TRS Board discussing plans for office space, 13th checks (UPDATE: both items approved)

The Teacher Retirement System Board of Trustees is considering several weighty items during its September meeting this week, none more controversial than that of planning its future office space. The agency has come under fire in recent years for decisions regarding office leases in downtown Austin. The long-term plan as explained by Executive Director Brian Guthrie is to house all agency employees under one building owned by TRS, rather than continuing to lease space for the investment management team in a downtown building apart from the rest of the staff.

The two primary proposals under consideration at this meeting are to remain in the current building on Red River Street in downtown Austin, which will entail significant expenditures in order to accommodate office space and parking for a growing staff; or to sell the Red River building and buy a new property in East Austin that will eventually unite the staff in a facility with expanded capacity.

The actuarial firm that TRS contracts with, GRS, issued a statement Thursday indicating that they did not anticipate that spending on new office facilities would have a material impact on the fund’s ability to afford future benefit increases.

In the valuation process, there is an allowance of 0.14% of payroll towards potential administrative expenses borne by the pension system. This is one of the lowest administrative burdens in the country, being the 8th lowest in a ranking of the largest 100 public pension funds. For comparison, the average from that same survey is 0.40% of payroll.

Thus, any increase in the 0.14% of payroll could potentially increase the funding period. However, based on the financial analysis on the new location, there is expected to be a net savings to the administrative expenses over time, therefore there would be no impact to the funded ratio or the funding period.

We have estimated that even if none of the offsets bear out and the entire $250-$300 million cash cost of the new building were absorbed by the System, it would still not be expected to increase the funding period. Thus, it would be very difficult for the project to have an impact on the current or any future valuation results in a negative way.

Information about the Board’s options is available here. The Board will be briefed on the issues Friday and is expected to make a decision after what could be a lengthy executive session. FRIDAY UPDATE: After lengthy discussion, both in public and in executive session, the Board agreed to move forward with purchasing facilities in East Austin and putting the current Red River Street building on the market. The building will be for sale in a few months, and over the next 2-3 years, TRS will finish out the existing property at the Mueller development in East Austin (called the "Alpha" building), begin construction on a second building ("Bravo"), and eventually move all staff (including the investment division, which is currently leasing office space in downtown Austin) into the facilities by 2024.

Meeting highlights

Other highlights from the meeting are included below. Issues that had not yet been taken up as of Thursday afternoon will be updated after Friday’s meeting concludes.

• The market value of the TRS pension fund was $193 billion as of the end of June, and recent growth has likely caused the fund to cross the $200 billion threshold. Strong investment returns, to the extent they continue throughout 2022 and into 2023, would bolster TCTA's efforts to secure a cost-of-living adjustment for retirees in the next legislative session.
• The Board is expected to authorize distribution of 13^th checks (capped at $2,400) for retirees in January 2022. FRIDAY UPDATE: The Board authorized the check distribution in its Friday meeting. Also on Friday, Gov. Abbott signed HB 5, the legislation that funds the check.
• Members of the health insurance division briefed the Board on their move toward varying regional ratings for ActiveCare premiums. Staff will provide the Board and school districts with more details on regional premiums in October and November, in time for districts to make decisions about whether to participate in ActiveCare or to offer a local plan for the 2022-23 school year by the Dec. 31, 2021, deadline. New legislation eliminates the ability of districts of innovation to offer employees both ActiveCare and a local plan, but any districts currently participating in ActiveCare will be allowed to withdraw from the plan in order to offer coverage locally.
• The Board and staff are working on changes in administrative rules to conform to new and revised laws stemming from the 87^th legislative session. Significant changes are being made to the statutes and rules governing employment after retirement (EAR), most of which will relax current requirements and allow more retirees to work up to full time without jeopardizing their TRS checks. TCTA will do a thorough analysis of the EAR changes and other key rule revisions in an upcoming publication.
• The TRS investment team is forming a working group to research the feasibility and impact of investing in digital assets (such as bitcoin).
• During a discussion on the work of the benefits counseling division, staff noted a 25% increase in pending retirements compared to this time last year. A slight increase in mid-year retirements is likely as well. The Board also learned that close to 250,000 TRS members will be eligible for retirement in the next five years, a figure that adds to concerns over current teacher shortages.
• Former TCTA state president Nanette Sissney of Whitesboro was re-elected vice-chair of the Board, and also continues to serve as the chair of the Budget Committee.