.

TRS Board of Trustees Meeting July 13, 2017

TEACHER RETIREMENT SYSTEM OF TEXAS MEETING BOARD OF TRUSTEES

AGENDA

July 13, 2017 – 8:00 a.m.

TRS East Building, 5th Floor, Boardroom

All or part of the July 13, 2017 meeting of the TRS Board of Trustees may be held by telephone or video conference call as authorized under Sections 551.130 and 551.127 of the Texas Government Code. The Board intends to have the presiding officer and a quorum physically present at the following location, which will be open to the public during the open portions of the meeting: 1000 Red River, Austin, Texas 78701 in the TRS East Building, 5th Floor, Boardroom. NOTE: The Board may take up any item posted on the agenda during its meeting on Thursday, July 13, 2017, beginning at the time and place specified on this agenda. The open portions of the July 13, 2017, Board meeting are being broadcast over the Internet. Access to the Internet broadcast of the Board meeting is provided at www.trs.texas.gov. 1. Call roll of Board members.

2. Consider the following administrative items – David Kelly:

A. Approval of the proposed June 1-2, 2017 Board meeting minutes.

B. Excusing Board member absences from the June 1-2, 2017 Board meeting.

C. Setting, rescheduling, or canceling future Board meetings.

3. Provide opportunity for public comment – David Kelly.

4. Recognize the service of Britt Harris – Brian Guthrie.

5. Discuss and consider personnel matters including the appointment, selection, compensation, and duties of the Chief Investment Officer in consultation with the Executive Director – Brian Guthrie.

6. Receive a presentation from Focus Consulting on the evaluation of the Chief Audit Executive, and Executive Director – Keith Robinson, Focus Consulting.

NOTE: The Board meeting likely will recess after the last item above to conduct committee meetings and resume upon adjournment of the committee meetings to take up the items listed below.

7. Review the report of the Audit Committee on its July 13, 2017 meeting, and consider adoption of the Evaluation of the Chief Audit Executive – Chris Moss.

8. Consider personnel matters, including the appointment, employment, evaluation, compensation, performance, duties, discipline, or dismissal of the Executive Director, Chief Audit Executive – David Kelly

A. Discuss and consider the evaluation, compensation, and duties of the Executive

Director.

B. Discuss and consider the compensation and duties of the Chief Audit Executive. C. Discuss and consider the salary limits for the Deputy Director Investment Officer and

Investment Fund Directors listed in the schedule of exempt positions in the General Appropriations Acts for fiscal years 2017 and 2018.

9. Discuss and consider adoption of fiscal year 2018 operating budgets, including – Don

Green:

A. Consider the adoption of the proposed fiscal year 2018 pension trust fund administrative operations budget, general provisions, and resolution authorizing transfer of pension trust funds to the TRS expense account to cover the expenses approved under the fiscal year 2018 budget.

B. Consider the adoption of the proposed fiscal year 2018 administrative operations budgets and general provisions for the TRS health benefits funds (retired and active plans), including the optional long-term care insurance program.

C. Consider the adoption of the proposed fiscal year 2018 administrative operations budget and general provisions for the 403(b) company certification and investment product registration program.

10. Consider the engagement of a provider of pension fund actuarial consulting and related

services including considering a finding that deliberating or conferring on the selection of the actuarial consultant in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person.– Rebecca Merrill.

11. Consider the engagement of a provider of fiduciary counsel and related services including considering a finding that deliberating or conferring on the selection of the fiduciary counsel in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person.– Carolina de Onis.

12. Receive an update on the TEAM Program – Brian Guthrie and Chet Henry.

13. Discuss the Executive Director's report on the following – Brian Guthrie:

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A. Administrative operational matters, including updates on the Executive Director’s goals, financial, audit, legal, staff services, investment, board administration, special projects, long-term space planning, and strategic planning.

B. Board operational matters, including a review of draft agendas for upcoming meetings.

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

14. Consult with the Board's attorney(s) in Executive Session on any item listed above on

this meeting agenda as authorized by Section 551.071 of the Texas Open Meetings Act (Chapter 551 of the Texas Government Code) – David Kelly.

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Minutes of the Board of Trustees

June 1-2, 2017

The Board of Trustees of the Teacher Retirement System of Texas met on June 1-2, 2017, 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:

David Kelly, Chair Karen Charleston Joe Colonnetta David Corpus John Elliott Greg Gibson Christopher Moss

Others present:

Brian Guthrie, TRS Ann Fickle, TCTA Ken Welch, TRS Philip Mullins, TSEU Don Green, TRS Sabina Rahman-Garcia, Humana Carolina de Onís, TRS Gilbert Gonzales, Express Scripts Katrina Daniel, TRS Joni Lozano, CVSE Jerry Albright, TRS Brock Gregg, TRTA Amy Barrett, TRS Mark Wermes, Express Scripts Rebecca Merrill, TRS Roger Holland, Express Scripts Howard Goldman, TRS Victor Ferreira, DXC Technology Katherine Farrell, TRS Ernie Sandeis, DXC Technology Heather Traeger, TRS Trevor Simmon, LBB Merita Zoga, TRS Sandra Barsenas, ESI Steve Huff, Reinhart Boerner Van Deuren Michael Caputo, Election-America Steve Voss, Aon Hewitt Eric Gakomer, AXA Mike Comstock, Aon Hewitt Daniel Pawwlisch, Aon Hewitt Dr. Keith Brown, Investment Advisor Philip Reyna, TDI Michael Johnson, Bridgepoint Consulting

Mr. Kelly called the meeting to order at 9:12 a.m.

1. Call roll of Board members.

Ms. Farrell called the roll. A quorum was present. Ms. Ramirez was absent.

2. Consider the following administrative items – David Kelly:

A. Approval of the proposed April 6-7, 2017 Board meeting minutes.

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On a motion by Mr. Moss, seconded by Dr. Gibson, the Board unanimously voted to approve the proposed minutes of the April 6-7, 2017, Board meeting.

B. Setting, rescheduling, or canceling future Board meetings.

This item was not taken up.

3. Provide opportunity for public comment – David Kelly.

No public comment was provided.

4. Receive an update on the TEAM Program – Brian Guthrie and Chet Henry.

Mr. Brian Guthrie provided an update regarding the progress of the TEAM program. He said they are precisely 123 days away from “Go Live” for Phase One. He said things are trending in the right direction. He reported the user acceptance testing is going very well and has been under way now for about six weeks. He said the beta testing is progressing very well. Mr. Guthrie reviewed the transparency report. Mr. Chet Henry added that the number one thing from the project standpoint they were focused on was the schedule. Mr. Guthrie then reviewed the budget for the program. In response to Mr. Kelly’s inquiry, Mr. Guthrie said the projected budget is still $122 million and the legislature had authorized $127 million for the project.

Mr. Guthrie stated that they continue to work very closely with DXC, making sure all are working on the same page, all on the same team, all driving together to the completion date. Mr. Kelly stated he met with DXC representatives to reinforce the concern about the success of this program.

Mr. Guthrie reported while working on Phase One and driving toward a September rollout date they are also still working on Phase Two. He said they are still in the early stages of requirements gathering. He reported they are continuing to work on the health insurance and CRM development efforts. He said for the health insurance line of business work, an outside company called Catapult was engaged to assist on how to lay out the screens used for inputting data and implementing screens for the end-user experience.

Mr. Guthrie concluded reporting on the feature freeze. Mr. Henry stated in July no further changes will be accepted, things will continue to be fixed if emergency, but the ground rules are at that point Version 1 is done.

5. Receive a presentation from the TEAM Program Independent Program Assessment (IPA) Vendor – Michael Johnson.

Mr. Michael Johnson provided an overview on how Bridgepoint Consulting scored the TEAM project. He noted the major difference in the program grading was a C for schedule. He said they feel good about where the program is. He said significant amount of progress was made from last year in terms of improvement in delivery and quality of the software and the processes. He said the organizational change management team continues to do a great job.

As to the schedule, Mr. Johnson said their concern is working on the two phases at the same time. He said some dates have been missed related to Phase Two. He also said quality was an issue leftover from lack of quality in the original requirements sessions. He noted with the overlap in

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the phases the quality, if not enough resources are applied to Phase Two the quality may suffer. He said their view is the current assessment of Phase One is on track and are waiting to see how the “Go Live” impacts the Phase Two schedule.

6. Review and discuss the Executive Director's report on the following matters:– Brian Guthrie: A. Administrative operational matters, including updates on the Executive Director’s

goals; financial, audit, legal, staff services, investment, board administration, special projects, long-term space planning, and strategic planning.

B. Board operational matters, including a review of draft agendas for upcoming meetings.

C. 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 general updates on meetings attended by himself and Trustees. Mr. Guthrie noted a few upcoming conferences and meetings. Mr. Guthrie announced the Data Conditioning Business Team had won the shining Example Award and the London Team had won the Executive Director’s Award of Excellence.

Mr. Guthrie reported a number of engagement questions were added to TRS’ membership satisfaction survey this year. He said engagement is how attached members are and their level of trust. Mr. Guthrie reviewed the TRS’ results from the membership survey. The results of the survey will be compared to other systems around the country and Australia by CEM. In response to Dr. Gibson’s inquiry, Mr. Guthrie stated this is the first time TRS looked at engagement as opposed to member satisfaction.

Mr. Guthrie provided a brief legislative update thanking the team for a successful session. He then reviewed upcoming agendas for the July and August meetings.

7. Review and consider the role, performance and engagement of Board Investment Consultant, Dr. Keith Brown – Brian Guthrie.

Mr. Guthrie noted Dr. Brown’s contract was up and no more renewals were available. Dr. Brown has served in the role as a TRS Board advisor since 1999. Mr. Guthrie recommended the continuance of his service.

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

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Board Resolution Authorizing the Executive Director to Negotiate and Execute Investment Consultant Agreement

June 1, 2017

Resolved, That the Board of Trustees (the “Board”) of the Teacher Retirement System of Texas (“TRS”) hereby selects Keith C. Brown, Ph.D., CFA to provide investment consulting services and to serve as an investment consultant to TRS and the Board because, in the Board's judgment, engaging Dr. Brown represents the best overall value for TRS based on his qualifications, experience, proposed contract terms and conditions, proposed fees, and other relevant factors;

Resolved, That the Board hereby authorizes the Executive Director to negotiate, with the assistance and advice of legal counsel, an agreement with Dr. Brown, for an initial term not to exceed five (5) years in duration, with one or more options for extensions not to exceed a total of two (2) years, with terms and conditions that provide the best overall value to TRS; and

Resolved, That, if negotiations are deemed by the Executive Director, in his discretion to be successful, then the Executive Director is hereby authorized to execute a contract with Dr. Brown 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 this resolution, 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 contract and deemed in the discretion of the Executive Director to be reasonably necessary or advisable with respect to such contract.

8. Receive Legislative update – Merita Zoga.

Ms. Merita Zoga provided an overview of the 85th legislative session. She reviewed legislation that passed affecting TRS. Mr. Moss expressed appreciation for the assistance Ms. Zoga provided during his visit with the Nominations Committee.

9. Consider amendments to the Executive Performance Incentive Pay Plan for the plan year beginning July 1, 2017, including adopting performance categories, category weights, performance goals, and key performance indicators – Janet Bray.

Ms. Janet Bray provided an overview for the proposed plan changes for the Executive Performance Incentive Plan, scheduled to start July 1 and finish in 2018. She reviewed the proposed measures within the following categories: the leadership effectiveness, operational effectiveness, membership satisfaction and employee engagement.

Ms. Bray proposed adding another performance measure for this year, an investment management piece. She said the methodology for calculating this piece of the plan would be the same as that used for the IMD performance incentive plan. It will start October 1 and end in September, be calculated by State Street, using the same information as used for IMD. She said the maximum award opportunity for this portion would be 25 percent. In response to Mr. Kelly’s inquiry, Ms.

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Bray confirmed the recommended plan is a refinement of last year’s measurements with the addition of the investment management component.

On a motion by Mr. Moss, and seconded by Dr. Gibson, the Board unanimously approved the following resolution.

BOARD RESOLUTION READOPTING EXECUTIVE PERFORMANCE

INCENTIVE PAY PLAN June 1, 2017

Whereas, Section 825.208 of the Texas Government Code provides that, notwithstanding any other law, the Board of Trustees (the “Board”) shall approve the rate of compensation of all persons it employs;

Whereas, Subsection 1.7(i) of the Board’s bylaws provides that the Board shall establish a system for the equitable and effective compensation of employees; Whereas, To remain competitive in its efforts to attract and retain high caliber executives, the Board desires to offer a competitive compensation package that includes not only a competitive base salary but also an opportunity to earn additional rewards through an Executive Performance Incentive Pay Plan (the “Plan”); Whereas, Consistent with that desire, the Board adopted on November 19, 2015 the Plan, which rewards select executive management for performance on an initial seven month period ending June 30, 2016; Whereas, The Board continued the Plan and readopted performance categories, category weights, performance goals, and key performance indicators beginning July 1, 2016 for an entire year ending June 30, 2017; now, therefore be it

Resolved, That effective June 1, 2017, the Board hereby readopts the Executive Performance Incentive Pay Plan, as presented by Staff including performance categories, category weights, performance goals, and key performance indicators. The Plan Performance Categories for the 2017 – 2018 Plan are:

• Membership satisfaction; • Leadership Effectiveness • Operational Effectiveness; • Employee Engagement; and • Investment Management Oversight.

Resolved, That nothing in the adoption of this resolution alters the at-will nature of employment that TRS has with any of its employees, creates a contract between TRS and any TRS employee, or confers on any TRS employee the right to continued employment with TRS, including the Executive Director or any other employee holding a position in the Schedule of Exempt Positions.

10. Discuss the First Quarter 2017 Performance Review – Steve Voss and Mike Comstock.

Mr. Mike Comstock reported a very strong first quarter in aggregate. He said that equities were the primary driver of the very strong absolute returns.

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Mr. Comstock noted the investment earnings for the first quarter alone were over $6 billion which equates to a 5 percent return for the trust fund. Mr. Voss noted for the asset allocation detail the Treasury portfolio was underweighted relative to policy. He said the underweight is deliberate and has been favorable over the past year.

Mr. McCormick reported on the risk difference between the fund and its benchmark as well as compared to peers. Mr. McCormick said the returns have been higher than the benchmark at a similar level of volatility and relative to peers it seems that the returns are greater for the level of risk taken when compared to peers.

11. Receive the results of the TRS Board election – Howard Goldman and Michael Caputo Election-America

Mr. Howard Goldman provided a report on this year’s Board election results. He said there were two elections held this year, one for the retiree position and the other was for the at-large position. He reported for the retiree position there were two candidates on the ballot and for the at-large election there were four candidates on the ballot. Mr. Goldman reviewed the election timeline over the past year. Mr. Michael Caputo reviewed the election process. He stated all together there was just short of 1.4 million voters total with a total of 50,000 plus ballots received. Mr. Caputo reported the following were the top three candidates for the at-large position: Nanette Sissney, Greg Poole and Karen Charleston. For the retiree position, Mr. Caputo reported Fran Plemmons and James Nance as the top candidates. Mr. Goldman said the certified results of the top candidates will be sent to the Governor’s Office.

12. Evaluate the performance of Gabriel, Roeder, Smith & Company as the provider of pension fund actuary consulting and related services to TRS – Rebecca Merrill.

Ms. Rebecca Merrill provided the evaluation of Gabriel, Roeder, Smith and Company (GRS) as the pension fund actuaries and consultants. She stated they have had a productive working relationship with GRS. She said some of the services GRS provided were the valuations and mid-year valuation and conducted a number of impact statements based on legislation.

At 1:00 p.m., Mr. Kelly announced the Board would recess for the rest of the day in order to take up the noticed committee meetings.

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The Board of Trustees of the Teacher Retirement System of Texas reconvened on June 2, 2017, in the boardroom located on the fifth floor of the TRS East Building offices at 1000 Red River Street, Austin, Texas. The following board members were present:

David Kelly, Chair Karen Charleston Joe Colonnetta David Corpus John Elliott Greg Gibson Christopher Moss

Others present:

Brian Guthrie, TRS Ann Fickel, TCTA Ken Welch, TRS Amy Cohen, GRS Don Green, TRS Bill Hickman, GRS Carolina de Onís, TRS Kevin DeStefino, GRS Katrina Daniel, TRS Ted Melina Raab, TX AFT Amy Barrett, TRS Trevor M. Simmon, LBB Howard Goldman, TRS Katherine Farrell, TRS Heather Traeger, TRS Yimei Zhao, TRS Mr. Kelly called the meeting to order at 9:41 a.m.

1. Call roll of Board members.

Ms. Farrell called the roll. A quorum was present. Ms. Ramirez was absent.

13. Provide an opportunity for public comment – David Kelly.

Mr. Tim Lee from TRTA began by thanking TRS staff for the work they did during legislative session. He requested Humana be encouraged to add additional working hours over the weekend and into the evening. He asked about what communication was planned to say what the change was from session such as what prescription drug coverage was added. He asked for TRS to provide some educational materials for members who are on TRS Medicare Advantage to allow them to educate their doctor’s office.

14. Review Deputy Director’s report, including matters related to administrative, financial and staff services operations – Ken Welch.

Mr. Ken Welch provided a brief update on operational items. He reported for the telephone counseling center for the month of May there was a 22 second hold time, the target is 80 percent

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of calls within three minutes. He said in large part this is because of the additional staff that was granted at the beginning of the fiscal year. Mr. Welch reported over 6500 requests for assistance has come from email, which was rolled out in November. Mr. Welch said for the calls routed to the outside vendor, the hold time was 3.4 seconds. He said there are 42 vacancies, with four retirements that have already been submitted. Mr. Welch said that the intern program that was exempted from the Governor’s hiring freeze will have 38 student interns have been hired for the summer. Mr. Welch shared the sendoff they had for Sgt. Roxanne Quintero who is on her third deployment of active duty.

15. Review the report of the Investment Management Committee on its June 1, 2017 meeting – Joe Colonnetta.

Mr. Joe Colonnetta provided the following report:

The Investment Management Committee met yesterday on June 1st. The first item of business was the approval of the minutes from the April 6th Investment Management Committee meeting, which were approved. The first presentation was an overview of external private markets led by Eric Lang. Next there was a presentation given by Neil Randall with a review of the private markets, following Grant Walker who provided a review of the real estate assets portfolio. The final private markets presentation was given by Carolyn Hansard, reviewing energy, natural resources, and infrastructure. Also, Mike Pia and Courtney Villalta then provided an update to the private SPN. The final presentation was given by Eric Lang with a report on the private markets Super 5 priorities.

16. Review the report of the Risk Management Committee on its June 1, 2017 meeting – Karen Charleston.

Ms. Karen Charleston provided the following report:

The Risk Management Committee met Thursday, June 1, 2017. The first item of business was approval of the minutes of the April 6, 2017 Risk Management Committee meeting. Risk management and strategic planning staff provided a report on the enterprise risk management function, which included an update on the stoplight report and related enterprise risk management activities.

17. Review the report of the Policy Committee on its June 1, 2017 meeting – David Corpus.

Mr. David Corpus provided the following report:

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The Policy Committee met on June 1, 2017. The committee approved the proposed minutes of the April 7, 2017 meeting. The meeting authorized public comment publication in the Texas Register of proposed rule amendments to the 403(b) rules of Chapter 53, Title 34 of the Texas Administrative Code. In August staff will update the Board of the public comments received regarding the proposed rule amendments. Staff will then bring the final proposed rule amendments for adopt at the September Board meeting.

18. Review the report of the Budget Committee on its June 1, 2017 meeting – Greg Gibson

Dr. Greg Gibson provided the following report:

The Budget Committee met Thursday, June 1, 2017. The first item of business was approval of the minutes of the April 6, 2017 Budget Committee meeting. Mr. Green presented a high-level overview of the proposed administrative operating budget of $177.3 million for fiscal year 2018 and the associated general provisions.

Fiscal year 2018 budget requests represents a 4.1 percent increase over fiscal year 17 budget, largely due to the addition of 21 legislatively approved full-time equivalent positions and related benefits as well as the associated operating costs. A portion of the budget for the pension trust fund totals $139.9 million, including $18.2 million for TEAM.

Also noted was the capital budget for non-TEAM projects totals $7.5 million. No action is required by the Board until the July meeting where the fiscal year 18 budget will be presented for adoption.

19. Review the report of the Audit Committee on its June 2, 2017 meeting – Chris Moss

Mr. Chris Moss provided the following report:

The audit Committee met at 8 a.m. on Friday, June 2, 2017, in the Board room. TRS compliance officer presented routine compliance reports and Internal Audit staff presented the results of the quarterly investment compliance testing. Staff from Myers & Stauffer presented their results of the non-TRS workers onboarding and offboarding processes audit.

TRS Internal Audit and Protiviti staff presented the results of the Health Insurance Portability and Accountability Act co-sourced audit. Internal Audit staff presented the status of outstanding audit recommendations, including the results of the follow-up audit of TRS-Care enrollment. Internal Audit staff presented the internal audit strategic plan for 2017 to 2021, other administrative reports, and staff accomplishments.

20. Discuss and consider selecting a health benefit consultant and actuary including considering a finding that deliberating or conferring on the selection of the consultant or

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actuary in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person – Katrina Daniel.

Ms. Katrina Daniel provided an overview of the services provided by the health care consultant and actuarial firm to assist in the management and oversight of the two health plans, TRS-Care and ActiveCare. She said in January 2017, a request for proposal seeking health care consulting and actuarial services was issued. She listed the qualifications staff reviewed in selecting a firm to recommend. She said three responses were received by the March 10, 2017 deadline. Ms. Daniel stated after scoring each proposal on the evaluation criteria, the clear frontrunner was Gabriel, Roeder and Smith. On a motion by Mr. Colonnetta, seconded by Ms. Charleston, the Board unanimously approved the following resolution:

RESOLUTION SELECTING THE HEALTH CARE CONSULTANT AND ACTUARY FOR

THE TRS-ACTIVECARE AND TRS-CARE PROGRAMS

June 1 - 2, 2017 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, 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 (“RFP”) to interested entities for health care consulting and actuarial services for the TRS-ActiveCare and TRS-Care programs; Whereas, TRS received and evaluated responsive proposals to provide health care consulting and actuarial services for the TRS-ActiveCare and TRS-Care programs; Whereas, TRS staff has provided relevant information to the TRS Board of Trustees (the “Board”), discussed the proposals with the Board, and presented an evaluation to the Board concerning the selection of a health care consultant and actuary for the TRSActiveCare and TRS-Care programs; Whereas, The Board has considered the evaluation made by TRS staff; now, therefore, be it Resolved, That the Board hereby selects Gabriel, Roeder and Smith (“GRS”) to be the health care consultant and actuary for the TRS-ActiveCare and TRS-Care programs, subject to successful negotiation and execution of a final agreement for the implementation and provision of health care consulting and actuarial services for the TRS-ActiveCare and TRS-Care programs, for a two-year term to commence on September 1, 2017, with four optional one-year renewals;

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Resolved, That the Board authorizes the Executive Director to expend funds and to take all actions deemed by him to be necessary or advisable to implement the Board’s selection of GRS, to negotiate and finalize a contract with GRS 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 the TRS-ActiveCare and TRS-Care programs, and from time to time to amend, modify, or extend the contract as deemed by the Executive Director to be in the best interest of the TRS-ActiveCare and TRS-Care programs, it being understood that the Board’s selection of GRS 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.

21. Discuss and consider selecting a pharmacy benefit administrator (PBM) for TRS-Care Standard, TRS-Care Part D, and TRS-ActiveCare, including considering a finding that deliberating or conferring on the selection of the PBM in open meeting would have a detrimental effect on the position of the retirement system in negotiations with a third person - Katrina Daniel, Yimei Zhao; and William Hickman, Amy Cohen and Kevin DeStefino, Gabriel, Roeder, Smith & Company.

Ms. Daniel described the different approach staff took regarding the PBM procurement. She noted the pharmacy benefit management environment is largely a volume and numbers game. She said staff proposed procuring the ActiveCare contract, the standard plan contract on the Care side and the Part D prescription drug contract all at once instead of individually in order to benefit from the combined volume.

Mr. Kevin DeStefino discussed what was driving the costs for members and how PBMs could help control costs today and help develop initiatives to help in the future. He provided the example of Express Scripts restrictive formulary philosophy regarding the breakthrough drug for Hepatitis C to control specialty costs. He provided other examples where PBMs are developing cutting edge approaches to manage costs.

Ms. Daniels noted there are three contracts. The ActiveCare contract would be effective September 1, 2017. The Care standard contract would be effective September 1, 2017 and the Part D program contract would be effective January 1, 2018. Ms. Daniels discussed the high level requirements the companies needed in order to qualify to bid on the contracts.

On a motion by Dr. Gibson, seconded by Ms. Charleston, the Board unanimously voted to find that deliberating or conferring in an open meeting about the selection of pharmacy benefit administrator for TRS-ActiveCare and TRS-Care standard and Medicare Part D plans would have a detrimental effect on TRS’ position in negotiating with a third party.

At 10:50a.m., after having the required finding, the Board went into Executive Session on Agenda Item 21 under Section 825.115(e) of the Texas Government Code.

At 11:36 a.m., the Board meeting reconvened in open meeting.

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Ms. Daniel stated there were three competitors that met the minimum requirements. She said for the pharmacy benefit manager for TRS-Care standard plan, staff recommended the selection of CVS Caremark as the PBM service provider.

On a motion by Mr. Corpus, seconded by Mr. Moss, the Board unanimously voted to adopt the following resolution.

RESOLUTION SELECTING THE PHARMACY BENEFIT MANAGER FOR THE STANDARD PLANS

IN THE TRS-CARE PROGRAM

June 1 - 2, 2017

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 interested entities for pharmacy benefit management services for the standard plans (i.e., the non-Medicare plans) in the TRS-Care program;

Whereas, TRS received and evaluated responsive proposals to provide pharmacy benefit management services for the standard plans in the TRS-Care program;

Whereas, TRS staff and the TRS healthcare consultant, Gabriel, Roeder, Smith & Company (“GRS”), have provided relevant information to the TRS Board of Trustees (the “Board”), discussed the proposals with the Board, and presented an evaluation to the Board concerning the selection of a pharmacy benefit manager for the standard plans in the TRS-Care program;

Whereas, The Board has considered the evaluation made by TRS staff and GRS; now, therefore, be it

Resolved, That the Board hereby selects CaremarkPCS Health, L.L.C. to be the pharmacy benefit manager for the standard plans (i.e., the non-Medicare plans) in the TRS-Care program, subject to successful negotiation and execution of a final agreement for the implementation and provision of pharmacy benefit management services for the standard plans in the TRS-Care program, for a two-year four-month term to commence on September 1, 2017, with four optional one-year renewals;

Resolved, That the Board authorizes the Executive Director to expend funds and to take all actions deemed by him to be necessary or advisable to implement the Board’s selection of CaremarkPCS Health, L.L.C. and to negotiate and finalize a contract with CaremarkPCS Health, L.L.C. 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 the TRS-Care program, and from time to time to amend, modify, or extend the contract as deemed by the Executive Director to be in the best interest of the TRS-Care program, it being understood that the Board’s selection of CaremarkPCS Health, L.L.C. 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.

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Ms. Daniel recommended for the pharmacy benefit manager for the TRS-Care Medicare Part D plan to select CVS Caremark as the PBM service provider.

On a motion by Mr. Corpus, seconded by Mr. Moss, the Board voted unanimously the following resolution.

RESOLUTION SELECTING THE PHARMACY BENEFIT MANAGER FOR THE MEDICARE PART D PLAN

IN THE TRS-CARE PROGRAM

June 1 - 2, 2017

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 interested entities for pharmacy benefit management services for the Medicare Part D plan in the TRS-Care program;

Whereas, TRS received and evaluated responsive proposals to provide pharmacy benefit management services for the Medicare Part D plan in the TRS-Care program;

Whereas, TRS staff and the TRS healthcare consultant, Gabriel, Roeder, Smith & Company (“GRS”), have provided relevant information to the TRS Board of Trustees (the “Board”), discussed the proposals with the Board, and presented an evaluation to the Board concerning the selection of a pharmacy benefit manager for the Medicare Part D plan in the TRS-Care program;

Whereas, The Board has considered the evaluation made by TRS staff and GRS; now, therefore, be it

Resolved, That the Board hereby selects CaremarkPCS Health, L.L.C., by and through its affiliate SilverScript Insurance Company, to be the pharmacy benefit manager for the Medicare Part D plan in the TRS-Care program, subject to successful negotiation and execution of a final agreement for the implementation and provision of pharmacy benefit management services for the Medicare Part D plan in the TRS-Care program, for a two-year term to commence on January 1, 2018, with four optional one-year renewals;

Resolved, That the Board authorizes the Executive Director to expend funds and to take all actions deemed by him to be necessary or advisable to implement the Board’s selection of CaremarkPCS Health, L.L.C., by and through its affiliate SilverScript Insurance Company, and to negotiate and finalize a contract with CaremarkPCS Health, L.L.C., by and through its affiliate SilverScript 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 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 to be in the best interest of the TRS-Care program, it being understood that the Board’s selection of CaremarkPCS Health, L.L.C., by and through its affiliate SilverScript 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.

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Ms. Daniel for the TRS-ActiveCare program recommended the selection of CVS Caremark as the PBM service provider.

On a motion by Dr. Gibson, seconded by Mr. Elliott, the Board unanimously voted to adopt the following resolution.

RESOLUTION SELECTING THE PHARMACY BENEFIT MANAGER FOR THE TRS-ACTIVECARE PROGRAM

June 1 - 2, 2017

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 (“RFP”) to interested entities for pharmacy benefit management services for the TRS-ActiveCare program;

Whereas, TRS received and evaluated responsive proposals to provide pharmacy benefit management services for the TRS-ActiveCare program;

Whereas, TRS staff and the TRS healthcare consultant, Gabriel, Roeder, Smith & Company (“GRS”), have provided relevant information to the TRS Board of Trustees (the “Board”), discussed the proposals with the Board, and presented an evaluation to the Board concerning the selection of a pharmacy benefit manager for the TRS-ActiveCare program;

Whereas, The Board has considered the evaluation made by TRS staff and GRS; now, therefore, be it

Resolved, That the Board hereby selects CaremarkPCS Health, L.L.C. to be the pharmacy benefit manager for the TRS-ActiveCare program, subject to successful negotiation and execution of a final agreement for the implementation and provision of pharmacy benefit management services for the TRS-ActiveCare program, for a two-year term to commence on September 1, 2017, with four optional one-year renewals;

Resolved, That the Board authorizes the Executive Director to expend funds and to take all actions deemed by him to be necessary or advisable to implement the Board’s selection of CaremarkPCS Health, L.L.C. and to negotiate and finalize a contract with CaremarkPCS Health, L.L.C. 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 the TRS-ActiveCare program, and from time to time to amend, modify, or extend the contract as deemed by the Executive Director to be in the best interest of the TRS-ActiveCare program, it being understood that the Board’s selection of CaremarkPCS Health, L.L.C. 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.

22. Review and consider adoption of the following related to the TRS health benefits programs– Katrina Daniel; William Hickman and Amy Cohen, Gabriel, Roeder, Smith & Company.

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A. Premiums and plan design for TRS-Care, the retiree health benefits program, including the standard plan, the fully-insured Medicare Advantage Plans, and the Medicare Part D Plans.

Ms. Daniel stated there are three items all related to rates and benefits of the health plans TRS administers. She said the TRS-Care changes are the product of legislative and funding decisions resulting from the 85th legislative session. She noted two bills really affected the program, House Bill 3976 was the substantive bill that made a lot of the structural changes and then Senate Bill 1 which provided critical funding that keeps TRS-Care moving. Ms. Daniel reviewed the legislative changes to the program. Based upon the legislative changes, Ms. Daniel recommended shifting the TRS-Care standard plan from a September 1 basis plan year to a calendar year basis. In making this shift she recommend having a longer plan year. She also recommended moving from TRS-Care 1, 2 and 3 to a single TRS standard plan that is effectively a high deductible health plan.

Ms. Daniel for the Medicare Advantage program recommended placing all of those who have Medicare Part A and Part B into Medicare Advantage. She said the structure of Medicare Advantage and Part D program is very similar to the current Medicare Advantage 2 plan.

Ms. Daniel reviewed the proposed premiums for the plans staff proposed for adoption.

Ms. Daniel discussed the difference of the Medicare Advantage network from the Medicare Advantage products out in the commercial market. Ms. Daniel stated there will be a member education campaign because of the upcoming benefit changes. She said they have brought on a vendor who has significant experience working with school districts around health plan communication. She said they are working on messaging and outreach strategies that would better prepare members to understand the coming changes, understand their benefits and how to use them for both Care and ActiveCare. She said they are working on a very robust in-person, online, and paper communication campaign.

On a motion by Mr. Colonnetta, seconded by Mr. Elliott, the Board unanimously voted to adopt the following resolutions.

RESOLUTION ADJUSTING THE PLANS OFFERED UNDER TRS-CARE AND APPROVING PREMIUM

RATES AND BENEFIT PLAN DESIGNS

June 1 - 2, 2017

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

Whereas, TRS-Care currently offers coverage in three standard plans (i.e., TRS-Care 1, TRS-Care 2, and TRS-Care 3), offers coverage in two fully insured Medicare Advantage plans (i.e., the TRS-Care 2 Medicare Advantage plan and the TRS-Care 3 Medicare Advantage plan), and offers coverage in two Medicare Prescription Drug plans (i.e., the TRS-Care 2 Medicare Prescription Drug plan and the TRS-Care 3 Medicare Prescription Drug plan);

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Whereas, due to the passage of recent legislation, TRS staff and the TRS health benefits consultant, Gabriel, Roeder, Smith & Company (“GRS”) have recommended that the current Fiscal Year 2017 plan year of the existing TRS-Care standard plans be extended through December 31, 2017 and the TRS-Care standard plans themselves be continued through December 31, 2017, under their current premium rate structure and current benefit plan designs; Whereas, due to the passage of recent legislation, TRS staff and GRS have recommended that the existing TRS-Care standard plans be discontinued at the end of Calendar Year 2017; Whereas, due to the passage of recent legislation, TRS staff and GRS have recommended that the existing TRS-Care Medicare Advantage plans and the existing TRS-Care Medicare Prescription Drug plans be discontinued at the end of Calendar Year 2017; Whereas, due to the passage of recent legislation, TRS staff and GRS have recommended that beginning January 1, 2018, TRS establish and make available a high deductible health plan for TRS-Care enrollees who are not eligible to enroll in Medicare, with the major benefit plan designs set out in Exhibit A, attached to this resolution and incorporated herein by reference; Whereas, due to the passage of recent legislation, TRS staff and GRS have recommended that beginning January 1, 2018, TRS establish and make available a new Medicare Advantage plan and a new Medicare Prescription Drug plan (together, the “New Medicare Plans”) for TRS-Care enrollees who are eligible to enroll in Medicare, with the major benefit plan designs set out in Exhibit A; Whereas, due to the passage of recent legislation, TRS staff and GRS have recommended that beginning January 1, 2018, TRS establish and make available a non-Medicare medical plan (the “Alternative Medical Plan”) and a non-Medicare prescription drug plan (the “Alternative Prescription Drug Plan”) (together, the “Alternative Plans”) that will only be available to TRS-Care enrollees who are eligible to enroll in Medicare, but would suffer a hardship, as determined by TRS, by being enrolled in the New Medicare Plans, with the major benefit plan designs set out in Exhibit A; Whereas, TRS staff and GRS have recommended that for the Calendar Year 2018 plan year, beginning on January 1, 2018, premium rates in the high deductible health plan, in the New Medicare Plans, and in the Alternative Plans, be set at the amounts found in Exhibit B; Whereas, TRS staff and GRS have recommended that the transition in enrollment from TRS-Care plans in existence as of December 31, 2017, to TRS-Care plans in existence as of January 1, 2018, shall take place on January 1, 2018, in accordance with enrollment criteria and enrollment procedures established by law or by TRS; and

Whereas, the TRS Board of Trustees (“Board”) desires to adopt the recommendations of TRS staff and GRS; now, therefore, be it

Resolved, That the Board hereby adopts and authorizes the extension of the current Fiscal Year 2017 plan year of the existing TRS-Care standard plans through December 31, 2017 and the continuation of TRS-Care standard plans themselves through December 31, 2017, under their current premium rate structure and current benefit plan designs;

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Resolved, That the Board hereby adopts and authorizes staff to discontinue the existing TRS-Care standard plans at the end of Calendar Year 2017; Resolved, That the Board hereby adopts and authorizes staff to discontinue the existing TRS-Care Medicare Advantage plans and the existing TRS-Care Medicare Prescription Drug plans at the end of Calendar Year 2017; Resolved, That the Board hereby adopts and authorizes staff to establish and make available a high deductible health plan for TRS-Care enrollees who are not eligible to enroll in Medicare, beginning January 1, 2018 and until further action of the Board, with the major benefit plan designs set out in Exhibit A, attached to this resolution and incorporated herein by reference; Resolved, That the Board hereby adopts and authorizes staff to establish and make available a new Medicare Advantage plan and a new Medicare Prescription Drug plan (together, the “New Medicare Plans”) for TRS-Care enrollees who are eligible to enroll in Medicare, beginning January 1, 2018 and until further action of the Board, with the major benefit plan designs set out in Exhibit A; Resolved, That the Board hereby adopts and authorizes staff to establish and make available a non-Medicare medical plan (the “Alternative Medical Plan”) and a non-Medicare prescription drug plan (the “Alternative Prescription Drug Plan”) (together, the “Alternative Plans”) that will only be available to TRS-Care enrollees who are eligible to enroll in Medicare, but would suffer a hardship, as determined by TRS, by being enrolled in the New Medicare Plans, beginning January 1, 2018 and until further action of the Board, with the major benefit plan designs set out in Exhibit A; Resolved, That beginning on January 1, 2018, and until further action of the Board, the Board hereby adopts and authorizes the premium rates in the high deductible health plan, in the New Medicare Plans, and in the Alternative Plans, set at the amounts found in Exhibit B;

Resolved, That the Board authorizes and directs the transition in enrollment from TRS-Care plans in existence as of December 31, 2017, to TRS-Care plans in existence as of January 1, 2018, shall take place on January 1, 2018, in accordance with enrollment criteria and enrollment procedures established by law or by TRS;

Resolved, That the Board finds that, considering the actions taken in the resolutions above, TRS-Care is projected to remain financially solvent during the currently funded biennium; and

Resolved, That until further action by the Board, the Board authorizes the Executive Director or his designees to take any actions that he or his designee in his or their discretion deem to be necessary or advisable to implement this resolution, and to otherwise implement, administer, and continue the TRS-Care program until further action by the Board.

Exhibit A TO THE RESOLUTION ADJUSTING THE

PLANS OFFERED UNDER TRS-CARE AND APPROVING PREMIUM RATES AND BENEFIT PLAN DESIGNS

Major Benefit Plan Designs

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High Deductible Health Plan

The Board hereby approves and adopts the following major benefit plan design elements for the High Deductible Health Plan, subject to all other plan requirements and restrictions, beginning in the Calendar Year 2018 plan year commencing on January 1, 2018 and for all plan years thereafter, until further action by the Board:

Benefits For the Calendar Year 2018 Plan Year

In-Network Individual Deductible Family Deductible Individual Out-of-Pocket Maximum Family Out-of-Pocket Maximum Coinsurance

Out-of-Network

Individual Deductible Family Deductible Individual Out-of-Pocket Maximum Family Out-of-Pocket Maximum Coinsurance

$3,000 $6,000

$6,650 $13,300

80% / 20%

$6,000 $12,000

$13,300 $26,600

60% / 40%

Retail Pharmacy Retail Pharmacy Maintenance Drugs Mail Order / Retail 90 Pharmacy

80% / 20%

80% / 20% ($0 copay for certain generic

preventive maintenance medications)

80% / 20%

($0 copay for certain generic preventive maintenance

medications)

New Medicare Advantage Plan

The Board hereby approves and adopts the following major benefit plan design elements for the New Medicare Advantage Plan, subject to all other plan requirements and restrictions, beginning in the Calendar Year 2018 plan year commencing on January 1, 2018 and for all plan years thereafter, until further action by the Board:

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Benefits For the Calendar Year 2018 Plan Year

Individual Deductible Individual Out-of-pocket maximum Coinsurance In Patient Hospital Copay per Stay Out Patient Hospital Copay per Visit ER Copay Urgent Care Copay Primary Care Physician Office Visit Copay Specialist Office Visit Copay Preventive Services Copay

$500 $3,500

95% / 5% $500 $250 $65 $35 $5 $10 $0

New Medicare Prescription Drug Plan

The Board hereby approves and adopts the following major benefit plan design elements for the New Medicare Prescription Drug Plan, subject to all other plan requirements and restrictions, beginning in the Calendar Year 2018 plan year commencing on January 1, 2018 and for all plan years thereafter, until further action by the Board:

Benefits For the Calendar Year 2018 Plan Year

Retail Pharmacy Copay Generic Preferred Brand Non-Preferred Brand Specialty

Mail Order Pharmacy Copay

Generic Preferred Brand Non-Preferred Brand Specialty

$5 $25 $50 $50

$15 $70 $125 $125

Alternative Medical Plan

The Board hereby approves and adopts the following major benefit plan design elements for the medical benefits under the Alternative Medical Plan, subject to all other plan requirements and restrictions, beginning in the Calendar Year 2018 plan year commencing on January 1, 2018 and for all plan years thereafter, until further action by the Board:

Medicare Status Benefits For the Calendar Year 2018 Plan Year

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Enrolled in Medicare Parts A and B

Individual Deductible Family Deductible Individual Out-of-pocket maximum Family Out-of-pocket maximum In-Network Coinsurance Out-of-Network Coinsurance Preventive Services Copay

$1,300 $2,600 $7,150 $14,300

80%/20% after Medicare 60%/40% after Medicare

$0 All other participants

Individual Deductible Family Deductible Individual Out-of-pocket maximum Family Out-of-pocket maximum In-Network Coinsurance Out-of-Network Coinsurance Inpatient Hospital Stay Outpatient Hospital Visit Urgent Care Facility Visit ER Visit Physician Office Visit Copay Preventive Services Copay

$1,300 $2,600 $7,150 $14,300

80%/20% 60%/40% $500 copay $250 copay $35 copay $65 copay

$35 $0

1 Medicare Part B enrollment is assumed for claims adjudication purposes.

Alternative Prescription Drug Plan

The Board hereby approves and adopts the following major benefit plan design elements for the drug benefits under the Alternative Prescription Drug Plan, subject to all other plan requirements and restrictions, beginning in the Calendar Year 2018 plan year commencing on January 1, 2018 and for all plan years thereafter, until further action by the Board:

Benefits For the Calendar Year 2018 Plan Year

Retail Pharmacy Copay* Generic Preferred Brand Non-Preferred Brand

Mail Order Pharmacy Copay

Generic Preferred Brand Non-Preferred Brand

*For maintenance medications filled at a retail pharmacy, there will be a $10 convenience fee added to the copay on the second and subsequent refills.

$13 $40 $65

$25 $100 $165

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Exhibit B TO THE RESOLUTION ADJUSTING THE

PLANS OFFERED UNDER TRS-CARE AND APPROVING PREMIUM RATES AND BENEFIT PLAN DESIGNS

Monthly Premium Rates High Deductible Health Plan

The Board hereby approves and adopts the following monthly premium rates* for the High Deductible Health Plan beginning in the Calendar Year 2018 plan year commencing on January 1, 2018 and for all plan years thereafter, until further action by the Board:

Non-Medicare Retiree Premiums

*Non-Medicare Disability Retiree

Premiums Employee / Surviving Spouse Only

$200

$0

Employee and Spouse $739 $539 Employee and Child(ren) $433 $233 Employee and Family $1,074 $874 Surviving Child(ren) $233 $33

* No monthly premium is due for a retiree himself for herself who has taken a disability retirement under the TRS pension on or before January 1, 2017, is receiving disability retirement benefits from the TRS pension, and is not eligible to enroll in Medicare.

New Medicare Plans and Alternative Plans

The Board hereby approves and adopts the following monthly premium rates for the New Medicare Plans and the Alternative Plans beginning in the Calendar Year 2018 plan year commencing on January 1, 2018 and for all plan years thereafter, until further action by the Board:

Employee / Surviving Spouse Only

$146

Employee and Spouse $590 Employee and Child(ren) $504 Employee and Family $1,106 Surviving Child(ren) $233

B. Premiums and plan design for TRS-ActiveCare, the active member health benefits program, including the preferred provider organization (PPO) plan.

Ms. Daniel then discussed TRS-ActiveCare. She stated ActiveCare is self-funded so it is primarily funded by premium contributions. She said a lot of the same issues seen in Care are present in Active-Care. She said Active-Care because it is self -funded is ran differently, it targets to have at least a month’s worth of claims in the bank at the end of the year. She said currently, if no changes are made at the end of 2018 there would be a nearly billion dollar deficit. Ms. Daniel reported though that with the changes adopted today with the PBM recommendation

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that changed from needing to make a rate increase of 13.5 percent down to 10 percent rate increase. Ms. Daniel recommended the continuance of ActiveCare 2 but with some modifications. However, she said, over time the continuance of this plan design, ActiveCare 2, would need to be revisited. For ActiveCare 2 and for ActiveCare 1HD, she recommended putting in place a separate out-of-network deductible and out-of-network maximum out-of-pocket. She said if there is an emergency and end up seeing an out-of-network provider that will be treated as an in-network visit, at the in-network rate and it will count toward your in-network deductible and maximum out-of-pocket. Ms. Daniel reported with the recommended benefit changes the rate increase went down to 8 percent on average. On a motion by Dr. Gibson, seconded by Mr. Colonnetta, the Board unanimously voted to adopt the following resolution.

RESOLUTION APPROVING BENEFITS AND PREMIUM RATES FOR TRS-ACTIVECARE 1-HD,

TRS-ACTIVECARE SELECT, AND TRS-ACTIVECARE 2

June 1 - 2, 2017

Whereas, Chapter 1579, Insurance Code, authorizes the Teacher Retirement System of Texas (TRS), as trustee, to implement and administer the uniform group health benefits program (TRS-ActiveCare) under the Texas School Employees Uniform Group Health Coverage Act, as described in the statute;

Whereas, TRS staff and the TRS health benefits consultant, Gabriel, Roeder, Smith & Company (“GRS”), have recommended that benefit changes, as indicated below, be made to TRS-ActiveCare 1-HD, TRS-ActiveCare Select, and TRS-ActiveCare 2 for the Fiscal Year 2018 plan year commencing on September 1, 2017;

Whereas, TRS staff and GRS have recommended that for the Fiscal Year 2018 plan year commencing on September 1, 2017, premium rates at all levels of coverage in TRS-ActiveCare 1-HD, TRS-ActiveCare Select, and TRS-ActiveCare 2 be set at the gross premium amounts set out in Exhibit A, attached to this resolution and incorporated herein by reference; and

Whereas, The TRS Board of Trustees (“Board”) desires to adopt the recommendations of TRS staff and GRS; now, therefore, be it

Resolved, That the Board hereby adopts and authorizes the following benefit changes, subject to all other plan requirements and restrictions, for TRS-ActiveCare 1-HD, beginning in the Fiscal Year 2018 plan year commencing on September 1, 2017 and thereafter, until further action by the Board:

Plan Feature 2016-2017 Plan Year

2017-2018 Plan Year

In-Network Individual Deductible

$2,500

$2,500

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Family Deductible Individual Out-of-Pocket Maximum Family Out-of-Pocket Maximum

Out-of-Network

Individual Deductible Family Deductible

Individual Out-of-Pocket Maximum Family Out-of-Pocket Maximum

$5,000

$6,550 $13,100

Included in the

in-network deductible

Included in the

in-network maximum

$5,000

$6,550 $13,100

$5,000 $10,000

$13,100 $26,200

Resolved, That the Board hereby adopts and authorizes the following benefit changes, subject to all other plan requirements and restrictions, for TRS-ActiveCare Select, beginning in the Fiscal Year 2018 plan year commencing on September 1, 2017 and thereafter, until further action by the Board:

Plan Feature 2016-2017 Plan Year

2017-2018 Plan Year

In-Network Individual Out-of-Pocket Maximum Family Out-of-Pocket Maximum

$6,850 $13,700

$7,150 $14,300

Emergency Room Copay $150 + 20% after deductible

$200 + 20% after deductible

Resolved, That the Board hereby adopts and authorizes the following benefit changes, subject to all other plan requirements and restrictions, for TRS-ActiveCare 2, beginning in the Fiscal Year 2018 plan year commencing on September 1, 2017 and thereafter, until further action by the Board:

Plan Feature 2016-2017 Plan Year

2017-2018 Plan Year

In-Network Individual Deductible Family Deductible Individual Out-of-Pocket Maximum Family Out-of-Pocket Maximum

Out-of-Network

Individual Deductible Family Deductible

Individual Out-of-Pocket Maximum Family Out-of-Pocket Maximum

$1,000 $3,000

$6,850 $13,700

Included in the

in-network deductible

Included in the

in-network maximum

$1,000 $3,000

$7,150 $14,300

$2,000 $6,000

$14,300 $28,600

Emergency Room Copay $150 + 20% after deductible

$200 + 20% after deductible

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Resolved, That the Board hereby adopts and authorizes the gross premium rates for TRS-ActiveCare 1-HD, TRS-ActiveCare Select, and TRS-ActiveCare 2 contained in Exhibit A, for the Fiscal Year 2018 plan year commencing on September 1, 2017 and thereafter, until further action by the Board; and

Resolved, That the Board authorizes the Executive Director or his designees to take any actions that are necessary or advisable to implement the benefit structure and premium rates, as adopted or authorized herein, and to continue the existing approved plans of coverage for TRS-ActiveCare 1-HD, TRS-ActiveCare Select, and TRS-ActiveCare 2, until further action by the Board.

Exhibit A TO THE RESOLUTION APPROVING BENEFITS AND

PREMIUM RATES FOR TRS-ACTIVECARE 1-HD,

TRS-ACTIVECARE SELECT, AND TRS-ACTIVECARE 2

Summary of Proposed FY 2018 Monthly Premium Rates

Current FY 2017 Rate

Proposed FY 2018 Rate

Percent Change

TRS-ActiveCare 1-HD

Employee Only

$341.00

$351.00

2.9%

Employee and Spouse $914.00 $991.00 8.4% Employee and Child(ren) $615.00 $671.00 9.1% Employee and Family $1,231.00 $1,316.00 6.9%

TRS-ActiveCare Select Employee Only

$484.00

$514.00

6.2%

Employee and Spouse $1,147.00 $1,264.00 10.2% Employee and Child(ren) $779.00 $834.00 7.1% Employee and Family $1,361.00 $1,589.00 16.8%

TRS-ActiveCare 2 Employee Only

$645.00

$714.00

10.7%

Employee and Spouse $1,552.00 $1,694.00 9.1% Employee and Child(ren) $1,042.00 $1,062.00 1.9% Employee and Family $1,597.00 $2,004.00 25.5%

C. Premiums, plan design, and services areas for the TRS-ActiveCare health maintenance organization (HMO) plan.

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Ms. Daniel noted that there are three HMOs that participate in ActiveCare. The range of increase proposed are from 2.5 percent to 9.1 percent.

On a motion by Mr. Corpus, seconded by Ms. Charleston, the Board unanimously voted to adopt the following resolution.

RESOLUTION APPROVING BENEFITS, PREMIUM RATES AND SERVICE AREAS

FOR HMOs ASSOCIATED WITH THE TRS-ACTIVECARE PROGRAM

June 1 - 2, 2017

Whereas, Chapter 1579, Insurance Code, establishes the Texas School Employees Uniform Group Health Coverage Program (“TRS-ActiveCare”), a uniform group health benefits program;

Whereas, under Chapter 1579, Insurance Code, the Teacher Retirement System of Texas (“TRS”), as trustee, is authorized to implement and administer TRS-ActiveCare;

Whereas, TRS currently has contracts with three health maintenance organizations, SHA, L.L.C. d/b/a FirstCare Health Plans, Scott & White Health Plan, and Blue Cross and Blue Shield of Texas, a division of Health Care Service Corporation, a Mutual Legal Reserve Company (“BCBSTX”), to offer benefits to participants in TRS-ActiveCare who reside or work in the respective service areas of each health maintenance organization (“HMO”);

Whereas, TRS Staff and TRS health benefits consultant, Gabriel, Roeder, Smith & Company (“GRS”) have recommended that during Fiscal Year 2018, SHA, L.L.C. d/b/a FirstCare Health Plans and Scott & White Health Plan be allowed to provide health care services to TRS-ActiveCare participants in their respective service areas under the same respective plan design that each HMO offered in Fiscal Year 2017, with only those changes in benefits noted hereafter, along with other minor benefit changes that may be reflected in the TRS-ActiveCare Enrollment Guide and the Evidence of Coverage issued by each respective HMO;

Whereas, Because the plan being proposed by BCBSTX for Fiscal Year 2018 has no major changes in plan design or service area when compared to the plan design and service area offered by Allegian during Fiscal Year 2017, TRS Staff and GRS have recommended that during Fiscal Year 2018, BCBSTX be allowed to provide health care services to TRS-ActiveCare participants in the service area and under the plan design that are more fully described in the materials provided to TRS by BCBSTX on or about May 5, 2017;

Whereas, Staff and GRS have recommended that for Fiscal Year 2018, the Board approve the gross premium rates noted herein, which premium rates include a monthly administration fee of $10.00 per employee enrolled in an HMO, to cover fees and other administrative expenses incurred by the TRS-ActiveCare program; and

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Whereas, The Board desires to approve the recommendations, including the respective, proposed plan design being offered in Fiscal Year 2018 by each of the three HMOs, with the respective changes in benefits (including changes as noted hereafter) proposed by SHA, L.L.C. d/b/a FirstCare Health Plans and Scott & White Health Plan, and to approve the gross premium rates offered for Fiscal Year 2018 by each of the three HMOs as recommended by Staff and GRS; now, therefore, be it

Resolved, that the Board hereby approves the proposal for SHA, L.L.C. d/b/a FirstCare Health Plans to offer to TRS-ActiveCare participants during Fiscal Year 2018 the same plan design it offered in Fiscal Year 2017, with the following proposed major benefit changes, and approves and adopts the following gross monthly premium rates for enrollment in this HMO during Fiscal Year 2018 according to coverage tier:

SHA, L.L.C. d/b/a FirstCare Health Plan Major Benefit Change Highlights

Benefit FY 2017 Plan Year FY 2018 Plan Year

Deductible Individual -- $ 500.00

Family -- $ 1,500.00

Individual -- $ 750.00

Family -- $ 2,250.00

SHA, L.L.C. d/b/a FirstCare Health Plans Gross Premium Changes

Coverage Tier FY 2017 Premiums FY 2018 Premiums Percent Change

Employee Only $ 472.50 $ 514.82 + 8.96%

Employee & Spouse $ 1,180.50 $ 1,287.60 + 9.07%

Employee & Child(ren) $ 748.50 $ 816.07 + 9.03%

Employee & Family $ 1,190.50 $ 1,298.52 + 9.07%

Resolved, that the Board hereby approves the proposal for Scott & White Health Plan to offer to TRS-ActiveCare participants during Fiscal Year 2018 the same plan design it offered in Fiscal Year 2017, with the following proposed major benefit changes, and approves and adopts the following gross monthly premium rates for enrollment in this HMO during Fiscal Year 2018, according to coverage tier:

Scott & White Health Plan Major Benefit Change Highlights

Benefit FY 2017 Plan Year FY 2018 Plan Year

Out-of-Pocket Maximum

Individual -- $ 5,000.00

Family -- $10,000.00

Individual -- $ 6,550.00

Family -- $13,100.00

Pharmacy Benefits Deductible -- $ 100.00

Generic Retail Copay -- $3.00

Deductible -- $ 150.00

Generic Retail Copay -- $6.00

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Generic Maintenance -- $5.00 Generic Maintenance -- $10.00

Scott & White Health Plan Gross Premium Changes

Coverage Tier FY 2017 Premiums FY 2018 Premiums Percent Change

Employee Only $ 530.16 $ 561.04 + 5.82%

Employee & Spouse $ 1,192.82 $ 1,263.08 + 5.89%

Employee & Child(ren) $ 839.16 $ 888.42 + 5.87%

Employee & Family $ 1,322.98 $ 1,400.98 + 5.90%

Resolved, that in light of the fact that the plan being proposed by BCBSTX for Fiscal Year 2018 has no major changes in plan design or service area when compared to the plan design and service area offered by Allegian during Fiscal Year 2017, the Board hereby approves the proposed service area described in the materials provided to TRS by BCBSTX on or about May 5, 2017 and the proposal for BCBSTX to offer to TRS-ActiveCare participants during Fiscal Year 2018 the plan design that is more fully described in the materials provided to TRS by BCBSTX on or about May 5, 2017, and approves and adopts the following gross monthly premium rates for enrollment in this HMO during Fiscal Year 2018, according to coverage tier:

BCBSTX Gross Premium Changes

Coverage Tier FY 2017 Allegian Premiums

FY 2018 BCBSTX

Premiums

Percent Change

Employee Only $ 449.08 $ 460.50 + 2.54%

Employee & Spouse $ 1,085.74 $ 1,113.72 + 2.58%

Employee & Child(ren) $ 702.84 $ 720.86 + 2.56%

Employee & Family $ 1,151.60 $ 1,181.28 + 2.58%

Resolved, that the approved plans of coverage offered by each HMO to participants in TRS-ActiveCare who reside or work in the respective service areas of each HMO, each of which commences on September 1, 2017, shall remain unchanged until further action by the Board.

Resolved, that the approved service area of each HMO shall remain unchanged until further action by the Board;

Resolved, that with prior written approval from the Executive Director or his designee, each HMO may offer to participants in TRS-ActiveCare who reside or work in the respective service areas of each HMO, lower premiums than those herein approved, each of which commences on September 1, 2017.

27

Resolved, that the Board authorizes the Executive Director or his designees to take any actions, including the expenditure of funds and the execution of all documents, deemed by him or such designee to be necessary or advisable to implement this resolution and to administer the TRS-ActiveCare contracts with the HMOs in the best interests of the TRS-ActiveCare program.

23. Consider authorizing a one-year extension of the contract between TRS and Genworth Life Insurance Company, the carrier authorized by TRS to provide group long-term insurance under Chapter 1576 of the Texas Insurance Code – Katrina Daniel.

Ms. Daniel provided an overview of the long-term care benefits offered to TRS members. She said the contract with Genworth has been in place since December 2008. She said Genworth did not propose any rate increases or benefit reductions.

On a motion by Mr. Moss, seconded by Ms. Charleston, the Board unanimously voted to adopt the following resolution.

RESOLUTION APPROVING THE EXTENSION OF THE CONTRACT WITH

GENWORTH LIFE INSURANCE COMPANY

June 1 - 2, 2017 Whereas, Chapter 1576 of the Insurance Code, authorizes the Teacher Retirement System of Texas (TRS), as trustee, to establish a group long-term care insurance program (the “Program”) to provide long-term care insurance coverage for eligible active employees and retirees, and their eligible family members; Whereas, Chapter 1576, Insurance Code, also provides that TRS may contract with a carrier authorized to provide long-term care insurance; Whereas, TRS currently has a contract (the “Contract”) with Genworth Life Insurance Company (“Genworth”), a carrier authorized to provide long-term care insurance, to underwrite the Program and, thereby, to offer benefits to participants in this Program; Whereas, TRS staff recommends that the Contract be extended for an additional one (1) year period, effective from September 1, 2017 through August 31, 2018; Whereas, The TRS Board of Trustees (“Board”) desires to adopt the recommendations of TRS staff; now, therefore, be it Resolved, That the Board, pursuant to Chapter 1576 of the Insurance Code, hereby authorizes a one-year extension of the Contract with Genworth, beginning on September 1, 2017 through August 31, 2018, unless sooner terminated, subject to negotiation and execution of an extension agreement; Resolved, That the Board finds that the requested one-year extension of the Contract continues to provide the best overall value to TRS and serves the best interests of TRS; and

28

Resolved, That the Board hereby authorizes the Executive Director or his designees to expend funds and to take all actions deemed necessary or advisable to implement this resolution and to negotiate, with the assistance and advice of legal counsel, a one (1) year extension, effective from September 1, 2017 through August 31, 2018, of the Contract with Genworth to underwrite the Program and, thereby, to offer benefits to participants in the Program; and, if negotiations are deemed by the Executive Director, in his discretion to be successful, then the Executive Director is hereby authorized to execute the one (1) year extension of the Contract with Genworth on such terms and conditions as the Executive Director deems, in his discretion, to be in the best interest of TRS, and further to execute and deliver all such other documents that the Executive Director may deem necessary or appropriate to effect this resolution, 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 reasonably necessary or advisable with respect to such contract extension, it being understood that the Board’s approval of a contract extension pursuant to this resolution shall not be construed as a binding agreement or obligation to extend the Contract, and there shall be no binding agreement among the parties until a full and final written contract extension is negotiated and signed by both parties.

24. Review the report of the General Counsel on pending and contemplated litigation, including updates on litigation involving benefit-program contributions, retirement benefits, health-benefit programs, and open records – Carolina de Onis.

This agenda item was not taken up.

25. Consider personnel matters, including the appointment, employment, evaluation, compensation, performance, duties, discipline, or dismissal of the Executive Director, Chief Investment Officer, or Chief Audit Executive – David Kelly.

This agenda item was not taken up.

26. Consult with the Board’s attorney(s) in Executive Session on any item listed above on this meeting agenda as authorized by Section 551.071 of the Texas Open Meetings Act (Chapter 551 of the Texas Government Code) – David Kelly.

This agenda item was not taken up.

At 1:37 p.m., on motion by Dr. Gibson, seconded by Mr. Corpus, the Board unanimously voted to adjourn.

APPROVED BY THE BOARD OF TRUSTEES OF THE TEACHER RETIREMENT SYSTEM OF TEXAS ON THE 13th DAY OF JULY 2017.

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

29

Teacher Retirement System of Texas

Executive Assessment Overview

Keith Robinson, Focus Consulting Group

Board of Trustees MeetingJuly 2017

Agenda

Objective• Provide an update and overview to the TRS Board of Directors regarding the Executive

Assessment Process

Executive Assessment Plan• Process Timeline• Key Elements• Sample Output

2

Leadership Assessment

Process was initiated with TRS in 2013

Participants in 2017:• Brian Guthrie – Executive Director• Amy Barrett – Chief Audit Officer

Key Outcomes:• Increased specificity on leadership strengths/gaps• Clearer assessment of performance• Executive coaching for development

3

Steps and Timeline

Online Competency Rating

Board Interviews

Report Generation & Candidate Review

Report Review and Feedback – TRS Board

Ongoing Executive Coaching

May 15th – June 9th

July 13th

June 17th – July 7th

May 29th – June 16th

2017

4

Key Inputs

Self

Board

Direct Report

Others (Peers)

CompetencyOnline 360 Degree Assessment

ContributionInterview and Manager based

Self

Manager/Board

Other

5

Rating Scale

Scale Competency“Candidate demonstrates this behavior…”

Contribution“On this goal candidate…”

5 To a very great extent Far exceeded expectations

4 To a great extent Exceeded expectations

3 To some extent Met expectations

2 To a little extent Partially met expectations

1 Not at all Did not meet expectations

6

Sample Contribution Data (not real Executive Director Data)

Contribution Goal – Executive Director ScoreLeadership Effectiveness

1. Year over year 360 leadership score improvement.2. Serve as a trusted resource to the legislature:

a) Provide policy and fiscal impacts on proposed legislative measures

b) Establish positive contact with elected officials and respond to inquiries on TRS laws, rules, and operations

3. Engage directly with Policymakers4. Offer expertise in public policy development

Board: 4.38

Self: 4.50

7

Leadership Competencies

Leads the Agency

Broader agency wide impact

1. Client Focus2. Servant Leadership3. Builds Agency Talent4. Strategic Thinking5. Effective Decision Making6. Drives Agency Vision

Leads the Team

Tactical team management

1. Develops Others2. Effective Collaboration3. Conflict Resolution4. Provides Direction5. Priority Setting

Leads the Self

Personal effectiveness

1. Ethical and Value Centered Leadership

2. Integrity and Trust3. Learning Agility4. Listens Actively 5. Self Awareness

8

Sample Output Data (sample only, not real executive data)

Name Competency Contribution

Brian Guthrie Leads Self Leads Team Leads Agency PerformanceGoals

Overall Avg 4.08 4.18 4.08 4.08

CEO/EDPeer comparison

(N=11)

3.82 3.50 3.50 n/a

Self Evaluation 4.12 4.60 4.30 3.83

Board Evaluation 4.20 4.30 4.23 4.08

Direct ReportsEvaluation

4.08 3.92 3.97 n/a

OtherEvaluation

3.90 3.90 3.80 n/a

9

Leadership Personality Data

Perfectionist

Helper

Performer

IndividualistObserver

Loyal Skeptic

Enthusiast

Challenger

Mediator

Strengths: Idea Catalyst, Devil’s Advocate, High Ethics

Weaknesses: Seeing New Themes, Overconfidence

Strengths: Good Catalyst, Team PlayerWeaknesses: Detail Work, Tough Decisions

Strengths: Gathering Info, Decision MakingWeaknesses: Impatience, Overconfidence, DemandingStrengths: Creative,

Team BuilderWeaknesses: Detail

Strengths: Questioning, Reader, FocusWeaknesses: Intuition

Strengths: Intuition, Devil’s Advocate, Spotting Risk

Weaknesses: Easily Bored, Difficulty Trusting

Strengths: Creative Ideas, Integrating New Info

Weaknesses: Focus, Consistency, Decisiveness

Strengths: Identify Key Drivers, Timely Decisions

Weaknesses: Quick to Find Fault, Overconfidence, Intimidating

Strengths: Team Player, New Ideas, Focused, Calm

Weaknesses: Communications, Quant

Brian3w2

Amy7w8

10

Focus Consulting Group

Jim Ware, CFA847-373-8853

jware@focusCgroup.com

Keith Robinson312-560-7216

krobinson@focusCgroup.com

Liz Severyns847-636-7491

lseveryns@focusCgroup.com

11

FY 2018 OPERATING BUDGET

DON GREEN, CHIEF FINANICAL OFFICER

BOARD OF TRUSTEES MEETING, JULY 13, 2017

Key Points• This request represents the FY 2018 portion of the FY18-19 biennial legislative appropriations request for

TRS which was presented to the board in July 2016 and received final approval by the Texas Legislature in May 2017.

• Highlights of the request include a continuation of funding needed to implement TEAM, capital items designed to maintain our investment in TRS facilities, and certain inflationary-related increases necessary to attract and maintain a competitive workforce, as well as enhance investment services and benefit services for our members.

• The request also includes 21 additional FTEs, of the 25 FTEs that were included in the legislative appropriations request.

• The total amount requested for the FY 2018 operating budget from the Pension Trust Fund represents less than one-tenth of a percent of the value of the fund. In FY 2016, spending for administrative operations ($104.1 million) was 0.08% of net assets ($134 billion).

• On an all funds basis, the operating budget for FY 2018 is 4.1% higher than FY 2017 for the Pension Trust Fund which is a 3.7% increase.

2

Summary of FY 2018 Budget403(b)

Administrative Commission TRS-Care TRS-ActiveCare CertificationOperations TEAM Credits (Retired Plan) (Active Plan) Program TOTAL

REVENUES AND OTHER SOURCES

Legislative Appropriations - Administrative Operations** 94,290,334$ 16,544,257$ 110,834,591$

Fringe Benefits Paid by the Pension Fund*** 16,066,622 1,641,973 17,708,595

Performance Incentive Compensation Rider 11,360,000 11,360,000

Commission Credits 24,672,365$ 24,672,365

Reserved for Administrative Expenses 8,258,107$ 4,097,690$ 392,200$ 12,747,997

TOTAL REVENUES AND OTHER SOURCES 121,716,956$ 18,186,230$ 24,672,365$ 8,258,107$ 4,097,690$ 392,200$ 177,323,548$

OPERATING AND CAPITAL EXPENSES

Wages and Benefits 70,825,822$ 7,405,852$ -$ 4,257,480$ 2,352,700$ 302,200$ 85,144,054$

Professional Fees and Services 9,636,551 10,084,378 4,730,000 3,556,300 1,681,250 90,000 29,778,479

Support Costs 6,362,549 15,000 377,000 59,000 29,200 - 6,842,749

Travel 1,611,060 30,000 - 35,500 10,200 - 1,686,760

Capital Projects 5,110,000 - - - - - 5,110,000

Operating Costs 16,810,974 651,000 19,565,365 349,827 24,340 - 37,401,506

TOTAL OPERATING AND CAPITAL EXPENSES 110,356,956$ 18,186,230$ 24,672,365$ 8,258,107$ 4,097,690$ 392,200$ 165,963,548$

Performance Incentive Compensation 11,360,000$ 11,360,000$

TOTAL OPERATING AND CAPITAL EXPENSESINCLUDING PERFORMANCE INCENTIVE COMPENSATION 121,716,956$ 18,186,230$ 24,672,365$ 8,258,107$ 4,097,690$ 392,200$ 177,323,548$

Percentage Increase/(Decrease) from FY 2017 Budget 12.78% -32.74% 1.08% 21.54% 2.34% 96.13% 4.08%

* Total Pension Trust Fund is $139.9 million or 3.7% more than FY 2017.** Includes capital projects of $5.1 million. Total TEAM appropriation for the biennium is $25.2 million.*** Includes estimated Employer Retirement Contributions, Employer FICA Contributions, Employer Health Insurance Contributions, and Benefit Replacement Pay.

PENSION TRUST FUND* HEALTH BENEFITS FUNDS

3

Comparison by Expense Category

Wages & Benefits$89.2 , 52%

(includes incentive compensation)

Pro Fees/Svs

$33.2 , 20%

Support$6.6 , 4%

Travel$1.7 , 1%

Capital$6.5 , 4%

Operating$33.2 , 19%

Wages & Benefits$96.5 , 54%

(includes incentive compensation)

Pro Fees/Svs

$29.9 , 17%

Support$6.8 , 4%

Travel$1.7 , 1%

Capital$5.1 , 3%

Operating$37.4 , 21%

FY 2018$177,323,548

FY 2017$170,373,211

Operating costs: software, hardware, postage, printing, equipment, reference materialsSupport: Rent, bldg/equip maint, utilities, supplies 4

Comparison by Division

Agency Support, $19.5 , 12%

IMD,$67.0 , 39%

Benefits,$11.2 , 7%

Finance, $15.9 , 9%

Info Tech,$18.8 , 11%

TEAM, $27.3 , 16%

Healthcare, $10.7 , 6%

Agency Support, $22.4 , 13%

IMD,$70.3 , 40%

Benefits, $12.2 , 7%

Finance, $15.2 , 8%

Info Tech,$23.9 , 13%

TEAM,$20.6 , 12%

Healthcare, $12.8 , 7%

FY 2018$177,323,548

FY 2017$170,373,211

Agency Support includes Executive, Internal Audit, Legal, Gov’t Relations, Communications, Human Resources, PMO, Strategic Initiative, Risk Management, and Agency-wide. 5

FY 2018 Budget by Department

6

FY 2018 Budget by DepartmentExpended Budgeted ProposedFY 2016 FY 2017 FY 2018

Financial 234,166$ 312,784$ 308,422$ (4,362)$ -1%General Accounting 2,450,606 2,630,901 2,610,845 (20,056)$ -1%

Records Management 758,940 1,101,226 2,212,061 1,110,835$ 101%Investment Accounting 477,717 520,365 520,189 (176)$ 0%

Staff Services 1,891,022 2,353,215 2,323,529 (29,686)$ -1%Facilities Services 858,343 5,366,656 3,236,971 (2,129,685)$ -40%

Printing, Mail & Supply 2,994,444 3,560,251 4,037,723 477,472$ 13%Financial 9,665,238$ 15,845,398$ 15,249,740$ (595,658)$ -4%

Information Tech 1,841,330$ 2,333,074$ 3,492,125$ 1,159,051$ 50%Network Support 5,996,539 11,489,925 15,376,829 3,886,904$ 34%

Systems - Green Team 1,673,265 1,901,086 1,962,363 61,277$ 3%Technical Support 4,692,980 750,343 628,624 (121,719)$ -16%

Systems - Gold Team 1,627,044 1,736,454 1,780,702 44,248$ 3%System Architecture 611,501 595,665 591,980 (3,685)$ -1%Information Tech 16,442,659$ 18,806,547$ 23,832,623$ 5,026,076$ 27%

TEAM Program 15,903,763$ 27,040,217$ 18,186,230$ (8,853,987)$ -33%HILOB Project - 800,000 1,093,630 293,630 37%

CAPPS Implementation - - 2,400,000 2,400,000 100%

Interns 200,715$ 204,000$ 204,000$ -$ 0%TRS Care 4,835,477 5,994,696 7,164,477 1,169,781$ 20%

TRS ActiveCare 2,826,138 4,004,046 4,097,690 93,644$ 2%403(b) Certification 48,108 199,973 392,200 192,227$ 96%

Totals 130,542,028$ 170,373,211$ 177,323,548$ 6,950,337$ 4%

VarianceFY18 - FY17

7

Comparison by Fund

Pension$135.0 , 79%

Commission Credits $24.4 , 14%

Healthcare$11.0 , 7%

Pension$139.9 , 79%

Commission Credits $24.7 , 14%

Healthcare$12.8 , 7%

FY 2018$177,323,548

FY 2017$170,373,211

Pension fund includes TEAM. 8

FY 2018 Pension Trust Fund (All Inclusive)

• The Fiscal Year 2018 requested budget from the Pension Trust Fund is 3.7% over the Fiscal Year 2017 budget.

• Regarding Salaries and Other Personnel Costs, the increase over Fiscal Year 2017 includes:• The addition of 21 FTEs ($1.6 million) as approved by the Legislature including 10 for benefits, 7 for

IT division, 2 IMD, Internal Audit and Legal. • As approved by the Board in July 2016, the agency merit pool includes a 3% for Red River

($890,000) and 5% for IMD ($1.1 million).• $1.1 million for benefit increases related to an estimated 8% increase in health care costs,

retirement and social security contributions. • Incentive compensation is estimated at the actual plan year 2016 remaining balance ($2.7 million)

plus an estimated maximum amount for the first half of the plan year 2017 under current provisions ($8.7 million).

• Professional services include $1.2 million for the E-Records project, $2.4 million for financial and HR systems replacement, and $1.8 million for investment consultants previously paid out of commission credits.

• Other operating expenses increased $4.3 million largely due IT costs related to post TEAM transition, furniture for remodeling projects, and support costs (including utilities, lease expense, etc).

9

FY 2018 Pension Trust Fund (All Inclusive)

10

FY 2018 Pension Trust Fund (TEAM Only)

• The Fiscal Year 2018 requested TEAM budget is down 33.0% over the Fiscal Year 2017 budget. • Funding for 76 TEAM positions includes 5 newly transitioned contractor positions projected to save the

Pension Trust Fund an estimated $200,000 in FY2018 alone.• The $18.1 million TEAM request includes:

• $7.4 million for wages and fringe benefits• $10.0 million for professional fees and services including $916,000 for program management and

assessment services, $6.1 million for the LOB contract, $2.5 million for contractors, and $525,000 for other services including data management and outside legal counsel support

• $696,000 for operating expenses including $500,000 for software purchases and maintenance costs

2.1

14.612.8

25.8

15.9

20.6

15.5 13.4

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

EXPENDITURES BY YEAR (IN MILLIONS)

11

FY 2018 Pension Trust Fund (TEAM Only)Expended Budgeted ProposedFY 2016 FY 2017 FY 2018

SALARIES AND OTHER PERSONNEL COSTSSalaries and Wages 4,166,817$ 4,966,538$ 5,682,679$ 716,141$ 14%Longevity Pay 55,540 64,280 81,200 16,920 26%Employer Retirement Contributions 278,203 321,692 368,062 46,370 14%Employer FICA Contributions 302,242 360,571 410,378 49,807 14%Employer Health Insurance Contributions 497,664 634,718 831,333 196,615 31%Benefit Replacement Pay 4,907 6,500 18,200 11,700 180%Other Employee Benefits - 29,000 14,000 (15,000) -52%

TOTAL SALARIES AND OTHER PERSONNEL COSTS 5,305,373$ 6,383,299$ 7,405,852$ 1,022,553$ 16%

PROFESSIONAL FEES AND SERVICES 9,418,466$ 19,226,371$ 10,084,378$ (9,141,993)$ -48%

OTHER OPERATING EXPENSESConsumable Supplies and Fuels 754$ 20,000$ 10,000$ (10,000)$ -50%Travel 37,580 40,000 30,000 (10,000) -25%Dues, Fees and Staff Development 13,270 134,000 150,000 16,000 12%Software Purchases and Maintenance 871,285 705,547 500,000 (205,547) -29%Furniture and Equipment - Expensed 478 26,000 - (26,000) -100%Maintenance - Buildings and Equipment - 5,000 6,000 1,000

TOTAL OTHER OPERATING EXPENSES 923,367$ 930,547$ 696,000$ (234,547)$ -25%

CAPITAL EXPENSESFurniture and Equipment 256,557$ 500,000$ -$ (500,000)$ -100%

TOTAL CAPITAL EXPENSES 256,557$ 500,000$ -$ (500,000)$ -100%

TOTAL OPERATING AND CAPITAL EXPENSES 15,903,763$ 27,040,217$ 18,186,230$ (8,853,987)$ -33%

VarianceFY18 - FY17

12

FY 2018 Pension Trust Fund (Capital Projects)

Project FY 2018Amount Project Description

Network Infrastructure Upgrade 450,000 Supports the development and maintenance of the client/server environment

Telephone Counseling Center Upgrade 1,500,000 Supports the TRS call center assessment, phone switch and call center software upgrades

Investment Systems Modernization 370,000 Define, develop and implement a Business Intelligence strategy and program

PC Workstation Refresh 370,000 To fund the agency’s desktop technology refresh policy

Data Center Upgrade 420,000 Supports the development and maintenance of the data center

Centralized Accounting and PersonnelSystem (CAPPS)

2,400,000 Enterprise resource planning project associated with financial system upgrade.

Building Renovations 2,000,000 To support building renovation work related to customer service relocation

TOTALS 7,510,000

13

Commission Credits

• All sources of commission credit revenues are estimated at $24.7 million . These include commission recapture, commission sharing and the SSB/TRS Partnership Arrangement. Planned expenditures include information resources, investment consultants and software.

• SSB/TRS Partnership Account to remain at $6.0 million with expenses for contract staff, advisors, and staff support.

14

FY 2018 Commission Credits

15

Health and Insurance Benefits (HIB)TRS-Care:

Overall, the budget for TRS-Care will be affected by Legislative changes passed during the 85th Session. Additionally, adding two FTE positions for actuarial analysis and support should decrease outside actuarial support costs in future years.

The increase of approximately 22% includes three main elements:• $895,000 for a call center contractor to handle additional call volume as necessary in order to provide

appropriate customer service. With plan design changes, call volume is expected to increase as much as 30%. External support is needed to maintain appropriate call wait times.

• $350,000 for communication efforts to proactively communicate plan design changes to plan participants.

• $300,000 for Health Insurance Line of Business (HILOB) Project for additional application development services.

TRS-ActiveCare:

• Request is relatively flat at a 2% increase which is accounted for by routine fringe benefit increases in healthcare, retirement and social security contributions.

16

FY 2018 TRS Care

17

FY 2018 Active Care

18

403(b) Certification Program

• Request includes salary and related benefits funding for 1 FTE to support plan providers. Additional funding is included as a contingency for adding an FTE should it be needed to support the product registration system update. Doing so is contingent on both funding availability and programmatic need.

• Request also includes $225,000 for programming updates resulting from expected rule changes; the work involved might be done in house or by an external developer.

19

FY 2018 403 (b)

Expended Budgeted ProposedFY 2016 FY 2017 FY 2018

SALARIES AND OTHER PERSONNEL COSTS Salaries and Wages 37,804$ 48,290$ 262,800$ 214,510$ 444% Longevity Pay 500 960 1,200 240 25%

Employer Retirement Contributions 2,351 3,424 7,600 4,176 122% Employer FICA Contributions 2,841 3,789 8,600 4,811 127% Employer Health Insurance Contributions 4,612 17,510 21,000 3,490 20%

Other Employee Benefits - - 1,000 1,000 100%

TOTAL SALARIES AND OTHER PERSONNEL COSTS 48,108$ 73,973$ 302,200$ 228,227$ 309%

Professional Fees and Services -$ 120,000$ 90,000 (30,000)$ -25% Travel - 4,900 - (4,900) -100% Other Operating Expense - 1,100 - (1,100) -100%

TOTAL OTHER OPERATING EXPENSES -$ 126,000$ 90,000$ (36,000)$ -29%

TOTAL OPERATING EXPENSES 48,108$ 199,973$ 392,200$ 192,227$ 96%

VarianceFY18 - FY17

20

Changes to General Provisions

• Changes in the first paragraph clarify that Article IX provisions apply to all funds, not just appropriated funds.

• The changes to the commission credits section were coordinated with IMD and Legal to properly align with the new board policy.

• Changes to the performance pay plan align with the revised Board policy (i.e. name change).

• Other changes are administrative cleanup.

21

General Provisions

22

General Provisions (continued)

23

Budget Resolution

24

Budget Resolution (continued)

25

2

TEAM TIMELINE – KEY MILESTONES PHASE 1

Cutover Dry Run #207/14

Cutover Dry Run #106/15

Data Code Development Freeze08/11

TRUST Training Start08/14

TRUST Code Development Freeze07/14

UAT Exit Quality Gate08/17

08/21 Regression Test Start

Cutover Start09/09

Phase 1 Go Live10/02

3

TEAM PROGRAM - Summary

4

TEAM PROGRAM – Near Term Goals

Near Term Goals and Progress

5

TEAM PROGRAM – Issues/Risks

• P1 – Rate of UAT defect closure by both TRS and DXC needs to increase

Improvements

– Burn-down charts monitored daily

– Combined staff focusing on defect closure

Issues/Risks

6

TEAM PROGRAM – Issues/Risks

Example UAT Defect Closure Burn-down Chart

7

TEAM PROGRAM – Issues/Risks

• P1/P2 - Coordinating DXC and TRS schedules and resources is critical for TEAM program success.

Improvements

– Joint meetings

– Increased resource management

Issues/Risks

8

TEAM PROGRAM – Issues/Risks

• P2 – Achieving Quality Assurance

Improvements

– Early user test case development

– Better coordination of test case development between TRS and DXC

Issues/Risks

9

TEAM PROGRAM – Issues/Risks

QUESTIONS?

PRESENTATION TITLE >>> NAME FEB-09-15Executive Director’s Report, Brian Guthrie July 13, 2017

1

• General Updates• Sneak peak at Executive Director’s Priorities• Upcoming Agendas

2

General Updates

3

General Updates

Upcoming Conferences and Meetings:

• July 19 – Public / Private SPN – New York City, NY.

• July 23-26th – NCTR 17th Annual Trustee Workshop, Boston, MA.

• August 5-9th – NASRA Annual Conference, Baltimore, MD.

4

General Updates

Past events of interest:• June 8-9th – Executive Council “Retreat”.• June 27th – TRS Employee Appreciate Ice Cream Party.

Staying Intentional About TRS Culture5

General Updates

Past events of interest:• June 28th – TRTA’s Facebook Live event with Brian Guthrie,

Katrina Daniel and Tim Lee.• June 30th – TRS Red River All Hands Meeting. IMD All Hands to

follow.

6

General Updates

Special Session• Special session is set to begin on July 18,2017 and will last 30

days. • Governor Abbott identified 20 items to be included on the

special session call.• Sunset issues must be addressed before any other items can be

considered.

7

Preview of Goal for Fiscal Year 2018

8

Preview of Executive Director Goals for FY 2018Goal 1

Sustain a Financially Sound Pension System.

Bring Updated Assumption Set to Trustees, including

Examining Assumed Rate of Return.

Update the Pension Benefit Design Study

Goal 2Continuously Improve our

Benefit Delivery.

Successfully complete TEAM Phase 1 “Go Live”.

Meet All Developmental Milestones for TEAM

Phase 2.

403(b) Rules Implementation and Identify Potential Legislative Changes.

Goal 3Facilitate Access to

Competitive, Reliable, Health Care Benefits.

Successful Health Care Implementation on

January 1, 2018, Including Communication Effort.

Goal 4Align People, Processes,

and Technology to Achieve the TRS Mission.

Succession Planning and Refine Agency Structure

Successful Implementation of CAPPS

Records Management

Advancement on 1-3rd

Floor Redesign

Review of Board Operations (Process, Preparation, and

Delivery of Materials)

9

9

Upcoming Agendas

10

Upcoming Board Agendas

August 25, 2017Major Items Include:TEAM UpdateStatutory Certifications of Estimated State ContributionsSelect Board Proxy Advisor403(b) Rulemaking Review of Public CommentsAdopt HUB Goals for FY 2018 and 2019Executive Session on EC Succession Planning

11

Upcoming Board Agendas

September 21-22, 2017Major Items Include:Report on Q2 EarningsSet CY 2018 Board Meeting DatesPerformance Incentive Pay Plan for InvestmentsReview ED Goals and Objectives for FY18

Committees:Audit CommitteeInvestment Management CommitteeRisk Management CommitteePolicy Committee

12