights reserved. Use of this content requires expert knowledge. It is to be used by specialist institutions only. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is not guarantee of future results.
Page 27 of 123 Clients first.
CHICAGO | CLEVELAND | DALLAS | DETROIT | ORLANDO | PITTSBURGH | RENO
Page 28 of 123 DATE: March 25, 2021
TO: Audit Committee, TRS
CC: Board of Trustees, TRS
FROM: Kevin Wright, Stinnett & Associates, Principal Hilaire Johnson, Stinnett & Associates, Manager
SUBJECT: General Investment Consulting Request for Proposal Process Review
BACKGROUND
At the request of the Teachers’ Retirement System (TRS)’s Audit Committee, Internal Audit reviewed the processes performed as of February 24, 2021, regarding the issuance of the General Investment Consulting Request for Proposal (RFP) #715-20-1001. The purpose of the review was to determine whether TRS’s internal purchasing policies were followed. As of the date of this report, the RFP is under evaluation and has not yet been awarded.
APPROACH AND RESULTS SUMMARY
Authority: State statutes and advisory letters indicate that while TRS is not exempt from the Central Purchasing Act, the process for procuring investment consulting services is exempt provided certain criteria are met. To qualify for this exemption, TRS must have approved internal purchasing procedures and a Certified Procurement Officer (CPO).
Internal Audit obtained a letter dated December 17, 2019, from the Office of Management & Enterprise Services approving TRS’s internal purchasing procedures. TRS also has three CPOs on staff, which are listed below:
• Assistant Chief Financial Officer • Business Manager • Senior Financial Accountant
Results: TRS has met the criteria necessary to exempt their procurement of investment consulting services from the Central Purchasing Act.
RFP Issuance: Chapter 4 – Procurement Policy of the TRS Trustee Manual (November 2020) outlines the policies for Board issued RFPs, which include Custodian Banks, Investment Managers, Investment Consultants, and Actuaries. The policy states that the Board shall approve all RFPs issued by TRS for these services.
Internal Audit reviewed the approved October 21, 2020, and November 12, 2020 board minutes. The October 21, 2020 minutes reflected a draft RFP was discussed. Members were encouraged to review and ask questions
Prepared by Stinnett & Associates General Investment Consultant Request for Proposal Process Review Page 29 of 123 or give comments. No action was taken. The November 12, 2020 board minutes reflected that the Board discussed and took action on the RFP for investment consultant services. The approved board minutes indicate all nine members present voted to accept the RFP.
Results: The Board approved the Investment Consultant RFP as required by policy.
Bid Responses: Chapter 4 – Procurement Policy of the TRS Trustee Manual (November 2020) states that respondents to a proposal shall comply with the procedures and conform to the standards outlined in the RFP. Failure to do so will result in disqualification from selection.
Internal Audit reviewed the hard copy RFP response provided by each of the seven respondents to verify the submitted proposals complied with standards outlined in the RFP. Each RFP response was reviewed for the following items:
• Proposal Cover Sheet • Signed Non-Collusion Certification • Anti-BDS Israel Certification • RFP was provided on a USB drive, which had the Bidder’s name and RFP number on the USB drive or the container • Completed Questionnaire (including Form ADV, Parts I and II) • Detailed Fee Proposal • Timely submission of RFP response
Results: Respondents conformed with the standards outlined in the RFP. It should be noted the RFP does require the vendor who is awarded the contract to provide proof of insurance. Furthermore, Oklahoma Administrative Code 260:115-3-7 states that the responding bidder shall provide proof of all insurance required by the solicitation before the contract award. As the contract has not been awarded, proof of insurance was not confirmed. Management should obtain proof of insurance from the appropriate respondent(s) before the award.
Bid Opening: Section A.6 of the General Investment Consulting RFP states that sealed bids shall be opened by the Business Manager with one witness present at the offices of the Teachers’ Retirement System, 301 N.W. 63rd Street, 5th floor, Oklahoma City, OK, as reasonably practical after the time and date specified in the solicitation as the Response Due Date and Time. Section D.3 of the RFP states the RFP was due by January 12, 2021, by 4:00 p.m. CST.
Internal Audit observed a Bid Solicitation Log maintained to evidence when and who opened the sealed bids. The log indicated the sealed bids were opened on January 13, 2021, at TRS’s office by the Business Manager. The General Counsel, Chief Investment Officer, and the Senior Financial Analyst were witnesses to the opening. All four individuals signed the Bid Solicitation Log, evidencing their participation in the process.
Results: TRS staff complied with the bid opening procedures as specified in the RFP.
Bid Evaluation: Chapter 4 – Procurement Policy of the TRS Trustee Manual (November 2020) states in part that unless otherwise requested by the Board, proposals shall initially be evaluated by the appropriate TRS staff, as designated by the Executive Director, who shall prepare an evaluation report to identify one or more potential
Prepared by Stinnett & Associates General Investment Consultant Request for Proposal Process Review Page 30 of 123 finalists which shall be presented to the Board at an Open Meeting. This evaluation shall include independent scoring of each vendor along with reference checks, if applicable, though the scoring results need not be presented in the final evaluation report.
The general investment consultant services RFP identified the evaluation criteria to be as follows:
• Bidder’s ability to perform Services Requested. • Bidder’s experience and record of successful past performance with pension plans of similar scope and complexity • Bidder’s use of proven development methodology, and innovative use of current technologies that lead to the quality results • Bidders’ response to Minimum Qualifications • Fee Proposal • Interview of Bidder and Overall Presentation Skills • References of Bidder
Internal Audit reviewed copies of the standardized evaluation scoring sheets utilized by TRS staff to evaluate the bids. The evaluation sheets contained all evaluation items outlined in the RFP. Where appropriate, the evaluated items were referenced to specific sections of the bidder’s completed questionnaire to indicate what information should be considered in the evaluation score. The individuals scores were combined to calculate a blended score for each vendor.
The February 24, 2021 board meeting packet contained a General Investment Consultant RFP Overview report, which included the staff’s recommendation to interview the top three scoring vendors in the April 27/28 board meetings. The report indicated that reference checks will be performed on these three firms by TRS staff before the April presentation. Results of the reference checks will be reported to the Investment Committee. The video recording of the February 24, 2021 meeting confirms this report was presented to the Board.
Results: The bid evaluation process was performed and reported to the Board as specified in the TRS Trustee Manual and RFP.
Finalists Selection: Chapter 4 – Procurement Policy of the TRS Trustee Manual (November 2020) stated that following the presentation by the Executive Staff, the board may vote to take one of four actions regarding awarding the contract. The actions are:
a. Select a vendor subject to successful contract negotiations, b. Reject the finalist recommendations from the Executive Staff and review all vendors submissions to select finalizes, c. Award a contract to one or more vendors based on the Board’s review of all vendor submissions, d. Move to conduct due diligence on finalists recommended by either the Executive Staff or the Board to include: i. Interviews of the finalists, ii. Due diligence trips, if necessary iii. Any other due diligence deemed necessary prior to the selection of a vendor.
Prepared by Stinnett & Associates General Investment Consultant Request for Proposal Process Review Page 31 of 123 Internal Audit viewed the recording of the February 24, 2021 board meeting. It was noted that a motion was made to reject the staff’s finalist recommendation and have the board review all vendor submissions. The motion did not receive a second; therefore, the motion did not pass. Another motion was made to approve the staff’s finalist recommendation and schedule interviews for April. The motion received a second, and the Trustees voted to accept the staff’s recommendation. The motion passed with nine Trustees voting yes, one voting no, and one abstaining.
Results: This process complies with the Board’s procurement policy.
CONCLUSION
In summary, our procedures performed indicate TRS’s Board purchasing policies were followed.
Prepared by Stinnett & Associates General Investment Consultant Request for Proposal Process Review Page 32 of 123 M E M O R A N D U M
TO: Board of Trustees of TRS
FROM: Tom Spencer, Executive Director
DATE: March 31, 2021
RE: Executive Search Firm Request for Proposals ------TRS issued a Request for Proposals for an Executive Search Firm (RFP) to assist in conducting the search for a new Executive Director. The RFP was approved at the Regular Board Meeting on February 24, 2021 and issued the following day. TRS posted the RFP to our website and also sent the RFP to the following firms:
Alliance Resource Group EFL (CBIZ) Associates GDH Associates Greenwood Asher & Associates Hudepohl & Associates Hunt, Patton & Brazeal James Farris Associates Korn Ferry Robert Half Switchgear Search & Recruiting, LLC Wolf Gugler & Associates, Ltd.
Following issuance of the RFP, TRS received correspondence from two of the above-named firms advising they would not be submitting proposals. TRS also received questions from two other firms. Ultimately, TRS received one submission from EFL Associates out of Denver, CO. The formal opening was conducted at the TRS offices on March 25, 2021. The scoring team consisted of Tom Spencer (current Executive Director), Kim Bold (Human Resources Director), and Jessica Malloy (Business Manager). The EFL submission met the minimum qualifications.
EFL Associates is in its 43rd year of business specializing in executive search. EFL Associates’ consultants are current and active members of public retirement industry professional organizations like NASRA, NCTR, NASP and NCPERS - annually attending gatherings and have been featured as panelists and moderators in the past. EFL Associates is affiliated with CBIZ, Inc. (NYSE: CBZ), a $948 million professional services company headquartered in Cleveland, Ohio. CBIZ is the largest provider of multi- specialty professional service offerings to businesses of all sizes. EFL recommends Daniel J. Cumming, Senior Vice President and Managing Director, lead the search for TRS with assistance from Lauren McElderry, Associate Staff Consultant.
EFL recommends an initial multi-step vetting process conducted by EFL. Upon completion of this process, EFL will prepare written summaries of the best qualified (ideally 4-6) candidates’ strengths and weaknesses relative to the experience, characteristics and traits identified in the Position Specifications. Before presenting any such candidates to TRS’ leadership, EFL will perform media
Page 33 of 123 searches to determine if there is any adverse publicity regarding each candidate and then meet with TRS’ leadership to review this slate of the best qualified candidates for the Executive Director role to advance in the process.
TRS requested three references and EFL provided five. Reference checks were completed on three of the five listed. Reference check observations included the following:
1. All three agreed that EFL found and adequate number of candidates to consider. One reference said they interviewed 7 or 8 candidates, and one of the others they interviewed 6 candidates. 2. All three agreed that the candidates that EFL found included many that they would never have known about had they done the search themselves. 3. Comments about EFL from the reference include that they were “thorough, organized, professional and timely.” Another said that EFL was “easy to work with.” The third observed that EFL was very experienced in the public plan space, assisted with amending the position description, gave weekly updates, and helped develop interview questions. 4. All three would hire EFL again.
The anticipated time frame is from April 12, 2021 to August 16, 2021. The proposed pricing is a fixed fee of $50,000 plus an additional $5,900 for advertising fees and background investigations on two finalists and an additional fee of $1,000 for travel and related expenses for the EFL consultant for a total estimated cost of $56,900.
Staff recommendation - Staff recommends awarding the contract to EFL Associates subject to successful contract negotiations.
Page 34 of 123 Chapter 4 – Board Governance Statement of Governance Principles
To ensure the accountability and authority for governance and management of the Teachers’ Retirement System of Oklahoma, the Board adopts these governing principles to identify and distinguish between the roles of the Board of and its members Trustees, and the Executive Director, Executive Staff and any fiduciaries or vendors of the System.
Board Responsibilities
Consistent with its fiduciary role as Trustee of the Fund, the Board’s principal role is to ensure that the System is appropriately governed and managed, for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administration, solely in the best interest of the participants and beneficiaries. With the overriding goal of protecting Fund assets, the Board’s role is to:
1. Adopt and Monitor Policies
A. Set the long-term strategic direction for the System, focusing on the goals of the System against which its performance is measured and monitored.
i. Set policies for the System focusing on:
a. Asset allocation
b. Unfunded liabilities
c. Risk-adjusted rates of return
d. Potential future risks
ii. Select, annually evaluate, make salary and other compensation decisions, establish responsibilities and duties within the standards established by state law, and, if necessary, take disciplinary action against the Executive Director.
iii. Delegate execution of established Board policy and strategic objectives to the Executive Staff.
iv. Establish rules and regulations for the administration of the System and for the transaction of its business.
2. Review and Evaluate Performance
A. Monitor performance and regularly review results as compared to:
i. Strategic plan and other long-range goals
Page 35 of 123 ii. Performance measures that include external as well as internal measures.
B. Review, approve, and monitor actuarial data and assumptions.
3. Review and Evaluate Financial and Administrative Operations
A. Review and approve the annual budget, financial standards and policies, material capital allocations and material transactions.
B. Ensure the integrity of the financial control and reporting system.
C. Oversee all audits, approve the external audit, and provide that financial controls are in place.
4. Other Board Responsibilities
A. Be responsible and accountable to the Members and beneficiaries of the System.
B. Be responsive to representative organizations, participating public employers and others with interests in the System, and the citizens of the State of Oklahoma.
C. Monitor relations and communications with Members, beneficiaries, their organizations, and others with oversight interests.
D. Decide appeals from administrative hearings.
E. Take all necessary action upon applications for retirement, disability benefits, refund of accumulated contributions, and all other matters deemed necessary by the Board.
F. Recommend Board and Committee meeting calendars, with the advice of the Executive Staff and Committee Chairs.
5. Governing Style
A. The Board is responsible for creating and maintaining an atmosphere that encourages frank and collegial discussions both at the Board and committee level and between the Board and the Executive Director, and Executive Staff. The Board strives to achieve a governing style that emphasizes:
i. Strategic leadership
ii. Outward vision
iii. Focus on the future
iv. Pro-activity
v. Encouragement of collegiality, including the creation of an environment which supports the mission of the System
Page 36 of 123 vi. Respect for diversity in viewpoints
vii. Governance by consensus
viii. A team environment with System management.
ix. Ethical conduct of Board business to avoid even the appearance of impropriety.
B. The Board establishes and communicates Board policies and priorities and then monitors performance in light of its established policies and priorities. The Board recognizes that the achievement of its goals requires self-discipline by the Board as a whole and by individual Board members Trustees to abide by the policies articulated herein and to govern with excellence.
C. The Board will cultivate a sense of group responsibility. The Board, not the staff, will be responsible for excellence in governing. The Board will be the initiator of policy, not merely a reactor to staff initiatives. The Board may use the expertise of individual Board members Trustees to enhance the ability of the Board as a body, rather than to substitute the individual’s individual Trustee’s judgments for the Board’s values.
D. The Board will direct, control and maintain the organization through the careful establishment of broad policies reflecting the Board’s values and perspectives. The Board’s major policy focus will be on the intended long-term impacts on the System, and its Members and beneficiaries.
E. The Board will enforce upon itself discipline as needed to govern with excellence. Discipline will apply to matters such as attendance, preparation for meetings, policymaking principles, respect of roles, and ensuring the continuance of governance capability.
F. Continual Board development will include orientation of new Board members Trustees in the Board’s governance process and periodic Board discussion of process improvement.
G. The Board will allow no officer, individual or committee of the Board to hinder or be an excuse for not fulfilling its commitments.
Trustee Responsibilities
1. Attendance: As all Trustees have a fiduciary responsibility to the Members and beneficiaries of the System, all Trustees are expected to attend all Board meetings and applicable committee meetings. While attendance is not always possible, Trustees should attend at least 75% of the regularly scheduled Board meetings. Anticipated absences from a Board meeting should be communicated to the Board Chair and Executive Director as soon as possible.
If a Trustee fails to attend three (3) consecutive regularly scheduled Board meetings, a letter reminding the Trustee of the Board Attendance Policy will be sent to the Trustee. If
Page 37 of 123 a Trustee fails to attend more than 50% of all Board meetings (including applicable committee meetings) in a 12-month period, or attends less than 75% of the regularly scheduled Board meetings, a letter will be sent to the Trustee and carbon copied to the authority who appointed the Trustee to the Board.
It is the duty of the Executive Director or his Executive Assistant to monitor Trustee attendance and notify the Chairman of the Board, as well as the Chair of the Governance Committee, if any Trustee has met the absence limited as delineated above. The Executive Director or his Executive Assistant shall prepare the letters as listed above, to be signed by the Governance Committee of the System.
2. Preparation: Trustees should come to Board meetings having read the materials prepared and circulated by staff.
3. Education: Trustees should identify areas where they might benefit from additional education and work with staff to find educational opportunities. Trustees should fulfill the training expectations outlined in the Trustee Education Policy set forth below and are encouraged to attend additional educational opportunities as outlined in therein.
4. Representation: At times, Trustees may be called on to represent the Teachers’ Retirement System of Oklahoma to various constituencies, including officers of state government, state agencies, or other groups.
5. Collegiality: Members Trustees shall make every effort to engage in collegial deliberations, and to maintain an atmosphere where Board or committee members can speak freely, explore ideas before becoming committed to positions, and seek information from staff and other members Trustees. To the extent possible, members Trustees are encouraged to come to meetings without having fixed or committed their positions in advance.
6. Independence: Teachers’ Retirement System of Oklahoma Trustees and their delegates shall, upon taking office, affirm an oath confirming their independence and their understanding of their fiduciary duties. The oath shall read as follows:
"I, ______, do solemnly swear (or affirm) that I will support, obey, and defend the Constitution of the United States and the Constitution of the State of Oklahoma, and that I will not knowingly receive, directly or indirectly, any money or other valuable thing, for the performance or nonperformance of any act or duty pertaining to my office, other than the compensation allowed by law as a member of the Board of Trustees. I further swear (or affirm) that I will diligently and honestly administer the affairs of the Board of Trustees and that I will not knowingly violate or willingly permit to be violated any of the provisions of law applicable to the Teachers' Retirement System of Oklahoma to the best of my ability."
7. Board members Trustees have no obligation to meet with or communicate with advisors, managers, consultants, contractors or vendors. Any contacts and communications between
Page 38 of 123 individual Board members Trustees and advisors, managers, consultants, contractors and vendors to the System shall be at the option, discretion, and judgment of each Board member Trustee. Individual Board members Trustees shall avoid favoritism, conflicts and disclosure of privileged information, and at all times individual Board members Trustees shall act in the best interest of the System consistent with his/her fiduciary duty.
8. Board members Trustees shall not attempt to exercise individual authority over the System, investment managers, consultant or any other vendors of the System, except as explicitly set forth in Board policies.
9. Board members’ Trustees’ interaction with the Executive Staff, investment managers, consultants or vendors must recognize the lack of authority vested in individual Board members Trustees except when explicitly Board authorized.
10. Board members’ Trustees’ interaction with public, press or other entities must recognize the same limitation and the inability of any Board member Trustee to speak for the Board except to repeat explicitly stated Board decisions or policies.
11. Board members Trustees will make individual assessments or evaluations of the Executive Director when such Board member Trustee deems it necessary or in the normal course of evaluations of such individuals.
12. Board members Trustees shall not represent to any investment manager, consultant, or any other vendor of the System that the individual Board member Trustee retains any authority to speak on behalf of, obligate or influence the decision making process of the System, or the Board, unless specifically authorized by the Board. This is not meant to restrict proper communications between Board members Trustees and vendors seeking information or clarifications concerning Board business.
13. Individual Board members Trustees shall refer proposals or other communications regarding potential or existing investments or other contracts directly to the Chair of the Board and the Executive Director.
14. Individual Board members Trustees shall not seek the advice or counsel of the System’s Legal General Counsel, any outside counsel, or actuarial consultants on projects and issues that require a substantial amount of time or work, without first verifying with the Chair of the Board and the Executive Director that the expenditure of professional fees is appropriately related to service on the Board. The Legal General Counsel shall ensure that all Board members Trustees receive the benefit of any legal advice or counsel provided to any individual Board member Trustee.
15. Individual Board members Trustees are not to become involved in operational management of the System, except as requested by the Executive Director or as directed by the Board.
16. Whenever the System is in the process of selecting or employing advisors, managers, consultants, contractors or vendors, individual Board members Trustees shall limit their communications with any person or entity (or agent for such person or entity) that may be under consideration in such selection or hiring process, in a manner that is consistent with
Page 39 of 123 the Board’s competitive bid standard. Any Board member Trustee who becomes aware of a contact by a person or entity (or agent for such person or entity) that the Board member Trustee reasonably believes violates the competitive bid standards shall report the contact to the Chair of the Board. The Board Chair shall inform the Executive Staff of the contact, who is responsible for responding in accordance with the Board’s policies.
17. Avoidance of Appearance of Nepotism: Even if otherwise permissible under State conflict of interest laws and/or Board policy, Trustees should avoid participating in Teachers’ Retirement System matters in which a close relation of the Trustee has a personal, managerial or substantial financial interest. A “close relation” is defined as a spouse, mutual financial dependent, significant other or person in an intimate relationship; a child, parent, sibling (including in-laws and step-relations), grandparent or grandchild, niece or nephew, aunt, uncle or cousin. A “substantial financial interest” exists if the personal financial effect of the Teachers’ Retirement System matter on the close relation would be $250 or more in a 12-month period and that effect is particular to the close relation as opposed to affecting a much larger group. For example, under this policy, a Trustee would not be precluded from participating in a decision to recommend legislation that would increase the percentage amount of a cost-of-living adjustment paid to all retirees even if the Trustees’ mother would receive this increase along with all other retirees. However, if the Trustees’ mother files an appeal that contends that her specific cost-of-living adjustment had has been calculated incorrectly by the Teachers’ Retirement System, under this policy the Trustee would be precluded from participating in the decision regarding this appeal.
Board of Trustees Chair Responsibilities
The Board Chair shall lead the Board in the conduct of Board business by managing the affairs of the Board and ensuring the integrity of the Board’s process. The Chair’s specific duties as set forth in the statutes, or as delegated by the Board, are to:
1. Provide leadership to the Board in terms of collegiality and ethical conduct.
2. Ensure that Board operations are consistent with its own policies and those legally imposed upon it and ensuring that Board member Trustee activities fall within the Board’s policies regarding governance, prudence and ethics.
3. Approve the final agenda for meetings upon preparation by and recommendation from Executive Director and Executive Staff.
4. Conduct Board meetings, controlling the process of Board deliberations pursuant to rules adopted by the Board.
A. Limit meeting discussion content to those issues that are within the Board’s responsibility.
B. Ensure timely, fair, orderly, thorough and efficient deliberations.
Page 40 of 123 5. Make decisions in those areas for which the Board and state law has expressly delegated the Chair decision-making authority.
A. Convene and chair meetings of the Board.
B. Appoint Committee membership, with consideration given to the expressed desires of individual Board members Trustees and the value of periodic rotation of Committee members so as to provide direct exposure to differing Board responsibilities.
C. In consultation with affected Committee Chairs, and Board membership, give consideration to the expressed desires of individual Board members Trustees concerning the value of providing direct exposure to differing Board responsibilities.
D. In consultation with affected Committee Chairs, resolve the scope of authority of different committees, with the goal of ensuring the most effective and efficient use of Board time.
6. Represent the Board and the System, or designate other board representatives, to outside parties and organizations.
7. Act as the liaison for communications between the Board and Executive Staff. This shall not be construed to limit the ability of any Board member Trustee to interact with the Executive Staff.
8. Lead the Board’s ongoing assessment of Board performance, process and organization, recognizing that continuing improvement will require periodic change to meet future needs and conditions.
Committee and Committee Chairs Responsibilities
1. Standing Board Committees have an important role in assisting the Board to carry out its responsibilities. In fulfilling this role, they:
A. Assist the Board by considering policy alternatives and implications for Board deliberations and actions.
B. Review, address and make recommendations to the Board on all matters related to the choice of custodians and investment managers of the assets of the System, on the establishment of investment and fund management guidelines, and in the planning and development on investment policy.
C. Make recommendations to the Board on all non-investment related matters including rules and regulations for the operation and management of the System.
2. All Board members Trustees shall be advised of the meetings of each Committee, and are encouraged to attend any Committee meeting, regardless of whether or not they are a member of the Committee. Board members Trustees may participate in Committee discussions but may only vote in Committees in which they are members.
Page 41 of 123 3. Committee Chairs are responsible for organizing the work of the Committees. In fulfilling this function, they:
A. In consultation with the Chair of the Board, the Executive Staff, the Consultant, and with input from Board members Trustees, set the Committee agenda.
B. Convene and chair meetings of the Committee.
C. Ensure that the Committee operates to assist the Board consistent with its delegated authority and Board rules including:
i Limiting meeting discussion content to those issues that, according to Board policy and delegation, are within the Committee’s responsibility.
ii Ensuring timely, fair, orderly, thorough but efficient deliberations, and enforcing the Board’s rules of order.
D. Work directly with the Executive Staff, with the staff person(s) assigned by the Executive Staff and Consultants, on matters within the Committee Committee’s authority.
E. In consultation with the members of the Committee and the Executive Staff, to determine the most appropriate method of and time for obtaining and considering independent consultant input on issues within the Committee’s authority.
F. In consultation with the Executive Staff, review the matters that were presented to the Committee and evaluate whether these matters represent an effective and efficient method of achieving the Board’s policies and strategic direction. Report conclusions and recommendations to the Board of Trustees for action.
Executive Director Responsibilities
1. The Board shall appoint an Executive Director, who shall be the managing and administrative officer of the System and, as such, shall have charge of the office, record, supervision and direction of the employees of the System.
2. The Board has delegated to the Executive Director responsibility for the administration, management and leadership of the System consistent with Board delegation of authority. Policy and direction set by the Board is implemented through the Executive Director so that a strong relationship exists between the Board and the Executive Director, and a clear delineation of authority which is critical to the accomplishment of the Board’s objectives. This broad responsibility includes: (1) investment oversight; (2) hiring, supervising, monitoring, evaluating, and, when necessary, taking disciplinary action or terminating senior managers and staff as delegated; (3) services to beneficiaries; (4) budgeting; (5) governmental affairs/media relations; (6) employee training and development; (7) succession planning; (8) actuarial valuations; and (9) legal representation; and (10) establishing goals and objectives to meet the aforementioned responsibilities. In the absence of the Executive Director, the Deputy Executive Director shall assume these
Page 42 of 123 responsibilities. If the Executive Director resigns or is terminated, the Deputy Executive Director shall assume the responsibilities until the Board appoints an Acting Executive Director or a new Executive Director.
3. Executive Director’s duties are defined by the Board and include the following:
A. With advice and counsel from the Board, achieve the long-term policies and strategic objectives established for the System by the Board, including as necessary:
i Determining the appropriate methods for attaining the Board-established policies and strategic objectives.
ii Directing the System employees in furtherance of those objectives.
iii Ensuring that management activities and decisions are within Board-approved policies
B. Monitor the working relationship between the System staff person(s), investment managers, consultants and any other vendors of the System, and the Committee Chairs, to ensure the efficient operation of the Board’s committees.
C. Represent the System, or designate other staff representatives, to outside parties and organizations.
D. Provide leadership to the System employees in terms of collegiality and ethical conduct.
E. Act as the liaison for communication and information flow between the Board, the System employees and the Members and beneficiaries.
F. Inform the Chair of the Board of inquiries and requests concerning System business that may be sensitive in nature.
G. Report to the Board on the status of pending legislation impacting the System.
H. Set the Board agenda with input from Board members Trustees and the Executive Staff, prioritizing and scheduling agenda items as appropriate with final approval from the Board of Trustees Chair.
4. Board-Executive Staff Linkage
A. Decisions or instructions of individual Board member Trustees, officers, or committees are not binding on the Executive Staff except in instances when the Board has specifically authorized such exercise of authority.
B. In the case of Board members Trustees or committees requesting information or assistance without Board authorization, the Executive Staff can refuse such requests that require, in the Executive Staff’s opinion, a material amount of staff time or funds
Page 43 of 123 or is disruptive. (The exception would be when such request is in connection with the Board member’s Trustee’s capacity as a Member of the system and such request would be responded to for any Member of the system.)
C. The Board will generally never give instructions to the Executive Staff but will instead communicate any requests or questions to the Executive Director for delegation to Executive Staff at the discretion of the Executive Director.
D. The Board will refrain from evaluating, either formally or informally, any staff person other than the Executive Director and the General Counsel.
Succession Policy
An important function of the Board is the hiring and oversight of the Executive Director. In order to ensure that this function is carried out effectively, the Board believes that a formal succession policy is required. The specific objective of this policy is to provide the Board with clear guidance as to the process of choosing a new Executive Director.
1. The Board Chair and Vice Chair will coordinate the success succession planning process.
2. In order to protect the Board and the System from sudden loss of Executive Director services, the Executive Director shall mentor at least one other member of the TRS senior management to become familiar with Board and Executive Director issues and processes. The Executive Director shall indicate to the Board Chair each year who that person is and note if any change occurs.
3. In the event of a vacancy in the position of the Executive Director, the Board may employ a search firm to perform a national search for candidates to succeed the Executive Director. The Board may interview a minimum of three candidates recommended by the search firm as well as any other candidates the Board as a whole agrees to consider. All candidates considered by the Board must meet the qualifications as described in the position description for the position of Executive Director on file with TRS.
4. In the event of a vacancy in the position of Executive Director, the Board may select a staff member to serve as the Acting Executive Director responsible for carrying out the Executive Director’s duties under the governance policies until such time as the Board selects a new Executive Director and that person assumes the position on a full-time basis. The senior staff member identified by the Executive Director annually to the Board Chair under Paragraph 2 above may be considered for this interim appointment. However, the Board is not bound to select that individual.
5. Also, to ensure minimal disruption whenever a member of senior management leaves, the Executive Director will promote a culture throughout the organization of hiring, mentoring and developing personnel so that another individual is capable of assuming that manager’s functions until a replacement is found.
Page 44 of 123 6. The Board will review this policy at least every three (3) years to ensure that it remains relevant and appropriate. As part of the policy review, the Board may schedule an Executive Session with the Executive Director for the purpose of discussing the Succession Planning Policy and any questions that trustees may have concerning succession planning in general.
Procurement Policy
A. Custodian Banks, Investment Managers, Investment Consultants, and Actuaries 1. Legal Authority
Title 74 O.S. Section 85.7(A)(3)(a) provides: Contracts for master custodian banks or trust companies, investment managers, investment consultants, and actuaries for the state retirement systems…and other professional services as defined in Section 803 of Title 18 of the Oklahoma Statutes shall be exempt from competitive bidding procedures of this section and requisition requirements of Section 85.4 of this title [The Oklahoma Central Purchasing Act].
Procurement Information Memorandum (Number 09-01) provides: In order to provide agencies greater flexibility in the management of their purchasing processes the following guidance is provided. e. Agencies with approved internal procedures and a Certified Procurement Officer may process the acquisitions for Contracts for master custodian banks or trust companies, investment managers, investment consultants, and actuaries for the state retirement systems, which are exempt from competitive bidding, for unlimited dollar amounts, without submission of a requisition to the State Purchasing Director. f. In accordance with Title 74 O.S. §85.7(A)(3)(c), state agencies shall notify the State Purchasing Director, by submission of form DCS-FORM-CP-091, Report of Exemptions from Competitive Bidding, within 15 days of completion of an acquisition of professional services under this policy.
Title 70 O.S. Section 17-106 provides: (17) The Board of Trustees shall retain an actuarial firm that shall be technical advisors of the Board of Trustees on matters regarding the operation of funds created by the provisions of this act and shall perform such other duties as are required in connection therewith. Title 70 O.S. Section 17-106.1 provides: E. The Board of Trustees may retain qualified investment managers to provide for the investment of the monies of the System. The investment managers shall be chosen by a solicitation of proposals on a competitive bid basis pursuant to standards set by the Board of Trustees. F. Funds and revenues for investment by the investment managers or the Board of Trustees shall be placed with a custodian selected by the Board of Trustees. The custodian shall be a bank or trust company offering pension fund master trustee and master custodial services. The custodian shall be chosen by a solicitation of proposals on a competitive bid basis pursuant to standards set by the Board of Trustees. 2. TRS Policy
Page 45 of 123 TRS has the requisite approved internal purchasing procedures and a Certified Procurement Officer. As such, the Board may retain the following vendors through a competitive bid process approved by the Board of Trustees – with the contract awards being exempt from the competitive bid standards set forth in the Oklahoma Central Purchasing Act at Title 74 O.S. §§ 85.1 et. seq.: . Custodian Banks . Investment Managers1 . Investment Consultants . Actuaries It is the policy of the Board to select each of the vendors on a competitive bid basis subject to the following standards: 1. The Board shall approve all Requests For Proposals (RFPs) issued by the System for these vendors. The RFP should be written in such a way that it is appropriately tailored to the needs of TRS considering both the size and complexity of the System as well as the goals the System is seeking to accomplish through the responding vendor.
2. Respondents to a proposal shall comply with the procedures and conform to the standards set forth in the RFP. Failure to do so will result in disqualification from selection.
3. The issuance of an RFP does not commit the Board to award a contract. The Board reserves the right to accept or reject any or all proposals received, to negotiate with any and all qualified vendors, and to cancel in part or in its entirety a solicitation if it is in the best interests of the System to do so.
4. The Board shall award contracts to the most suitable vendor at a specified time and place which shall be open to the public pursuant to the Oklahoma Open Meetings Act.
5. Unless otherwise requested by the Board, proposals shall initially be evaluated by the appropriate TRS staff, as designated by the Executive Director, who shall prepare an evaluation report to identify one or more potential finalists which shall be presented to the Board at an Open Meeting. This evaluation shall include independent scoring of each vendor along with reference checks, if applicable, though the scoring results need not be presented in the final evaluation report.
6. Following presentation by the Executive Staff, the Board may vote to take any of the following action: a. Select a vendor subject to successful contract negotiation, b. Reject the finalist recommendations from the Executive Staff and review all vendor submissions to select finalists, c. Award a contract to one or more vendors based on the Board’s review of all vendor submissions, d. Move to conduct due diligence on finalists recommended by either the Executive Staff or the Board to include:
1 See the TRS Investment Policy Statement for the Request for Proposal Policy pertaining to the selection of investment managers.
Page 46 of 123 i. Interviews of finalists, ii. Due diligence trips, if necessary, iii. Any other due diligence deemed necessary prior to the selection of a vendor.
7. Ultimately, the Board may vote to award the contract(s) to one or more vendor(s) or reject all proposals received.
8. TRS’s Business Manager or one member of the Executive Staff shall be designated as the sole contact for responding vendors during the RFP process. No other member of the staff, Board, or Investment Consultant shall knowingly communicate concerning any matter that is material to the selection process with any party having a direct financial interest in the award of the contract, an officer or employee of that party, or a placement agent retained or employed by that party, unless the communication is part of the process expressly described in the RFP or part of any Board meeting prior to the award of the contract. Any vendor who knowingly participates in a communication that is prohibited by this subsection shall be disqualified from the contract award.
B. Other Professional Services
1. Legal Authority
Title 74 O.S. Section 85.7(A)(3)(a) provides: Contracts for master custodian banks or trust companies, investment managers, investment consultants, and actuaries for the state retirement systems…and other professional services as defined in Section 803 of Title 18 of the Oklahoma Statutes shall be exempt from competitive bidding procedures of this section and requisition requirements of Section 85.4 of this title [The Oklahoma Central Purchasing Act].
“Professional service” includes the professional service rendered by physicians, attorneys (including Administrative Law Judges), and certified public accountants. See 18 O.S. §803.
Procurement Information Memorandum (Number 09-01) provides: In order to provide agencies greater flexibility in the management of their purchasing processes the following guidance is provided. a.Effective January 13, 2009, agencies with approved internal procedures and a Certified Procurement Officer may process the acquisitions for professional services as defined in Section 803 of Title 18 of the Oklahoma Statutes, which are exempt from competitive bidding, for unlimited dollar amounts, without submission of a requisition to the State Purchasing Director. The contractor must be providing solely the services for which they are licensed…The status of the license of the professional should be confirmed prior to contracting or any renewal of an existing contract. The license should be both current and in good standing. b. Agencies are encouraged to conduct negotiations on contract costs or to conduct solicitations, as may be appropriate.
Title 70 O.S. Section 17-106 provides: (14) …When requested by the Board of Trustees, the Attorney General of the state also shall render legal services to the Board of Trustees. In addition to the above, the Board of Trustees may employ
Page 47 of 123 hearing examiners to conduct administrative grievance hearings under the provisions of the Administrative Procedures Act.
(16) The Board of Trustees shall designate a Medical Board to be composed of three physicians not eligible to participate in the retirement system. The physicians so appointed by the Board of Trustees shall be legally qualified to practice medicine in Oklahoma or the state in which they reside and shall be physicians of good standing in the medical profession. The Board of Trustees may have more than one Medical Board and each Board shall have the same duties and authority under the statutes. If required, other physicians may be employed to report on special cases.
Title 70 O.S. Section 17-112 provides: It shall be the duty of the State Auditor and Inspector to audit annually the funds, accounts and assets of the Teachers' Retirement System.
2. TRS Policy
TRS has the requisite approved internal purchasing procedures and a Certified Procurement Officer. As such, the Board may retain the following vendors with the contract awards being exempt from the competitive bid standards set forth in the Oklahoma Central Purchasing Act at Title 74 O.S. §§ 85.1 et. seq.:
. Medical Board Members/Physicians . Attorneys (Attorney General, Administrative Law Judges) . Certified Public Accountants2 It is the policy of the Board to make appointments or award contracts to these positions in a prudent manner and solely for the services for which the professional is licensed. A competitive bid process is not required but may be undertaken to fill a position if, in the Board’s opinion, it is in the best interest of the System to do so.
Evaluation of the Executive Director
1. The Board of Trustees recognizes that it is good board governance practice to have regular dialogue with the Executive Director about his or her performance as well as the performance of the agency. An evaluation of the Executive Director, based loosely on the State’s Performance Management Process, will reasonably assure that this regular dialogue takes place at least once a year.
2. By July 1 of each year, the Executive Director will notify the Board chair Chair that it is time for the annual evaluation. The Executive Director will also deliver to the Board Chair the most current Performance Management Process (PMP) for the Executive Director previously adopted by the Board, which contains the written accountabilities and behaviors by which the Executive Director will be evaluated.
2 The Board will cooperate with the State Auditor and Inspector’s office to select, through a competitive bid process, an auditor to audit annually the funds, accounts, and assets of the Teachers’ Retirement System.
Page 48 of 123 3. The Board chair Chair will transmit a copy of the PMP to each Trustee for their completion and input. The Board chair Chair will also transmit a survey to the Executive Director’s direct reports. All responses from Trustees and staff will be returned to the Board chair Chair by August 1. The Board chair Chair will then compile the PMP.
5. The Board chair Chair will meet or otherwise communicate the draft PMP with the Executive Director. A draft of the PMP evaluation shall be presented in Executive Session at the next regularly scheduled Board meeting to the Executive Director and shall thereafter be adopted by the Board.
Evaluation of the General Counsel
1. While the Board of Trustees has all final decision-making authority regarding the employment of the General Counsel, the Board has placed the General Counsel under the administrative supervision of the Executive Director. The performance evaluation of the General Counsel recognizes these relationships in the process.
2. By August 1 of each year, the Executive Director will complete and provide to the Board a draft performance evaluation of the General Counsel using the Performance Management Process (PMP) evaluation form adopted by the Board of Trustees.
3. The draft of the PMP evaluation shall be presented to the Board in Executive Session by the Executive Director at the next regularly scheduled Board meeting. The Board shall make any changes it deems necessary to the draft (if any) and adopt the final document. The Executive Director shall meet with the General Counsel and review the adopted PMP.
Vendor Responsibilities
1. A vendor of the System, and any employees, principals, or agents of a vendor of the System (“Vendor”), which is a fiduciary with respect to the System pursuant to 70 O.S. § 17-106.2 shall at all times fully comply with the duties and responsibilities set out by Oklahoma law and, in particular, 70 O.S. § 17-106.2.
2. The Vendor shall not offer or provide to a Board member and the Executive Staff any Trustee or staff of the System any gifts or gratuities from an individual organization with a value in excess of Twenty Dollars ($20) per occurrence and Fifty Dollars ($50) per year in violation of 70 O.S. § 17-106.
3. The Vendor shall take positive steps to prohibit breaches of duty, communications seeking to influence improperly the Board, Board members Trustees, any staff of the System the Executive Staff, or improper communications with individuals who may receive personal gains as a result of Board or Executive Staff staff actions.
4. The Vendor’s failure to abide by this section, or any other applicable section, of this Code of Conduct and Governance Policy may result in the Board’s termination of the Vendor’s contract with the System.
Page 49 of 123 Board of Trustees Periodic Self-Assessment
Every other year, the Board Chair and the Executive Director shall distribute a survey to all trustees, that is designed to evaluate the performance and operation of the Board of Trustees. Such self-assessments are conducted to reveal potential problem areas or concerns that may need the Board's attention, provide an opportunity to clarify Board expectations, and demonstrate to staff and others that accountability is a serious organizational value. The survey to be used shall be adopted by the Board in advance of the Board Retreat that is held every other year. Each trustee shall complete the survey and return it to the Board Chair, or to another trustee or the Executive Director, as selected in the discretion of the Chair. The Chair or the person selected by the Chair, shall read the survey responses for the purpose of tallying and summarizing the responses in a manner that doesn’t identify or attribute the comments or submissions to any individual trustee.
The summary shall be discussed at the Board Retreat. The summary and the discussion of the summary of the surveys, shall be used as the basis for adopting an Evaluation Document that identifies what the Board has done since the last evaluation that shows the Board has improved the manner of its operation, as well as matters that need improvement. The purpose of the document and the process is for the Board to focus on its mission, and its performance in carrying out its mission.
Chapter 6 – Ethical and Fiduciary Conduct Fiduciary Duties
The board and its officers and employees Board of Trustees and staff of the System shall discharge their duties with respect to the System and the plan solely in the interest of the Members and beneficiaries as follows:
1. For the exclusive purpose of the following:
A. Providing benefits to Members and beneficiaries.
B. Defraying reasonable expenses of administering the plan.
2. With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an enterprise of a like character and with like aims.
3. By diversifying the investments of the system so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.
4. In accordance with the documents and instruments governing the System insofar as those documents and instruments are consistent with this part.
Page 50 of 123 Exclusive Purpose of Systems Assets
1. Except as provided in paragraph 2 below, the assets of the plan shall never accrue to the benefit of an employer and shall be held for the exclusive purposes of providing benefits to Members and beneficiaries and defraying reasonable expenses of administering the System.
2. In the case of a contribution that is made by an employer by a mistake of fact, paragraph 1 shall not prohibit the return of that contribution in accordance with the applicable statutes and administrative rules of the System when within one year after the System knows, or should know in the ordinary course of business, that the contribution was made by a mistake of fact.
Prohibited Transactions
Except as otherwise provided by law, the Board and the officers and employees of the System shall not cause the System to engage in a transaction if they know or should know that the transaction constitutes a direct or indirect:
1. Sale or exchange, or leasing, of any property from the System to a Member or beneficiary for less than adequate consideration, or from a Member or beneficiary to the System for more than adequate consideration.
2. Lending of money or other extension of credit from the system to a Member or beneficiary without the receipt of adequate security and a reasonable rate of interest, or from a Member or beneficiary with the provision of excessive security or an unreasonably high rate of interest.
3. Furnishing of goods, services, or facilities from the System to a Member or beneficiary for less than adequate consideration, or from a Member, retiree, or beneficiary to the System for more than adequate consideration.
4. Transfer to, or use by or for the benefit of, a Member or beneficiary of any assets of the plan for less than adequate consideration.
Prohibitions Against Self-Dealing
The Board and its officers and employees of Trustees and staff of the System shall not do any of the following:
1. Deal with the assets of the System in their own interest or for their own account.
2. In their individual or in any other capacity, act in any transaction involving the System on behalf of a party, or represent a party, whose interests are adverse to the interests of the plan or the interests of the Members and beneficiaries.
3. Receive any consideration for their personal account from any party conducting business with the System in connection with a transaction involving the assets of the plan.
Page 51 of 123 Statement of Ethical Conduct
The Teachers’ Retirement System Board has established the following Statement of Ethical Conduct and has determined that engaging in any of the following activities or conduct is inconsistent, incompatible, in conflict with or contrary to the duties of TRS the Board of Trustees and/or staff of the System.
No employment, activity, or enterprise shall be engaged in by any TRS Trustee or staff, which might result in, or create the appearance of resulting in, any of the following:
1. Using the prestige or influence of the Board or staff position for private gain or the advantage of another.
2. Using TRS time, facilities, employees, equipment or supplies for private gain or advantage, or the private gain or advantage of another.
3. Using confidential information acquired by virtue of TRS activities for the private gain or advantage of another, including, but not limited to, so-called “insider trading” as described in the Policy Prohibiting Insider Trading below.
4. Receiving or accepting money or any other consideration from anyone other than the State or TRS for the performance of an act which the Trustee or staff would be required or expected to render in the regular course or hours of his or her duties.
5. Performance of an act in other than his or her capacity as a Trustee, Executive Staff, their delegates or staff, knowing that such act may later be subject, directly or indirectly, to the control, inspection, review, audit, or enforcement by such person or by TRS .
6. Receiving or accepting, directly or indirectly, any gift, including money, any service, gratuity, favor, entertainment, hospitality, loan, or any other thing of value, from anyone who is doing or is seeking to do business of any kind with the state or whose activities are regulated or controlled in any way by the state, under circumstances from which it reasonably could be substantiated that the gift was intended to influence him or her in his or her official duties or was intended as a reward for any official action on his or her part.
7. As a Trustee, having an ex parte communication on the merits of an administrative appeal with any party or their attorney until after the Board's decision is final. For purposes of this prohibition, Trustees are reminded that, with the exception of the General Counsel personally, or a person acting for the General Counsel in this capacity only, Teachers’ Retirement System staff and officers, fall within the definition of “party.”
8. Publishing any writing or making any statement to the media, to state administrators, legislative personnel, or members of the public which purports to represent TRS’s position or policy on any matter or subject, before the Board has formally adopted a policy or position on the matter or subject. This section shall not be interpreted to preclude Trustees or staff, as private citizens, from expressing their personal views.
Page 52 of 123 Nothing in this Statement shall exempt any Trustee or staff from applicable provisions of any other laws of this State. The standards of conduct set forth in this Statement are in addition to those prescribed in the System's Code of Conduct Policy.
Policy Prohibiting Insider Trading
1. Background
The Board is committed to the highest ethical standards and strictest adherence to federal, state and foreign securities laws and regulations regarding “insider trading.” To ensure that TRS operates in a manner commensurate with its goal of promoting integrity in the investment, administration and management of securities, the Board has adopted this Policy Prohibiting Insider Trading.
The policy applies to Trustees and TRS staff, which includes investment consultants and contractors affiliated with TRS (hereinafter referred to as “staff”). The prohibition on insider trading continues to apply even after resignation from the Board or termination of employment until such time, if ever, the information becomes generally available to the public other than through disclosure by or through the Trustee or staff.
The U.S. Securities and Exchange Commission defines “insider trading” generally as buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security. Any person who possesses material nonpublic information is considered an “insider” as to that information. The prohibition against insider trading may reach anyone, not just a corporate insider, who has access to the material nonpublic information. The scope of insider trading liability has been extended to “controlling persons,” which includes any entity or person with power of influence or control over the management, policies or activities of another person. It has also been extended to “tippees” who receive material, nonpublic information from an insider when the “tipper” (the “insider”) breaches a fiduciary duty for his or her personal benefit and the “tippee” knows or has reason to know of the breach. The law provides civil and criminal penalties for insider trading violations.
Information is deemed material if it would be considered important by a reasonable investor in deciding whether to buy, sell or refrain from any activity regarding that company’s securities. Material information may be either positive or negative and can relate to any aspect of a company’s business. Common examples of material information include, but are not limited to: unpublished financial results and projections, news of a merger or acquisition, stock splits, public or private securities/debt offerings, changes in dividend policies or amounts, gain or loss of a major customer or supplier, major product announcements, significant changes in senior management, a change in accounting policies, major problems or successes of the business, and information relating to a company against whom TRS is considering securities litigation. Material nonpublic information may not be used by Trustees or staff for personal gain or to benefit relatives or friends.
Information is considered “nonpublic’ if it is not available to the general public. Once it is released to the general public, it loses its status as “inside” information. However, for nonpublic information to become public, it must have been made generally available to the securities marketplace, and sufficient time must pass for the information to become available in the market.
Page 53 of 123 To show that material information is public, it is generally necessary to show some fact verifying that the information has become generally available, such as disclosure in company filings with the SEC or company press releases to a national business and financial wire service, a national news service, or a national newspaper.
2. Policy on Insider Trading
Trustees and staff may be provided or have access to confidential information, including material, nonpublic information. Any information not publicly available must be treated as confidential even if it is not designated as “confidential.” It is the duty of Trustees and staff to maintain the confidentiality of information and to not misuse confidential information, including material nonpublic information, belonging to or relating to TRS. Trustees and staff who come into possession of material nonpublic information must not intentionally or inadvertently communicate it to any person, including relatives and friends, unless the person has a need to know for legitimate reasons in keeping with their responsibilities to the System. Special care should be taken so that confidential information is not disclosed inadvertently.
Trustees and staff in possession of material, nonpublic information may not purchase or sell securities of the concerned company or other publicly traded securities to which the information pertains. Trustees and staff also may not disclose material, nonpublic information to another person who subsequently uses that information for profit. Recommending purchases or sales of securities to which the material nonpublic information relates, even without disclosing the basis for the recommendation, is prohibited.
Trustees and staff in possession of material, nonpublic information relating to a tender offer, acquired directly or indirectly from the bidder or target company, may not trade in target company securities. Trustees and staff also may not disclose such material, nonpublic information to another person where it is reasonably foreseeable that the recipient of the information will purchase or sell such company securities.
Trustees and staff in possession of material, nonpublic information may not purchase, directly or indirectly, any security in the initial public offering of such security. Such new issue securities may only be purchased in the secondary trading market once such a market is established. Trustees and staff also may not encourage, facilitate, or arrange such a purchase by or on behalf of any other person.
The Board is committed to the highest ethical standards and strictest adherence to the laws and regulations regarding insider trading. This policy is to be delivered to all new Trustees and staff, including consultants, upon commencement of a relationship or employment with TRS. Each Trustee and all TRS staff must read and complete the certification in Attachment I within 30 days of receipt of the policy. The certification shall be delivered to the TRS Executive Director.
The Executive Director shall obtain written confirmation from each external manager that handles securities for the System that it has a policy against insider trading and that it enforces the policy. The written confirmation must be received by TRS within 30 days of commencement of the manager’s relationship with TRS.
Page 54 of 123 Statements of Economic Interests filed by Trustees or staff may be reviewed by TRS to insure compliance with this policy. Trustees and staff should report any suspected violation of this policy to the TRS General Counsel. The General Counsel is responsible for causing an investigation of any reported violation. Following such investigation, if the General Counsel concludes that the policy may have been violated, he or she shall take appropriate action.
Violation of this policy may result in disciplinary action, including dismissal of employees, and may result in termination of contracts for consultants and other contractors. Any disciplinary action for violation of the policy may be in addition to any civil or criminal liability under federal and state securities laws and regulations and is not subject to appeal on the grounds that the violation did not ultimately result in any actual civil or criminal investigation or other legal proceeding.
ATTACHMENT I Teachers’ Retirement System Insider Trading Policy Certification
I, ______, hereby certify that I have read and understand the Policy Prohibiting Insider Trading and agree to adhere strictly to the Policy. I further certify that I understand that the failure to act in conformance with the Policy Prohibiting Insider Trading will result in serious consequences, including termination from my employment or contract with the Teachers’ Retirement System of Oklahoma.
Date: ______
______
Signature
Oklahoma Ethics Commission Rules Duty of Impartiality
State officers and employees are expected to show impartiality when discharging their duties. 1. All TRS Trustees and specified staff are subject to the disclosure and reporting requirements of the Oklahoma Ethics Commission regulations. Any Trustee or staff that receives a gift, honoraria, or travel expenses (paid or reimbursed) or the actual transportation and related lodging and subsistence from any third party other than either the System or the State of Oklahoma has the responsibility to determine whether the receipt of the same must be disclosed and reported under the Oklahoma Ethics Commission regulations. This section applies to TRS travel, as well as other travel expenses covered
Page 55 of 123 by the Oklahoma Ethics Commission regulations. Trustees and staff are referred to the Travel Expense Policy herein, which governs reimbursement for travel expenses and provides that where third parties offer to pay TRS-related travel expenses for Trustees or staff, specified prior approval is required.
2. 1. Receipt of any gift, honoraria, or payment of actual transportation and related lodging and subsistence or any payment or reimbursement of the same to Trustees or staff regarding travel of any kind by third parties may subject the recipient Trustee or staff to disqualification from participation in making Board Policy related to the third party. It is the recipient's responsibility to make sure that he or she does not engage in any action that places him or herself in a conflict of interest.
3. 2. Under the regulations of the Oklahoma Ethics Commission, a Trustee or staff member who has a financial interest in a decision of TRS must, following the announcement of the agenda item to be discussed or voted upon but before either the discussion or vote commences, do the following:
A. Publicly identify the financial interest that gives rise to the conflict;
B. Recuse themselves from discussing, voting, or attempting to use their influence to affect the outcome of a decision of the public body; and
C. Leave the room until after the discussion and vote on the item in question.
D. A Trustee or staff member that has a financial interest in a matter placed on a consent agenda must observe the above requirements with the exception that he or she is not required to leave the room during the consent agenda.
E. In the event that the discussion is to occur in closed session, the public identification may be made orally during the open session before the body goes into closed session and may be limited to a declaration that his or her recusal is because of a conflict of interest under Oklahoma Ethics Commission regulations.
No Contact Policy
Upon the release of any Request for Proposal (RFP), Invitation for Bid (IFB), or comparable procurement vehicle for any System service or product, there shall be no communication or contact between the applicant or bidder and TRS Trustees or staff concerning the subject of the procurement process until the process is completed.
Requests for technical clarification regarding the procurement process itself are permissible and must be directed to the System’s Business Manager or other individual as designated in the RFP Contracts Office.
Incidental contact between a prospective bidder or its representative and TRS Trustees and staff which is exclusively social, or which clearly pertains to a matter not related to the subject procurement process, is permissible.
Page 56 of 123 During the RFP process the Executive Director, Internal Auditor, or the General Counsel may inquire of Trustees or applicant bidders about any contact between Trustees and applicant bidders.
Any applicant or bidder who willfully violates this policy will be disqualified from any further consideration to provide the applicable service or product.
Trustees and staff should report any suspected violation of this policy to the Executive Director who shall determine the appropriate course of action.
Disclosure of Communications
1. Disclosure of Communications Regarding Investment Transactions that Require Board of Trustees Approval
A. During the evaluation of any prospective investment transaction, no party who is financially interested in the transaction nor any officer or employee of that party, may knowingly communicate with any Trustee concerning any matter relating to the transaction or its evaluation, unless the financially interested party discloses the content of the communication in a writing addressed and submitted to the General Counsel and the Board prior to the Board’s action on the prospective transaction. This shall not apply to communications that: (1) are part of a noticed board meeting; (2) are part of a scheduled due-diligence meeting between the financially interested party and representatives of the System including Trustees, Executive Staff, and Investment Consultant, (3) are incidental, exclusively social, and do not involve the system or its business, or the Board or staff member’s role as a system official; or (4) do not involve the system or its business and that are within the scope of the Board or staff member’s private business or public office wholly unrelated to the system.
i. The writing shall disclose the date and location of the communication, and the substance of the matters discussed. It shall be submitted no later than five working days prior to the noticed Board meeting at which the investment transaction is being considered unless the communication occurs less than five working days before the noticed Board meeting, in which case the writing shall be submitted immediately after the communication occurs.
ii. Consistent with its fiduciary duties, the Board shall determine the appropriate remedy for any knowing failure of a financially interested party to comply with this policy, including, but not limited to, outright rejection of the prospective investment transaction, reduction in fee income, or any other sanction.
B. Any Trustee who participates in a communication subject to this policy shall also have the obligation to disclose the communication to the General Counsel and the Board prior to the Board’s action on the prospective transaction. The disclosure shall be in writing and shall disclose the date and location of the communication and the substance of the matters discussed. It shall be submitted no later than five working days prior to the noticed Board meeting at which the investment transaction is being considered unless the communication occurs less than five working days before the noticed Board
Page 57 of 123 meeting, in which case the writing shall be submitted immediately after the communication occurs. The communications disclosed under this section shall be made public, either at the open meeting of the board in which the transaction is considered, or if in closed session, upon public disclosure of any closed session votes concerning the investment transaction.
i. This disclosure obligation shall not apply to communications that are general in nature and content, such as: (1) those with regard either to the nature of the party’s business or interests or with regard to public information regarding TRS ; (2) a simple expression of the party’s interest generally in doing business with TRS or having TRS invest in or with the party communicating with the Trustee; or (3) a simple expression by the Trustee in relation to the performance of an investment or service provided to TRS.
ii. An alleged failure of a Trustee to disclose communications as required herein shall be referred to the Chair for appropriate action unless the Chair is a party to the communication in question, in which case the matter shall be referred to the Vice- Chair.
iii. The General Counsel shall provide the Board with an annual summary of the communications disclosed pursuant to this section.
2. Disclosure of Communications Regarding Investment Transactions that Do Not Require Board of Trustees Approval
The disclosure obligation regarding communications for a party or its officer or employee who is financially interested in an investment transaction shall also apply to communications involving transactions the Executive Director has been delegated the authority to approve without the need for Board of Trustees action. Upon the initiation of any consideration by the Executive Staff of TRS or one of its consultants or advisors of the review of a proposed investment transaction, the firm seeking a TRS investment shall be given a copy of this TRS policy together with a form to use to report any communications with Trustees for which disclosure is required. The required disclosure shall be made within 10 calendar days of the communication. There shall be no parallel obligation on the part of the Trustee to disclose a communication involving a transaction that has been delegated to the Executive Director, although Trustees are urged to keep an informal record of communications that would be subject to disclosure if the transaction ultimately comes before the Board of Trustees and must be disclosed as provided above.
The General Counsel shall provide the Board with an annual summary of the communications disclosed pursuant to this paragraph.
3. Disclosure of Communications between Trustees and Staff Regarding Investment Transactions
As a general matter, the Board recognizes that the free flow of communication between individual Trustees and staff or consultants is beneficial to the conduct of TRS business and that requiring disclosure of all or a large part of such regular communication would
Page 58 of 123 create a burdensome reporting requirement that would likely serve no useful purpose. However, in those instances where conduct by an individual Trustee can be reasonably interpreted as an attempt to influence the outcome of a Board or staff decision or consultant recommendation in an investment transaction, the Board recognizes that such communications could create the potential for misunderstanding, misinformation or conflicting instructions and could be reasonably interpreted as inappropriately affecting the board, staff or consultant. Such communications do not always rise to the level of “undue influence,” as defined and discussed below, but nevertheless should be subject to disclosure.
Any communication regarding a potential investment transaction initiated by a Trustee with either a TRS employee or consultant in which the Trustee is advocating for a specified outcome shall be documented by the TRS employee or consultant and reported to the General Counsel. Such communications will be disclosed to the Board if and when, in the judgment of the General Counsel, they may be material to the Board’s deliberation with respect to any TRS matter.
4. Avoidance of Undue Influence
The Board recognizes that if a Trustee or a third party attempts to direct staff or a Trustee to a specified action, decision or course of conduct through the use of undue influence, sound decision-making could be compromised to the ultimate detriment of the Board as a whole and/or TRS Members, retirees and beneficiaries.
Any staff member or Trustee who believes that he or she has been subject to the attempted exercise of undue influence, as described above, should report the occurrence immediately and simultaneously to the Executive Director (in the case of staff members) and to the General Counsel. The General Counsel shall investigate the situation immediately and is authorized to use the services of an outside law firm to conduct the investigation if he or she deems it appropriate. Following such investigation, if the General Counsel concludes that an exercise of undue influence was attempted, he or she shall take whatever action deemed to be appropriate, which shall include notification to the Board and thereafter a public disclosure during an open session meeting of the Board. If the General Counsel believes that he or she personally has been subjected to an attempted exercise of undue influence, he or she shall immediately advise the Board Chair unless the circumstances dictate that another Trustee should instead be notified. The Board Chair or other Trustee shall investigate the situation and take whatever action he or she deems to be appropriate.
Definitions:
“Undue Influence” is defined as the employment of any improper or wrongful pressure, scheme or threat by which one’s will is overcome and he or she is induced to do or not to do an act which he or she would not do, or would do, if left to act freely.
“Third Party” means and includes a person or entity that is seeking action, opportunity, or a specific outcome from TRS regarding a TRS matter. The Third Party may be seeking the action, opportunity, or outcome for his or her or its own behalf or the Third Party may be seeking it on
Page 59 of 123 behalf of another person or entity in the capacity of a representative, agent or intermediary, or as an advocate for a cause or group of individuals or entities. This definition includes public officials.
Disclosure of Campaign Contributions, Charitable Contributions, Gifts, Recusal Requirement, and Ban on Specified Gifts
1. Campaign Contributions
Any party who engages in business with TRS for gain shall disclose campaign contributions, as defined under the Oklahoma Ethics Commission regulations, valued in excess of $250, made to or on behalf of any existing TRS Trustee, candidates for Superintendent of Public Instruction, and TRS officer or employee.
2. Charitable Contributions
No party who engages in business with TRS for gain shall provide any charitable contribution to a charitable entity, valued in excess of $250 individually or in the aggregate in any calendar year, made at the request of any Trustee, or TRS officer or employee.
3. Gifts, Gratuities, Meals
A. Prohibited Conduct During the Purchasing Decision. While the purchasing decision is being made, a Trustee or staff “engaged in the purchasing decision” may not accept any gifts for himself or herself or for his or her family member from any vendor or a vendor’s agent(s). A “gift” is property transferred or service provided for another without compensation of equal value. A “family member” is a state officer or employee’s spouse, children (including stepchildren), mother, father, sister or brother.
B. No party who engages in business with TRS for gain shall provide gifts meals to Trustees or staff to TRS officers or employees exceeding the following limits except as outlined below:
i. Gifts or gratuities with a cumulative value exceeding $50 individually or in the aggregate in any calendar year, given to any Trustee or TRS officer or employee. Trustees and staff may receive meals with an aggregate market value of $20.00 or less per occasion and a maximum of $50.00 in the aggregate during any calendar year. If the value of a meal exceeds $20.00, the Trustee or staff may not pay the excess value over the $20.00 in order to qualify. The value of a meal is calculated to include its price, plus any applicable tax, but does not include a gratuity.
ii. This prohibition shall not extend to meals or related expenses provided under the following circumstances:
a. Food, beverages and registration at group events to which substantial numbers of employees of an institution are invited;
b. Actual and reasonable expenses for food, beverages, travel, lodging and/or registration provided to permit participation in a meeting directly tied to
Page 60 of 123 official or professional duties if participation has been approved in writing by the Executive Director (for TRS staff) or by the TRS Board (for Trustees).
c. Modest items of food and refreshment: Trustees and staff may occasionally accept modest items of food and refreshment from persons regulated or licensed by the state officer or employee’s agency when the item is offered other than as part of a meal. This provision includes such things as coffee, soft drinks, doughnuts or similar items. It does not include beverages containing alcohol.
C. Trustees and staff are generally prohibited from receiving and gifts from vendors, with some exceptions. Any party who engages in business with TRS for gain is prohibited from providing gifts aggregating more than $50 in value to Trustees or staff, or to TRS officers or employees except as outlined below:
i. Gifts Resulting from a Personal Relationship. Gifts given under circumstances that make it clear that the gift is motivated by a family relationship or a personal relationship rather than the state officer or employee’s status as a state officer or employee. Relevant factors in making this determination include, but are not limited to, the history and nature of the relationship and whether the family member or friend personally pays for the gift;
ii. Customary Gifts Given to All Employees. State officers and employees may accept gifts given to all state employees or to all employees of his or her agency provided the gifts are customary within the industry and costs of the gifts do not significantly exceed amounts that are customary within the industry;
iii. Performance Related Materials. State officers and employees may accept books, written materials, audio tapes, videotapes and other informational or promotional material related to the performance of the state officer or employee’s official duties; or
iv. Gifts Provided to the General Public. State officers and employees may accept opportunities and benefits offered on the same terms as available to the general public.
4. Recusal
A. Any Trustee who receives campaign contributions, charitable contributions, or gifts that individually or in the aggregate exceed the limits specified above in a calendar year shall recuse himself or herself from any involvement in a matter involving the maker of the contributions or gifts for a period of 12 months following the date of the most recent contribution or gift.
B. Any designee of an Ex Officio member of the Board of Trustees shall recuse himself/herself from any involvement in a matter before the Board of Trustees if either the designee or the Ex Officio member of the Board of Trustees whom the designee
Page 61 of 123 represents received campaign contributions, charitable contributions, or gifts that individually or in the aggregate exceed the limits specified above in a calendar year and the maker of the contributions or gifts is a party to the matter before the Board of Trustees. Such recusal shall be required for a period of 12 months following the date of the most recent contribution or gift to either the designee of the Ex Officio member of the Board of Trustees whom the designee represents.
C. Any Trustee who returns, donates, or reimburses the donor for gifts subject to these restrictions within 30 calendar days of receipt of the gift shall not be subject to the recusal requirement.
5. Time and Coverage of Disclosures
Disclosure of campaign contributions, charitable contributions, and gifts shall be required as follows:
A. Upon submission of an initial application or proposal to do business with the System (for the preceding 12-month period).
B. At the time the final decision is to be made regarding the business proposal (to cover the interim period following the initial application).
C. Annually, for the previous calendar year. (TRS will use Oklahoma Ethics Commission guidelines to determine which officials in a specific firm must file disclosure statements.)
6. Sanctions for Violation of Policy
Any violation of this policy may lead to disqualification from future business with the System for a period of two years following a determination by the Board that a violation has occurred. The General Counsel is responsible for causing an investigation of any reported violation to be made and shall report any documented violation to the Board for action.
7. Application of Policy
Nothing in this policy supersedes any provision of State law. Those entities engaged in business with the System may also have reporting requirements under the Oklahoma Ethics Commission rules. Also, Trustees who are appointed to the Board but also serve as an elected official of a local body are subject to Oklahoma Ethics Commission rules governing the receipt, solicitation or direction of a campaign contribution. This policy also requires recusal of the Trustee from any involvement in the matter if a contribution over $250 has been received within the preceding 12 months, unless the contribution was returned no later than 30 days from the time the Trustee knew or should have known about the contribution and the matter involving the maker of the contribution.
Page 62 of 123 Disclosure of Third Party Relationships and Payments
Prior to TRS entering into any investment management contract, any person or entity who would be a party to that investment management contract shall disclose to the TRS Board of Trustees, in writing, all third party relationships with persons or entities that assisted the party with either the solicitation of TRS as a potential Member or the retention of TRS as an existing Member and any fees paid or payable to the third party as a result of such relationship. The disclosure shall be made on a form provided by TRS.
For purposes of this section, the term “fees paid or payable to the third party” includes placement agent fees, solicitation fees, referral fees, promotion fees, introduction or “matchmaker” fees, or any similar fees.
Teachers’ Retirement System Fraud and Ethics Reporting Policy
TRS is committed to conducting its activities in accordance with the highest standards of integrity and ethics. The purpose of this policy is to encourage the reporting of suspected or fraudulent or unethical behavior involving TRS. The TRS Fraud and Ethics Reporting Policy is established to facilitate the development of controls that will aid in the detection and prevention of fraud and unethical behavior against the TRS, its Members, beneficiaries, board members, employees, vendors, and other related parties. It is the intent of the TRS to promote consistent organizational behavior by providing guidelines and assigning responsibility for the development of controls and conduct of inquiries.
Scope
This policy applies to any irregularity, or suspected irregularity, involving Members, beneficiaries of the system, board members, employees, vendors, consultants, contractors and other parties in a business relationship with the TRS. This policy further applies to any suspected fraudulent, dishonest use, misuse of TRS resources or property, or otherwise unethical behavior. Examples of such conduct include, but are not limited to:
• Accounting and Auditing Matters – the unethical systematic recording and analysis of the business and financial transactions associated with generally accepted accounting practices. • Badging/Access Control – issues regarding unauthorized access to property or systems of the TRS. • Confidentiality and Misappropriation – Confidentiality refers to the protection of confidential information (including that of Members and beneficiaries) and use of such information only for legitimate TRS business purposes. Misappropriation refers to the unauthorized or improper use of a third party’s intellectual property rights, including patents, trademarks, copyrights, and trade secrets. • Conflict of Interest – A conflict of interest is defined as a situation in which a person, such as a board member, an employee, or a consultant, has a private or personal interest sufficient to appear to influence the objective exercise of his or her official duties.
Page 63 of 123 • Contractor/Vendor Relations - Concerns regarding personal ties to or bias towards contractors/vendors (Examples include: awarding a vendor contract to a relative without going through a competitive bid process, allowing a vendor an unfair advantage by giving them proprietary information during the bidding process, bribery, inappropriate customer/vendor relations, etc.) • Data Privacy - Refers to the technical, contractual, administrative and physical steps taken by the TRS to protect against unauthorized access to and disclosure of personally identifiable data of employees and Members and other third parties that we possess. • Discrimination or Harassment - Uninvited and unwelcome verbal or physical conduct directed at an employee because of his or her sex, religion, ethnicity, or beliefs. (Examples include: bias in hiring, bias in assignments, wrongful termination, bias in promotions, bias in educational decisions, unfair compensation, inappropriate language). • Embezzlement - To appropriate (as property entrusted to one's care) fraudulently to one's own use. (Examples include: bookkeeping errors, misapplication of funds, and mishandling of cash) • Employee Benefits Abuses - Improper, misleading or deceptive actions/statements, falsification of records, or misrepresentation of actual conditions related to employee benefit plans; including health and supplemental insurance plans and sick or other paid time-off programs. • Environmental Protection, Health, or Safety Law - Violation of any environmental law, regulation, corporate policy or procedure with respect to the handling and disposal of hazardous materials or the health and safety of other individuals. • Falsification of Contracts, Reports, or Records - Falsification of records consists of altering, fabricating, falsifying, or forging all or any part of a document, contract or record for the purpose of gaining an advantage, or misrepresenting the value of the document, contract or record. • Hiring Irregularities - Evidence of personnel decisions being based on criteria other than an applicant's merit or qualifications. • Improper Giving or Receiving of Gifts - The giving, receiving or solicitation of items which could be reasonably interpreted as an effort to influence a business relationship or decision; items given, received or solicited for the benefit of an individual or an individual's family or friends; items given, received or solicited during or in connection with contract negotiations; the acceptance of cash, checks, money orders, vouchers, gift certificates, loans, products, or services. Gift giving, or receiving, in excess of the annual $50 amount allowed by statute. • Improper Supplier, Contractor, or Consultant Activity - Supplier or contractor activity in violation of policies and procedures; improper supplier or contractor selection based on personal gain, improper negotiation or diversion of contract awards. • Nepotism/Favoritism Inappropriate Workplace Relationships - Refers to real or perceived favorable treatment or relationships between employees (such as: a family member being in a position to hire, fire, promote, demote, or influence compensation or the work environment of another family member; inappropriate work relationships during work hours; favoritism of one employee over another; etc.) • Offensive or Inappropriate Communication - The use of inflammatory, derogatory, unduly critical or insulting communication to an employee, Member, or other related person.
Page 64 of 123 • Retaliation - Verbal, physical or written discriminatory or harassing behavior toward an individual who has made a good faith report regarding a compliance issue. • Sexual Harassment - The making of unwanted and offensive sexual advances or of sexually offensive remarks or acts, especially by one in a superior or supervisory position or when acquiescence to such behavior is a condition of continued employment, promotion, or satisfactory evaluation. • Substance Abuse - Substance abuse is defined as the misuse of both legal and illegal drugs including alcohol. (Examples include: cocaine, narcotics, marijuana, stimulants) • Theft - The act of stealing; specifically: the felonious taking and removing of personal property with intent to deprive the rightful owner of it. • Threat or Inappropriate Supervisor Directive - Improper use of supervisory authority in response to employee taking action or refusing to take action. • Time Abuse - Concerns about an employee or manager who is falsifying his/her work hours. • Violation of Policy - Willful or innocent actions that are in direct violation of TRS policy, procedures, ethics policy, and/or implied contractual responsibilities. (Examples include: non- disclosure agreements, hiring standards, safety, Internet usage, employee handbook) • Workplace Violence - A verbal or physical threat of bodily harm to any person currently working or anyone who will be returning to work, allowing the individual who made the threat to carry out the threat.
Reporting
Anyone who works for, is a board member of, does business with, or is otherwise affiliated with TRS is encouraged to report suspected fraudulent, dishonest, or unethical behavior of any other employee, board member, consultant, vendor or other party related to TRS. Reporting can be made in a variety of ways – informally through the TRS’ open door policy (for employees with internal concerns), through the filing of a formal grievance (by employees), or by anyone by making a report with the TRS’ contracted outside reporting form, EthicsPoint. Reports made via EthicsPoint can be made either via telephone, or through the internet, accessible through the TRS website. Reports made through EthicsPoint give them reporting party the option of remaining anonymous.
All parties should be advised that any of the reporting mechanisms above do not take the place of filing a complaint with the state or federal government regarding certain state and federal law violations, such as an EEOC complaint. Strict timelines typically apply to these types of complaints, and filing a report via EthicsPoint or any other reporting mechanism provided by the TRS do not take the place of filing a complaint with one of these entities, nor extend the timeline for the filing of such a complaint.
Inquiries and Investigations
All reports made through the TRS open door policy, as well as the formal grievance policy, will be handled pursuant to the specific procedures applicable to those policies. Reports made via EthicsPoint will immediately be forwarded to the following TRS personnel: Executive Director, General Counsel, Human Resources Director, and Chairman of the Audit Committee. If any of
Page 65 of 123 the personnel listed above are implicated in the report, they will not receive a copy of the report, and initially will not be notified of the report. Reports, whether anonymous or not, will be shared only with those who have a need to know of the report so that the TRS can conduct an effective investigation and determine an appropriate course of action.
In keeping with TRS’ commitment to the highest standards of integrity and ethics, TRS will investigate suspected fraudulent or unethical activity. Inquiries and investigations will typically be handled by the General Counsel, and others as is appropriate. TRS may decline to conduct an investigation in circumstances that clearly indicate no investigation is warranted. The General Counsel will make report of all findings and recommendations to both the Executive Director and Chairman of the Audit Committee within 60 days of the filing of the report.
No Retaliation
TRS will not tolerate retaliation against any person who make a report in good faith under this policy or against any individuals (e.g., witnesses) who participate in an investigation of a report under this policy. Complaints of retaliation can be made to the Chairman of the Board, Chairman of the Audit Committee, Executive Director, or General Counsel. Any complaint of retaliation will be promptly investigated and appropriate corrective measures taken if the allegations of retaliation are substantiated. This policy will not prevent, limit, or delay the TRS from taking action, including disciplinary or other employment action, against any individual, when the TRS concludes that action is appropriate.
Page 66 of 123 Memorandum
To: The Board of Trustees of the Teachers’ Retirement System of Oklahoma From: Sarah Green, General Counsel Date: March 31, 2021 Re: Application for TRS Membership by Epic Blended Learning Charter
------Community Strategies, Inc. serves as the board of education for two charter schools in the State of Oklahoma: Epic One-on-One and Epic Blended Learning Charter. Epic One-on-One has been a member of TRS since 2012. In August 2017, Epic Blended Learning Charter also applied for TRS membership, but the request was tabled at a regular Board Meeting of the Board of Trustees held on September 21, 2017, on advice from TRS’s then General Counsel as there were questions surrounding Epic One-on-One compliance issues; namely:
1. Late reporting of the Employment Year End report, 2. Outstanding late fees in the amount of $2,362.16 for a June 2017 monthly report, and 3.Enrollment of certain employees into TRS membership including then “Superintendent” David Chaney.
After Epic Blended Learning Charter’s application for TRS membership was denied, approximately 70 employees were submitted for contributions under One-on-One’s membership though they were assigned to work at Blended Learning Charter. Subsequently, the State Auditor and Inspector’s (SA&I) office performed an audit of Epic Charter Schools (One-on-One and Blended Learning Charter) at the request of Governor Stitt. Part 1 of the audit was issued October 1, 2020, which raised additional concerns regarding Epic Charter Schools relative to TRS. SA&I’s findings in relation to TRS included:
4. SA&I requested TRS perform an internal review of payroll issues to determine if Epic is appropriately reporting employee salaries and remitting contributions to TRS, and 5. Epic One-on-One and Blended Learning Charter are two separate school districts with two separate charters – which should be reported separately to TRS.
Since the issuance of Part 1 of SA&I’s Special Investigative Audit report, TRS and Epic Charter Schools have been jointly working to address the issues from 2017 as well as those raised by the Audit in an effort to resolve outstanding compliance issues so that Epic Blended Learning Charter may again have its membership application considered by this Board – this time for the upcoming 2021/2022 school year. TRS has conducted an internal review of the aforementioned areas of concern as well as additional areas of TRS membership compliance to ensure Epic One-on-One is in compliance with TRS rules and statutes. A summary of the review and findings/outcomes is outlined below.
1. Year End Reporting: Year-end reports are due to TRS by November 1 each year (OAC 715:10- 13-10). In the past three years, Epic has submitted year-end reports on 12/27/18, 11/12/19, and 12/09/20. For reference, there were only 11 (of 597) schools that had not submitted the report by 12/9/20 this past year. Since its admission to TRS, Epic has not timely submitted a
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Page 67 of 123 Year-end report to TRS, but all Year-end reports have ultimately been submitted and are current at this time. 2. Outstanding late fees in the amount of $2,362.16 for a June 2017 monthly report – paid 6/8/20. 3. Enrollment of certain employees into TRS membership including then “Superintendent” David Chaney: TRS reviewed the employee roster for Epic Charter Schools as of 12/18/20 and ran a query (by SSN and DOB) against our system to determine what employees were not enrolled in TRS. We also searched the Epic Staff directory which can be found online. We initially identified 48 employees for which we requested date of hire, employment status, and position information. Of those 48, we were able to locate 31 employees who were either already being reported to TRS or who had just recently joined Epic and were being enrolled in TRS; 9 employees held nonclassified optional positions that are not mandatory for TRS enrollment; 1 “employee” was a dummy account; 1 employee was only employed for 4 days; and 6 employees listed are employed by Epic Youth Services – a private, for profit entity. Those 6 employees, despite having titles such as “superintendent”, are not paid by public funds (i.e. are not public education employees) and are not eligible for TRS. 4. Contributions being reported on all regular annual compensation – TRS reviewed payroll/benefit summaries for Epic employees for FY18, FY19, and FY20 to determine if contributions were being remitted to TRS on all “regular annual compensation” which is salary plus fringe benefits such as health insurance. Epic also has a generous bonus structure for its teachers and administration. To date, Epic has not remitted contributions to TRS on bonuses paid as bonuses are typically not subject to TRS contributions, with exception. In 2013, Epic inquired as to whether its bonus structure would be subject to TRS contributions and was advised by TRS that it was not. However, we have conducted a thorough review of the bonus structure for teachers as it is currently written in conjunction with our current statutes, rules and Employer Manual, and have advised Epic that contributions will need to be remitted on bonuses paid under their current scheme beginning July 1, 2021, going forward. We are still in the review process of bonuses paid to administration as of the date of this memorandum and have not yet opined on whether contributions are due to TRS for administration bonuses. We will be continuing our conversations with Epic in that regard. Otherwise, Epic appears to be appropriately remitting contributions on all other regular annual compensation. 5. Admission into TRS of Blended Learning Charter so employees can be reported correctly – Epic has provided the necessary documentation to support a request for membership. 6. Federal/External Grant Matching Review – The final component to our review of Epic Charter Schools centered around whether the school was paying the Federal/External Grant matching rate on salaries paid using federal/external funding. We reviewed submissions for FY18, FY19, and FY20. We only found one error in reporting contributions (which is not uncommon). We advised Epic of the error and it was promptly corrected.
In summary, while Epic has not had the most favorable history with TRS as it pertains to reporting issues, it appears the organization is making an effort to ensure compliance with TRS rules and statutes going forward. The last SA&I audit finding recommended Blended Learning Charter’s admission to TRS to allow for the employees to be appropriately reported. Epic is applying for membership in accordance with the audit finding.
Page 68 of 123 Page 69 of 123 Page 70 of 123 Page 71 of 123 Page 72 of 123 Page 73 of 123 Page 74 of 123 Minutes of 12/7/2020 Board Approved 1/25/2021
Page 75 of 123 Page 76 of 123 Page 77 of 123 Page 78 of 123 Page 79 of 123 Page 80 of 123 Page 81 of 123 Page 82 of 123 Page 83 of 123 Page 84 of 123 Page 85 of 123 Page 86 of 123 Page 87 of 123 Page 88 of 123 Page 89 of 123 Page 90 of 123 Page 91 of 123 Page 92 of 123 EPIC Blended Learning Charter Salary Schedule Projections
2021 - 2022
Total Student Enrollment 21,453
2021 - 2022 Non-Instructional Staff Superintendent $ 97,820 Assistant Superintendents 604,263 Principals/Assistant Principals 4,439,253 Operations 2,515,942 Finance 1,425,846 Total Non-Instructional Salaries and Benefits $ 9,083,125
Instructional Staff Instructional $ 48,844,939 Instructional Support 4,603,794 Total Instructional Salaries and Benefits $ 53,448,734
Special Education Staff Special Education Instructional $ 8,619,695 Special Education Support 2,326,328 Total Special Education Salaries and Benefits $ 10,946,023
Total Salaries and Benefits $ 73,477,881
Page 93 of 123 MEMORANDUM To: Board of Trustees, Teachers’ Retirement System
From: Haley Drusen, Legislative and Policy Director [email protected]
Date: March 31, 2021
Re: Legislative Update: Bills affecting the Teachers’ Retirement System and Staff Comments
Please find below summaries of bills directly affecting TRS’s interests. Under each bill is the position recommendation that the staff intends to take absent a contrary direction and vote of the Board. There will be an item on the agenda for the board meeting under which these bills can be discussed. If any board member would like the Board to take a position on a particular bill, such motion would be in order under that agenda item as well. Since the first floor deadline on March 11, 2021, the bills that we are following that directly affect TRS interests has been reduced significantly to a total of 9 bills, with 3 of those bills being sent for actuarial studies. Those bills are as follows: Funding
1. HB2293: Employer Contributions and Grants Author(s): Rep. Dustin Roberts, R-Durant Sen. Lonnie Paxton, R-Tuttle
Citations: 70 O.S. § 17-108
Summary: This bill removes the requirement that employers pay matching contributions on funds provided by external grants, with the exception of federal funds. This bill has been certified as non-fiscal for OPLAAA.
Impact: This bill would reduce funds paid to TRS for the maintenance of the system and would push the administrative cost of salaries sponsored by external grants onto state appropriations. Additionally, due to regulations surrounding the treatment of federal funds, any school district relying on this bill to pay matching contributions solely on federally funded positions (and not contribution a matching contribution on any externally funded position) may face repercussions, not limited to a “claw back” of the matching contribution by the federal grant authorities. For reference, TRS received $28,745,259 for fiscal year ending June 30, 2020. See PAFR 2020 (labeled as “Matching Contributions”). Additionally, the current language in this bill does not clearly meet the author’s intent and may be interpreted as calling for matching contributions on publicly funded positions.
Position: Oppose.
Status: House Passed (51-28); Assigned to Senate Committee on Retirement and Insurance.
2. SB0922: Invest in Oklahoma Act Author(s): Sen. Brent Howard, R-Altus Sen. Chuck Hall, R-Perry Rep. Gerrid Kendrix, R-Altus
Citations: Creating new laws to be codified at 62 O.S. §§ 2400 to 2403
Page 94 of 123 Summary: This bill requires the Department of Commerce to an Invest in Oklahoma Fund program to provide entities funds in the state with opportunities to invest in Oklahoma-based venture capital funds and venture capital funds that make substantial investments in this state.
Impact: This act would permit (but not require) TRS to invest no more than 5.0% of its rolling three (3) year assets in a new “Invest in Oklahoma Fund” that is made up of Oklahoma-based (or Oklahoma-supporting) venture capital funds.
Position: Monitor.
Status: Senate Passed (44-3); House Introduced.
Plan Reforms
3. SB0683: Optional Personnel Membership upon Employment Author: Sen. Chris Kidd, R. Addington Rep. Mark McBride, R-Moore
Citations: Amending 70 O.S. § 17-103
Summary: This bill removes the requirement that full-time nonclassified optional personnel be regularly employed for more than one year to participate in TRS.
Impact: Amending this provision would require that TRS further amend its rules to prohibit nonclassified personnel from opting in and out of the system per current practice. TRS would be required to initiate an election system in which optional employees must opt-in or -out of the plan upon their initial eligibility to the plan. That election would be irrevocable. This change would require substantial changes in TRS’s rules and the plan.
Position: Monitor.
Status: At the request of OSSBA, we provided a draft amendment that would be compliant with IRS regulations. This amendment was used as a committee substitute and is the current version of the bill. This bill has passed the Senate (41-2). This bill has now been assigned to House Committee on Banking, Financial Services, & Pensions.
Post-Retirement Earnings
4. SB0267: Retiree Earning Limitations (no limit in some situations) Author(s): Sen. Dewayne Pemberton, R-Muskogee Rep. Jadine Nollan, R-Sand Springs
Citations: Amending 70 O.S. § 17-116.10
Summary: This bill would allow certain members to return to employment at full salary while receiving retirement benefits. This bill has been certified as non-fiscal per OPLAAA.
Impact: This bill may encourage qualified teachers to return to the classroom while having a limited fiscal impact on TRS. In limiting the application of this window to teachers that have retired as of July 2020, there is less risk of this being seen as a “sham retirement” by the IRS. This bill is similar to SB428 (passed in the 2017 session).
Position: Monitor.
Page 95 of 123 Status: Senate Passed (36-11); Assigned to House Committee on Banking, Financial Services, & Pensions. Miscellaneous:
5. SB0002: School Finance Review Commission Author(s): Sen. Micheal Bergstrom, R-Adair Rep. Toni Hasenbeck, R-Elgin
Citations: Amending 70 O.S. § 3-117.3
Summary: This proposed bill clarifies and expands the duties of the School Finance Review Commission (SFRC) to conduct a review of all matters related to school finance.
Impact: This bill expands the duties of the SFRC to include a review of teacher compensation and benefits—which would include retirement benefits and contributions. While this would not impact TRS’s operations, the agency should be cognizant of those duties, as it may be required to work with the Commission upon occasion.
Position: Monitor.
Status: Senate Passed (38-8); Assigned to the House Committee on Common Education.
6. HB2046: Higher Education Funding Districts Author(s): Rep. Charles McCall, R-Atoka Sen. Frank Simpson, R-Springer
Citations: Creating new laws to be codified at 70 O.S. §§ 9001 to 9013.
Summary: This bill allows a two-year institute within the Oklahoma State System of Higher Education to utilize certain procedures to be considered a higher education funding district for the purpose of establishing and organizing the district, calling for operational millage rates or sinking fund millage rates or both.
Impact: As relevant to TRS, this bill would permit these higher education funding districts to use a portion of the revenue that they receive to pay for employee salaries, benefits (expressly including retirement benefits). Though this does not directly impact TRS’s operations, it should be aware of such permissibility if asked by an employer.
Position: Monitor.
Status: House Passed (79-18); Dual assigned to the Senate Committees on Appropriations and Education.
Bills sent to Actuary: 7. HB2686: Decreasing the Vesting Timeline Author(s): Rep. Toni Hasenbeck, R-Elgin
Citations: Amending 70 O.S. § 17-105
Summary: This bill changes the minimum vesting in TRS to 5 years of employment. This has been certified as a fiscal bill per OPLAAA.
Page 96 of 123 Impact: This bill decreases the amount of time that one must work in a public school to vest in TRS. While this bill may increase the benefits paid by the system, it would also decrease withdrawals and encourage members to remain with the system to vest.
Position: Monitor.
Status: Assigned to H Banking, Financial Services, and Pensions. The committee sent this bill for an actuarial analysis, and it will be considered next session (2022) after that report is complete.
8. SB0933: Additional Retirement Credit Author(s): Sen. Lonnie Paxton, R-Tuttle
Citations: Creating a new law to be codified at 70 O.S. § 116.23
Summary: As amended, this bill would provide teachers who worked during the 2020-2021 school year three years’ worth of retirement credit for that year if (1) that teacher taught for 130 days on school property and (2) the teacher continues to o be employed as an active classroom teacher for the 2021-2022, 2022-2023 and 2023-2024. This bill has been certified as a fiscal bill per OPLAAA.
Impact: This bill would provide two “extra” years of retirement credit for certain active contributing employees. If those retirement credits are unfunded, this bill would impact the System’s funding ratio.
Position: Oppose if unfunded.
Status: Assigned to Senate Committee: Senate Retirement and Insurance. The committee sent this bill for an actuarial analysis, and it will be considered next session (2022) after that report is complete.
9. SB0934: COLA for TRS Retirees Author(s): Sen. Lonnie Paxton, R-Tuttle
Citations: Creating a new law to be codified at 70 O.S. § 116
Summary: As relevant to TRS, this bill grants a 2.0 percent increase in benefits on July 1, 2022 to any person receiving benefits from the Teachers Retirement System as of June 30, 2021, and who continues to receive benefits on or after July 1, 2022. This bill also provides COLAs to various other systems. This bill has been certified as a fiscal bill per OPLAAA.
Impact: This is a COLA bill that would increase benefits to retirees by 2%. If unfunded, this bill would impact the System’s funding ratio.
Position: Oppose if unfunded.
Status: Assigned to Senate Committee: Senate Retirement and Insurance. The committee sent this bill for an actuarial analysis, and it will be considered next session (2022) after that report is complete.
Bills Related to Other Retirement Systems
Page 97 of 123 1. HB2278 by Rep. Josh West, R-Grove and Sen. Paul Rosino, R-Oklahoma City. This bill modifies the distribution requirements for the Oklahoma Firefighters Pension and Retirement System as applicable to members 70.5 years of age. House passed; Assigned to Senate Committee on Retirement and Insurance. 2. HB2457 by Rep. Mark Lepak, R-Claremore and Rep. Mike Dobrinski, R-Okeene. HB2457 modifies the distribution requirements for the Oklahoma Firefighters Pension and Retirement System as applicable to members 70.5 years of age. House passed; Assigned to Senate Committee on Retirement and Insurance. 3. HB2458 by Rep. Mark Lepak, R-Claremore and Sen. John Michael Montgomery, R-Lawton. HB2458 permits the Oklahoma Public Employees Retirement System to release tax information returns of a deceased member to certain persons acting on behalf of the decedent or the decedent's estate. House passed; Assigned to Senate Committee on Retirement and Insurance. 4. HB2461 by Rep. Dick Lowe, R-Amber, The bill requires the Oklahoma Firefighters Pension and Retirement System to pay $15,000 to the estate of any active or retired member who dies on or after July 1, 2021, if the member has no surviving spouse and no designated recipients. Referred to Actuary. 5. HB2499 by Rep. Rusty Cornwell, R-Vinita and Sen. Micheal Bergstrom, R-Adair. This bill modifies provisions related to authorized payments to beneficiaries from the Oklahoma Police Pension and Retirement System. It provides for payment of certain amounts to estates or trusts. House passed; Assigned to Senate Committee on Retirement and Insurance. 6. HB2626 by Rep. Kenton Patzkowsky, R-Balko, allows a county employee who retires on or after Nov. 1, 2021 but returns to work in a road or bridge construction or maintenance capacity, to retain their retirement benefit from OPERS if they return to work after being retired for a period of 6 months. Referred to Actuary. 7. HB2745 by Rep. Ross Ford, R-Broken Arrow. This bill adds to the definition of funded ratio what modifies the computation of the line-of-duty disability benefit as related to the Police Pension and Retirement System. Referred to Actuary. 8. HB2758 by Rep. Ross Ford, R-Broken Arrow. This bill includes provisions for participation by military police officers on or after November 1, 2021, in OPERS, sets the normal retirement date for such personnel employed for the first time on or after November 1, 2021 and contribution rates for the same. Referred to Actuary. 9. HB2824 by Rep. Chris Sneed, R-Fort Gibson and Sen. Marty Quinn, R-Claremore. This bill requires the Oklahoma Public Employees Retirement System to pay a certain amount to a qualified benefits administrator of an employer that does not participate in the health insurance benefit plans specified therein. House passed; Assigned to Senate Committee on Retirement and Insurance. 10. SB0318 by Sen. Zack Taylor, R-Seminole. SB0318 increases the maximum age for entry into the Oklahoma Police Pension and Retirement System to 50 years of age from 45. Referred to Actuary. 11. SB0465 by Sen. Frank Simpson, R-Ardmore. This bill allows active members of OPERS to use up to 5 years of prior participating military service credit to compute retirement benefits to purchase additional military service credits if the member returns to state employment with a participating employer. Referred to Actuary. 12. SB0741 by Sen. Darrell Weaver, R-Moore. The bill allows certain state retirees in the Law Enforcement Retirement System to elect a Deferred Option Plan can include no more than 360 days of unused sick leave. Referred to Actuary. 13. SB0743 by Sen. Darrell Weaver, R-Moore and Rep. Anthony Moore, R-Clinton. This bill redefines permanent in-line disability regarding police officers in Oklahoma Police Pension and Retirement System. Senate passed; Assigned to House Committee on Banking, Financial Services, & Pensions. 14. SB0745, by Sen. Darrell Weaver, R-Moore and Rep. Mike Dobrinski, R-Okeene. As related to law enforcement pension, this bill sets actual average salary for different positions to the annual salary limit of the Economic Growth and Tax Relief Reconciliation Act of 2001, increases in disability benefits to certain state employees, and prohibits certain decreases in benefits. Senate passed; Assigned to House Committee on Banking, Financial Services, & Pensions.
Page 98 of 123 15. SB0826 by Sen. Brent Howard, R-Altus and Rep. Terry O'Donnell, R-Catoosa. This bill allows a member of the Oklahoma Firefighters Deferred Option Plan whose participation began on or after Nov. 1, 2013, to receive the option of a lump-sum payment from the account. Senate passed; Assigned to House Rules Committee. 16. SB0889 by Sen. Darrell Weaver, R-Moore and Rep. Josh West, R-Grove. This bill updates language concerning the Oklahoma Law Enforcement Retirement System to conform with IRS provisions. Senate passed; Assigned to House Committee on Banking, Financial Services, & Pensions. 17. SB0897 by Sen. Lonnie Paxton, R-Tuttle and Rep. Brad Boles, R-Marlow. This bill amends the definition of member relating to firefighter retirement by removing language requiring meeting the requirement of age, agility, physical and other eligibility requirements. The bill includes the definition of nonparticipating fire chief. Senate passed; Assigned to House Committee on Appropriations and Budget. 18. SB0937 by Sen. Lonnie Paxton, R-Tuttle. This bill grants a 4.0 percent increase in benefits on July 1, 2022 to any person receiving benefits from the Oklahoma Firefighters Pension and Retirement System as of June 30, 2021, and who continues to receive benefits on or after July 1, 2022. Sent to Actuary.
Page 99 of 123 CLIENT SERVICES PERFORMANCE METRICS THROUGH FEBRUARY 2021 ESTIMATE REQUESTS THROUGH FEBRUARY 2021 800
700
600
500
400
300 NumberofRequests 200
100
0
New Requests Completed Outstanding Avg. time to complete = 7.58 Hrs.
INCOMING CALLS SERVED THROUGH TRS MAIN NUMBER
Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Numberof Calls
Total Incoming Answered Routed Abandoned
INFORMATION CENTER PERFORMANCE FEBRUARY 2021
6,059 Calls Routed 507 Callers Abandoned in Through Menu Queue. Average Abandon Options. 13% Time: 54 seconds. 1514 Calls Abandoned Pre-Queue TOTAL CALLS QUEUED THROUGH THE OTRS MAIN LINE : 15,531 47% INCOMING E-MAILS: 392709
7280 Calls Answered. 40% CONFIRMED PORTAL PINs Average Speed of Answer: 51 1/31/2021:TOTALPORTAL E- MAILS CLIENTS RECEIVED 37,886 seconds. FebruaryTHROUGHWITH CONFIRMED 2021OTRS + WEB PINs: 758 LINK: Target Speed: 20 Seconds Total Confirmed:8109520 38,644
Page 100 of 123 Monthly Retirement Status Report
From 3/1/2021 to 3/31/2021
Average Average Years Average Count Benefit Total Benefit of Service Age
New Retirements Disability 3 $6,158.99 $2,053.00 24.66 55.33 Early 6 $3,416.01 $569.34 10.09 60.17 Normal 75 $148,476.87 $1,979.69 21.65 65.20 Total 84 $158,051.87 $1,881.57 20.93 64.49
Terminated Annuities 200 ($318,241.34) $1,591.21 24.61 80.22
Page 101 of 123 HR STATUS REPORT March 31, 2021 HR STATUS REPORT
• New Hires (February): n/a
• Resignations/Terminations/Retirements (February): Employee: 329327 Title: Retirement Planning Consultant (Information Center) Salary: $45,312 Effective: 2/9/2021
• Promotions/Transfers/Salary Adjustments/Changes (February): n/a
MISCELLANEOUS PAYMENTS
• Severance Payments: n/a
NEW HIRES, RESIGNATIONS, RETIREMENTS OR OTHER CHANGES PENDING
• Retirement Planning Consultant (Information Center) – new hire eff 4/5/2021 (May Board Report) • Director of Finance / CFO – resignation eff 4/2/2021 (May Board Report)
Page 102 of 123 Employer Reporting Analysis of Employee and Employer Contributions Received
Comparison of Contributions Received For Two Months Ended Jan. 31, 2020 and Jan. 31, 2021 $1,000,000,000 $800,000,000
$600,000,000
$467,994,611.55 $467,994,611.55 $457,350,785.11 $457,350,785.11 $400,000,000
$200,000,000
$81,651,121.48 $81,651,121.48
$76,404,948.80 $76,404,948.80
$73,502,636.71 $73,502,636.71
$73,055,543.03 $73,055,543.03
$72,420,868.63 $72,420,868.63
$71,137,021.75 $71,137,021.75
$70,184,017.85 $70,184,017.85
$65,793,850.85 $65,793,850.85
$65,312,826.80 $65,312,826.80
$62,295,908.63 $62,295,908.63 $62,241,909.38
$58,242,609.53 $58,242,609.53
$48,748,339.01 $48,748,339.01
$44,353,794.21 $44,353,794.21
$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0 July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June TOTAL
2020 2021
Number of Delinquent Reports FY21 15
10
5 1 1 0 0 0 0 0 0 0 0 0 0 0 0 July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June TOTAL
Estimated Delinquent Funds FY21 $1,000,000
$800,000
$600,000
$400,000
$200,000
$49,055.90 $49,055.90
$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0 July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June TOTAL
Page 103 of 123 BALANCE SHEET FEBRUARY 28, 2021
CURRENT ASSETS: Cash Not Available For Investment $20,498,069.75 Equities (At Market Value) 16,111,169,771.94 Fixed Income (At Market Value) 3,643,160,673.89 Short-Term Investment Account 525,028,582.78 Due From/(To) Broker (98,902,820.25) Accounts Receivable Installment Payments 910,322.52 Accrued Income 62,233,246.07 Total Current Assets 20,264,097,846.70
CAPITAL ASSETS: Office Furniture and Equipment 5,609,644.17 Accumulated Depreciation (1,408,410.00)
TOTAL ASSETS $20,268,299,080.87
CURRENT LIABILITIES: Teachers' Savings Fund $5,945,957,746.88 Retirement Benefit Fund 10,595,126,237.84 Interest Fund 3,643,010,056.48 Expense Fund 15,246,857.04 Suspense Fund 63,158,245.14 Total Current Liabilities 20,262,499,143.38
TRS Capital Investment 5,799,937.49
TOTAL LIABILITIES AND CAPITAL INVESTMENT $20,268,299,080.87
Page 104 of 123 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES FOR THE EIGHT MONTHS ENDED FEBRUARY 28
Year to Date Year to Date % Change
(FY 2021) (FY 2020) Balance of Cash and Investments Net Position, Beginning of Year $16,924,877,274.62 $17,105,220,217.46
RECEIPTS: Members' Deposits 194,367,039.79 192,325,586.27 1.06% Employer Contributions 292,990,947.46 289,026,927.76 1.37% State Credits 25,858,894.77 21,984,685.98 17.62% Reimbursed Administrative 2,883.59 2,233.00 0.00% Matching Funds from Schools 19,063,665.44 18,293,293.18 4.21% Lottery Revenue 2,913,964.00 2,567,726.99 13.48% Cigarette Sales Tax Revenue 993,395.41 951,261.48 4.43% Dedicated Revenue 195,083,330.31 238,261,931.33 -18.12% Total Retirement Receipts 731,274,120.77 763,413,645.99 -4.21%
Interest Income (Fixed Income and Short-Term) 106,149,979.61 125,065,601.01 -15.12% Dividend Income 118,616,942.47 119,676,629.06 -0.89% Net Realized Gain/(Loss) 489,233,406.50 494,209,392.35 -1.01% Net Unrealized Gain/(Loss) 2,942,245,098.53 (657,320,446.65) 547.61% Investment Operations Income: Class Action Lawsuit Proceeds 100,394.23 58,587.44 71.36% Other Income (538,442.48) 22,129.66 -2533.13% Securities Lending Income 3,338,993.65 4,081,949.78 -18.20% Total Investment Income 3,659,146,372.51 85,793,842.65 4165.05%
TOTAL RECEIPTS 4,390,420,493.28 849,207,488.64 417.00%
DISBURSEMENTS: Retirement Benefits 972,229,526.31 915,947,661.98 6.14% Insurance Premiums Paid for Retirees 23,177,802.20 24,061,686.87 -3.67% Death Benefits 12,561,554.32 14,836,538.31 -15.33% Withdrawals of Accounts 22,539,383.11 27,222,829.75 -17.20% Total Benefit Payments 1,030,508,265.94 982,068,716.91 4.93%
Administrative Expense: General Operations 3,530,658.14 3,496,062.38 0.99% Investment Expense 17,160,997.12 31,309,946.04 -45.19% Total Administrative Expenses 20,691,655.26 34,806,008.42 -40.55%
TOTAL DISBURSEMENTS 1,051,199,921.20 1,016,874,725.33 3.38%
NET INCREASE/(NET DECREASE) 3,339,220,572.08 (167,667,236.69) 2091.58%
Balance of Cash and Investments, February 28 $20,264,097,846.70 $16,937,552,980.77
Page 105 of 123 Wednesday, March 31, 2021
SCHEDULE I Comparison of Actual Expenditures Fiscal Year 2020 and Fiscal Year 2021 8 Months Ended February 28, 2021
FY-2020 YTD FY-2021 YTD Actual Actual Increase Increase Expenditures Expenditures (Decrease) (Decrease) Object of Expenditure 2/29/2020 2/28/2021 Amount Percentage Personnel Services Salary and Longevity Pay Expenses 1,722,077 1,710,437 (11,640) -0.7% Taxes, Benefits, and Other Expenses 831,321 781,429 (49,892) -6.0% Subtotal Personnel Services 2,553,398 2,491,866 (61,532) -2.4% Professional Services Investment Consultant Expenses 580,238 697,253 117,015 20.2% Investment Manager Alternatives Expense 180,000 189,583 9,583 5.3% Investment Custodian Expenses 0 14,000 14,000 0.0% Pension Commission Expenses 18,637 14,417 (4,220) -22.6% Subtotal Investment Expenses 778,875 915,253 136,378 17.5% Legal Services - Special Projects 17,628 25,667 8,039 45.6% Legal Services - Attorney General 0 0 0 0.0% Administrative Hearings 0 0 0 0.0% Auditing Services 98,977 117,167 18,190 18.4% Actuarial Services 42,300 45,232 2,932 6.9% Medical Hearings 5,100 7,400 2,300 45.1% Communications Firm 0 13,400 13,400 0.0% Disability Retirement Management 0 0 0 0.0% Miscellaneous Services 26,542 17,049 (9,493) -35.8% Subtotal Professional Services 190,547 225,915 35,368 18.6% Total Professional Services 969,422 1,141,168 171,746 17.7% Travel and Per Diem Expenses Non-Employee Travel Expenses 7,919 0 (7,919) 0.0% Employee Training 8,274 1,907 (6,367) -77.0% Employee Travel Expenses 11,076 69 (11,007) -99.4% Subtotal Travel and Per Diem Expenses 27,269 1,976 (25,293) -92.8% Administrative Expenses Postage 96,763 50,635 (46,128) -47.7% Printing and Binding Contracts 14,072 19,159 5,087 36.2% Informational Services 13,542 16,645 3,103 22.9% Rent and Maintenance 102,188 151,360 49,172 48.1% Office Supplies 13,965 12,594 (1,371) -9.8% Equipment 0 0 0 0.0% Office Relocation 0 15,900 (15,900) 0.0% Miscellaneous Administrative Expenses 18,757 22,784 4,027 21.5% Subtotal Administrative Expenses 259,287 289,077 29,790 11.5% Data Processing Expenses Professional Services 271,119 341,650 70,531 26.0% Telecommunication Services 4,239 11,164 6,925 163.4% Rent and Maintenance 4,873 4,272 (601) -12.3% Office Supplies 119 0 (119) 0.0% Equipment - Telecommunications 26,228 24,817 (1,411) -5.4% Informational Services 0 2,417 2,417 0.0% Subtotal Data Processing Expenses 306,578 384,320 77,742 25.4%
Total Expenses 4,115,954 4,308,407 192,453 4.7% Total Investment Expenses Only 778,875 915,253 136,378 17.5% Total Data Processing Expenses Only 306,578 384,320 77,742 0.0% Total except Investment & Data Processing Expenses 3,030,501 3,008,834 (21,667) -0.7%
Page 106 of 123 Wednesday, March 31, 2021
SCHEDULE II Comparison of FY2021 Budget to Actual Expenses 8 Months Ended 2/28/2021 Year to Date Comparison
8 Months 8 Months Over Over FY-2021 YTD FY-2021 YTD (Under) (Under) Object of Expenditure Budget Actual Amount Percentage Personnel Services Salary and Longevity Pay Expenses 2,032,088 1,710,437 (321,651) -15.8% Taxes, Benefits, and Other Expenses 993,077 781,429 (211,648) -21.3% Subtotal Personnel Services 3,025,165 2,491,866 (533,299) -17.6% Professional Services Investment Consultant Expenses 796,862 796,862 0 0.0% Investment Manager Alternatives Expense 216,668 216,668 0 0.0% Investment Custodian Expenses 21,000 14,000 (7,000) -33.3% Pension Commission Expenses 35,000 14,417 (20,583) -58.8% Subtotal Investment Expenses 1,069,530 1,041,947 (27,583) -2.6% Legal Services - Special Projects 66,668 25,667 (41,001) -61.5% Legal Services - Attorney General 5,000 0 (5,000) 0.0% Administrative Hearings 3,750 0 (3,750) 0.0% Auditing Services 209,868 117,167 (92,701) -44.2% Actuarial Services 53,336 45,232 (8,104) -15.2% Medical Hearings 10,000 7,400 (2,600) -26.0% Communications Firm 66,668 13,400 (53,268) -79.9% Disability Retirement Management 33,336 0 (33,336) 0.0% Miscellaneous Services 16,190 17,049 859 5.3% Subtotal Professional Services 464,816 225,915 (238,901) -51.4% Total Professional Services 1,534,346 1,267,862 (266,484) -17.4% Travel and Per Diem Expenses Non-Employee Travel Expenses 26,300 0 (26,300) 0.0% Employee Training 16,309 1,907 (14,402) -88.3% Employee Travel Expenses 17,338 69 (17,269) -99.6% Subtotal Travel and Per Diem Expenses 59,947 1,976 (57,971) -96.7% Administrative Expenses Postage 130,200 50,635 (79,565) -61.1% Printing and Binding Contracts 72,458 19,159 (53,299) -73.6% Informational Services 19,791 16,645 (3,146) -15.9% Rent and Maintenance 154,428 151,360 (3,068) -2.0% Office Supplies 20,327 12,594 (7,733) -38.0% Equipment 77,000 0 (77,000) 0.0% Office Relocation 40,000 15,900 (24,100) -60.3% Miscellaneous Administrative Expenses 39,035 22,784 (16,251) -41.6% Subtotal Administrative Expenses 553,239 289,077 (264,162) -47.7% Data Processing Expenses Professional Services 1,172,300 341,650 (830,650) -70.9% Telecommunication Services 7,104 11,164 4,060 57.2% Rent and Maintenance 51,075 4,272 (46,803) -91.6% Office Supplies 4,164 0 (4,164) 0.0% Equipment - Telecommunications 32,950 24,817 (8,133) -24.7% Informational Services 2,760 2,417 (343) -12.4% Subtotal Data Processing Expenses 1,270,353 384,320 (885,690) -69.7%
Total Expenses 6,443,050 4,435,101 (2,007,606) -31.2% Total Investment Expenses Only 1,069,530 1,041,947 (27,583) -2.6% Total Data Processing Expenses Only 1,270,353 384,320 (885,690) -69.7% Total except Investment and Data Processing Expenses 4,103,167 3,008,834 (1,094,333) -26.7%
Page 107 of 123 CLAIMS FOR AUTHORIZED EXPENDITURES FEBRUARY 28, 2021
Communications
AT&T OneNet phone service charges $ 426.64 Bancfirst Remote deposit scanner service charges - January 2021 17.48 Cox Communications Cable charges - ethernet & cable services: January - February 2,759.56 Journal Record Publishing Informational service subscription 119.00 JP Morgan Chase Bank, NA Account analysis bank fees 705.74 Office of Management and Enterprise Services Server, disk storage, scanning & network support, IT consulting 31,720.13 Thomson West Legal information services subscription 710.35 T-Mobile Cell phones and cell service for teleworking 313.70 36,772.60
Contingency, Maintenance, Insurance, Rent, Etc.
Amazon Marketplace Office/kitchen supplies/IT accessories 15.88 Brooks Industries Ice machine repair and maintenance 407.35 Department of Libraries Records storage: December 310.20 Ethics Commission Registrations 102.50 FedEx Freight Shipping - Medical Board packets 50.46 HP, Inc. 15 HP laserjet printers 10,336.20 Journal Record Seminar ticket 13.39 ImageNet Consulting, LLC Desktop Printer Maintenance 432.57 Kiamichi Opportunities Kitchen and office supplies 96.00 NCTR - (Nat'l. Council for Teacher Retirement) Membership renewal 5,030.00 Oklahoma Press Service Open meeting and open records books 75.00 Office of Management and Enterprise Services FY21 vehicle liability premium 50.00 Summit Technology Letter opener machine maintenance 122.38 Onenet Zoom licenses: 1/27/2021 - 6/30/2021 481.70 Standley Systems, LLC Copier Leases - October - December 2,726.76 Staples Office supplies/paper 7.52 Teachers Retirement System of Oklahoma Rent - Harvey Parkway - March 2021 20,320.41 Walker Companies Office supplies, notaries, stamps 89.50 Walmart office supplies for new building 54.74 40,722.56
Page 108 of 123 CLAIMS FOR AUTHORIZED EXPENDITURES FEBRUARY 28, 2021
Professional Services, Workers Comp Insurance
Ghost, Inc. January 2021 Social Media Retainer $ 1,200.00 ICE Miller Legal fees - January 4,403.85 J. P. Livingston, MD Medical Board - February 2021 300.00 MY Consulting Inc. ALICE/Client server development - December 2020 - January 2021 47,725.00 Office of Management and Enterprise Services Interagency mail/postage/printing 12,852.32 Peyton Osborne, MD Medical Board - January - February 2021 600.00 Phillips Murrah, PC December legal services 1,600.00 Stinnett & Associates LLC Internal Audit services: January 2021 8,761.50 The Meadows Document destruction 275.43 77,718.10
Investment Expenditures
Andco Investment Consulting svcs. - January 2021 99,607.53 Meketa Investment Group Private market admin. svcs. - January 2021 27,083.33 126,690.86
Salaries and Fringe Benefits
Salaries Administrative department 51,037.70 Salaries Finance/Accounting department 38,230.25 Salaries Client Services department 92,084.46 Salaries Investment department 20,239.11 Salaries IT department 6,940.51 Longevity Payroll 1,526.00 Excess Benefit Allowance 1,327.31 FICA/MQFE Social Security and Medicare 15,574.61 Oklahoma State Deferred Savings Incentive Plan Savings incentive plan and administrative fee 1,035.65 Oklahoma Group Insurance Employee health, dental, and life 40,142.77 Teachers' Retirement System of Oklahoma Employees' retirement contributions 44,466.57 312,604.94
Grand Total $ 594,509.06
Page 109 of 123 Deputy Executive Director of Operations Report March 2021 Board Meeting
1. Audits-We are currently working with Stinnett on 5 audit projects simultaneously. This involves multiple departments and employees to provide the information, conduct meetings and respond to follow-up questions. a. Prior-audit follow-up b. Disaster Recovery Plan update c. Retirement Benefits d. Cybersecurity follow-up e. IT General Controls - ALICE
2. Website – We continue working with our marketing vendor (Ghost) to update our new website. They are reviewing the site and making design changes with our input. The main goal currently is to improve the user experience in order to find information quickly.
3. PeopleSoft HCM replacement – We had our first demonstration of one feature of Workday, a new software platform selected by the State to replace PeopleSoft for time and payroll functions. We are exploring potential data sharing to automate updating information in ALICE from State employees.
4. Member Portal – We have received over 2,368 new user registrations for the Member Portal from March 1 through March 24. This is more than double the new users for January and February at 1,164 and 1,033 respectively. MyCG made coding changes to improve the performance and we requested OMES add more processing power and this greatly improved the response time of the portal. We continue to analyze the requests we receive by email and phone calls for opportunities to provide more information online.
5. Telephone System – We have been analyzing the call routing options to look for opportunities for improvement in offering information to Members. We discussed the current configuration with the OMES specialist and will put together a plan for changes to the menu options to make the call process more efficient and effective. This will be an ongoing project where changes will be made as we measure the outcomes.
Page 110 of 123 GENERAL COUNSEL REPORT
MARCH 2021 SARAH GREEN
1. Harvey Parkway Building a. All rents are current thru March b. New tenant for 2nd floor – lease date 5.1.21 c. Prospective tenant for 6th floor – lease date 6.1.21
2. Legislation a. Capitol activity b. Working with OSSBA on SB 683
3. Misc. a. Federal/External Grant Matching – received letter from AG’s office agreeing with our position b. Investment Consultant RFP reference checks c. Investment Consultant RFP audit d. Executive Search Firm RFP e. Proposed Securities Litigation by Nix Patterson
Page 111 of 123 The Teachers’ Retirement System (TRS) opposes HB 2293 because it will directly and permanently reduce funding to TRS. This bill seeks to exempt public education positions funded by private grants (including tribal funds) from being subject to “matching contributions” to TRS. Under current law, when a school district funds a position using external funding (funds not derived from state/local tax revenue), it is required to pay a “matching” contribution to TRS in addition to employer and employee contributions.
• The Matching Contribution is not a “windfall” to TRS; rather, it is meant to fully fund the pension benefits for positions provided by external funds. Matching contributions ensure TRS receives adequate funding when public education positions are funded by federal or private funds. Since TRS does not receive any additional dedicated revenue for these positions, this “matching contribution” ensures TRS can fully pay for the pension benefits being paid on these externally funded salaries.1 The matching contribution rate is actuarially determined annually to ensure TRS assessing the appropriate amount.2 Eliminating this matching contribution will result in the system having to “self-fund” this gap and will result in a drop in our funded ratio. This past year, TRS received $28,745,259 in matching contributions from 578 out of 601 participating employers.3 This bill would effectively permanently eliminate these contributions to TRS.
• HB2293 will affect federal funds. On its face, HB2293 exempts private grants from the matching contribution. However, federal regulations prohibit disparate use of treatment of federal funds as compared to state or private funds. The federal government will not allow TRS to impose contributions that are only applicable to federally funded positions. Therefore, TRS will lose the federal grant matching revenue as well.4
• If HB 2293 is enacted, districts who rely on this statute may have their federal funds placed in jeopardy. Failing to apply costs consistently to both federal and private funds could place school districts at risk of having their federal funding “clawed back,” even years later.5
• TRS has no jurisdiction over donors to school districts and never approaches a donor to collect any matching contributions. HB 2293 is not sponsored by any school district or teacher’s organization. Rather, it is being sponsored by a tribal entity that provides funding for summer school programs in southeastern Oklahoma. Matching contributions are the responsibility of the school district to pay. School districts budget matching contributions into the cost of a teaching position, just like they do for employment taxes and health insurance. The matching contribution is not a fee or tax on the donor.
• The drafted language for HB 2293 does not achieve the author’s intent and in fact would require that schools pay matching contributions on all positions—rather than just externally funded ones. Paragraph A (pg. 1, ln 17- pg. 2, ln 6) has been amended so it now reads as though the employer “shall match, on a pro rata basis…” the member’s contributions on all funds “except federal funds.” This language could be interpreted as requiring a school district to additionally “match on a pro rata basis” the member contribution (i.e. an additional 7%) on all positions except those funded by federal grants.
Tom Spencer Sarah Green Haley Drusen Executive Director General Counsel Legislative Liaison [email protected] [email protected] [email protected] (405) 521-4745 (405) 521-4746 Cell: (918) 521-6621
1 See AG Opinion 1979 OK AG 169. 2 TRS Actuarial Evaluation Report as of June 30, 2020 3 TRS Actuarial Evaluation Report as of June 30, 2020 4 See Ice Miller Opinion dated March 1, 2021 5 See DAB Decision 1659 and Ice Miller Opinion dated March 1, 2021 Page 112 of 123 One American Square | Suite 2900 | Indianapolis, IN 46282-0200 Chicago Columbus DuPage County, Ill. Indianapolis New York Philadelphia Washington, D.C.
WRITER’S DIRECT NUMBER: 317-236-2249 March 1, 2021 DIRECT FAX: 317-592-4712 EMAIL: [email protected]
WRITER’S DIRECT NUMBER: 317-236-2133 DIRECT FAX: 317-592-4668 EMAIL: [email protected]
Sarah Green General Counsel Oklahoma Teachers’ Retirement System P.O. Box 53524 Oklahoma City, OK 73152
RE: HB 2293 Federally Funded Positions
Dear Sarah:
This letter is in response to your email on February 25, 2021 regarding HB 2293 (the “Bill”).
I. SUMMARY OF HB 22931
The Bill seeks to exempt teaching and other education positions funded by private grants from being subject to matching contributions to TRS. Currently, when schools fund positions using external grant funding, the school is required to pay a matching contribution to the Teachers Retirement System (“TRS”) in addition to the employer and employee contributions. The matching contribution rate is currently set at 7.7%.
The purpose of matching contributions is to ensure that TRS receives the same funding for state & local funded positions as it does with positions funded by federal, private or tribal funds. In other words, if positions are funded by these external sources, the employers must pay the full cost of the pension benefit for these added positions.
TRS receives funding from three sources: employer contributions (9.5% of compensation), employee contributions (7% of compensation) and dedicated revenue from the State. TRS’ dedicated revenue comes from a portion of income tax, sale/use tax, and other sources. Since TRS does not receive any additional dedicated revenue for these positions, this “matching contribution” ensures that the system receives enough revenue to pay for the pension benefits being promised by the State of Oklahoma.
1 This summary has been taken from the TRS Memorandum Opposition to HB 2293
Page 113 of 123 Ms. Sarah Green March 1, 2021 Page 2
In fact, the response to the Attorney General Opinion Request No. V-30 specifically provided that for grant funded positions “the employer must contribute to OTRS both 7.7% of the teacher’s regular annual compensation under Section 17-108(A) and the standard 9.5% required by 17-108.1(A).” See AG Letter dated February 26, 2021 (emphasis in original.)2
II. GUIDANCE REGARDING ALLOWABLE COSTS UNDER FEDERAL CONTRACTS
A. 2 CFR § 200.431 Compensation of Personal Services and Fringe Benefits
(g) Pension Plan Costs. Pension plan costs which are incurred in accordance with the established policies of the non-Federal entity are allowable, provided that:
(1) Such policies meet the test of reasonableness.
(2) The methods of cost allocation are not discriminatory.
(3) Except for State and Local Governments, the cost assigned to each fiscal year is determined in accordance with GAAP.
(4) The costs assigned to a given fiscal year are funded for all plan participants within six months after the end of that year. However, increases to normal and past service pension costs caused by a delay in funding the actuarial liability beyond 30 calendar days after each quarter of the year to which such costs are assignable are unallowable. Non-Federal entity may elect to follow the "Cost Accounting Standard for Composition and Measurement of Pension Costs." (48 CFR 9904.412).
* * *
(6)(ii) Pension costs calculated using an actuarial cost-based method recognized by GAAP are allowable for a given fiscal year if they are funded for that year within six months after the end of that year. Costs funded after the six month period (or a later period agreed to by the cognizant agency for indirect costs) are allowable in the year funded. The cognizant agency for indirect costs may agree to an extension of the six month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal Government and related Federal reimbursement and the non-Federal entity's contribution to the pension fund. Adjustments may be made by cash refund or other equitable procedures
2 It is not clear to us whether the “matching contribution” is paid by the employer or paid through grant funding. If it is paid through grant funding, then the federal government could raise concerns with being charged an amount in excess of the amount paid by other employers for nongrant funded positions. If you would like additional analysis or have any questions regarding this issue, please do not hesitate to let us know.
Page 114 of 123 Ms. Sarah Green March 1, 2021 Page 3
to compensate the Federal Government for the time value of Federal reimbursements in excess of contributions to the pension fund.
(iv) When a non-Federal entity converts to an acceptable actuarial cost method, as defined by GAAP, and funds pension costs in accordance with this method, the unfunded liability at the time of conversion is allowable if amortized over a period of years in accordance with GAAP.
(Emphasis added.)
B. Circular A-87's Requirements
The federal government’s Office of Management and Budget has issued Circular A-87 which "establishes principles and standards for determining costs for Federal awards carried out through grants, cost reimbursement contracts, and other agreements with State and local governments and federally-recognized Indian Tribal governments." 2 CFR Part 225.5. The intent is "to provide a uniform approach for determining costs and to promote effective delivery, efficiency, and better relationships between governmental units and the Federal Government." 2 CFR Part 225.20. Importantly, Circular A-87 only relates to the determination of allowable costs; it is "not intended to identify the circumstances or to dictate the extent of Federal and governmental unit participation in the financing of a particular Federal award. Provision for profit or other increment above cost is outside the scope of this part." Id.
However, the principles for determining allowable costs "are designed to provide that Federal awards bear their fair share of cost recognized under these principles except where restricted or prohibited by law." 2 CFR Part 225, Appendix A, Section A.1. Circular A-87 is premised upon the following stated fundamental principles:
1. Governmental Units are responsible for the efficient and effective administration of Federal awards through the application of sound management practices.
2. Governmental Units assume responsibility for administering Federal awards in a manner consistent with the underlying agreements, program objectives, and the terms and conditions of the Federal award.
3. Each Governmental Unit, in recognition of its own unique combination of staff, facilities, and experience, will have primary responsibility for employing whatever form of organization and management techniques may be necessary to assure proper and efficient administration of Federal awards.
2 CFR Part 225, Appendix A, Section A.2.a. (Emphasis added). Additionally, Federal agencies are encouraged to "work with States or localities which wish to test alternative mechanisms for paying costs for administering Federal programs." 2 CFR Part 225, Appendix A, Section A.2.b. (Emphasis added).
Page 115 of 123 Ms. Sarah Green March 1, 2021 Page 4
Further, Circular A-87 establishes certain basic guidelines in determining whether costs are allowable under Federal awards. In relevant part, those basic guidelines are:
1. The costs must be necessary and reasonable for proper and efficient performance and administration of Federal awards.
2. The costs must be authorized or not prohibited under State or local laws or regulations.
3. The costs must conform to any limitations or exclusions set forth in the principles of Circular A-87, Federal laws, terms and conditions of the Federal award, or other governing regulations as to types or amounts of cost items.
4. The cost must be consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the governmental unit.
2 CFR Part 225, Appendix A, Section C.1. (Emphasis added). In determining the reasonableness of a cost, Circular A-87 states that a cost is reasonable if, "in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost." 2 CFR Part 225, Appendix A, Section C.2; see also Implementation Guide (ASMB C-10), Part 2, Section 2.8.1.
Similarly, the Implementation Guide states that a cost must be "consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the government unit." Implementation Guide, Part 2, Section 2.8.3 (emphasis added). Further, the governmental unit must "administer Federal funds properly and in a manner consistent with the sound management practices that apply to their own revenue." Implementation Guide, Part 2, Section 2.2.
C. The Implementation Guide, Part 3, Questions and Answers (excerpts)
3-8 Circular A-87 states that pension contributions by a governmental unit in excess of the actuarially determined amount for a fiscal year may be used as the governmental unit's contribution in future periods. Does this mean that the excess amount is not allowable in the year contributed, but may be allowed or recognized in future periods? If so, how should the unallowable amount be calculated? [Att. B, ¶ 11.e]
The maximum amount allowed for pension costs in a given fiscal year would be the amount actually contributed, based on the amount determined for that fiscal year under an acceptable actuarial system that has been used by the government in its financial statements. Any amount exceeding this determination would be unallowable in the year funded but would be considered a prepaid contribution that can be used in whole or in part by the government in a future period when its
Page 116 of 123 Ms. Sarah Green March 1, 2021 Page 5
contribution is less than the actuarially determined amount for that period. The amount allowed in this later period would reflect the amount prepaid, plus interest earnings on that amount, as computed based on the assumed interest rate used by the actuary in its determinations.
(Emphasis added).
D. Cost Allocation Services ("CAS") Best Practices Manual
The Cost Allocation Services ("CAS") Best Practices Manual For Reviewing State and Local Governments State/Local-Wide Central Service Cost Allocation Plans And Indirect Cost Rate Proposals (August 2017) ("Manual") assists CAS staff "in reviewing and negotiating state/local-wide central service cost allocation plans and indirect cost rates for state, local and Indian tribal governments." Manual, I-1.
The Manual instructs the staff to "[r]eview the expenditure amounts to ensure that unallowable costs are excluded and that remaining costs meet the Cost Principle requirements." In addition, the Manual provides as follows:
B. REVIEW OF COST ALLOWABILITY
To be allowable, costs must (a) be necessary and reasonable for the performance of Federal awards and be allocable thereto under the Cost Principles, (b) conform to any limitations or exclusions set forth in the Cost Principles, (c) be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity, (d) be accorded consistent treatment, and (e) be adequately documented. The steps set forth in this section are designed to help ensure that the criteria for cost allowability are met.
Manual, IV-6.
III. ANALYSIS REGARDING HB 2293
Requiring the federally funded positions to contribute an amount in excess of nonfederally funded grant positions will raise concerns under the federal grant program. This issue will likely arise when the federal government reviews the State’s Statewide Cost Allocation Plan (“SWCAP”). Specifically, and as set forth above, the funding requirements for federal grant positions must be applied uniformly and consistently with the federal funding requirements for nonfederally supported positions.
The uniformity position has been a longstanding requirement and confirmed by decisions from the Department of Health and Human Services. For example, in Indiana Public Employee's Retirement Fund, DAB No. 314 (1982), the State increased all employer contributions. However, the federal program was increased at an actuarially computed rate, while the state employers were
Page 117 of 123 Ms. Sarah Green March 1, 2021 Page 6 increased at a rate determined by the legislature. The Federal government sought to recover the difference. The appeals board found that the difference between the state contribution rate and the Federal contribution rate was not a proper cost allocation. See also Rhode Island, Decision No. 29 (1976) (finding that requiring the federal government to fund the full actuarial contribution amount, but providing for a partial funding by state employers violated the consistency principle for state and federal contributions).
Thus, we strongly recommend that any amendment not create a disparity between the amount paid on behalf of federally funded positions and the amount paid by the State or on behalf of nonfederally funded positions.
We hope this is helpful as you consider HB 2293. If can provide any additional information, please do not hesitate to let us know.
Very truly yours,
ICE MILLER LLP
Audra Ferguson Allen
Robert L. Gauss
Page 118 of 123 Mii
February 26. 2021
The Honorable Dustin Roberts Oklahoma State Representative. District 21 2300 North Lincoln Boulevard. Room 456 Oklahoma City. OK 73105
Re: Attorney General Opinion Request No. V-30
Dear Representative Roberts:
I am writing in response to your request for an official Attorney General Opinion in which you ask, in effect, the following question:
If a public school teacher’s salary is paid with funds donated by a federally- recognized Indian nation, what is the public school’s required contribution to the Oklahoma Teachers’ Retirement System with respect to that teacher?
I am responding to our reqctest by letter rather than official Attorney General Opinion because the answer is relatively straightforward—as dictated by the statutes governing the Oklahoma Teachers’ Retirement System—and therefore does not require extended legal analysis. Moreover, we cannot provide a concrete answer as to an individual teacher or program because such an answer requires a level of fact-finding that is not appropriate in the context of an Attorney General Opinion. By statute, opinions of the Attorney General may be furnished only as to “questions of law.” 74 O.S.Scipp.2020, § 18b(A)(5). (1$).
BACKGROUND
The Oklahoma Teachers’ Retirement System (“OTRS” or the “System”) was established “for the purpose of providing retirement allowances and other benefits ... for teachers of the State of Oklahoma.” 70 0.5.2011. § 17-102. OTRS is managed by a Board of Trustees (the “Board”), which is responsible for investing and safeguarding System funds for the purpose of “providing benefits to participants and their beneficiaries” and “defraying reasonable expenses of administering the System[.]” 70 O.S.Sctpp.2020, §17-106.1(A): see genercdly Id. § 17-102 (“The Board . . . shall have the power and privileges of a corporation ... and by such name all of its business shall be transacted. all of its funds invested, and all of its cash and securities and other property held in trust for the purpose for which received.”).
313 N.E. 21s1 STREET • OKLAHOMA Cm’, OK 73105 (405) 521-3921 • FAx: (405) 521-6246
recycledpaper Page 119 of 123 Among other sources of revenue, the System is ftinded by contributions from its members’ and their employers.2 See 70 O.S.Supp.2020, § 17-108.1. 17-116.2. The contributions are deposited in the Oklahoma Teachers’ Retirement Fund, from which member benefits are paid. Id. § 17-106.3.
There are three statutory provisions that govern OTRS contributions. first, OTRS members contribute 7% of their regular annual compensation4 subject to certain maximum limits. 70 O.S.Supp.2020, § 17-116.2(B)(3). Second, OTRS employers contribute 9.5% of a member’s
regular annual compensation, again subject to certain maximum limits. Id. § 17—102.1(A)( I)(l). As I understand your question, there is no dispute or perceived ambiguity as to these requirements.
Yocirquestion involves the third category of contributions. which are implicated when a member’s salary is paid through grants from or agreements with a third party. These contributions are also the responsibility of the employer, as set forth in Section 17-108 of Title 70:
A. Each [OTRS employer] shall match on a pro rata basis, in accordance with subsection B of this section the contributions of members whose salaries are paid by federal funds or externally sponsored agreements such as grants. contracts and cooperative agreements. These funds shall be remitted at the same time as the regular contribLitions of members are remitted to [OTRS] and deposited in the Retirement Benefit fund.
B. On an annual basis, the Board of Trustees s/iciiiset the contribution rctte to be paid by contributing employers as provided by subsection A of this section. The contribution rate shall be determined using cost principles established by federal regulations and shalt be consistent with policies, regulations. and procedures that apply uniformly to both federally assisted and other activities. and be accorded consistent treatment through application of generally accepted accounting principles. The Board shall approve the contribution rate for each
fiscal ear ending .]une 30. no later than April 1 of the previous tiscal year.
70 O.S.201 1, § 17-102 (emphasis added). The Board has set the contribution rate under Section 17-108 for fiscal year 2021 at 7.7% of applicable payroll. See TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA, Actuarial Va/na/ion Report as o/June 30, 2020, at 2 (Oct. 21, 2020).
For tile purposes of your question, it is sufficient to note that public school teachers are OTRS members. 70 O.S.Supp.2020, 17-101(6). However, various other school-related personnel may also be members. Id. § 17-103.
2 “Employer’ for OTRS purposes means “the state and any of its designated agents or agencies with responsibility and authority for ptiblic education[.]” 70 O.S.Stipp.2020, § 17-I 01(5).
Non-contribution revenues include a percentage of revenues from state sales taxes, use taxes, and income taxes, which is deposited in the System’s “Dedicated Revenue Revolving Fund,” see 68 O.S.Supp.2020, §S 1353(A)(3), 1403(A)(3), 2352(I)(c), and “used only to fund the [System’s] currently unfunded liability.” 62 O.S.Supp.2020, §34.93(B). A portion of State appropriations from the Oklahoma Education Lottery Trust Fund is also deposited into that fund. See 3A O.S.Supp.2020, § 713(E)(4); OKLi\.CONSI. art. X, § 41(B)(l0). Separately, a portion of revenues from state taxes on tobacco products is deposited in the OTRS Revolving ftind, see 68 O.S.Supp.2020, § 302-5(B)(8), 402-3(B)(8), which is used by the Board to cover “expenses of administration of’ the System. 62 O.S.Stipp.2020. § 158.
Ptit simply, “regular annual compensation” for OTRS purposes essentially means salary, certain deferred compensation, insurance, annclities. and pension plans. See 70 O.S.Supp.2020, § 17-101(25).
Page 120 of 123 Your question involves a scenario where a federally—recognizedIndian nation contributes funding toward the salary of a public school teacher. In that scenario, you ask whether the public school that employs the teacher is responsible for contribctting both 7.7% of the teacher’s regcilar annual compensation under Section 17-108(A) am! the standard 9.5% required by 17-108.1(A).
ANALYSIS
As noted above, the answer to your question is straightforward. When a teacher’s salary is funded by a third-party. Section 17-108 explicitly requires the teacher’s employer to match the employee’s OTRS contributions on a pro rataDbasis as set by the Board. The Board has set the rate for this employer match at 7.7% of the teacher’s regular annual compensation. There is nothing in Section 17-108——orelsewhere in the statutes governing OTRS—to suggest that this contribution is intended to be in lieu of the 9.5% contribution required by 17-108.1(A). Nor is there any suggestion that the 7.7% contribution required by Section 17-108 should operate to otherwise reduce the standard 9.5% contribution. And in the absence of an expression of such intent, each statute must be applied according to its terms. As the Oklahoma Supreme Court has explained:
When the language of the statute is plain, it will be followed without further inquiry. When further inquiry is needed, this court is not free to rewrite the statute. The sole function of the courts—at least where the disposition called for by the text is not absurd—is to enforce the statute according to its terms.
Oklahoma Cit) Zoological Ii. i. State cx rel. Pub. Einp. Relations Bc!..2007 OK 21, 6. 158 P.3d 461. 464 (alterations and quotations omitted). Thus. if the salary of a public school teacher is paid with funds donated by a federally-recognized Indian nation. and those funds are donated pursuant to an “externally sponsored agreement[] such as [a] grant[]. contract[ or] cooperative agreernent[.]” the teacher’s employer must contribute to OTRS both 7.7% of the teacher’s regular annual compensation under Section 17-108(A) ctiiclthe standard 9.5% required by 17-108.1(A).
As you point out in your request, this answer is not altogether intuitive. After all, why should a school be required to pay more money into OTRS for its teachers whose salaries are paid with outside funding than it would for its teachers with traditional salaries? The answer appears to lie in the manner in which the System’s pension obligations are funded. In a 1979 Attorney General Opinion, which involved a prior version of Section 17-108 that applied only to federally-funded positions, this office explained as follows:
As to the employees paid with federally oriented funds, they present an added burden on the State’s retirement system in that they have become additional members thereof as a result of funds derived from a source external to the State. Therefore. in order to partially fund the additional deficit in the retirement fund that their membership has generated, the matching provision was enacted which requires the incoming revenue from external sources to pay its fair share of the additional funds required to operate the system over and above what is contributed by system members.
When interpreting a statute, its words “are to be understood in their ordinary sense, except when a contrary ntention plainly appears.” 25 0.5,2011, 1. The term “pro rata” is commonly understood to mean “proportionately according to an exactly calculable factor.” Pro rota. MERRIAI\1-WEBSTER,www.merriam-webster.com.
Page 121 of 123 1979 OK AG 169, ¶ 4. Thus, it appears that as an actuarial matter, the purpose of the additional contribution required by Section 17-108 is to account for potential shortfalls in the Systems funding that can arise from introducing new members whose compensation is not derived from traditional State sources.
In 2001, Section 17-108 was expanded to apply to all external funding of member positions—not just federally-funded positions—and to require the Board to set the rate of employer match. See 1999 Okia. Sess. Laws. ch. 402. Mv understanding is that, since that time, the Board has interpreted Section 17-108 consistent with the view set forth herein, and its interpretation is likely to be found persuasive. See Oral Roberts Ciiv. v. Oklahoma Tax Comm a. 1985 OK 97. ¶ 10. 714 P.2d 1013,
1015 (“It is a well settled rule that the contemporaneous construction of a statute by those charged with its execution and application, especially when it has long prevailed, while not controlling, is entitled to great weight[.]” (quoting licCain i’. State Etection 3d., 1930 OK 323, 289 P. 759)).
In sum. it is my opinion that if a public school employs a teacher whose salary is paid with funds donated by a federally-recognized Indian tribe pursuant to an “externally sponsored agreement.” that school must contribute to OTRS both 7.7% of the teacher’s regular annual compensation under
Section 17-108(A) and the standard 9.5% required by 17-108.1(A). 1would like to be clear that the legal analysis and conclusions reached in this letter are my own and not a formal opinion of the Attorney General. If you have any questions or concerns regarding the foregoing. please do not hesitate to contact me.
ZrlJ.
ETHAN SHANER DEPUTY GENERAL COUNSEL
Page 122 of 123 M E M O R A N D U M
TO: The Board of Trustees of TRS
FROM: Tom Spencer, Executive Director
DATE: March 29, 2020
RE: Periodic Report for February 23, 2021 through March 29, 2021 ------Here are a few of the highlights of my activities since my last report to the Board at the November meeting.
1. Investments (Office Building) As we emerge from our pandemic year, the Harvey Parkway building has become an appealing property for tenants. A law firm has signed a lease for the other half of the 2nd floor. We also have a very good lead with a technology company that we hope will bear fruit, for part of the 6th floor.
2. Personnel - We had an unexpected resignation in our Information Center and we already had a couple of vacancies. With a couple of new hires, we are close to being fully staffed. It was unfortunate timing as this is a very busy time of year for the entire Client Services staff and the Information Center. The person who resigned has filed for unemployment which we are contesting.
3. Legislation – I will not repeat what Haley has reported on. So far, we are having an effective session with the most problematic bills not being heard in their house of origin and are dead. We still have one pesky bill (HB 2293) dealing with federal and grant matching contributions that could cost us about $28 million or so every year going forward if it passes. I like our chances of stopping the bill in the Senate or obtaining a veto if it passes. Senate Bill 683 is interesting. It isn’t our bill, but we’ve been heavily involved. It is now really a cleanup bill of the “optional membership” of nonclassified employees. For some reason the Legislative Actuary believed this to be a fiscal impact bill. I communicated with the actuary at length and was able to talk him into changing his mind. It passed out of the Senate committee with only one “no” vote. When it wasn’t getting scheduled for a floor vote, I started making some phone calls and apparently some of the Senate staff were questioning the Legislative Actuary’s change of heart. So I ended up talking to President Pro-tem Greg Treat and explained to him why it wasn’t a fiscal impact bill. It got schedule and passed the full Senate.
4. Exec. Search Firm RFP – We’ve covered this but got the RFP distributed. Only one proposal but it looks like some firms aren’t interested in getting this type of engagement since it isn’t as high paying.
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