April 2020

TRS Board of Trustees Meeting

Teacher Retirement System of Texas 1000 Red River Street Austin, Texas 78701-2698

TEACHER RETIREMENT SYSTEM OF TEXAS MEETING BOARD OF TRUSTEES

AGENDA

April 17, 2020 – 10:00 a.m.

By Videoconference

All or part of the April 17, 2020 meeting of the TRS Board of Trustees may be held by video or teleconference call as authorized under Sections 551.127 and 551.130 of the Texas Government Code. THIS MEETING WILL BE CONDUCTED BY VIDEOCONFERENCE IN ACCORDANCE WITH THE GOVERNOR’S AUTHORIZATION CONCERNING SUSPENSION OF CERTAIN OPEN MEETING LAW REQUIREMENTS IN RESPONSE TO THE COVID-19 (CORONAVIRUS) DISASTER. A quorum of members of the Board will participate in the meeting and will be audible to the public. Members of the public may access the meeting by clicking https://zoom.us/j/881-749-244 – Meeting ID: 881-749-244, please email the Board Secretary, Katherine.Farrell@trs.texas.gov, to obtain the meeting password. Members of the public may provide public comment by registering first with the Board Secretary by submitting an email to Katherine.Farrell@trs.texas.gov identifying the name of the speaker and topic, no later than 8:00 am on April 17, 2020. NOTE: The Board may take up any item posted on the agenda during its meeting on April 17, 2020, beginning at the time specified on this agenda. The open portions of the Board meeting are being broadcast over the Internet. Access to the Internet broadcast and agenda materials of the Board meeting is provided at www.trs.texas.gov. A recording of the meeting will be available at www.trs.texas.gov. 1. Provide an opportunity for public comment – Jarvis V. Hollingsworth.

2. Consider the following administrative matters: – Jarvis V. Hollingsworth

A. Approval of the February 2020 proposed meeting minutes; B. Excusing Board member absences from the February 2020 Board meeting; and C. Setting, rescheduling, or canceling future Board meetings.

3. Receive an update from the Executive Director including updates regarding COVID-19, TRS Operations, Sunset Report and review upcoming meetings – Brian Guthrie.

4. Receive a report from the COAO including an update on TEAM – Andrew Roth.

5. Receive a report from the Chief Audit Executive – Amanda Jenami.

6. Receive a market update from the Chief Investment Officer – Jase Auby.

7. Consider extension of the State Street Custody Agreement and Securities Lending Authorization Agreement - Sylvia Bell.

8. Receive report on investment practices and performance evaluation and consider resolution directing submission of the report to the Pension Review Board as required by Texas Gov’t Code 802.109 – Mike McCormick and Julie Becker, Aon Hewitt.

9. Discuss and consider selecting health maintenance organization (HMOs) to be associated with TRSActiveCare, including considering a finding that deliberating or conferring on the selection of the HMO(s) in an open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person – Katrina Daniel.

10. Discuss and consider PPO plan benefits and rates to be offered under TRS-ActiveCare during FY2020 and consider HMO plan benefits and rates to be offered in association with TRS-ActiveCare during FY2020 - Katrina Daniel.

11. Consider approval of Benefit Payments for December 1, 2019 – February 29, 2020 – Barbie Pearson.

12. Consider the appointment of Dr. David Rothschild as a member and Chair of the TRS Medical Board and engagement as a provider of Medical Board Services – Barbie Pearson.

13. Consider adoption of the proposed 2021-25 Strategic Plan Goals, Objectives and Strategies – Rebecca Merrill.

14. Consider adoption of the proposed amendments to TRS rule in Chapter 23 of Title 34, Part 3 of the Texas Administrative Code; §23.5 Nominations for Appointment to the Board of Trustees – Katherine Farrell.

15. Receive an update on FY 2020 mid-year budget and FTE report and Legislative Appropriations Request for Fiscal Years 2022-23 – Brian Guthrie, Andrew Roth and Don Green.

16. Consider long term facilities planning, including 816 Congress lease, Indeed sublease and due diligence expenses associated with the potential new building and the potential renovations or sale of the Red River campus, legal, consulting, architectural, and other expenses – Brian Guthrie, Andrew Roth, and Eric Lang.

17. Review the report of the General Counsel on pending and contemplated litigation, including updates on litigation involving benefit-program contributions, investment matters, retirement benefits, health benefit programs, open records, and on a request for an Attorney General Opinion, RQ-0334-KP, and request for an audit from the State Auditor’s Office, filed February 27, 2020 – Carolina de Onis.

The Board may convene in Executive Session under the following, but not limited to: A. Texas Government Code, Section 551.071: Consultation with Attorney;

B. Texas Government Code, Section 551.072: Deliberation Regarding Real Property; C. Texas Government Code, Section 551.074: Personnel Matters Relating to Appointment,

Employment, Evaluation, Assignment, Duties, Discipline, or Dismissal of Officers or Employees including but not limited to the Executive Director, Chief Audit Executive, Chief Investment Officer.

D. Texas Government Code, Section 551.076: Deliberation Regarding Security Devices or Security Audits;

E. Texas Government Code, Section 551.089: Deliberation Regarding Security Devices or Security Audits; or

F. Texas Government Code, Section 825.115: Applicability of Certain Laws; G. Texas Government Code, Section 825.3011: Certain Consultations Concerning

Investments.

TAB 2

1

Minutes of the Board of Trustees

February 20, 2020

The Board of Trustees of the Teacher Retirement System of Texas met on February 20, 2020 in the boardroom located on the fifth floor of the TRS East Building offices at 1000 Red River, Austin, Texas. The following Board members were present:

Jarvis V. Hollingsworth, Chair Nanette Sissney, Vice Chair Michael Ball David Corpus John Elliott Christopher Moss James Nance Robert H. Walls, Jr.

Others present:

Brian Guthrie, TRS Dolores Ramirez Andrew Roth, TRS Joe Colonnetta Don Green, TRS Patricia Macias, TRTA Carolina de Onis, TRS Earline Hopkins, Katy Area Retired Educators Jase Auby, TRS David Hopkins, Katy Area Retired Educators Jerry Albright, TRS Ann Fickel, TCTA Barbie Pearson, TRS Tera Collum, Teachers for Texas Katrina Daniel, TRS Nick Arnold, Humana Amanda Jenami, TRS Leroy DeHaven, TRTA Heather Traeger, TRS Becca Suzak, Aetna Eric Lang, TRS Mike Bentrott, Aetna Katherine Farrell, TRS Jamie Maldonado, TRTA Clarke Howard, TRS Shelly Sargent, TRTA Kevin Wakley, TRS Adrienne Cabrera, OOG Caasi Lamb, TRS Viki Hicks, TRTA Steve Voss, Aon Hewitt Susan Pulis, TRTA Keith Brown, Investment Advisor Barbara Hollis, TRTA Suzanne Dugan, Cohen Millstein Gene Stokes, TRTA Jeanna Cullins, Aon Hewitt Linda Jones, UHC Troy Holme, CBRE Kim Farmer, UHC Craig Campbell, ARTA Kevin Gillespie, ARTA Bob Sechler, Statesman Eric St. Pierre, Humana Mary Sue Neptune, ARTA

2

Cheryl Anderson, Texas AFT Retiree Plus Tim Lee, TRTA Michael Meyer, WCRTA Kathy Carriker, TRTA Carole Smith, TRTA Rosemary Morrow, TRTA Brock Gregg, TRTA Marian Wallace, Office of Lt. Governor Joaquin Guadarramy, Office of Lt. Governor Joni Lozano, CVS Health Sean Donovan, CVS Health Mike Heck, CVS Health Vicki Truitt, TRTA Laura Atlas Kramlz, TSTA Sue Duncan, TRTA Tiffany Calderon, Humana Carla Whaley, Humana Joe Braley, BCBS TX M. Tessler, BCBS TX Mr. Hollingsworth called the meeting to order at 8:00 a.m.

1. Call roll of Board members.

Ms. Farrell called the roll. A quorum was present, Dr. Gibson was absent.

2. Consider the following administrative items – Jarvis Hollingsworth: a. Approval of the proposed December 2019 Board meeting minutes;

On a motion by Mr. Corpus, seconded by Mr. Elliott, the Board voted to approve the proposed minutes of the December 12, 2019 Board meeting.

b. Excusing Board member absences from the December 2019 Board meeting.

On a motion by Mr. Ball and seconded by Mr. Nance, the Board voted to excuse Trustee Moss and Gibson from the December 2019 meeting.

3. Resolution recognizing the service of Trustees Dolores Ramirez and Joe Colonnetta – Jarvis V. Hollingsworth.

Mr. Hollingsworth noted they had the wonderful occasion to recognize two long-serving Trustees, Dolores Ramirez and Joe Colonnetta, who are no longer on the Board.

Mr. Hollingsworth read the following resolution for Dolores Ramirez:

3

Whereas, Dolores Ramirez has served as a member of the Board of Trustees of the Teacher Retirement System of Texas from October 18, 2013, until October 22, 2019, mindful of her duty as a caretaker of a trust to those who teach or otherwise serve our state’s children and therefore shape its future; and

Whereas, she provided leadership during a time when the Retirement System grew from approximately 1.3 to more than 1.6 million members and annuities, and the net position of the Fund increased from 107.4 billion to 158 billion;

Whereas, she was unanimously elected Vice Chair in 2016 and served as Chair of the Ethics Committee from 2016 to 2018, and served as a member of the Benefits, Budget, Compensation, Investment Management and Policy Committees; and

Whereas, she helped guide the agency through organizational changes to focus on key challenges such as health care fund solvency, pension trust fund sustainability, long term investment returns and replacing legacy technical systems; and

Whereas, she served at a time where special emphasis was given to promote the agency’s core value, customer satisfaction, collaboration and team work, accountability, respect, ethics, excellence and employee fulfillment; and

Whereas, she contributed greatly to the national discussion on the retirement security for teachers and other public employees by representing TRS at the National Council on Teacher Retirement and served as Chair of NCTR’s Resolution Committee; and

Whereas, she proudly served her team when TRS continued progress on the TRS Enterprise application, TEAM program, promoted financial awareness and member education through a series of videos, opened an investment office in London, completed an update pension benefit design study, and Compact with Texans, annually received the certificate of achievement for excellence in financial reporting from the Government Financial Member Satisfaction Surveys, and sent new membership cards to members and retirees in a continuous effort to improve costumer service, annually hosted the largest Emerging Managers Conference in the country with over 1,000 attendees, oversaw TRS executives as they provided information and testified to the 86th Texas Legislature which passed historic legislation leading to the actuarial soundness of the TRS Pension Fund, resulting in raises for teachers and others, to keep TRS Fund solvent and a 13th check for retirees; and

Whereas, on July 19, 2019, Dolores served as the acting Benefits Committee Chair, and in that capacity, proudly and wholeheartedly moved for the Board of Trustees to direct TRS staff to prepare for and issue the 13th check, the Board unanimously approved Dolores’ motion to which recipients of the 13th check have written to TRS expressing much appreciation and gratitude; and

4

Whereas, TRS, recognizing her exemplary teaching career of over 40 years and being named teacher of the year for Rangerville Elementary in 2006; and

Whereas, TRS is proud to welcome Dolores as a retiree and look forward to serving her in this capacity for years to come; Now, therefore, be it

Resolved, that the Board of Trustees and staff o the Teacher Retirement System of Texas recognize the accomplishments and contributions of Dolores Ramirez, honor her valued contributions and express appreciation on behalf of TRS members, both present and future; and be it further

Resolved that a copy of this resolution be presented to Dolores Ramirez and entered into the record of the Board for February 20, 2020.

On a motion by Mr. Moss and seconded by Ms. Sissney, the Board unanimously approved the resolution.

Ms. Ramirez thanked the Board for the wonderful six years and that it was a pleasure to serve. She said as a recent retiree, she knows the staff is doing their best for the school employees of the state of Texas.

Mr. Hollingsworth then read into the record the following resolution for Joe Colonnetta:

Whereas, Joe Colonnetta was first appointed to the Board of Trustees of the Teacher Retirement System of Texas by Governor Perry on August 30, 2011, and reappointed by Governor Abbott on October 18, 2013, until October 22, 2019, mindful of his duty as caretaker of a Trust to those who teach or otherwise serve our state’s children and thereby shape it’s future; and

Whereas, he provided leadership during a time when the Retirement System grew from approximately 1.3 to more than 1.6 million members and annuities, and the net position of the Fund increased from 107.4 to 158 billion;

Whereas, he served as Chair of the Investment Management Committee, the IMC, as we know it, and the Policy Committee, as well as in 2016 and served as a member on the Budget, Compensation and Risk Committees; and

Whereas, Joe’s investment experience directly contributed to the overall growth of the TRS’ unique and innovative investment structures; and

Whereas, during his four-year chairmanship of the IMC – which might be a record, by the way – he dedicated time to thoroughly review nearly 450 individual investments, representing an estimated $106.7 billion of invested capital; and

Whereas, Joe had a prominent impact in laying the foundation for a key milestone for TRS with the opening of our first international satellite presence in London; and

5

Whereas, Joe has provided continuous support and guidance in the Investment Management Building the Fleet Initiative; and

Whereas, he proudly served TRS’ continued progress on the TEAM program, promoted financial awareness and member education through a series of videos, completed an updated pension benefit design fund study and Compact with Texans, annually received the certificate of achievement for excellence in financial reporting, conducted biennial Member Satisfaction Surveys, and sent new membership cards to members and retirees in a continuous effort to improve customer service, and annually provided the largest Emerging Managers Conference in the country with over 1,000 attendees; and

Whereas, Joe oversaw and provided valuable insight to TRS executives as they testified and provided information to the 84th, 85th and 86th Texas Legislatures, during this session, historic legislation passed leading to the actuarial soundness of the TRS Pension Fund, resulting in raises for teachers and others, a 13th check for retirees and finding to keep TRS-Care solvent; and

Whereas, Joe embodied substantial investment experience and the highest standard of professionalism as he served as an invaluable role to TRS and its many, many members; Therefore, be it

Resolved, that the Board of Trustees and staff of the Teacher Retirement System of Texas recognize the accomplishments and contributions of Joe Colonnetta, and express sincere appreciation on behalf of TRS members, both present and future; and be it further

Resolved, that a copy of this resolution be presented to Joe Colonnetta and entered into the record of the Board for February 20, 2020.

On a motion by Mr. Corpus and seconded by Mr. Nance, the Board unanimously approved the resolution.

Mr. Colonnetta said it has been a great honor for this almost decade to serve our members. He shared he is proud of even the smallest things we accomplished, because looking back, they have made a big impact to the members.

4. Provide an opportunity for public comment – Jarvis V. Hollingsworth.

Ms. Patricia Macias, State President of Texas Retired Teacher Association, expressed public educators are understandably angry over finding out through the media that TRS was slated to lease a luxury office building downtown Austin for $326,000 a month, when retirees struggle on a day-to-day basis to meet basic needs. She stated there is an inherent disconnect between retirees and TRS and the Indeed Tower lease highlights the difference between the administrative perception of agency needs versus retirees’ reality.

6

Ms. Earline Hopkins, Katy Area Retired Educators (KARE), expressed how her members were really upset with TRS choosing an upscale and modern in downtown Austin when there could be other places TRS could purchase and not lease. She noted if the fund was not strong enough for a cost of living adjustment, then it probably was not ready to absorb the $4 million a year lease that goes up in 10 years.

Ms. Ann Fickle, Texas Classroom Teachers Association, expressed appreciation for Ms. Ramirez and Mr. Colonnetta’s service. She requested the space planning and office leasing situation be done in public and that the teacher’s concerns be taken into consideration.

Ms. Tera Collum, Executive Director of Teachers for Texas, expressed concern the Trustees were not being good stewards of the Fund by entering into a $4 million a year rent in one of the best office spaces in Austin.

5. Receive an update regarding TRS Long-Term Facilities planning including plans for a future headquarters and considering leases at 816 Congress and Indeed Tower – Brian Guthrie and Andrew Roth.

Mr. Brian Guthrie discussed the various comments and concerns TRS received through Facebook, TRS Comments, Compact with Texans and with Legislators. He said the presentations goal is to address these concerns within the statutory limitations. He reviewed the timeline starting with how the current building constructed in 1973, when membership was at 400,000, was a generational solution for about 20 to 30 years. After 50 years, space is running out. He noted over a decade ago the Investment Management Division (IMD) moved out of the headquarters in 2008 and leased space downtown at 816 Congress. Mr. Guthrie stated as membership grows, TRS grows to serve the members, by 2014, the membership was over 1.4 million and space at Red River started to become an issue. He reported in 2014 long-term facilities planning was discussed, alternatives examined and the Board decided to maintain the status quo.

Mr. Guthrie referenced in 2018, the Building the Fleet Initiative, designed to bring more investment expertise in-house was approved. With no more space available to lease at 816 Congress, the process began which ultimately led to signing the lease at the Indeed Tower while also reviewing options for the Red River Headquarters.

Mr. Jerry Albright provided the background on the decision made in 2008 to relocate the IMD from Red River headquarters to 816 Congress. He said the decision to remain downtown was for recruiting purposes. Due to the Great Financial Crisis (GFC) in 2008, there was cost competitive space available downtown, close to headquarters. In response to Mr. Moss’ inquiry, Mr. Eric Lang stated the Board voted on a resolution for IMD to move to 816 Congress, after much deliberation on what was best.

7

Mr. Guthrie stated that in 2014 when the review of long-term facilities occurred the Board decided to remain at the current locations because there was room to continue to grow at 816 , space issues were manageable at Red River, and wanted to see what the marketplace would do in terms of value increasing. He reported the market placed into our favor but another decision point is coming up regarding headquarters.

Mr. Albright stated that TRS is a $165 billion institution, an economic engine for the State of Texas. He noted the Fund will be $200 billion in the next five years or so. As the Fund grows incrementally in the asset values that required a corresponding incremental growth in the FTE count to manage those assets. Additionally, with the Board approval of increasing staff to increase internal management capabilities in February 2018 to save $1.4 billion over the next five years also increased FTE count and need for space. He said their recruiting and retention of talent strategy is to stay in downtown.

Mr. Albright said in 2018, there was no space additional space to lease in 816 Congress and the lease was to expire in March 2021. The experts at the time were saying there would be no leasing available in downtown Austin, much less finding an additional 100,000 square feet needed for the Build the Fleet Initiative. Mr. Albright said they researched Indeed Tower and/ found preleasing during the early construction phase would get an attractive rental rate.

Mr. Guthrie reviewed the facts that were known at the time the Indeed lease decision was made. He said at that time, 2018, there was not as well developed long-term facilities plan at the time when additional space was needed for IMD. There was not sufficient space available in the downtown market and the Indeed tower rent that was negotiated, pre-construction, was comparable to what was being paid at 816 Congress.

Ms. Jeanna Cullins with Aon Hewitt Investment Consulting’s (AHIC) fiduciary services practice stated she was engaged to independently analyze the process that TRS used to make decisions regarding its space planning needs, focusing particularly on the decision of whether or not to move into Indeed Towers, and to advise TRS on whether the process utilized was a prudent process, consistent with TRS’ fiduciary responsibilities. She reported reviewing documentation, emails and performed interviews with key parties to determine if the documentation and process used and the information given to the Board was prudent in order for them to fulfill their fiduciary responsibilities. She noted to determine if a fiduciary acted prudently in any given situation depends on the facts and circumstances of each situation at the time the decision was made. Ms. Cullins said that based on the information reviewed, they found TRS engaged in a rigorous thoughtful evaluation of its space planning needs and its available options. She noted TRS used extensive information provided by internal and external experts in a manner that was consistent with procedural prudence in fulfillment of fiduciary responsibilities.

8

Mr. Andrew Roth provided an overview of TRS long-term facilities current plan. First part, he said, was the possibility of relocating headquarters outside of the downtown business core area. He reported TRS was in exclusive negotiations with a developer in the Mueller Development, the cost of the development is estimated to be between $150 to $200 million. Next essential component is the value of the existing Red River headquarters. He said TRS needs to acquire a professional consultant or broker to provide information about what options this campus has and what kind of value to expect to receive that will offset the potential cost of the new building. He said they are also exploring regional offices to better serve members. He noted a large majority of both retired and active members are very supportive of opening regional offices in remote areas of the State. Mr. Guthrie added TRS would not build and is looking to possibly utilize space from other government entities.

Mr. Guthrie then transitioned the discussion from what was known when the Indeed Tower lease was signed to what changed in the two years since that decision was made. Mr. Eric Lang reported that since the decision to sing the lease with Indeed Tower, space has become available at 816 Congress to accommodate IMD’s growth after 2021. He said the cost to refit the space in 816 Congress was lower than at Indeed Tower, mainly because 816 Congress is an older building. He stated staff’s recommendation is to renew and expand the lease at 816 for a total of around 95,000 square feet at $34 per square foot. He said they did not have to take expansion space immediately, saving money and recommend a seven-year term. He said the major consideration for this option was subleasing Indeed Tower. The other option was to remain in Indeed tower with 101,673 square feet at $38.50 per square foot. He said Indeed does carry additional build-out costs above landlord-tenant improvements but does not carry the risk of a sublease. However, he noted with the new space at 816 to accommodate IMD’s growth, there are lower tenant improvement costs and no moving costs.

Mr. Troy Holme with CBRE stated this has been the best office market in the last two years. He discussed central business district vacancy and growth estimates now and in 2023. In response to Mr. Hollingsworth’s inquiry, Mr. Holme stated he thought TRS’ ability to sublease is really strong.

Mr. Guthrie stated in response to Ms. Sissney’s inquiry that the Indeed Tower lease was for 10 years and that worst, worst, case TRS would be responsible for the lease that TRS is guaranteeing the lease.

Mr. Jase Auby reviewed staff’s recommendation of remaining in 816 Congress which includes a one-time right to terminate the lease if in fact TRS did consolidate to a new headquarters in Mueller. Ms. Sissney wanted to emphasize for the members that two years ago, no space was available to lease in 816 Congress and only as of recent times did space become available in 816 Congress to accommodate IMD. Ms. Carolina de Onis then reviewed the proposed resolution highlighting the authorizations and responsibilities that the Board is delegating in the resolution.

Ms. Suzanne Dugan as the Board’s fiduciary counsel stated she had reviewed the resolution and noted it was fine with the Board to move forward with if it determined to be in the best interest. Ms. Amanda Jenami also had reviewed the resolution and did not have any issue with it.

9

On a motion by Mr. Corpus and seconded by Ms. Sissney the Board unanimously adopted the following resolution:

Resolutions Authorizing Actions Relating to TRS Office Leases and Authorizing Expenditures of Trust Funds

February 20-21, 2020 WHEREAS, in 2009 the Investment Management Division outgrew the TRS home office facilities located at 1000 Red River Street and moved to leased offices at 816 Congress Avenue as authorized by the Board of Trustees at its July 11, 2008 meeting, initially leasing 47,034 square feet and later expanding the premises to 73,659 square feet as of 2018 and amending the lease to extend the term to March 2021; WHEREAS, Beginning in 2017-18, the Investment Management Division (IMD) discussed with the Board of Trustees a strategic expansion initiative known as “Building the Fleet” which would transform the IMD to reduce external fees and carried interest by up to $1.4 billion over 10 years while preserving net alpha investment performance for the benefit of TRS members; WHEREAS, The IMD’s “Building the Fleet” initiative involves adding additional employees to the IMD and the IMD projected that “Building the Fleet” would require more office space than would be available for expansion at the 816 Congress premises; WHEREAS, Concurrently with the IMD’s “Building the Fleet” initiative TRS embarked on an expansion of the numbers of employees hired for benefits, healthcare insurance, and agency-wide support services needed to keep pace with the rapid growth in the state’s population and the number of TRS members, retirees, and beneficiaries; WHEREAS, In connection with TRS’s overall projected expansion needs, TRS and the Board of Trustees also engaged in a multi-year space-planning project, still under way, to determine the available options for one or more home office facilities that would best serve the interests of TRS members, retirees, and beneficiaries; WHEREAS, Having conducted due diligence the IMD determined that contiguous space for IMD expansion at 816 Congress would not be available when the lease expires in March 2021. The IMD, after further due diligence, identified other leasing opportunities with the most advantageous being an opportunity to lease space comprising approximately 101,673 square feet on three contiguous floors that would be available for pre-leasing in a building to be constructed at 200 W. 6th Street (aka “Block 71”) and which is projected to be ready for occupancy in summer 2021; WHEREAS, As part of IMD presentations to the Board relating to the “Building the Fleet” initiative, the IMD advised the Board of the leasing opportunity and the pendency of the negotiations of the Block 71 lease;

10

WHEREAS, TRS commenced negotiations with the Block 71 landlord in the summer of 2018 and signed a lease agreement in February 2019 with a rental commencement date anticipated for July 2021; WHEREAS, TRS has after signing the Block 71 lease learned in January 2020 that expansion space has since become or will be available at 816 Congress, possibly at base rental rates competitive with or below those in the Block 71 lease, and has resumed discussions with the 816 Congress landlord; and WHEREAS, the Board of Trustees has determined that it is prudent considering pending TRS space-planning projects relating to home office facilities to consider leasing space for the IMD for a term not longer than seven years (including extension options) with a termination option notwithstanding the maximum five-year term specified in the Board Procurement Policy; Now therefore be it RESOLVED, That the Board of Trustees finds that given the new facts and circumstances for TRS it is prudent to consider new leasing opportunities that could reduce the projected overall costs associated with leasing space at Block 71 for the Investment Management Division, but which will also accommodate the IMD’s planned expansion under the “Building the Fleet” initiative; and RESOLVED, That the Board of Trustees finds that it is prudent under the new facts and circumstances that, for the time being and pending comprehensive planning related to TRS home office facilities, the Investment Management Division should if possible continue to occupy suitable leased office space at 816 Congress; and RESOLVED, That the Executive Director be and hereby is delegated authority and directed to negotiate and execute a new or amended and extended lease with the 816 Congress landlord for IMD investment and related support operations, on such terms and conditions and for such period as the Executive Director in his discretion deems to be advisable and in the best interest of TRS, except that (a) the terms and conditions of the new or amended 816 Congress lease must be no less favorable in the aggregate than the terms and conditions of the Block 71 lease, (b) the term of the new or amended 816 Congress lease may not exceed 7 years (including extension options) with at least one termination option, and (c) the premises leased at 816 Congress under these resolutions may not exceed 100,000 square feet; and RESOLVED, That the Executive Director be and hereby is delegated authority to negotiate and execute one or more subleases of the leased premises at Block 71 with the consent of the Block 71 landlord and, if applicable, the required consent of the landlord’s lender or other tenants having a right to consent, and to use commercially reasonable efforts to negotiate the terms of such sublease with one or more qualified subtenants such that the net cost to TRS of the prime lease is minimized as much as is reasonably possible, except that the Executive Director is in any event authorized to (a) contract and pay for brokerage services and commissions for subleases, (b) consider, negotiate, and agree to sublease terms

11

that the Executive Director deems reasonable and in the best interest of TRS, (c) negotiate and agree with the Block 71 landlord for expenditure of any unused allowances under the prime TRS lease for tenant improvements for a subtenant, (d) assign, modify, or transfer contracts or space plans and designs to a subtenant for purposes of the subtenant’s tenant improvements under a sublease; (e) pay to the Block 71 landlord amounts owed under the lease, and (f) expend such budgeted and available TRS funds and enter any agreements and related documents as the Executive Director deems in his discretion to be reasonably necessary and advisable to achieve the objectives of these resolutions; and RESOLVED, That the Executive Director be and hereby is authorized, in lieu of one or more subleases of the Block 71 premises, to negotiate with the Block 71 landlord to terminate the TRS Block 71 lease (in whole or part as to the leased premises that is not subleased) on such terms and conditions as the Executive Director, after consultation with legal counsel, determines in his discretion are in the best interest of the retirement system, including agreements to (a) contract and pay for brokerage services and commissions required to lease directly the TRS Block 71 premises to one or more new qualified tenants, (b) pay to the Block 71 landlord amounts owed under the lease, (c) assign, modify, or transfer contracts or space plans and designs relating to the Block 71 premises in connection with a direct lease by the Block 71 landlord with a replacement tenant, (f) expend such budgeted and available TRS funds as the Executive Director deems in his discretion to be reasonably necessary and advisable to achieve the objectives of these resolutions, and (g) mutually settle and release in writing all claims between the Block 71 landlord and TRS relating to such termination (whether in whole or part); RESOLVED, That, if negotiations under these resolutions are deemed by the Executive Director, in his discretion, to be successful, the Executive Director is authorized to execute any agreements and ancillary documents with subtenants, a sublease broker for the Block 71 premises, the Block 71 landlord, the 816 Congress landlord, and the landlords’ lenders, as applicable, on such terms and conditions as the Executive Director may deem, in his discretion, to provide the best overall value to TRS, and further to execute and deliver all such other documents that the Executive Director and legal counsel may deem necessary or appropriate to implement the intention and purposes of these resolutions, as conclusively evidenced by the taking of the action or the execution and delivery of the documents, and to incur, approve, and pay any budgeted expenses or costs associated with such agreements and deemed in the discretion of the Executive Director to be reasonably necessary or advisable with respect to such agreements; RESOLVED, That the Executive Director is directed to report to and update the Board at its regular meetings the actions taken and activities performed under these resolutions; and

12

RESOLVED, That nothing in these resolutions may be construed as a contract, an offer to contract with a power of acceptance that would form a contract, or an acceptance of an offer to contract and the retirement system is not and will not be legally bound to any agreement unless and until the Executive Director has executed and delivered definitive agreements relating to the subject matter, as applicable.

6. Consider adoption of the proposed amendment to the General Authority Resolutions – Heather Traeger.

Ms. Heather Traeger stated the proposed amendment for the General Authority Resolution (GAR) reflects the change in management personnel in the Investment Management Division. She noted at this time, IMD has determined not to have a deputy CIO for the near term, and as a best practice in governance, staff recommends this change also be reflected in the GAR and associated incumbency certificates.

On a motion by Mr. Nance and seconded by Mr. Walls, the Board unanimously approved the proposed changes to the GAR.

7. Consider the adoption of amendments to the TRS rules in Chapters 41 and 43 of Title 34, Part 3 of the Texas Administrative Code – Carolina de Onis, Clarke Howard, and Kevin Wakley. A. Amended §41.51 Appeals Relating to Eligibility; B. Amended §43.1 Administrative Review of Individual Requests; C. Amended §43.3 Definitions; D. Amended §43.5 Request for Adjudicative Hearing; E. Amended §43.6 Filing of Documents; F. Amended §43.8 Extensions; G. Amended §43.9 Docketing of Appeal for Adjudicative Hearing and Dismissal for

Failure to Obtain Setting; H. Amended §43.10 Authority to Grant Relief; and I. Amended §43.12 Form of Petitions and Other Pleadings

Mr. Kevin Wakley stated that in December staff presented to the Policy Committee proposed changes to several rules in Chapter 43 of the TRS Rules and one rule in Chapter 41. He provided a quick review over the proposed changes and noted not public comment was received.

On a motion by Mr. Nance and seconded by Ms. Sissney the Board unanimously voted to approve the proposed amendments to Chapter 41 and 43.

8. Consider authorizing for publication in the Texas Register notice of proposed amendments of the TRS rule in Chapter 23 of Title 34, Part 3 of the Texas

13

Administrative Code Amended; §23.5 Nominations for Appointment to the Board of Trustees – Katherine Farrell.

Ms. Katherine Farrell presented the proposed amendments to the Chapter 23 TRS rule regarding Trustees nominations for appointment to the Board. She noted the amendments is to restructure the rule to bring clarity, to provide definitions and to move the due date for the petition from January 20 to January 25th. And the final proposed change of note is to put in rule the practice of requiring 250 votes to be able to be considered as one of the top three nominees for the Governor to select from for those candidates that did not go through the signature process. On a motion by Mr. Elliott and seconded by Mr. Nance the Board unanimously voted to approve publishing in the Texas Register notice of proposed amendments of the TRS rule in Chapter 23.

9. Receive an overview of the proposed Strategic Plan for 2021 – 2025 including consideration of the Mission Statement – Brian Guthrie, Rebecca Merrill, and Caasi Lamb.

Mr. Guthrie noted that in December there was an active discussion around the proposed changes to the TRS Mission Statement. He said staff’s recommendation based on those discussions is to keep the current Mission Statement: “Improving the retirement security of our members by prudently investing and managing the Trust assets and delivering benefits that make a positive difference in their lives.” Mr. Hollingsworth queried the Trustees and none wanted a change. Ms. Rebecca Merrill stated if there was no change to the Mission Statement then no action was needed.

Ms. Merrill then discussed the updates to the TRS strategic plan for the fiscal years 2021 to 2025. She reviewed the process the Executive Council used to develop the strategic plan updates and previewed the potential changes the Board will consider in April. Ms. Caasi Lamb provided a high level summary of the major changes and additions to the plan that are being proposed, as well as a few of the strategies that are being carried over from the current plan to the new plan. She said that goal language does not typically change much from one plan to the next. She noted the recommendation of taking the current goal five, relating to HUB purchasing to be folded into a new procurement and contracting objective under goal four. Ms. Lamb then reviewed the new objectives and strategies in the draft plan which included “one team, one mission” initiative, regional centers and procurement and contracting. Ms. Merrill then reviewed the timeline of implementing the strategic plan and how it relates to the Executive Director’s Areas of Focus and budget planning.

10. Discuss the Executive Director's report on the following – Brian Guthrie: A. Administrative operational matters, including updates on financial, audit, legal,

staff services, board administration activities, special projects, and security. B. Sunset Review update. C. Board operational matters, including a review of draft agendas for upcoming

meetings.

14

D. Event notices or reminders; holiday and other schedules of interest; board member, employee or other individual recognitions; and expressions of thanks, congratulations, or condolences.

Mr. Guthrie provided updates on meetings and conferences. He reviewed upcoming legislative hearings and Sunset activity and timeline. Mr. Guthrie concluded by reviewing the proposed April and July Board meeting agendas.

11. CIO Update including Fleet Strategy; Talent Management; Accomplishments; Notices; Awards; and Key Dates and Upcoming Events – Jase Auby.

Mr. Jase Auby provided his first CIO update. He stated during his first 100 days he has focused on what got us where we are today and also focusing on innovation in the future. He reported completion of implementing the new strategic asset allocation (SAA) that the Board adopted last September. He provided an update on the fleet hires, 27 of 32 hires for Phase One and three of 31 for Phase Two. Mr. Auby reviewed the annual investment network partners survey of best and least attractive idea for the upcoming years.

12. Receive a Market Update – Jase Auby.

Mr. Auby reported 2019 was a very good year for the markets. He said both stock markets and bond markets are positive. The negative are the more esoteric markets like currency or commodities. He pointed to the actions of the Federal Reserve, loosening monetary policy, as driving the outsize returns. He noted the current expansion is now 126 months long. Dr. Brown noted that while the length of the expansion was remarkable on one level, it is a fairly tepid expansion in general.

Mr. Auby reported of the seven indicators for a recession only one is negative, U.S. manufacturing. He quickly reviewed the end of the decade as being the fourth best decade of the S&P. He noted FAANG stocks quickly outpaced the broader market: Facebook, Apple, Amazon, Netflix and Google. He reviewed the best asset class per decade concluding with predicting the next decade, 2020. He said he believes diversification will reassert itself and there will be value in diversification in the future. Mr. Auby reviewed the past and various markets to assert how diversification paid off, except for the immediate past decade.

13. Discuss and consider selecting a broker and delegating authority to the Executive Director to negotiate a broker agreement on TRS’ current headquarters on Red River with selected broker, including considering a finding that deliberating or conferring on the procurements in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person – Brian Guthrie and Andrew Roth.

Mr. Ball noted for the record he wish to recuse himself from this item.

15

Mr. Guthrie referencing the morning discussions, stated it is appropriate at this time to work with a broker to figure out how much the Red River buildings are worth. He said an RFP was issued a few months ago, multiple finalists were interviewed.

On a motion by Mr. Nance and seconded by Mr. Walls the Board unanimously voted to find that deliberating or conferring on the procurements in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person. At 2:44 pm, Mr. Hollingsworth announced the Board would recess into executive session for the following agenda item and sections of the Government Code:

Item 13, Sections 825.115(e), 551.071, and 551.072 to discuss Board procurement matters, real estate and consult with legal counsel as needed.

At 4:02 pm, Mr. Hollingsworth reconvened the Board meeting. Mr. Guthrie provided the staff recommendation that CBRE be selected as the broker for taking the Red River headquarters out to the market and finding its true worth.

On a motion by Mr. Corpus and seconded by Mr. Nance the board approved the proposed resolution with Mr. Ball abstaining:

Resolution of Board of Trustees

February 20, 2020

Relating to Selection of a Commercial Real Estate Advisory and Brokerage Firm for the TRS Red River Administrative Headquarters

WHEREAS, Texas Government Code §821.007 provides that the buildings comprising the home office of the Teacher Retirement System (TRS) are under the control and custodianship of the retirement system;

WHEREAS, In connection with TRS’s overall projected expansion needs, TRS and the TRS Board of Trustees (the “Board”) engaged in a multi-year space-planning project, still under way, to determine the available options for one or more home office facilities that would best serve the interests of TRS members, retirees, and beneficiaries;

WHEREAS, TRS performed due diligence activities and presented to the Board on the following: space planning and long-term facilities options, engaged a broker and an owner’s representative, and conducted a workplace study and an employee perspectives survey to evaluate the long-term facilities planning needs of the agency;

16

WHEREAS, A Request for Proposal (“RFP”) was issued to interested entities to solicit design and build proposals to develop a potential new administrative headquarters for TRS;

WHEREAS, An RFP was also issued to interested entities to solicit a commercial real estate advisory and brokerage firm in order for TRS to determine a fair assessment of TRS’s best options for the Red River property, whether to redevelop and stay, convert to an investment, or sell and move;

WHEREAS, The TRS evaluation committee received and evaluated the responsive proposals to the RFP for a commercial real estate advisory and brokerage firm and interviewed the top three finalists;

WHEREAS, The TRS evaluation committee discussed the proposals with the Board, provided relevant information to the Board, and presented an evaluation to the Board concerning the final recommendation;

WHEREAS, The Board considered the evaluation and recommendation made by TRS staff of the broker solicitations submitted in response to the RFP;

WHEREAS, TRS Bylaws subsections 5.6(b) and 5.6(e) authorize the Executive Director to contract for the purchase of services and the execution of vouchers for payments, in accordance with actions of the Board; and

Now, therefore, be it

RESOLVED, That the Board of Trustees finds that it is prudent under the facts and circumstances presented for TRS to consider an agreement with a commercial real estate advisory and brokerage firm to determine a fair assessment of TRS’s best options for the Red River property, whether to redevelop and stay, convert to an investment, or sell and move.

RESOLVED, That the Board hereby authorizes and instructs the Executive Director or his delegee, with the assistance of TRS employees and TRS's owner's representative, to take all actions and do all things necessary or desirable to negotiate and execute a contract on the same or better financial terms presented to the Board and on such other terms and conditions deemed by the Executive Director to be in the best interest of TRS for a final broker agreement for the Red River property with the following finalist: CBRE ;

RESOLVED, That the Executive Director is directed to report to and update the Board at its regular meetings the actions taken and activities performed under this resolution; and

RESOLVED, That nothing in this resolution may be construed as a contract, an offer to contract with a power of acceptance that would form a contract, or an acceptance of an offer to contract, and TRS is not and will not be legally bound to any agreement unless and until the Executive Director has executed and delivered definitive agreements relating to the subject matter, as applicable.

17

At 4:07 pm, Mr. Hollingsworth, without objection, announced the Board would recess until tomorrow morning at 8:00 am.

Minutes of the Board of Trustees

February 21, 2020

The Board of Trustees of the Teacher Retirement System of Texas met on February 21, 2020 in the boardroom located on the fifth floor of the TRS East Building offices at 1000 Red River, Austin, Texas. The following Board members were present:

Jarvis V. Hollingsworth, Chair Nanette Sissney, Vice Chair Michael Ball David Corpus John Elliott Christopher Moss James Nance Robert H. Walls, Jr.

Others present:

Brian Guthrie, TRS Ray Spivey Andrew Roth, TRS Michael Bentrott, Aetna Don Green, TRS Jeff Cook, Aetna Carolina de Onis, TRS Becca S. Cecak, Aetna Jerry Albright, TRS Sean Donovan, CVS Jase Auby, TRS Joni Lozano, CVS Barbie Pearson, TRS Mike Heck, CVS Katrina Daniel, TRS Joe Braley, BCBS Yimei Zhao, TRS Melissa Tessler, BCBS Meaghan Bludau, TRS Eric St. Pierre, Humana Amanda Jenami, TRS Nick Arnold, Humana Heather Traeger, TRS Meiddle Goff, Aetna Janet Bray, TRS Leroy DeHaven, TRTA Katherine Farrell, TRS Sally Irving, Aetna Caasi Lamb, TRS Patricia Macias, TRTA Kellie Sauls, TRS Sherri Rossoff, Rock Creek Kirk Sims, TRS Alifia Doriwale, Rock Creek Joel Hinkhouse, TRS Afsaneh Beschloss, Rock Creek Mark Albert, TRS Dan McCoy, BCBS TX

18

Keith Brown, Investment Advisor Darren Bukut, BCBS TX Steve Voss, Aon Hewitt Tiffany Calderon, Humana Suzanne Dugan, Cohen Millstein Carla Whaley, Humana Meredith Jones, Aon Hewitt Tim Snyder, Humana Ken Bertsch, CII Kim Furned, UHC Pat McGurn, ISS Linda Jones, UHC Brian Walker, ISS Adrienne Cabrera, OOG Amy Timmons, Segal Kirsten Shatten, Segal Ken Vieira, Segal Joanna Balogh-Reynolds, Segal

Ann Fickel, TCTA Laura Atlas Kravitz, TSTA

Gregg Brock, TRTA Ken Welch, Retiree

Mr. Hollingsworth called the meeting to order at 8:00 a.m.

Ms. Farrell called the roll. A quorum was present, Dr. Gibson was absent.

14. Recognize the service of Ray Spivey – Jarvis Hollingsworth.

Mr. Hollingsworth noted yesterday they had the honor of saying goodbye to two Trustees whose terms expired and today we are to say goodbye to Mr. Ray Spivey. He said Ray has been a big part of our government relations for many years. Mr. Hollingsworth read the following resolution into the record:

Whereas, Ray Spivey joined the Teacher Retirement System of Texas in August 2005, as director of Government Relations with his vast understanding of pension issues at both the state and federal level, and also served as a member of the TRS Executive Council; and

Whereas, he played an important role in strengthening the communication between the retirement system and the Texas Legislature and served as TRS’ fourth director of Government Relations; and

Whereas, he has 32 years of service with the State of Texas, including 14 ½ years here at the Teacher Retirement System of Texas; and

Whereas, Ray has been active in the National Association of State Retirement Administrators; and

19

Whereas, during his time at TRS the retirement system grew approximately 1.1 to more than 1.6 million members and annuitants and the net position of the System grew from $93.7 to $165 billion; and

Whereas, during his last seven sessions working with the Texas Legislature, changes were made to diversify TRS’ investment portfolio to allow the use of external managers and certain alternative investments to improve the TRS-Care program sustainability, to provide retirees with benefit enhancements, and he worked on landmark legislation that increased contributions to the trust fund; and

Whereas, Ray always had the best interests of our members and retirees at heart, serving the educators of Texas, current, past and future, with a sense of responsibility, compassion and concern for all; and

Whereas, Ray would travel all over the state to share his wealth of knowledge with different active retiree and stakeholder groups; and

Whereas, Ray is also known as the Capitol Artist – I have one of those on my wall – painting in end-of-session print of each Texas Legislature since 1997; and

Whereas, Ray will always be known for portraying the highest standards of professionalism and strong work ethic and is well deserving of a retirement full of family vacations, film production and art;

Now, therefore, be it resolved that the Board of Trustees and staff of the Teacher Retirement System of Texas recognize the accomplishments and contributions of Ray Spivey at TRS during his highly successful career with the retirement system and express their sincere appreciation on behalf of TRS members, both present and future; and

Be it further resolved that a copy of this resolution be presented to Ray Spivey and entered into the record of the Board for February 21, 2020.

On a motion by Mr. Corpus and seconded by Ms. Sissney the Board unanimously approved the resolution.

Mr. Spivey thanked the Board and in particular Jarvis who was the first chairman when he arrived in ’05. He thanked Brian Guthrie noting Brian had been through some of TRS’ greatest challenges and definitely helped achieve TRS’ greatest wins. He thanked staff, the legislators, members and retirees.

Mr. Guthrie noted there is so much behind-the-scenes work that no one ever sees, there is so many meetings, so many efforts to try to turn and make sure that legislation is fashioned in a way that is beneficial to the system and Ray was responsible for that.

Mr. Hollingsworth announced taking up Agenda Item 15 and 16 together.

20

15. Discuss and consider selecting a health plan administrator(s) (HPAs) for TRS-ActiveCare plans, the TRS-Care Standard and Alternative plans, and a carrier for TRS-MedicareAdvantage plan, including considering a finding that deliberating or conferring on the selection of the HPA(s) and Medicare Advantage carrier in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person. – Katrina Daniel and Yimei Zhao.

16. Receive an update on TRS-ActiveCare district participation, including the potential consequences to TRS-ActiveCare of participating Districts of Innovation (DOI) offering competing health care coverage to their employees and protecting the stability of TRS-ActiveCare – Katrina Daniel.

Ms. Katrina Daniel reviewed the process for procurement. She noted TRS is the second largest purchaser of health care in Texas, behind the Medicaid program, so the contracts are significant in size, significant in market and of utmost importance to our members. Ms. Yimei Zhao discussed the process staff went through to evaluate the bids. She said they received 13 proposals from the industry.

Ms. Daniel stated they had been hearing from two districts who have a District of Innovation designation that were exercising an exemption under the Education Code to offer competing coverage to ActiveCare. She said they do not know of how many other districts may engage such an exemption. She said they plan to undertake a significant engagement effort with districts to look at ways to tailor ActiveCare to better meet districts needs.

On a motion by Ms. Sissney and seconded by Mr. Ball, the Board voted to find that deliberating or conferring on the selection of the HPA(s) and Medicare Advantage carrier in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person. At 8:26 am, Mr. Hollingsworth announced the Board would recess into executive session for the following agenda items and sections of the Government Code:

Item 15 under Sections 825.115(e) and 551.071, to discuss Board procurement matters and consult with legal counsel as needed.

Item 16 under Section 551.071 to consult with legal counsel.

At 9:49 am, Mr. Hollingsworth reconvened the Board meeting.

Ms. Daniel stated staff is making recommendations to the Board for ActiveCare, Care Standard and MedicareAdvantage. She noted for ActiveCare they received four bids and pursuant to the following resolution staff recommends awarding the ActiveCare contract to Blue Cross Blue Shield and as an alternative Aetna.

On a motion by Mr. Moss and seconded by Ms. Sissney the Board unanimously adopted the following resolution:

21

RESOLUTION SELECTING THE HEALTH PLAN ADMINISTRATOR FOR THE TRS-ACTIVECARE PROGRAM

February 20 - 21, 2020

Whereas, Chapter 1579, Texas Insurance Code, governs the Texas School Employees Uniform Group Health Coverage Program (the “TRS-ActiveCare program”) and authorizes the Teacher Retirement System of Texas (“TRS”), as trustee, to implement the group coverage program described in the statute;

Whereas, TRS issued a Request for Proposals (the “RFP”) to entities interested in serving as the health plan administrator for the TRS-ActiveCare program;

Whereas, TRS received a number of responsive proposals to the RFP;

Whereas, TRS staff and consultants assisting staff have evaluated these proposals, and TRS staff has provided relevant information and presented an evaluation to the TRS Board of Trustees (the “Board”) concerning the selection of a health plan administrator for the TRS-ActiveCare program and has discussed this selection with the Board;

Whereas, The Board has considered this information and evaluation; now, therefore, be it

Resolved, That the Board hereby selects Blue Cross and Blue Shield of Texas to be the health plan administrator for the TRS-ActiveCare program, subject to the successful negotiation and execution of a final agreement, for a two-year term to commence on September 1, 2020, with four optional one-year renewals;

Resolved, That the Board hereby authorizes the Executive Director or his designees to expend funds and to take all actions deemed by him or a designee to be necessary or advisable to implement this resolution, including the negotiation and execution of all documents needed to finalize an acceptable contract with Blue Cross and Blue Shield of Texas on the same or better financial terms presented to the Board and on such other terms and conditions deemed by the Executive Director or a designee to be in the best interest of the TRS-ActiveCare program, and from time to time to amend, modify, or extend the contract as deemed by the Executive Director or a designee to be in the best interest of the TRS-ActiveCare program, it being understood that the Board’s selection of Blue Cross and Blue Shield of Texas pursuant to this resolution shall not be construed as a binding agreement or obligation to contract, and there shall be no binding agreement among the parties until a full and final written contract is successfully negotiated and executed by both parties.

Resolved, That if for any reason, the Executive Director concludes in his sole judgment that TRS is not reasonably likely to successfully negotiate a contract with Blue Cross and Blue Shield of Texas, then the Board hereby selects Aetna Life

22

Insurance Company to be the health plan administrator for the TRS-ActiveCare program, subject to the successful negotiation and execution of a final agreement, for a two-year term to commence on September 1, 2020, with four optional one-year renewals.

Resolved, That once the Executive Director concludes in his sole judgment that TRS is not reasonably likely to successfully negotiate a contract with Blue Cross and Blue Shield of Texas, then the Board hereby authorizes the Executive Director or his designees to expend funds and to take all actions deemed by him or a designee to be necessary or advisable to implement this resolution, including the negotiation and execution of all documents needed to finalize an acceptable contract with Aetna Life Insurance Company on the same or better financial terms presented to the Board and on such other terms and conditions deemed by the Executive Director or a designee to be in the best interest of the TRS-ActiveCare program, and from time to time to amend or modify the contract as deemed by the Executive Director or a designee to be in the best interest of the TRS-ActiveCare program, it being understood that the Board’s selection of Aetna Life Insurance Company pursuant to this resolution shall not be construed as a binding agreement or obligation to contract, and there shall be no binding agreement among the parties until a full and final written contract is successfully negotiated and executed by both parties.

Ms. Daniel stated staff recommended to award the MedicareAdvantage contract to UnitedHealthCare and as an alternative Humana.

On a motion by Mr. Corpus and seconded by Mr. Nance the board unanimously adopted the following resolution:

RESOLUTION SELECTING THE MEDICARE ADVANTAGE CARRIER FOR THE TRS-CARE PROGRAM

February 20 – 21, 2020

Whereas, Chapter 1575, Texas Insurance Code, governs the Texas Public School Retired Employees Group Insurance Program (the “TRS-Care program”) and authorizes the Teacher Retirement System of Texas (“TRS”), as trustee, to implement the group coverage program described in the statute;

Whereas, TRS issued a Request for Proposals (“RFP”) to entities interested in serving as the carrier of a fully insured Medicare Advantage plan to be offered in association with the TRS-Care program;

Whereas, TRS received a number of responsive proposals to the RFP;

Whereas, TRS staff and consultants assisting staff have evaluated these proposals, and TRS staff has provided relevant information and presented an evaluation to the TRS Board of Trustees (the “Board”) concerning the selection of

23

a carrier of the fully insured Medicare Advantage plan to be offered in association with the TRS-Care program and has discussed this selection with the Board;

Whereas, The Board has considered this information and evaluation; now therefore, be it

Resolved, That the Board hereby selects United Health Group, Inc. to serve as the carrier of a fully insured Medicare Advantage plan to be offered in association with the TRS-Care program, subject to the successful negotiation and execution of a final agreement, for a five-year term to commence on January 1, 2021, with one optional one-year renewal.

Resolved, That the Board hereby authorizes the Executive Director or his designees to expend funds and to take all actions deemed by him or a designee to be necessary or advisable to implement this resolution, including the negotiation and execution of all documents needed to finalize an acceptable contract with United Health Group, Inc. on the same or better financial terms presented to the Board and on such other terms and conditions deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, and from time to time to amend or modify the contract as deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, it being understood that the Board’s selection of United Health Group, Inc. pursuant to this resolution shall not be construed as a binding agreement or obligation to contract, and there shall be no binding agreement among the parties until a full and final written contract is successfully negotiated and executed by both parties.

Resolved, That if for any reason, the Executive Director concludes in his sole judgment that TRS is not reasonably likely to successfully negotiate a contract with United Health Group, Inc., then the Board hereby selects Humana Insurance Company and Humana Health Plan, Inc. to serve as the carrier of a fully insured Medicare Advantage plan to be offered in association with the TRS-Care program, subject to the successful negotiation and execution of a final agreement, for a five-year term to commence on January 1, 2021, with one optional one-year renewal.

Resolved, That once the Executive Director concludes in his sole judgment that TRS is not reasonably likely to successfully negotiate a contract with United Health Group, Inc., then the Board hereby authorizes the Executive Director or his designees to expend funds and to take all actions deemed by him or a designee to be necessary or advisable to implement this resolution, including the negotiation and execution of all documents needed to finalize an acceptable contract with Humana Insurance Company and Humana Health Plan, Inc. on the same or better financial terms presented to the Board and on such other terms and conditions deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, and from time to time to amend or modify the contract as deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, it being understood that the Board’s selection of Humana

24

Insurance Company and Humana Health Plan, Inc. pursuant to this resolution shall not be construed as a binding agreement or obligation to contract, and there shall be no binding agreement among the parties until a full and final written contract is successfully negotiated and executed by both parties.

Ms. Daniel stated staff recommended to award the TRS-Care Standard plan contract to Blue Cross Blue Shield as the administrator for Care Standard and as an alternative Aetna.

On a motion by Mr. Nance and seconded by Mr. Moss the board unanimously adopted the following resolution:

RESOLUTION SELECTING THE HEALTH PLAN ADMINISTRATOR FOR THE STANDARD PLAN

AND FOR THE ALTERNATIVE PLAN IN THE TRS-CARE PROGRAM

February 20 - 21, 2020

Whereas, Chapter 1575, Texas Insurance Code, governs the Texas Public School Retired Employees Group Benefits Program (the “TRS-Care program”) and authorizes the Teacher Retirement System of Texas (“TRS”), as trustee, to implement the group coverage program described in the statute;

Whereas, TRS issued a Request for Proposals (“RFP”) to entities interested in serving as the health plan administrator for the Standard plan and for the Alternative plan in the TRS-Care program;

Whereas, TRS received a number of responsive proposals to the RFP;

Whereas, TRS staff and consultants assisting staff have evaluated these proposals, and TRS staff has provided relevant information and presented an evaluation to the TRS Board of Trustees (the “Board”) concerning the selection of a health plan administrator for the Standard plan and for the Alternative plan in the TRS-Care program, and has discussed this selection with the Board;

Whereas, The Board has considered this information and evaluation; now therefore, be it

Resolved, That the Board hereby selects Blue Cross and Blue Shield of Texas to be the health plan administrator for the Standard plan and for the Alternative plan in the TRS-Care program, subject to the successful negotiation and execution of a final agreement, for a two-year term to commence on January 1, 2021, with four optional one-year renewals;

Resolved, That the Board hereby authorizes the Executive Director or his designees to expend funds and to take all actions deemed by him or a designee to be necessary or advisable to implement this resolution, including the negotiation

25

and execution of all documents needed to finalize an acceptable contract with Blue Cross and Blue Shield of Texas on the same or better financial terms presented to the Board and on such other terms and conditions deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, and from time to time to amend, modify, or extend the contract as deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, it being understood that the Board’s selection of Blue Cross and Blue Shield of Texas pursuant to this resolution shall not be construed as a binding agreement or obligation to contract, and there shall be no binding agreement among the parties until a full and final written contract is successfully negotiated and executed by both parties.

Resolved, That if for any reason, the Executive Director concludes in his sole judgment that TRS is not reasonably likely to successfully negotiate a contract with Blue Cross and Blue Shield of Texas, then the Board hereby selects Aetna Life Insurance Company to be the health plan administrator for the Standard plan and for the Alternative plan in the TRS-Care program, subject to the successful negotiation and execution of a final agreement, for a two-year term to commence on January 1, 2021, with four optional one-year renewals.

Resolved, That once the Executive Director concludes in his sole judgment that TRS is not reasonably likely to successfully negotiate a contract with Blue Cross and Blue Shield of Texas, then the Board hereby authorizes the Executive Director or his designees to expend funds and to take all actions deemed by him or a designee to be necessary or advisable to implement this resolution, including the negotiation and execution of all documents needed to finalize an acceptable contract with Aetna Life Insurance Company on the same or better financial terms presented to the Board and on such other terms and conditions deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, and from time to time to amend or modify the contract as deemed by the Executive Director or a designee to be in the best interest of the TRS-Care program, it being understood that the Board’s selection of Aetna Life Insurance Company pursuant to this resolution shall not be construed as a binding agreement or obligation to contract, and there shall be no binding agreement among the parties until a full and final written contract is successfully negotiated and executed by both parties.

Ms. Daniel recognizing change as difficult for the plan members, she reported they have started planning for the communication and engagement strategies. Ms. Meaghan Bludau reviewed the communication timeline and the robust campaign in place to get the message out about the upcoming transition.

17. Receive a Diversity, Equity and Inclusion Update – Kellie Sauls.

26

Ms. Kellie Sauls opened with the foundation as to why this work is important with the quote, “Diversity isn’t just a diversity issue, it is a business issue.” She said research proves that diverse teams produce better outcomes, make better decisions and are better able to reach their goals. Ms. Sauls stated she had gathered the assessments already done at TRS and is pulling more data and in reviewing those have identified some priority areas. She reported they have started drafting a strategic plan that will roll up into the overall TRS strategic plan discussed earlier. She said they will produce an annual report to the Board assessing the work and progress made.

Ms. Sauls stated concurrently they are working on the TRS Employee Diversity Council. She said the Council is made up of volunteers representing each major sector of the organization that will meet once a quarter. Ms. Sauls reviewed other initiatives including community outreach and employee affinity groups.

18. Receive Emerging Manager Annual Update - Kirk Sims.

Mr. Kirk Sims shared the Emerging Managers program’s objectives. He said they are very straightforward: performance first and foremost, diversity and graduation. He reported for performance they have outperformed the benchmark by 270 basis points for one year and 142 basis points for the three year. He noted the program in 2019 was allocated $633 million to 29 emerging managers across varying asset classes. Mr. Sims said they had seven graduations from the program and those seven are currently managing $2.8 billion across the trust as a whole. He reviewed other program accomplishments, including the upcoming Emerging Manager Conference with 1,850 registrants.

19. Receive an update and discuss Environmental, Social and Governance (ESG) Investing - Steve Voss and Meredith Jones, Aon Hewitt; Ken Bertsch, Council of Institutional Investors (CII); and Dr. Keith Brown.

Mr. Jase Auby stated they first presented on ESG back in 2016. He noted it is probably one of the most commonly discussed and researched topics in investing today. Ms. Meredith Jones began by providing the definition of ESG as non-financial data that relates to a company or an investment that can not really be boiled down to a financial metric. She said these non-financial, non-quantifiable things can become financial very quickly if there is an issue. She provided data privacy as an example if you do not have a robust data privacy policy and you get hacked, the company and an investor will be impacted. She noted ESG falls under the umbrella of responsible investing. ESG is different than value-based investing which incorporates socially responsible investing, impact investing and mission-related investing. She said ESG is taking into consideration a different set of risk factors that have been underutilized historically in the investment landscape. She said ESG data may be more beneficial if volatility returns in the marketplace. She referenced a study by Bank of America that showed 15 of the last 17 corporate bankruptcies could have been avoided if they looked at the ESG data.

Mr. Mike McCormick provided a comparison between TRS and their other public funds. He said of the 19 public funds they work with 16 do not have an explicit policy. In response to an inquiry from Mr. Hollingsworth, Mr. Voss stated there is not definitive data that says one must be doing

27

this or you are doing a disservice to your organization. He said the data is not robust enough to make that determination. He commented TRS is where it should be, having educational discussions looking at the evidence and seeing what other peers are doing.

Dr. Brown noted the evidence is not there to determine if this would be to your detriment or benefit to pursue but the literature is evolving. Mr. McCormick then reviewed TRS policies and procedures and how and where ESG is integrated. Mr. Hollingsworth established the expectation for Aon, Dr. Brown, IMD and legal counsel to continue to educate and monitor this process and keep the Board informed and advised with respect to how ESG should be considered moving forward. Mr. Ken Bertsch further discussed the valuation of ESG for investments. He said governance has received attention over the years but there is a wariness on social/environmental of being caught within a political context.

20. Receive an update regarding Proxy Voting – Pat McGurn and Brian Walker, ISS.

Mr. Joel Hinkhouse reviewed the process of review for the proxy voting policy. The review began in December and will come back in April to adopt the policy.

Mr. McGurn discussed ISS’ policy development process, the services they provide TRS and identified some of the key trends. He reviewed the threshold question of why vote proxies. He noted as a shareholder investing in public equities your rights are limited and as an academic said rights are boiled down to selling shares, voting your proxies or suing the company. Mr. McGurn described what you vote on is public companies are republic in that you are electing a board of directors to represent your interests in the company. But also a direct democracy where shareholders get to vote on very specific things like charter and bylaw provisions, mergers and acquisitions, and compensation. He reviewed the policy formulation process in greater detail. He reported on a major trend is gender diversity in the boardroom. He noted there are still about 7.4 percent of Russell 3000 companies that do not have a single woman serving on the board today. The policy was implemented with a one-year grace period so companies could take time to find a good qualified candidate that would fit with their board. The other trend is accountability and risk oversight issues, see more discussion about directors who are on too many boards or who have served an excessive number of years. He also discussed the proposed SEC rule. He reviewed the policies they have in place to mitigate any potential conflicts that could arise.

Mr. Hinkhouse reviewed the timeline for voting on the proxy voting policy. He said ISS’ contract expires per schedule this November, an RFP was issued and in July propose to have advisors present for Board selection.

21. Receive COAO update – Andrew Roth.

Mr. Andrew Roth provided a quick shared services update. He reported Information Technology are finalizing the selection of a mainframe managed service vendor. He noted the annual record retention schedule was underway. He provided recognition to facilities and security division for

28

always responding with great professionalism during times such as a when a heritage oak fell or a kitchen fire occurred.

At 12:42 pm, Mr. Hollingsworth adjourned the meeting.

APPROVED BY THE BOARD OF TRUSTEES OF THE TEACHER RETIREMENT SYSTEM OF TEXAS ON THE 17th DAY OF APRIL 2020.

ATTESTED BY: __________________________ _________________________ Katherine H. Farrell Date Secretary to the TRS Board of Trustees

TAB 3

Brian Guthrie

April 17, 2020

Executive Director’s Report

COVID-19 UpdateTRS Operations UpdateSunset Staff ReportMeeting UpdatesExecutive Assessments New TimelineUpcoming Board Meeting Agenda

COVID-19 Update

3

TRS wishes to recognize and thank our members who are working through these historic times.

THANK YOU

COVID-19 Timeline

1/27/20: Emerging COVID-19 risk identified • Monitor and prepare• Potential impact to global operations

3/2/20: Activated TRS Pandemic Plan. Level 2 Alert: Pre-Pandemic Preparedness • Established COVID-19 Response Team and conducted pandemic plan review• Sent all-TRS awareness communication• Escalated sanitation activities• Began organizational preparation to enhance remote work capabilities

3/10/20: Risk Oversight Committee Presentation• Identified increased risk level for Global Operations and travel

4

COVID-19 TRS Timeline

3/13/20: TRS Pandemic Plan Level 3 Alert: Pandemic Outbreak• First case in Travis County/Austin confirmed• TRS Executive guidance on operational changes distributed to all TRS• Initiated work-from-home to reduce onsite work force to essential staff only• Governor Abbott declares State of Disaster for all Texas counties

3/19/20: TRS Executive guidance extends remote work requirements to 4/3/20• Governor Abbott Issues Executive Orders to Mitigate Spread of COVID-19• Governor Abbott limits social gatherings, temporarily closes schools, and implements guidance from White House and CDC

3/24/20: TRS Executive guidance extends remote work requirements to 4/13/20• Austin mayor issues ‘Stay Home – Work Safe’ order through April 13th

3/31/20: TRS Executive guidance extends remote work requirement to 4/30/20• Governor Abbott Issues Executive Order Implementing Essential Services And Activities Protocols from April 2nd through April 30, 2020

4/6/20: Achieved successful reduction of onsite occupancy to essential staff only• Approximately 90 – 95% of the staff is working from home, depending on the day and time of the month.

4/15/20: TRS Executive guidance extends remote work requirements to 5/8/20• Austin mayor issues ‘Stay Home – Work Safe’ order through May 8th including requirement to wear mask in public

5

COVID-19 and TRS Operations

TRS Business Continues• Benefits Activities

441,961 annuitants paid a total of $886,925,489 for March 2020Also in March 2020: processed 6,849 benefit estimates, 1120 new retirements, and 1066 service credit

estimates; distributed 3003 refunds; paid out 706 death claims; and answered 41,361 phone calls

• Health Plan Activities 95% of non-Medicare medical claims processed within 12 days 99.5% of Medicare medical claims processed within 30 days 100% of electronically submitted pharmacy claims are processed at the point of sales

• Investment ActivitiesRecent peak volatility greater than during the Great Financial Crisis of 2008Asset allocation committee meeting daily to review positions and initiate tradesDerivative authority an important tool to enable timely rebalancingExecuted more than $7B of rebalance trades in March 2020 Liquidity remains strong

Member annuities are safe and are being paid on time!! 6

TRS Facility Occupancy Trend During Pandemic Response

7

Daily Operational Considerations:

• Ensuring safety and positive morale

for essential staff and managing on-

site risks.

• Maintaining production levels to

ensure no impact to member

payments. The 11% of remaining onsite staff represent essential personnel members from the following areas:

• Security and Facilities Management• Records Management and Imaging• Accounting Operations• Information Technology

• Benefit Services• Health Insurance Benefits• Investment Management Division • Custodial Services

Sunset Staff Report

• Report released April 2nd

• 4 issues identified, including 14 recommendations• Management response due April 30th

• Sunset Commission Hearing has not been rescheduled• Tentative upcoming Sunset Commission meetings dates

o July 8-9oAugust 19-20 oSeptember 23-24oNovember 12-13oDecember 9-10o January 13

8

Sunset Staff Report

9

Issue 1 – TRS Needs to Repair Its Relationship With Its Members by Focusing on Their Needs.Recommendations Type Implementation Date Draft Management Response

1.1 Require TRS to develop a communication and outreach plan to better help members and employers plan for retirement.

Statutory Change Develop plan by Sept 2021; implementation Dec 2021

• TRS agrees and will develop a communication and outreach plan to better educate members and employers on TRS benefits.

• Relying on employers to provide the same level of benefit information as TRS staff is not without risk.

1.2 Require TRS to make improved efforts to return contributions to inactive members before funds are forfeit.

Statutory Change

Management Action

Effective date of legislation

Dec 2020

• TRS agrees and will improve efforts to remain in contact with members whose accounts go to a forfeited or inactive status, including adding processes that would maintain contact annually with those members who have accounts that have not yet been withdrawn and are no longer earning interest.

• Regarding the Management Action, any information sent to the comptroller is confidential and cannot be published on the unclaimed property list because that list is public.

1.3 Direct TRS to adopt a member engagement policy to increase transparency on key decisions.

Management Action Develop plan by Sept 2020; provide update to Sunset no later than Dec 2020

• TRS agrees and will develop a policy that engages members in major decisions that impact the fund or their benefits. The policy will be developed using a process that will include stakeholder meetings to ensure TRS creates a mechanism that is both useful and accessible.

Sunset Staff Report

10

Issue 2 – TRS Needs More Effective Contract Management and Oversight.Recommendations Type Implementation Date Draft Management Response

2.1 Direct TRS to fully centralize contracting functions and clarify roles and responsibilities between central contracts department staff and division staff managing contracts.

Management Action Report progress of implementation to Sunset by Dec 2020

• TRS agrees and will clearly define the role of Procurement and Contracts in TRS’ Procurement and Contract Management Guide which is currently under development.

2.2 Direct TRS to enhance its contract monitoring process.

Management Action Report progress of implementation to Sunset by Dec 2020

• TRS agrees and will continue to enhance its contract monitoring process through development of additional monitoring tools, vendor performance logs, and an escalation process for vendor performance issues.

2.3 Direct TRS to include standard remedies in contracts and consistently apply enforcement tools.

Management Action Provide update on implementation to Sunset by Dec 2020

• TRS agrees and will continue to include a remedies schedule in TRS’ standard terms and conditions.

• TRS recently developed a Procurement Summary for purposes of documenting when to include liquidated damages. Additionally, TRS is developing a standardized process for making determinations regarding liquidated damages.

2.4 Direct TRS to require staff who procure or manage contracts to complete the comptroller’s contract training.

Management Action Report progress to Sunset by Dec 2020

• TRS agrees and will ensure that staff that procure or manage contracts as a significant portion of their job obtain training from the comptroller.

• In addition, Procurement and Contracts will develop a mandatory contract management training for all TRS staff that have meaningful work related to contracting or interaction with contract vendors.

Sunset Staff Report

11

Issue 3 – As One of the Largest Public Pension Funds in the U.S., TRS Would Benefit From Additional Oversight and Greater Transparency of Its Investment Practices. Recommendations Type Implementation Date Draft Management Response

3.1 Direct TRS to perform a cost-benefit analysis of implementing an enhanced investment accounting system to provide increased oversight of the custodian bank’s accounting data.

Management Action Report estimated costs and benefits of systems and recommended approach to Sunset by Dec 2020

• TRS agrees and is in the process of reviewing parallel investment accounting system options along with costs to implement and maintain these systems. Work on this initiative began in October 2019 with the goal to improve the controls around investment accounting data and financial reporting.

3.2 Direct TRS to have its Internal Investment Committee review internal investments and strategies.

Management Action Next scheduled update of the Investment Policy Statement

• TRS agrees and will propose a policy change by the end of calendar year 2020.

3.3 Direct TRS to include clear, easily understandable information about alternative investments in its Comprehensive Annual Financial Report.

Management Action Report status of implementation to Sunset by Dec 2020

• TRS agrees and will add an easy to understand graphical representation of alternative investments to the fiscal year 2020 CAFR.

Sunset Staff Report

12

Issue 4 – TRS’ Statutes Do Not Reflect Some Standard Elements of Sunset Reviews. Recommendations Type Implementation

Date Draft Management Response

4.1 Update the standard across-the-board requirement related to board member training.

Statutory Change Effective date of legislation

• TRS agrees.

4.2 Abolish three, modify two, and consolidate two of TRS’ reporting requirements.

Statutory Change Effective date of legislation

• TRS agrees.

4.3 Update TRS’ statute to reflect the requirements of the person-first respectful language initiative.

Statutory Change Effective date of legislation

• TRS agrees provided that the changes do not substantively modify the statutes at issue, in particular the eligibility standard for disability retirement.

4.4 Direct TRS to develop and maintain a system for receiving and responding to complaints.

Management Action

Report progress to Sunset by Dec 2020

• TRS agrees and will further enhance its current complaint tracking process by developing and maintaining a centralized system for the various sources of complaints.

• TRS began working towards centralized complaint management this past year.

Sunset Staff Report

Major Policy Issues addressed in Self-Evaluation Report• Employment After Retirement• Disability Retirement Requirements• Enhance Investment Flexibility: Real Estate Provisions• TRS-Care and TRS-ActiveCare Affordability and Viability• TRS-CARE AND TRS-ACTIVECARE AFFORDABILITY AND VIABILITY

We plan to highlight these issues in our strategic plan, Legislative Appropriations Request, and in meetings with individual legislators.

13

Meeting Updates

Canceled, Now Offering Online Alternatives:May 10 – 13, 2020: NCPERS Annual Conference & Exhibition, Las Vegas, NVJuly 19 – 22, 2020 NCTR Trustee Workshop, UC Berkeley CA

Rescheduled:August 15, 2020: TEXPERS Basic Trustee Training, San Antonio, TX(previously scheduled for May 2, 2020)August 25 – 26, 2020: Pension Bridge Annual Conference, San Francisco, CA (previously scheduled for April 14 – 15, 2020)

Currently Unchanged:July 15 – 17, 2020: PPI’s Summer Roundtable, Vancouver, British ColumbiaAugust 8 – 12, 2020: NASRA Annual Conference, Park City, UTOctober 10-13, 2020: NCTR Annual Conference, La Jolla, CA

14

Executive Assessments New Timeline

15

Executive Assessments Moved from July to September Board Meeting

Proposed New Timeline:•May 18: FCG sends email to Brian, Amanda and Jase requesting goals and rater lists

•June 8: FCG notifies Board members of assessment process

•June 15 – June 26: Board interviews

•July 13 – July 24: Report generation

•Week of August 10: FCG sends Board Reports to TRS

•Sept. 17 – Sept. 18: FCG presents to Board

Upcoming Agendas

July 15-17, 2020* (Quarterly Meeting)July 15-16, 2020 July 17, 2020Strategic Planning Committee TEAM UpdateReport on 2nd and 3rd Quarter Results Forum

Committee Reports

Benefits Committee Long Term Space PlanningBenefits UpdateApproval of Benefit Payments Actuarial AuditMedical Board MinutesRegional Counsel Office Update ED ReportHIB Update

Fiduciary TrainingBudget CommitteeFY 20 Budget Update COAO ReportPropose Adoption of FY2021 BudgetPropose Adoption of FY2021 HUB GoalsAdopt Proposed Certifications Proxy Voting Advisor SelectionReceive overview of proposed 2022-2023 LAR

Risk TrainingPolicy CommitteePropose Adoption of Proxy Policy

Investment Management CommitteeCIO Update1st Quarter 2020 Performance ReviewExternal Private Market UpdateReview Proposed Amendments to Investment Policy Statement

Audit Compliance and Ethics CommitteeReview of Accounting OperationsReview of Quantitative Equity StrategiesEmployer Data Analysis Testing Enterprise Risk Management (ERM) Maturity AssessmentReview of Energy, Natural Resources & Infrastructure (ENRI) OperationsRisk Training presentation*Board to vote if July meeting is held virtually to hold committee meetings July 15 – 16th

16

TAB 4

Andrew RothApril 17, 2020

Chief Operations and Administrative Officer Presentation

Currently transitioning the TEAM Program to be done in house.

• Contract with Perspecta initiated in October 2013• Phase 1 went live October 2017• TRS terminated the contract with Perspecta in February 2020• TRS obtained 16 additional expert resources • TRS has taken over the implementation of the new system• TRS is reviewing all vendor contracts• Priorities have shifted due to COVID: focus on automation and employers

TEAM Update

2

TRS TEAM Organization Structure

3

TRS Board of TrusteesBrian Guthrie – Executive Director

TEAM Program Executive OversightAndrew Roth - Barbie Pearson

Katrina Daniel - Chris Cutler

Technical Executive SponsorBilly Lowe

Business Executive SponsorAdam Fambrough

Executive Steering Committee

Health Pension

Products

Changes to TEAM Project Delivery Methodology

4Functionality is released into

Production often and earlyFunctionality is released into

Production often and earlyFunctionality is released into

Production often and early

TRS Delivery Process

Requirements

DesignDevelop

TestDeploy

All functionality is released into Production at once

Perspecta Delivery Process

TEAM Incremental Deliveries – Big Wins

5

1. Reporting Employer Reporting (posting throughout the day)2. Integration of Line of Business (LOB) solution to CAPPS3. Integration of Line of Business (LOB) solution to InContact4. Account Closures5. Automating of TRUST produced mailouts6. Salary summary screen7. Reduced Member Statements functionality run by 90%8. TRS integrated TRUST with the current myTRS system to

provide salary and service credit information for active members.

Examples of functionality developed or enhanced by TRS

TEAM Transition Planning Day 1 - 90

6

1st 90 Days

TASK DUE DATE STATUS1 Individual TEAM Project Lessons Learned 02/14/20 Complete2 Interview Potential Hires from Perspecta 02/14/20 Complete3 TEAM Steering Committee Charter 02/21/20 Complete4 First draft of the HILOB Recommendation 02/28/20 Complete5 TEAM Program Organization Structure 03/19/20 Complete

6 Planned Production Releases (Account Closure, Bridging and Address Fixes) 04/19/20 In Progress7 Scope Identification - Identify LOB Backlog 04/27/20 In Progress

30 Days 60 Days

3 4

04/04/2003/05/20

5 6 721

90 Days

05/04/2002/04/20

TEAM Transition Planning Day 91 - 180

7

2nd 90 Days

TASK DUE DATE STATUS8 Finalize Plans for Requirements, Testing, Code Line, Methodology 05/12/20 In Progress9 Product Release Roadmap for Pension and Health 05/19/20 In Progress10 Execution Plan and Communication to Agency 06/03/20 In Progress11 Planned Production Release (not prioritized yet) 06/14/20 Not Started12 Reassess the TEAM Risks 06/24/20 Not Started13 Health Production Release Date Determined 07/15/20 Not Started

120 Days 150 Days

07/03/2006/03/20

8 9 10

180 Days

08/02/20

11 12 13

Currently Developing Oversight Recommendation

• Perspecta departed in early 2020• TRS Project leadership working with Bridgepoint• Bridgepoint contract ends in late 2020• TRS staff exploring most effective method of providing Board of Trustees

independent oversight

TEAM PROJECT OVERSIGHT

8

TEAM Update: Next Steps

9

Focus Items for FY20

• Product Roadmap

• Operationalize Budget

• Project Oversight: Staff Recommendation to Board in July

• Board-level Reporting

• Demonstrations of New Functionality

10

COAO Report: Kudos and Congratulations

TRS staff doing an outstanding job of transitioning to remote work!

• Over 90% of staff working offsite on a regular basis.

• Special thanks to:

IT support Benefit Processing Facilities

TAB 5

Amanda Jenami, CPA, CISA, CIA, CFE, CRMA,CGAP, MBAChief Audit ExecutiveApril 17, 2020

Internal Audit CAE Update

IA Priorities & Accomplishments

22

• 2020 Audit Plan: includes 16 Audits (2019:6)• Key Change to Audit Plan: HIB’s Vendor Change Readiness • Completed Projects: ENRI, Employer Audits, HIPAA F/U• Delayed: Compliance with Healthcare Federal Regulations • Remain on task to meet Audit Plan performance target

PRIORITY 3: High-performing, Empowered & Engaged Team

PRIORITY 2: Trusted Business Partner

2.1 Completed ERM Maturity Assessment 2.2.1 Procured Advanced DA Tools for the team2.2.2 Provided Data Analysts with SAS training2.2.3 Gained access to claims data from Aetna, CVS, bswift2.2.4 Built 6 bots as part of our Robotics Process Automation2.3 Hiring staff with relevant industry knowledge

• Hired two investment managers as Investment Auditors• Hired Senior Data Analysts with Healthcare experience• Scored 95% on departmental organizational health on the

Energage Survey• 100% of staff are maintaining/pursuing certifications• Developed a Teambuilding Work Group/ Plan

PRIORITY 2: Key Strategic Actions PRIORITY 2: Key Accomplishments

PRIORITY 1:Facilitate Board OversightIncrease assurance, including in IT and data management Diverse, inclusive, collaborative, top workplace

2.1 Build strong working relationships with executive council 2.2 Inspire innovation and challenge the ‘status quo’ to seek

operational efficiencies via Data Analytics

2.3 Build business acumen in TRS’ three lines of business

Update on IA’s Data Analytics Maturity Model

3

Level 1: Ad hoc occasional use

Level 3: Managed and integrated into

processes

Level 5: Integrated with “data-driven” GRC processes

Level 2: Repeatable

analytics

Level 4: “Data-driven” approach

Incr

easi

ngva

lue

toth

eor

gani

zatio

n

Increasingly automated, well managed andintegrated

20192020

Data-Driven Approach• Key Risk Indicators• Risk Assessment• Agile Auditing• Automation/ AI

Key Accomplishments• DA Road Map• DA Expertise• Technology• Business Acumen• Data Access• 6 Virtual Employees

End Goal

Integrating Big Data Analytics in Audit – Healthcare Data

4

Medical

Pharmacy

Claim Payment Errors

Outlying Patterns

Unlikely Events

1

3

2

Claims Data

Claims Audit - FWA, Improper Payments, etc.

Data …N

Eligibility

Continuous Auditing by Robotics Process Automation (RPA)

5

DiegoEDate HamiltonMbrCntrb

SamSReconTeresaTRSCareEinsteinSSN

IA Automation

Up to 6 Virtual Employees!

Example of Hamilton’s Process

6

Hamilton

Query Calculate Compare Log Email

Go to TRUST database and get Statutory Minimum amounts submitted by reporting employersQuery

Recalculate Statutory Minimum amounts based on membership flag, RE type, Adjusted Statutory Minimum compensation amount, TRS eligible compensation, performance pay, Federal Funds/Private Grants information.

Calculate

Compare reporting employers’ submitted Statutory Minimum amount with recalculated amountCompare

Log testing results to the result history tableLog

Notify users with attached testing resultsEmail

TAB 6

Investment Management Division

Market Update

Jase AubyChief Investment Officer

April 2020

Introduction

• The first quarter of 2020 was a period of historically high volatility in the markets which resulted in a drawdown for the S&P 500 and the Trust

• The Trust value declined from $157 billion on 8/31/2019 to an estimated ~$148 billion on 3/31/2020

• The market decline does not impact the Trust’s ability to pay benefits

2Source: State Street Bank. TRS Trust value and returns are preliminary estimates.

As of 3/31/2020 1Q2020 Since 8/31/19 (FY)

S&P 500 -19.6% -10.7%

Long US Treasuries 20.9% 13.0%

TRS Trust ~-8.3% ~-4.6%

Introduction

• During periods of large drawdown it is important to remember that:o The Trust’s strategic asset allocation is long term and designed to be able to weather market

drawdownso The Trust is diversified with a portfolio, Stable Value, designed to hold its value in a drawdowno The Trust is liquid with cash, government bonds and public equities available to meet its obligationso The Trust is large and has access to the full breadth of market opportunities

• During this period, we added an additional advantage – our successful transition to work from home

• These advantages allow the Trust to invest opportunistically as market dislocations appear

3

IntroductionStable Value is 21% of the Trust

4

1Q2020

Source: TRS IMD

Market DrawdownCovid-19 affected both our health and our economy…

5Source: TRS IMD, Bloomberg, Morgan Stanley, US Department of LaborNote: Covid-19 data presented as five-day moving averages

Health: Covid-19 (United States) Economy: Initial Jobless Claims

Health: Covid-19 (New York City) Economy: Real GDP

Market Drawdown…which, in turn, drove the markets

6Source: Cambridge Associates

• This was the fastest bear market drawdown in history

• The S&P 500 drew down -20% in only 16 days

Market Drawdown

7Source: Bloomberg

Market DrawdownCovid-19 has caused the markets to differentiate by both Sector and Geography

8

US Sectors Emerging Markets

Source: Credit Suisse, Morgan Stanley

CommoditiesCommodities also tell the story of the crisis

9Source: Bloomberg

• Gold. Prices up slightly on flight to quality and as a hedge against a decline in the value of the dollar

• Copper. A good barometer of global growth, has declined 20% in value this year, in line with the S&P 500 index

• Oil. Prices dropped dramatically based on a drop in consumer demand and increased production from Saudi Arabia

-80%

-60%

-40%

-20%

0%

20%

1/1/20 1/16/20 1/31/20 2/15/20 3/1/20 3/16/20 3/31/20

Oil Gold Copper

+4.5%

-17.8%

-66.9%

Risk ManagementBattle Plans are in action

10

• We have enacted several battle plans that were previously outlined to the Board (in 2018). Examples include:

• Asset Allocation• Liquidity• Counterparty Risk

• Battle plans have provided an initial roadmap and have been updated for current market environment

• Battle plans working as intended

Federal Reserve is taking big steps

11

• Federal Reserve actions include:

o Two emergency cuts to take the Fed Funds target range from 1.50% / 1.75% down to 0.00% / 0.25%

o US Treasury and Mortgage-Backed Security quantitative easing program

o Balance sheet expansion by more than $1.6 trillion in a month o In 2008, the Fed took three

months to expand its balance sheet by $1.35 trillion

o Various smaller facilities to support commercial paper, money-market funds and other asset-backed securities

Source: Wall Street Journal, Congressional Budget Office, White House, Congressional estimates

OutlookCovid-19 new cases are projected to go down

12Source: Morgan Stanley

Outlook

13

Markets usually recover before the economy… …however, volatility is likely to persist

Source: JP Morgan, Goldman Sachs

Outlook

14

Sources of Uncertainty Past Recessions:Number of Quarters for S&P Earnings to Recover

Source: Credit Suisse

• Health. Timing on relaxation of stay at home and other health policies

• Size of Response. Both the Monetary and Fiscal response are unprecedented in size

• Restarting the Economy. Timing and process to restart the economy

• Changes to the Economy. Structural and societal changes to the economy

• Asset Classes. How will the volatility in the public markets affect the private markets?

S&P 500 Earnings Forecast

Potential Opportunities

15

• Public Equity. Potentially overweight

• Credit. Both investment grade and high yield are dislocated due to deleveraging of market participants

• Value Investing. Value remains in a historically high drawdown – it typically does well exiting from recession

• Closed Strategies. Many of the highest quality external managers are closed to new investment but reopen as opportunities arise

• Longer Term Implications. Work from home, uses of real estate, travel and leisure, energy markets, retreat from globalization, health care

• Alpha. Active performance should be helped by return to “normal” levels of volatility

Conclusion

16

• Drawdown. The Trust has performed in line with expectations during the crisiso The Trust is long term, diversified, large and liquid

• Outlook. The drawdown of the markets was, by historical standards, both swift and largeo Volatility will persist for some time to come

• Opportunities. As the health crisis abates, we will be focused on opportunities to invest

TAB 7

Investment Management Division

State Street Custody and Securities Lending Agreement ExtensionSylvia BellChief Operating Officer

April 2020

Agenda

• TRS and State Street Engagement History • State Street’s Scope of Services • Master Custodian Procurement Timeline • Recommendation – Extend Custodian Services Agreement

2

TRS and State Street Engagement History

• Initial terms of State Street agreemento Set to expire July 31, 2020o Includes one optional two-year extension

• Engagement historyo 2002: Retained State Street as master custodian and securities lending agento 2009: Reappointed State Street through 2013 with option of two-year extension after RFP o 2012: Exercised two-year extensiono 2015: Reappointed State Street through 2020 with option of two-year extension after RFP

• Key rationale for staff’s 2015 recommendation to retain State Streeto Risk-controlled services customized to TRS’s requiremento Large, dedicated, experienced and onsite service teamo Daily valuation and performanceo Securities Lending revenue over $1 billion to TRS since 2002

3

State Street’s Scope of Services

o Trade automation and settlement across 50+ markets

o Integrated derivatives processing and collateral management

o Customized portfolio risk system

o Optimized investment accounting operations and reporting

o Custom performance measurement and analytics

o Custom private markets reporting and data management services

o Custom investment compliance rules and reporting

o Dedicated on-site SSB team

o Comprehensive governance model

o Leveraging SSB Information Technology capabilities

4

Master Custodian Procurement Timeline

• IMD to collaborate with Procurement, Investment Accounting and Legal/Compliance teams throughout procurement process

5

Event Target Completion Date

Develop RFP and Statement of Work December 2020

Issue RFP January 2021

Respondent Proposals Due April 2021

Submit Recommendation to Executive Support June 2021

Selection by Board of Trustees July 2021

Complete Contract Negotiations September 2021

Conversion/Implementation Complete August 2022

Assume Master Custodian Services August 2022

Recommendation – Extend Custodian Services Agreement

• 2020 Agreement Extensiono Recommend exercising renewal option as normal course of businesso Extends custodian services to July 31, 2022o Allows proper time for RFP process and transition should Board direct

6

TAB 8

Investment Practices & Performance Evaluation of the Teacher Retirement System of Texas

April 17, 2020

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

Agenda

2

A. Introduction and Overview of EvaluationB. Evaluation ProcessC. Key Conclusions for Each Evaluation Component Area

1. Investment Policy or Strategic Investment Plan and Associated Compliance2. Investment Asset Allocation3. Investment Fees and Commissions4. Investment Governance Processes5. Investment Manager Selection and Monitoring Process

D. Questions

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc..

Introduction and Overview of Evaluation

3

Texas Government Code §802.109 requires TRS utilize an independent firm to conduct an Evaluation covering distinct areas of review.

Aon’s Fiduciary Services Practice was engaged to perform the Evaluation.– Our Scope of Work addressed the required areas of review, including a thorough review and

analysis of existing investment policies, procedures, and practices, associated compliance, and comparison to industry best practices.

Our presentation is intended as a high-level summary and is not intended as a replacement for the full report.

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc..

Our Evaluation

Process

Entrance conference Agreed upon path forward Gathered and reviewed extensive

documentation Conducted interviews Performed research and analysis Produced draft report Obtained TRS staff feedback Finalized report

4

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc..

Overall Conclusion

5

After our review of the five component areas, we have found that the Teacher Retirement System of Texas is performing in a manner consistent with best in class peers. Our review included an evaluation of all the items outlined in the PRB guidance, and the system is performing nearly all of the many functions inquired about within the guidance.

1. Investment Policy or Strategic Investment Plan and Associated Compliance2. Investment Asset Allocation3. Investment Fees and Commissions4. Investment Governance Processes5. Investment Manager Selection and Monitoring Process

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

1. Investment Policy/Strategic Investment Plan & Compliance

6

Overall, the TRS IPS is quite comprehensive and follows best practice, containing appropriate measurable outcomes, and is being followed. Clear delineation of roles and responsibilities Includes all the components a well-structured IPS should contain Is reviewed by the Board on a regular basis

The Plan maintains a funding policy.

Plan has been successful in meeting its stated objectives.

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc..

2. Investment Asset Allocation

7

The Plan has a leading-edge practice for developing asset allocation (occurring every 5 years). Assets are well diversified across asset classes. Risk is being measured and managed consistent with the IPS.

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

3. Investment Fees and Commissions

8

IMD maintains procedures for the payment of management and incentive fees

Investment fees and commissions, including management fees, performance-based fees, carried interest, and broker commissions are outlined in the Plan’s Comprehensive Annual Financial Report

Fees are appropriately reported to the Board

Total investment costs of the Plan were slightly higher (0.038%) than CEM benchmarked costs. – This is primarily due to the Plan’s higher use of active management and private assets.

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

4. Investment Governance Processes

9

The structure and breadth of the investment decision-making governance process is in line with best practices, with clearly delineated roles and responsibilities, appropriate level of delegation, monitoring, reporting, transparency, and frequent compliance testing and assurance.

TRS is leading-edge in terms of its transparency, exceeding that of many public retirement systems.

The onboarding and continuing education training provided to new Trustees is in line with best practices and covers a multitude of topics.

We found that Trustees clearly understand and embrace their fiduciary responsibilities and have properly engaged outside Advisors to assist them in their decision-making process.

There is a substantial, and appropriate, amount of time devoted to Investment matters given the size and sophistication of the Plan.

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

5. Investment Manager Selection and Monitoring Processes

10

The manager selection, ongoing monitoring, and termination processes are well defined and robust.

Returns are calculated by the Plan’s custodian, and all performance is reported net of external investment management fees and gross of IMD Operating Budget (this is consistent with peers).

We believe that performance related reporting provided to the Board are appropriately formatted and presented to allow Board members of all investment acumen and expertise to evaluate the investment success associated with the implementation of the investment policy.

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

Appendix

11

IPS Components

Section Purpose of SectionIncluded In

TRS IPS- Reference to the purpose and benefit to be provided by the Trust. √- Intended beneficiaries of the Trust. √- Overview of fiduciary obligation. √- Investments made for the exclusive purpose of providing benefits to participants. √- Plan fiduciaries must act in the sole interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits. √

- To preserve the actuarial soundness of the Trust in order to meet benefit obligations. √- To obtain a long-term rate of return, net of fees, equal to or in excess of the policy benchmark. √- The policy benchmark and asset allocation targets should be defined. √- Purpose is to provide an optimal mix of investments to produce desired returns and meet current and future liabilities, with minimal volatility.

√

- Frequency and methodology of asset liability modeling and resetting allocation. √- Describe permissible asset classes as well as minimum, maximum, and target ranges. √- Board of Trustees – general and investment related duties. √- External investment consultants/advisors – advise on best practices, trends and support staff and Board/Investment Advisory Committee with fiduciary responsibilities.

√

- Other external providers’ duties, expectations and fiduciary responsibilities. √- Benchmarks – who sets them and how often they are revisited, and their rationale. √- Diversification - Provide an overview on the importance of diversification and how it is achieved in the Trust. √

- Purpose of rebalancing – to ensure that the investment program adheres to its strategic asset allocation. √- Describe how often the portfolio will be reviewed for rebalancing and whether a fixed threshold or proportional threshold will be used. √

- Acknowledgement and definition of risk to be managed in investment portfolio (active risk, credit risk, counterparty risk, market risk, operational risk, etc.)- Define parameters for risk management (what does success look like). √- Describe monthly, quarterly and annual reporting. √- Outline monitoring and reporting process. √- Proxy positions − describe the policy and how votes are cast and recorded, or reference appropriate policy.

√

- Identify core principals of the Board (Board independence, Board management, shareholder rights) and communicate importance of fiduciary duty, integrity, and transparency. √

- Identify obligations to the Trust are consistent with the fiduciary standards under applicable law. √- Require ongoing review of investment policy statement. √

Rebalancing Policy

Risk Management

√

Monitoring and Reporting

Shareholder Activity

Governance

Introduction

Statement of Purpose

Investment Goals or

Objectives

Asset Allocation

Identification of Roles and

Responsibility

Asset Class Guidelines / Benchmarks

The table to the left outlines what we believe an IPS should include to be considered best practice

The IPS follows best practice, and includes sufficient detail on all items we desire in a well-structured IPS

12

Risk-Return Analysis

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

The IPS has identified controlling risk and achieving desired return targets (actuarial discount return, real return target (CPI + 5%), and the Total Fund Benchmark) as key return objectives

These goals have been generally achieved over the last 10 years

Relative Annualized Investment Returns (net of fee)As of September 30, 2019 3 Years 5 Years 7 Years 10 Year 15 Years 20 Years

Actuarial Rate (adjusted over time) 1.3% -0.6% 0.3% 1.0% -0.7% -1.6%Real Return Target (CPI +5%) 1.5% 0.5% 1.5% 2.0% 0.1% -1.0%Custom Benchmark 0.7% 0.5% 0.5% 0.6% 0.3% 0.3%

10-Years Performance (9/30/2019)

Total FundTotal Fund Benchmark Public Funds Peers > $10B

13

Total Fund vs. Public Funds Peers > $10B

*Values in ( ) represent percentile rank

Board Delegation Survey

Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

Source: Compilation from surveyYellow: Board Retains; Blue: Board delegates; Green: Board sometimes retains

• The degree of delegation exercised by the TRS Board is appropriate and in line with comparable peers and best practices given the size and complexity of TRS.

Investment Responsibility Sole Fiduciary

Board Finance / Investment Committee

CIO Other Staff Consultants

Final FINAL ADVISORY FINAL ADVISORY FINAL ADVISORY FINAL ADVISORY FINAL ADVISORY

Investment Policy 16.7% 58.3% 0.0% 8.3% 25.0% 16.7% 66.7% 0.0% 33.3% 0.0% 66.7%

Asset Allocation and Risk Tolerance 16.7% 58.3% 0.0% 8.3% 25.0% 16.7% 66.7% 0.0% 33.3% 0.0% 66.7%

Permissible Asset Classes 16.7% 58.3% 0.0% 8.3% 25.0% 16.7% 66.7% 0.0% 33.3% 0.0% 66.7%

Performance Benchmarks 8.3% 58.3% 0.0% 8.3% 25.0% 25.0% 66.7% 0.0% 33.3% 0.0% 75.0%

Selection of Consultants 8.3% 50.0% 0.0% 8.3% 8.3% 33.3% 58.3% 0.0% 33.3% 0.0% 33.3%

Selection of Investment Managers 8.3% 16.7% 0.0% 8.3% 8.3% 50.0% 33.3% 16.7% 41.7% 0.0% 41.7%

Termination of Investment Managers

8.3% 16.7% 0.0% 0.0% 16.7% 58.3% 25.0% 16.7% 41.7% 0.0% 33.3%

Specific Mandates/Allocations to Each Manager

8.3% 16.7% 0.0% 8.3% 8.3% 50.0% 25.0% 16.7% 33.3% 0.0% 33.3%

Selection of Private Equity Funds 8.3% 16.7% 0.0% 8.3% 8.3% 50.0% 25.0% 16.7% 33.3% 0.0% 41.7%

Selection of Real Estate Funds 8.3% 16.7% 0.0% 8.3% 8.3% 50.0% 25.0% 16.7% 33.3% 0.0% 41.7%

Internal vs External Management 8.3% 33.3% 0.0% 0.0% 8.3% 50.0% 33.3% 8.3% 33.3% 0.0% 33.3%

Active vs Passive Management 8.3% 33.3% 0.0% 0.0% 8.3% 50.0% 41.7% 8.3% 33.3% 0.0% 41.7%

14

Asset Allocation AnalysisLong Term Expected Expected

Asset Class Targets Nominal Return Risk

U.S. Equity 18% 6.1% 17.9%

Non-US Developed 13% 6.8% 20.0%

Emerging Markets 9% 7.5% 27.0%

Private Equity 14% 8.2% 26.0%

Government Bonds 16% 2.5% 9.0%

Stable Value Hedge Funds 5% 4.7% 6.9%

Real Estate 15% 7.3% 20.8%Energy, Natural Resources and Infrastructure 6% 7.7% 14.5%

Risk Parity 8% 5.8% 12.0%

Net Asset Allocation Leverage -4% -- --

Teacher Retirement System of Texas 100.0% -- --

Estimated Return (Nominal) 7.2%

Estimated Risk 13.7%

Sharpe Ratio 0.402

The Plan’s current asset allocation approximates the actuarial discount rate

The process performed to determine the appropriate long-term strategic asset allocation was robust

There is nothing in our analysis that would position us to say that a different asset allocation would be better positioned to meet the investment return and risk objectives of the Plan

15

Legal Disclosures and Disclaimers

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc. (“AHIC”). The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth hereinsince the date hereof or any obligation to update or provide amendments hereto. This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice or investment recommendations. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on AHIC’s understanding of current laws and interpretation.

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon AHIC’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. AHIC disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. AHIC. reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted byany means without the express written consent of AHIC.

Aon Hewitt Investment Consulting, Inc. is a federally registered investment advisor with the U.S. Securities and Exchange Commission. AHIC is also registered with the Commodity Futures Trade Commission as a commodity pool operator and a commodity trading advisor, and is a member of the National Futures Association. The AHIC ADV Form Part 2A disclosure statement is available upon written request to:

Aon Hewitt Investment Consulting, Inc.200 E. Randolph StreetSuite 1500Chicago, IL 60601ATTN: AHIC Compliance Officer

© Aon plc 2020 All rights reserved.•9

16Aon I Retirement and Investment I Fiduciary ServicesInvestment advice and consulting services provided by Aon Investments USA Inc.

TAB 9

TAB 10

Katrina Daniel

April, 2020

Health and Insurance Benefits Presentation

2

TRS-ActiveCare: Regional Health Maintenance Organizations (HMOs)

Proposed HMO Service Areas

BCBS TX

Baylor Scott & White

3

TRS-ActiveCare: HMO Rates and Benefits

BS&W South TX BCBS TX

West TX BCBS

Proposed Premiums

Employee Only $551 (-$8) $492 (+$5) $534 (-$27)

Employee & Spouse $1,382 (+$76) $1,183 (+$5) $1,288 (-$129)

Employee & Children $884 (+$7) $767 (+$5) $836 (-$57)

Employee & Family $1,479 (+$21) $1,259 (+$10) $1,370 (-$85)

Total Premium Change from 2019-20 +0.2% +0.9% -5.6%

Proposed Benefit Changes:• No changes at Baylor Scott & White. • No changes at South TX BCBS TX.

• West TX switching to BCBS benefits. Generally +5% increase in co-insurance and different co-pay structure.

Note that all dollar values have been rounded to nearest dollar. Actual premiums set in cents.

TRS Medical & Pharmacy Trend

4

Texas Self-Insured Employers: 24%

TRS-All Plans: 7%

0%

5%

10%

15%

20%

25%

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Cumulative Cost Growth Since 2013

Source: Milliman & GRS. Texas Self-Insured is based on employers with similar administrative services only contracts. Rebate information is only available for TRS data. Excludes rebates from TRS All Plans would increase cumulative growth to 12%. Cost growth is based on allowed charges.

5February 5th TRS-ActiveCare District Summit

Re-Engineering TRS-ActiveCare: Stakeholder Input and Results

6

New low-premium plan for employees with copays for primary care and specialists

Limit premium increases

Premium decreases in tiers with childrenReduce premiums for child coverage

Lower deductibles for individuals in family coverage

Improve family affordability

District and Member Feedback TRS Staff Proposal

Re-Engineering TRS-ActiveCare: Stakeholder Input and Results

7

TRS Staff ProposalDistrict and Member Feedback

Statewide networks for all plansEliminate County Boundaries

Enhanced existing plans and kept access to a broad networkMaintain Choice

8

Re-Engineering TRS-ActiveCare: Benefit Enhancements

Primary compared to current version of TRS-ActiveCare 1-HD. No changes to AC-2 benefits. Additional details available in plan highlights document.

Primary

• -$250 ind. deductible & -$500 family

• Co-pays only for PCP and specialists (no deductible or coinsurance)

• Individuals only need to meet ind. deductible in child, spouse, & family tiers

Primary+

• Eliminated many copays, including outpatient surgery and ER (coinsurance after deductible only)

• $30 copay on therapies (↓from $70)

• -$1,000 ind. out-of-pocket max & -$2,000 for families

HD

• Individuals now only need to meet ind. deductible in child, spouse, & family tiers

New New

9

Re-Engineering TRS-ActiveCare: Primary Plus, The New Select

Current Select ACO Regions Statewide Network in New Primary Plans

Members Can Access

Providers Only Within Their

Region

10

Re-Engineering TRS-ActiveCare: Disruption Analysis

73% of Providers Used by Select ACO Members in

DFW

72% of Providers Used by Select ACO Members in Houston

72% of Providers Used by Select ACO

Members in Austin/San Antonio

Most Outpatient Providers Utilized by at Least 10 Select ACO Members Are In Statewide Network for New Primary Plans

Utilization data based on FY2019

11

Re-Engineering TRS-ActiveCare: Rates

FY 2021 TotalMonthly Premium

Change from 2020*

Median Participant

Contribution**TRS-ActiveCare-Primary

Employee Only $386 $69Employee & Spouse $1,089 $772

Employee & Children $695 $370

Employee & Family $1,301 $976TRS-ActiveCare-Primary+

Employee Only $514 -$42 $197Employee & Spouse $1,264 -$103 $947

Employee & Children $834 -$68 $509Employee & Family $1,588 -$130 $1,263

*Based on comparisons to TRS-ActiveCare Select, 2019-20 plan year**Based on median district contribution received by employees in 2019-20 plan year. This was $317 for employee only and employee-child tiers and $325 for others. Max participant contribution = FY2021 total premium - $225.

New

New

12

TRS-ActiveCare: Rate Changes for Existing Plans 2020-21

**Based on median district contribution received by employees in 2019-20 plan year. This was $317 for employee only and employee-child tiers and $325 for others. Max participant contribution = FY2021 total premium - $225.

FY 2021 TotalMonthlyPremium

Change from 2020

Median Participant

Contribution**TRS-ActiveCare-HD

Employee Only $397 +$19 $80Employee & Spouse $1,120 +$54 $803

Employee & Children $715 -$7 $390Employee & Family $1,338 -$77 $1,013

TRS-ActiveCare-2Employee Only $937 +$85 $620

Employee & Spouse $2,222 +$202 $1,905Employee & Children $1,393 +$126 $1,068

Employee & Family $2,627 +$238 $2,302

Benefit Primary HD Primary+Ind. Med Deductible $2,500 $2,800 (+$50) $1,200Rx Deductible Integrated w/ medical Integrated w/ medical $200Coins 30% 20% 20%Ind. In-Network MOOP $8,150 $6,900 (+$150) $6,900 (-$1,000)PCP $30 Deductible, 20% $30Spec $70 Deductible, 20% $70Therapy $30 Deductible, 20% $30 (-$40)Generic Rx $15 Deductible, 20% $15Pref Brand Rx Deductible, 30% Deductible, 25% Deductible, 25%Non-Pref Brand Rx Deductible, 50% Deductible, 50% Deductible, 50%Specialty Rx Deductible, 30% Deductible, 20% Deductible, 20%

13

TRS-ActiveCare: Benefits Summary

No changes to AC-2 benefits. Additional details available in plan highlights document.

14

TRS-ActiveCare: Affordability and Participation Varies by District

2018-19 Plan Year. Each dot is a single school district. Larger districts shown with larger dots. Participation is the number of employees enrolled in TRS-ActiveCare over the number of employees working more than 20 hours per week. District contribution is based on average contribution received by members in September of 2018.

80% Participation

60% Participation

40% Participation

100% Participation

$225District Contr.

$300District Contr.

$400District Contr.

$500District Contr.

District Contributions Vary Significantly Across Districts and Impact Employee ParticipationParticipation Rate and District Contribution by District, Districts >500 Employees

15

TRS-ActiveCare Communications Plan

Benefit Administrators• 7 virtual regional trainings • Administrative guide and training survey• Annual enrollment toolkit

Participants• Annual enrollment announcement mailers • Email updates through The Pulse• Annual enrollment video• Enrollment guide• District intranet toolkit • Provider search tool• PCP selection FAQ

TRS-ActiveCare Key Dates

16

New plan designs and rates set by TRS Board (17th)

April May

Benefits administrator enrollment training

June SeptJuly August

Annual Enrollment

New Plan Year (1st)

17

Appendix

99%

Sept Nov Jan Mar May Jul

18

TRS-Care: Initiatives & Updates

• Answered >98% of calls within 3 mins Dec 2019 – Feb 2020

• Transition of vendors for TRS-Care will occur January 2021

• ACT staffing expansion to support implementation starting in February 2020

Service Level

Service Target(80% of calls answered

within 3 minutes)

FY20FY19

19

TRS-Care: Fund Balance Update

Financial History and Projections by Fiscal Year

Data as of December 31, 2019

2020-2023 projections assume growth in medical and pharmacy costs each year with no retiree premium increases.

Expenses

Revenues

Fiscal Year

Fund Balance

2016 2017 2018 2019 2020 2021 2022 2023

$641M

$1,292M

$1,874M

$2,910M

TAB 13

2021-2025 Strategic Plan AdoptionApril 17, 2020

Rebecca Merrill, Chief Strategy Officer

Strategy OfficeTeacher Retirement System of Texas

Strategic Planning Process

2

PRESENTATION TITLE >>> NAME FEB-09-15PRESENTATION TITLE >>> NAME >>> DATE

Inform the process and plan regarding:

• Direction• Priorities• Clarity

Hold results forums and report out

Align resources and engage on the plan

Adopt 2021-25 plan in April (Due June 1 to LBB and Governor's Office)

Develop plan

Environmental scanning

Review Mission StatementID

ENTI

FYDE

VELO

PEX

ECUT

E

Strategic Plan

3

• Address a longer-term timeframe• Engage more than one other department• Create value or contribute to key results or outcomes• Enhance positive differentiation• Enhance organizational productivity• Lead to sustained success and growth of the

organization

IDENTIFY

Opportunities1. Health care innovation2. Data analytics3. Educate stakeholders

Customer Needs1. TRUST Phase II2. Member self-service3. Ease of access to TRS4. Employers wanting more input on

health benefits

Threats1. Failure to meet rate of return2. Failures on TEAM HILOB implementation3. Failure to adequately address talent issues4. Cyber security5. Destabilization of TRS-ActiveCare6. Procurement

Internal Operational Needs1. Adequate staffing/training (business

operations and once ‘in the door’)2. Data management3. Cross-functional intelligence

Strategic Fit

4

Ask how well does the Strategic Plan address the top

opportunities, threats, customer needs, and internal

operational needs?

IDENTIFY

Changes to GoalsNew or Updated

Objectives/Strategies, Including Strategic Seedlings

Unchanged

• Refine language in Goal 4• Fold current HUB Goal 5 into

Goal 4

• One Team One Mission• Regional Centers• Re-Engineer TRS-ActiveCare• Procurement and Contracting• Artificial Intelligence

• Goal 1 Objectives and Strategies

Highlights

5DEVELOP

6

Highlights: Proposed Goal Changes

DEVELOP

Current 2021-25 Strategic Plan Proposed AmendmentsGoal 1: Sustain a financially sound pension system. No proposed change.

Goal 2: Continuously improve our benefit delivery. No proposed change.

Goal 3: Facilitate access to competitive, reliable health care benefits for members. No proposed change.

Goal 4: Ensure that people, processes, and technology align to achieve excellence in the delivery of TRS goals.

Goal 4: Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members.

Goal 5: Promote purchasing selection practices that foster meaningful and substantive inclusion of historically underutilized businesses (HUBs).

Moved to Goal 4, New Objective 6, Strategy 4:

Goal 4, Objective 6: Improve and maintain effective procurement and contract management practices.

Strategy 4: Promote purchasing selection practices that foster meaningful and substantive inclusion of historically underutilized businesses (HUBs).

7

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 1: Improve the customer service experience.

Strategy 1: Gain a better understanding of our members’ expectations.Strategy 2: Increase capacity to serve more members.Strategy 3: Improve response time to reporting employers.Strategy 4: Provide additional online functionality.Strategy 5: Improve the quality of benefit estimates and timeliness of disbursements.

Delete Strategy 1 and 5, Renumber, and Add New Strategy 4 and 5 (One Team One Mission).

Objective 1: Improve the customer service experience for members and employers.

Strategy 1: Gain a better understanding of our members’ expectations.Strategy 1: Increase capacity to serve more members.Strategy 2: Improve response time to reporting employers.Strategy 3: Provide additional online functionality.Strategy 4: Build and define operational support for Benefit Services.Strategy 5: Improve the quality of benefit estimates and timeliness of disbursements.Strategy 5: Consolidate customer service inquiries regarding health care and pension benefits into one call center (One Team One Mission).

Continuously improve our benefit delivery. GOAL 2

8

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 2: Improve timeliness and accuracy in employer reported data.

Strategy 1: Stabilize the reporting employer portal.Strategy 2: Educate and provide training to the reporting employers.Strategy 3: Conduct employer audits and data analytics.

Delete Strategy 2, Revise and Renumber Strategy 3.

Strategy 2: Educate and provide training to the reporting employers.Strategy 2: Conduct employer audits and Begin using data analytics tools to review employer-reported data.

Objective 3: Modernize and improve awareness of the 403(b) program.

Strategy 1: Build a new 403(b) Product Registration System.Strategy 2: Develop certification and registration training for certified companies.Strategy 3: Create new educational materials for members.

Delete, Legislative Action Eliminated this Objective.

Objective 3: Modernize and improve awareness of the 403(b) program.

Strategy 1: Build a new 403(b) Product Registration System.Strategy 2: Develop certification and registration training for certified companies.Strategy 3: Create new educational materials for members.

Continuously improve our benefit delivery. GOAL 2

9

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 1: Improve communication efforts regarding health care funding needs.

Strategy 1: Serve as a trusted resource and engage with policymakers on health care funding for TRS-ActiveCare and TRS-Care.

Delete specific reference to health care plans.

Strategy 1: Serve as a trusted resource and engage with policymakers on health care funding for TRS-ActiveCare and TRS-Care.

Objective 2: Increase the value of health care benefits.

Strategy 1: Expand initiatives that improve value and quality of health care.Strategy 2: Engage the most appropriate partners through competitive procurement to achieve value and quality.

Delete Strategy 1, Revise and Renumber Strategy 2, Add New Strategy.

Strategy 1: Expand initiatives that improve value and quality of health care.Strategy 1: Engage the best health care vendors most appropriate partners through competitive procurement to achieve ensure our members have the highest value health care and quality.Strategy 2: Re-engineer TRS-ActiveCare to better meet district needs.

Objective 3: Improve the health of our members.

Strategy 1: Improve engagement of plan participants with an initial focus on population with high impact conditions, such as diabetes.Strategy 2: Optimize disease management for high risk populations.

No proposed change.

Facilitate access to competitive, reliable health care benefits for our members.GOAL 3

10

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 1: Attract, retain, and develop a highly competent staff.

Strategy 1: Position TRS as a destination employer.Strategy 2: Promote a strong workplace culture.Strategy 3: Improve diversity representation at all levels of the organization.Strategy 4: Create an inclusive work environment that fosters creativity and innovation.Strategy 5: Increase developmental opportunities.

Revise Objective 1, Strategy 1, 2 and 5 language. Renumber and Combine Strategy 4 language with Strategy 2.

Objective 1: Attract, retain, and develop a diverse and highly competent staff.

Strategy 1: Position TRS as a destination employer to meet the needs of our current and future workforce.Strategy 2: Promote a strong workplace culture that is inclusive and fosters creativity and innovation.Strategy 4: Create an inclusive work environment that fosters creativity and innovation.Strategy 4: Expand Increase learning and developmental opportunities.

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

11

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 2: Implement modern pension benefit and health information systems.

Strategy 1: Define detailed requirements and use cases for the LOB Phase 2.Strategy 2: Design build and test pension LOB system components for Phase 2.Strategy 3: Design, build and test HILOB system components.Strategy 4: Ensure that staff and users are properly trained on Pension Phase 2 LOB and HILOB functionality.Strategy 5: Go live with Phase 2 of the pension LOB and HILOB system.

Objective 3: Advance and enhance IT systems and services.

Strategy 1: Build, maintain and enhance a robust, highly available IT environment in support of applications and services.Strategy 2: Expand and ease the ability to perform TRS work from anywhere, at any time, and across most any device.Strategy 3: Provide advanced data analytics tools and data management practices to gain business intelligence and improve decision-making.Strategy 4: Modernize legacy systems.

Combine Objectives 2 and 3 by Moving Current Objective 2 to Revised Strategy 4 and Add New Strategy 5.

Objective 2: Advance and enhance IT systems and services.

Strategy 1: Build, maintain and enhance a robust, highly available IT environment in support of applications and services.Strategy 2: Expand and ease the ability to perform TRS work from anywhere, at any time, and across most any device.Strategy 3: Provide advanced data analytics tools and data management practices to gain business intelligence and improve decision-making.Strategy 4: Modernize legacy systems. Implement modern information systems across all lines of business divisions with priority on modernization of legacy systems.Strategy 5: Enhance the operating model for continuous business process improvement that enables transparent, data-driven decisions and rapid delivery of high-quality IT capabilities.

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

12

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 4: Continue to enhance a strong information security program

Strategy 1: Provide a secure computing environment that ensures data privacy and integrity.Strategy 2: Develop an information security framework based on adaptive security architecture best practices to manage and mitigate cyber-security threats.

Renumber current Objective 4 as Objective 3 and update language for Strategy 1.

Objective 3: Continue to e Enhance a strong the information security program.

Strategy 1: Provide a secure computing environment that ensures supports a data privacy and integrity framework.Strategy 2: Develop an information security framework based on adaptive security architecture best practices to manage and mitigate cyber-security threats.

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

13

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 5: Modernize TRS facilities and explore future space requirements/options

Strategy 1: Remodel the Red River Campus.Strategy 2: Enhance safety and security measures at the Red River Campus.Strategy 3: Research space requirements/options for the future.

Renumber Objective 5 as Objective 4, Delete Strategy 1 and 2, Renumber and Update language for Strategy 1, Add New Strategy 2.

Objective 4: Identify appropriate solutions for TRS facilities and space requirements.

Strategy 1: Remodel the Red River Campus.Strategy 2: Enhance safety and security measures at the Red River Campus.Strategy 1: Research space requirements/options for the future (including possible purchase, building, and rental options that allow for growth to meet member needs).Successful completion of generational solution for housing all of TRS.Strategy 2: Obtain legislative approval and funding for regional offices.

Objective 6: Foster a culture of fiduciary responsibility and ethical conduct

Strategy 1: Embed/integrate culture of ethics and compliance within the business process.Strategy 2: Enhance visibility of, and accessibility to Legal and Compliance throughout TRS.Strategy 3: Enhance automation and optimize technology solutions for ethics and compliance function.

Renumber Objective 6 as Objective 5 and Move Strategy 3 to New Objective 8.

Objective 5: Foster a culture of fiduciary responsibility and ethical conduct.

Strategy 1: Embed/integrate culture of ethics and compliance within the business process.Strategy 2: Enhance visibility of, and accessibility to Legal and Compliance throughout TRS.Strategy 3: Enhance automation and optimize technology solutions for ethics and compliance function.

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

14

Highlights: New or Updated Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsNew Objective 6 for Procurement and Contracts. Move Goal 5 to Goal 4, Objective 6, Strategy 4.

Objective 6: Improve and maintain effective procurement and contract management practices.

Strategy 1: Implement significant program recommendations related to the Purchasing and Contracts Enhancement Plan.Strategy 2: Implement source to pay software system.Strategy 3: Increase the number of utilized Historically Underutilized Businesses (HUBs).Strategy 4: Promote purchasing selection practices that foster meaningful and substantive inclusion of historically underutilized businesses (HUBs).Strategy 5: Conduct Improve outreach activities that to foster and improve strengthenrelationships among HUB vendors, prime contractors, and purchasers.Strategy 6: Leverage Diversity, Equity, & Inclusion (DE&I) outreach and partnerships to identify and work with HUB eligible businesses as a pipeline for HUB contracted services.

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

15

Highlights: New or Changed Objectives / Strategies

DEVELOP

Current Objectives and Strategies 2021-25 Strategic Plan Proposed AmendmentsObjective 7: Improve strategic communications.

Strategy 1: Develop and implement and agency-wide crisis communications plan.Strategy 2: Improve outgoing communications.Strategy 3: Foster a culture of engagement.Strategy 4: Refresh the TRS brand.

Delete Strategies 1-4, Add New Strategies.

Strategy 1: Develop and implement an agency-wide crisis communication plan.Strategy 2: Improve outgoing communications.Strategy 3: Foster a culture of engagement.Strategy 4: Refresh the TRS brand.Strategy 1: Ensure that member-facing content is easily understandable and accessible to readers.Strategy 2: Develop a communication and outreach plan to better help members and employers plan for retirement.

New Objective 8 for Legal & Compliance automation Objective 8: Evaluate automation and technology solutions to enhance existing processes.Strategy 1: Investigate best practices and feasibility of incorporating artificial intelligence into Legal & Compliance processes.

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

Schedule

16

Results Forum Report Out (Q1)

• Achieve the investment rate of return

• Improve the customer service experience

• Improve benefit estimates and disbursements

• Strengthen ethics and culture

• Improve strategic communications

Results Forum Report Out (Q2)

~POSTPONED UNTIL JULY~• Advance and enhance IT

systems and services• Enhance the information

security program

Adopt 2021-25 Strategic Plan

Due Jun. 1

Results Forum Report Out (Q3)

• Improve pension funding communication

• Improve information regarding the impact of changing plan design

• Improve health care funding needs communication

• Increase the value of health care benefits

• Improve the health of our members

• Increase the number of HUBs utilized by TRS

Results Forum Report Out (Q1)

• Achieve the investment rate of return

• Improve the customer service experience

• Improve benefit estimates and disbursements

• Strengthen ethics and culture

• Improve strategic communications

Results Forum Report Out (Q4)

• Increase identification of underpayments and collection of future contributions

• Attract, retain and develop a highly competent staff

• Implement modern benefit and health information systems

Fiscal Year 2020 Recap

2021-25 Strategic Plan Begins Sept. 1

Sep. 2020Strategic Planning Committee

Dec. 2020Strategic Planning Committee

Jul. 2020Strategic Planning Committee

Apr. 2020Board Meeting

Dec. 2019Strategic Planning Committee

February Board MeetingPreview Draft 2021-2025

Strategic PlanFiscal Year 2021Fiscal Year 2020

EXECUTE

17

Stoplight Report – April 2020

Appendix ATRS 2021-2025 Strategic Plan for Approval

Strategic Seedlings Update

19IDENTIFY

Strategic Seedling 2021-25 Strategic Plan Cross-Reference

1. Expand work from everywhere G4.O2. Strategy 2: Expand and ease the ability to perform TRS work from anywhere, at any time, and across most any device.

2. Offer statewide 403(b) Not advanced

3. Reshape health care by collaborating with health care vendors in radical transparency

G3.O2. Strategy 1: Engage the best health care vendors through competitive procurement to ensure our members have the highest value health care.

4. Go paperless Not advanced

5. Incorporate AI into contract management G4.O8. Strategy 1: Investigate best practices and feasibility of incorporating artificial intelligence into Legal & Compliance processes.

6. Expand Learning & Development G4.O1. Strategy 4: Expand learning and development opportunities.

7. Develop a culture of digital business transformation G4.O2. Strategy 2: Expand and ease the ability to perform TRS work from anywhere, at any time, and across most any device.

8. Embark on plain language initiative G4.O7. Strategy 1: Ensure that member-facing content is easily understandable and accessible to readers.

9. Explore opening regional offices G4.O4. Strategy 2: Obtain legislative approval and funding for regional offices.

10. Communicate with future educators Not advanced11. Utilize institutional knowledge-based systems Not advanced

Framework

• Goal – general statement of desired outcome

• Objective – specific, measurable statement of desired outcome, linked to a goal

• Strategy – general statement of how an objective will be achieved

20

Goal

Objective Objective Objective

Strategy Strategy Strategy Strategy Strategy Strategy

DEVELOP

TRS 2021-2025 Goals, Objectives and Strategies

Objective 1: Improve communication regarding pension funding needs. Strategy 1: Serve as a trusted resource and engage with policymakers on pension funding.

Objective 2: Increase identification of underpayments and collection of future contributions to TRS.Strategy 1: Increase testing coverage of high-risk reporting employers.

Objective 3: Achieve the trust’s actuarial assumed rate of return as measured on rolling 20-year periods.*Strategy 1: Maintain an effective investment governance structure.Strategy 2: Enhance current competitive advantages and total returns.Strategy 3: Manage cost structures to increase net alpha generated.

Objective 4: Improve communication regarding the impact of changing pension plan design.Strategy 1: Serve as a trusted resource and engage with policymakers on pension plan design.

21

Sustain a financially sound pension system.GOAL 1

* Executive Director’s Areas of Focus

Objective 1: Improve the customer service experience for members and employers.*Strategy 1: Increase capacity to serve members.Strategy 2: Improve response time to reporting employers. Strategy 3: Provide additional online functionality.Strategy 4: Build and define operational support for Benefit Services.Strategy 5: Consolidate customer service inquiries regarding health care and pension benefits into one call center (One Team One Mission).*

Objective 2: Improve timeliness and accuracy in employer reported data. Strategy 1: Stabilize the reporting employer portal.Strategy 2: Begin using data analytics tools to review employer-reported data.

22

TRS 2021-2025 Goals, Objectives and Strategies

Continuously improve our benefit delivery. GOAL 2

* Executive Director’s Areas of Focus

Objective 1: Improve communication efforts regarding health care funding needs. Strategy 1: Serve as a trusted resource and engage with policymakers on health care funding.*

Objective 2: Increase the value of health care benefits.Strategy 1: Engage the best health care vendors through competitive procurement to ensure our members have the highest value health care.Strategy 2: Re-engineer TRS-ActiveCare to better meet district needs.*

Objective 3: Improve the health of our members.Strategy 1: Improve engagement of plan participants with an initial focus on population with high impact conditions, such as diabetes. Strategy 2: Optimize disease management for high risk populations.

23

TRS 2021-2025 Goals, Objectives and Strategies

Facilitate access to competitive, reliable health care benefits for our members.GOAL 3

* Executive Director’s Areas of Focus

Objective 1: Attract, retain, and develop a diverse and highly competent staff.*

Strategy 1: Position TRS as a destination employer to meet the needs of our current and future workforce.Strategy 2: Promote a strong workplace culture that is inclusive and fosters creativity and innovation.Strategy 3: Improve diversity representation at all levels of the organization.Strategy 4: Expand learning and development opportunities.

Objective 2: Advance and enhance IT systems and services.*

Strategy 1: Build, maintain and enhance a robust, highly available IT environment in support of applications and services.Strategy 2: Expand and ease the ability to perform TRS work from anywhere, at any time, and across most any device.Strategy 3: Provide advanced data analytics tools and data management practices to gain business intelligence and improve decision-making.Strategy 4: Implement modern information systems across all lines of business divisions with priority on modernization of legacy systems.*Strategy 5: Enhance the operating model for continuous business process improvement that enables transparent, data-driven decisions and rapid

delivery of high-quality IT capabilities.

24

TRS 2021-2025 Goals, Objectives and Strategies

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

* Executive Director’s Areas of Focus

Objective 3: Enhance the information security program.*Strategy 1: Provide a secure computing environment that supports a data privacy and integrity framework.Strategy 2: Develop an information security framework based on adaptive security architecture best practices to

manage and mitigate cyber-security threats.

Objective 4: Identify appropriate solutions for TRS facilities and space requirements.*Strategy 1: Successful completion of generational solution for housing all of TRS.Strategy 2: Obtain legislative approval and funding for regional offices.

Objective 5: Foster a culture of fiduciary responsibility and ethical conduct.Strategy 1: Embed/Integrate culture of ethics and compliance within the business process.Strategy 2: Enhance visibility of, and accessibility to, Legal & Compliance throughout TRS.

25

TRS 2021-2025 Goals, Objectives and Strategies

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

* Executive Director’s Areas of Focus

Objective 6: Improve and maintain effective procurement and contract management practices.*Strategy 1: Implement significant program recommendations related to the Purchasing and Contracts Enhancement Plan.Strategy 2: Implement source to pay software system.Strategy 3: Increase the number of utilized Historically Underutilized Businesses (HUBs).*Strategy 4: Promote purchasing selection practices that foster meaningful and substantive inclusion of historically

underutilized businesses (HUBs).Strategy 5: Improve outreach activities to foster and strengthen relationships among HUB vendors, prime contractors,

and purchasers.Strategy 6: Leverage Diversity, Equity, & Inclusion (DE&I) outreach and partnerships to identify and work with

HUB eligible businesses as a pipeline for HUB contracted services.

26

TRS 2021-2025 Goals, Objectives and Strategies

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

* Executive Director’s Areas of Focus

Objective 7: Improve strategic communications.Strategy 1: Ensure that member-facing content is easily understandable and accessible to readers.Strategy 2: Develop a communication and outreach plan to better help members and employers plan for retirement.

Objective 8: Evaluate automation and technology solutions to enhance existing processes.Strategy 1: Investigate best practices and feasibility of incorporating artificial intelligence into Legal & Compliance processes.

27

TRS 2021-2025 Goals, Objectives and Strategies

Ensure that people, processes, and technology align to achieve excellence in the delivery of services to members. GOAL 4

* Executive Director’s Areas of Focus

TAB 14

Katherine FarrellApril 17, 2020

Proposed Adoption of Chapter 23 Rule Amendments

Teacher Retirement System of Texas

Nomination and Election for Appointments to the Board of Trustee Rules – Proposed Adoption of Chapter 23 Amendments

Why does TRS need to revise the current election process?• Addressing minor issues identified during past election.• Clarifying terminology for consistency with current TRS election practices.• The nomination period for the 2021 Trustee election begins June 2020.

Timeline:• February 2020 - TRS Board voted to publish the proposed amended rules in the

Texas Register.• March 13, 2020 – Proposed amended rules published in the Texas Register, at

45 TexReg 1841.• April 13, 2020 - Deadline for receiving public comments – no comment received

to date.2

Nomination and Election for Appointments to the Board of Trustee Rules – Proposed Adoption of Chapter 23 Amendments

What are the proposed revisions to the Trustee Election process?• Define “Member” and “Retiree” and clarify that EAR does not affect retiree eligibility

to vote.

• Clarify voter eligibility for elections.

• Restructure rule to provide greater clarity.• Changed the due date for petitions from January 20th (a day that is often a legal

holiday) to January 25th.

3

Nomination and Election for Appointments to the Board of Trustee Rules – Proposed Adoption of Chapter 23 Amendments

What are the proposed revisions to the Trustee Election process (Cont.)?• Include current practice within the rule:

• Public school district nominees must be currently employed in TRS-eligible positions;• Use of an agent during the petition phase;• TRS may require additional information on petitions to identify the individuals signing the

petition; and • Write in candidates must receive a minimum of 250 votes to be considered one of the top

three candidates.• Update the terms of office for each seat and eliminate reference to the Higher

Education seat which was statutorily eliminated in 2017.

4

TAB 15

Brian Guthrie, Executive DirectorAndrew Roth, Chief Operationsand Administration OfficerDon Green, Chief Financial OfficerApril 17, 2020

FY 2020 Midyear Budget & FTE Review

FY 2020 Operating Budget by Fund

2

Pension - 79%$178.5

Commission Credits - 14%$30.1

Healthcare - 7%$16.3

Amount in millions

FY 2020 Total

Administrative

Operating Budget

$224,992,971

3

Benefit Services - 8%$17.5

Investment Management - 41%$91.3

Healthcare - 7%$16.3

Finance - 8%$18.0

Information Technology - 22%$49.9

Agency Support - 14%$31.9

Agency Support: Executive, Internal Audit, Legal & Compliance, Gov’t Relations, Diversity, Equity, and Inclusion, Organizational Excellence, Strategy Office and Agency-wide

FY 2020 Operating Budget by Division

FY 2020 Total

Administrative

Operating Budget

$224,992,971

4

Wages & Benefits - 54%$122.5

Pro Fees - 19%$43.1

Travel - 1%$2.6

Support Costs - 4%$9.4

Operating - 21%$46.4

Capital - 1%$0.9

Operating costs: software, hardware, postage, printing, equipment, reference materialsSupport costs: Rent, building/equipment maintenance, utilities, supplies

FY 2020 Operating Budget by Expense Category

FY 2020 Total

Administrative

Operating Budget

$224,992,971

5

Budget Exp/Enc % Spent Projected Total Spend

FundPension (Includes TEAM) 178,540,337 90,115,635 50% 156,259,128 Commission Credits 30,118,400 16,361,519 54% 23,957,900 TRS Care (Includes HILOB) 12,105,934 5,204,843 43% 11,085,025 TRS ActiveCare 4,228,300 2,947,280 70% 4,114,335

Fund Total $224,992,971 $114,629,277 51% $195,416,388

Expense

Wages & Benefits 122,532,613 55,818,717 46% 111,352,973 Pro Fees & Services 43,156,286 23,737,327 55% 39,229,579 Support Costs 9,368,403 7,280,492 78% 8,979,326 Travel 2,565,834 680,680 27% 1,402,745 Operating Costs 46,381,535 26,447,595 57% 33,573,643 Capital Projects 988,300 664,466 67% 878,122

Expense Total $224,992,971 $114,629,277 51% $195,416,388

FY 2020 Expenditures (as of Feb 29, 2020)

6

Budget Exp/Enc % Spent Projected Total Spend

DivisionBenefit Services 17,520,576 8,197,274 47% 16,961,541 Investment Management 91,314,057 48,514,649 53% 77,143,816 Health and Insurance Benefits 16,334,234 8,152,123 50% 15,199,360 Information Technology 39,146,664 18,943,095 48% 36,095,655 Finance 15,105,230 8,977,626 59% 14,368,778 Agency Support 31,882,124 12,062,164 38% 23,565,852

Division Total $211,302,885 $104,846,931 50% $183,335,002 Capital Projects

Building Renovations 1,500,000 - - -Security Renovations 100,000 - - -Data Center Upgrade 600,000 301,462 50% 591,300 Investment System Modernization 450,000 423,072 94% 450,000 Network Infrastructure 500,000 297,212 59% 500,000 PC Workstation Refresh 500,000 466,339 93% 500,000 TEAM Project 8,738,186 7,270,997 83% 8,738,186 CAPPS Project 1,301,900 1,023,264 79% 1,301,900

Capital Projects Total $13,690,086 $9,782,346 71% $12,081,386

FY 2020 Expenditures (as of Feb 29, 2020)

As of February 29, 2020

FY 2020 FTE Update

7

8

Benefit Services,232.0

Executive, 5.0

Finance, 81.3

Governmental Relations, 2.0

Information Technology, 143.5

Internal Audit, 14.0

Investment Management, 190.0

Legal & Compliance, 35.0

Organizational Excellence, 27.0

Strategy Office, 15.5

Pension Funded FTEs745.3

Health and Insurance Benefits, 56.0 Agency

Support, 34.0

HILOB TEAM Project, 12.0

Health Care Funded FTEs102.0

FY 2020 FTE Summary

FY 2020 FTE Management Update

Filled Positions*, 752.1 89% Positions in process, 95.2

11%

Budgeted FTEs: 847.3

*Does not include Interns9

Reducing Investment Fees

10

Filled Positions 29, 47%

Positions in process 15, 24%

Positions on hold 18, 29%

• 32 Positions approved through Fiduciary Finding for FY 2018-2019, 84% Filled.

• 30 Positions approved for FY 2020-2021, 7% Filled.

Enhancing Customer Service

11

Filled Positions 54, 58%

Positions in Process 14, 15%

Positions on Hold 25, 27%

• 72 Positions approved through Fiduciary Finding for FY 2018-2019, 69% Filled.

• 21 Positions approved for FY 2020-2021, 19% Filled.

LegislativeAppropriations Request Fiscal Years 2022-2023

Brian Guthrie, Executive DirectorAndrew Roth, Chief Operationsand Administration OfficerDon Green, Chief Financial OfficerApril 17, 2020

TRS LAR Components• State Match Contributions

Assumptions on covered payroll growthUsing historical trending with assumptions for future growth, appropriations for 2020-21 were based on 3% growth in covered payroll for public education and higher education. Those assumptions will most likely change for 2022-23.Assumptions on state contribution ratePension fund currently at 7.75% in FY2022 and 8% in FY2023TRS Care currently at 1.25%

• Rider additions and/or deletions

• Performance measure changes

• Pension Trust Fund Administrative OperationsAppropriated by the legislature and funded by the pension trust fundLess than 0.2% of the total pension trust fund balanceFull Time Equivalents (FTEs) appropriationBalance oversight with operational flexibility

2

Sunset Key Recommendations

Augmenting Customer Service

• Require TRS to develop a communication and outreach plan to better help members and employers plan for retirement

• Require TRS to make improved efforts to return contributions to inactive members before funds are forfeit

• Direct TRS to adopt a member engagement policy to increase transparency on key decisions

Contract oversight and management

• Direct TRS to fully centralize contracting functions and clarify roles and responsibilities between central contracts department staff and division staff managing contracts

• Direct TRS to enhance its contract monitoring process and require staff who procure or manage contracts to complete the comptroller’s contract training

• Direct TRS to include standard remedies in contracts and consistently apply enforcement tools

Greater oversight and transparency of

investment practices• Direct TRS to perform a cost-

benefit analysis of implementing an enhanced investment accounting system to provide increased oversight of the custodian bank’s accounting data

• Direct TRS to have its Internal Investment Committee review internal investments and strategies

• Direct TRS to include clear, easily understandable information about alternative investments in its Comprehensive Annual Financial Report

Recommendedstatute changes

• Update the standard across-the-board requirement related to board member training

• Direct TRS to develop and maintain an agencywide system for receiving and responding to complaints

3

FY 2022-2023 LAR New Request

Saving Investment Fees

• Multi-biennial initiative focused on sustaining trust growth, maintaining current competitive advantages for reducing investment fees by hiring more investment professionals in-house and reducing external manager fees, potentially saving the pension trust fund $1.4 billion

Infrastructure support

• Aligning with Sunset’s recommendation to improve investment reporting and increase data analysis by implementing an in-house new parallel investment accounting system including resources to load and maintain daily transactions from investment managers, prices from vendor sources and to reconcile investment records to the custodian

Reducing Investment FeesBiennial Request

4

FY 2022-2023 LAR New Request

Augmenting Customer Service

• Improving response time for serving reporting employers and EAR retirees, provide training, quality assurance and workforce management for high risk activities department-wide

PilotRegional Office

• Expanding member services by opening one pilot regional office providing additional counseling services outside the Austin region

InfrastructureSupport

• Maintaining service level performance measures, technological and regulatory changes developing internal technologies, infrastructure and services reducing the use of more expensive contract services

Shared Services Support

• Keeping pace with member service expectations and increasingly complex operations to provide better customer service delivery for our members

Improving the Customer ExperienceBiennial Request

5

Appendix

6

Texas Budgeting Timeline

Even Year – 2020• Feb Agency Strategic Planning Instructions provided• Feb – April Strategic Fiscal Review• March Budget Structure Changes submitted• May Biennial Budget Request Instructions provided• June Agencies Submit Strategic Plans for FY 2021 - 2025• August Agencies Submit FY 2022 - 2023 Legislative Appropriations Request (LAR)• August – Sept GOBPP/LBB Joint Budget Hearings• November LBB meets to adopt a spending limit• Sept – Dec LBB and GOBPP Budget Preparations

7

8

Odd Year – 2021• January LBB submits budget estimates to 87th Leg• January Comptroller releases Biennial Revenue Estimate• February Governor delivers budget by State of the State• Jan – April House and Senate produce appropriations bill• May Legislature adopts final appropriations bill• June Comptroller certifies appropriations bill• June Governor signs bill with line item vetoes• July TRS Board of Trustees adopt FY 2022 Operating Budget• September New fiscal year begins for FY 2022

Texas Budgeting Timeline

The Budget Players

9

• Adopts a constitutional spending limit• Prepares a general appropriations bill• Prepares agency performance reports• Prepares, fiscal notes identifying the probable costs of

proposed legislation and impact statements

– Submits the Biennial Revenue Estimate (BRE)– Certifies the appropriations bill by determining whether

appropriations are within available revenue– Collects state taxes, tracks revenue and spending funds

Legislative Budget Board (LBB) Comptroller of Public Accounts (CPA)

Office of the Governor State Auditor’s Office (SAO)– Serves as independent auditor of state agencies,

including institutions of higher education– Audits the accuracy of reported performance measures

and assesses the related internal controls

– Involved in the budget process beginning with strategic planning and ending with budget execution

– Provides overall vision, mission, and philosophy, as well as statewide goals and benchmarks

– Has line-item veto power

Constitutional Spending Limits• Pay-As-You-Go Limit: Requires bills making appropriations be sent to the Comptroller of Public Accounts

(CPA) for certification

• Limitation on the Growth of Certain Appropriations: Limits the biennial growth of appropriations from state tax revenue not dedicated by the Constitution to the estimated rate of growth of the state’s economy (8%)

• Welfare Spending Limit: Provides the amount that may be paid out of state funds for assistance grants not exceed 1 percent of the state budget in any biennium

• Debt Limit: Limits the authorization of additional state debt, if in any fiscal year, the resulting annual debt service payable from unrestricted GR exceeds 5 percent of the average annual unrestricted GR funds for the previous three years

10

Strategic Fiscal ReviewThe Strategic Fiscal Review (SFR) is a comprehensive, bottom-up budgetary analysis of selected state entities currently the subject of Sunset Advisory Commission review..

SFR analysis informs members of the Legislature as they make decisions on the most appropriate and efficient means of funding the operations of the state, which includes the following elements:

• Evaluation of program effectiveness and efficiency• Options for alternative funding levels and methods• Increased transparency; and• Analysis of a program’s expenditures to the mission of the agency.

11

Strategic Fiscal Review Process

Source: www.lbb.state.tx.us

12

Sunset Advisory Commission review

The Sunset Advisory Commission is an agency of the Texas Legislature that evaluates state agencies and makes recommendations to the legislature on the need for, performance of, and improvements to agencies under review.

• Consists of 12 members: five senators and one public member appointed by the lieutenant governor, and five representatives and one public member appointed by the speaker of the House of Representatives.

• Appoints an executive director who employs about 30 staff to conduct Sunset reviews, support Sunset Commission meetings, serve as a resource during session, and perform other duties on behalf of the commission.

13

Sunset Review Process

1

2

Source: www.sunset.texas.gov14

Sunset Review Process

3

4Source: www.sunset.texas.gov

15

TAB 16

Brian GuthrieAndrew RothEric Lang

April 17, 2020

TRS Long Term Facilities Update

1

TRS Long Term Facilities: AGENDA

• IMD Space Updateo Indeed Towero816 Congress

• Red River Headquarters Building ActivityoAppraisaloAdditional Renovation OptionsoDisposition

• Potential New Headquarters Building Activityo Status update

• Next Steps

2

816 Congress• Status:

o No further work on 816 lease renewal until markets have stabilized

o Targeting a July Board meeting decision

• Considerations:o Negotiated rental rate was based on a market

conditions prior to the pandemic The risk of a recession or worse is high Lower real estate values will mean lower rental rates Public Office REITs values have declined 30% from

2/21 to 4/8/2020.

o The “New Normal” Potential expanded working from home capabilities Unknown timeline to return to office space with a

need for stability of the future Office space density might change

Indeed Tower• Status:

o Board approved sublease of Indeed space o Procurement of agent to sublease is in process

Selection is scheduled to be completed in May

• Considerations:o Pandemic has changed real estate markets

We have seen a halt in new office leasing activity across our portfolio

o Timing and potential costs of subleasing the Indeed Tower have changed

3

TRS Long Term Facilities: IMD Facilities Update

TRS Long Term Facilities: Red River Activity

Appraisal• RFP issued• Responses being gathered• Will identify a successful bidder• Will wait to deploy until market stabilizes

Red River Disposition• Working through contract execution process with agent• Agent can prepare marketing materials during this time• Will not move forward until the real estate market conditions stabilize

4

TRS Long Term Facilities: Red River Activity

Additional Renovation Options• Identified existing contract with Studio 8 to review options• Negotiated a scope of work• Will obtain costs for the following options:

o Renovate existing buildings and identify additional space elsewhere for non-critical functions

o Renovate existing buildings to maximize use of current shell and provide no additional parking

o Renovate existing buildings and add additional space to obtain sufficient square footage and provide additional parking

5

TRS Long Term Facilities: Red River Activity

Potential New Headquarters Building• Developer Activities are on pause

o City Council approvalo Exclusive Negotiation Agreement

• Continuing with low-cost programming and workplace study validation activitieso Updating to reflect expanded work-from-home capabilitieso Updating based on future density demands

• Next stepso Re-evaluate options to meet generational long-term facility needs

Ensure selected developed finalist still meets agency needs Evaluate if other opportunities make sense

6

TRS Long Term Facilities: Next Steps

7

• Complete Indeed Tower Sublease Broker Solicitation

• Revisit IMD space needs including 816 Congress Lease Renewal Opportunity

• Complete Red River Appraisal Solicitation

• Engage with Architect on Additional Red River Renovation Scenarios

• Engage in Potential New HQ Programming Activities

• Prepare for Red River Disposition Activities