2015 – 2016 Biennial Report

Texas Pension Review Board 2015 – 2016 Biennial Report

Texas Pension Review Board 2015-2016 Biennial Report

Josh B. McGee, Chair Position: Securities Investment, Pension Administration, or Pension Law Term Expiration: January 31, 2021

Hometown: Houston

Keith Brainard, Vice Chair J. Robert Massengale Position: Securities Investment, Pension Position: Retired Member Administration, or Pension Law Term Expiration: January 31, 2017 Term Expiration: January 31, 2019 Hometown: Lubbock Hometown: Georgetown Robert M. May Andrew W. Cable Position: Actuarial Science Position: Active Member Term Expiration: January 31, 2019 Term Expiration: January 31, 2019 Hometown: Austin Hometown: Wimberley Ernest Richards Stephanie Leibe Position: Securities Investment, Pension Position: Governmental Finance Administration, or Pension Law Term Expiration: January 31, 2021 Term Expiration: January 31, 2021 Hometown: Austin Hometown: Irving

Anumeha Executive Director

November 30, 2016

The Texas Pension Review Board (PRB) is pleased to present this Biennial Report on its activities and findings for 2015 through 2016. During this biennium, the PRB has worked diligently to execute its mission to provide information and recommendations to help ensure that Texas public retirement systems are properly managed and actuarially sound.

The PRB service population consists of the members, administrators, and trustees of 94 Texas public retirement systems; state and local government officials; and the general public. The total membership of actuarially-funded Texas public retirement systems is over 2.4 million active and retired members and the total net assets of the plans are approximately $241 billion.

Over the last two years, the PRB has undertaken many important activities, including Joshua B. McGee enhancing its continuing review of retirement systems; updating its key policies to more Chair closely monitor systems’ financial soundness; providing technical support to systems, Keith Brainard Vice Chair including comparative information for other systems and best practices; and providing education to systems’ trustees and administrators. The 84th Legislature charged the PRB Andrew W. Cable with additional duties and responsibilities. Through its limited staff and resources, the PRB Stephanie V. Leibe has made great efforts to accomplish its new and existing mandates. In compliance with J. Robert Massengale the new statutory requirements, the agency established a mandatory training program for

Robert M. May retirement system leaders; created, updated, and distributed the Iran List; and has

Ernest Richards, Esq. provided technical assistance and training to TLFFRA systems specifically addressing their unique needs.

Additionally, with the goal to keep policymakers and retirement systems informed of

current developments and disseminate accurate information as they weigh important decisions impacting public pensions, the PRB published reports on public pension

developments at the federal level; closely monitored and analyzed the new public pension

plan accounting and disclosure practices and actuarial standards; and continually updated

Anumeha “Anu” its website with online courses in foundational pension topics, reports, and other public Executive Director pension-related information. Additionally, the PRB presented numerous reports to the Mailing Address: House Committee on Pensions during its interim hearings, including analyzing the P.O. Box 13498 Austin Texas 78711-3498 condition of all Texas public retirement systems and conducting intensive reviews of

Telephone: specific municipal retirement systems undergoing funding challenges. (512) 463-1736 (800) 213-9425 The PRB is the sole on-going oversight mechanism for Texas public retirement systems. To Fax: (512) 463-1882 fulfill its mission requires the combined effort of the systems, their sponsoring governmental entities, and other members of the Texas public pension plan community. Web Site: www.prb.state.tx.us The PRB is honored to serve the State of Texas and will remain focused to help ensure that

Email: retirement benefits are securely provided at the lowest cost to the taxpayers. [email protected] Sincerely,

Josh McGee Chairman

Texas Pension Review Board 2015-2016 Biennial Report

TABLE OF CONTENTS EXECUTIVE SUMMARY...... 1 PENSION REVIEW BOARD OVERVIEW ...... 3 MISSION STATEMENT AND PHILOSOPHY ...... 3 STATUTORY FUNCTIONS ...... 3 BOARD COMPOSITION ...... 3 ORGANIZATIONAL ASPECTS ...... 4 MAJOR ACCOMPLISHMENTS & ACTIVITIES ...... 5 PUBLIC RETIREMENT SYSTEM REVIEWS, ANALYSIS, AND PRESENTATIONS ...... 5 BOARD POLICY UPDATES ...... 6 REPORTING REQUIREMENTS ...... 7 REPORTS ...... 8 PRB MINIMUM EDUCATIONAL TRAINING (MET) PROGRAM ...... 10 SPECIFIC ASSISTANCE FOR TLFFRA SYSTEMS ...... 13 RESEARCH AND PUBLIC PENSION DEVELOPMENTS ...... 14 ONLINE RESOURCES...... 15 84TH LEGISLATURE ...... 15 APPENDICES ...... 16 APPENDIX A1 – PRESENTATION TO HOUSE COMMITTEE ON PENSIONS APRIL 13, 2016 ...... I APPENDIX A2 – PRESENTATION TO HOUSE COMMITTEE ON PENSIONS JUNE 13, 2016...... II APPENDIX A3 – PRESENTATION TO SELECT COMMITTEE ON STATE AND FEDERAL POWER AND RESPONSIBILITY SEPTEMBER 13, 2016 ...... III APPENDIX A4 – PRESENTATION TO HOUSE COMMITTEE ON PENSIONS SEPTEMBER 29, 2016 ...... IV APPENDIX B – ACTUARIAL REVIEW POLICY ...... V APPENDIX C – HB 3310 FLOW CHART ...... VI APPENDIX D – FUNDING SOUNDNESS RESTORATION PLAN COMPLIANCE REPORT ...... VII APPENDIX E – MET CURRICULUM GUIDE ...... VIII APPENDIX F – MET COMPLIANCE REPORT ...... IX APPENDIX G – IRS NORMAL RETIREMENT AGE RULES...... X APPENDIX H – THE PUBLIC EMPLOYEE PENSION TRANSPARENCY ACT 2016 ...... XI APPENDIX I – 84TH REGULAR LEGISLATIVE SESSION REPORT ...... XII

Texas Pension Review Board 2015-2016 Biennial Report

EXECUTIVE SUMMARY The Texas Pension Review Board (the “Board” or the “PRB”) was established in 1979 as an oversight agency for Texas public retirement systems. Pursuant to Texas Government Code, Section 801.203, the PRB is pleased to summarize its work and findings for 2015-2016 in the following Biennial Report.

The PRB remains committed to its mission to provide the State of Texas with the necessary information and recommendations to help ensure that Texas public retirement systems are properly managed and actuarially sound. Texas public retirement systems require consistent, long-term management to ensure that they remain adequately funded into the future.

While the majority of Texas’ public retirement systems remain well-funded, significant fiscal challenges face some municipal pension plans, including the Dallas Police and Fire Pension System (DPFPS or the System). The DPFPS is facing an imminent funding shortfall with a projected asset depletion date of 2028. In 2015 and 2016, as the DPFPS was considering plan design changes, the agency provided technical support, including comparative information for other pension systems and best practices. The PRB invited the System to its May meeting to discuss the funding challenges and more recently, invited the System and the City of Dallas to provide an update on plans for addressing the funding shortfall at its meeting on November 3. As part of its statutory duty, the PRB will continue to recommend policies and best practices and provide information and technical assistance to the Dallas Police and Fire Pension System.

The PRB is anticipating significant pension bills in the upcoming 85th Legislative Session. To date, 18 pension-related bills have been filed since pre-filing began on November 14, 2016. As part of its mandate, the PRB will continue to work with the Legislature to provide thorough and accurate analysis for each bill.

Over the past two years, the PRB has worked to update the Policy for Determination of System Actuarial Review, and is undergoing an update of the PRB Guidelines for Actuarial Soundness. Updating both Board policies required an extensive amount of research; several requests for input and comments from public retirement systems, their actuaries, and the public; and several Actuarial Committee and Board meetings. The Board adopted the updated Policy for Determination of System Actuarial Review on May 5, 2016, and the PRB Guidelines for Actuarial Soundness is still under review.

With the new funding soundness restoration plan (FSRP) formulation requirement, the PRB has increased communication with public retirement systems to keep them informed of updated requirements and due dates. Staff has begun receiving FSRPs and is in the process of analyzing the plans.

The agency has enhanced the continuing review of retirement systems by conducting trend, financial, cash flow, and actuarial analysis, and comparative studies of Texas public retirement systems and is available to provide actuarial services to smaller retirement systems. In particular, the PRB has focused on Dallas and Houston systems, performing intensive reviews comparing key actuarial and financial indicators from 2000 to present, as well as analyzing proposed plan changes upon request.

Additionally, in 2015, the agency conducted a legislative training session, published the Guide to Public Retirement Systems in Texas to be used as a resource for the 84th Legislature, and tracked bills and companions pertaining to Texas public retirement systems.

Texas Pension Review Board 2015-2016 Biennial Report

The Board submitted reports to the House Committee on Pensions on several occasions during the Interim, including traveling to Dallas and Houston to provide current information on their municipal systems. Among other things, the reports analyzed the overall financial health of the systems, including systems’ funding trend, investment performance, and actuarial soundness.

The PRB also provided testimony during the Interim to the House Select Committee on State and Federal Power and Responsibility regarding the agency’s activities and duties for the Prohibition on Investment in Iran: List of Scrutinized Companies that is mandated by Chapter 807, Texas Government Code.

The PRB has been providing education to trustees and system administrators of Texas public retirement systems. The Minimum Educational Training (MET) Program took effect on January 1, 2015. Under the new MET Program, the Board adopted rules to establish requirements and standards for training, including minimum hours, frequency, content, and accreditation of educational sponsors. Compliance with the MET Program can be found in the appendix of this report.

Additionally, the agency’s TLFFRA specialist has been working closely with TLFFRA systems to provide technical assistance and training. The PRB published its first Texas Local Firefighters Retirement Act (TLFFRA) Pension Report in February of 2016, which utilized data that TLFFRA systems are required to send to the PRB to provide general and comparative information on all paid/part-paid TLFFRA systems.

Texas Pension Review Board 2015-2016 Biennial Report

PENSION REVIEW BOARD OVERVIEW MISSION STATEMENT AND PHILOSOPHY The Pension Review Board (PRB) is mandated to oversee all Texas public retirement systems, both state and local, in regard to their actuarial soundness and compliance with state law. The mission of the PRB is to provide the State of Texas with the necessary information and recommendations to help ensure that our public retirement systems, whose combined assets total in the multi-billions, are actuarially sound; benefits are equitable; the systems are properly managed; tax expenditures for employee benefits are kept to a minimum while still providing for those employees; and to expand the knowledge and education of administrators, trustees, and members of Texas public retirement systems.

The PRB will act in accordance with the highest standards of ethics, accountability, efficiency, and openness. We are proud to be of service to the state by providing information and recommendations to help ensure that promised pension benefits are provided to the public retirement systems' annuitants and in seeing that tax dollars are spent most efficiently.

STATUTORY FUNCTIONS The PRB was established by H.B. 1506, 66th Legislature, R.S. (V.T.C.A., Title 8, Chapter 801, Government Code,) effective September 1, 1979, as an oversight agency for Texas public retirement systems. The general duties of the PRB outlined in Chapter 801 of the Government Code are to (1) conduct a continuing review of all public retirement systems, including compiling and comparing information about benefits, creditable service, financing and administration of systems; (2) conduct intensive studies of potential or existing problems that threaten the actuarial soundness of public retirement systems; (3) provide educational services to the trustees and system administrators of Texas public retirement systems; (4) provide information and technical assistance on pension planning to public retirement systems on request; (5) recommend policies, practices, and legislation to public retirement systems and appropriate governmental entities; and (6) prepare actuarial impact studies on proposed legislation. The Board can furnish other appropriate services such as actuarial studies or other requirements of systems and can establish appropriate fees for these activities and services.

BOARD COMPOSITION The Board is composed of seven members appointed by the Governor with the advice and consent of the Senate. The PRB is composed of members with the following qualifications or experience: three persons who have experience in the fields of securities investment, pension administration, or pension law and are not members or retirees of a public retirement system; one active public retirement system member; one retired public retirement system member; one person who has experience in the field of governmental finance; and one actuary.

Since the publication of the 2013-2014 Biennial Report, the following changes have occurred in the Board’s composition. On November 30, 2015, Governor Greg Abbott appointed Mr. Josh McGee as presiding officer of the PRB, replacing Mr. Paul Braden. Also on November 30, 2015, Governor Abbott appointed Ms. Stephanie V. Leibe to replace Wayne R. Roberts whose term expired; and Ernest Richards to replace Leslie L. Greco-Pool whose term expired.

Texas Pension Review Board 2015-2016 Biennial Report

ORGANIZATIONAL ASPECTS Currently, the PRB has 13 employees including the executive director. The agency is authorized for 15 total full time equivalents (FTEs), but funding is available for only 14. Through its limited number of employees, the PRB has increased staff expertise to allow for more complex analysis of plans correlating to the demographic shifts in the state and investment complexity of pension funds. As issues involving public pensions grow more sophisticated, the PRB staff provides a high quality of work for Texas public retirement systems, their administrators, trustees and members, as well as the Legislature and the public.

The executive director, selected by the Board, manages the day-to-day operations of the agency and provides oversight for all programs and activities. The agency is organized based on two main work areas: operational and analytical.

Operational Administrative and Accounting Division The administrative division is responsible for document management, records retention, managing customer contact information, organizing board and committee meetings, and providing all necessary administrative support for the agency. The division handles all matters related to human resources and accounting including management of appropriated funds, purchasing and property control, personnel files, and coordinating board member travel.

Analytical Actuarial Division The actuarial division provides actuarial expertise to the agency, public retirement systems, the Legislature, and the public. The division is responsible for evaluating compliance with the PRB’s Guidelines for Actuarial Soundness and providing in-depth actuarial review of system actuarial reports including actuarial valuations, overseeing the actuarial analysis process, and providing actuarial reviews during legislative sessions.

Policy and Finance Division This division is responsible for reviewing public retirement system’s financial condition, conducting research on pension-related topics, and developing agency policies. Responsibilities include examining retirement system reports, performing financial analysis, and providing technical assistance to retirement systems. The division is also responsible for ensuring retirement systems’ compliance with state reporting requirements, tracking federal and state laws impacting Texas public retirement systems, and developing agency reports to the Legislature and other state agencies.

Training and Accreditation Division This division is responsible for the agency’s educational programs, including developing and administering the agency’s new Minimum Educational Training (MET) Program for trustees and system administrators. The division develops the PRB’s own training, including online offerings, accredits other training provides, and tracks reporting compliance with the MET requirements.

Texas Pension Review Board 2015-2016 Biennial Report

MAJOR ACCOMPLISHMENTS & ACTIVITIES PUBLIC RETIREMENT SYSTEM REVIEWS, ANALYSIS, AND PRESENTATIONS Public Retirement System Intensive Reviews The Dallas Police and Fire Pension System (DPFPS) came before the Pension Review Board (PRB or Board) at its meeting on May 5, 2016, to give a presentation on the current status and challenges the system is facing. The current financial and actuarial status of the System is of great concern to the PRB due to its infinite amortization period and a projected insolvency date of 2028, if changes are not made to the System. The Board requested more information on how the System’s new management is addressing these issues and challenges.

In preparation for the May 5, 2016, PRB meeting, staff put together a review of the financial and actuarial history of the DPFPS. This review consisted of the observation of data the PRB received from the system within actuarial valuations, financial reports, investment return and assumptions reports, investment policies, membership reports, and plan documents since 2000. The data was then presented to the Board, which also received a presentation from DPFPS Executive Director, Kelly Gottschalk, about the status of the pension system and their plans to address plan funding going forward. In her presentation, Ms. Gottschalk discussed the challenges that the plan faces including: a low active to retired members ratio, fixed city and employee contribution rates set by state statute, costly Deferred Retirement Option Plan (DROP) program provisions, a previous long actuarial smoothing period, overstated real estate asset values, a high rate of return assumption, plan amendments based on flawed information, and a loss of a decade of investment returns. The fund has since lowered its assumed rate of return to 7.25 percent as of 2014. It is proposing plan design changes to further lower the DROP interest rate and to increase contributions in an attempt to mitigate some of these challenges.

At its November 3, 2016 PRB meeting, agency staff provided an update of the data provided in May. Dallas Police and Fire Pension System and the City of Dallas were invited and presented to the Board. The presentations can be found on the PRB's website, in the May 5 and November 3 Board meeting packets.

Presentations to the Legislature & Interim Hearings During the 84th Texas Legislative Session, on February 23, 2015, the agency presented to the House Committee on Pensions information about the agency and its duties, the general landscape of Texas’ public retirement systems, the key findings and recommendations of the Study of Financial Health of Texas Public Retirement Systems that was published in December 2014, and the changes made to the Governmental Accounting Standards Board’s (GASB) reporting standards. The agency also testified as a resource witness and provided technical assistance on pension-related bills to various legislative offices during session.

On April 13, 2016, the PRB presented a report to the House Committee on Pensions on Interim Charge #6: “Conduct legislative oversight and monitoring of the agencies and programs under the committee’s jurisdiction and the implementing of relevant legislation passed by the 84th Legislature.” The PRB’s report on this charge defined the agency’s composition, functions, and current and future activities. The presentation also included information on the financial health of Texas’ public retirement systems and

Texas Pension Review Board 2015-2016 Biennial Report

provided trend data on amortization periods, funded ratios, assets and liabilities, rates of return, and current challenges.(See Appendix A1)

On June 16, 2016, the PRB presented a report to the House Committee on Pensions in Houston regarding Interim Charge #4: “Examine the fiscal and policy impacts of structural reforms that would increase state public pension plans' ability to achieve and maintain actuarial soundness. Evaluate the feasibility, costs, and benefits of utilizing one-time funding increases to reduce or eliminate unfunded liabilities.” The PRB’s report provided extensive individual and comparative information on plan provisions, funding trends, assets and liabilities, contributions, cash flow, investments, and GASB pronouncements for the Houston Firefighters’ Relief and Retirement Fund, the Houston Municipal Employees Pension System, and the Houston Police Officers’ Pension System. (See Appendix A2)

On September 13, 2016, the agency presented a report to the Select Committee on State and Federal Power and Responsibility on Interim Charge #3: “Examine the status of Texas statutes prohibiting or restricting investment in foreign nations. Determine whether and to what extent Texas has the authority to continue or renew its own economic sanctions in light of recent and potential future actions by the federal government.” The presentation provided information on the PRB’s Texas Prohibition on Investment in Iran: List of Scrutinized Companies and outlined the statutory requirements contained in Texas Government Code, Chapter 807, Prohibition on Investment in Iran. (See Appendix A3)

On September 29, 2016, the PRB presented to the House Committee on Pensions in Dallas concerning Interim Charge #5: “Evaluate the investment performance benchmarks utilized by the state’s pension funds and the impact portfolio diversification and short- and long-term market assumptions have had on achieving expected investment returns. Analyze the fee structure and investment strategy for various investment classes to ensure the costs are reasonable and competitive versus other large public and private pension trust funds.” The presentation provided an extensive overview of the Dallas Employees’ Retirement Fund, the Dallas Police and Fire Pension System, and the Fort Worth Employees’ Retirement Fund. It included information on plan provisions, funding trends, assets and liabilities, contributions, demographics, investments, asset allocations, and GASB pronouncements, as well as information on the financial challenges currently threatening the Dallas Police and Fire Pension System. Additionally, the Dallas Police and Fire Pension System, the Dallas Employees’ Retirement Fund, and the Fort Worth Employees’ Retirement Fund, and their sponsoring entities gave presentations at this hearing. (See Appendix A4) BOARD POLICY UPDATES Actuarial Review Policy In accordance with Government Code, Section 801.202, the PRB is required to review all actuarial reports submitted by public retirement systems. The Policy for Determination of System Actuarial Review was created to help monitor the status of systems that do not meet the PRB Guidelines for Actuarial Soundness. In February 2016, the PRB began updating the Policy to incorporate the new funding soundness restoration plan (FSRP) formulation requirement which was added to Chapter 802 of the Texas Government Code during the 84th Legislative Session. At the February board meeting, the staff provided a proposed update to the policy for Board approval. The proposed revision was then sent to public retirement systems on March 11, 2016, to solicit comments. At its May 5, 2016, Board meeting, after considering the comments received, the Board approved the final updated Policy for Determination of System Actuarial Review. The updated Actuarial Review Policy bases the determination

Texas Pension Review Board 2015-2016 Biennial Report

of an actuarial review of a system on the statutory requirement of an over-40-year amortization period, rather than the PRB Guidelines for Actuarial Soundness. The policy is intended to allow the PRB to communicate with systems once the first over-40-year valuation is received. (See Appendix B)

PRB Guidelines for Actuarial Soundness The PRB Guidelines for Actuarial Soundness (Guidelines) were adopted by the PRB in 1984. The stated purpose of establishing guidelines was three-fold: to lend consistency to positions advocated in impact statements, to aid in providing technical assistance to registered plans, and to promote public disclosure. The PRB revisited the Guidelines in 1996, but took no action until the adoption of the updated Guidelines in 2011.

At its May 5, 2016, meeting, the Board directed staff and the PRB Actuarial Committee to begin the process of reviewing and updating the Guidelines. The PRB Actuarial Committee held meetings on June 20 and July 14, 2016, to guide staff in creating a survey regarding possible Guidelines changes. The survey was sent to systems, their actuaries, and other interested parties in August following approval from the Board at its meeting on August 4. The survey contained eleven questions with the option to provide additional comments. The PRB received 20 responses.

The PRB Actuarial Committee met on September 15, 2016, to discuss the responses to the survey. PRB staff presented a summary of responses by topic as well as the entirety of the comments to the Committee to aid in discussion. The Committee invited public testimony and heard from several systems and their actuaries. The Committee provided the staff with recommendations to be discussed at the next Board meeting.

The PRB met on November 3, 2016, and discussed the survey, results, and committee recommendations from the September Committee meeting. The Board invited public testimony and directed staff to update the Guidelines based on the discussion and to send the updated proposed Guidelines to systems for comment in November to be discussed at the PRB Actuarial Committee meeting in December.

REPORTING REQUIREMENTS Funding Soundness Restoration Plan The 84th Legislature passed HB 3310, which amended Chapter 802 of the Texas Government Code to expand and update the reporting requirements for public retirement systems. The Funding Soundness Restoration Plan (FSRP) was outlined through the addition of Chapter 802.2015 and 802.2016 of the Texas Government Code. The Chapters state that a public retirement system is required to notify its associated governmental entity if it receives an actuarial valuation indicating the system's actual contributions are insufficient to achieve an amortization period of 40 years or less. Should the system's amortization period exceed 40 years over several valuations, the public retirement system and its associated governmental entity would be required to formulate an FSRP in accordance with the system's governing statute. The FSRP must be designed to achieve an amortization period of 40 years or less by the tenth anniversary of the date on which the final version of the plan is agreed to. The FSRP requirement varies for certain systems, including exemption from the requirement. A flowchart outlining the requirements may be found in Appendix C.

Texas Pension Review Board 2015-2016 Biennial Report

The PRB requested clarification from the bill author, Representative Dennis Paul, regarding future implementation deadlines of the funding soundness restoration plan (FSRP) requirement. In his response, Representative Paul stated that subsequent FSRPs have a formulation deadline of six months after the date on which the actuarial valuation that triggers the FSRP formulation requirement is adopted by the boards of trustees of retirement systems. The PRB sent a memo to retirement systems informing them of this clarification for future deadlines.

Systems must submit a copy and any changes to the plan to the PRB within 31 days after the FSRP is agreed to. If applicable, the initial FSRP must have been formulated by November 1, 2016. Additionally, the PRB must be notified every two years of any updates to the progress made towards improved actuarial soundness.

Retirement systems were sent a memorandum in August of 2015, outlining the changes in statute, as well as an implementation memorandum to follow on January 11, 2016. That memo specified which plans would be considered immediately subject to the FSRP formulation requirement, as well as the requirements for formulating an FSRP.

Staff prepared the first FSRP report for PRB meetings in February of 2016, and provided updates for the subsequent PRB meetings. The list includes systems immediately subject to the FSRP formulation requirement, and is followed by a list of systems at risk of being subject to the FSRP formulation requirement. The PRB has prepared a FSRP Compliance List which expands on the lists provided for the PRB meetings. To date, there are 14 systems immediately subject to the FSRP formulation requirement.

The PRB has received a majority of FSRPs from systems immediately subject to the formulation requirement. Some plan changes included in the FSRPs the PRB has received include the lowering of benefits for future employees, amending the deferred retirement option plan (DROP), and increasing employee and employer contribution percentages. The FSRP compliance report is included in Appendix D. An update will be provided to the Legislature in early 2017. (See Appendix D)

GASB Statements 67 and 68 In June of 2012, the Governmental Accounting Standards Board (GASB) approved two new statements, GASB 67 and 68, relating to financial reporting for state and local public retirement systems. These replaced GASB Statements 25 and 27 respectively. The first GASB 67 disclosures were required within system audited financial statements for plan fiscal years ending June 30, 2014. In January of 2015, the PRB began receiving annual financial reports and worked with the systems to ensure that the GASB disclosures were included within the audits to maintain compliance with PRB reporting requirements. Additionally, the PRB has included GASB reported information in its updates to the Legislature. REPORTS Actuarial Valuation Report Updates The PRB regularly compiles actuarial valuation (AV) information from each of the 94 defined benefit pension systems it oversees. For every Board meeting, PRB staff produces an AV Report which is comprised of tables that provide an actuarial snapshot of the retirement systems’ financial health with information obtained from their most recent AVs. The AV Report includes a main report table that contains funded ratio and asset and liability data, compared over the previous two actuarial valuations. There is also a supplemental report that includes information on covered payroll, unfunded liability as a

Texas Pension Review Board 2015-2016 Biennial Report

percent of covered payroll, and active members. The report is arranged by amortization period in descending order and is color-coded by amortization period ranges. After each Board meeting the AV Report is available on the PRB’s website in an accessible spreadsheet format.

Beginning in May 2016, the Board directed the Actuarial Committee and staff to update the AV Report to include various additional data points, not only from actuarial valuations, but also from other reports such as the plans’ annual financial report, to include GASB information such as the net pension liability and investment rate of return reports. The Committee spent two meetings deliberating the layout and content of the main AV Report and to add two secondary reports. The Committee then provided recommendations to change the old AV Report to the Board. The Board decided to expand the main report to include more comprehensive actuarial valuation statistics such as discount rates and market values of assets. Additionally, the Supplemental AV Report now contains pertinent GASB and 10-year return data and the Contribution Report tracks contribution sufficiency info by incorporating a comparison of actual and recommended contribution for all plans. The organization of the main AV Report with regards to the amortization period in descending order and color-coding by amortization period ranges stayed the same. The updated AV report including the Supplemental and Contribution reports were presented to the Board at its November 3, 2016 meeting.

List of Scrutinized Companies Doing Business in Iran Chapter 807, Texas Government Code contains the prohibition on investment in Iran for statewide public retirement systems. The chapter requires the PRB to prepare and provide a list of scrutinized companies doing business in Iran. This list is required to be updated at least annually; and the Chapter states the Board may rely on publicly available information to compile the list. The PRB provides the list to the Teacher Retirement System of Texas, the Employees Retirement System of Texas, the Texas County and District Retirement System, the Texas Municipal Retirement System, and the Texas Emergency Services Retirement System, as well as the presiding officer of each house of the Legislature and the Attorney General.

The PRB adopted the original procedure for maintaining the list of scrutinized companies and provided the original list to the statewide retirement systems in 2013. In accordance with amendments made by the 84th Legislature to Chapter 807, that procedure was updated in October 2015 to allow 30 rather than 14 days, for statewide systems to submit their responses to the Iran List to the PRB. Thus far, the list was updated in October 2014, September 2015, and most recently in April 2016.

PRB Guide to Public Retirement Systems Every odd-numbered year, usually in January or February, the PRB publishes the Guide to Public Retirement Systems in Texas. This publication is timed to coincide with the beginning of each legislative session. Due to expected policy interest concerning public retirement systems, the PRB included information in the Guide to Public Retirement Systems in Texas to allow lawmakers to have as much relevant and current information on the state’s retirement systems as possible. The Guide was divided into three major sections. The first section contains summaries of the statewide and municipal retirement systems governed by state statute. The second section provides trends and key financial, actuarial, benefit, and governance data for retirement systems. The third section provides a summary of significant pension-related legislation passed in prior legislative sessions, benefit information for the pay-as-you-go volunteer firefighter and defined contribution retirement systems, a glossary of pension

Texas Pension Review Board 2015-2016 Biennial Report

terminology, and a directory of all systems registered with the PRB. The February 2015, Guide to Public Retirement Systems in Texas, can be found on the agency’s website. PRB MINIMUM EDUCATIONAL TRAINING (MET) PROGRAM Section 801.211 to the Government Code directs the PRB to develop and administer an educational training program for trustees and administrators of Texas public retirement systems. The PRB began the Minimum Educational Training (MET) Program on January 1, 2015. Program efforts include the development of a system to track compliance requirements beginning January 1, 2015; the accreditation of other training programs; regular communication with systems about the Program; and the development of free online training available to the public.

Curriculum Guide for Minimum Educational Training In September 2015, the PRB created the Curriculum Guide for Minimum Educational Training to provide further guidance on curriculum to training sponsors. The Curriculum Guide provides sub-topics that should be covered for both the core and non-core content areas. The Curriculum Guide also includes learning objectives for each of the seven core content areas. In February 2016, the Curriculum Guide was amended to require that an MET training activity cover 100 percent of the sub-topics and leaning objectives for core content areas. (See Appendix E)

Online Courses The PRB has researched, written, designed, and published online courses to assist trustees and system administrators to obtain required training. Each course covers one of the core content areas: Fiduciary Matters, Governance, Actuarial Matters, Investments, Risk Management, Ethics and Benefits Administration. On January 7, 2016, the PRB published its first online course: Benefits Administration. To date, six of the seven courses have been released, and the seventh course is scheduled for release in early December of this year. The courses include original content covering MET Curriculum Guide sub- topics and learning objectives, as well as knowledge checks and quizzes to evaluate participants’ knowledge of the material presented. Participants are also encouraged to fill out a short survey on the courses following course completion to provide the PRB with feedback regarding the quality of instruction. Trustees and system administrators who successfully complete all seven courses satisfy the MET Core requirements. The online courses can be found on the PRB website.

Sponsor Accreditation The PRB has accredited 12 MET sponsors, as well as 10 individual courses offered by non-accredited sponsors. Frequent providers of training activities, including public retirement systems conducting in- house training, may apply to become sponsors accredited by the PRB to conduct trainings for MET credit hours. Those sponsors who become accredited do not need to obtain approval for each course offered; sponsors may be accredited to offer Core instruction, Continuing Education, or both. A retirement system or training organization offering infrequent training activities, and which does not wish to become an accredited sponsor, may apply for approval of individual courses. The PRB has created a sponsor and course application evaluation process and is currently establishing processes for sponsor renewal.

Texas Pension Review Board 2015-2016 Biennial Report

Rule Amendments The PRB approved amendments to the MET rules contained in the Texas Administrative Code. The proposed amended rules were published in the Texas Register for public comment on March 18, 2016, adopted by the Board on February 11, 2016, with the final rules being published in the Texas Register on July 29, 2016. These amendments include provisions allowing trustees and system administrators who have completed training up to six months prior to the beginning of service to count that training toward the 1-year core requirement, as well as provisions requiring online or other electronically-delivered courses to provide, at a minimum, a completion code to the participant upon successful completion of the course. The amendments also changed the due dates for the Minimum Education Training Program Form (PRB-2000) from September 1 and February 1 to October 1 and March 1 respectively.

Forms The PRB has developed forms for use by retirement systems to report their trustees and system administrator subject to MET requirements (PRB-150); a system administrator exemption letter, which allows systems to request an exemption from the training requirement if they do not have a system administrator; to request credit for previous training completed by current trustees and administrators in 2013 and 2014 (Previous Training Approval Form); and to report training activities completed by trustees and system administrators for MET compliance (PRB-2000). The PRB has developed internal procedures for the processing these forms.

MET Compliance and Reporting The PRB has completed two MET reporting cycles for MET compliance, March 1, 2016, and October 1, 2016. At each reporting deadline, systems report to the PRB the training completed by their trustees and administrator during the previous time period. In addition, the PRB has processed 23 Previous Training Approval Applications submitted by systems. Previous Training Approval Applications are due by December 31, 2016. The information submitted to the PRB has been compiled to create the Public Retirement System Compliance with Minimum Educational Training Requirements report. (See Appendix F)

The report in Appendix G contains the most current MET Core training data reported to the PRB through the PRB-2000 report for Texas public retirement system trustees and system administrators. This report does not reflect continuing education (CE) training cycles for those individuals who have already begun their CE cycles. The PRB will submit an updated version of this report to the Legislature and Governor during the 85th legislative session which will include training reported to the PRB on the March 1 PRB- 2000 report (since current trustees and administrators are “in progress” towards their core MET hours until December 31, 2016).

Database Development The PRB created two databases to administer the MET Program, including a training compliance database and an accredited sponsor database. The compliance database allows the agency to track trustees’ and administrators’ compliance with MET requirements, send compliance reports to the systems, and ultimately, report MET compliance to the Legislature as required by law. The sponsor database houses accredited sponsor and approved course information and tracks sponsor renewal dates.

Texas Pension Review Board 2015-2016 Biennial Report

Website Updates The PRB website was updated to include a new page dedicated to the MET Program. The page includes trustee and administrator training requirements; PRB online courses for MET credit; MET Program frequently asked questions; and the MET Program’s statute and rules. The PRB also added a Sponsor Information page that details the accreditation and individual course approval processes and provides links to those applications.

TECHNICAL ASSISTANCE AND SYSTEM COMMUNICATION Technical Assistance In 2015 and 2016 the PRB produced technical assistance for the Legislature, public retirement systems, state agencies, and the public at a higher rate than in the past. The PRB exceeded its performance measure targets for unique technical assistance reports produced by staff in both 2015 and 2016, with 168% and 147% of the target attained, respectively. The increase in technical assistance is not only because of the establishment of the Minimum Educational Training Program, but also due to systems requesting a large amount of comprehensive historical data to aid in making proposals and/or decisions regarding plan design changes. The PRB worked with systems to provide the most up-to-date and accurate data for statewide, municipal and other local pension systems in Texas, which involved preparing several large datasets. The PRB staff also completed numerous research requests from legislative offices with regards to public pension systems.

Complaints The PRB welcomes suggestions and makes great effort to promptly respond to complaints regarding any registered Texas public retirement system. Staff researches the complaint by contacting the person who filed the complaint as well as representatives of the retirement system that is the subject of the complaint. The individuals contacted are given the opportunity to provide their explanations regarding the complaint, and may be asked for additional information. After the research has been completed, the staff composes a document in which the facts of the issue are stated as provided by the parties involved. The final complaint document includes the agency’s research and suggestions that may be useful in preventing a recurrence of the problem. The conclusion of the document states whether policies and procedures of the retirement system were followed correctly. In the last biennium, the PRB has managed three complaints made by members or retirees of various systems.

Communication with Systems Policy and Finance Division The PRB has made significant efforts to communicate and educate the retirement systems regarding the various changes made by the 84th Texas Legislature through the passage of H.B. 3310.

First, the agency updated the Summary of Reporting Requirements for Texas Public Retirement Systems in September 2015 to reflect the changes made by the 84th Texas Legislature. This document is available online as a reference for retirement systems to give brief descriptions of what reports are required to be sent to the PRB.

Next, the PRB updated the Calendar for Reporting Due Dates, located on the PRB website, which summarizes the reports that are required to be sent to the PRB from public retirement systems. The

Texas Pension Review Board 2015-2016 Biennial Report

calendar is organized by fiscal year end dates so that a plan can see exactly when their reports will be due. It also shows the dates they should receive notices from the PRB reminding them of upcoming reporting deadlines.

Lastly, the PRB issued memorandums to the retirement systems regarding the reporting requirement changes, including the funding soundness restoration plan formulation requirement, experience studies for plans with assets over $100 million, and actuarial valuations including a recommended contribution rate needed for the system to achieve and maintain an amortization period that does not exceed 30 years.

Training and Accreditation Division Throughout the MET Program development process, the PRB has kept retirement systems informed by sending out notices of working group and board meetings, summaries of those meetings, surveys, and notices of rules posted for public comment. The PRB conducts on-going outreach and communication with systems on the MET Program. The PRB has sent out emails with pertinent information on the Program, and has developed charts and brochures explaining the rules of the Program that have been distributed to the systems. In addition to the proactive approach to communication with systems, the PRB regularly answers questions and provides technical assistance to systems.

SPECIFIC ASSISTANCE FOR TLFFRA SYSTEMS Technical Assistance and Information The agency’s TLFFRA specialist works closely with TLFFRA systems to provide technical assistance and information on various issues, including service verification, questions relating to the TLFFRA statute, and assisting the systems with the new reporting requirements.

TLFFRA Training The PRB worked with the TLFFRA systems to present at their trustee training in May 2015, where staff provided an update on the Board's activities and the legislative session changes. The PRB also presented at the 2015 Annual TLFFRA Conference in Laredo.

TLFFRA Report The Texas Local Fire Fighters Retirement Act Pension Report (TLFFRA Report) provides general and comparative pension-related data for paid and part-paid retirement plans organized under the TLFFRA statute. TLFFRA plans are statutorily required to report financial, actuarial, benefit, investment and contact information to the PRB. Based on the information received by the PRB, the report is organized into four sections: Financial, Actuarial, Benefits, and Directory.

In September of 2015, the PRB staff sent an outline to TLFFRA representatives for comments and suggestions regarding report content. Staff then presented the outline with incorporated suggestions from TLFFRA representatives to the Board at its October 8, 2015 meeting. The Board approved the report at its February 11, 2016 meeting, and the report was published and sent to TLFFRA systems in late February.

Texas Pension Review Board 2015-2016 Biennial Report

RESEARCH AND PUBLIC PENSION DEVELOPMENTS Federal Research Normal Retirement Age In preparation for the May 5, 2016, PRB meeting, staff drafted a memorandum that was sent to retirement systems regarding Proposed Regulations 147310-12 “Notice of Proposed Rulemaking Applicability of Normal Retirement Age Regulations to Governmental Pension Plans,” issued January 27, 2016 by the Internal Revenue Service and the Department of the Treasury.

The current version for the proposed regulations would provide guidance with respect to the applicability of the 2007 normal retirement age regulations to a governmental pension plan, specifically, the determination of whether the normal retirement age satisfies the requirements of section 401(a), and whether the payment of definitely determinable benefits that commence at the plan’s normal retirement age satisfies these requirements. These regulations would affect sponsors and administrators or governmental plans, as well as participants in such plans. (See Appendix G)

Puerto Rico On May 5, 2016, the PRB staff updated the Board on the status of the Puerto Rico Assistance Act and provisions it contained that were related to governmental pension plans. These provisions were stripped from the Act and became a standalone bill. H.R. 4822, The Public Employee Pension Transparency Act (PEPTA), was introduced to the 114th Congress by Representative Nunes (CA) on March 21, 2016, and was referred to the House Committee on Ways and Means. Similar bills were filed by Representative Nunes in the 111th Congress (H.R. 6484), 112th Congress (H.R. 567), and 113th Congress (H.R. 1628). (See Appendix H)

The current version of the bill amends the Internal Revenue Code to create a federal reporting structure for state and local public retirement systems. Sponsors of state and local government employee pension plans must report specific financial information to the U.S. Treasury Secretary. A state or political subdivision that is noncompliant with specified reporting requirements would be denied federal tax benefits relating to any bond issued by it until it becomes compliant. In addition, the bill would explicitly exempt the United States from liability for any current or future shortfall in any state or local government employee pension plan.

News Clips As part of the educational outreach program, the PRB provides electronic weekly news clips service to its constituents. The news clips focus on five broad areas: issues concerning PRB Plans; Texas Economic Indicators; Legal Proceedings, Laws & Regulations; National Economic, Pension, Investment & Banking Information; and Worldwide Economic, Pension, Investment and Banking Information. The agency’s news clips service will continually evolve to cover the issues that are of greatest concern to the agency’s constituents.

Texas Pension Review Board 2015-2016 Biennial Report

ONLINE RESOURCES Agency Website Recently, the PRB staff completed an overhaul of the design of the agency’s website, giving it a streamlined look and making it more user-friendly. The website overhaul also incorporated responsive design into the framework of the site so that it is as easy to use on smartphones and tablets as it is on a desktop computer as well as Google search function.

The PRB places a high priority on enhancing its educational outreach through the use of its website to offer pension-related resources that can be very helpful for PRB constituents, including public pension trustees, administrators, plan members, government officials, and taxpayers. Currently, information on the PRB website includes: Board policies; information on Board meetings including archived meeting videos, agendas, minutes and meeting packets; statutes and rules; Minimum Education Training Program online courses; various agency publications and reports including total net assets, noncompliant plans and actuarial valuation reports (published in an accessible spreadsheet format); PRB research papers; and other resources. The agency utilizes the website as a tool to educate systems and to foster transparency through the publication of Board meeting packets, minutes, and recordings.

Public Pension Search Tool To promote transparency and open government, the PRB continues its online data partnership with the office of the Texas Comptroller of Public Accounts, known as the Public Pension Search Tool, whereby the PRB provides the Comptroller’s Office with the most recent financial and actuarial data received from Texas public retirement systems as required under Section 801.209(a) of the Government Code. The PRB sent the latest update to the Comptroller’s Office in November 2016, and sends the updated data every 4 months. 84th LEGISLATURE 2015 Legislative Session Training In February 2015, the agency conducted a training session at the Texas Capitol for staff of the Legislature, Legislative Budget Board, Governor’s Office, public retirement systems, and other interested parties. The training session covered basic actuarial methods, pension plan financing, and the actuarial impact statement process. The staff also provided numerous public pension training sessions to legislative staff.

Public Pension Legislation of the 84th Legislature The 84th Session of the Texas Legislature convened in January of 2015 and adjourned on June 1, 2015. During the session, the PRB tracked 90 bills and companions pertaining to Texas public retirement systems. The PRB issued 75 actuarial impact statements to the LBB regarding the actuarial effect of these bills, companions, and substitutes on public retirement systems. The agency closely monitored these pension bills and published a weekly tracking report to provide information on the status of those bills to our constituents. Pension-related legislation passed during the regular session tracked by the PRB can be found in Appendix I.

Texas Pension Review Board 2015-2016 Biennial Report

APPENDICES

Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX A1 – PRESENTATION TO HOUSE COMMITTEE ON PENSIONS APRIL 13, 2016

Texas Pension Review Board House Pensions Committee April 13, 2016 PRB Overview

Creation and Mission • Established by the 66th Texas Legislature in 1979. • Oversees all Texas public retirement systems, both state and local, in regard to their actuarial soundness and compliance with state law. • Service population consists of the members, administrators and trustees of 331 individual public retirement plans, state and local government officials, and the general public.

2 PRB Overview

Board Composition Composed of seven governor‐appointed members, including: • three members with a background in securities investment, pension administration, or pension law; • one member who is an actuary; • one member who is an expert in governmental finance; • one active member of a public retirement system; and • one retired member of a public retirement system.

3 PRB Overview

Primary Duties • Conduct a continuing review of all Texas public retirement systems. • Conduct intensive studies of potential or existing problems that threaten the actuarial soundness of public retirement systems. • Provide information and technical assistance. • Recommend policies, practices, and legislation to public retirement systems and governmental entities. • Prepare actuarial impact statements for pending legislation. • Develop and administer an educational training program for trustees and administrators of retirement systems. • Prepare a List of Scrutinized Companies Doing Business in Iran.

4 Minimum Educational Training (MET) Program

• The MET Program has been in place since January 1, 2015. • To date, the PRB has accredited 10 sponsors and 2 individual courses that trustees and system administrators may complete for MET credit. • The PRB is developing its own online courses, with one course currently available online, and the rest to be rolled out through the fall of 2016. • Trustee and system administrator compliance with MET requirements will be reported in the PRB’s Biennial Report to be published in November 2016 (and updated during Session).

5 Prohibition on Investment in Iran

• The PRB is charged with publishing and distributing a list of scrutinized companies doing business in Iran to the statewide retirement systems and filing a copy with the leadership offices. • After the enactment of S.B. 200 (83rd), the PRB engaged in an extensive public process to research, review and discuss the development of the Iran List. The Board found that the list maintained for the Florida Retirement System Trust Fund was the most accurate Iran list publicly available. • The Board adopted a procedure for maintaining the list of scrutinized companies. The PRB staff reviews each quarterly update to the Florida list, and will be publishing the next update to the PRB Iran List this month.

6 PRB Guidelines for Actuarial Soundness (Updated September 2011)

1. The funding of a pension plan should reflect all plan obligations and assets. 2. The allocation of the normal cost portion of the contributions should be level or declining as a percent of payroll over all generations of taxpayers, and should be calculated under applicable actuarial standards. 3. Funding of the unfunded actuarial accrued liability should be level or declining as a percent of payroll over the amortization period. 4. Funding should be adequate to amortize the unfunded actuarial accrued liability over a period not to exceed 40 years, with 15 ‐ 25 years being a more preferable target. Benefit increases should not be adopted if all plan changes being considered cause a material increase in the amortization period and if the resulting amortization period exceeds 25 years. 5. The choice of assumptions should be reasonable, and should comply with applicable actuarial standards.

7 84th Legislative Session Update

H.B. 3310 The 84th Legislature passed H.B. 3310 that made important disclosure and reporting requirement changes for retirement systems to help improve and maintain their actuarial and financial health. Three main provisions under the new law are:  Funding Soundness Restoration Plan (FSRP) ‐ If a retirement system receives several consecutive valuations showing that the system’s amortization period exceeds 40 years, the system’s governing body and sponsoring entity must formulate a funding soundness restoration plan and submit the plan to the PRB. Systems and their sponsors currently subject to the requirement have until November 1, 2016 to formulate the first plan.  Recommended Contribution ‐ An actuarial valuation of a public retirement system must include a recommended contribution rate to achieve and maintain an amortization period that does not exceed 30 years.  Actuarial Experience Study ‐ Public retirement systems that have assets of at least $100 million are required to conduct an actuarial experience study once every five years and to submit that study to the PRB. The first such study would be conducted by September 1, 2016 or within 5 years of the previous study (for systems that have conducted a study after 8/31/2011).

8 Financial & Actuarial Snapshot of Texas Public Retirement Systems

• Of Texas’s 93 plans, 21 have amortization periods of greater than 40 years and 37 have amortization periods less than 25 years. • DB plans, on the aggregate, are funded at 80% using an actuarial value of assets and 78% using a market value of assets. • Since the market low in 2009, the total net assets of the 93 systems increased from $165 billion to approximately $237 billion as of February 2016. • The average funded ratio using an actuarial value of assets has decreased from 83.12% in 2010 to 80.33% in 2015. • Retirement systems are expected to report weak or flat investment return performance for 2015.

9 Current Amortization Periods as of February 1, 2016

State law and the PRB Guidelines for Actuarial Soundness establish a maximum amortization period of not more than 40 years. The PRB Guidelines further provide a recommended amortization period of 15 to 25 years. Retirement System Amortization Periods Amortization Number of Plans Percent of Total Period Greater than 40 21 23% Between 25 and 35 37% 40 Less than 25 37 40%

10 Current Funded Ratios as of February 1, 2016

The total unfunded actuarial accrued liability (UAAL) for Texas public retirement systems is approximately $60 billion, with an actuarial value of assets (AVA) of approximately $242 billion. Retirement System Funded Ratios Funded Ratio Number of Percent of Total Plans Greater than 80% 26 28% Between 60% and 80% 45 48% Less than 60% 22 24%

11 Asset Trends

Overall, systems have made steady investment gains since 2009; the total net assets reported for 2015 are significantly greater than the 2007 highs.

Chart displays Total Net Assets from the annual financial reports (AFRs) submitted by retirement systems. The 2015 data is current through the AFRs received by the PRB as of February 2016.

12 Asset‐Liabilities Trends

In the last six years, the variance between the actuarial value of assets and actuarial accrued liability has increased, from almost $40 billion in 2010 to just under $60 billion in 2015.

Chart provides information reported by systems in their actuarial valuations.

13 Average Rates of Return as of 12/31/2014

The average net investment returns for retirement systems exceeded 8 percent for the 3‐year average returns but fell below 8 percent for the 10‐year average returns. Average Returns by Plan Type

Plan Type 1 Year Net 3 Year Net 10 Year Net

Statewide 10.83% 10.97% 6.98% Municipal 8.34% 10.03% 6.75% TLFFRA 5.05% 9.89% 5.73% Chapter 810 7.42% 10.75% 6.13% Total 7.91% 10.41% 6.40% As reported by the systems in their 2014 Investment Returns and Assumptions Reports.

14 Current Challenges and Trends

• The PRB does not foresee any near‐term insolvencies, but there are retirement systems not meeting the statutory threshold of under 40‐year amortization period. • Retirement systems requiring improvement to their actuarial soundness could consider increasing contribution rates of members and employers, amending plan structures to reduce future liabilities, or reducing administrative and investment expenses. • In Texas, many retirement systems have already initiated plan modifications, including making contribution policy changes and instituting new tiers that offer a lower benefit in an effort to reduce their future costs.

15 Assumed Rates of Return

• 2015 investment performance data from Texas public retirement systems received so far shows generally weak or flat returns. • Short‐term fluctuations in global financial markets can have an impact on current asset values. • However, short‐term fluctuations should not impact the expected long‐term rate of return assumption for invested assets. Systems should regularly review their investment return and inflation assumptions to ensure those assumptions align with the systems’ investment strategy, asset allocation, and risk tolerance. • H.B. 3310 added a requirement for systems with at least $100M in assets to conduct an experience study every five years.

16 Assumed Rate of Return Trends

• In response to projected market conditions and actual plan experience, retirement systems across the country including Texas have reduced their return assumptions in recent years and we expect this trend to continue. • The assumed rate of return is a key economic assumption that has a direct correlation to the liability measurement of a plan. A higher return assumption leads to a lower liability calculation and vice versa. Therefore, reducing the return assumption would lead to an increase in the unfunded liability of a plan. • Lowering the assumed rate of return will also result in higher recommended contributions in the short term. If a retirement system receives the higher contribution, the actuarial soundness of the plan should not be affected in the long term.

17 Additional Resources

 Blue Ribbon Panel on Public Pension Plan Funding, Society of Actuaries. https://www.soa.org/blueribbonpanel/

 ASOP 27, Selection of Economic Assumptions for Measuring Pension Obligations, Actuarial Standards Board. http://www.actuarialstandardsboard.org/wp‐ content/uploads/2014/02/asop027_172.pdf

 Pension Plan Valuation: Views on Using Multiple Measures to Offer a More Complete Financial Picture, Government Accountability Office. http://www.gao.gov/products/GAO‐14‐264

 Measuring Pension Obligations: Discount Rates Serve Various Purposes, American Academy of Actuaries. https://www.actuary.org/files/IB_Measuring‐Pension‐Obligations_Nov‐21‐2013.pdf

 Public Pension Plan Investment Return Assumptions, NASRA. http://www.nasra.org/files/Issue%20Briefs/NASRAInvReturnAssumptBrief.pdf

 2014 Study of the Financial Health of Texas Public Retirement Systems, PRB. http://www.prb.state.tx.us/files/reports/Financial_Health_Study_Final.pdf

18 Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX A2 – PRESENTATION TO HOUSE COMMITTEE ON PENSIONS JUNE 13, 2016

Texas Pension Review Board House Pensions Committee June 13, 2016 Systems Overview

Governance

Houston Firefighters’ Relief • Article 6243e.2(1), Vernon’s Texas Civil Statutes & Retirement Fund (HFRRF) • No Meet & Confer

Houston Municipal • Article 6243h, Vernon’s Texas Civil Statutes Employees Pension System • Meet & Confer (HMEPS)

Houston Police Officers’ • Article 6243g-4, Vernon’s Texas Civil Statutes Pension System (HPOPS) • Meet & Confer

2 Systems Overview

Key Plan Provisions

HFRRF HMEPS HPOPS

Benefit Types Service retirement, Service retirement, disability, Service retirement, disability, disability, and death and death benefits and death benefits benefits Benefit Tiers No Yes, includes a contributory Yes, includes two group (Group A) and two contributory groups noncontributory groups (Groups B and D) DROP Available Yes (all members) Yes (members hired prior to Yes (members hired prior to 1/1/2008) 10/09/2004) COLA Yes, automatic COLA for Yes, automatic COLA for Yes, automatic COLA for all all members Groups A & B members Social Security No Yes No Participation

3 Systems Overview

Current Actuarial Snapshots

Date of Funded Amortization Discount Membership Contribution Plan Name Valuation AVA AAL UAAL Ratio Period Rate Active Annuitant Member Employer

HFRRF 7/1/2013 $3.4 B $3.9 B $0.5 B 86.56% 30 years 8.50% 3,788 2,790 9.00% 23.90%

HMEPS* 7/1/2015 $2.5 B $4.7 B $2.2B 54.19% 32 years 8.00% 11,827 10,023 2.76% 27.36%

HPOPS** 7/1/2015 $4.5 B $5.7 B $1.2B 79.75% 23 years 8.00% 5,261 3,698 9.41% 30.28%

* Group A contributes 5%; Group B and D are non-contributory. ** Members hired before 10/9/2004 pay 9.00%. Employees hired on or after 10/9/2004 pay 10.25%.

Key: AVA - Actuarial Value of Assets AAL - Actuarial Accrued Liability UAAL - Unfunded Actuarial Accrued Liability

4 Systems Overview

Current Actuarial Snapshots

Date of Funded Amortization Discount Membership Contribution Plan Name Valuation AVA AAL UAAL Ratio Period Rate Active Annuitant Member Employer

HFRRF 7/1/2013 $3.4 B $3.9 B $0.5 B 86.56% 30 years 8.50% 3,788 2,790 9.00% 23.90%

HMEPS* 7/1/2015 $2.5 B $4.7 B $2.2B 54.19% 32 years 8.00% 11,827 10,023 2.76% 27.36%

HPOPS** 7/1/2015 $4.5 B $5.7 B $1.2B 79.75% 23 years 8.00% 5,261 3,698 9.41% 30.28%

* Group A contributes 5%; Group B and D are non-contributory. ** Members hired before 10/9/2004 pay 9.00%. Employees hired on or after 10/9/2004 pay 10.25%.

Key: AVA - Actuarial Value of Assets AAL - Actuarial Accrued Liability UAAL - Unfunded Actuarial Accrued Liability

4 Funding Trends

HFRRF Funding Trends Funded Ratio, Assets, Liabilities and Year over Year Growth Valuation Date 7/1/2008 7/1/2009 7/1/2010 7/1/2011 7/1/2012 7/1/2013 Funded Ratio 95.60% 95.40% 93.39% 90.56% 86.95% 86.56% Amortization Period (years) 30 30 30 30 30 30 UAAL (in millions) $135.40 $147.50 $220.63 $335.92 $489.64 $532.65 AVA (in millions) $2,945.09 $3,062.17 $3,116.85 $3,222.29 $3,263.27 $3,430.44 AVA Growth (YoY) 11.83% 3.98% 1.79% 3.38% 1.27% 5.12% AAL (in millions) $3,080.49 $3,209.67 $3,337.47 $3,558.21 $3,752.91 $3,963.08 AAL Growth (YoY) 6.51% 4.19% 3.98% 6.61% 5.47% 5.60%

5 Funding Trends

HMEPS

Funding Trends Funded Ratio, Assets, Liabilities and Year over Year Growth Valuation Date 7/1/2010 7/1/2011 7/1/2012 7/1/2013 7/1/2014 7/1/2015 Funded Ratio 62.58% 61.44% 59.09% 57.70% 58.07% 54.19% Amortization Period (years) 29 30 30 35 33 32 UAAL (in millions) $1,359.33 $1,461.52 $1,622.74 $1,747.00 $1,798.06 $2,183.21 AVA (in millions) $2,273.14 $2,328.80 $2,344.13 $2,382.59 $2,490.52 $2,582.51 AVA Growth (YoY) -0.49% 2.45% 0.66% 1.64% 4.53% 3.69% AAL (in millions) $3,632.47 $3,790.33 $3,966.86 $4,129.58 $4,288.58 $4,765.72 AAL Growth (YoY) 5.25% 4.35% 4.66% 4.10% 3.85% 11.13%

6 Funding Trends

HPOPS

7 Asset-Liabilities Trends

8 Contribution Trends

*HFRRF did not provide an actuarially recommended contribution for 2005 or 2016. 9 Contribution Trends

*No actuarially recommended contribution was provided for 2005. 10 Contribution Trends

11 Contribution Trends

12 Funded Ratio Trends

* HFRRF did not perform an actuarial valuation for 2003, 2014 or 2015. 13 Funded Ratio Trends

* HFRRF did not perform an actuarial valuation for 2003, 2014 or 2015. 14 Demographic Trends

Cash Flow Trends

Investment Returns

*HFRRF did not provide a 30-year net return calculation because their net returns are only available since 1999. 19

Asset Allocations

GASB Pronouncements

2015 GASB 67 Reported Information System HPOPS HFRRF HMEPS

Total Pension Liability (TPL) $6,992,784,000 $4,455,341,000 $4,531,179,075

Fiduciary Net Position $4,304,523,000 $3,877,651,000 $2,456,543,559

Net Pension Liability (NPL) $2,688,261,000 $577,690,000 $2,074,635,516

Funded Ratio 61.56% 87.03% 54.21%

Long-Term Expected 8.00% 8.50% 8.50% Rate of Return TPL Discount Rate (Blended) 7.08% 8.50% 8.50%

NPL at Discount Rate – 1% $3,576,952,000 $989,465,000 $2,554,070,253

NPL at Discount Rate + 1% $1,971,192,000 $235,835,000 $1,667,683,770

Municipal Bond Rate 3.80% N/A N/A

Money-Weighted 0.80% 1.28% 3.50% Rate of Return DROP Balance $921,438,000 $1,096,051,646 $452,200,000

22 Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX A3 – PRESENTATION TO SELECT COMMITTEE ON STATE AND FEDERAL POWER AND RESPONSIBILITY SEPTEMBER 13, 2016

III

Texas Pension Review Board State and Federal Power and Responsibility Select Committee September 13, 2016 PRB Overview

Creation, Mission & Board Composition

• Established by the 66th Texas Legislature in 1979. • Oversees all Texas public retirement systems, both state and local, in regard to their actuarial soundness and compliance with state law. • Composed of seven governor-appointed members.

2 PRB Overview

3 Prohibition on Investment in Iran Texas Government Code Chapter 807

• PRB publishes the list of scrutinized companies doing business in Iran (Iran List). • The Board adopted a procedure for maintaining the Iran List and publishes the List at least once every year. • Following statewide retirement systems are subject to the List: ERS, TCDRS, TESRS, TMRS, TRS. • First Iran List published on December 30, 2013 and updates on October 23, 2014; September 8, 2015; and April 19, 2016. • The current Iran List is available on the PRB website.

Prohibition on Investment in Iran Texas Government Code Chapter 807

• Within 30 days of receiving the Iran List, statewide retirement systems notify the PRB of any direct or indirect holdings in the listed companies. • If any direct holdings identified, retirement systems take the following actions: o send a written notice to warn each listed company regarding divestment; o encourage the company(s) to cease its scrutinized business operations within 90 days of receiving the notice; and o divest from each listed company, if the company(s) continues with the scrutinized business operations. • Retirement systems not required to divest from any indirect holdings in investment funds, but are required to send letters to managers requesting them to remove or create similar funds devoid of listed companies. • By December 31 of each year, statewide retirement systems file a publicly available report with the leadership offices summarizing their actions relating to the Iran List.

5 Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX A4 – PRESENTATION TO HOUSE COMMITTEE ON PENSIONS SEPTEMBER 29, 2016

Texas Pension Review Board House Pensions Committee September 29, 2016 Systems Overview

Governance

Dallas Employees’ Chapter 40A of the Dallas City Code Retirement Fund (DERF) Seven-member board

Dallas Police & Fire Pension Article 6243a-1, Vernon’s Texas Civil Statutes System (DPFPS) Twelve-member board

Fort Worth Employees’ Article 6243i, Vernon’s Texas Civil Statutes Retirement Fund (FWERF) Thirteen-member board

2 Systems Overview - Dallas

Key Plan Provisions

DERF DPFPS

Benefit Types Service retirement, disability, and Service retirement, disability, and death death benefits benefits

Benefit Tiers No Yes, includes five groups

DROP Available No Yes (all members)

COLA Yes (automatic COLA for all members) Yes (automatic COLA for Group A and Group B Tier 1. Ad-hoc for Group B Tier 2. No COLA for Group B Tier 3)

Social Security No No Participation 3 Systems Overview – Fort Worth

Key Plan Provisions

FWERF

Benefit Types Service retirement, disability, and death benefits

Benefit Tiers Yes, includes six groups with multiple tiers

DROP Available Yes (all members)

COLA Yes, Tier 1: ad-hoc COLA contingent upon the funding status, or 2% simple. Tier 2: none

Social Security Participation No

4 Systems Overview

Current Actuarial Snapshots Date of Funded Amortization Discount Membership Contribution Plan Name Valuation AVA AAL UAAL Ratio Period Rate Active Annuitant Member Employer DERF 12/31/2015 $3.3 B $4.1 B $0.8 B 80.41% Infinite 8.00% 7,477 6,756 13.32% 14.33%1 DPFPS 1/1/2016 $2.7 B $5.9 B $3.3 B 45.07% Infinite 7.25% 5,415 4,230 7.08%2 30.53% FWERF 12/31/2015 $2.2 B $3.6 B $1.4B 60.65% 72.5 years 7.75% 6,280 4,042 8.00%3 19.97%

1 The employer contribution shown reflects the amount paid by the City after subtracting out their pension obligation bond (POB) contribution. 2 Member contributions are 8.50% of computation pay for participants who do not currently participate in the DROP, and 4.00% for DROP participants. The weighted average of the member rates is 7.08% as of the valuation date. 3 Municipal employees and firefighters contribute 8.25% of pay, while police contribute 8.73%. Because members no longer contribute on overtime pay, the weighted average of employee contributions between all five plan tiers is 8.00% of total compensation. The city of Fort Worth contributes 19.74% of pay for municipal employees and firefighters and 20.46% for police.

Key: AVA - Actuarial Value of Assets AAL - Actuarial Accrued Liability UAAL - Unfunded Actuarial Accrued Liability

5 Funding Trends

DERF

Funding Trends Funded Ratio, Assets, Liabilities and Year over Year Growth Valuation Date, 12/31 2010 2011 2012 2013 2014 2015 Funded Ratio 92.24% 86.00% 80.89% 85.14% 80.94% 80.41% Amortization Period (years) 30 30 30 51 Infinite Infinite UAAL (in millions) $254.69 $474.91 $672.23 $536.56 $763.00 $808.75 AVA (in billions) $3.03 $2.92 $2.85 $3.07 $3.24 $3.32 AVA Growth (YoY) -0.14% -3.66% -2.42% 8.02% 5.42% 2.45% AAL (in billions) $3.28 $3.39 $3.52 $3.61 $4.00 $4.13 AAL Growth (YoY) 2.82% 3.34% 3.74% 2.63% 10.89% 3.12%

6 Funding Trends

DPFPS

Funding Trends Funded Ratio, Assets, Liabilities and Year over Year Growth Valuation Date, 1/1 2011 2012 2013 2014 2015 2016 Funded Ratio 79.48% 73.95% 78.12% 75.59% 63.80% 45.07% Amortization Period (years) 21 30 23 26 Infinite Infinite UAAL (in millions) $885.53 $1,190.37 $1,063.18 $1,251.87 $2,096.94 $3,267.05 AVA (in billions) $3.43 $3.38 $3.80 $3.88 $3.70 $2.68 AVA Growth (YoY) 1.42% -1.53% 12.33% 2.17% -4.70% -27.47% AAL (in billions) $4.32 $4.57 $4.86 $5.13 $5.79 $5.95 AAL Growth (YoY) 4.43% 5.85% 6.33% 5.58% 12.93% 2.68%

7 Funding Trends

FWERF

Funding Trends Funded Ratio, Assets, Liabilities and Year over Year Growth Valuation Date, 12/31 2010 2011 2012 2013 2014 2015 Funded Ratio 76.60% 71.42% 63.26% 63.86% 62.23% 60.65% Amortization Period (years) 19.5 28.4 36 49.3 55.7 72.5 UAAL (in millions) $578.96 $748.21 $1,077.42 $1,128.97 $1,271.15 $1,398.33 AVA (in billions) $1.89 $1.87 $1.85 $2.00 $2.09 $2.15 AVA Growth (YoY) 18.42% -1.32% -0.79% 7.56% 4.98% 2.89% AAL (in billions) $2.47 $2.62 $2.93 $3.12 $3.37 $3.55 AAL Growth (YoY) 12.95% 5.83% 12.01% 6.54% 7.73% 5.58%

8 Asset-Liabilities Trends – Dallas

*Calculated as of 1/1

9 *Calculated as of 1/1 Asset-Liabilities Trends – Fort Worth

*Calculated as of 1/1

10 Contribution Trends – Dallas

11 *Calculated as of 1/1, for the city’s fiscal year beginning 10/1 Contribution Trends – Fort Worth

*Calculated as of 1/1, for the city’s fiscal year beginning 10/1

12 Contribution Trends

*Calculated as of 1/1, for the city’s fiscal year beginning 10/1 13 Contribution Trends

*Calculated as of 1/1, for the city’s fiscal year beginning 10/1 14 Contribution Trends

*Calculated as of 1/1, for the city’s fiscal year beginning 10/1 15 Funded Ratio Trends – Dallas

*Calculated as of 1/1 16 Funded Ratio Trends – Dallas

*Calculated as of 1/1 17 Funded Ratio Trends – Fort Worth

*Calculated as of 1/1 18 Funded Ratio Trends – Fort Worth

*Calculated as of 1/1 19 Demographic Trends – Dallas

20 Demographic Trends – Fort Worth

Cash Flow Trends – Dallas

* In 2005, DERF had a large increase in contributions ($588,961,000) due to the issuance of pension obligation bonds.

Cash Flow Trends – Fort Worth

Cash Flow Trends – Dallas

Cash Flow Trends – Fort Worth

Investment Returns – Dallas

*Investment returns are net of investment expenses.

Investment Returns – Fort Worth

*Net investment returns are net of investment expenses. 27

Asset Allocation – Dallas

28 *Includes Cash, Securities Lending, Capital Assets, and Receivables

Asset Allocation – Dallas

Asset Allocation – Fort Worth

GASB Pronouncements – Dallas 2015 GASB 67 Reported Information System DERF DPFPS

Total Pension Liability (TPL) $5,367,564,000 $9,536,840,000

Fiduciary Net Position $3,202,208,000 $2,680,124,000

Net Pension Liability (NPL) $2,165,356,000 $6,856,716,000

Funded Ratio 59.66% 28.10%

Long-Term Expected Rate of 8.00% 7.25% Return TPL Discount Rate (Blended) 5.76% 3.95%

NPL at Discount Rate – 1% $2,915,146,000 $8,471,987,000

NPL at Discount Rate +1% $1,457,749,000 $5,581,404,000

Muni Bond Rate 3.57% 3.57%

Money-Weighted Rate of -1.92% -12.70% Return DROP Balance N/A $1,517,000,000

GASB Pronouncements – Fort Worth

2015 GASB 67 Reported Information System FWERF

Total Pension Liability (TPL) $4,127,343,024

Fiduciary Net Position $2,003,269,563

Net Pension Liability (NPL) $2,124,073,461

Funded Ratio 48.54%

Long-Term Expected Rate of 8.00% Return TPL Discount Rate (Blended) 6.25%

NPL at Discount Rate – 1% $2,845,284,182

NPL at Discount Rate +1% $1,773,132,040

Muni Bond Rate 3.71%

Money-Weighted Rate of -1.06% Return DROP Balance $108,600,000

32 Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX B – ACTUARIAL REVIEW POLICY

Policy for Determination of System Actuarial Review (Adopted May 5, 2016)

1. In accordance with Government Code, Section 801.202, the Pension Review Board (PRB or Board) staff will review all actuarial reports submitted by public retirement systems. Staff will determine whether or not the public retirement system’s actuarial valuation (“Valuation”) shows that the system’s actual contributions are sufficient to amortize the unfunded actuarial accrued liability within 40 years, as specified in Texas Government Code, Sections 802.2015 and 802.2016. As part of its review of a system's actuarial reports, the PRB staff may calculate an amortization period that is different from what is reported in the Valuation.

2. If the staff determines a system’s actual contributions are not sufficient to amortize the unfunded actuarial accrued liability within 40 years (“Over-40-Year-Amortization- Determination”), the executive director will notify the Board.

3. If the Board actuary concurs with the Over-40-Year-Amortization-Determination, the executive director will notify the system of this determination in writing and provide the system a 30-day period in which to voluntarily respond to staff. If the PRB does not receive any response from the system within the designated time period, the system’s Over-40-Year-Amortization- Determination will be confirmed. The system will also be informed of the requirement that the system provide its associated governmental entity the notice required under Sections 802.2015(c) and 802.2016(c) of the Texas Government Code.

4. If the system in its response, if any, does not agree with staff’s Over-40-Year-Amortization- Determination, the staff will present staff’s review and the system’s response to the Board’s actuarial committee. The actuarial committee will confirm, deny, or amend the staff’s Over-40- Year-Amortization-Determination and will recommend its findings to the Board. The Board will make the final decision regarding the Over-40-Year-Amortization-Determination. The Board’s decision and the system’s disagreement, if any, will be included in the PRB’s actuarial and financial reports and in the funding soundness restoration plan (FSRP) lists staff presents at each PRB meeting.

5. A system with a confirmed Over-40-Year-Amortization-Determination will be placed under staff review for further risk assessment. The staff will notify the system and the Board in advance of the review to provide the system with details of the review, including the scope and time period

of the review. The executive director will report preliminary findings to the Board’s actuarial committee.

6. If a system receives a confirmed Over-40-Year-Amortization-Determination based on three consecutive annual Valuations, or two consecutive Valuations for a system that conducts the Valuations every two or three years, the executive director will notify the system and its associated governmental entity regarding the statutory requirement to formulate an FSRP in accordance with Texas Government Code Section 802.2015.1

7. At each PRB meeting, staff will provide a list of systems subject to the FSRP formulation requirement. The staff will also provide a list of systems that are at risk of becoming subject to the requirement because the system has a confirmed Over-40-Year-Amortization- Determination, based on the most recent Valuation.

8. The Board may refer a system that is subject to the FSRP formulation requirement to be placed under the review of the Board’s actuarial committee. If a system is referred as such, the findings and recommendations of the staff review will be presented at the next meeting of the committee. The system and its associated governmental entity will be notified in writing no later than seven (7) days prior to the committee meeting and may be asked to appear before the committee.

9. Upon the recommendation of the committee, the Board may ask a system and its associated governmental entity to appear at a regularly scheduled meeting of the PRB. If such recommendation is made, the entities will be notified in writing no later than ten (10) business days prior to such meeting.

1 Texas Government Code Section 802.2016, concerning the Funding Soundness Restoration Plan for Certain Public Retirement Systems, has similar requirements to Section 802.2015 and applies only to a public retirement system that is governed by Article 6243i, Revised Statutes.

Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX C – HB 3310 FLOW CHART

HB 3310 - Flowchart

Actuarial Valuation of a Public Retirement System

Does the public retirement No corrective action YES system have an needed; next actuarial amortization period of 40 years or less? valuation.

No Is there a Funding Soundness Restoration plan in place?

No YES

Has the public retirement system failed to have an amortization period of 40 YES years or less for 3 years in a row? Are the public retirement system and sponsoring governmental entity in compliance with the Funding Soundness Restoration Plan?

YES

New, revised Funding Soundness Restoration Plan must be developed and adopted.

Funding Soundness Restoration Plan Public retirement system and associated governmental entity must develop a Funding Soundness Restoration Plan that is designed to achieve a contribution rate sufficient to amortize the UAAL over 40 years or less within 10 years of the adoption of the plan.

Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX D – FUNDING SOUNDNESS RESTORATION PLAN COMPLIANCE REPORT

VII

Funding Soundness Restoration Plan (FSRP) Formulation Requirement November 2016

The following list includes retirement systems that have had amortization periods over 40 years for three consecutive annual actuarial valuations, or two consecutive actuarial valuations if the systems conduct the valuations every two or three years. The first Funding Soundness Restoration Plan (FSRP) was required to be formulated by November 1, 2016. Subsequent FSRPs are required to be formulated six months from the day the system adopts the actuarial valuation that triggers the FSRP formulation requirement.1 FSRPs are due to the PRB within 31 days after the date the FSRP is agreed to by the system and its associated governmental entity. The PRB is in the process of reviewing the FSRPs, and will work with the systems to ensure compliance with state law.

Amort Date of Amort Date of Amort Date of FSRP Rec'd Plan Name Period AV Period AV Period AV Date 1 Odessa Firemen's Relief & Retirement Fund Inf 1/1/2015 Inf 1/1/2013 N/A N/A 10/27/2016 2 Dallas Employees' Retirement Fund Inf 12/31/2015 Inf 12/31/2014 51 12/31/2013 N/A2 3 Harlingen Firemen's Relief & Retirement Fund Inf 12/31/2015 66.6 12/31/2013 N/A N/A 10/28/2016 4 Wichita Falls Firemen's Relief & Retirement Fund 105.9 1/1/2015 63.2 12/31/2012 N/A N/A 10/26/2016 5 Fort Worth Employees' Retirement Fund 72.5 12/31/2015 55.7 12/31/2014 49.3 1/1/2014 N/A2 6 Greenville Firemen's Relief & Retirement Fund 70.4 12/31/2014 Inf 12/31/2012 N/A N/A 10/31/2016 7 Irving Firemen's Relief & Retirement Fund 63.43 1/1/2014 Inf 1/1/2012 N/A N/A 11/01/2016 8 Midland Firemen's Relief & Retirement Fund 59.1 1/1/2014 86.3 1/1/2012 N/A N/A 10/31/2016 9 Sweetwater Firemen's Relief & Retirement Fund 58.8 12/31/2014 Inf 12/31/2012 N/A N/A 10/31/2016 10 Orange Firemen's Relief & Retirement Fund 58.2 1/1/2015 82.3 12/31/2012 N/A N/A 10/19/2016 11 Galveston Employees' Retirement Plan for Police 55.1 1/1/2014 65.8 1/1/2013 53.5 1/1/2012 11/08/2016 12 University Park Firemen's Relief & Retirement Fund 53.7 1/1/2015 81.3 12/31/2012 N/A N/A 10/26/2016 13 Galveston Firefighter's Relief & Retirement Fund 50.2 1/1/2014 42.8 1/1/2012 N/A N/A 9/29/2016 14 Lufkin Firemen's Relief & Retirement Fund 40.6 12/31/2014 89.6 12/31/2012 N/A N/A 8/10/2016

1 As per Representative Paul’s clarification letter. 2 FSRP formulation deadline after November 1, 2016. 3 Amortization period calculated by the PRB in consultation with the plan actuary, reflecting a contribution increase. Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX E – MET CURRICULUM GUIDE

VIII

Texas Pension Review Board Curriculum Guide for Minimum Educational Training

September 2015

Curriculum Guide for Minimum Educational Training

The purpose of this document is to provide further direction on curriculum for the Pension Review Board’s (PRB) Minimum Educational Training Program for trustees and administrators of Texas public retirement systems, as established by Section 801.211 of the Texas Government Code and 40 TAC Chapter 607. The specific topics listed below are intended to provide guidance on the core and non- core content areas, as approved by the Board.

First Year of Service. A new trustee and a new system administrator shall complete at least seven credit hours of training in the core content areas within the first year of service. The board intends for first- year training in core content areas to be basic, foundational, and accessible to individuals with no previous knowledge in the topic area. A course offered for first-year credit should make an effort to address all of the sub-topics and learning objectives in the core content areas listed below. A course offered for first-year credit that does not address a substantial number of the sub-topics and objectives may be denied approval.

Subsequent Years of Service. A trustee and a system administrator shall complete at least four credit hours of continuing education in core content areas, non-core content areas, or any combination of the two, within each two-year period after the first year of service as a new trustee or system administrator. The non-core content areas include topics that go beyond the basics, and are designed to allow trustees and administrators to gain further expertise in additional areas related to their duties.

Core Content Areas 1. Fiduciary Matters

Courses covering this topic should explain who may be a fiduciary and what the role of a fiduciary entails, including responsibilities, liability, and prohibitions. • Definition of a fiduciary • Fiduciary responsibilities • Fiduciary duty and fiduciary liability • Duty to administer the plan in accordance with statutes, laws, and rules • Standards of conduct • Prohibited transactions and interests • Fiduciary roles of pension professionals, including investment managers and custodians Objectives-- After completing this course, trustees and administrators should be able to: - Understand the roles and duties of fiduciaries; - Be familiar with the laws that apply to fiduciaries in Texas; - Understand the duty of loyalty and the exclusive benefit rule; - Understand the duty of prudence; - Understand the duty to follow the plan documents; - Be aware of potential conflicts of interest and how to avoid them; 1 Texas Pension Review Board September 2015 Curriculum Guide for Minimum Educational Training

- Know some of the liabilities facing fiduciaries who fail to discharge their fiduciary responsibilities; - Be familiar with some examples of litigation involving fiduciary liability; - Comprehend “co-fiduciary liability”; and - Be aware of ethical responsibilities that are expected of fiduciaries.

2. Governance

Courses on governance should explain the structure, manner, and processes through which a board exercises authority. They should also provide an overview of the types of plan professionals with whom trustees will interact, including the board actuary, investment consultants, legal counsel, and auditors. • Trustee appointments, terms, and qualifications • Role and responsibilities of board • Laws and rules governing the system • Board bylaws, policies, processes, and procedures • Best practices for pension board governance • Roles and responsibilities of key service providers • Delegation of responsibilities while retaining appropriate oversight • Strategic planning Objectives-- After completing this course, trustees and administrators should be able to: - Be familiar with the composition of their board and how trustees are appointed; - Understand their responsibilities as board members; - Understand the roles of the board’s committees, system administrator and staff; - Know the ways in which management of the system is delegated to the executive director; - Understand the roles and responsibilities of investment consultants and managers, the board’s actuary, legal counsel, and auditors; - Comprehend the board’s oversight role relating to contracted professionals; - Be familiar with the laws and rules governing public pension plans in Texas and any governing documents including bylaws; - Have a basic understanding of the plan’s policies and procedures; and - Utilize best practices associated with good pension plan governance.

3. Ethics

In addition to covering applicable state and federal ethics laws, courses addressing this section should explain the purpose and benefits of adopting an ethics policy, and outline areas that should be addressed in such a policy. • Applicable ethics laws • What is an ethics policy, and why is it important to adopt one? • What should be covered by an ethics policy?

2 Texas Pension Review Board September 2015 Curriculum Guide for Minimum Educational Training

• Ethics in investing Objectives-- After completing this course, trustees and administrators should be able to: - Understand the various fiduciary duties; - Be familiar with state and federal ethics laws that apply to public officials; - Understand the consequences of violating ethics laws; - Know what should be included in an ethics policy; - Be familiar with basic standards of conduct; - Understand the potential conflicts of interest faced by fiduciaries; - Know about prohibited transactions and interests; - Be aware of required disclosures; - Understand issues relating to confidentiality; and - Be familiar with laws governing nepotism, gifts, and benefits.

4. Investments

Courses related to investments should give trustees a solid understanding of the investment landscape including market realities, risk implications, and attainable objectives. • Asset classes and types • Investment objectives and strategies • Asset allocation and diversification • What is an investment policy, and why is it important to adopt one? • Ethics in investment • Due diligence in investment selection • Due diligence in the investment consultant and manger selection process • Managing investment expenses and fees • Assessing risk tolerance • Managing investment risk • Investment portfolio performance review Objectives-- After completing this course, trustees and administrators should be able to: - Distinguish the different characteristics of stocks, bonds, and other major asset classes; - Understand the risk involved in investing in certain asset classes; - Comprehend passive and active investment management strategies; - Explain the importance of diversification; - Analyze returns, comparing with a system’s assumed rate of return; - Understand the basic elements of an investment policy statement and be familiar with their system’s investment policy; - Understand the role of the trustee as it relates to investment decisions; - Be familiar with due diligence and investment performance evaluation processes; - Understand the role of investment consultants and investment managers; and - Be aware of best practices for selecting and evaluating investment managers. 3 Texas Pension Review Board September 2015 Curriculum Guide for Minimum Educational Training

5. Actuarial Matters

Courses covering actuarial topics should provide an introduction to actuarial terminology, methodology, and assumptions.

• Key terms and definitions • Actuarial assumptions • Actuarial methodologies • Role of the actuary and the role of the board • Reading an actuarial valuation and other actuarial reports Objectives-- After completing this course, trustees and administrators should be able to: - Explain the role of the board’s actuary; - Comprehend basic actuarial terms; - Read and understand an actuarial valuation; - Understand the difference between pay-as-you-go and advance or pre-funding; - Be familiar with the demographic and economic types of actuarial assumptions; - Distinguish the difference between the market value and actuarial value of assets; - Distinguish between different types of actuarial cost methods; - Understand different amortization methods; - Understand asset smoothing techniques; - Understand the amortization period and PRB Guidelines for Actuarial Soundness; - Understand and evaluate funded ratios; - Be aware of best practices such as funding policies; - Be familiar with the different types of actuarial reports such as experience studies and actuarial audits; and - Understand what should be taken into consideration for a system to increase benefits.

6. Benefits Administration

Courses covering this topic should provide an understanding of plan benefit structures and of benefits administration.

• Plan design • Tax qualified pension plan requirements • Contested cases and appeals that may require board action • Methods of communicating with members

Objectives-- After completing this course, trustees and administrators should be able to: - Understand the features of defined benefit, defined contribution, and hybrid plans; - Understand the responsibility of the board as it relates to benefits administration; - Understand the responsibility of the staff for day-to-day operations;

4 Texas Pension Review Board September 2015 Curriculum Guide for Minimum Educational Training

- Read and interpret the component parts of plan design (including retirement eligibility, vesting requirements, benefit formulas, final average salary, and cost-of-living adjustments); - Be familiar with additional benefits such as Deferred Retirement Option Plans (DROPs); - Be familiar with Qualified Domestic Relations Order (QDRO) requirements; - Be aware of the tax qualified pension plan status under the IRS Code; - Be aware of provisions relating to correction of errors in benefit calculation; - Be aware of their system’s processes for hearing appeals and contested cases; - Understand the methods of communicating benefit information to system members; and - Be familiar with current issues and trends in benefit administration.

7. Risk Management

Courses related to risk management should examine different types of risk and the ways in which those risks may be mitigated.

• Managing fiduciary liability • Managing investment risk • Risk assessment • Internal controls and compliance • Financial controls and reporting requirements applicable to vendors • Comprehensive Annual Financial Report (CAFR) • Roles of auditors (internal or outside) • Record keeping • Security of confidential information

Objectives-- After completing this course, trustees and administrators should be able to: Managing General Risk - Demonstrate understanding of fiduciary responsibility; - Know several strategies for protecting against fiduciary liability; - Be familiar with risk assessment; - Understand internal control concepts, such as preventative and detective controls; - Distinguish the roles of the trustees, system administrator and staff, related to risk control; - Read and understand a Comprehensive Annual Financial Report; - Comprehend the role of auditors, including internal and external; - Be aware of state requirements related to contracting; - Be familiar with their system’s measures for ensuring security of confidential information; - Understand the importance of recordkeeping requirements

Managing Investment Risk - Explain the importance of diversification; - Be familiar with types of investment risk including systematic and specific risk, and how to manage total risk; 5 Texas Pension Review Board September 2015 Curriculum Guide for Minimum Educational Training

- Understand the basic elements of an investment policy statement and be familiar with their system’s investment policy; and - Demonstrate understanding of due diligence.

Non-Core Content Areas

1. Compliance Courses covering compliance issues should provide information on legal and reporting requirements, as well as applicable internal policies and procedures. • State laws and regulations • Federal laws and regulations • Internal policies and procedures • State reporting requirements

2. Legal and Regulatory Matters Courses covering legal and regulatory issues should provide information on current or potential lawsuits, legislation, or regulation. • Legal landscape • Pension litigation • Legislative issues and updates • Regulatory oversight

3. Pension Accounting Courses related to pension accounting should provide attendees with a basic understanding of plan assets and liabilities, financial statements, and GASB requirements. • Governmental Accounting Standards Board (GASB) requirements • Assets and liabilities • Reading plan financial statements • Plan cost

4. Custodial Issues Courses covering custodial issues should provide information about the process of selecting a custodian and what to look for in a custodian. • Custodian selection process • Executing trust agreements • Applicable state law and plan requirements

5. Plan Administration Courses related to plan administration should provide information on the day-to-day aspects of administering pension plans. 6 Texas Pension Review Board September 2015 Curriculum Guide for Minimum Educational Training

• Contributions • Distributions • Plan design • Reporting requirements • Vesting • Participation • Communicating with members

6. Texas Open Meetings Act A course on open meetings should familiarize attendees with requirements under Texas law. • Applicability of the Open Meetings Act • Legal requirements for meetings • Meeting notice requirements • Procedures for holding a closed meeting • Penalties for non-compliance

7. Texas Public Information Act A course on open records and public information should familiarize attendees with requirements under Texas law. • Applicability of the Public Information Act • Legal requirements for handling requests for information • Policies and procedures relating to external communication • Penalties for non-compliance

7 Texas Pension Review Board September 2015 Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX F – MET COMPLIANCE REPORT

Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

This report contains the most current MET Core training data reported to the PRB through the PRB-2000 report for Texas public retirement system trustees and system administrators. This report does not reflect continuing education (CE) training cycles for those individuals who have already begun their CE cycles. The PRB will submit an updated version of this report to the Legislature and Governor during the 85th legislative session which will include training reported to the PRB on the March 1 PRB-2000 report (since current trustees and administrators are “in progress” towards their core MET hours until December 31, 2016).

Abilene Firemen's Relief & Retirement Fund Name Trustee Type Compliance Jay Hardaway Mayor Designee In Progress Mike Rains CFO Not Compliant Jack Rich Citizen In Progress Baker Bryant Active Compliant Rodney Goodman Active Compliant Will McBride Active Compliant Mike Whalen Citizen Compliant

System Administrator: Exempt

Amarillo Firemen's Relief & Retirement Fund Name Trustee Type Compliance Michelle Bonner CFO In Progress Joe Howell Citizen In Progress Tony Robinson Active In Progress Jerome Drerup Active Compliant Dean Frigo Citizen Compliant Paul Harpole Mayor Compliant Brandon Mason Active Compliant

System Administrator: Laura Storrs Compliant

Arlington Employees Deferred Income Plan Name Trustee Type Compliance Don Crowson Active In Progress Mike Finley Active In Progress Pete Jamieson Retired In Progress Gilbert Perales Active In Progress Walter Pishkur Active In Progress Lemuel Randolph Active In Progress Kari Zika Active In Progress

System Administrator: Exempt

November 2016 1 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Atlanta Firemen's Relief & Retirement Fund Name Trustee Type Compliance Keith Crow Mayor In Progress Ricky Draper Active In Progress Mark Hill Active In Progress Jacqueline Jones CFO In Progress Floyd Kirkland Citizen In Progress Daniel Camp Active Compliant Randy Sanders Citizen Compliant

System Administrator: Exempt; Form Pending

Austin Employees' Retirement System Name Trustee Type Compliance Michael Benson Active Elected Member Compliant Reagan David Board Appointed Citizen Compliant Francine Gertz Active Elected Member Compliant Elizabeth Gonzales Council Appointed Citizen Compliant Sam Jones Retiree Elected Member Compliant Chris Noak Active Elected Member Compliant Leslie Pool City Council Member Compliant Anthony Ross Sr. Retiree Elected Compliant Ed Van Eenoo City Manager Designee Compliant Jim Williams Active Elected Member Compliant

System Administrator: Chris Hanson Compliant

Austin Fire Fighters Relief & Retirement Fund Name Trustee Type Compliance Steve Adler Mayor In Progress Art Alfaro City Treasurer Compliant Jeremy Burke Fund Member Compliant Keith Johnson Fund Member Compliant Dimitri Nichols Fund Member Compliant

System Administrator: William Stefka Compliant

November 2016 2 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Austin Police Retirement System Name Trustee Type Compliance Michael Jung Police Member In Progress Kendall Thomas Retired Member In Progress Art Alfaro City Member Compliant Tim Atkinson Police Member Compliant Jim Beck Police Member Compliant Elaine Hart City Member Compliant Andrew Romero Police Member Compliant Todd Smith Police Member Compliant Kathie Tovo City Member Compliant Chesley Wood Citizen Member Compliant Carl Zimmerman Retired Member Compliant

System Administrator: Pattie Featherston In Progress

Beaumont Firemen's Relief & Retirement Fund Name Trustee Type Compliance Lillie Babino Mayor Designee In Progress Nathan Cross Citizen In Progress Clint Cheshire Active Compliant Laura Clark CFO Compliant Bill Darling Citizen Compliant Brian Hebert Active Compliant Carl Whitehead Jr. Active Compliant

System Administrator: Theresa Tate Compliant

Big Spring Firemen's Relief & Retirement Fund Name Trustee Type Compliance Pete Crabtree Citizen In Progress Jake Sparks Active In Progress Paul Brown Citizen Compliant Todd Darden Mayor Designee Compliant Chanley Delk Active Compliant Don Moore CFO Compliant Chad Pederson Active Compliant

System Administrator: Tom Ferguson In Progress

November 2016 3 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Brazos River Authority Retirement Plan Name Trustee Type Compliance Peter Bennis BRA Board Member In Progress David Collinsworth Active In Progress Jim Forte Active In Progress John Luton BRA Board Member In Progress Jeff Tallas BRA Board Member In Progress Matt Wheelis Active In Progress Ford Taylor BRA Board Member Compliant Sal Zaccagnino BRA Board Member Compliant

System Administrator: David Thompson Compliant

Brownwood Firemen's Relief & Retirement Fund Name Trustee Type Compliance Mark Bessent Citizen In Progress William Campbell Active In Progress Jody Horton Active In Progress Walter Middleton CFO In Progress Pierre Osbourne Mayor Designee In Progress Carey Stewart Citizen In Progress Joe Stieber Active In Progress

System Administrator: Exempt

Capital MTA Retirement Plan for Administrative Employees Name Trustee Type Compliance Gerardo Castillo Active In Progress Mary Gerik Active In Progress Lea Sandoz Active In Progress Donna Simmons Active In Progress Elaine Timbes Active In Progress

System Administrator: Exempt

Capital MTA Retirement Plan for Bargaining Unit Employees Name Trustee Type Compliance Gerardo Castillo Sponsor - Employer In Progress Brent Payne Retired - Bargaining Unit In Progress Lawrence Prosser Active - Bargaining Unit In Progress Donna Simmons Employer In Progress Joneth "Jay" Wyatt Retiree - Bargaining Unit In Progress Kerri Butcher Sponsor - Employer Compliant

System Administrator: Exempt

November 2016 4 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Cleburne Firemen's Relief & Retirement Fund Name Trustee Type Compliance Scott Cain Mayor In Progress Terry Leake CFO In Progress Jake Simms Citizen In Progress Roger Trussell Citizen In Progress Wyley Daughtry Active Compliant Eric Halvorson Active Compliant Kris Watson Active Compliant

System Administrator: Exempt

Colorado River Municipal Water District Defined Benefit Retirement Plan & Trust Name Trustee Type Compliance Mireya Castilaw Employer In Progress Karla Oliva Employer In Progress

System Administrator: Exempt; Form Pending

Conroe Fire Fighters' Retirement Fund Name Trustee Type Compliance Joe Craig Active In Progress Tom Garvey Active In Progress Russell Moss Citizen In Progress Steve Williams CFO In Progress Marcus Winberry Mayor Designee In Progress Cary Wortham Citizen In Progress Steve Cottar Active Compliant

System Administrator: Exempt

Corpus Christi Fire Fighters' Retirement System Name Trustee Type Compliance Darron Bergstrom Citizen Compliant Michael Gilley Active Compliant Laurelyn Pohlmeier Citizen In Progress Javier Jasso Active Compliant Constance Sanchez CFO Compliant Penn Thomas Mayor Designee Compliant Matthew Wood Active Compliant

System Administrator: Gracie Flores Compliant

November 2016 5 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Corpus Christi Regional Transportation Authority Name Trustee Type Compliance No information provided.

Corsicana Firemen's Relief & Retirement Fund Name Trustee Type Compliance Rusty Hitt Citizen In Progress Jerry Smithey Active In Progress Chuck McClanahan Mayor Compliant Johnny Pattison Active Compliant Kevin Putman Active Compliant Virginia Richardson CFO Compliant Bobby Willingham Citizen Compliant

System Administrator: Melissa O'Sullivan Compliant

CPS Energy Pension Plan Name Trustee Type Compliance David Jungman Active In Progress Paul Barham Active Compliant Linda Dzierzanowski Active Compliant Bill Gunst Retired Compliant Richard Medina Active Compliant Paul White Active Compliant

System Administrator: Lois Emerson Compliant

Dallas County Hospital District Retirement Income Plan Name Trustee Type Compliance Winfred Parnell Citizen In Progress Michael Williams Citizen Not Compliant Paula Dobbs-Wiggins Citizen In Progress Jerry Bryant Citizen In Progress Scherry Johnson Citizen Compliant Marvin Earle Citizen Not Compliant Gonzalo Venegas Citizen Compliant Jesse Vallejo Citizen Compliant Natalie Sorrell Citizen Not Compliant Robert Martinez Citizen Compliant

System Administrator: J.D. Davis In Progress System Administrator: Jeff Tillotson In Progress

November 2016 6 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Dallas Employees' Retirement Fund Name Trustee Type Compliance Lee Kleinman Citizen In Progress Dr. John Peavy III Citizen In Progress Randy Bowman Citizen Compliant Carla Brewer Active Compliant John Jenkins Active Compliant Craig Kinton Active Compliant Tina Richardson Active Compliant

System Administrator: Cheryl Alston Compliant

Dallas Police & Fire Pension System-Combined Plan Name Trustee Type Compliance Jennifer Gates City Council In Progress Scott Griggs City Council In Progress Philip Kingston City Council In Progress Gerald Brown Retired Fire- Rescue Compliant Clint Conway Active Fire-Rescue Compliant Samuel Friar Active Fire-Rescue Compliant Kenneth Haben Active Police Compliant Brian Hass Active Fire-Rescue Compliant Tho Ho Active Police Compliant Kenneth Sprecher Retired Police In Progress Joseph Schutz Active Police Compliant Erik Wilson City Council Compliant

System Administrator: Kelly Gottschalk Compliant

Dallas/Fort Worth Airport Board DPS Retirement Plan Name Trustee Type Compliance Bridget Lopez Active Compliant Henry Borbolla III Active Compliant William Meadows Active Compliant Betsy Price Active In Progress Michael Rawlings Active In Progress Lillie Biggins Active Compliant Sam Coats Active Compliant Regina Montoya Active Compliant Curtis Ransom Active Compliant Amir Rupani Active Compliant Bernice Washington Active Compliant

System Administrator: Michael Phemister Compliant

November 2016 7 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

DART Employees' Defined Benefit Retirement Plan & Trust Name Trustee Type Compliance Jesse Oliver Employer- Appointed by the President In Progress Larry Knott Active-Elected Compliant David Leininger Employer- Chairman of the Board Appointment Compliant Reginald Moore Active- Elected Compliant William Velasco Chairman of the Board Appointee Compliant

System Administrator: Denise Crandon Compliant

Denison Firemen's Relief & Retirement Fund Name Trustee Type Compliance Keith Bates Active In Progress Eric Batey Citizen In Progress Seth Foltermann Active In Progress Jared Johnson Mayor In Progress Lee Thornton Citizen In Progress Renee Waggoner CFO In Progress John Weda Active In Progress

System Administrator: Gracie Loyd Compliant

Denton Firemen's Relief & Retirement Fund Name Trustee Type Compliance Bryan Langley CFO In Progress Donald Manes Active Compliant Joe Mulroy Mayor Designee In Progress Derek Oswald Active Compliant Charlie Parker Citizen In Progress David Reeder Active Compliant Richard Smith Citizen In Progress

System Administrator: Gary Calmes Compliant

November 2016 8 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

El Paso City Employees' Pension Fund Name Trustee Type Compliance Ed Archuleta Retiree In Progress Mario Hernandez Active Participant In Progress Lily Limon City Representative In Progress Karl Rimkus Active Participant In Progress Jim Tolbert City Representative In Progress Presi Ortega Citizen Compliant Rene Pena Citizen Compliant Christina Stokes Active Participant Compliant Rebecca Torres Active Participant Compliant

System Administrator: Robert Ash Compliant

El Paso Firemen's Pension Fund Name Trustee Type Compliance Carmen Arrieta-Candelaria Mayoral Appointee Compliant Judy Balmer City Manager Appointee Compliant Ricci Carson Active Fire Compliant Jeffrey Cotham Active Police Compliant Terri Garcia City Manager Appointee Compliant Presi Ortega Mayoral Appointee Compliant John Schneider Active Police Compliant Sean Shelton Active Police Compliant Paul Thompson Active Fire Compliant Robert Tollen Mayoral Appointee Compliant Jerry Villanueva Active Fire Compliant

System Administrator: Tyler Grossman Compliant

Employees Retirement System of Texas Name Trustee Type Compliance Cydney Donnell Appointed by Governor Compliant Craig Hester Appointed by Chief Justice In Progress Brian Ragland Elected Member In Progress Jeanie Wyatt Appointed by Speaker In Progress Ilesa Daniels Elected Member Compliant Doug Danzeiser Appointed by ERS Board Compliant

System Administrator: Porter Wilson Compliant

November 2016 9 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Fort Worth Employees' Retirement Fund Name Trustee Type Compliance Jarod Cox Council Appointee In Progress Kevin Foster Retired Police In Progress Jesus Payan Council Appointee In Progress Steven Streiffert Active General Employee In Progress Richard Van Houten Active Police In Progress Scott Wade Council Appointee In Progress Thomas Lewis Retired Firefigher In Progress Marsha Anderson Retired General Employee Compliant Aaron Bovos CFO Compliant Jason Brown Council Appointee Compliant Todd Cox Active Fire Compliant Bill Crawford Jr. Council Appointee Compliant Margaret Wise Active General Employee Compliant

System Administrator: Joelle Mevi Compliant

Galveston Employees' Retirement Fund Name Trustee Type Compliance Ryan Young Active In Progress Don Davison Citizen In Progress Dotsy Balentine Citizen In Progress Janice Norman Active In Progress Mike Loftin Not Reported In Progress Brandon Cook Active Compliant James Patterson Citizen Compliant

System Administrator: Jacque Vasquez In Progress

Galveston Employees' Retirement Plan for Police Name Trustee Type Compliance Geoffrey Gainer Active In Progress Andre Mitchell Active In Progress John Kelso Citizen In Progress Matthew Whiting Active In Progress Don Ciaccio Citizen In Progress Mike Loftin Not Reported In Progress Clinton Stevens Active Compliant

System Administrator: Jacque Vasquez In Progress

November 2016 10 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Galveston Firefighter's Relief & Retirement Fund Name Trustee Type Compliance Mike Dean Mayor Designee In Progress Mike Loftin CFO In Progress Travis Hill Active Compliant Charlie Olsen Active Compliant John Ovalle Citizen Compliant Gary Staudt Active Compliant

System Administrator: Rebecca Johnson Compliant

Galveston Wharves Pension Plan Name Trustee Type Compliance Elizabeth Beeton Active Not Compliant Richard DeVries Active In Progress Benjamin Holland Active In Progress Michael Meirzwa Voting Member In Progress Mark Murchison CFO In Progress E.L."Ted" O'Rourke Active In Progress Albert Shannon Active In Progress Todd Sullivan Active In Progress James Yarbourgh Active In Progress

System Administrator: Exempt; Form Pending

Greenville Firemen's Relief & Retirement Fund Name Trustee Type Compliance Bryan Ausmus Active In Progress Craig Himes Active In Progress Toby McNellis Active In Progress Greg Parsons Citizen In Progress Summer Spurlock CFO In Progress David Dreiling Mayor Compliant Howard Winans Citizen Compliant

System Administrator: Exempt; Form Pending

November 2016 11 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Guadalupe-Blanco River Authority Name Trustee Type Compliance William Carbonara Employer In Progress Oscar Fogle Employer In Progress Thomas Mathews Employer In Progress Kenneth Motl Employer In Progress Darel Ball Active Compliant Susan Hubbert Active Compliant John Smith Active Compliant

System Administrator: Alvin Schuerg In Progress

Harlingen Firemen's Relief & Retirement Fund Name Trustee Type Compliance Chris Boswell Mayor In Progress Michael Browning Citizen Compliant Mario Alvarado Active Compliant Owen Flinn Citizen Compliant Cirilo Rodriguez Jr. Active Compliant Juan Sauceda Active Compliant Elvia Trevino CFO Compliant

System Administrator: Nanette Fox Compliant

Harris County Hospital District Pension Plan Name Trustee Type Compliance Donald Butts Not Reported Compliant Anne Clutterbuck Active Compliant Lawrence Finder Active Compliant Elvin Franklin Jr. Retired Compliant Kimberly Monday Active Compliant Daisy Stiner Active Compliant Carolyn Truesdall Retired Compliant

System Administrator: Michael Norby Compliant

November 2016 12 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Houston Firefighters' Relief & Retirement Fund Name Trustee Type Compliance Garry Blackmon Sr. Active Member In Progress Juliet Higgins Active Member In Progress David Keller Jr. Active Member In Progress Francis "Frank" Maher Retired Member In Progress Albertino "AL" Mays Citizen Member In Progress Arif Rasheed City Treasurer Designee In Progress Carroll Robinson Citizen Member In Progress Stephen Whitehead Active Member In Progress Ernest Wotring Mayor's Representative In Progress Brett Besselman Active In Progress

System Administrator: Ralph Marsh Compliant

Houston MTA Non-Union Pension Plan Name Trustee Type Compliance Arthur Smiley III Active In Progress Sean Cagan Active Compliant Thomas Jasien Active Compliant Ruby Munoz-Dang Citizen Compliant Rey Reza Citizen Compliant Debbie Sechler Active Compliant Jason Simpson Citizen Compliant Marcus Smith Citizen Compliant

System Administrator: Daniel Weber Compliant

Houston MTA Workers Union Pension Plan Name Trustee Type Compliance John Bland Retired Compliant Aurturo Jackson Employer Compliant Horace Marves Active Compliant Debbie Sechler Employer Compliant

System Administrator: Daniel Weber Compliant

November 2016 13 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Houston Municipal Employees Pension System Name Trustee Type Compliance Edward Hamb III Controller Appointee In Progress David Donnelly Mayoral Appointee In Progress Adrian Patterson City Council Appointee In Progress Lonnie Vara Retired In Progress Barbara Chelette Board Appointee Compliant Sherry Mose Active Compliant Roderick Newman Retired Compliant Asha Patnaik Active Compliant Lenard Polk Active Compliant Roy Sanchez Active Compliant

System Administrator: David Long Compliant

Houston Police Officer's Pension System Name Trustee Type Compliance Fletcher Throne-Thomsen Jr. Mayor's Representative In Progress Terry Bratton Retired Compliant J. Larry Doss Retired Compliant George Guerrero Active Compliant Michael Newsome Active Compliant Dwayne Ready Active Compliant

System Administrator: John Lawson Compliant

Irving Firemen's Relief & Retirement Fund Name Trustee Type Compliance Heidle Baskin Active In Progress Ike Obi Mayor Designee In Progress Jason Darrow Active Compliant Colvin Gibson Citizen Compliant Tony Harvey Active Compliant Jeff Litchfield CFO Compliant Cynthia Thatcher Citizen Compliant

System Administrator: Edith Auston In Progress

November 2016 14 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Irving Supplemental Benefit Plan Name Trustee Type Compliance James Donovan Active/Elected In Progress David Cardenas Active/Elected Compliant Brad Duff Active/Elected Compliant Jeff Litchfield Active/Appointed Compliant

System Administrator: Robert Cascante-Diaz Compliant

Killeen Firemen's Relief & Retirement Fund Name Trustee Type Compliance Daniel Corbin Mayor Designee In Progress Jonathan Locke CFO In Progress Otis Evans Citizen Compliant Scotty Jones Active Compliant Gerald Pittman Active Compliant Timothy Rabroker Active Compliant Jerry Sutton Citizen Compliant

System Administrator: Jennifer Hanna In Progress

Laredo Firefighters Retirement System Name Trustee Type Compliance Fernando Alarcon Jr. Citizen Compliant Pete Saenz Mayor In Progress Alberto Chapa Active Compliant Jesus Esparza CFO Compliant David Esparza Active Compliant Jose Martinez Active Compliant Louis Vaillancourt Citizen Compliant

System Administrator: Jaime Jasso Compliant

Longview Firemen's Relief & Retirement Fund Name Trustee Type Compliance Kristen Ishihara Mayor Designee In Progress Kolby Beckham Active Compliant Angela Coen CFO Compliant Jason Dodson Citizen Compliant Brian Jones Active Compliant Andy Parker Active Compliant Margo Talley Citizen Compliant

System Administrator: Shanda Branch Compliant

November 2016 15 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Lower Colorado River Authority Retirement Plan Name Trustee Type Compliance Raymond Gill Jr. Board of Director Appointee In Progress Charles Johnson Board of Director Appointee In Progress Stephen Kellicker Employee Representative In Progress Steve Mailten Employee Representative In Progress Jim Travis GM Executive Appointee In Progress Richard Williams Chief Financial Officer In Progress Dale Jurecka Employee Representative In Progress

System Administrator: Laura Flores In Progress

Lubbock Fire Pension Fund Name Trustee Type Compliance Dub Wade Citizen In Progress Randy Butcher Active Compliant Steve Exter Mayor Designee Compliant Kevin Ivy Active Compliant Roger Lindsey Active Compliant Alva Littlejohn Citizen Compliant Kevin Rule CFO Compliant

System Administrator: Jack Watkins Compliant

Lufkin Firemen's Relief & Retirement Fund Name Trustee Type Compliance Levi Cole Active Compliant Rufus Duncan Mayor Designee Compliant William "Bill" Gates Active Compliant Jimmy Ragsdale Active Compliant John Thannisch Citizen Compliant Hilary Walker Citizen Compliant Keith Wright CFO Compliant

System Administrator: Diana Russell Compliant

Marshall Firemen's Relief & Retirement Fund Name Trustee Type Compliance Elaine Altman CFO In Progress Phillip Burnett Active Compliant Joseph Dunagan Active Compliant Joseph Hudson Active Compliant Eric Neal Mayor Compliant David Scholl Citizen Compliant Mike Verhalen Citizen Compliant

System Administrator: Exempt

November 2016 16 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

McAllen Firemen's Relief & Retirement Fund Name Trustee Type Compliance Jose Castillo Citizen In Progress Leonard Dalhberg Active In Progress Javier Gutierrez Active In Progress Abel Leal Citizen In Progress Susan Lozano CFO In Progress Gerald Williamson Active In Progress Roel "Roy" Rodriguez Mayor Designee Compliant

System Administrator: Exempt; Form Pending

Midland Firemen's Relief & Retirement Fund Name Trustee Type Compliance Michael Cota Active In Progress Alan Meyers Citizen In Progress Jerry Morales Mayor In Progress Van Pearcy Citizen In Progress Pam Simecka CFO In Progress Brian McGary Active Compliant David Stacy Active Compliant

System Administrator: Shera Crow Compliant

Nacogdoches County Hospital District Retirement Plan Name Trustee Type Compliance Patrick Wallace Active In Progress Byron Hale Active In Progress Tom Wilken Active Not Compliant Sharon Clark Active Compliant Ken Poteete Active In Progress Jim Buckner Active In Progress Chuck Norris Active Compliant Ignacio Zamarron Active Compliant Mike Olson Active Compliant

System Administrator: Lea Anne Porter Compliant

Northeast Medical Center Hospital Retirement Plan Name Trustee Type Compliance Guy Sconzo Retirement Committee In Progress Barbara Reischmann Retirement Committee In Progress

System Administrator: Not Reported

November 2016 17 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Northwest Texas Healthcare System Retirement Plan Name Trustee Type Compliance Clifton Beck Not Reported Compliant

System Administrator: Michelle Bonner In Progress

Odessa Firemen's Relief & Retirement Fund Name Trustee Type Compliance James "Jay" Kirk Citizen In Progress Kathy McIntyre Citizen In Progress Michael Gardner Mayor Designee Compliant Konrad Hildebrandt CFO Compliant Pat Land Active Compliant Ben Marts Active Compliant Brad Reese Active Compliant

System Administrator: Jill Jones Compliant

Orange Firemen's Relief & Retirement Fund Name Trustee Type Compliance Cheryl Zeto CFO Compliant Joe Love Citizen In Progress John Bilbo Active Compliant Jody Cowart Active Compliant Sherry Jackson Mayor Designee Compliant Jason Maddox Active Compliant Walter Riedel Citizen Compliant

System Administrator: Carol Wetherington Compliant

Paris Firefighters' Relief & Retirement Fund Name Trustee Type Compliance Gene Anderson CFO Compliant Ryan Lassiter Citizen In Progress Kevin Wood Active Compliant Sandy Collard Mayor Designee Compliant Randy Crawford Active Compliant Jesse Strain Active Compliant

System Administrator: Debra Jones Compliant

November 2016 18 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Plainview Firemen's Relief & Retirement Fund Name Trustee Type Compliance Sarianne Beversdorf CFO In Progress Wendall Dunlap Mayor In Progress James Hart Active In Progress Thomas Ramirez Active In Progress Jimmy Rogers Citizen In Progress Kevin Whisenant Citizen In Progress Seth Stephens Active In Progress

System Administrator: Shane Harrell In Progress

Plano Retirement Security Plan Name Trustee Type Compliance Greg Rushin Active In Progress Myra Conklin Active Compliant Bob Gehbauer Active Compliant Karen Rhodes Active Compliant Sean Sullivan Citizen Compliant

System Administrator: Fannie Layer In Progress

Port Arthur Firemen's Relief & Retirement Fund Name Trustee Type Compliance Bernard Brown Citizen Compliant Richard Malone Active Compliant Mercer Nessour Active Compliant Paul Washburn Active Compliant

System Administrator: Exempt; Form Pending

Port of Houston Authority Retirement Plan Name Trustee Type Compliance Theldon Branch III Active Compliant Dean Corgey Active Compliant Stephen DonCarlos Active Compliant Clyde Fitzgerald Active Compliant John Kennedy Active Compliant Janiece Longoria Active Compliant Roy Mease Active Compliant

System Administrator: Ramon Yi Compliant

November 2016 19 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Refugio County Memorial Hospital District Retirement Plan Name Trustee Type Compliance Sandra Ermis Active In Progress

System Administrator: Exempt

San Angelo Firemen's Relief & Retirement Fund Name Trustee Type Compliance Brian Dunn Mayor Designee In Progress Ana Hudson Citizen In Progress Michael Anderson Active Compliant Tina Carriger CFO Compliant Steve Cecil Citizen Compliant Leslie Williams Active Compliant Cory Word Active Compliant

System Administrator: Ron Partusch Compliant

San Antonio Fire & Police Pension Fund Name Trustee Type Compliance Joe Krier Councilman Not Compliant Harry Griffin Retired Police In Progress Art Hall Mayoral Designee In Progress Ray Lopez Councilman In Progress Dean Pearson Active Fire In Progress Jim Smith Active Police In Progress JT Trevino Active Fire In Progress Shawn Ury Active Police In Progress Larry Reed Retired Fire Compliant

System Administrator: Warren Schott In Progress

November 2016 20 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

San Antonio Metropolitan Transit Retirement Plan Name Trustee Type Compliance Hope Andrade Active In Progress Steve Allison Active In Progress Lester Bryant Active In Progress Rebecca Cadillo Active In Progress Richard Gambatta Active In Progress Marc Harrison Active In Progress A David Marne Active In Progress Carl "Tex" Morgan Active In Progress Bobby Perez Active In Progress Douglas Poneck Active In Progress Katherine Thompson Active In Progress

System Administrator: Cathy Schnitzer In Progress

San Benito Firemen Relief & Retirement Fund Name Trustee Type Compliance Henry Lopez Mayor Designee Compliant Boris Esparza Active In Progress Adan Gonzalez Active In Progress Rafael Perez Active In Progress Caleb Silva Citizen Compliant Ida Martinez Citizen Compliant Belen Pena CFO Compliant

System Administrator: Ana Tinsley Compliant

Sweetwater Firemen's Relief & Retirement Fund Name Trustee Type Compliance Chris Kiser Citizen In Progress Patty Torres CFO Compliant Billy Villanueva Active In Progress Grant Madden Mayor Designee Compliant Brad Payne Active Compliant Preston Peacock Active Compliant Gail Rose Citizen Compliant

System Administrator: Debra Jones Compliant

November 2016 21 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Teacher Retirement System of Texas Name Trustee Type Compliance T Karen Charleston Higher Education Position Compliant Joe Colonnetta Appointed by the Governor Compliant David Corpus Nominated by the State Board of Education Compliant R David Kelly Appointed by the Governor Compliant Christopher Moss Nominated by the State Board of Education Compliant Anita Palmer TRS Retiree Compliant Dolores Ramirez Active Public Education Position Compliant Nanette Sissney Active Public Education Position Compliant Todd Barth Appointed by the Governor Compliant

System Administrator: Brian Guthrie Compliant

Temple Firemen's Relief & Retirement Fund Name Trustee Type Compliance Traci Barnard CFO In Progress Patrick Kelly Active Compliant Dan Maresh Citizen Compliant Randy Ramsey Mayor Designee In Progress Scott Hoelscher Active Compliant Daniel Meyer Active Compliant Blake Stapp Citizen Compliant

System Administrator: Jake Herndon Compliant

Texarkana Firemen's Relief & Retirement Fund Name Trustee Type Compliance Kristin Peeples CFO Compliant Rick Wisdom Mayor Designee In Progress David Cook Citizen Compliant Scott Daniel Active Compliant Paul Lauck Active Compliant Tim Martin Active Compliant Clay Roberts Citizen Compliant

System Administrator: Debra Jones Compliant

November 2016 22 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Texas City Firemen's Relief & Retirement Fund Name Trustee Type Compliance Matt Doyle Mayor In Progress Jennifer Price CFO In Progress Brian Ringleban Citizen In Progress Jesse Rubio Active In Progress Michael Rusnak Active In Progress Bob Senter Citizen In Progress Joe Tumbleson Active In Progress

System Administrator: Exempt

Texas County & District Retirement System Name Trustee Type Compliance Chuck Cazalas Retired In Progress Robert Eckels Retired Compliant Mary Garcia Active Compliant Deborah Hunt Active Compliant Bridget McDowell Active Compliant Kristeen Roe Active Compliant Jerry Bigham Retired Compliant Robert "Bob" Willis Active Compliant

System Administrator: Amy Bishop Compliant

Texas Emergency Services Retirement System Name Trustee Type Compliance Andrew "Taylor" Allen Investment Professional Compliant Gracie Flores Pension System Professional Compliant Dan Key Retired Compliant Ronald Larson Active Compliant Virginia "Jenny" Moore Active Compliant Dennis Rice Active Compliant Don Shipman Actuary Professional Compliant Frank Torres Active Compliant Stephen Williams Active Compliant

System Administrator: Kevin Deiters Compliant

November 2016 23 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Texas Municipal Retirement System Name Trustee Type Compliance Jim Jeffers Active Compliant David Landis Active Compliant Julie Oakley Active Compliant Jim Parrish Active Compliant Bill Phillbert Active Compliant Roel "Roy" Rodriguez Active Compliant

System Administrator: David Gavia Compliant

The Woodlands Firefighters' Retirement System Name Trustee Type Compliance Doug Adams Active In Progress Anthony Fasone Citizen In Progress Jeff Johnston Active In Progress Andrew Pitre Citizen In Progress Erik Secrest Active In Progress Monique Sharp Mayor Designee In Progress Susan Welbes CFO In Progress

System Administrator: Jennifer Hanna In Progress

Travis County ESD #6 Firefighter's Relief & Retirement Fund Name Trustee Type Compliance Paula Barr Mayor Designee In Progress Jim DeWitt CFO In Progress Brad King Active Compliant Jeff Timlin Citizen In Progress Rick White Citizen In Progress Chris Wood Active In Progress Scott Falltrick Active Compliant

System Administrator: Ana Tinsley In Progress

Tyler Firemen's Relief & Retirement Fund Name Trustee Type Compliance Leesa Hedge Citizen In Progress Steve Roosth Citizen In Progress Keidric Trimble CFO In Progress Joey Hooton Active Compliant Steve Kean Mayor Designee Compliant Darren McCawley Active Compliant James Mullicane Active Compliant

System Administrator: Paula Henderson In Progress

November 2016 24 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

University Health System Pension Plan Name Trustee Type Compliance Robert Engberg Board of Manager Volunteer In Progress Kevin Harris Citizen In Progress Christopher Hurley Active In Progress Steven Klaffke Citizen In Progress Carlos Resendez Citizen In Progress Theresa Scepanski Active In Progress Ira Smith Board of Manager Volunteer In Progress David Wallace Citizen In Progress

System Administrator: George Hernandez Jr. In Progress

University Park Firemen's Relief & Retirement Fund Name Trustee Type Compliance Cecil Barton Active In Progress Ashley Cook Citizen In Progress Matt Kelton Active In Progress Tom Tvardzik CFO In Progress Mike Williams Citizen In Progress Civic Yip Mayor Designee In Progress Dustin Lewis Active Compliant

System Administrator: Exempt; Form Pending

Waxahachie Firemen's Relief & Retirement Fund Name Trustee Type Compliance Marcus Brown Active Compliant Matt Dorsey Active Compliant Jeff Frazier Citizen In Progress Charles Harris CFO In Progress Gary Meyer Active In Progress John Tillery Citizen Compliant David Hill Mayor Designee Compliant

System Administrator: Exempt; Form Pending

November 2016 25 Public Retirement System Compliance with Minimum Educational Training Requirements State Pension Review Board

Weslaco Firemen's Relief & Retirement Fund Name Trustee Type Compliance Maria Barrera CFO Compliant David Cuellar Active Compliant Jaime Hernandez Active Compliant Jim Hiebert Citizen Compliant David Suarez Mayor Compliant Florentino Vela Active Compliant Charles Warren Citizen Compliant

System Administrator: Debra Jones Compliant

Wichita Falls Firemen's Relief & Retirement Fund Name Trustee Type Compliance Glenn Barham Mayor In Progress Donald Hughes Active In Progress Tracey Peterson Active In Progress Pat Halverson CFO Compliant John Luig Citizen Compliant Michelle Riggins Citizen Compliant Ray Wood Active Compliant

System Administrator: James Duncan Compliant

November 2016 26 Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX G – IRS NORMAL RETIREMENT AGE RULES

Memorandum To: Texas Public Retirement Systems From: State Pension Review Board (PRB) Date: April 8, 2016 RE: IRS Proposed Rulemaking - Applicability of the Normal Retirement Age Rules to Governmental Plans

On January 27, 2016, the Internal Revenue Service (IRS) and Department of the Treasury issued Proposed Regulations 147310-12 “Notice of Proposed Rulemaking Applicability of Normal Retirement Age Regulations to Governmental Pension Plans.”

Background

The IRS and Department of Treasury issued final regulations regarding the definition of Normal Retirement Age (NRA) in 2007. However, the effective date for governmental pension plans (within the meaning of section 414(d) of the Internal Revenue Code) has been delayed such that the regulations currently do not apply.

For a summary of the 2012 proposed changes on the applicability of the NRA regulations to governmental plans, please refer to the Pension Review Board staff research paper “Internal Revenue Service Proposed Guidance on Applicability of the Normal Retirement Age Rules to Governmental Plans.”

Proposed Regulations

The current version of the proposed regulations would provide guidance with respect to the applicability of the 2007 NRA regulations to a governmental pension plan, specifically, the determination of whether the normal retirement age satisfies the requirements of section 401(a), and whether the payment of definitely determinable benefits that commence at the plan’s normal retirement age satisfies these requirements. These regulations would affect sponsors and administrators of governmental plans, as well as participants in such plans.

Reasonably Representative Requirement

In general, the proposed regulations would apply the reasonably representative requirement as defined within the 2007 NRA regulations to governmental pension plans. Therefore, the normal retirement age under a governmental plan must not be earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. However, governmental plans that do not allow in-service distributions before age 62 are not required to satisfy these requirements.

A plan would meet the reasonably representative requirement if:

• the normal retirement age under the plan is 62, or • the normal retirement age is the later of age 62 or another specified date, such as the fifth anniversary of plan participation. Safe Harbor Provisions

The 2007 NRA regulations provide general safe harbor provisions to governmental pension plans. The proposed regulations include several additional safe harbor provisions developed specifically for governmental pension plans and qualified public safety employees based on responses to IRS Notices 2007-69 and 2012-29. Under the proposed regulations, a plan is not required to meet the reasonably representative requirement of the 2007 NRA regulations if it satisfies one of the following safe harbors.

Safe Harbors for Governmental Pension Plans

• A normal retirement age that is the later of age 60 or the age at which the participant has been credited with at least 5 years of service would satisfy the reasonably representative requirement. • A normal retirement age that is the later of age 55 or the age at which the participant has been credited with at least 10 years of service would satisfy the reasonably representative requirement. • A normal retirement age that is the participant’s age if the sum of the participant’s age plus the number of years of service equals 80 or more would satisfy the reasonably representative requirement. • A governmental plan would also be permitted to combine any of the other safe harbors (except for the qualified public safety employee safe harbors) provided under the proposed regulations with 25 years of service, so that a participant’s normal retirement age would be the participant’s age when the number of years of service that have been credited to the participant under the plan equals 25 if that age is earlier than what the participant’s normal retirement age would be under the other safe harbor.

Safe Harbors for Public Safety Employees

• A normal retirement age of 50 or later would satisfy the reasonably representative requirement. • A normal retirement age that is the participant’s age when the sum of the participant’s age plus the number of years of service that have been credited to the participant under the plan equals 70 or more would satisfy the reasonably representative requirement. • A normal retirement age for qualified public safety employees under a governmental plan that is the participant’s age when the number of years of service that have been credited to the participant under the plan equals 20 or more would satisfy the reasonably representative requirement.

Proposed Effective Date

The regulations are proposed to be effective on or after the later of:

1. January 1, 2017, or 2. the close of the first regular legislative session that begins on or after the date that is 3 months after the final regulations are published in the Federal Register.

Comments Sought

Comments and requests for a public hearing must be received by April 26, 2016.

Instructions for Submitting Comments to the IRS

Written Comments may be sent to CC:PA:LPD:PR (REG–147310–12), Room 5205, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Hand-delivered Comments may be submitted Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–147310–12), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC 20224. Electronic Comments may be submitted via the Federal eRulemaking Portal at www.regulations.gov (IRS REG–147310–12).

If you have any questions regarding the proposed regulations, please contact PRB staff at [email protected] or (512) 463-1736.

Thank you,

State Pension Review Board (512) 463-1736 [email protected] www.prb.state.tx.us

Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX H – THE PUBLIC EMPLOYEE PENSION TRANSPARENCY ACT 2016

Pension Review Board May 5, 2016

The Public Employee Pension Transparency Act Pension Review Board

On March 21, 2016, H.R. 4822 was introduced in the House of Representatives of the 114th Congress by Rep. Nunes (CA).The bill is titled the Public Employee Pension Transparency Act (PEPTA) and has been referred to the House Committee on Ways and Means. A similar bill, H.R. 6484, was filed by Rep. Nunes in the 111th Congress. It was re‐introduced by him as H.R. 567 in the 112th Congress and as H.R. 1628 in the 113th Congress.1 The current version of the bill amends the Internal Revenue Code to create a federal reporting structure for state and local public retirement systems. Among the requirements for filing, sponsors of state and local government employee pension plans must report specific financial information to the U.S. Treasury Secretary (Secretary). A state or political subdivision that is noncompliant with specified reporting requirements would be denied federal tax benefits relating to any bond issued by it until it complies with the reporting requirements. The bill would explicitly exempt the United States from liability for any current or future shortfall in any state or local government employee pension plan.

Annual Reporting Requirements

The proposed legislation requires a plan sponsor of a state or local government pension plan to file an annual report with the Secretary for plan years beginning on or after January 1, 2017. The annual report would have to be filed no later than 210 days after the end of the plan year (or as otherwise determined by the Secretary) setting forth:

A. Funding status ‐ Schedule of funding status, including the current liability of the plan, amount of plan assets, net unfunded liability, and plan’s funding percentage. Current liability is defined as the present value of all benefits accrued or earned under the plan as of the end of the plan year. B. Contribution schedule ‐ Schedule of contributions by the plan sponsor for the plan year, indicating contributions which are or are not taken into account in the schedule of funding status. C. Alternative projections of cash flow – Alternative projections related to the annual contributions, fair market value of assets, current liability, and plan funding status for each of the next 60 plan years. This would also include a statement of assumptions and methods used in the projections and those related to the plan’s funding policy, benefit changes, future workforce projections, and future plan returns. The Secretary would issue regulations to achieve comparability across plans regarding the assumptions and methods used in the projections. D. Statement of actuarial assumptions ‐ Statement of actuarial assumptions, including the assumed rate of return on invested plan assets for the plan year, and other assumptions as determined by the Secretary.

1 For information on bill status and progress, please see: https://www.govtrack.us/congress/bills/114/hr4822

Pension Review Board May 5, 2016

E. Membership information ‐ Statement of plan participants, including the number of active, retired, and vested deferred members. F. Investment Returns ‐ Statement of the plan investment returns, including the actual rate of return for the plan year and 5 preceding plan years. G. Unfunded liability ‐ Statement of the degree and manner in which the plan sponsor expects to eliminate any unfunded current liability, as well as the extent to which the plan sponsor has followed the plan’s funding policy for the 5 preceding plan years. H. Pension obligation bonds ‐ Statement of outstanding pension obligation bonds, including the total amount outstanding. I. Plan cost ‐ A statement of the current cost of the plan for the plan year.

The bill directs the Secretary to develop model reporting statements and create and maintain a public website, with searchable capabilities, for purposes of posting plan information required by the bill.

Supplementary Reporting Requirements

Supplementary reports would be required if the annual report does not measure assets at fair market value or if liabilities are not discounted using U.S. Treasury bond yields. The supplementary reports would re‐measure reported items in A, F, G, and I above, using assets at fair market value and liabilities discounted using the “U.S. Treasury Obligation Yield Curve Rate.” This yield curve rate would be developed by the Secretary and would consist of three rates, based on U.S. Treasury bond yields of different maturities: (1) Over the next 5 years; (2) Between 6 and 20 years; and (3) Over 20 years. The rates would be determined on a monthly basis and reflect average monthly yields over the preceding 24 month period.

Conclusion

The potential impact of the legislation is significant for both Texas public retirement systems and their sponsoring governmental entities. The Pension Review Board (PRB) was created in large part as a response to the federal government’s interest in pursuing ERISA‐style legislation for state and local public retirement systems. Although some of the proposed reporting requirements are similar to PRB reporting requirements in Texas Government Code, Chapter 802, certain elements of the proposal differ greatly from existing PRB reporting requirements, and some are vastly different from current actuarial standards of practice.

Texas Pension Review Board 2015-2016 Biennial Report

APPENDIX I – 84TH REGULAR LEGISLATIVE SESSION REPORT

XII

Pension Review Board June 25, 2015

84th Regular Legislative Session

Pension Legislation Passed

RETIREMENT SYSTEMS - GENERAL ...... 1

HB 3310 – Paul/Taylor, Larry ...... 1

SB 940 – Taylor, Van/Anchia ...... 1

STATEWIDE SYSTEMS ...... 2

EMPLOYEES RETIREMENT SYSTEM OF TEXAS (ERS) ...... 2

HB 9 – Flynn/Huffman ...... 2

HB 408 – Turner, Chris/Menendez ...... 2

TEACHER RETIREMENT SYSTEM OF TEXAS (TRS) ...... 2

HB 1937 – Darby/Fraser ...... 2

HB 2168 – Munoz/Lucio ...... 2

HB 2974 – Flynn/Huffman ...... 3

TEXAS COUNTY AND DISTRICT RETIREMENT SYSTEM (TCDRS)...... 3

SB 463 – Huffman/Kuempel...... 3

TEXAS EMERGENCY SERVICES RETIREMENT SYSTEM ...... 3

HB 1707 – Stephenson/Huffman ...... 3

HB 1725 – Stephenson/Huffman ...... 3

LOCAL SYSTEMS ...... 4

AUSTIN FIREFIGHTERS RELIEF AND RETIREMENT FUND ...... 4

HB 1756 – Rodriguez/Watson ...... 4

Pension Review Board June 25, 2015

84rd Regular Legislative Session

Pension Legislation Passed

Retirement Systems - General

HB 3310 – Paul/Taylor, Larry HB 3310 amends Chapter 802, Government Code, to make disclosure and reporting requirement changes for public retirement systems. The law requires a public retirement system to notify its sponsoring entity if the system receives an actuarial valuation indicating the system’s contributions were insufficient to amortize the unfunded liability within 40 years. If a system receives several consecutive valuations showing that the system’s amortization period exceeds 40 years, the system’s governing body and sponsoring entity must formulate a funding soundness restoration plan and submit the plan to the Pension Review Board. The plan should be developed in accordance with the system's governing statute and be designed to achieve and maintain, by the tenth anniversary of the date on which the final version of the plan is agreed to, an amortization period of no more than 40 years. Any updates of progress made by the entities toward improved actuarial soundness shall be reported to the PRB every two years.

Under the provisions of this bill, the Employees Retirement System of Texas, the Teacher’s Retirement System, the Texas County and District Retirement System, the Texas Municipal Retirement System, and the Judicial Retirement System of Texas, Plan Two would be exempt from the funding soundness restoration plan requirements.

The bill provides for the City of Fort Worth to independently formulate, adopt, and revise as necessary, the funding soundness restoration plan, if required to do so, for the Fort Worth Employees’ Retirement Fund.

HB 3310 also requires an actuarial valuation of a public retirement system to include a recommended contribution rate to achieve and maintain an amortization period of that does not exceed 30 years. Public retirement systems that have assets of at least $100 million are required to conduct an actuarial experience study once every five years and to submit that study to the PRB. The first such study would be conducted not later than September 1, 2016. The bill was signed by the Governor on June 18, 2015 and became effective immediately.

SB 940 – Taylor, Van/Anchia SB 940 makes administrative changes to Sections 806.052 and 807.052, Government Code, by requiring the Employees Retirement System of Texas, the Teacher’s Retirement System, the Texas County and District Retirement System, the Texas Municipal Retirement System, and the Texas Emergency Services Retirement System to notify the Comptroller’s Office and the State Pension Review Board of the listed companies in which the these entities own direct or indirect holdings, not later than the 30th day after the date the state governmental

June 2015

entity receives the list provided under Sections 806.051 and 807.051. The previous deadline was not later than the 14th day after the list was received. The bill was signed by the Governor on June 16, 2015 and will be effective September 1, 2015. Statewide Systems

Employees Retirement System of Texas (ERS)

HB 9 – Flynn/Huffman HB 9 amends Section 815.402(a), Government Code, to increase the employee contribution rate for ERS members who are not legislators, from 7.2% to 9.5% of payroll, and for legislators from 8.0% to 9.5% of compensation for service after August 31, 2015. Additionally, for service rendered on or after September 1, 2017, the employee contribution rate of 9.5% for ERS members who are not legislators would be reduced by one-tenth of a percent for each corresponding one-tenth of a percent reduction in the state contribution.

HB 9 also amends Section 812.003, Government Code to eliminate the 90-day member participation waiting period, which would allow for retirement contributions by the State and members to the ERS to begin on the first day of employment. The bill was signed by the Governor on June 9, 2015 and will be effective September 1, 2015.

HB 408 – Turner, Chris/Menendez HB 408 amends several sections of the Government Code to prohibit a member of the elected class, excluding district attorneys and criminal district attorneys, from being able to retire and receive an annuity based on service credit transferred from the employee class to the elected class until the member no longer holds an elected-class position. The bill still allows a contributing elected-class member to receive an annuity based solely on service credit earned in the employee class. This bill has an immediate effective date.

Teacher Retirement System of Texas (TRS)

HB 1937 – Darby/Fraser HB 1937 amends Section 824.805, Government Code, providing certain members of TRS a one-time election to revoke their DROP participation. Those members revoking their election would have their annuities recalculated using all of their service as if those members never participated in the DROP. This bill was signed by the Governor on May 28, 2015 and will be effective on September 1, 2015.

HB 2168 – Munoz/Lucio This law makes administrative changes to Section 824.003, Government Code, regarding the timing of monthly annuity payments from TRS. HB 2168 would change the day of payments from the first working day of the month, to the last working day of the month for which the payment accrues. This bill was signed by the Governor on June 17, 2015 and will be effective September 1, 2015.

June 2015

HB 2974 – Flynn/Huffman HB 2974 creates a joint interim committee to study and propose reforms to the two healthcare plans (TRS-Care and TRS-ActiveCare) administered by TRS. The bill amends the Government Code to make certain clarifying and technical changes to provisions applicable to TRS. It amends the definition of “annual compensation” and “employee” for purposes of TRS membership and service credit. Out-of-state service credit requirements and eligibility for membership and for contribution withdrawals is clarified to conform to IRS requirements.

The law also allows the TRS board of trustees to attend events without public notice if there is no deliberating, voting, or action taking on TRS business at the event. The law also makes changes relating to the health benefit surcharge in return-to-work cases. This bill has an effective date of September 1, 2015.

Texas County and District Retirement System (TCDRS)

SB 463 – Huffman/Kuempel SB 463 restructures the current three TCDRS internal fund accounts by eliminating the current service annuity reserve fund (CSARF), so that benefit payments to participants of active subdivisions would be made entirely from the subdivision accumulation fund (SAF). A one-time allocation and transfer of the CSARF would be made, with active subdivision assets being transferred to the SAF, effective January 1, 2017. A new fund, the closed subdivision annuity reserve fund would be created, from which future benefit payments to participants of closed subdivisions would be made. The bill was signed by the Governor on June 1, 2015 and became effective immediately.

Texas Emergency Services Retirement System

HB 1707 – Stephenson/Huffman HB 1707 amends Section 865.014, Government Code, adding wire transfer and an automated clearinghouse withdrawal (ACH debit) to the methods a political subdivision may use to submit contributions to the Texas Emergency Services Retirement System. This bill was signed by the Governor on June 1, 2015 and will be effective on September 1, 2015.

HB 1725 – Stephenson/Huffman This bill amends Section 865.012, Government Code providing that if a participating department does not have enough active members to serve on a local board, the local board shall select a trustee or trustees to serve under that subdivision. A person selected to serve must be a retiree of the system or a beneficiary of the system who is a surviving spouse of a former member or retiree. This bill was signed on June 1, 2015 and became effective immediately.

June 2015

Local Systems

Austin Firefighters Relief and Retirement Fund

HB 1756 – Rodriguez/Watson HB 1756 makes administrative changes to Article 6243e.1, Vernon’s Texas Civil Statutes, by allowing the board of trustees to appoint a sole nominated candidate to the board without holding an election and to adopt procedures for such appointments, as well as allowing the board of trustees to adopt rules to establish procedures and requirements governing a member’s designation of the beneficiary. The law also allows the board of trustees to adopt rules to modify the availability of certain distributions from a member’s DROP account. HB 1756 clarifies provisions relating to payments from a DROP account at the member’s death and relating to the determination period for the collective adjustment amount for an annual cost-of-living-adjustment. The bill was signed by the Governor on May 28, 2015 and will be effective on September 1, 2015.