Board Special Meeting
Schedule Wednesday, June 2, 2021, 8:30 AM
Venue Virtual Meeting will be held in compliance with Open Meetings Act as amended by SB 1031 - 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 videoconfernce: Chairman Vernon Florence; Vice Chair Roger Gaddis; 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; Marla Tharp; Drew Williamson; Dr. Greg Winters. Also, TRS Staff Tom Spencer; Sarah Green; John Santos; Phyllis Bennett. Meeting materials will be available June 2 at https://www.ok.gov/TRS/About_Us/Board_Information/ Meeting_ 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. Call to Order
2. Roll Call for Quorum
3. Discussion and Possible Action to Recognize Service of Trustee Judie Harris
3-Honoring.Judie.Harris.pdf 1
4. Discussion and Possible Action on Approval of Minutes: a. March 31, 2021, Board Special Meeting b. April 27, 2021, Board Special Meeting 4a-2021-March31-BdSpecialMtg-Mins-final.docx 2 4b-2021-April27-BdSpecialMtg-Mins-final.pdf 10
5. Discussion and Possible Action on Annual Review and Adoption of Investment Plan Pursuant to 70 O.S. 17-106.1(G)
5-TRSOK.IPS-Draft-05.26.2021.pdf 13
6. Discussion and Possible Action on Commitment of $100 Million to FCP Fund V
6a-Follow-on fund FCP V (002).pptx 44 6c-AndCo-FCPFundV-Recommendation-MayBdRpt.pdf 46
7. Governance Committee: Discussion and Possible Action on Review of Chapter 10 - Travel Expense Policy
7-Travel.Expense.Policy.pdf 48
8. Nominating Committee: Discussion and Possible Action to Elect Board Officers a. Chair b. Vice Chair c. Secretary
8-Election.of.Officers.Policy.pdf 50
9. Executive Search Committee: Discussion and Possible Action to Adopt Job Description for Executive Director
9-ExecDir-PositionSpecifications-EFL.pdf 51
10. Discussion and Possible Action on FY 2022 Budget Work Program
10-FY22BudgetWorksDocuments.pdf 59 11. Audit Committee Discussion and Possible Action on Stinnett & Associates Reports a. FY 2021 Audit Plan Status and Budget Update Including Possible Addition to Budget for Added Audit Work b. Retirement Benefit Payments Review
11-AuditCommitteePacket.A&B.pdf 66
12. Discussion and Possible Action to Appoint an Acting Executive Director Effective July 1, 2021, and Set Salary for Position
12.Succession Policy.docx 73
13. Discussion and Possible Action on Renewal of Investment Manager Contracts for FY 2022: a. AEW – Core Real Estate b. Allianz Global Investors U.S. LLC – International Equity c. Causeway Capital Management LLC – International Equity d. Frontier Capital – Domestic Small Cap Equity e. Geneva Capital – Domestic Small Cap f. Heitman America Real Estate Trust, LP – Core Real Estate g. Hoisington Investment Management Company – Domestic Fixed Income h. Hotchis & Wiley – Domestic Mid Cap i. L&B Realty – Core Real Estate and Non-Core Real Estate – Golden Driller j. Loomis Sayles – Core Plus Extended Fixed Income k. Lord Abbett – Core Plus Extended Fixed Income l. MacKay Shields – Core Plus Extended Fixed Income m. Neumeier Poma – Domestic Small Cap Equity n. Northern Trust – Index - Russell 1000, Sci-Beta Multi-Factor & Mid Cap Equity Indices o. Shapiro Capital Management – Domestic Small Cap Equity p. State Street Global Advisors – Emerging Markets Small Cap Equity q. Wasatch – Domestic Small Cap & International Small Cap r. Wellington Management Company, LLP – Domestic Mid Cap, International Small Cap & International Large Cap
14. Discussion and Possible Action on Renewal of Contracts for FY 2022: a. Attorney General's Office - Legal Services b. Eide Bailly - External Auditing Services c. Gabriel Roeder Smith - Actuarial Services d. Gay Tudor - Administrative Law Judge Services e. Ice Miller - Legal Services f. Phillips Murrah - Legal Services g. MY Consulting Group - Statement of Work for Software Development & Support h. Northern Trust - Custody, Security Lending, Commission Recapture, Valuation, Transition Management Services i. Price Edwards & Company - Real Estate Management j. Schmook Appraisal - Real Estate Appraisal Services k. Stinnett & Associates, LLC - Internal Auditing of Business Processes l. Drs. Jay, Osborne and Livingston - Medical Board Member Services
15. Discussion and Possible Action on Recommendation on Emergency Rules 715:10-1-4 [AMENDED]; 715:10-5-9 [AMENDED]; 715:10-5-38 [NEW]; 715:10-11-2 [AMENDED]; 715:10-11-4 [AMENDED]; 715:10-13-8 [AMENDED]; 715:10-17-15 [AMENDED] a. Open rulemaking record and adopt rule drafts b. Issue Rule Impact Statement c. Affirm finding of emergency and adopt final rules
15-2021-Emer.Rules-Ch.10-RIS.docx 74
16. Questions and Comments from Trustees
17. Adjournment
301 NW 63rd St., Suite 500, Oklahoma City, OK RESOLUTION HONORING THE SERVICE OF
JUDIE HARRIS
WHEREAS, Judie Harris served as a member of the Board of Trustees of the Teachers’
Retirement System of Oklahoma from July 2014, through May 2021, distinguishing herself as a devoted member of the Audit Committee; and
WHEREAS, Judie Harris served the People of Oklahoma, the Teachers’ Retirement
System, and the Francis Tuttle Vo-Tech schools with great expertise during her tenure; and
WHEREAS, Judie Harris had a phenomenal attendance record attending 94% of the Board meetings during her tenure on the Board from June 2014 to May 2021;
WHEREAS, Through the guidance and knowledge of this dedicated woman, the general welfare of all was advanced; therefore be it
RESOLVED, That the Board of Trustees of the Teachers’ Retirement System of Oklahoma, in a formal meeting herein assembled, extends its appreciation to Judie Harris for her many excellent contributions made for the people of Oklahoma and for the advancement and growth of the Retirement System and vital management of its funds; and
RESOLVED, That a copy of this Resolution be forwarded to Judie Harris and that this
Resolution be placed in the official files of the Board of Trustees as a permanent public record of the great state of Oklahoma, as a tribute to this distinguished public servant.
ADOPTED BY THE BOARD OF TRUSTEES OF THE TEACHERS’ RETIREMENT SYSTEM
OF OKLAHOMA, THIS 26th DAY OF May, 2021.
______Vernon Florence, Chairman
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MEETING MINUTES March 31, 3021 BOARD OF TRUSTEES SPECIAL MEETING TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA
A special meeting of the Board of Trustees of the Teachers’ Retirement System of Oklahoma was called to order by Vernon Florence, Chairman, at 9:00 a.m. March 31, 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 Steve Massey* Roger Gaddis, Vice-Chairman Brandon Meyer Judie Harris, Secretary* Chris Rector Tim Allen Mathangi Shankar Rod Boles Stephen Streeter Lisa Henderson Drew Williamson* Mike Kellogg Greg Winters Brandy Manek*
TRUSTEES ABSENT: None
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
OTHERS PRESENT: Doug Anderson, AndCo Consulting Josh Brock, Epic Charter Schools Peter Brown, AndCo Consulting Bart Banfield, Epic Charter Schools Hilaire Johnson, Stinnett & Associates Bill Hickman, Epic Charter Schools Kevin Wright, Stinnett & Associates Jeanise Wynn, Epic Charter Schools
* 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. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters. A quorum was present.
ITEM 2 – DISCUSSION AND ACTION ON APPROVAL OF MINUTES FROM THE FEBRUARY 24, 2021, BOARD REGULAR MEETING:
A motion made by Mr. Kellogg with a second made by Mr. Boles to approve the minutes of the February 24, 2021, Board Regular Meeting as presented carried by a unanimous roll call vote. Trustees responding were Mr. 1
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Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters.
Mr. Massey arrived at 9:06 a.m.
ITEM 3 – DISCUSSION AND POSSIBLE ACTION ON INVESTMENT CONSULTANT MONTHLY PERFORMANCE REPORT FOR FEBRUARY 2021: Investment Consultant to the Board Doug Anderson of AndCo Consulting spoke about U.S. markets and reported that the value of TRS’ Total Fund increased almost $400M, to $20.2B, a return of 2.3% for the month. The FY return for the Total Fund was 21.8% vs. 21.2% for the static policy benchmark. He said AndCo is continuing to monitor managers on their watchlist. He reviewed the Asset Allocation Compliance Summary and pointed out that Domestic Equity is nearing maximum allocation. He also reviewed the Financial Reconciliation reports for the Total Fund and Total Alternatives. He explained that Fixed Income was down as interest rates rose. FYTD, the Total Fund was up 21.76%; Total Equity Composite was up 32.96%; Domestic Equity Composite was up 33.77%; and Active Equity Composite was up 49.20%.
Investment Consultant Peter Brown of AndCo Consulting gave a brief summary about the performance of illiquid assets of the portfolio: Fixed Income, Opportunistic Fixed Income and Core Real Estate. He said the economy has begun to recover and the underlying fundamentals of those operations, properties or companies are improving.
ITEM 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
A motion made by Mr. Rector with a second made by Ms. Harris 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, Ms. Henderson, Mr. Kellogg, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters. Chairman Florence recused himself from the Executive Session.
Ms. Manek arrived at 9:47 a.m. and joined the ongoing Executive Session
b. Vote to Return to Open Session
A motion made by Dr. Winters with a second made by Mr. Kellogg to return to Open Session carried by a unanimous roll call vote. Trustees responding were Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Ms. Manek, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters. Chairman Florence abstained.
ITEM 5 – DISCUSSION AND POSSIBLE ACTION ON ITEMS DISCUSSED IN EXECUTIVE SESSION: Dr. Winters said there was no action from the Executive Session.
ITEM 6 – DISCUSSION AND POSSIBLE ACTION ON COMMITTEE REPORTS:
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6.1– AUDIT COMMITTEE Discussion and Possible Action on Stinnett & Associates RFP Audit Report: Audit Committee Chair Dr. Greg Winters said the Audit Committee engaged the services of internal auditors Stinnett & Associates to review all processes of the General Investment Consultant RFP that was approved by the Board February 24. He introduced Hilaire Johnson and Kevin White of Stinnett & Associates who explained that they broke down the policies and RFP requirements into sections for review. Ms. Johnson described their processes in reviewing Board authority, the issuance process, bid responses, opening procedures, the evaluation process and the selection of finalists. Ms. Johnson and Mr. Wright determined the Board has the authority to issue and award this RFP because it meets the appropriate criteria by having approved purchasing policies via the Office of Management and Enterprise Services and having a CPO on staff; the Board approved the Investment Consultant RFP as required by policy; the bid evaluation process was performed and reported to the Board as specified in the TRS Trustee Manual and RFP; TRS complied with the bid opening procedures as specified in the RFP; the bid evaluation process was performed and reported to the Board as specified in the Trustees Policy Manual and the RFP. Regarding the selection of finalists: Ms. Johnson pointed out that Board policy allows four options for the Board. In the February 24 Board meeting, the motion made to reject the staff’s finalists recommendations and have the Board review all of the vendor submissions did not receive a second so it did not pass. Another motion was made to accept the staff’s finalists recommendations and schedule interviews for April. That motion received a second and carried after nine Trustees voted yes, one voted no and one abstained. Ms. Johnson said that process complied with the Board procurement policy. She said Stinnett’s review stopped at this point as the Board is still in the process of awarding this contract. She reiterated that the procedures performed indicate TRS followed Board purchasing policies. Dr. Winters thanked Ms. Johnson and Mr. Wright for the great job they did on the audit and for getting it done and back to the Audit Committee in a tight time frame.
A motion out of the Audit Committee with a second made by Ms. Henderson to accept the RFP review report by Stinnett & Associates carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Ms. Manek, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter and Dr. Winters.
A break was taken from 10:26 to 10:35 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, Ms. Henderson, Mr. Kellogg, Ms. Manek, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Williamson and Dr. Winters. A quorum was present.
6.2 – EXECUTIVE COMMITTEE Discussion and Possible Action on Executive Search Firm Selection: TRS Executive Director Tom Spencer said the Executive Search Firm RFP was approved in the February 24 Board meeting and was issued the following day. The RFP was posted on TRS’ website and sent to 11 firms. Ultimately, only EFL Associates responded. Mr. Spencer reviewed responses from EFL’s references, shared some information about the firm and the time frame related to a search, and said the estimated cost of the contract will be $56,900. He recommended awarding the contract to EFL Associates subject to successful contract negotiations.
A motion made by Dr. Winters with a second made by Mr. Kellogg to select EFL Associates as the executive search firm for the purpose of hiring an executive director carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Ms. Manek, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter and Dr. Winters.
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Chairman Florence said Trustees might hear from EFL during the search process which will take several months to complete.
The next item was taken out of sequence.
ITEM 8 – DISCUSSION AND POSSIBLE ACTION ON STAFF RECOMMENDATIONS ON PROPOSED LEGISLATION FOR THE 2021 SESSION: TRS Legislative and Policy Director Haley Drusen said the Legislature’s first deadline of March 11 drastically reduced the number of bills TRS is following she reviewed bills of interest to TRS: • HB 2293, on employer contributions and grants, aims to eliminate TRS’ contributions from external grants. While the proposed language would limit it to external grants, treating federal funds differently and charging them a matching contribution when not charging it to other non-public funds violates federal government regulations. Failure to treat federal funds appropriately could result in the federal government coming back even years later and clawing back those funds. As part of the process for evaluating the effect of this bill, TRS received an opinion from its tax counsel indicating that they also found an issue with the proposed differing treatment of federal funds. That letter can be found on page 113 of this meeting packet. The matching contribution amounted to over $28M last year. This bill passed the House by 51-38 and has been assigned to the Senate Retirement and Insurance Committee. Ms. Drusen said she, Mr. Spencer and Ms. Green have met with nine senators regarding this bill and are bringing the fiscal impact to the attention of different senators. This bill resulted from tribes funds donating to a few school districts in southeastern Oklahoma for a reading program. Rep. Dustin Roberts sought an AG opinion hoping to get an answer that would exempt those tribal funds from the matching contribution. The AG issued him a letter but refused to issue an opinion because the AG said the statute is clear. The letter confirmed that TRS was treating tribal funds appropriately and that they were subject to the matching contribution. That letter can be found in on page 119 of this meeting packet. • SB 922 creates Invest in Oklahoma Fund, a program that provides opportunities to invest in Oklahoma- based venture capitals. As written, the act would permit, but not require, TRS to invest no more than 5% of its rolling three-year assets into the fund. It passed the Senate and was introduced in the House. • SB 683 would allow optional personnel to join the System upon employment rather than waiting a year. TRS would need to update plan provisions to comply with current IRS guidelines because certain provisions applicable to our optional personnel, specifically the ability to opt in and opt out upon occasion were against federal regulations and had been grandfathered. In updating that, it would require non-classified personnel, such as cooks or janitors who work more than 20 hours a week, to make an election to participate in TRS within the first 30 days of employment. That election cannot be changed. The bill passed the Senate 41-1 and was assigned to the House committee on Banking and Financial Services. It passed that committee 7 – 0 and will be on House General Orders soon. • SB 267 would allow certain TRS members to return to employment at full salary while receiving retirement benefits. It would only effect individuals who retired before July 2020. It passed the Senate and was assigned the House Committee on Banking and Financial Services. • SB 2 clarifies and expands the duties of the School Finance Review Commission, to include a review of teacher compensation and benefits. This will not require changes in TRS rules, regulations or operations. It passed the Senate and was assigned to the House Committee on Common Education. • HB 2046 would permit higher education funding districts to raise ad valorem taxes and to get millage to pay for retirement benefits among other things. This does not directly impact TRS’ operations
Three bills were sent to the actuary and will come back to the Legislature next year:
• HB 2686 would change the minimum vesting in TRS to 5 years of employment. 4
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• SB 933 would provide three years’ worth of retirement credit to teachers who taught on school property for 130 hours in the 2020-2021 school year. • SB 934 would grant a 2% increase in benefits on July 1, 2022, to TRS retirees receiving benefits as of June 30, 2021, and who continue to receive benefits after July 1, 2022. If unfunded, this will would impact the System’s funding ratio.
Ms. Drusen pointed out that here reports includes information on 18 bills relating to other retirement systems that Trustees can review on their own. No action was required.
Ms. Harris left at 11 a.m.
6.3 – GOVERNANCE COMMITTEE: Discussion and Possible Action on Review of Chapters 4 and 6 of the Board of Trustees Policy Manual: Governance Committee Chair Michael Kellogg announced that TRS General Counsel Sarah Green would present proposed revisions to the policy manual. Ms. Green said Board policy requires a review of Chapters 4 and 6 of the Board of Trustees Policy Manual the first quarter of 2021. She reminded the Board that the review process involves her, as General Counsel to the Board of Trustees, and the Governance Committee. She shared her screen to review the proposed amendments. In Chapter 4, the terms Board and Members were changed to Trustees for accuracy and consistency. Under Vendor Responsibilities, language was proposed to be consistent with the Oklahoma Ethics Commission rules. In Chapter 6, the chapter on Ethical and Fiduciary Conduct, language was proposed to be in accordance with the Section 401A of the Internal Revenue Code and Oklahoma Ethics Commission Rules. In the section regarding gifts, gratuities and meals for staff, Ms. Green reviewed some substantive proposed changes and additions and stated the Ethics Commission prohibits any sort of gift, gratuity or meal from a vendor while engaged in the solicitation process. In reply to Mr. Gaddis’ comment about convenience of meals during busy due diligence trips, Ms. Green said she can look into asking the Legislature to grant an exception to Ethics Commission rules for TRS if the Board is interested. Other language was added to explain what vendors may give Trustees or staff.
A motion made by Mr. Kellogg with a second made by Mr. Streeter to accept the proposed amendments to Chapters 4 and 6 of the Board of Trustees Policy Manual carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Ms. Manek, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters.
ITEM 7 - DISCUSSION AND POSSIBLE ACTION ON EPIC CHARTER SCHOOLS BLENDED LEARNING CENTERS APPLICATION FOR TRS MEMBERSHIP: Ms. Green reviewed details of her memo on this item: Epic One-on-One has been a member of TRS since 2012. In 2017, Epic Blended applied for TRS membership but the request was tabled by the Board of Trustees based on late reporting of the employment year-end report, outstanding late fee issues, and enrollment of certain employees into TRS including then- superintendent David Chaney. Since then, the State Auditor and Inspector conducted an audit of Epic Charter Schools. The State Auditor issued a report in October 2020 and made some additional findings relative to TRS, specifically the State Auditor requested TRS do an internal review of payroll issues to determine if Epic was appropriately reporting employee salaries and remitting contributions to TRS, and the State Auditor also recommended that Epic One-on-One and Epic Charter report to TRS separately as they are two separate school districts with separate charters. Since the issuance of that report over the past six months, TRS has been working with Epic to resolve the issues from 2017, issues in Part 1 of the audit report, and issues TRS added looking into preparation for Epic Blended Charter’s application into TRS membership. Ms. Green reviewed the added issues and said they have been resolved and the SAI recommended Blended Learning Charter be admitted into TRS which will provide more oversight and cleaner reporting to TRS. Chairman Florence 5
Page 6 of 80 repeated some of Ms. Green’s report for clarification and stated that the State Auditor and Ms. Green are satisfied with this and TRS is for the benefit of teachers.
Mr. Williamson left at 11:17 a.m.
A motion made by Mr. Meyer with a second made by Ms. Manek to admit Epic Blended Charter Schools into TRS membership carried by a unanimous roll call vote. Trustees responding were Mr. Florence, Mr. Gaddis, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Ms. Manek, Mr. Meyer, Mr. Rector, Ms. Shankar, Mr. Streeter and Dr. Winters.
Chairman Florence thanked Ms. Green for her hours of work on this item.
ITEM 9 - DISCUSSION AND POSSIBLE ACTION ON AGENCY REPORTS: 9.1 – TRS Client Services Director Dixie Moody reported February metrics: Client Services received about 500 new estimate requests as a result of members preparing for June and July retirements. The Information Center received 15,000 calls, which is extremely high. Around 47% of those calls were answered by an Information Center agent; about 40%, or 6,000, opted to go through menu options; and about 500 callers abandoned their call after waiting close to a minute, and over 1,500 callers abandoned their call after hearing the recorded greeting. This high call volume is a result of TRS sending out member statements for the first time in many years. We received 709 emails, which is quite a bit more than usual. We had 758 members log in to the portal for the first time. There were 84 members retiring March 1, 2021, up from 55 last year. Of the three disability retirements, two were approved by the Social Security Administration and one by TRS’ Medical Board. There were 200 annuities terminated due to death.
Dr. Winters lauded Ms. Moody for her work and follow-up with members’ issues. Chairman Florence agreed and said that other staff members do a great job too.
9.2 – TRS Human Resources Director Kim Bold reported one change in February, the resignation of a retirement planning consultant. Ms. Bold was able to find a replacement quickly by looking at a recent pool of applicants. She announced that TRS’ Chief Financial Officer Sam Moore announced he will resign in the near future.
Chairman Florence said Ms. Bold does a great job in her position.
9.3 – Finance: TRS CFO Sam Moore said when the Employer Report was generated, one report was past due, but it has since been submitted. He shared the Balance Sheet for February and said probably for the first time the Total Assets were over $20B, an increase of about $406M from January. On the Statement of Revenues, Expenditures for the eight months ending February 28, Mr. Moore pointed out Dedicated Revenue was down - 18% due to getting 3.5% in taxes instead of 5%. Retirement Benefits were up about 6%, which is probably a reflection of the COLA. Investment Expense is down 45%, due to about $10M that would have been paid February 28 but was delayed to March 1. On the Comparison of Actual-to-Actual Expenditures for FY 2020 through FY 2021, he pointed out that the increase showing on the Consultant Expenses line is due to one extra payment being made in 2021, and on the Postage line is down because the $75K paid for postage in 2019 has not been used up, it is paid as needed. On the Comparison of Budget-to-Actual report, the difference in Salaries is due to unfilled vacancies. In Professional Services under Data Processing, TRS had budgeted for a new pension administration system but that money has not been spent. The last pages of his report were claims for expenditures for February.
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Mr. Moore said he has enjoyed working at TRS, it’s a great group. He added that he will be around TRS to work with Mr. Spencer on the budget and will be available if needed.
In reply to a question by Mr. Allen about the Dedicated Revenue, Mr. Spencer said it was cut for FY 2021 and FY 2022. Mr. Moore added that TRS collected the 5% amount for at least two months of FY 2021.
Chairman Florence said the Board greatly appreciates Mr. Moore’s work and he knows he’ll have a great retirement. Mr. Streeter also thanked Mr. Moore.
9.4 – TRS Deputy Director of Operations John Santos reviewed issues he has been working on: • Working with Stinnett & Associates on five audit projects simultaneously. This involves multiple departments and employees providing information, conducting meetings and responding to follow-up questions. • Work continues with Adobe, OMES and marketing vendor Ghost on TRS’ new website that went live in December. Some errors were found and fixed. The main goal is to improve the user experience. • PeopleSoft, the State of Oklahoma’s HCM (Human Capital Management) software, will be replaced with Workday in 2022. There was a demonstration on one feature and TRS is exploring options regarding automating its systems. • Regarding the Member Portal: TRS got over 2,000 new registered users between March 1 and March 24, more than double from January and February combined. Working with MyConsulting Group and OMES helped resolve some of the portal’s performance issues. • The spike in call volume resulted in analyzing call routing options and other opportunities for improvements. An OMES specialist will help with this ongoing project.
Chairman Florence thanked Mr. Santos for his report and said he does great work.
9.5 – TRS General Counsel Ms. Green updated the Board on projects she has been working on: • Harvey Parkway Building: a. All rents are current through March. b. A new tenant will move in May 1 and occupy half of the second floor. c. A prospective tenant for part of the 6th floor has a lease date of June 1. • Legislation: a. Ms. Green reviewed a circular with talking points about HB 2293 that is being shared with senators. She said the opinion from Ice Miller about this bill is also in this packet. b. Working with OSSBA on SB 683, the bill to remove the one-year waiting period for non-classified, optional personnel to join TRS. • Miscellaneous: a. The AG opinion on Federal and External Grant Matching that was requested in 2019 was received and is included in this packet. b. Conducting reference checks for the three investment consultant finalists. c. Ongoing work on the General Investment Consultant RFP audit. d. Working on the executive search firm RFP. e. Considered a proposal to be lead plaintiff in securities litigation of an oil and gas firm, but it was decided it would not be in TRS’ best interest at this time to get involved on that level. That doesn’t preclude TRS from being in the class action lawsuit if it proceeds.
Chairman Florence thanked Ms. Green for her good work.
9.6 – TRS Executive Director Tom Spencer said March was a challenging month but he stayed in touch with his senior team and has been engaged in the legislative process. He shared some of his activities from February 23 through March 29 26, 2021: • The office building: Mr. Spencer said he and Ms. Green work closely on building matters; she’s involved with the leasing and both are involved with terms of the leases. He said TRS is making a lot of 7
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progress with the law firm moving into an office on 2, and if the prospect for the 6th floor pans out, the building is nearing 80% occupancy. • Personnel: As Ms. Bold mentioned, TRS had an unexpected vacancy, which is bad timing because the phones have been ringing off the wall the last couple of months. Even though the position was quickly filled, it takes a lot of training to help members. • Legislation: Mr. Spencer spent a lot of time on legislation on the phone. In one instance he helped the legislative actuary understand that SB 683 has no fiscal impact. That bill is a good opportunity to clean up optional membership for nonclassified employees. • Executive Search Firm RFP: Though TRS received only one proposal it is from a top firm in the country that will make a difference in the field of people the Board can choose from.
ITEM 10 – QUESTIONS AND COMMENTS FROM TRUSTEES: Chairman Florence reminded Trustees that there will no Investment Committee meeting in April, instead there will be a Special meeting April 27 for all Board members to interview investment consultant finalists, and the Regular meeting will be April 28 as scheduled.
Chairman Florence said he appreciates staff and Board members for working through all of these agenda items. He added that TRS has a great responsibility to teachers and he appreciates that the staff and the Board take the responsibility to heart.
Mr. Gaddis spoke of his comments in the executive session and said he is disappointed in himself as Investment Committee chair regarding the consultant’s RFP. He said Stinnett’s audit report was well done and administrative I’s were dotted and T’s were crossed, but he believes there was an agenda to replace AndCo, and using the phrase “plans our size” to grade the respondents ultimately removed AndCo from contention for Board interviews, and they should have been given the opportunity to present to the Board and fight for their position. He said he will try to do a better job in the future talking about RFPs beforehand and asking staff and management to share some information with him in more detail. He said he appreciates everybody’s time and effort on this, and it might be good to get it behind us.
Chairman Florence told Mr. Gaddis we appreciate your comments.
ITEM 11 – NEW BUSINESS: There was none.
ITEM 12 – ADJOURNMENT: Chairman Florence declared the meeting adjourned at 11:49 a.m.
By:
______Vernon Florence, Chairman
ATTEST:
By:
______Roger Gaddis, Vice Chairman
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Page 9 of 80 MEETING MINUTES April 27, 2021 BOARD OF TRUSTEES SPECIAL MEETING TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA
A special meeting of the Board of Trustees of the Teachers’ Retirement System of Oklahoma was called to order by Vernon Florence, Chairman, at 1 p.m. April 27, 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 Steve Massey Roger Gaddis, Vice-Chairman Brandon Meyer Judie Harris, Secretary Mathangi Shankar Tim Allen Stephen Streeter Rod Boles Drew Williamson Lisa Henderson* Greg Winters Mike Kellogg*
TRUSTEES ABSENT: Brandy Manek Chris Rector
TRS STAFF PRESENT: Tom Spencer, Executive Director Joe Cappello, Sr. Investment Officer Sarah Green, General Counsel John Reasor, Application Developer Specialist John Santos, Deputy Director of Operations Phyllis Bennett, Executive Assistant Kirk Stebbins, Chief Investment Officer
OTHERS PRESENT: Doug Anderson, AndCo Consulting Christy Fields, Meketa Investment Group Peter Brown, AndCo Consulting Jonathan Camp, Meketa Investment Group Greg Allen, Callan, LLC Steve McCourt, Meketa Investment Group Gordie Weightman, Callan, LLC Lisa Rubin, Meketa Investment Group Alex Ford, Callan, LLC Steve Voss, Aon Investments USA Sweta Vaidya, Callan, LLC Katie Comstock, Aon Investments USA Avery Robinson, Callan, LLC Scott Cooprider, Aon Investments USA Lindsay Jones, Callan, LLC Rishi Delvadia, Aon Investments USA Mary Mustard, Meketa Investment Group Phil Kivarkis, Aon Investments USA Eric White, Meketa Investment Group
* 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. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Meyer, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters. A quorum was present.
ITEM 2 – PRESENTATIONS BY GENERAL INVESTMENT CONSULTANT RFP FINALISTS 1
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Chairman Florence said each finalist would get 45 minutes for their presentation and there would be time for questions after each presentation. He said at the conclusion of the presentations the Board would discuss the finalists and possibly select one firm as TRS’ next General Investment Consultant, but if a decision cannot be made in this meeting, it could be done at tomorrow’s Board Regular meeting.
• 1 p.m. – Callan, LLC Representatives from Callan shared their presentation with information about their firm’s history, team, asset-liability modeling capabilities, portfolio monitoring and reporting, manager search capabilities and research and education. They answered questions about Callan Institute, challenges and positives related to pension funds, and what the assigned consultants will bring to TRS’ Board.
A break was taken from 2 p.m. to 2:26 p.m.
• 2:30 p.m. – Meketa Investment Group, Inc. Representatives from Meketa gave an overview of their firm, including their firm’s history, services, team, research, education and communication. They also talked about portfolio monitoring, report and manager search capabilities, asset allocation and asset-liability modeling capabilities, and fees. They answered questions staff and Trustees about Trustee education, and asset liability studies.
A break was taken from 3:18 p.m. to 3:56 p.m.
• 4 p.m. – Aon Investments USA Inc. Aon’s representatives shared their presentation giving an overview of their firm and team, asset-lability capabilities and investment strategy insights; portfolio monitoring, reporting and manager search capabilities, and experience. There were discussions about hedge funds and leveraging resources from a real estate firm Aon purchased a few years ago.
Mr. Kellogg left at 4:07 p.m.
Ms. Henderson left at 5:07 p.m.
ITEM 3 – DISCUSSION AND POSSIBLE ACTION ON GENERAL INVESTMENT CONSULTANT RFP PRESENTATIONS: Chairman Florence led a discussion about selecting a General Investment Consultant either today or at tomorrow’s Board Regular meeting. He gave his personal choice on the RFP finalists and called on Trustees, and TRS’ Executive Director, General Counsel, Chief Investment Officer and Senior Investment Office to do the same. Participants expressed gratitude for the hard work done by the finalists and gave their thoughts as they shared their choices.
A motion made by Mr. Gaddis with a second by Mr. Streeter to select Aon Investments USA Inc. as General Investment Consultant beginning July 1, 2021, subject to successful contract negotiations, carried by a unanimous roll call vote. Trustees responding yes were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Allen, Mr. Boles, Mr. Meyer, Ms. Shankar, Mr. Streeter, Mr. Williamson and Dr. Winters.
ITEM 4 – QUESTIONS AND COMMENTS FROM TRUSTEES: There were none.
ITEM 12 – ADJOURNMENT: Chairman Florence declared the meeting adjourned at 5:22 p.m.
By: 2
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______Vernon Florence, Chairman
ATTEST:
By:
______Roger Gaddis, Vice Chairman
3
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INVESTMENT POLICY STATEMENT AS OF FEBRUARY MAY 2021
Investment Policy Statement adopted February May 2426,2021 Page 13 of 80
Table of Contents
I. INTRODUCTION AND STATEMENTS OF PURPOSE, PHILOSOPHY AND ETHICS ...... 1 A. Legal Authority and System Description...... 1 B. Statement of Purpose ...... 2 C. Statement of Investment Philosophy ...... 3 D. Statement of Ethical Standards ...... 4 II. STATEMENT OF DUTIES AND RESPONSIBILITIES ...... 5 A. Board of Trustees ...... 5 B. Staff ...... 5 C. Investment Consultant ...... 6 D. Investment Managers ...... 7 E. Custodian ...... 8 F. Securities Lending Agent ...... 9 G. Transition Manager ...... 10 III. PROCEDURES ...... 11 A. Investment Policy Review ...... 11 B. Investment Manager Policy Exceptions ...... 11 C. Third Party Marketing and Referrals Disclosure Policy ...... 11 D. Request for Proposal Policy ...... 12 E. Additional allocations to a previously retained manager: ...... 13 IV. INVESTMENT GOALS AND OBJECTIVES ...... 14 V. INVESTMENT GUIDELINES AND CONSTRAINTS ...... 15 A. Public Market Separate Account Investments ...... 15 B. Private Market Partnership Interests and Commingled Account Investments ...... 19 VI. EVALUATION AND REVIEW ...... 23 A. Investment Staff Reporting Requirements ...... 23 B. Investment Consultant Reporting Requirements ...... 23 C. Investment Manager Reporting Requirements ...... 23 APPENDIX A - PERFORMANCE BENCHMARKS ...... 25 APPENDIX B - STRATEGIC ASSET ALLOCATION ...... 26 APPENDIX C - REBALANCING POLICY ...... 27 APPENDIX D - INVESTMENT MANAGER EXCEPTIONS TO INVESTMENT GUIDELINES ...... 29
Investment Policy Statement adopted February May 2426,2021 Page 14 of 80 I. INTRODUCTION AND STATEMENTS OF PURPOSE, PHILOSOPHY AND ETHICS
The Board of Trustees of the Teachers’ Retirement System of Oklahoma, as the governing body for the System, deems it prudent and necessary to maintain this Investment Policy Statement to act as the principal governing document for the investment of System assets.
A. Legal Authority and System Description
The System is established by statute; the legal authority and description of the System are detailed below.
Constitutional Authority Section 62 of Article 5 of the Oklahoma Constitution was added as a result of the passage of State Question 306 on July 14, 1942. This section reads:
“The Legislature may enact laws to provide for the retirement for meritorious service of teachers and other employees in the public schools, colleges and universities in this State supported wholly or in part by public funds, and may provide for payments to be made and accumulated from public funds, either of the State or of the several school districts. Payments from public funds shall be made in conformity to equality and uniformity within the same classifications according to duration of service and remuneration received during such service.”
Statutory Authority As a result of the passage of State Question 306, the Legislature enacted House Bill 297 in the 1943 legislative session that created the Oklahoma Teachers Retirement System (“System”). The legislation has been changed substantially in the years since its creation and is currently codified in Oklahoma Statutes Title 70, Sections 17-101 et. seq. (NOTE: In the remainder of this document, statutory references will follow the notation O.S. 70 § 17-101 to reference Oklahoma Statutes Title 70, Section 17-101.)
Purpose of System In O.S. 70 § 17-102, paragraph 1 creates the Oklahoma Teachers Retirement System and outlines the purpose of the System as follows: “A retirement system is hereby established and placed under the management of the Board of Trustees for the purpose of providing retirement allowances and other benefits under the provisions of this act for teachers of the State of Oklahoma.” Board of Trustees Powers The second paragraph of O.S. 70 § 17-102 provides the broad terms of the powers entrusted to the Board of Trustees (“Board”): “The Board of Trustees shall have the power and privileges of a corporation and shall be known as the "Board of Trustees of the Teachers' Retirement System of Oklahoma", and by such name all of its business shall be
Investment Policy Statement adopted February May 2426, 2021 Page 1 Page 15 of 80 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.” Further powers vested upon the Board are set forth in O.S. 70 § 17-106, in part: “(1) The general administration and responsibility for the proper operation of the retirement system and for making effective the provisions of the act are hereby vested in a Board of Trustees which shall be known as the Board of Trustees and shall be organized immediately after a majority of the trustees provided for in this section shall have qualified and taken the oath of office.” and: “(9) Subject to the limitations of this act, the Board of Trustees shall, from time to time, establish rules and regulations for the administration of the funds created by this act and for the transaction of its business. Finally, O.S. 70 § 17-106.1, in part, defines the duties of the Board in relation to investment of fund assets: “A. The Board of Trustees of the Teachers’ Retirement System of Oklahoma shall discharge their duties with respect to the System solely in the interest of the participants and beneficiaries and: 1. For the exclusive purpose of: a. providing benefits to participants and their beneficiaries, and b. defraying reasonable expenses of administering the System; 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 such 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; and 4. In accordance with the laws, documents and instruments governing the System.”
B. Statement of Purpose
A primary purpose of this investment policy statement is to guide fiduciaries, including the Board of Trustees, System staff, investment managers, consultants and others responsible for overseeing and investing the assets of the Fund. This policy also communicates foundational tenets underlying its formulation. This policy provides specific guidance regarding investment objectives, asset allocation, risk management and the means by which investment objectives are intended to be achieved. Additional specific guidance is given in defining roles, delegated duties and accountabilities of System fiduciaries as well as setting forth logical, disciplined procedures for making decisions.
Investment Policy Statement adopted February May 2426, 2021 Page 2 Page 16 of 80 C. Statement of Investment Philosophy
Since this policy is a communication tool for System fiduciaries, interested stakeholders as well as other external parties, the Board recognizes that it is important to articulate the underlying beliefs that are foundational in its formulation. Key aspects of the Board’s investment philosophy are summarized in the following statements.
1. The Fund has an infinite time horizon and the assets should be invested and managed accordingly. 2. A central tenet in investing is the tradeoff between risk and return, meaning that the pursuit of higher expected returns is accompanied with higher expected risk. Bearing some degree of investment risk is necessary in the pursuit of investment return objectives.
3. Investment risk comes in many forms. The most common risk is the volatility of periodic returns measured by the statistical term known as standard deviation. Additionally, there are a variety of other risks to be considered. A partial list of these risks would include the risk of permanent loss of capital, the risk of not meeting objectives, illiquidity risk, credit risk, interest rate risk, inflation risk, leverage risk, concentration risk and manager risk. A primary focus of this investment policy is to balance, manage and, to the extent possible, control these various risks. 4. Funds with long term investment horizons are able to pursue higher expected returns associated with higher risk portfolios because they are able to remain invested when periodic declines in market values occur. 5. The Fund will best contribute to the primary goal of providing benefits to participants and their beneficiaries by realizing high risk-adjusted net returns. 6. The Board acknowledges that while other institutions may make investment decisions to pursue various worthy causes that may be admirable in their own right, the Board’s investment decisions are made to achieve the primary goal of providing benefits to participants and their beneficiaries and defraying reasonable expenses. 7. Long-term investing success is best accomplished by adhering to a long-term strategic asset allocation rather than engaging in short term tactical market timing among asset classes. 8. Diversification among asset classes and securities is the primary means of controlling the risk of an investment portfolio. 9. The primary factor determining portfolio risk and return is how the portfolio is allocated among asset classes. 10. The decision-making process for investments should be both disciplined and logical deriving support from current academic theory and the application of rigorous analysis. 11. In less efficient markets where the probabilities of achieving net-of-fee outperformance relative to a passive market index are higher, active management is preferred. In more efficient markets where the probabilities of achieving net-of-fee outperformance relative to a passive market index are lower, low-cost index management is preferred.
Investment Policy Statement adopted February May 2426, 2021 Page 3 Page 17 of 80 12. Certain asset classes are only accessible in the form of private market interests which have very limited liquidity and normally higher costs relative to public market instruments. Investing a portion of the Fund in these illiquid asset classes is reasonable to the extent that they offer some desirable combination of the following relative to available public market asset classes: higher expected net return and/or risk reduction through diversification.
D. Statement of Ethical Standards
The Board of Trustees is committed to maintaining and promoting the highest ethical standards among Board members and among all parties involved in the administration of fund assets. The Board expects all parties involved in the administration of fund assets, including all System fiduciaries, to conduct their activities according to the highest ethical standards adhering likewise to the principles expressed in the Board of Trustee Policy Manual Chapter 5 – Code of Conduct and Chapter 6 – Ethical and Fiduciary Conduct. Given the nature of fund management and investing, particular attention will be given to conflicts of interest. All parties involved in the administration of fund assets should be free of conflicts of interest to avoid even the appearance of not acting in the sole interests of System participants and their beneficiaries. Where any involved party becomes aware of an actual or potential conflict of interest it is their duty to disclose the conflict to the Board so that the Board may assess its seriousness.
Investment Policy Statement adopted February May 2426, 2021 Page 4 Page 18 of 80 II. STATEMENT OF DUTIES AND RESPONSIBILITIES
A. Board of Trustees
The Board of Trustees has the final decision-making authority for the System. The Investment Committee of the Board has the authority to make investment recommendations to the Board. The Board evaluates and decides whether or not to take action on recommendations from the Investment Committee. The Investment Committee’s authority and responsibilities are set forth in the Investment Committee Charter contained in the Board of Trustees Policy Manual.
Trustee duties and responsibilities are listed in summary as follows:
1. Adopt, and when deemed necessary, amend this Investment Policy Statement.
2. Determine delegated duties to be performed by other qualified fiduciaries in order to ensure that the Fund is properly administered and regularly evaluated to assess progress towards achieving established objectives.
3. Receive and evaluate reports, presentations and other materials provided by investment consultant(s), staff, investment managers, and other retained advisors to monitor the administration of Fund assets in accordance with policy objectives and to regularly assess progress towards achieving the goals and objectives defined herein.
4. Select and contract with qualified professional advisory organizations to perform functions deemed necessary by the Board to manage the Fund in accordance with policy. Common professional advisory organizations would include investment consultant(s), investment managers, global custodians and securities lending agents.
5. Evaluating the performance of retained professional advisory organizations and staff to assess fulfillment of duties, achievement of goals and compliance with policy guidelines.
6. Annually conduct a formal review of the performance of Investment Consultant(s), normally to be performed in the month of April.
7. Terminating the contracts with any retained professional advisory organization when deemed necessary.
8. Review all costs of investment operations at least annually.
B. Investment Staff
A summary of the duties and responsibilities of the Investment Staff is as follows:
1. Provide the Board and the Investment Committee with reports, presentations and any other materials to assist them in the fulfillment of their duties and responsibilities. The general content and focus of reporting from Investment Staff is further described in Section VI.
2. Serve as the primary liaison between the Board of Trustees and the investment consultant(s), investment managers, custodian, securities lending agent and transition manager(s).
Investment Policy Statement adopted February May 2426, 2021 Page 5 Page 19 of 80 3. Implement Board decisions regarding asset allocation, investment structure, portfolio rebalancing procedures and retention of investment consultant(s), investment managers, custodian and securities lending agent.
4. Coordinate the search, selection and evaluation processes for investment consultant(s), investment managers, custodian and securities lending agent on behalf of the Board of Trustees.
5. Monitor and review the performance of the total fund, asset class composites, and investment managers to evaluate achievement of objectives and compliance with policy guidelines.
6. Monitor and review all costs of investment operations including, but not limited to, fees paid to investment consultant(s), investment managers, and custodian, as well as portfolio transactions costs.
7. Manage the liquidity in the Total Portfolio as necessary to ensure timely payment of benefit payments, plan expenses and capital calls, etc. consistent with established asset allocation and portfolio rebalancing policies. The raising of cash amounts greater than two months’ worth of benefit payments shall be subject to Board approval.
8. Conduct the search and selection of transition manager(s) in collaboration with the investment consultant(s) as directed by the Board.
9. Conduct due diligence in collaboration with the investment consultant(s) when investment managers fail to meet the expectations of the Board or are formally placed ‘On Alert’ or ‘On Notice’.
10. Research and review innovative investment ideas and concepts in collaboration with the investment consultant(s) in an effort to identify potential modifications to improve the investment portfolio.
11. Monitor the performance of the total fund, asset class composites and investment managers to determine if any issues need to be addressed by the Investment Committee or the Board of Trustees.
C. Investment Consultant
A summary of the duties and responsibilities of the investment consultant(s) retained by the Board is as follows:
1. Acknowledge status as a fiduciary to the System and remain in compliance both with this investment policy and with the current executed contract with the System.
2. Provide the Board and the Investment Committee with reports, presentations and any other materials to assist them in the fulfillment of their duties and responsibilities. The general content and focus of reporting from Investment Consultant is further described in Section VI.
Investment Policy Statement adopted February May 2426, 2021 Page 6 Page 20 of 80 3. Assist the Board in developing and modifying policy objectives and guidelines, including the development of asset allocation strategies, recommendations on long-term asset allocation and the appropriate mix of investment manager styles and strategies.
4. Assist the Board by monitoring compliance with this Investment Policy.
5. Provide assistance in investment performance evaluation, and analysis.
6. Provide assistance in investment manager searches and selection.
7. Provide timely information, written and/or oral, on investment strategies, instruments, managers and other related issues, as requested by the Board.
8. Monitor the System's investment managers and notify the Board and Investment staff of any material changes in the investment managers' organizational structure, their personnel or if there are performance issues.
9. Certify in writing to the Board on an annual basis as of the System’s June 30 fiscal year end, the investment consultant’s compliance with this Policy during the fiscal year period ending June 30.
10. Review with the Investment Staff the status and performance of current investment managers and determine if any issues need to be addressed by the Investment Staff or the Board of Trustees.
11. Provide assistance in the search and selection of transition manager(s) as directed by the Board.
12. Provide assistance in the conduct of due diligence when investment managers fail to meet the expectations of the Board or are placed ‘On Alert’ or ‘On Notice’.
13. Explore, research, analyze and review new investment ideas and managers in collaboration with the Investment Staff in an effort to keep the system current with investment options.
D. Investment Managers
A summary of the duties and responsibilities of each separate account, public markets investment manager retained by the Board is listed below. Commingled account and private market investment managers whose investment activities are governed by subscription agreements or commingled trust documents should adhere to the duties and responsibilities contained herein to the extent possible and to the extent that they are not superseded by, or in conflict with, subscription agreements or commingled trust documents defining the relationship with the System.
1. Acknowledge status as a fiduciary to the System and remain in compliance both with this investment policy and with the current executed contract with the System.
2. Provide the Board, the Investment Committee, the staff and the investment consultant(s) with reports, presentations and any other materials to assist them in the fulfillment of their
Investment Policy Statement adopted February May 2426, 2021 Page 7 Page 21 of 80 duties and responsibilities. The general content and focus of reporting from Investment Managers is further described in Section VI.
3. Manage the Fund’s assets in accordance with the policy guidelines and objectives expressed herein.
4. Prudently select investments based on thorough evaluation of all risks applicable to stated mandate.
5. Work with the custodian and the investment consultant to verify monthly accounting and performance reports.
6. Certify in writing to the Board on an annual basis as of the System’s June 30 fiscal year end, the Investment Manager’s compliance with this Policy during the fiscal year period ending June 30.
7. Act as a fiduciary in adopting and adhering to proxy voting policies, acknowledging that its proxy voting policies may affect the value of their respective portfolio.
8. Seek to obtain best execution in all securities transactions to minimize the costs of trading.
E. Custodian
A summary of the duties and responsibilities of the custodian bank(s) retained by the System is as follows:
1. Acknowledge status as a fiduciary to the System and remain in compliance both with this investment policy and with the current executed contract with the System.
2. Provide the Board, the Investment Committee, the staff and the investment consultant(s) with reports, presentations and any other materials to assist them in the fulfillment of their duties and responsibilities.
3. Accept daily instructions from designated staff.
4. Notify investment managers of proxies, tenders, rights, fractional shares or other dispositions of holdings.
5. Safekeeping of securities.
6. Timely collection of interest and dividends.
7. Daily cash sweep of idle principal and income cash balances.
8. Process and maintain records of all investment manager transactions.
9. Collect proceeds from maturing securities.
10. Disburse all income or principal cash balances as directed.
Investment Policy Statement adopted February May 2426, 2021 Page 8 Page 22 of 80 11. Perform regular reconciliations of holdings and transactions with the System’s retained investment managers on at least a monthly basis.
12. Work with the System’s staff and the investment consultant to ensure accuracy in reporting.
13. Manage and administer the System’s directed brokerage program.
14. Calculate the investment performance of the System’s investment accounts and composites.
15. Providing required reports to assist the System’s staff and vendors with compliance with the Governmental Accounting Standards Board, the Internal Revenue Service, the Securities and Exchange Commission, the Financial Industry Regulatory Authority and other regulatory agencies.
16. Monitor, file and report on securities class action lawsuits and collect and record settlement proceeds.
17. Process and file Foreign Tax Reclaims on behalf of the System.
F. Securities Lending Agent
A summary of the duties and responsibilities of the securities lending agent retained by the System is as follows:
1. Acknowledge status as a fiduciary to the System and remain in compliance both with this investment policy and with the current executed contract with the System.
2. Provide the Board, the Investment Committee, the staff and the investment consultant(s) with reports, presentations and any other materials to assist them in the fulfillment of their duties and responsibilities.
3. Arrange terms and conditions of securities loans.
4. Monitor the market value of the securities lent and mark to market at least daily and ensure that any necessary calls for additional collateral are made and that such collateral is obtained on a timely basis.
5. Direct the investment of cash received as collateral in accordance with direction from the Board, provided that such investments are consistent with guidelines provided in this document.
6. Notify the Board of any changes to the investment guidelines in the Securities and Exchange Commission’s rule 2A7 for consideration by the Board.
7. Notify the System’s staff in the event that a recalled security has not been returned by a borrowing party within 10 days of the request.
Investment Policy Statement adopted February May 2426, 2021 Page 9 Page 23 of 80 G. Transition Manager
The transition managers shall manage the transition of assets from one or more investment managers or asset categories to one or more other investment managers or asset categories. Transition managers shall be selected among those approved by the Board. Transition managers shall be utilized when such employment is likely to present significant opportunities for cost savings, technical efficiencies or other benefits to the System.
A summary of the duties and responsibilities of Transition Managers retained by the System is as follows: 1. Acknowledge status as a fiduciary to the System and remain in compliance both with this investment policy and with the current executed contract with the System.
2. Provide a pre-trade analysis, which will include, among other things, a trading liquidity analysis, portfolio sector analysis, volatility analysis, and estimated transaction costs.
3. Provide a detailed written plan of transition execution.
4. Provide a post-trade analysis, comparing the actual costs with the pre-trade estimates. The report will also include various trading statistics, benchmarking information, and detailed trade reports.
5. In all securities transactions, transition managers shall seek to obtain best execution to minimize the costs of trading.
Investment Policy Statement adopted February May 2426, 2021 Page 10 Page 24 of 80 III. PROCEDURES
A. Investment Policy Review
In order to keep the Investment Policy current the Board will, at least annually, review and modify as deemed necessary any portions of the policy. The annual review will consider, but not be limited to, the following: objectives and guidelines, the development of asset allocation strategies, recommendations on long-term asset allocation and the appropriate mix of investment manager styles and strategies.
The Board, both upon their own initiative and upon consideration of the advice and recommendations of staff, consultants, the investment managers and other fund professionals involved with the assets, may amend policy guidelines. Proposed modifications should be documented in writing to the Board.
B. Investment Manager Policy Exceptions
Requests for an exception to invest in securities precluded by section V. A. or the applicable mandate’s specific policies, should be submitted in writing to the System and include justification for such request, , and a requested time period, up to three years. Exception requests will undergo a reevaluation and approval process at the end of each term. Staff and investment consultant will determine the investment manager’s process for providing quarterly reporting on attribution analysis of the contribution of the allowed exception.
C. Third Party Marketing and Referrals Disclosure Policy
The Teachers’ Retirement System of Oklahoma requires transparency and full disclosure of all relationships in proposed and committed investments with any third parties. A “third party marketer” is a person who represents an asset management firm or any other type of investment services provider, as an independent contractor rather than as an employee of the firm, for the purpose of making presentations or securing contracts with the System for the firm or provider. Any such third-party marketer must disclose himself or herself as a third-party marketer before or at the same time as contacting any member of the Board of Trustees, employee of the System or the outside investment consultant for the System. In addition, firms submitting investment proposals for consideration by Teachers’ Retirement System of Oklahoma (including any sub- managers or consultants engaged by such firms) are hereby required to disclose the identity of all third-party marketers and/or individuals by whom the firm has been referred to Teachers’ Retirement System of Oklahoma and further indicate those so identified that stand to receive fees or other consideration in the event that a contract between the firm and the Teachers’ Retirement System of Oklahoma is secured. Any consideration paid or benefits received, or any relationship between such firm (including any sub-managers or consultants engaged by such firms) and third- party marketing entities and/or individuals, shall be disclosed. The disclosure requirements established by this Policy apply throughout the term of any contractual relationship Teachers’ Retirement System of Oklahoma may have with any firm and represents a continuing obligation of disclosure. This Policy becomes effective immediately and applies to all firms currently managing Teachers’ Retirement System of Oklahoma assets. All firms submitting investment proposals must
Investment Policy Statement adopted February May 2426, 2021 Page 11 Page 25 of 80 make the disclosures required by this Policy prior to any action being taken on the firm's investment proposal by the Board, as well as comply with the continuing obligation of disclosure.
D. Request for Proposal Policy
70 O.S. § 17-106.1(E) provides “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. Subject to the overall investment guidelines set by the Board of Trustees, the investment managers shall have full discretion in the management of those monies of the System allocated to the investment managers[…]”
While TRS statutes provide that investment managers must be retained on a competitive bid basis, this process is not required to conform to the Oklahoma Central Purchasing Act. The process for investment manager selection and allocation shall conform to the following process:
1. The Board shall approve all request for proposals (RFPs) issued by the System.
2. Respondents to a proposal shall comply with the procedures and conform to the standards set forth in the RFP.
3. The issuance of an RFP does not commit the Board to award a contract or make an allocation to a manager or strategy. The Board reserves the right to accept or reject any or all proposals received, to negotiate with any and all qualified bidders, 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 bidder at a specified time and place which shall be open to the public pursuant to the Oklahoma Open Meetings Act.
5. Proposals shall be evaluated by the Investment Consultant and the Investment Staff. An evaluation report to identify potential managers shall be presented to the Investment Committee for recommendation to the Board.
6. Except for the purposes of seeking clarification of RFP responses, no member of the Board, staff, 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 bidder who knowingly participates in a communication that is prohibited by this subsection shall be disqualified from the contract award.
7. Due diligence shall be conducted on potential managers prior to the award of the contract. The nature of the due diligence shall be recommended to the Board by the Investment Committee with the advice of the Investment Consultant, Chief Investment Officer, and Executive Director.
Investment Policy Statement adopted February May 2426, 2021 Page 12 Page 26 of 80 E. Additional allocations to a previously retained manager:
1. The Board may at any time make an additional allocation to a manager currently under contract at its discretion in accordance with this Policy.
2. Additional allocations to subsequent or follow-on closed-end funds of a manager may be made without the necessity of an additional RFP provided the investment thesis and strategy of the subsequent or follow-on fund is substantially similar to the fund that was originally allocated on a competitive bid basis. To be substantially similar a fund must have the same benchmark, the same type of assets, and the investment decisions must be made by substantially the same people as were managing the original fund/strategy. Closed-end funds are generally in the form of ownership interests in limited partnerships and may include, but are not limited to, private equity, venture capital, mezzanine and distressed debt, real estate funds, and natural resource funds.
Investment Policy Statement adopted February May 2426, 2021 Page 13 Page 27 of 80 IV. INVESTMENT GOALS AND OBJECTIVES
To fulfill the System’s Mission Statement set forth in Chapter 2 of the Board of Trustees Policy Manual, the Board has a goal of earning a nominal, long-term, time-weighted, annualized, net total return of 7.5% on the investment portfolio while maintaining liquidity necessary to fund net benefits and operations.
To achieve the goal above the Board believes that several investment objectives need to be attained. In setting the objectives the Board follows the criteria as recommended in “A Primer for Investment Trustees” (Bailey, Jeffery, Jesse Phillips and Thomas Richards. A Primer for Investment Trustees. Charlottesville: Research Foundation of CFA Institute, 2011). Specifically, investment objectives should be unambiguous and measurable, specified in advance, actionable and attainable, reflective of the Trustees’ risk tolerance and consistent with the System’s mission.
The Board has established several objectives for the investment portfolio that meet the criteria above. These objectives listed below are specified at the Total Fund, Asset Class Composite and individual mandate/Investment Account level.
Total Fund Investment Objectives Achieve or exceed on a three-year rolling basis, absolute and risk-adjusted, net excess returns relative to the Total Fund Policy Index as specified in Appendix A. On a three-year rolling basis, maintain relative risk levels equal to or below that of the Total Fund Policy Index. Asset Class Investment Objectives Achieve or exceed on a three-year rolling basis, absolute and risk-adjusted, net excess returns relative to the Asset Class Index as specified in Appendix A. On a three-year rolling basis, maintain relative risk levels equal to or below that of the Asset Class Index. Investment Account Objectives Achieve or exceed on a three-year rolling basis, absolute and risk-adjusted, net excess returns relative to the Investment Account Index as specified in Appendix A. On a three-year rolling basis, maintain relative risk levels equal to or below that of the Investment Account Index.
Investment Policy Statement adopted February May 2426, 2021 Page 14 Page 28 of 80 V. INVESTMENT GUIDELINES AND CONSTRAINTS
The System maintains a diversified portfolio with investments in multiple asset classes as defined by its strategic asset allocation. Investments in some asset classes can be made through public securities markets while investments in other asset classes are only possible through private market investment vehicles.
Generally, the System’s public market investments are held by the System’s Custodian in separate accounts managed by retained investment management firms. For these public market investments in separate accounts at the System’s custody bank, the System defines the parameters within which the retained investment managers can manage the portfolio. In addition to public market investments held in separate accounts the System may choose to invest in commingled or partnership structures alongside other institutional investors where the System does not define the investment management parameters but rather accepts the investment management parameters as specified in commingled trust documents or in partnership agreements.
With the above distinctions in mind, this section of the Policy covering guidelines and constraints is divided into two subsections and further grouped by asset class. The first subsection addresses public market investments held in separate accounts by the System’s Custodian. It communicates to the investment management firms retained to manage these accounts the parameters within which they are permitted to manage the portfolio.
The second subsection addresses commingled and private market investments where the System accepts the investment parameters as defined in trust documents or partnership agreements and other associated legal documents. This subsection documents the rationale for choosing a commingled or partnership structure and the general boundaries within which the System will seek to structure its private markets investments.
A. Public Market Separate Account Investments
1. Discretion and Prohibited Investments
Full discretion, within the parameters of these guidelines is granted to the investment managers regarding the allocation of their portfolios, the selection of securities, and the timing of transactions. Any exception requests to the guidelines listed herein should be communicated to the System’s Investment staff and Investment Consultant. Due to the ever- expanding variety of financial instruments and financial engineering methods, the following list of ineligible investments is not considered to be exhaustive. Any instrument, to which these Investment Guidelines do not explicitly prohibit, that is not expressly allowed by the applicable mandate specific guidelines, should be requested through the exception process, detailed in section III. B, prior to investment.
a. Privately placed or other non-marketable debt, except securities issued under Rule 144A.
b. Securities denominated in non-US currency, unless provided in accordance with an applicable mandate.
Investment Policy Statement adopted February May 2426, 2021 Page 15 Page 29 of 80 c. Lettered, legend or other so-called restricted stock
d. Physical commodities and commodity derivatives
e. Short sales and purchases on margin; leverage is not allowed unless the System has expressly given the right to lever to a manager.
f. Direct investments in private placements, real estate, oil and gas and venture capital, unless provided in accordance with an applicable mandate.
2. Index Portfolios
a. All index portfolios characteristics and returns are expected to closely resemble the designated benchmark.
b. Index managers may use both full replication and stratified sampling portfolio construction methodologies.
3. Cash Rule for Equity Portfolios
a. Investment managers of portfolios consisting of equity securities should seek to remain fully invested. Fully invested for the purposes of this document shall mean normally maintaining a portfolio allocation to cash investments of 5% or less. Should the investment manager desire to maintain cash investments at a level greater than 5% for an extended period of time, the investment manager shall provide advanced written notification and explanation to the Investment Staff and Investment Consultant.
b. No violation shall be deemed to occur if cash investment levels exceed the 5% due to instructions received from the System. If cash investments breach the 5% threshold for ten consecutive business days or 7% for three consecutive business days, the manager shall submit a written notice and explanation of each such event to Investment Staff and Investment Consultant.
4. Derivatives
a. Investment managers may be permitted, under the terms of individual investment contracts, to use derivative instruments as set forth in each manager’s investment guidelines. A derivative is a security or contractual agreement that derives its value from some underlying security, commodity, currency or index. Some examples of derivatives for purposes of this Policy are (a) contracts such as forwards, futures, put and call options, and swaps and (b) non-traditional securities with embedded options such as collateralized mortgage obligations (CMOs) and structured note products. Traditional securities with options such as convertible bonds and preferred stock are not considered derivatives under this policy, nor are warrants.
b. Derivatives shall not be used to introduce leverage, that is, the notional value of derivatives positions cannot exceed the cash or securities values available from the System’s assets. Derivatives may not be used to create levered exposure to the assets
Investment Policy Statement adopted February May 2426, 2021 Page 16 Page 30 of 80 being managed. Derivatives may be used for the purpose of reducing effective cash exposure and for hedging currency risk and interest rate risk.
c. Managers must ascertain and carefully monitor the creditworthiness of any third parties involved in derivative transactions.
d. Foreign exchange forward contracts or currency swaps are permitted for currency hedging purposes. Posting of a “margin” deposit for these contracts is permitted in connection with foreign exchange forward contracts or currency swaps as such a deposit is not considered to be “purchases on margin” or “leverage”.
5. Domestic Equity
a. Domestic Equity portfolios will not concentrate more than the greater of a 2% benchmark-relative active weight or 7% of market value of funds under advisement in holdings of a single issuer.
b. Domestic Equity portfolios will not hold greater than 5% of the outstanding shares of a single issuer.
c. Domestic Equity portfolios will be limited to holdings of common stock, American Depository Receipts (ADRs) listed on a domestic exchange, non-midstream MLP units and any security type that is a constituent in the portfolio’s benchmark index.
d. Domestic Equity portfolios may hold, sell or exercise rights, warrants or other instruments received by virtue of corporate actions.
e. Domestic Equity portfolios may purchase unlevered Exchange Traded Funds (ETFs) linked to the portfolio’s benchmark index solely for the purpose of reducing temporarily high cash exposure.
6. International Equity
a. International Equity portfolios will not concentrate more than the greater of a 2% benchmark-relative active weight or 7% of market value of funds under advisement in holdings of a single issuer.
b. International Equity portfolios will not hold greater than 5% of the outstanding shares of a single issuer.
c. International Equity portfolios will not concentrate more than the greater of a 5% benchmark-relative active weight or 35% of the market value of funds under advisement in issuers from the UK or Japan and no more than 30% of the market value of funds under advisement in issuers from any other single country.
d. International Equity portfolios will invest no less than 50% of the portfolio in companies located in developed markets as determined by MSCI.
Investment Policy Statement adopted February May 2426, 2021 Page 17 Page 31 of 80 e. International Equity portfolios will be limited to holdings of common stock, American Depository Receipts (ADRs) listed on a domestic exchange and any other security type that is a constituent in the portfolio’s benchmark index.
f. International Equity portfolios may hold, sell or exercise rights, warrants or other instruments received by virtue of corporate actions.
g. International Equity portfolios may purchase unlevered Exchange Traded Funds (ETFs) linked to the portfolio’s benchmark index or country sub index solely for the purpose of reducing temporarily high cash exposure. International Equity portfolios may also hold commingled fund units to gain exposure to markets where individual company share purchases are either inefficient or not possible.
7. Fixed Income
a. Fixed Income portfolios will not concentrate greater than 5% of market value of funds under advisement in holdings of a single issuer. This restriction does not apply to sovereign issues.
b. Fixed Income portfolios will not hold greater than 5% of the issued securities of a single issuer.
c. Fixed Income portfolios will not concentrate greater than 20% in non-USD denominated obligations.
d. Fixed Income portfolios will not concentrate greater than 10% in developing or emerging markets issuers as determined by MSCI.
e. Fixed Income portfolios may hold shares of common stock converted from embedded corporate actions. At the time of conversion, managers should communicate issues converted into common shares to the System’s Investment staff and Investment Consultant.
f. Core Plus Full Discretion Fixed Income
i. Core Plus portfolios will not concentrate greater than 50% in issues which are rated Ba1 or lower by Moody’s, or Moody’s equivalent rating by an SEC registered NRSRO. If the ratings assigned to an instrument by an SEC registered NRSRO are not the same, the highest rating of these rating agencies will be used. If an instrument is not rated by an SEC registered NRSRO, the equivalent rating determined by the Manager’s internal rating system will be used.
ii. Core Plus portfolios may hold up to 5% of the market value of the account in any combination of the following: issues which internally or externally are rated below Caa2 Moody’s, or Moody’s equivalent rating by an SEC registered NRSRO, common stock, preferred stock, closed-end funds or exchange-traded funds..
Investment Policy Statement adopted February May 2426, 2021 Page 18 Page 32 of 80 iii. All holdings of unrated securities and securities subject to the 5% limitation above shall be subject to monthly reporting requirements as set forth in Section VI. 3. of this Policy.
iv. The Core Plus portfolio manager may not invest more than 10% of the portfolio in unrated securities.
g. Active Duration Fixed Income
i. Active duration portfolios may concentrate holdings up to 100% at any maturity along the U.S. Treasury term structure.
ii. Active duration portfolio accounts are limited to holding securities backed by the full faith and credit of the U.S. government and units of the short-term investment fund of the System’s custodial bank.
h. Securities Lending Collateral Pool
i. The investments of the securities lending collateral are governed by a separate investment policy document therefore they are not addressed herein.
B. Private Market Partnership Interests and Commingled Account Investments
The System recognizes that private market investments and commingled fund investments are governed by subscription agreements, limited partnership agreements, trust documents and other related legal documents. Additionally, the System recognizes that in the event of a conflict between the aforementioned documents and this Investment Policy Statement, the subscription agreements, limited partnership agreement and other related legal documents shall take precedence in the governance of these investments.
The System determines how it will select and structure its private market and commingled fund investments this section sets forth the guidelines the System will follow for structuring the portion of the portfolio invested in private market and commingled fund investments.
1. Private Equity and Private Debt
a. Private Equity portfolios will be comprised of buyout funds, growth capital funds, turnaround funds venture capital funds and other primarily equity focused strategies approved by the System.
b. Private Debt will be comprised of distressed debt funds, mezzanine debt funds, as various types of credit funds and other primarily debt focused strategies approved by the System.
c. For Strategic Asset Allocation purposes, the System regards Private Equity as an asset class and Private Debt as a sub-category of the Private Equity asset class.
Investment Policy Statement adopted February May 2426, 2021 Page 19 Page 33 of 80 d. In order to achieve a diversified private equity portfolio, the following sub-allocations shall be used as an overall target for commitment levels within the portfolio:
Segment Long-Term Allocation Ranges Corporate Finance1 80% - 100% Venture Capital 0% - 20% 1 Includes buyout, turnaround and debt related strategies
Region Long-Term Allocation Ranges U.S. and Western Europe 80% - 100% Other 0% - 20%
e. The minimum Private Equity or Private Debt commitment is $10 million.
f. Commitments will not be made to a primary fund which exceeds an amount equal to 20% of the total amount raised for a proposed fund. For the purposes of this provision, primary fund is defined as a private partnership formed by a fund manager to invest in underlying operating companies and does not include fund of fund, secondary or co- investment vehicles.
g. Aggregate commitments to a General Partner may not be greater than 25% of funds under advisement.
h. For new commitments identified by a retained private markets consulting firm, the private markets consulting firm shall provide detailed information on the opportunity, including a final memorandum summarizing all due diligence performed, to the Staff, and the Investment Consultant.
i. The System will not invest funds into opportunities that intend to purchase remaining assets from a previous fund.
j. Funds that meet the following criteria will not be considered eligible for initial evaluation or potential funding commitments:
i. Vehicles which are not backed by accredited investors, as that term is defined in Section 2 of the Federal Securities Act of 1933, as amended, (15 U.S.C. Section 77(b)) and rules and regulations promulgated under that section.
ii. Investments representing direct equity ownership in individual companies or other business entities, without the benefit of an intermediate partnership or other indirect ownership structure. However, this exception shall not include direct equity ownership which results from the distribution of securities from partnerships to the System. This rule does not restrict the possibility of a co- investment in Private Equity; contingent upon a third-party consultant providing the recommendation and vehicle for investment.
iii. Investments which would violate resolutions passed by the System’s Board.
Investment Policy Statement adopted February May 2426, 2021 Page 20 Page 34 of 80 iv. Investments in which the General Partner has committed to invest no personal or firm assets.
2. Real Estate
a. Real estate investments will be categorized as Core and Non-Core. The objectives of real estate investments are to provide diversification benefits to the overall portfolio, provide protection against inflation, generate stable income, produce attractive risk- adjusted return and preserve capital.
b. Real estate exposure shall be acquired primarily through comingled fund vehicles, both open end and closed end, and, to a lesser extent, joint venture limited partnerships and separate accounts.
c. The real estate portfolio will be diversified by property type, geographic region and investment strategy.
d. Real estate funds will not concentrate, in any single property, an amount exceeding 25% of the total Gross Asset Value (GAV) of the overall investment fund.
e. Core real estate funds will include investments that are operating and substantially leased, primarily invested in the four main property types including office, industrial, retail and multi-family. Other property types may be included to a lesser extent. Current income will comprise a majority of the total return over an investment cycle.
f. Core real estate funds will not concentrate greater than 20% of the total GAV of the investment fund in Non-Core properties.
g. Core real estate funds will not carry leverage in excess of 35% of the GAV of the investment fund.
h. Non-Core real estate funds will include Value-add and Opportunistic investment strategies. Non-core funds may purchase and manage, in addition to the four main property types, other specialty properties that may require renovation, rehabilitation or development. Current income may comprise a minority and appreciation may represent the majority of the total return of these investments.
3. Opportunistic Private Market Investments
a. The Opportunistic Investment category describes investments that are not adequately classified within the other investment mandates. Allocations to opportunistic investments may range from 0% to 5% of total portfolio. The Board shall determine appropriate commitment levels subject to the constraints below.
b. The Board shall not make commitments to a single portfolio greater than 20% of the total amount of the proposed portfolio.
Investment Policy Statement adopted February May 2426, 2021 Page 21 Page 35 of 80 c. The Board shall not concentrate aggregate commitments to a single investment manager’s firm greater than 25% of the firm’s total assets under management.
Investment Policy Statement adopted February May 2426, 2021 Page 22 Page 36 of 80 VI. EVALUATION AND REVIEW
A. Investment Staff Reporting Requirements
The Investment Staff will at regular periodic Board and Investment Committee meetings report as needed on the following: asset class and manager account variances relative to targets, updates regarding changes within the portfolio including rebalancing and transition events, portfolio risk exposures, asset class structure reviews, special project reports and any other areas of investment portfolio analysis as directed by the Board.
B. Investment Consultant Reporting Requirements
The Investment Consultant will report on investment portfolio performance at regular periodic Board and Investment Committee meetings. These reports will cover the following: recent capital markets developments and consequent impacts on investment portfolio performance both gross and net of fees, asset allocation, return attribution, multi-period analyses of the performance of all investment portfolio accounts and composites relative to benchmarks and comparable universes, analyses of the risks of investment portfolio accounts and composites relative to benchmarks.
In addition to reporting on investment portfolio performance, the Investment Consultant will report to the Board any material recent organizational or personnel developments at the investment firms retained by the System. The Investment Consultant will also report to the Board regarding the investment firms retained by the System any significant changes in clients and assets under management.
To assist the Board in their annual review of the Investment Consultant, the Investment Consultant will provide a report covering material organizational or personnel developments at the firm as well as any significant changes in number of clients and/or assets under advisement. The Investment Consultant will also provide a certification signed by the investment consultant firm’s Chief Compliance Officer or designee that the firm has for the fiscal year remained in compliance with all applicable elements of this Policy, the investment consulting agreement between the firm and the System and any other contractual instruments defining the relationship between the investment consultant and the System. The Investment Consultant will also provide any additional information or disclosures the Board determine necessary to conduct their annual review.
C. Investment Manager Reporting Requirements
Each Investment Manager will timely report to Investment Staff and Investment Consultant any material organizational or personnel developments at their firm as well as any significant changes in number of clients and/or assets under management either for the mandate in which the System is invested or for the entire firm.
In addition to the requirements stated herein, each investment manager will provide any reports as may be required in the investment management agreement or subscription agreement between the firm and the System and any other contractual instruments defining the relationship between the investment manager and the System.
Investment Policy Statement adopted February May 2426, 2021 Page 23 Page 37 of 80 On a quarterly basis each Investment Manager will provide to Investment Staff and Investment Consultant performance, transaction and market value data as requested in electronic or hardcopy form to assist Staff and the Investment Consultant in their roles of monitoring the investment portfolio on behalf of the Board. The data requested will be designed by Staff and Investment Consultant to correspond with the Investment Manager’s particular asset class assignment. In their regular quarterly reporting, Core Plus Full Discretion Fixed Income managers will provide a line- item holdings report for unrated securities and investments subject to the 5% limitation as referenced in Section V. A. 7. f. iii.
On a yearly basis for the System’s June 30 fiscal year each Investment Manager shall provide the Staff and the Investment Consultant an annual report consisting of the following:
1. A certification signed by the investment management firm’s Chief Compliance Officer or designee that the firm has for the fiscal year remained in compliance with all applicable elements of this Policy, and any investment guidelines within the investment management agreement or subscription agreement and any other contractual instruments defining the relationship between the investment manager and the System.
2. For firms that cast proxy votes on behalf of the System, a summary of the firm’s philosophy with respect to voting proxies along with a detailed report showing all proxy votes cast during the fiscal year.
3. A detailed report showing investment management fees and expenses charged by the firm to the System whether invoiced or deducted during the fiscal year.
4. A disclosure of any payments, monetary or otherwise, to System fiduciaries including Staff, Investment Consultant or Trustees.
5. A review of the Investment Manager’s investment philosophy and process as well as a June 30 fiscal year summary of any material organizational or personnel developments at the firm as well as any significant changes in number of clients and/or assets under management either for the mandate in which the System is invested or for the entire firm during the fiscal year.
6. Each investment manager is required to report to the System’s Investment Staff and Investment Consultant the types of derivative instruments used along with a narrative explanation of the rationale for using such instruments in their portfolio management process during the past year highlighting risks mitigated and or efficiencies achieved.
Investment Policy Statement adopted February May 2426, 2021 Page 24 Page 38 of 80 APPENDIX A - PERFORMANCE BENCHMARKS
Composite Benchmark Index Total Portfolio Policy Index* U.S. Equities Russell 3000 International Equities MSCI ACWI ex.US IMI Core Plus Fixed Income**Bloomberg Fixed Income Barclays U.S. Universal Real Estate NCREIF Property Private Equity Russell 2000 + 4% Large Cap U.S. Equities Russell 1000 Mid Cap U.S. Equities Russell Mid Cap Small Cap U.S. Equities Russell 2000 Small Cap International Equities MSCI World ex US Small Cap
*The Policy Index is a composite index composed of the monthly asset class benchmark returns weighted by their respective strategic asset allocation targets. ** The Core Plus Fixed Income index is a composite index composed of 70% Bloomberg Barclays U.S. Aggregate Index and 30% ICE BofA US High Yield Constrained Index.
A current listing of the System’s investment managers, accounts and benchmarks can be found on the System’s website at https://oklahoma.gov/trs/publications/trs-investment-policy-statement.html
Investment Policy Statement adopted February May 2426, 2021 Page 25 Page 39 of 80 APPENDIX B - STRATEGIC ASSET ALLOCATION
The assets of the Plan shall be invested with a focus on meeting long-term objectives in order to fulfill the System’s Mission Statement. Recognizing the goals and objectives of the System, the following strategic asset allocation target has been adopted:
U.S. Equities 43.5% International Equities 19.0% Fixed Income 22.0% Real Estate 9.0% Private Equity 6.5% Cash 0%
While the Board of Trustees has adopted the strategic asset allocation above and the rebalancing policy below, the number of investment managers or mandates used is not specifically set forth by policy. The number and type of investment managers to be hired within an asset class shall be determined by the Board of Trustees based upon periodic analyses of asset class portfolio structures.
Investment Policy Statement adopted February May 2426, 2021 Page 26 Page 40 of 80 APPENDIX C - REBALANCING POLICY
In the event the Plan’s market values change to the extent that asset class percentage allocations fall below defined minimum percentage allocations or exceed defined maximum percentage allocations, staff shall prepare a plan to rebalance the portfolio according to the guidelines shown below:
Low High Minimum Rebalance Target Rebalance Maximum Point Point U.S. Equity 36.5% 40.0% 43.5% 47.0% 50.5% International Equity 14.0% 16.5% 19.0% 21.5% 24.0% Fixed Income 17.0% 19.5% 22.0% 24.5% 27.0% Real Estate* 6.5% 7.8% 9.0% 10.3% 11.5% Private Equity* 4.5% 5.5% 6.5% 7.5% 8.5% * Private capital investment valuations, by their nature, lag traditional public market investment valuations by several months. In addition, the offering documents of private capital investments define the required timing of contributions, reinvestment provisions and distributions resulting in constraints on liquidity. As a result, the current allocation to private capital investments may fall outside the allowable ranges for these investments for periods of time. Annual commitment levels to private capital investments will be determined through a multi-year investment pacing analysis and planning horizon, including forecasted future cash flows with a goal of achieving and maintaining target allocations over time.
When allocations move outside minimum or maximum boundaries, they will be rebalanced half of the way back to the target percentage. Due to the asymmetrical nature of maximum and minimum boundaries, a full rebalancing of each asset class may not be possible. In such cases, rebalancing asset classes up from their minimums shall take priority. Cash held in short-term investments with the Custodian shall be considered as domestic fixed income for rebalancing purposes. In highly stressed market environments where volatility and transaction costs are elevated, a rebalancing plan designed to reduce tracking error and transaction costs may be developed and substituted for the normal rebalancing approach defined by the boundaries above.
In rebalancing the portfolio, staff shall consider asset class liquidity in determining the timeframe over which the rebalancing should take place in an attempt to reduce transaction costs. Securities may be transferred in lieu of cash, if feasible, to achieve lower transaction costs. Staff and the investment consultant may consult with those managing the affected investment accounts to determine the appropriate incremental amounts to be transferred as well as the appropriate duration of the rebalancing. The primary goal of rebalancing will be to control risk by correcting variances from minimum and maximum asset class allocations: minimizing transaction costs and diversifying across time will be secondary goals. In the event that Plan asset market values change to correct variances from minimum and maximum asset class allocations, rebalancing programs may be halted prior to the anticipated date of completion.
Upon the development of a rebalancing plan consistent with these guidelines, staff will advise the Plan's Custodian of the upcoming changes and direct affected investment managers to implement the required purchases and sales in a manner that leaves the resulting portfolios in concert with their current strategies.
Investment Policy Statement adopted February May 2426, 2021 Page 27 Page 41 of 80 The Staff may defer any element of the rebalancing with concurrence of the Chairman of the Board of Trustees under circumstances where percentage allocation variances outside of minimum and maximum boundaries are minimal and appear to be only temporary in nature or in the event that such rebalancing would not be in the best interest of the Plan.
Annually, staff may present an optional strategy for rebalancing all asset classes near target allocations, giving due consideration to potential transaction costs.
Investment Policy Statement adopted February May 2426, 2021 Page 28 Page 42 of 80 APPENDIX D - INVESTMENT MANAGER EXCEPTIONS TO INVESTMENT GUIDELINES
Any exception requests subsequent to the approval of these guidelines should be submitted according to the framework established in Section III, B.
Requesting firm: Hotchkis & Wiley Mid Cap Equity
Exception requested: Section V.A.5.c.; Allow non-U.S. dollar denominated securities traded in local markets and securities of non-U.S. companies (including ADRs) traded over the counter in the U.S. market.
Proposition for attribution: Provide quarterly reporting with and without non-U.S. holdings.
Requested term: 12/31/2021
Requesting firm: Wellington Management International Small Cap Equity
Exception requested: Section V.A.6.c.; Increase the maximum portfolio exposure in Japan from 35% to 40%.
Proposition for attribution: When the portfolio exposure in Japan exceeds 35%, provide quarterly reporting illustrating the contribution to total return.
Requested term: 12/31/2021
Investment Policy Statement adopted February May 2426, 2021 Page 29 Page 43 of 80 TRS COMMITMENTS TO FOLLOW-ON FUNDS: OVERVIEW AND AUTHORITY - INVESTMENT POLICY STATEMENT
RFP Policy - Additional allocations to a previously retained manager: Additional allocations to subsequent or follow-on closed-end funds of a manager may be made without the necessity of an additional RFP provided the investment thesis and strategy of the subsequent or follow-on fund is substantially similar to the fund that was originally allocated on a competitive bid basis. To be substantially similar a fund must have the: same benchmark, the same type of assets, and the investment decisions must be made by substantially the same people as were managing the original fund/strategy.
Page 44 of 80 COMPARISON *FCP Fund IV FCP Fund V $755 million – Non core real estate $950 million – Non core real estate
Benchmark NCREIF - ODCE + 2.0% per yr. NCREIF - ODCE + 2.0% per yr. Key Executives Esko Korhonen, Lacy Rice, Alex Marshall,Tom Substantially similar with exception of Tom Carr, Garland E. Faist, Jason Bonderenko, Carr, managing partner, retiring June 1, 2019 Steven M. Walsh, and others Asset Type Value-add real estate Value-add real estate
Targeting U.S. markets (with heavy Targeting U.S. markets (with heavy concentration in the Eastern United States) concentration in the Sunbelt) with a focus on with a focus on moderate income multifamily moderate income Class B/C multifamily (40-50%), select Class A multifamily (20- (50%) and select Class A (25%) multifamily 30%) and commercial assets (20-30%) and commercial assets (25%)
Page 45 of 80 *Competitively bid in 2018- Non core real estate RFP
Clients first.
To: Teachers’ Retirement System of Oklahoma Board of Trustees and Staff From: Doug Anderson and Peter Brown Date: May 26, 2021 Re: FCP Realty Fund V
As a follow-up to past discussions regarding the Real Estate Portfolio allocation and Request for Proposal Policy to allow additional allocations to previously retained managers, we recommend a follow-on commitment to FCP Realty Fund V (“FCP V” or “Fund”) of $100 million based on the following considerations:
Follow-on commitment to TRSO’s investments in FCP Realty Fund IV ($35m). The amount is larger than previous commitment due to Fund IV capacity constraints and the total portfolio has increased significantly. This commitment amount is consistent with long term pacing and investment plans. The Fund focuses on moderate income multi-family (aka work force housing). FCP’s founding managing partners have invested together for over 27 years. Fund V aims to generate an 12% to 15% net IRR and a 1.8x equity multiple. FCP’s portfolio construction provides a balance of income and appreciation by allocating over half to operating multifamily properties that provide current income estimated to be 20% to 25% of the total return complimented by selective return enhancing class A multifamily development and adaptive reuse office projects. Since 2008, FCP has invested in 129 transactions across its fund series totaling $1.7 billion invested, generating a 30.1% gross IRR and 2.4x gross equity multiple. FCP Funds I, II and III have generated net IRR’s of 25.9%, 22.3% and 21.7%, respectively. FCP will create a diversified portfolio of multifamily assets (70% to 85%) and select value- add office properties located primarily in the Southeastern and Southwestern states. Fund V will focus on Sun Belt markets which is expected to experience in-migration and job growth that should be favorable to real estate while multifamily continues to benefit from demographics trends and home affordability issues. FCP V will invest 50%-60% moderate income multifamily, 20%-25% class a multifamily and 20%-25% office. FCP V documentation is currently under review and is similar to Fund IV. Fees: o Fund Management: 1.50% on committed capital during the commitment period, thereafter, on invested capital (discounted to 1.25% for commitments >$75m during commitment period only); and
AndCo Consulting | 531 W Morse Blvd | Suite 200 | Winter Park, FL 32789 | (844) 44-ANDCO | AndCoConsulting.com
Page 46 of 80 o Carried interest: 8% preferred return with a catch-up of 80% GP and 20% LP to a 10% LP interest, 60% GP and 40% LP to a 20% GP carried interest, thereafter, 80% LP and 20% GP.
FCP Realty Fund V Fund Terms Characteristics Fund IV Fund V Fund Timing First Close 12/2017, Final Close 11/2018 First Close 4/2021, Final Close 6/2021 Investment Period through 11/2021 (already fully Investment Period through 7/2024 committed) Termination 7/2031 Termination 11/2028
Fund Size $755 million raised $950 million target increased to cap of $1.1 billion, $366m closed to date Distributions $18 million N/A
Investments 41 Investments 35‐50 Investments Targeted $580.8m FMV, $540m Cost
Projected Net Return IRR: 12%‐15% IRR: 12‐15% Multiple: 1.8x Multiple: 1.8x Current Income to be 20%‐25% or total return Current Income to be 20%‐25% or total return
Geographic Primary and secondary markets eastern half of Primary and secondary markets in the U.S. Diversification U.S. including Mid‐Atlantic, Southeast and with emphasis on Southeast and Southwest Northeast regions (Sunbelt) markets.
Asset Types 40%‐50% Moderate Income Multifamily, 20%‐ 50%‐60% Moderate Income Multifamily, 20%‐ 25% Class A Multifamily and 20%‐25% Office 25% Class A Multifamily and 20%‐25% Office
AndCo Consulting | 531 W Morse Blvd | Suite 200 | Winter Park, FL 32789 | (844) 44-ANDCO | AndCoConsulting.com
Page 47 of 80 Chapter 10 - Travel Expense Policy
Purpose
As fiduciaries, the Trustees must ensure that only reasonable and necessary expenses are incurred in the governance and management of the System. This is accomplished through the annual operating budget, which the staff proposes, the Board approves, and both monitor on a regular basis. In addition to the budget, the Board has adopted this Travel Expense Policy to provide more detail about the parameters for Board travel.
Required Travel
Travel is required to attend any publicly noticed in-person meeting or offsite of the Oklahoma Teachers’ Retirement System Board of Trustees. Public notice of a Board meeting serves as automatic prior approval of any Trustee or staff travel necessary to attend the meeting.
At times travel is also required to conduct specific business or to attend a specific event and represent the System in an official capacity. No prior approval is necessary for this type of travel.
Travel Related to Board Education
Travel may be required to attend seminars, conferences or educational classes as set forth in the Board’s Educational Policy. Trustees are encouraged to take advantage of relevant educational opportunities.
A budget for travel expenses (transportation, per diem, and lodging) will be established within the annual operating budget to cover reimbursement of travel expenses incurred in meeting educational goals as set forth in the Board’s Educational Policy. The Board chair will be responsible for annually reviewing the budget; updating the members as to the status of the budget; and making any changes to the budget thereafter. In consultation with the Executive Director, the Board Chair will give final approval for all Trustee travel.
When a Trustee would like to travel to an educational program and be reimbursed by TRS, they should consult with the Executive Director to ensure that sufficient funds are available in the travel budget. They should also coordinate with TRS staff so that travel arrangements are made in a matter to permit full reimbursement under state travel policies.
Expenses are reimbursable under the System’s fiscal requirements and must be disclosed and reported pursuant to those requirements. Additionally, Trustees are encouraged to provide feedback to the entire Board on all conferences, seminars and educational events attended to enable other Trustees to gauge whether their attendance in the future may be beneficial.
Reimbursement for Travel Expenses
OklahomaThe Teachers’ Retirement System shall pay for reasonable travel expenses in accordance with the State Travel Reimbursement Act (74 O.S. §§500.1 et seq.) and Board policyregulations and guidelines, including actual transportation and related lodging and subsistence. While traveling, Trustees and staff may accept meals provided by third parties, subject to the limitations set forth in Chapter 6 - Ethical and Fiduciary Conduct hereinthreshold
Page 48 of 80 reporting requirements of the Oklahoma Ethics Commission. In these situations, per diem reimbursement for such meals cannot be claimed.
Submission of claims for reimbursement for all travel expenses shall be made on a timely basis but no later than the close of the fiscal year or as soon thereafter as reasonably possible and shall be accompanied by receipts. Claims for reimbursement shall be submitted on the form then in use by the Oklahoma Teachers Retirement System and presented to the Executive Director.
Situations may arise where third parties offer payments, advances, or reimbursements for travel, including actual transportation and related lodging and subsistence to TRS Oklahoma Teachers Retirement System Trustees or staff. Prior to accepting these payments, the Trustee or staffTRS employee should have the arrangement reviewed and approved by TRS General Counsellegal counsel to ensure that the payment is in accordance with applicable Oklahoma Ethics Commission laws and rules as well as and Board policyregulations.
Executive Director Travel
For budgetary purposes, travel requests by the Executive Director also should be signed by the Director of Finance/CFO only to indicate that sufficient funds are in the budget to cover expected travel expenses. Each month, the Executive Director will provide the Board Chair a detailed listing of all travel claims/reimbursements of the Executive Director that were processed the preceding month. The Executive Director must follow all state and TRS travel policies and regulations.
Additional Disclosure Requirements
All Oklahoma Teachers Retirement System Trustees and staff are subject to the disclosure and reporting requirements of the System’s Code of Conduct and policy on Ethical and Fiduciary ConductOklahoma Ethics Commission laws and regulations. Any Trustee or staff member who receives a gift of 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 obtain prior approval pursuant to the “Reimbursement of Travel Expenses Policy” outlined above to ensure compliance with applicable laws and rules.
Absent compliance with State ethics laws, rules, and Board policy and rules, receipt 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 to disqualification from participation in making decisions related to the third party. It is the recipient’s responsibility to ensure that he or she does not engage in any action that places him or her in a conflict of interest. Trustees and staff are encouraged to confer with the General CounselLegal Counsel of Oklahoma Teachers Retirement System if they have questions concerning possible conflicts of interest.
Page 49 of 80 Election of Officers
1. In April of each year, the current Board Chair shall appoint an ad-hoc Nomination Committee. This Committee shall be comprised of at least three (3) Trustees not currently serving as Board Officers. The Nomination Committee shall make recommendations to the Board at the May Board meeting of candidates for each Board Officer position. Nominations shall also be taken from any Trustee at the May meeting.
2. The election of the Board Chair, Vice-Chair, and Secretary shall be held at the regularly scheduled Board meeting in May of each calendar year. Officers will assume their positions at the July meeting and serve through June of the following year. While a typical officer term is one year to allow rotation of leadership among Board members, officers are not precluded from being elected to additional yearly terms.
3. When necessary, because of an unexpected vacancy, loss of confidence in the individual, or because an officer can no longer perform the required duties, intervening elections may be called by a 2/3rd majority of the Board. In determining the 2/3rd majority, vacant positions on the Board shall not be considered.
4. The election of the Board Chair, Vice-Chair, and Secretary shall be by majority vote of the Board with a run-off to be held in the event that no candidate receives a majority of the first ballot.
5. Because of the complexity of the Board Chair position, it normally is expected that the Board Vice-Chair will stand for election to Chair after serving one year in the Vice Chair role. The individual who seeks to run for the Vice-Chair position should take this prospect into consideration when agreeing to stand for election to Vice-Chair.
Committees
1. Committee assignments and chairs shall be appointed by the Board Chair annually at the July Board meeting and at such other times as vacancies occur. The Chair’s appointments shall be set forth on the agenda as a separate item. Alternate members may be appointed on an as-needed basis by the Chair.
2. All Trustees are encouraged to attend Committee meetings, but only Committee members may vote.
Page 50 of 80 EFL Associates Metropoint 1 4600 South Ulster Street, Suite 900 Denver, CO 80237 Phone: 720.200.7000 www.eflassociates.com
TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA EXECUTIVE DIRECTOR
POSITION SPECIFICATIONS
CLIENT
Our client, the Teachers’ Retirement System of Oklahoma (the “System” or “TRS”) was established in 1943 for the purpose of providing retirement allowances and other specified benefits for qualified persons employed by state-supported educational institutions. The System is a part of the State of Oklahoma financial reporting entity, which is combined with other similar funds to comprise the fiduciary-pension trust funds of the State of Oklahoma. The System administers a cost-sharing multiple-employer pension plan which is a defined benefit pension plan (the “DB plan”) and a cost-sharing multiple-employer plan providing post-employment benefits other than pensions (the “OPEB plan”).
Membership in the DB plan includes Oklahoma teachers and other certified employees of common schools, faculty and administrators in public colleges and universities, and administrative personnel of state educational boards and employees of agencies who are employed at least half-time. Membership is optional for all other regular employees of public educational institutions who work at least 20 hours per week. At present, there are 600 contributing employers and just over 184,000 active, retired and inactive members.
Under the OPEB plan, TRS pays a monthly health insurance premium supplement for each retired member who is enrolled in the health insurance plan provided by the State and Education Employees Group Health and Dental Insurance plan or in an insurance program provided by a participating education employer who provides health insurance coverage to former employees, provided the retired member had at least ten (10) years of Oklahoma service prior to retirement. The OPEB plan presently serves approximately 156,000 members, both active and inactive.
Responsibility for oversight of the System’s administration and operation is vested in a 15-member Board of Trustees, which acts as a fiduciary for investment of the funds and the application of plan interpretations. The Board is comprised of six appointees from the Governor, two appointees by the Senate President Pro Tempore, two appointees by the House Speaker, four Ex Officio positions, and one non-voting member representing retired educators. Of the six appointees by the Governor Office, one must be a Higher Consultants in Executive Search Page 51 of 80 SPECIFICATIONS – TRS OF OKLAHOMA – EXECUTIVE DIRECTOR Page 2 Education representative, one is a non-classified optional personnel, and the remaining four must work in public or private funds management, banking, law or accounting field. Appointees by the Senate President Pro Tempore as well as those by the House Speaker, must include one active classroom teacher while the other must come from the retired membership of TRS. The Ex Officio trustees are the State School Superintendent, the Office of Management and Enterprise Services Director, the Career-Tech Director, and the State Treasurer, or their designees.
The System held assets at market value of $20.2 billion as of March 31, 2021. Of this total, 59.9% was invested in public equity, 21.8% in fixed income, 7.1% in real estate, 9.5% in private capital, and 1.7% in cash equivalents. The System’s investment policy allows allocations to a diversified mix of asset classes presently comprised of stocks and bonds, Treasury Bill and Notes, commercial paper, foreign currency exchange contracts, private debt and private equity, real estate and bank deposits collateralized by U.S. Government securities. For the year ended June 30, 2020, the System realized a positive return of .77% versus the portfolio’s policy benchmark return of 3.54%. Corresponding 3-, 5- and 10-year returns were 5.5%, 5.8%, and 9.5%, respectively. The System’s assumed rate of return is 7.0%. TRS had engaged AndCo Consulting as its general investment consultant but is in the process of selecting among three finalist firms for future investment guidance. Gabriel, Roeder, Smith & Company is the System’s actuarial consultant. As of June 30, 2020, TRS was 67.3% funded.
The System embraces a Mission Statement as follows:
We collect, protect and grow assets to provide a secure retirement income for public education employees.
This mission is supported by the following Vision and Core Values:
The vision of the Teachers’ Retirement System of Oklahoma is to: o Provide quality service to our members in an efficient, economical manner, o Provide our members on-demand and accurate access to their personal financial information, o Educate our members about their retirement benefits, o Manage the assets of the plan competently and prudently while achieving long-term-adjusted net returns in excess of market benchmarks as identified in the Board’s Investment Policy, as well as exceeding the actuarial assumed return, o And, inform our members about the financial status of TRS so they will be confident in our ability to provide their benefits.
The following Core Values guide the System in delivering service: o Customer Service o Teamwork o Reputation o Adequate Funding o Competency o Ethical Behavior
Consultants in Executive Search Page 52 of 80 SPECIFICATIONS – TRS OF OKLAHOMA – EXECUTIVE DIRECTOR Page 3
In late 2020, the System moved to new offices in a building owned by TRS located in the near north part of Oklahoma City, just three miles from the State Capitol. Statutory limits cap TRS staffing at 52 and, at present, the System employs a dedicated workforce of 38. The System’s operating budget, net of investment fees, is $9.5 million. In the near future, upon approval of the Cabinet Secretary, TRS will issue an RFP for a new pension administration software system. This initiative is an integral component of the following goals the System has established:
o Improve and enhance member services, including better communications o Develop an efficient and knowledgeable professional team (Staff and Board) o Enhance and modernize IT capabilities and services o Achieve superior risk-adjusted returns and manage the assets of the plan prudently o Secure adequate revenue to improve the funded status of the plan
For more detailed information about the System, please visit the website at www.oklahoma.gov/trs.
ABOUT OKLAHOMA CITY
With a metro area population of roughly 1.5 million, Oklahoma City is the capital and largest city in the State of Oklahoma. The City’s history dates to the famous Oklahoma land run in the late 1800’s and the City’s population grew to 10,000 nearly overnight. Oklahoma City is situated adjacent to Interstate 35 and is approximately 3 hours north of the Dallas/Fort Worth metro area and 5 hours south of Kansas City.
Like many other American cities, the center city population declined in the 1970s and 1980s as families followed newly constructed highways to move to newer housing in nearby suburbs. In 1993, the city passed a massive redevelopment package known as the Metropolitan Area Projects (MAPS), intended to rebuild the city's core with civic projects to establish more activities and bring life to downtown. The city added a new baseball park; a central library; renovations to the civic center, convention center and fairgrounds; and a water canal in the Bricktown entertainment district. Water taxis transport passengers within the district, adding color and activity along the canal. A downtown trolley system has also been installed making it easier to get to downtown entertainment and athletic venues. MAPS has become one of the most successful public- private partnerships undertaken in the U.S., exceeding $3 billion in private investment as of 2010. As a result of MAPS, the population living in downtown housing has exponentially increased, together with the demand for additional residential and retail amenities, such as grocery, services, and shops.
In addition to desirable urban living, the metro area offers a number of attractive suburban neighborhoods within an easy commuting distance. Both public and private education options are well-regarded and the State’s largest institutions of higher education, the University of Oklahoma and Oklahoma State University, are just 20 and 65 miles away, respectively.
Consultants in Executive Search Page 53 of 80 SPECIFICATIONS – TRS OF OKLAHOMA – EXECUTIVE DIRECTOR Page 4 The City enjoys a lively cultural arts, entertainment, dining and parks and recreation scene and, of course, is home to the National Basketball Association’s, Oklahoma City Thunder franchise.
The economy of Oklahoma City, once just a regional power center of government and energy exploration, has since diversified to include the sectors of information technology services, health services, and administration. The city is headquarters to five Fortune 500 companies: NGL Energy Partners, Oneok, Chesapeake Energy, Williams and Devon Energy, as well as being home to Love's Travel Stops & Country Stores, which is ranked thirteenth on Forbes' list of private companies.
For more information about greater Oklahoma City, please see:
Visitors Bureau www.visitokc.com Greater OKC Chamber of Commerce www.okcchamber.com The Oklahoman Daily Newspaper www.oklahoman.com
RESPONSIBILITIES
The Executive Director is the Chief Executive Officer for the agency and is responsible for the overall administration of TRS. Duties involve communicating and coordinating with the Board of Trustees; providing leadership to agency personnel in planning, developing and implementing short and long-term strategies for accomplishing the TRS mission, goals, and objectives. The Executive Director will also represent TRS in meetings with governmental officials, plan participants and other interested parties. The Executive Director oversees a present staff of 38 through 4 direct reports to include the Deputy Executive Director of Operations, the Chief Investment Officer, the Human Resources Director, and the General Counsel.
Essential Duties include:
Agency Operations • Plan, organize, direct and evaluate the overall agency operations ensuring compliance with state and federal laws while accomplishing short and long-term strategies of the System and maintaining a high commitment to ethical management and business practices. The goal is to provide excellent service to our members with accuracy, consistency and reliability. • Provide leadership, vision, creativity and mentoring with senior staff with the goal of accomplishing the agency’s mission, goals and objectives with a staff that embodies integrity, accountability, professionalism and respect. • Develop a professional, customer service-oriented workforce committed to excellence while ensuring that agency activities are carried out in compliance with relevant laws and policies. • Considers and decides grievances brought by members who disagree with decisions made by staff or management that affect the member’s benefit or amounts owed to TRS by the member. Communicates with members when necessary, to help decide grievances.
Consultants in Executive Search Page 54 of 80 SPECIFICATIONS – TRS OF OKLAHOMA – EXECUTIVE DIRECTOR Page 5 Fiscal Responsibility • Ensure the appropriate management and accounting of all agency funds and client records. • Oversee the development of the System’s annual administrative budget. • Monitor the performance of the System’s investment portfolio. • Works with the System’s actuary in the development of cost data for potential legislation and annual actuarial valuations.
Board of Trustees • Arrange and attend meetings of the Board of Trustees. • Furnish reports and information as necessary. • Make recommendations on policy and policy changes. • Ensure the Board is kept aware of relevant trends, anticipated adverse media coverage and material external or internal changes, particularly changes in the assumptions upon which any Board policy has previously been established.
Legislation • Develop legislative goals. • Serve as principal legislative liaison by monitoring legislation, meeting with legislative committees, individual legislators, Governor’s staff and other interested parties regarding pending legislation and policies. • Work with the System’s actuary in the development of cost data for potential legislation and annual actuarial valuations.
Public Relations • Ensure positive public relations by conducting member seminars and producing newsletters and other relevant publications.
Working Relationships
The Executive Director maintains working relationships and represents TRS with various stakeholders: • Board of Trustees – Meet eight times a year to report activities of the agency and to set policy. Provide research and other materials to the Board as required. • Board of Trustees, Investment Committee – Meet up to eight times a year to report activities of TRS investment performance and to set investment policy. Provides research and other materials to the Committee as required. • Board of Trustees, Audit Committee – Meet quarterly to review reports and recommendations from Internal Audit out-sourced firm. Provide research and other materials to the Committee as required. • Executive Branch Officials – Confer with Executive Branch officials on retirement issues. Also, address inquiries from Executive Branch staff related to retirement legislation and constituent requests. • Legislators – Confer with legislators on retirement issues. Attend legislative standing and special committee meetings and Legislative Interim Study meetings. Also, address inquiries from legislative staff related to retirement legislation and constituent requests. • State Pension System Executive Directors – Routinely meet with Executive Directors from other Oklahoma Public Pensions and Executive Directors from Consultants in Executive Search Page 55 of 80 SPECIFICATIONS – TRS OF OKLAHOMA – EXECUTIVE DIRECTOR Page 6 other states to discuss topics ranging from state and Federal legislation to GASB issues and learn of best practices. • Employer Representatives – Meet with various employer representatives to discuss reporting requirements and changes, as well as legislative efforts for TRS. • Vendors – Interact with the agency’s portfolio managers, investment consultants and actuaries on a monthly basis. Interact with the agency’s communication vendor for the purpose of providing educational materials to our clients. Interact with other vendors who assist the agency with various projects. • Members – Make presentations to members during semi-annual seminars for the purpose of promoting understanding of retirement and OPEB benefits, general operations, goals and objectives.
EDUCATION AND EXPERIENCE
• Bachelor’s degree in business or related field from an accredited college or university, with an advanced degree, ideally an MBA, JD or MPA, highly preferred. • Extensive knowledge (ideally ten or more years) in a senior leadership capacity with a public pension fund, insurance, benefits administration or other complex financial services organization with accountability for customer service, benefits administration, funding, regulatory compliance, technology integration and actuarial sciences. • Demonstrated success leading accomplished senior leaders and executive staff with diverse competencies (audit, finance, actuarial, technology, legal and investment) in a collaborative and team-oriented way. • Significant leadership experience (ideally five or more years) of demonstrated success leading a large and complex organization comparable to the System or larger. • Extensive positive experience working closely with a Board of Trustees and external stakeholders, to include legislative bodies, members, employers, the media and the general public. • Direct knowledge of the legal and regulatory requirements of administering a public retirement and healthcare benefits organization. • Strong working knowledge of institutional investing and modern portfolio theory. • Working knowledge of actuarial concepts and their impact on defined benefit plan funding levels. • Solid understanding of contracting processes and contract administration. • Experience managing a significant operating budget and staff complement. • Strong understanding of the principles and theory of public administration including general administration, human resource management, and fiscal management. • Demonstrated success in serving as the public “face” to legislators, members, employers, the media and general public is highly desirable. • The ability to travel to meet with groups across the state and to participate in national industry conferences and events.
PERSONAL CHARACTERISTICS
• Unassailable personal character, values and integrity. • Projects confidence but with humility; a servant leader. • Ability to develop and communicate a vision, combined with strong strategic skills. Consultants in Executive Search Page 56 of 80 SPECIFICATIONS – TRS OF OKLAHOMA – EXECUTIVE DIRECTOR Page 7 • Open and welcoming; approachable and visible to board, staff, employers and members; empathetic, with strong emotional intelligence. • A thoughtful decision-maker who values both people and process; willing to get input in the decision-making process; makes the decision and is willing to admit mistakes in adverse situations if necessary. • Outstanding interpersonal skills; possesses both the desire and ability to relate to many kinds of people and groups. • Ability to be sensitive to the concerns of all members and staff, and a commitment to dealing fairly with all. • Integrity and backbone; will do what’s right for the System and its members. • Excellent communication skills, including outstanding oral and written presentation skills and strong active listening skills. • Gravitas to testify before legislative committees and present to stakeholder groups. • Demonstrated commitment to member service. • High energy level and strong work ethic. • Commitment to the mission and vision of the System. • Flexible, versatile, persuasive and influential.
COMPENSATION
Compensation will be commensurate with qualifications and market factors. The total compensation package includes a statutory benefit allowance to select from several different health plans offered through the Employees Group Insurance Division of the Office of Management & Enterprise Services. The statutory benefit varies by marital and dependent determinants. The Executive Director and all System employees are members of TRS. The System also offers a generous paid time off and holiday policy. Relocation assistance, per se, is not allowed by statute but financial assistance may be available at the discretion of the Board of Trustees.
APPLICATION PROCESS
EFL Associates, an executive search firm, is assisting the System with this important search. All calls and inquiries should be made through the search firm. Referrals and applications will be held in confidence. Review of applications will begin immediately and will continue until the position is filled.
NON-DISCRIMINATION
The System and EFL Associates firmly support the principle and philosophy of equal opportunity for all individuals, regardless of age, race, gender, creed, national origin, disability, veteran status or any other protected category pursuant to applicable federal, state or local law. EFL ASSOCIATES Metropoint 1 4600 South Ulster, Suite 900 Denver, CO 80237 Phone: 720.200.7000 FAX: 303.694.6866 www.eflassociates.com Consultants in Executive Search Page 57 of 80 SPECIFICATIONS – TRS OF OKLAHOMA – EXECUTIVE DIRECTOR Page 8
Daniel J. Cummings, Senior Vice President and Managing Director Phone: 720.200.1765 Email: [email protected]
Lauren McElderry, Associate Staff Consultant Phone: 720.200.7021 Email: [email protected]
Consultants in Executive Search Page 58 of 80 TRS BUDGET WORK PROGRAM - FY 2022 (April 28, 2021)
This is a summary of the items in the staff’s proposed Budget Work Program for the FY 2022 budget (7/1/2021 – 6/30/2022). Many of these items were discussed with the Board last fall when the staff was preparing its Budget Request. However, non-appropriated agencies like TRS are not required to supply actual proposed budget figures anymore through the Budget Request process of OMES. Staff still sees value in taking an initial look at the next year’s budget in the fall before finalizing it in the following spring. This summary explains the staff’s recommendations for the final FY 2022 budget.
General Observations
We all hope that by July 1, 2021, the COVID-19 pandemic will be over. Even if it is, this event has had a profound effect on our nation and our state. As with all disasters or times of turmoil, there are numerous “lessons learned” by hard times and tragedy. The pandemic is no different. Here are a few:
Last fall the staff talked a lot about how the COVID-19 pandemic affected how TRS gets its work done. Most staff have now been working from home for a year. The upside is that we have learned that TRS can function in this manner for a long time. It has been a dress rehearsal for other possible disasters in the future.
But it has also exposed how “paper dependent” we still are even though we are heavily automated. We can do better by moving more current paper transactions to online platforms. We need to ensure that I.T. security and the security of our membership is not compromised by doing so. A paperless retirement process is now the gold standard in our industry. We can get this done.
The pandemic has also highlighted the value in personal relationships. We have employees working for TRS that have not met 100% of the staff. This has the potential of making new employees feel a bit disjointed and detached from their coworkers. The personal and human side of the workplace is very important to most employees. It makes employees feel more a part of a team.
TRS GOALS
Goal #1: Improve and Enhance Client Services including Better Communications Goal #2: Develop an Efficient, Knowledgeable Professional Team (Staff and Board) Goal #3: Enhance and Modernize IT Capabilities and Services Goal #4: Achieve Superior Risk-adjusted Returns and Manage the Assets of the Plan Prudently Goal #5: Advocate for Adequate Revenue to Improve the Funded Status of the Plan
Page 59 of 80 FY 2022 Budget Items
1. Salary & Payroll Costs – OMES performed another office-wide market study of salaries during the FY 2021 budget year. There were far fewer increases in salary due to market conditions in the current fiscal year that will still be apparent in FY 2022. We are budgeting for 41 FTE in FY 2021. We have 38 employees at present but are currently in the process of filling one vacant position, which will be filled in FY 2021. The payroll for possible salary increases is reflected in the current FY 2021 budget. Sometimes there are market increases or increases from promotion, but not in all cases. Finally, the salary range for the new Executive Director will go up so are showing an overall mild increase for Personal Services of $94,807. Increase – $94,807
2. Professional Services
a. Investment Consultant – Even if we picked the highest cost candidate for this contract, the savings would be $435,290. Decrease – ($445,290)
b. Back Office Provider/Alternative Investments – TRS hired Meketa in FY 2020 to provide “back office” services that will provide us better data, accounting, and processes to properly oversee TRS’ growing number of alternative investments. There is a $10,000 increase to their fee for FY 2022 from $325,000 to $335,000. We also need to build in additional fees for additional funds that we might invest in in FY 2022. When TRS adds such funds, TRS must pay an additional $4,000 per annum. The staff feels an assumption of two additional funds is reasonable. Increase - $18,000
c. Auditing – (External Auditor) The contract amount for the external auditor in FY 2021 is $93,200. It goes up to $96,000 in FY 2022 for an increase of $2,800. (Internal Auditor) The amount TRS budgeted in FY 2020 for Stinnett (“consultative” auditor) was $125,000. We don’t recommend changing this amount at this time. We had two firms performing different types of internal audit services in FY 2019. The original amount we budgeted for the “assurance” auditor was $175,000. We reduced this amount by $125,000 leaving $50,000 for other audit services and potentially adding some assurance services to Stinnett’s contract. After looking at this, we think a material change to Stinnett’s contract to add these services would trigger a new RFP. We recommend keeping the Internal Audit budget for FY 2022 at $175,000 for now. Increase in all Audit Services – $2,800
d. Actuarial – The budget for FY 2021 (for the 4th year of a five-year contract) was $69,900. In FY 2022 the final year of the contract has a maximum for the basic services of $71,300. We sometimes have the firm do work outside the scope of their annual retainer. Total FY 2021 budget for actuarial expenses is $80,000. We think the budget for FY 2022 should be around $75,000. Decrease – ($5,000)
Page 60 of 80 e. Disability Retirement Management – For the last several years we have had a line item of $50,000 for a possible contract with an outside vendor to help administer our Disability Retirement Program and provide monitoring. Staff doesn’t believe this is necessary at the present time. Decrease – ($50,000)
f. Misc. Services (Hodge Building Security) – We currently pay a percentage of the cost of one security guard at the Hodge Building. That costs $12,000 per year and we will not have that expense at our new location. Decrease – ($12,000)
Total Professional Services Decrease – ($491,490)
3. Administrative Expenses
Our rent will be higher at the Harvey Parkway Building for a full 12 months. That is a $14,248 increase. We have small decreases for board meeting refreshments with less meetings (-$1,000). There is $40,000 for moving expenses and $70,000 for new furniture in our current FY 2021 budget that goes away in FY 2022 (-$110,000). There is an increase in miscellaneous expenses of $6,670 primarily from a new membership in the Institutional Limited Partners Association, and other increases with other organizations. Decrease – ($92,082)
4. I.T. (Data Processing)
a. Professional Services (Software Development, OMES-ISD & Pension Administration System For FY 2021 we budgeted a total of $1,742,300 in this category. The breakdown was $360,000 for the cost of I.T. services from OMES. It should be the same in FY 2022. We will still have MyCG to support ALICE. We budgeted for 2+ developers for FY 2021 through MY Consulting for total budget of $350,000, and will leave that amount for FY 2022. Finally, we budgeted $1,000,000 for an I.T. consulting firm or software company to select the best software to replace our legacy system. We plan to launch this project in FY 2021. We will continue with that amount in FY 2022. We have a $30,000 I.T. cabling cost for Harvey Parkway budgeted for FY 2021 that disappears in FY 2022, and a slight increase in NAVEX’ “Ethics Point” software of $700. The total proposed budget for FY 2022 is $1,713,000. Decrease – ($29,300).
b. Telecommunications – In moving away from a state building, we have to pay Cox Communications to get attached to the state network. That’s an increase of $19,340. In addition, we have an increase of $5,000 for staff cell phones needed for remote work. Increase - $24,340
c. Rent & Maintenance – We need to enhance our software to better test our ALICE pension administration software for an increase of $1,250 and add to our Zoom software license to add a virtual seminar piece for $3,000. We have a $10,000 increase to pay the annual licensing on software that turns faxes into email. We added one additional copier to be closer to the
Page 61 of 80 Information Center for an increase of $6,000. We have an increase of $700 for printer maintenance. Other software license increases were $2,000. Increase – $22,950 Total Data Processing Increase of $17,990
Summary of Changes for FY 2022
The FY 2021 Budget is $9,472,544. We propose a budget of $9,001,769 for FY 2022. Overall Net Decrease – ($470,775)
Page 62 of 80 April 28, 2021
Agency Totals Budget Works Program Fiscal 2022
Actual Actual Proposed Increase Increase FY -2020 FY 2021 FY 2022 (Decrease) (Decrease) Object of Expenditure Budget Budget Budget Budget Percentage Personnel Services Salary and Longevity Pay Expenses 2,738,204 3,024,518 3,098,458 73,940 2.4% Taxes, Benefits, and Other Expenses 1,408,394 1,485,614 1,506,481 20,867 1.4% Subtotal Personal Services 4,146,598 4,510,132 4,604,939 94,807 2.1% 1 Professional Services Investment Consultant Expenses 1,180,476 1,195,290 750,000 (445,290) (37.3%) 2a Investment Manager Alternatives Expense 500,000 325,000 343,000 18,000 5.5% 2b Investment Custodian Expenses 28,000 28,000 28,000 0 0.0% Pension Commission Expenses 70,000 70,000 70,000 0 0.0% Subtotal Investment Expenses 1,778,476 1,618,290 1,191,000 (427,290) (26.4%) Legal Services - Special Projects 100,000 100,000 100,000 0 0.0% Legal Services - Attorney General 7,500 7,500 7,500 0 0.0% Administrative Hearings 5,000 5,000 5,000 0 0.0% Auditing Services 393,200 268,200 271,000 2,800 1.0% Actuarial Services 117,600 80,000 75,000 (5,000) (6.3%) 2c Medical Hearings 15,000 15,000 15,000 0 0.0% Communications Firm 50,000 100,000 100,000 0 0.0% Contract Lobbyist 45,000 0 0 0 0.0% Disability Retirement Management 50,000 50,000 0 (50,000) (100.0%) 2d Miscellaneous Services 25,330 23,030 11,030 (12,000) (52.1%) 2e Subtotal Professional Services 808,630 648,730 584,530 (64,200) (9.9%) Subtotal Professional Services 2,587,106 2,267,020 1,775,530 (491,490) (21.7%) Travel and Per Diem Expenses Non-Employee Travel Expenses 30,300 30,300 30,300 0 0.0% Employee Training 18,889 18,889 18,889 0 0.0% Employee Travel Expenses 18,000 18,000 18,000 0 0.0% Subtotal Travel and Per Diem Expenses 67,189 67,189 67,189 0 0.0% Administrative Expenses Postage 195,000 195,000 195,000 0 0.0% Printing and Binding Contracts 75,000 100,000 100,000 0 0.0% Informational Services 9,791 19,791 17,791 (2,000) (10.1%) Rent and Maintenance 166,632 237,872 252,120 14,248 6.0% Office Supplies 30,000 30,000 29,000 (1,000) (3.3%) Equipment 8,500 78,500 8,500 (70,000) (89.2%) Office Relocation Expense 100,000 40,000 0 (40,000) (100.0%) Miscellaneous Administrative Expenses 45,155 46,305 52,975 6,670 14.4% Subtotal Administrative Expenses 630,078 747,468 655,386 (92,082) (12.3%) 3 Data Processing Expenses Professional Services 1,054,000 1,742,300 1,713,000 (29,300) (1.7%) 4a Telecommunication Services 30,000 10,000 34,340 24,340 243.4% 4b Rent and Maintenance 31,375 67,175 90,125 22,950 34.2% 4c Office Supplies 5,000 5,000 5,000 0 0.0% Equipment 52,300 52,300 52,300 0 0.0% Informational Services 3,960 3,960 3,960 0 0.0% Subtotal Data Processing Expenses 1,176,635 1,880,735 1,898,725 17,990 1.0%
Total Expenses 8,607,606 9,472,544 9,001,769 (470,775) (5.0%)
Page 63 of 80 April 28, 2021
Agency Budget Work Program FY-2021 Projected Budget to Actual vs FY-2020 Budget to Actual Fiscal 2022
2021-2022 Actual Actual Actual Projected Proposed Increase Increase FY -2020 FY -2020 FY 2021 FY 2021 FY 2022 (Decrease) (Decrease) Object of Expenditure Budget Expenses Budget Expenses Budget Budget Percentage Personnel Services Salary and Longevity Pay Expenses 2,738,204 2,578,365 3,024,518 2,537,346 3,098,458 73,940 2.4% Taxes, Benefits, and Other Expenses 1,408,394 1,249,145 1,485,614 1,190,296 1,506,481 20,867 1.4% Subtotal Personal Services 4,146,598 3,827,510 4,510,132 3,727,642 4,604,939 94,807 2.1% Professional Services Investment Consultant Expenses 1,180,476 1,160,476 1,195,290 1,195,290 750,000 (445,290) (37.3%) Investment Manager Alternatives Expense 500,000 305,000 325,000 325,000 343,000 18,000 5.5% Investment Custodian Expenses 28,000 28,000 28,000 28,000 28,000 0 0.0% Pension Commission Expenses 70,000 44,498 70,000 50,000 70,000 0 0.0% Subtotal Investment Expenses 1,778,476 1,537,974 1,618,290 1,598,290 1,191,000 (427,290) (26.4%) Legal Services - Special Projects 100,000 37,192 100,000 55,000 100,000 0 0.0% Legal Services - Attorney General 7,500 0 7,500 0 7,500 0 0.0% Administrative Hearings 5,000 0 5,000 2,500 5,000 0 0.0% Auditing Services 393,200 223,853 268,200 193,200 271,000 2,800 1.0% Actuarial Services 117,600 115,318 80,000 80,000 75,000 (5,000) (6.3%) Medical Hearings 15,000 9,400 15,000 14,000 15,000 0 0.0% Communications Firm 50,000 0 100,000 50,000 100,000 0 0.0% Contract Lobbyist 45,000 0 0 0 0 0 #DIV/0! Disability Retirement Management 50,000 0 50,000 0 0 (50,000) (100.0%) Miscellaneous Services 25,330 44,389 23,030 30,000 11,030 (12,000) (52.1%) Subtotal Professional Services 808,630 430,152 648,730 424,700 584,530 (64,200) (9.9%) Subtotal Professional Services 2,587,106 1,968,126 2,267,020 2,022,990 1,775,530 (491,490) (21.7%) Travel and Per Diem Expenses Non-Employee Travel Expenses 30,300 9,149 30,300 5,000 30,300 0 0.0% Employee Training 18,889 8,359 18,889 10,000 18,889 0 0.0% Employee Travel Expenses 18,000 12,317 18,000 5,000 18,000 0 0.0% Subtotal Travel and Per Diem Expenses 67,189 29,825 67,189 20,000 67,189 0 0.0% Administrative Expenses Postage 195,000 171,518 195,000 196,500 195,000 0 0.0% Printing and Binding Contracts 75,000 31,411 100,000 75,000 100,000 0 0.0% Informational Services 9,791 18,223 19,791 25,000 17,791 (2,000) (10.1%) Rent and Maintenance 166,632 170,753 237,872 235,000 252,120 14,248 6.0% Office Supplies 30,000 22,020 30,000 25,000 29,000 (1,000) (3.3%) Equipment 8,500 0 78,500 70,000 8,500 (70,000) (89.2%) Office Relocation Expense 100,000 0 40,000 35,000 0 (40,000) (100.0%) Miscellaneous Administrative Expenses 45,155 26,236 46,305 40,000 52,975 6,670 14.4% Subtotal Administrative Expenses 630,078 440,161 747,468 701,500 655,386 (92,082) (12.3%) Data Processing Expenses Professional Services 1,054,000 509,378 1,742,300 550,000 1,713,000 (29,300) (1.7%) Telecommunication Services 30,000 7,811 10,000 7,500 34,340 24,340 243.4% Rent and Maintenance 31,375 6,777 67,175 30,000 90,125 22,950 34.2% Office Supplies 5,000 809 5,000 2,500 5,000 0 0.0% Equipment 52,300 40,639 52,300 50,000 52,300 0 0.0% Informational Services 3,960 0 3,960 0 3,960 0 0.0% Subtotal Data Processing Expenses 1,176,635 565,414 1,880,735 640,000 1,898,725 17,990 1.0%
Total Expenses 8,607,606 6,831,036 9,472,544 7,112,134 9,001,769 (470,775) (5.0%)
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Agency Budget Work Program FY-2021 Projected Budget to Actual vs FY-2020 Budget to Actual Fiscal 2022
2021-2022 % 2022 Budget Actual Actual Actual Projected Proposed Increase Increase 2021 Projected Exp FY -2020 FY -2020 FY 2021 FY-2021 FY 2022 (Decrease) (Decrease) Increase Object of Expenditure Budget Expenses Budget Expenses Budget Budget Percentage (Decrease) % Personnel Services Salary and Longevity Pay Expenses 2,738,204 2,578,365 3,024,518 2,537,346 3,098,458 73,940 2.4% 22.1% Taxes, Benefits, and Other Expenses 1,408,394 1,249,145 1,485,614 1,190,296 1,506,481 20,867 1.4% 26.6% Subtotal Personal Services 4,146,598 3,827,510 4,510,132 3,727,642 4,604,939 94,807 2.1% 23.5% Professional Services Investment Consultant Expenses 1,180,476 1,160,476 1,195,290 1,195,290 750,000 (445,290) (37.3%) (37.3%) Investment Manager Alternatives Expense 500,000 305,000 325,000 325,000 343,000 18,000 100.0% 5.5% Investment Custodian Expenses 28,000 28,000 28,000 28,000 28,000 0 0.0% 0.0% Pension Commission Expenses 70,000 44,498 70,000 50,000 70,000 0 0.0% 40.0% Subtotal Investment Expenses 1,778,476 1,537,974 1,618,290 1,598,290 1,191,000 (427,290) (26.4%) (25.5%) Legal Services - Special Projects 100,000 37,192 100,000 55,000 100,000 0 0.0% 81.8% Legal Services - Attorney General 7,500 0 7,500 0 7,500 0 0.0% 0.0% Administrative Hearings 5,000 0 5,000 2,500 5,000 0 0.0% 100.0% Auditing Services 393,200 223,853 268,200 193,200 271,000 2,800 1.0% 40.3% Actuarial Services 117,600 115,318 80,000 80,000 75,000 (5,000) (6.3%) (6.3%) Medical Hearings 15,000 9,400 15,000 14,000 15,000 0 0.0% 7.1% Communications Firm 50,000 0 100,000 50,000 100,000 0 0.0% 100.0% Contract Lobbyist 45,000 0 0 0 0 0 0.0% 0.0% Disability Retirement Management 50,000 0 50,000 0 0 (50,000) (100.0%) 0.0% Miscellaneous Services 25,330 44,389 23,030 30,000 11,030 (12,000) (52.1%) (63.2%) Subtotal Professional Services 808,630 430,152 648,730 424,700 584,530 (64,200) (9.9%) 37.6% Subtotal Professional Services 2,587,106 1,968,126 2,267,020 2,022,990 1,775,530 (491,490) (21.7%) (12.2%) Travel and Per Diem Expenses Non-Employee Travel Expenses 30,300 9,149 30,300 5,000 30,300 0 0.0% 506.0% Employee Training 18,889 8,359 18,889 10,000 18,889 0 0.0% 88.9% Employee Travel Expenses 18,000 12,317 18,000 5,000 18,000 0 0.0% 260.0% Subtotal Travel and Per Diem Expenses 67,189 29,825 67,189 20,000 67,189 0 0.0% 235.9% Administrative Expenses Postage 195,000 171,518 195,000 196,500 195,000 0 0.0% (0.8%) Printing and Binding Contracts 75,000 31,411 100,000 75,000 100,000 0 0.0% 33.3% Informational Services 9,791 18,223 19,791 25,000 17,791 (2,000) (10.1%) (28.8%) Rent and Maintenance 166,632 170,753 237,872 235,000 252,120 14,248 6.0% 7.3% Office Supplies 30,000 22,020 30,000 25,000 29,000 (1,000) (3.3%) 16.0% Equipment 8,500 0 78,500 70,000 8,500 (70,000) (89.2%) (87.9%) Office Relocation Expense 100,000 0 40,000 35,000 0 (40,000) (100.0%) (100.0%) Miscellaneous Administrative Expenses 45,155 26,236 46,305 52,975 52,975 6,670 14.4% 0.0% Subtotal Administrative Expenses 630,078 440,161 747,468 714,475 655,386 (92,082) (12.3%) (8.3%) Data Processing Expenses Professional Services 1,054,000 509,378 1,742,300 550,000 1,713,000 (29,300) (1.7%) 211.5% Telecommunication Services 30,000 7,811 10,000 7,500 34,340 24,340 243.4% 357.9% Rent and Maintenance 31,375 6,777 67,175 30,000 90,125 22,950 34.2% 200.4% Office Supplies 5,000 809 5,000 2,500 5,000 0 0.0% 100.0% Equipment 52,300 40,639 52,300 50,000 52,300 0 0.0% 4.6% Informational Services 3,960 0 3,960 3,960 3,960 0 0.0% 0.0% Subtotal Data Processing Expenses 1,176,635 565,414 1,880,735 643,960 1,898,725 17,990 1.0% 194.9%
Total Expenses 8,607,606 6,831,036 9,472,544 7,079,067 9,001,769 (470,775) (5.0%) 27.2%
Page 65 of 80 INTERNAL AUDIT PACKET MAY 26, 2021
Page 66 of 80 FY 21 Audit Plan Status & Budget Update
Project Status Budget Hours Actual Hours Est. to Complete Under (Over) Budget
Disaster Recovery Plan Development (FY 20) In Progress 75 74.25 3.75 (3.00)
Retirement Account Events Review (FY 20) Completed 95 102.00 0.00 (7.00)
Internal Audit Administration In Progress 125 101.75 14.00 9.25
Semi-Annual Prior Audit Recommendation Status Completed 30 19.50 0.00 10.50 Update (FY 21)
Cybersecurity (FY 21) Completed 200 183.00 0.00 17.00
Retirement Benefit Pmt. Process (FY 21) Completed 200 241.00 0.00 (41.00)
Risk Assessment & 3-Yr. Audit Plan Development In Progress 125 21.75 103.25 0.00 (FY 21)
ALICE ITGC (FY 21) In Progress 150 151.25 23.00 (24.25)
Total Audit Plan Hours* 1,000 894.50 144.00 (38.50)
Unplanned Project: Investment RFP Review Completed 0 27.25 0.00 (27.25)
* In order to complete planned projects by June 30, the total actual hours are anticipated to exceed budget. Unless directed otherwise, IA will stop work on the Risk Assessment project when actual hours incurred reach 1,000. This project will resume after July 1 and hours incurred for project completion will be applied towards the fiscal year 2022 audit plan budget.
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Retirement Benefit Payments Review Regular Retirement, Disability Retirement, and Lump Sum Payments
REPORT TO MANAGEMENT – MAY 2021
We want to thank everyone who assisted in the completion of this audit and appreciate the high level of cooperation we received, the genuine desire of all involved to identify opportunities to improve the process, and the willingness to address any issues as quickly as possible.
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OBJECTIVE Evaluate the controls around the processing of monthly retirement benefit payments, including payment lump sum option payments, to ensure they are properly designed and operating effectively. Table of Contents
I. Background and Approach 2
II. Observations and 3 Recommendations
SCOPE
The scope of the Retirement Benefit
Payments Review included members that received their first retirement benefit Distribution: payment during November 1, 2019 to October 31, 2020. Documentation such as Tom Spencer, Executive Director signed contracts, payment lump sum John Santos, Deputy Director of Operations contracts, employee retirement verification Dixie Moody, Director of Client Services data, and disability documentation were Lisa Van Liew, Assistant CFO reviewed to confirm member’s retirement complied with State Statues, and Teachers
Retirement rules. Monthly reconciliations for the agency special account where retirement benefits are disbursed were also reviewed.
CC: TRS Board of Trustees
TEAM MEMBERS Kevin Wright, Principal Hilaire Johnson, Manager Shantelle Turner, Senior Associate
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I. BACKGROUND AND APPROACH
As part of the Fiscal Year 2021 Teachers’ Retirement System of Oklahoma (TRS, “agency”) Internal Audit Plan, Stinnett & Associates (Stinnett) acting as Internal Audit, reviewed the retirement benefit payment process.
This review evaluated the internal controls within the monthly retirement benefit payment process to provide management reasonable assurance controls are properly designed and operating effectively to address operational risks and comply with TRS policies and procedures.
The following TRS employees were interviewed to obtain an understanding of the controls and processes related to retirement benefit payments: Lisa Van Liew, Assistant Chief Financial Officer Frances Rogers, Auditing & Estimates Manager Debbie Conrad, Retirement Planning Consultant Terri Giddens, Retirement Planning Consultant Lisa Miranda, Retirement Finalization Consultant
Testing procedures were performed to verify key controls were operating effectively. A population of vouchers from November 1, 2019, to October 31, 2020, was obtained. From this population, Internal Audit identified members who received their first retirement benefit payment during this period. A sample of 25 newly retired individuals was selected. The selection included six regular retirement members, five disability retirements, and 14 members that retired with payment lump sum options (PLSO).
Documentation was reviewed to confirm benefit payments were properly calculated based on service credit, sick leave, salary information and that the member met the appropriate retirement rule. Internal Audit also verified applicable retirement contracts and PLSO applications were completed and signed.
Internal audit also selected a sample of three‐monthly reconciliations of Account 1715a from which retirement benefit payments are issued. One reconciliation was tied out in detail to validate inputs and ensure the completeness and accuracy of the reconciliation. The remaining reconciliations were tested to ensure the Account 1715a account was reconciled and the reconciliation was independently reviewed.
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II. OBSERVATIONS AND RECOMMENDATIONS
MEMBER ACCOUNT AUDITS
In 2017 TRS implemented the Career Service Worksheets to address an Internal Audit recommendation which identified inconsistencies in the auditing procedures performed by Retirement Planning Consultants (RPC). The Career Services Worksheet identifies what information should be verified as part of the auditing process before a member’s retirement estimate is mailed.
RPC’s print the Career Service Worksheet, then evidence they have verified the membership dates, events, alerts, and qualified domestic orders to confirm information has been accurately reflected in the member’s account. The RPC often makes notes on the Career Service Worksheets regarding the audit before the Career Service Worksheet is scanned and saved to the member file.
OBSERVATION Career Services Worksheets have not been utilized to evidence the RPC’s audit of member accounts since March 2020 as they transitioned to working remotely. Once the RPC’s have completed an audit, they simply close the Audit Request Workflow indicating that they have reviewed all the required items.
BUSINESS IMPACT Use of the Career Services Worksheet to document the details verified during member account audit is inefficient as the worksheet must be printed, marked up and then scanned into ALICE. Additionally, lack of a formal process to document the details verified during member account audit may cause some items to be missed resulting in inaccurate benefit payment information being communicated to the member.
RECOMMENDATION Management should develop a process that would allow RPCs to electronically document that the information on the Career Worksheets has been verified. If this process cannot be documented electronically, management should develop an alternative process to capture this review (e.g. utilization of account notes). Person Estimated Management Response Responsible Completion Date Management agrees with this recommendation. After speaking Dixie Moody Completed with Stinnett during the audit process, it was determined that we needed to develop an alternative way of documenting the completion of the retirement account audit as had been done prior to staff teleworking. It was decided the RPC will print a Member Service Statement to mail to the member along with the Application to Retire and/or Retirement Projection. When the statement is printed it is also imaged into the member’s document file in ALICE. Once the form is imaged into the member’s file, ALICE will allow for notes to be made and the RPC can indicate when the
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account was audited and by whom. If any items require further review or investigation, a letter is sent to the member. Any resulting changes require an updated Member Service Statement to be printed and imaged. This new audit procedure was implemented February 18, 2021. TRS also recognizes there could be an integrated electronic process in ALICE such as a screen which replaces the Career Service Worksheet. However, this would be better suited as a feature in a replacement system for ALICE in the future.
ANNUITY CHANGES REVIEW
The Assistant Chief Financial Officer performs a monthly review of the Annuity Changes Report. The Annuity Changes Report includes all changes in individual member benefit payment amounts from the previous month to the current month. The entire report is reviewed, however, professional judgment is used to determine which items are investigated.
OBSERVATION The review of the Annuity Changes Report is performed as part of the Payment Review Checklist. However, the Annuity Changes review is not a listed step on the checklist. No additional evidence, such as written notes on the Annuity Changes Report, are maintained to evidence what accounts were investigated.
BUSINESS IMPACT An independent person cannot confirm the Annuity Changes report was reviewed or easily identify what items were investigated because of a lack of formal documentation. Additionally, back‐up persons may not perform this review as it is not documented on the Payment Review Checklist.
RECOMMENDATION Management should amend the Payment Review Checklist to include the Payment Processing Instructions and Annuity Changes Report. Notes regarding the items investigated, and the results of the investigations should be added to the Excel version of Annuity Changes Report.
Person Estimated Management Response Responsible Completion Date Management agrees with the recommendation to update the Lisa Van 05/31/2021 Payment Processing procedures. Procedures will be written to Liew include the verifications performed on the Annuity Changes report. The Retirement Benefit Payments Checklist has been updated to include a step where the Assistant CFO will review the Annuity Changes reports.
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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 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.
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.
Page 73 of 80 Teachers’ Retirement System of Oklahoma 301 NW 63rd Street, Suite 500 Oklahoma City, OK 73116 405.521.2387
RULE IMPACT STATEMENT A. BRIEF DESCRIPTION OF PURPOSE OF PROPOSED EMERGENCY RULES: These rules are proposed to comply with the statutory responsibility of the Board of Trustees in establishing rules and regulations for the administration of the System and the transaction of its business (70 O.S. § 17-101 et seq.). These emergency rules are necessary to comply with amendments and new enactments to Title 70 of the Oklahoma Statutes passed in the 2021 legislative session. TITLE 715. TEACHERS’ RETIREMENT SYSTEM CHAPTER 10. GENERAL OPERATIONS SUBCHAPTER 1. MEMBERSHIP PROVISIONS 715: 10-1-4 is being amended to comply with amendments to 70 O.S. Section 17-103 enacted by Senate Bill 683 in the 2021 legislative session and effective July 1, 2021. SUBCHAPTER 5. ESTABLISHING OTHER SERVICE CREDITS 715: 10-5-9 is being amended to comply with amendments to 70 O.S. Section 17-103 enacted by Senate Bill 683 in the 2021 legislative session and effective July 1, 2021. These amendments remove the one-year waiting period for optional personnel to join the System and also remove the ability for optional personnel to opt in and out of the System without terminating employment. 715:10-5-38 is being added to address the purchase of optional service to comply with amendments to 70 O.S. Section 17-103 enacted by Senate Bill 683 in the 2021 legislative session and effective July 1, 2021. SUBCHAPTER 11. WITHDRAWAL FROM MEMBERSHIP AND REFUND OF DEPOSITS 715:10-11-2 is being amended to comply with amendments to 70 O.S. Section 17-103 enacted by Senate Bill 683 in the 2021 legislative session and effective July 1, 2021. 715:10-11-4 is being amended to comply with amendments to 70 O.S. Section 17-103 enacted by Senate Bill 683 in the 2021 legislative session and effective July 1, 2021. SUBCHAPTER 13. CONTRIBUTIONS FOR MEMBERSHIP SERVICE 715:10-13-8 is being amended to comply with amendments to 70 O.S. Section 17-103 enacted by Senate Bill 683 in the 2021 legislative session and effective July 1, 2021.
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Page 74 of 80 SUBCHAPTER 17. POST-RETIREMENT EMPLOYMENT 715:10-17-15 is being amended to comply with amendments to 70 O.S. Section 17-116.10 enacted by Senate Bill 267 in the 2021 legislative session and effective July 1, 2021. These amendments allow certain retired persons to return to public education employment without being subject to earnings limitations. B. CLASS OF PERSON(S) AFFECTED (CLASS BEARING COST OF RULES): The class of person(s) affected by the proposed rules is the membership of the Teachers’ Retirement System of Oklahoma. C. CLASS OF PERSON(S) BENEFITTED BY PROPOSED RULES: The class of person(s) benefitted by the proposed rules is the membership of the Teachers’ Retirement System of Oklahoma.
D. DESCRIPTION OF ECONOMIC IMPACT UPON AFFECTED CLASS OF PERSONS OR POLITICAL SUBDIVISIONS: The proposed rules will provide a more efficient administration of the System, resulting in a positive economic impact upon affected classes of persons or political subdivisions. The proposed rules will not have an adverse effect on small business.
E. COST TO AGENCY, EFFECT ON STATE, INCLUDING A PROJECTED NET LOSS OR GAIN IN SUCH REVENUES: None.
F. ECONOMIC IMPACT THAT IMPLEMENTATION OF THE RULES WILL HAVE ON POLITICAL SUBDIVISIONS AND WHETHER THE IMPLEMENTATION WILL REQUIRE THE SUBDIVISION’S COOPERATION IN IMPLEMENTING OR ENFORCING THE RULE: None. The proposed rules will not have an adverse effect on small business. G. LESS COSTLY OR INTRUSIVE METHODS: None. H. DATE IMPACT STATEMENT PREPARED: June 2, 2021 715:10-1-4. Optional TRS membership [Amended] The following employees are eligible to be members of the Teachers' Retirement System at their option: (1) "Non-classified optional personnel" regularly employed for twenty (20) hours or more per week at a rate of compensation comparable to other persons employed in similar positions and receive payment for service by a school or state warrant, recorded on a
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Page 75 of 80 warrant register with standard payroll deductions, and receive benefits generally provided to regular employees. provided, (A) Any non-classified optional employee employed on July 1, 2021, shall make an irrevocable written election on a form provided by TRS to participate in or opt out of the System. If the employee fails to make an election by July 31, 2021, the employee shall be deemed to participate in the System. (B) A non-classified optional employee employed after July 1, 2021, shall have thirty (30) days from the initial date of hire to make a one-time irrevocable written election on a form provided by TRS to opt out of the System. If an eligible employee fails to make an election within the thirty-day period, the eligible employee shall be deemed to participate in the System. (C) A non-classified optional employee who opts out of participation in the System shall be ineligible for future participation in the System; provided, however, that if the employee is hired for a classified position, he or she shall become a member of the System but shall not be eligible for prior service credit for service performed while employed in a non-classified position during which time the employee opted out of participation in the System. (2) Any member absent from the teaching service who is eligible to continue membership under special provisions of 70 O.S. 17-116.2, provided that such employee continues to be employed by a governmental agency. (3) A visiting professor from another state or nation. (4) Classified and Non-Classified members employed after retirement. (See OAC 715:10-17-13). (5) Full-time, non-classified optional personnel who previously have opted out of TRS without terminating employment prior to July 1, 2021, under OAC 715:10-11-2 may revoke their election and return to TRS participation by filing a written irrevocable election on a form provided by TRS with the System no later than July 31, 2021, electing to opt in and return to TRS participation. Providing, however, that such member is not eligible to redeposit the account withdrawn under OAC 715:10-11-2 or purchase credit for service performed after termination of membership and re-instatement of membership.
715:10-5-9. Re-establishing withdrawn service [Amended] After returning to employment in the public schools of Oklahoma a member may redeposit a withdrawn account to re-establish service previously withdrawn from the system. For purposes of this section the following shall apply: (1) A "classified" and "non-classified" member (except as noted in paragraph 2 of this section) who has returned to public education employment and has established one full year (twelve calendar months) of creditable Oklahoma service, is eligible to redeposit withdrawn contributions. A redeposit of withdrawn contributions must include all applicable interest, which shall be computed at a simple interest rate of ten percent (10%) per annum from the date of the withdrawal to the date repayment is made. (2) Non-classified members who voluntarily withdrew from membership in TRS, between July 1, 1984 and June 30, 1990, without terminating employment in the public schools of Oklahoma, are not eligible to redeposit or purchase past service for any period of employment between the date of the membership period covered by the
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Page 76 of 80 withdrawn account and the date of return to membership in TRS. (3) Non-classified members who voluntarily cease monthly contributions to TRS while continuing to be employed in an eligible position shall be considered to have withdrawn from membership. (4) Requests for redeposits should be made to TRS in writing. The request must include the name in which the service was rendered, the TRS Member ID number or Social Security number, and the number of years withdrawn. (5) Documentation of this service is on file with TRS and will be verified by the staff. Service that cannot be verified must be purchased under the rule for establishing service prior to membership. (6) Repayments of withdrawn accounts may be made by active contributing members of TRS in a single lump sum, which includes the withdrawn contributions and all applicable interest, or in installment payments. Such installment payments may be paid in 12-month increments but shall be completed within 60 months. The member shall be responsible for maintaining the payment schedule. Payments are due on the first day of each month. A monthly installment not paid within sixty (60) days of the due date will result in termination of the installment payment schedule. The member will be given the option of paying the remaining balance within six (6) months. If the balance is not paid in full in the remaining six (6) month period, the redeposit will be canceled. Installment payments shall include interest based upon actuarial assumptions adopted by the TRS Board of Trustees. Such installment payments shall be completed before the member's effective retirement date. No proration is allowed for partial payments. If payments terminate prior to completion of the installment agreement, the amount paid by the member shall be refunded without interest. (7) Redepositing of withdrawn accounts must be completed, and payment made to TRS, ninety (90) days prior to the effective date of a member's official retirement date. (8) No person may make a redeposit to a member's account after the death of the member.
715:10-5-38. Credit for service as an optional employee prior to July 1, 2021 [NEW] Non-classified optional personnel who were employed prior to July 1, 2021, and who make an election to join the System by July 31, 2021, or within thirty (30) days of their date of hire, or who become classified mandatory personnel, may obtain service credit for qualified employment in public educational institutions in the State of Oklahoma for work performed as an optional, non- classified employee, prior to July 1, 2021, under certain circumstances. (1) The member shall not be eligible to purchase withdrawn service as described in OAC 715:10-5-9(2) or service for which the member had ceased monthly contributions on at any prior date as described in OAC 715:10-5-9(3). (2) The member is not receiving and is not eligible to receive retirement credit or benefits from the service in any other public retirement system of this state, the United States government, or any other state or territory of the United States. (3) The purchase price for eligible non-classified optional service credit shall be based upon actuarial cost as defined in OAC 715:10-5-4. All payments for such service credit must be made while the member is an active contributing member or within sixty (60) days
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Page 77 of 80 after the end of the member's employment in the public schools in Oklahoma. No person may purchase service credit for such employment after the member's death. (4) The payments for such service credit may be made in one lump sum or in equal monthly installments for up to sixty (60) months, as provided in OAC 715:10-5-4 and may be made as a picked-up service credit purchase in compliance with OAC 715:10-5-35. (5) The purchase of service must be completed, and payment made to TRS, no later than ninety (90) days prior to the effect date of a member’s official retirement date.
715:10-11-2. Withdrawal of optional membership while still employed [Amended] Prior to July 1, 2021, a A non-classified optional member may voluntarily terminate TRS membership while continuing employment in the public schools of Oklahoma, if: (1) Proper application is made to TRS. Withdrawal may be made no earlier than two (2) months after date of application and no earlier than the receipt by TRS of the final deposit to the member's account. (2) The financial officer of the employing school certifies the member’s election to stop contributions and the date the member's last contributions will be remitted to TRS. (3) Any member who withdraws under the conditions listed here may rejoin the Teachers' Retirement System, under the provision of OAC 715:10-1-4(8) (5). A member who terminates membership under this section cannot redeposit contributions withdrawn under this section at a later date, even if the individual returns to membership in TRS. The member will also forfeit any right to purchase service performed from the date of termination of membership under this section and prior to the re-entry date, and will forfeit any unused sick leave accumulated from the date of termination of membership under this section and prior to the re-entry date. (4) A member's contributions cannot be terminated, by either the member or the employer, without termination of TRS membership. Any member who ceases contributions while still employed in an optional position shall be deemed to have become an ineligible member of TRS and will have forfeited all rights to retirement benefits provided by TRS for the service prior to the date the member ceased contributions. (5) An employer may prevent its employees from withdrawing, under this rule, if the employer has a negotiated labor agreement, or formalized IRS plan, prohibiting such terminations and withdrawals. (6) After-tax contributions can be refunded to an optional member prior to separation from service. Pre-tax contributions cannot be refunded until the member terminates employment or turns 62. Following termination of employment, TRS should be contacted for the proper form to be completed for return of pre-tax contributions. Upon completion of mandatory four-month waiting period, payment of the balance of the account will be made at the same time as regular withdrawals.
715:10-11-4. Refunds of contributions [Amended] (1) Refunds for overpayment of employer annual contributions and employer membership service contributions of less than six (6) months shall be made upon request by the employing
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Page 78 of 80 school if the payment of contributions or service purchase was made based on a mistake of fact or law. (1) (A) Refunds to members who are terminating accounts will not be made until the final contributions of the withdrawing member is received and posted to his account. The required application must be completed and on file. The amount to be returned to the employer is the excess of the amount contributed or paid over the amount that would have been contributed or paid had no mistake been made. (2) (B) No interest shall be paid on refunds for this purpose. (2) Refunds of excess employee contributions shall be distributed to the member as soon as practical through a lump sum payment for all past overpayments with appropriate interest under OAC 715:10-11-1. The distribution shall be reported on IRS Form 1099-R for the year of the distribution.
715:10-13-8. Procedure for making contribution deductions [Amended] The Teachers' Retirement System contribution deduction shall start with the payment for the first month of a "classified" employee's contract, or the first month of membership for an optional "non-classified" member. This contribution shall be based on the total compensation for the month, but shall not apply to the compensation of a substitute teacher or any employee working on a less than one-half time basis. Individuals who join the Teachers' Retirement System during the school year, and who have been employed prior to becoming a member, must make retroactive contributions from the beginning of that school year. The membership date of such a member is the date of first payment not the beginning of the school year. The member shall not receive credit for a year of service until the balance of contributions, including any contributions required by the employer, are received by TRS. Interest compounded annually at ten percent (10%) per annum shall be levied against the balance due until paid. (1) The total deductions in any one school year shall not exceed the maximum limit prescribed by statutes as defined in OAC 715:10-13-3. (2) In determining the amount of the contribution for a member in any payroll period, the employer shall consider the total compensation earned from all sources. The contribution shall be calculated on the gross compensation before any deductions, such as tax-sheltered annuity, income taxes, Social Security, etc. Deductions shall be made at the statutory contribution rate on each month's compensation until the maximum annual compensation level is reached. Total monthly compensation shall be reported in the monthly salary column of the remittance report. Monthly compensation includes gross wages and fringe benefits paid or provided by the remitting agency. (3) Monthly contributions for employees of a comprehensive university, whose maximum compensation level is less than the member's regular annual compensation, may be remitted in twelve equal payments to the member's account during the school year. It shall be the responsibility of the employer to insure any required adjustment in contributions is made if a member terminates employment or the member's salary changes during the school year. (4) Contributions must be remitted monthly as long as the individual is employed in a position for which membership is a condition of employment. No member, including non- classified optional employees, may terminate contributions and retain membership in Teachers' Retirement System,. except as expressly provided elsewhere in the statutes or TRS rules.
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Page 79 of 80 (5) As of July 1, 1979, members who signed a waiver to contribute on a maximum annual salary of $7,800 are required by law to contribute on their total compensation not to exceed any current maximum contribution level. (6) The Department of Corrections shall contribute the employer's share to the Teachers' Retirement System. The contribution shall be the same dollar amount required of the member.
715:10-17-15. Salary limitations for certain returning classroom teachers [Amended] Legislation enacted during the 2017 legislative session allows members teachers who retired on or before July 1, 2017 to return to employment as a classroom teacher for a public school or career technology district with no earnings limitations in certain circumstances. Members seeking to return to employment as a classroom teacher under this provision must meet all of the following requirements: (1) The member must have been employed as an active classroom teacher as is defined in 70 O.S. § 17-101(27) for at least one full school year immediately prior to their date of retirement. Members employed as superintendents, administrators, or in other non- classroom teacher positions during the school year immediately preceding retirement are ineligible; (2) The member can only be employed as an active classroom teacher as defined in 70 O.S. § 17-101(27) when they return to employment; (3) The member must have been retired and drawing a TRS retirement benefit and not be employed by any public school or career technology district in any capacity for the twelve (12) consecutive months immediately following the last day of employment prior to their retirement date; and (4) Prior to the member's return to employment the member must provide to TRS on forms prescribed by TRS, documentation establishing their eligibility under this provision. This documentation must be accepted by and approved by TRS prior to the member commencing employment under this provision. Legislation enacted during the 2021 legislative session allows members who retired on or before July 1, 2020, to return to employment as an active classroom teacher for a public school or career technology district with no earnings limitations in certain circumstances. Members seeking to return to employment as an active classroom teacher under this provision must meet all of the following requirements: (1) The member must have been retired as of July 1, 2020; (2) The member must have been retired and drawing a TRS retirement benefit and not be employed by any public school or career technology district in any capacity for a period of twelve (12) consecutive months immediately following the last day of employment prior to their retirement date; (3) The member can only be employed as an active classroom teacher as defined in 70 O.S. § 17-101(27) when they return to employment; and (4) Within sixty (60) days of the member's return to employment the member’s employer must provide to TRS on a form prescribed by TRS, documentation establishing the member’s eligibility under this provision.
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