The TRS Board of Trustees welcomed three new appointees and took care of organizational business at its September 2011 meeting before turning to financial issues relating to the TRS and pension funds. Former TCTA State President Charlotte Clifton was elected vice-chair of the board and will also return as chair of the TRS Benefits Committee. TCTA President-Elect Nanette Sissney continues as chair of the TRS Budget Committee.

 

New members Joe Colonnetta (a Dallas financial expert), Anita Palmer (a retiree from Wichita Falls) and Karen Charleston (a higher education representative from Houston) were inundated with the usual facts and figures that dominate a TRS Board meeting, including discussions over TRS employee salaries, the future of the TRS-Care retiree health insurance program, and an overview of the current state of the U.S. and overseas economies.

 

COMPENSATION

The TRS Compensation Committee was briefed on the performance pay plan that governs salaries and bonuses for the agency’s sizable investment staff. Several years ago the TRS Board approved a new structure that provides significant bonuses for “increased value” (performing above benchmarks). That plan was adjusted subsequently to provide that no bonuses will be paid in years in which the fund has a negative return – although if the fund is outperforming peers during such a period the bonuses may be earned, but would be deferred until the fund experiences a positive return.

 

TRS undertook a study to compare TRS investment staff compensation to salaries/bonuses earned in other public sector pensions and in private sector companies. Overall, TRS pays significantly higher than other public pensions, but comparable to private firms. The bonus plan is designed to ensure that the $100+ billion fund is able to attract top-notch investment experts from the private sector, but the huge figures (including over $400,000 in bonuses alone to TRS Chief Investment Officer Britt Harris in 2010) are controversial in the context of more than a decade of stagnant benefits paid to TRS retirees.

 

TRS-CARE

The Board received the latest update on the TRS-Care fund and was reminded that although the fund is able to provide promised insurance benefits now, its funding will run out in about three years (under current projections). This allows time for changes to be made during the next legislative session, and TRS has been directed by the legislature to conduct a study on the program’s solvency and recommendations to improve its financial health. Changes recommended to bolster the plan could include increases in contributions from the state, retirees and active members; changes in the benefit structure; or a combination of these. TRS staff are also looking into options such as a Medicare Advantage plan (a privately-run alternative to traditional Medicare) and alternative prescription drug benefit managers, changes that could be made without legislative involvement.

 

ECONOMIC OVERVIEW

The TRS Board was briefed on current economic conditions in the U.S. and globally by CIO Britt Harris, who referred to his presentation as among the most depressing he’s ever given. The bad news is that both the U.S. and global economies continue to decline, while the anticipated market rebounds do not appear to be on the horizon and the typical “fixes” are not taking care of the problem. Harris referred to overseas concerns that have been reported in the media recently, including the potential default of the Greece government and other problems with the European banking system. However, he assured the Board that TRS is positioning itself as well as possible through its diversified portfolio to weather these storms over the long term.

 

The fund did well in fiscal year 2011, with a 15% investment return even after the market downturn in the last several weeks of the summer. The market value of the fund is approximately $107 billion. An actuarial valuation is currently under way to examine the long-term financial status of the pension fund, and results will be reported to trustees at the November meeting.