Policy Committee Meeting

April 2019

Policy Committee Meeting

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

TEACHER RETIREMENT SYSTEM OF TEXAS MEETING

BOARD OF TRUSTEES AND

POLICY COMMITTEE

(Committee Chair and Members: Mr. Corpus, Chair; Mr. Colonnetta, Mr. Elliott, Mr. Hollingsworth and Ms. Sissney,)

All or part of the April 25, 2019, meeting of the TRS Policy Committee and 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 Committee intends to have a quorum and the presiding officer of the meeting 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.

The open portions of the meeting are being broadcast over the Internet. Access to the Internet broadcast is provided at www.trs.texas.gov.

AGENDA

April 25, 2019 – 10:15 a.m.

TRS East Building, 5th Floor, Boardroom

1. Call roll of Committee members.

2. Consider the approval of the proposed minutes of the December 2018 committee meeting – Chair David Corpus.

3. Consider recommending to the Board adoption of proposed amendments to the Securities Lending Policy – Mohan Balachandran and Mark Albert; Cesco Squillacioti, State Street Bank.

4. Consider recommending to the Board adoption of a new rule and rule amendments to TRS Rules in Title 34, Part 3 of the Texas Administrative Code – Carolina de Onis and Kevin Wakley:

A. New § 25.11, relating to Employees of Foreign TRS Subsidiaries. B. Amended § 51.2, relating to Vendor Protests, Dispute Resolution, and Hearing. C. Amended § 51.11, relating to Historically Underutilized Businesses.

NOTE: The Board of Trustees (Board) of the Teacher Retirement System of Texas will not consider or act upon any item before the Policy Committee (Committee) at this meeting of the Committee. This meeting is not a regular meeting of the Board. However, because the full Policy Committee constitutes a quorum of the Board, the meeting of the Committee is also being posted as a meeting of the Board out of an abundance of caution.

5. Consider authorizing for publication in the Texas Register notice of proposed rule amendments to TRS Rules in Title 34, Part 3 of the Texas Administrative Code – Carolina de Onís, Clarke Howard, and Kevin Wakley: A. Amended § 25.162, relating to State Personal or Sick Leave Credit; B. Amended § 25.302, relating to Calculation of Actuarial Costs of Service Credit; C. Amended § 25.303, relating to Calculation of Actuarial Cost for Purchase of

Compensation Credit; D. Amended § 29.11, relating to Actuarial Tables; E. Amended § 29.21, relating to Beneficiary Tables; F. Amended § 29.71, relating to Tables; G. Amended § 41.1, relating to Initial Enrollment Periods for the Health Benefit Program

under the Texas Public School Retired Employees Group Benefits Act (TRS-Care); H. Amended § 41.2, relating to Additional Enrollment Opportunities; I. Amended § 41.3, relating to Retirees Advisory Committee; J. Amended § 41.4, relating to Employer Health Benefit Surcharge; K. Amended § 41.7, relating to Effective Date of Coverage; L. Amended § 41.8, relating to Eligible Bidders; M. Amended § 41.9, relating to Bid Procedure; N. Amended § 41.11, relating to Years of Service Credit Used to Determine Premiums O. Amended § 41.15, relating to Requirements to Bid on Insurance for School District

Employees and Retirees Under Chapter 1576 of the Insurance Code; P. Amended § 41.31, relating to Eligible Bidders; Q. Amended § 41.32, relating to Bid Procedure; R. Amended § 41.34, relating to Eligibility for Coverage under the Texas School

Employees Uniform Group Health Coverage Program; S. Amended § 41.39, relating to Coverage for Individuals Changing Employers; T. Amended § 41.41, relating to Premium Payments; U. Amended § 41.50, relating to Appeals Relating to Claims or Other Benefits; V. Amended § 47.17, relating to Calculation for Alternate Payee Benefits Before a

Member's Benefit Begins.

6. Consider recommending to the Board adoption of proposed amendments to the Code of Ethics for Contractors – Heather Traeger.

7. Consider recommending to the Board adoption of proposed amendments to the General Authority Resolution – Heather Traeger.

8. Review and consider recommending to the Board adoption of proposed amendments to the Resolution Designating Persons Authorized to Sign TRS Vouchers – Richard Scheel.

9. Consider recommending to the Board adoption of proposed amendments to the External Communications Policy - Carolyn Perez.

2

Minutes of the Policy Committee December 13, 2018 The Policy Committee of the Board of Trustees of the Teacher Retirement System of Texas met on Thursday, December 13, 2018, in the boardroom located on the Fifth Floor in the East Building of TRS’ offices located at 1000 Red River Street, Austin, Texas, 78701. Committee members present: Mr. David Corpus, Chairman Mr. Joe Colonnetta Mr. John Elliott Mr. Jarvis Hollingsworth Ms. Nanette Sissney Other TRS Board Members present: Dr. Greg Gibson Mr. Chris Moss Mr. Dick Nance Ms. Dolores Ramirez Others present: Brian Guthrie, TRS Ann Fickel, TCTA Don Green, TRS Mike Bentrott, Aetna Rebecca Merrill, TRS Carolina de Onis, TRS Jerry Albright, TRS Jase Auby, TRS Barbie Pearson, TRS Richard Scheel, TRS Heather Traeger, TRS Katherine Farrell, TRS Keith Johnson, Reinhart Boerner Van Deuren s.c. Policy Committee Chairman, Mr. David Corpus, called the meeting to order at 11:56 a.m. 1. Call roll of Committee members.

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

2. Consider the approval of the proposed minutes of the September 2018 committee

meeting – Chair David Corpus. On a motion by Mr. Colonnetta, seconded by Mr. Elliott, the committee voted to approve the proposed minutes for the September 2018, Policy Committee meeting as presented with Mr. Corpus abstaining.

3. Consider recommending to the Board adoption of the proposed amendments to the Board Training Policy – Rebecca Merrill.

Ms. Rebecca Merrill presented the proposed amendments to the Board Training Policy. She explained that the proposed changes expands the training topics available for Trustees to receive training. She said these changes ensures the policy matches with the Texas Pension Review Board (PRB) has in their rules. Ms. Merrill noted, in addition to the PRB training topics TRS incorporated training on qualifications and standards of conflict: conduct, ethics conflicts and disclosures and external communications policy. On a motion by Mr. Hollingsworth, seconded by Mr. Elliott, the committee approved recommending to the Board the proposed amendments to the Board Training Policy as presented.

4. Consider recommending to the Board adoption of the proposed amendments to the TRS Board of Trustees Bylaws – Rebecca Merrill.

Ms. Merrill presented the proposed amendments to the TRS Board of Trustees Bylaws. She said proposed language was developed from feedback received from the Trustees at the September Board meeting. On a motion by Mr. Hollingsworth, seconded by Mr. Elliott, the committee approved the adoption to the proposed amendments of the TRS Board of Trustees Bylaws as presented.

5. Consider authorizing for publication in the Texas Register notice of a proposed new rule and rule amendments to TRS Rules in Title 34, Part 3 of the Texas Administrative Code - Carolina de Onís, Jessica Palvino and Kevin Wakley.

A. New § 25.11, relating to Employees of Foreign TRS Subsidiaries.

Ms. Carolina de Onis presented a new rule related to the employees of foreign TRS subsidiaries.

B. Amended § 51.1, relating to Advisory and Auxiliary Committees.

Ms. de Onis presented the amended rule in section 51.1 regarding the expiration dates on the advisory and auxiliary committees. She said the date has been moved from 2019 to 2025, which ensures that the committees will continue to function during that time period.

C. Amended § 51.2, relating to Vendor Protests, Dispute Resolution, and Hearing.

D. Amended § 51.11, relating to Historically Underutilized Businesses.

Ms. de Onis discussed the amended rule in section 51.2 and 51.11 together. She reported the amendments were to correct an out of date reference to the Texas Administrative Code. On a motion by Mr. Hollingsworth, seconded by Mr. Elliott, the committee authorized for publication in the Texas Register notice of a proposed new rule and rule amendments to TRS Rules in Title 34, Part 3 of the Texas Administrative Code as presented.

6. Consider recommending to the Board adoption of proposed Resolution Authorizing Executive Director to Designate Persons Authorized to Sign TRS Vouchers – Richard Scheel.

Mr. Richard Scheel reviewed the proposed resolution authorizing the executive director to designate persons to authorize to sign TRS vouchers. He said the proposed change would allow administrative efficiencies, noting proper checks and balances remained within the voucher approval process. On a motion by Mr. Colonnetta, seconded by Mr. Hollingsworth, the committee approved recommending to the Board the adoption of proposed Resolution Authorizing Executive Director to Designate Persons Authorized to Sign TRS Vouchers as presented. The Policy Committee adjourned at 12:30 p.m.

Approved by the Policy Committee of the Board of Trustees of the Teacher Retirement System of Texas on April 25, 2018.

______________________________ _________________

Katherine H. Farrell Date Secretary of the TRS Board of Trustees

Presentation to:Teachers Retirement

System of TexasSecurities Finance

April 2019

Information Classification2

Securities Finance • Securities Lending Program

• Prime Brokerage

• Securities Lending Program: Enhanced Custody


TRS

Securities Lending ProgramSignificant and Stable Source of Investment Income and Used to Pay for Custody Services

Program Highlights:• Provider to TRS since 2002

• Over $3.9 trillion of lendable assets and $379 billion in loans

• 266 clients and 34 securities markets

• Since inception income to TRS is $1.3 billion • Annually TRS receives 90% of income generated up to

$100 million and 95% thereafter

• Key Functions:• Custody of assets

• Manages borrower collateral

• Invests cash and securities collateral

• Generates securities lending income

• Key Controls:• TRS Board approved securities lending policy

• TRS approved borrower list and credit limits

• SSB indemnifications against borrow default

• Custom loan collateral requirements

State Street Bank Securities Lending Platform

Types of Lenders:• Pension Funds• Banks• Sovereign Wealth Funds• Mutual and ETF Funds• Insurance Funds

Loans Securities

Collects Lending Income

Delivers Collateral

Borrows Securities

Types of Borrowers:• Pension Funds• Banks• Prime Brokers• Hedge Funds• Asset Managers

Lender Borrower


Prime BrokerageA Primer on Long and Short Selling

TRS

TRS

Lender(TRS)

Prime Broker Function:• Provides ability for TRS to sell securities it

does not own (“Go Short”)• TRS profits when securities value decreases

• Provides loans to TRS to buy more securities than allocated capital (“Go Long”)• TRS profits when securities value increases

How Used at TRS:• Internal

• Quant strategies are systematic methods to implement insights on future securities’ value

• Goldman Sachs acts as TRS prime broker

• External• Directional and stable value hedge funds

• Certain long-only funds Prime Broker

TRS

Buyer Seller

Securities Cash Securities Cash

Securities Collateral Loan Cash

Go Short:• TRS sells

securities• TRS delivers

borrowed securities

• TRS receives cash from sale

Go Short:• TRS borrows

securities• TRS delivers

collateral• TRS pays fee

Go Long:• TRS buys

securities• TRS receives

securities• TRS pays cost

of purchase

Go Long:• TRS buys

securities• TRS obtains a

loan • TRS pays

interest


Securities Lending Program: Enhanced CustodyAlternative Solution to a Prime Broker

TRS

TRS

Lender(TRS)

Significant cost savings for TRS• Allows TRS to borrow securities from itself to go short

• Lowers borrow costs

• No collateral required

• Allows TRS to use short sale proceeds to go long• Lowers financing costs

Key Controls• All positions reside at TRS custody bank

• Higher credit rating than TRS prime broker

• Enhances program transparency

• Enables consolidated reporting

• Provides for custom controls

State Street Bank Securities Lending Platform (EC)

Self Borrow(TRS)

Market Borrow(TRS)

Loans SecuritiesNo Collateral

Delivered

Lender(TRS)

Lender(State Street Clients)

Loans SecuritiesNo Collateral Delivered

LoansSecurities

Delivers Collateral

LoansSecurities

Delivers Collateral


Appendix


*#1 lender overall, weighted by importance. All other State Street data as of 30 September 2018. **This headcount figure does not include contractors.

State Street Securities Lending ProgramProgram Overview

State Street’s securities finance program launched in 1974 and is one of the largest agency lending programs in the world today.

With global coverage across 9 offices, State Street provides access to demand within a framework that fits each client’s requirements.

44 years of experience in securities lending #1 in the 2018 Global Investor ISF Survey*

$3.98 trillion of lendable assets US (BTC) and German (GmbH) legal entities

$379 billion of active loans

9 regional offices with 5 trading desks34 security markets for equities and fixed income

358** dedicated employees266 active clients, 44 approved jurisdictions

AA- rating from Standard & Poor’s (Dec 2017)143 borrowers, 16 approved jurisdictions

SSGA experience in cash collateral management

• $3.98tr lendable assets

• #1in the 2018 Global Investor ISF Survey*

• 34 security markets

• $379b active loans

“State Street was the top-ranked lenders across all categories in the weighted division. The US firm scored 6.86, which was enough to beat its main rivals J.P. Morgan and GSAL into second and third spots, according to the respondents to the Global Investor/ ISF survey.”2018 Global Investor ISF Securities Finance Survey


TRS Securities Lending Program

* Data represents past performance and is not a guarantee of future results.Data represents performance through December 31, 2018

**Source: My.StateStreet.com

Agency Lending Balances – Lendables, on Loan & Borrowers**Historical Agency Lending Performance Review*The Top Five Borrowers represented 44% of the total on loan balance

This slide is intentionally left blank.


Jessica Donohue is executive vice president of State Street Corporation and Client Executive, focused on delivering cross-enterprise solutions and insights to the company’s global and most complex clients. Jessica is also responsible for specialized services including performance, compliance, fund administration, financial reporting and treasury services.

Jessica has over 18 years in the financial services industry. Most recently she served as global head of Performance & Analytics for State Street, providing performance measurement, attribution, contribution, allocation and risk analytics to more than 500 institutional clients globally. Jessica founded and was global head of the Advisory and Information Solutions business for State Street Global Exchange where she and her team created several new business lines including investable indices and advisory solutions. She also served as Chief Innovation Officer for Global Exchange leveraging a unique blend of academic and industry knowledge to drive new solutions in the areas

of portfolio analytics and data science to enhance returns, control risk, optimize performance, manage liquidity and monitor market conditions. Prior to her role in Global Exchange, Jessica served as global head of State Street Associates (SSA), State Street’s academic partnership, supporting the acceleration of innovation across State Street.

She has held teaching positions at Brandeis University and the University of Minnesota, and her published research can be found in the International Economic Review, the Emerging Markets Review and Finance Research Letters.

Jessica received a Bachelor of Arts degree in international relations, a Master of Arts degree in economics from the University of Minnesota, a Master of Science degree in agricultural economics from Virginia Tech, and a Ph.D. in economics from the University of Minnesota.

Jessica DonohueExecutive Vice PresidentClient Executive


Brenda Dulger-Sheikin currently leads the Institutional Investor Services West enhanced asset owner business focused on providing innovative custodian solutions to asset owners undergoing dynamic change. Safekeeping over a trillion dollars in customer assets, providing the highest quality accounting book of records and solution strategies to address gaps in the sector through technology, data and premium analytical service delivery. Highly specialized servicing unit focused on bringing world class investment management servicing through a 40's Act mutual fund daily valuation heritage to the most sophisticated asset owner clients.

Brenda joined State Street in July 2007 as part of the acquisition of Investor’s Bank and Trust (IFIN). Prior to joining State Street, Brenda spent seven years at IBT and Barclays Global Investors (BGI) where she held various positions, including manager of accounting and relationship management.

Brenda earned a Bachelor of Science business degree in strategic management from the California State University of Sacramento.

Brenda Dulger-SheikinSenior Vice PresidentState Street Investor Services America


Kathy MacVarish is Senior Vice President and relationship manager in State Street Corporation’s Client Executive Program, servicing the company’s most complex asset owner and asset manager client,

Kathy has over thirty years of experience servicing institutional investors for custody, accounting, performance analytics, risk analytics, securities lending and retirement payment services. She has extensive experience in complex multi-national pensions, 401K, insurance and corporate assets.

Kathy earned a Bachelor of Arts in Economics from Boston College and earned an MBA at Suffolk University

Kathy enjoys running, reading and spending time with her dog.

Kathy MacVarishSenior Vice President, Relationship Manager


Eric MacDonald was named Head of Enhanced Custody Client Management for North America in State Street’s Securities Finance division after managing the supply relationships for Enhanced Custody since 2017. Mr. MacDonald has been with State Street since 1991.

He has been a part of the Securities Finance organization since 1993 where he served as Head of the US Equity Agency Lending Trading Desk. In 2007, he was instrumental in building out and running the Enhanced Custody Trading Desk.

Eric holds a Bachelor of Science in Business Administration from the Questrom School of Business at Boston University and a Master of Business Administration (MBA) from the McCallum Graduate School of Business at Bentley University.

Eric MacDonaldHead of Enhanced Custody Client Management, NAManaging DirectorState Street Securities Finance


Lisa Pae is a Senior Vice President, serving as Client Global Chief Operating Officer (GCOO) for large strategic relationships. In this role, she is responsible for service execution and strategic direction of business operations across the core services provided in support of these clients. Core services span across investment servicing, investment management operations, investment research and trading, data and analytics, technology support, and other regulatory, tax and compliance services.

Lisa joined State Street Corporation in July of 2007, as part of the Investors Bank and Trust acquisition. Her prior experience includes co-head of State Street’s Sacramento office, and various senior management roles within Performance and Analytics, Institutional Investor Services, OTC derivatives valuation, securities pricing, and fund accounting at State Street, Investors Bank and Trust and Barclays Global Investors. She was also an auditor at Ernst and Young and is a Certified Public Accountant.

Lisa earned a Bachelor of Arts in Economics with Business from the University of California, Los Angeles.

Lisa PaeSenior Vice President, Global Chief Operating Officer


John Powell is a vice president and relationship manager within State Street’s Securities Finance division. His responsibilities include Securities Finance acting as the main point of contact for securities lending and financing related matters on existing accounts under his purview, and the development of new business opportunities.

John has over 20 years of experience in securities finance, asset-liability and investment management with roles in cash reinvestment, client service, compliance, product development, sales and trading. Prior to joining State Street at the close of 2008, he worked at UBS as an Executive Director in Global Prime Brokerage, where he was the co-founder of its 3rd Party securities lending business, Global Portfolio Lending. He was also previously employed by Paine Webber and, early in his career, with The Boston Company.

John earned a Bachelor of Arts degree in political science with a corresponding minor in history from Colgate University. He formerly

held the General Securities Representative (series 7), the State Uniform Securities Agent (series 63) and the General Securities Principal (series 24) licenses. He also successfully completed the Boston Company’s Executive Management Training Program.

State Street provides experienced securities lending capabilities and supplies liquidity across more than 45 markets, worldwide, via Securities Finance offices and trading desks located throughout the Americas, Europe/Middle-East/Africa and Asia/Pacific regions.

John K. PowellVice PresidentBusiness Development/Account ManagementState Street Securities Finance


Francesco M. (Cesco) Squillacioti was named Global Head of Client Management in State Street’s Securities Finance business, after serving as Global Head of Agency Lending since November 2016. Francesco has been a part of the Securities Finance organization since 2000, serving as the Asia-Pacific regional business director, overseeing overall business strategies and client relationships in the region, and prior to that, the head of the securities lending business in Japan. In 2015 he assumed oversight of the State Street’s Global Markets businesses in Japan, as well as the role of President & Representative Director of State Street Global Markets (Japan), and Representative of State Street Bank and Trust Company Tokyo Branch.

Since joining State Street in 1990, Francesco has served in a number of key capacities, including acting as an Assistant to the President, working in the company’s Global Strategy and Development division and heading its Strategic Planning group in

Japan.

Francesco holds a Bachelor of Arts in Economics from Tufts University. He also completed a one-year intensive Japanese language program at International Christian University in Tokyo.

Francesco M. SquillaciotiGlobal Head of Client Management Senior Managing DirectorState Street Securities Finance


State Street Global Markets is a registered trademark of State Street Corporation used for its financial markets business and that of its affiliates (collectively “State Street”). In the US, the products and services outlined herein are offered by State Street Bank and Trust Company, authorized and regulated by the Federal Reserve Board.

This document and information provided herein is for marketing and/or informational purposes only, it does not take into account any client's particular investment or other financial objectives or strategies nor any client’s legal, regulatory, tax or accounting status, nor does it purport to be comprehensive nor intended to replace the exercise of a client’s own careful independent review regarding any corresponding investment or other financial decision. The information provided herein is not intended to suggest or recommend any investment or investment strategy, and does not constitute investment research.

This document and information provided herein does not constitute investment, legal, regulatory, tax or accounting advice and is not a solicitation to buy or sell securities nor to enter into any transaction, nor is it intended to constitute any binding contractual arrangement or commitment by State Street to provide securities services nor any other financial services. Any information provided has been obtained from sources believed to be reliable at the time of publication, nonetheless, we cannot guarantee nor do we make any representation or warranty as to their accuracy and you should not place any reliance on such information.

This document and any comments and statements made herein do not necessarily reflect those of State Street, its subsidiaries or its affiliates. State Street hereby disclaims all liability, whether arising in contract, tort or otherwise, for any losses, liabilities, damages, expenses or costs arising, either direct or consequential, from or in connection with the use of or any reliance place upon any information provided.

Clients should be aware of the risks of participating in securities lending, which may include counterparty, collateral, investment loss, tax and accounting risks. A securities lending program description and risks statement is available. Past performance is no guarantee of future results. This document and information provided herein is not intended for retail clients, nor for distribution to, and may not be relied upon by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to applicable law or regulation. The communication and information or any portion thereof may not be reprinted, sold or redistributed without the prior written consent of State Street Global Markets.

Products and services may not be available in all jurisdictions. Please contact your sales representative for further information. SF GEN NA 2019-01.

© 2019 State Street Corporation - All Rights Reserved

Disclaimer

Mohan Balachandran, Senior Managing DirectorMark Albert, Senior Director April 2019

Teacher Retirement System of Texas

Proposed Modifications to Securities Lending Policy

Investment Management Division

2

Introduction

• This presentation summarizes proposed modifications to the Securities Lending Policy.o The Board’s Policy Review Schedule requires that we review the policy at least every three years.

o The last comprehensive review by the Policy Committee was in December 2016.

o We’ve accelerated this year’s review to address enhanced custody initiatives.

• A formal proposal is presented today to the Policy Committee for consideration in making a recommendation to the Board to adopt the proposed changes.

• Memos from Board Advisors were prepared discussing their views and support.

3

Proposed Modifications

Modification # Proposed Modification1 Permit lending agent to also act as a principal as an approved borrower for its own account.

2 Lower international fixed income securities initial collateral margin to match market levels.

3 Change the threshold and metric for the maximum market value of TRS securities on loan.

4 Clarify, correct, and clean up Securities Lending Policy to improve readability and clarity.

4

Modification 1 Permit lending agent to also act as a principal as an approved borrower for its own account.

Proposal

• Permit lending agent (State Street) to be authorized to borrow TRS securities in a principal capacity for its own account.

• Allow TRS and the lending agent, acting as principal, to net collateral to maximize efficiency in fees and the delivery of collateral.

Rationale

• Improved cost savings and efficiency.

• Costs for borrowing securities for short sales and financing levered long positions is estimated to be lowered approximately 20%.

Background Information

• If State Street is an approved borrower, TRS will set the credit limit and can revise as necessary.

• IMD will initially pilot State Street borrowing in the enhanced custody accounts.

5

Modification 2Lower international fixed income securities initial collateral margin to match market levels.

Proposal• Separate the initial collateral requirements for international fixed income from international equity.

• Set the collateral requirement for international fixed income at 102%.

• Retain the 105% initial collateral requirement for loans of international equity securities.

Rationale• This modification will bring TRS collateral terms in line with market and are expected to improve borrowing

demand for those securities.

• As of 2/28/2019, TRS owns $835 million in international fixed income; none is out on loan.

• Expected annual securities lending income of $300,000

Background Information• Historically, loans of all international fixed income securities required initial collateral of at least 105% of

loan market value outstanding.

• Within the State Street lending program, all US Public Funds that actively lend international fixed income securities use the 102% collateral initial margin.

6

Modification 3Change the threshold and metric for the maximum market value of TRS securities on loan.

Proposal

• Change the maximum market value of TRS securities on loan at any one time from 30% of the TRS Investment portfolio to 50% of the securities eligible for lending.

Rationale

• By calculating the maximum as a percentage of securities eligible for lending, the liquidity goal of the limit is better achieved by removing illiquid holdings from the denominator.


• The purpose of the maximum threshold is to maintain liquidity of the freely marketable securities in the portfolio during periods of extreme market stress.

• As TRS has increased its holdings of illiquid assets, which are not part of the lendable securities pool, the existing constraint calculation no longer has its intended effect.

APPENDIX

8

Modification 1 Permit lending agent to also act as a principal as an approved borrower for its own account.

Market Borrow(State Street )

State Street as an Approved Borrower

Significant cost savings for TRS• Allows TRS and State Street to net collateral which

reduces financing costs

• Reduces TRS “Self Borrow” fee by 17%

Key Controls• TRS sets and revises borrow limits for State Street

• TRS directs State Street borrow accounts

• State Street has a top credit rating

• Regular compliance checksState Street Bank Securities Lending Platform (EC)

Self Borrow(TRS)

Market Borrow(TRS)

Loans SecuritiesNo Collateral

Delivered

Lender(TRS)

Lender (State Street Clients)

Loans SecuritiesNo Collateral Delivered

LoansSecurities

Delivers Collateral

LoansSecurities

Delivers Collateral

Delivers Collateral

Loans TRSSecurities

9

This slide is intentionally left blank.

10

Modification 3Change the threshold and metric for the maximum market value of TRS securities on loan.


• As of 12/31/2018:

o Trust Assets = $145.4B; 30% of Trust Assets = $43.6B

o Lendable Assets = $50.2B; 50% of Lendable Assets = $25.1B

o Assets on Loan $18.8B; 12.9% of Trust Assets; 37.5% of Lendable Assets

DEPARTMENT OF FINANCE

THE UNIVERSITY OF TEXAS AT AUSTIN _______________________________________________________________________________

1 University Station B6600 ∙ Austin, Texas 78712-1179 ∙ Phone: (512) 471-4368 ∙ Fax: (512) 471-5073

MEMORANDUM

To: Board of Trustees The Teacher Retirement System (TRS) of Texas

From: Keith C. Brown

Advisor to the TRS Board

Re: Proposed Changes to the TRS Securities Lending Policy

Date: April 8, 2019 I have reviewed the several changes to the Securities Lending Policy being proposed by the Investment Management Division (IMD). Overall, I endorse these modifications and recommend their adoption. In what follows below, I have included discussion and analysis of the most significant changes put forth by the IMD staff. (For comparative ease, the headers for the various entries in this memo are based on those used in the notes accompanying the IMD’s “Proposed Modifications to Securities Lending Policy” presentation to the Board of April 2019.) • #1: Permit Lending Agent to Also Act as a Principal as an Approved Borrower for Its

Own Account This modification, which is arguably the most complex and impactful of the changes being proposed, would authorize TRS’ designated lending agent (currently State Street) to borrow securities directly for its own account (cf. Section 2.5.4). Although it may seem curious on first consideration why allowing the institution that TRS hires to manage its lending program to also be a borrower in that program, there is a good reason for making this adjustment. At the heart of this proposal is the enhanced custody arrangement that TRS is able to engage in with its lending agent. To clarify, when TRS lends out the securities it owns, it does not make those loans directly with the ultimate borrower (e.g., IMD does not negotiate directly with, say, a hedge fund that wants to borrow a specific stock holding). Rather, TRS engages a lending agent to make those arrangements on its behalf. The lending agent can also be the institution that serves as the custodian for the assets, which can lead to a cost-effective combination of those services. In this arrangement, the lending agent/custodian holds both TRS’

Proposed Securities Lending Policy Changes Memo April 8, 2019 – Page 2

underlying assets as well as the collateral posted by other borrowers of those assets. This is the traditional model followed by the securities lending program from its inception. The situation changes when TRS itself becomes a borrower of securities as well as a lender. In that case, TRS would also have to post collateral on its borrowings, which can be done with a memo pledge through the enhanced custody arrangement currently in place with the lending agent. The advantage of allowing the lending agent to also be a borrower is that the collateral required of the two borrowers—TRS and the lending agent—can then be netted against one another, reducing the overall commitment obligation for both parties. This has the potential to result in a significant reduction in financing and borrowing costs for TRS. (IMD has included a detailed analysis of this forecasted savings in its presentation materials.) Netting arrangements are common in the finance industry; for instance, they are a standard feature of derivative transactions executed using ISDA agreements. In this case, though, the lending agent would have to be a principal borrower rather than just a facilitator of loans for other borrowers. That is ultimately the purpose of this proposal. It is important to note that this modification would not affect the amount of TRS securities that could be on loan, but it would slightly alter the composition of who the borrowers are allowed to be. TRS would retain control of the amount that the lending agent could borrower and Section 2.2 requires an annual review of the creditworthiness of the lending agent as a borrower. • #2: Lower International Fixed Income Securities Initial Collateral Margin to Match

Market Levels The current language in the policy requires an investor who borrows any international security from TRS (defined as a non-dollar denominated instrument or one traded primarily outside of U.S. markets) to post collateral equal to 105 percent of the initial market value of the position. The main change proposed here would keep the 105 percent collateral requirement for international equity securities, but adjust this requirement downward to 102 percent for international fixed-income securities (cf. Sections 3.10.2 and 3.10.3). The motivation for this modification is to bring the policy in line with what has become best practice in the industry, so as to create a “level playing field” in lending opportunities for the TRS international bond portfolio. As IMD notes, at the present time none of the $0.84 billion of international fixed-income portfolio is on loan, due mainly to the more restrictive set of conditions imposed by TRS on potential borrowers. This is a reasonable adjustment to the policy in that brings this part of program in line with standard practice in the industry while also continuing to provide the System with adequate protection from default risk (i.e., holding collateral in excess of the value of the lent securities). Further, the proposed language in the policy will require borrowers to maintain this 102 percent collateral threshold as market conditions vary over time. One related proposed change that is worth mentioning occurs in Section 3.10.2 and pertains to the collateral conditions applied to international equity securities. The new language continues the current practice of requiring collateral of 105 percent of the initial market

Proposed Securities Lending Policy Changes Memo April 8, 2019 – Page 3

value of the loaned securities at the time of the initial transaction. However, the amount of the collateral that the borrower would have to maintain over time has now been lowered from 105 to 103 percent. This adjustment still provides TRS with sufficient risk protection and is consistent with conventions in other sectors of the capital market (e.g., the historical variation between initial and maintenance margin requirements for exchange-traded derivative security transactions). • #3: Change the Threshold and Metric for the Maximum Market Value of TRS Securities

Permitted to be On Loan This proposal adjusts the rule that limits the maximum amount of allowable security lending activity in which the IMD can engage. The current policy language allows for lending activity up to 30 percent of the market value of the total TRS portfolio, which includes both public securities as well as substantial private market holdings that are not actually eligible to be on loan. The proposed language would reset the maximum lending percentage to 50 percent, but then apply that limit to the market value of just those securities eligible to be lent out (cf. Section 4.3). This is a sensible change. When the original policy was designed back in the early 2000s, TRS engaged in relatively little private market investing, so there was not an appreciable distinction between the total TRS portfolio and the portion of that portfolio that might have been considered to be lendable. Under the current asset allocation scheme, however, this situation has changed dramatically (i.e., private market investing has increased greatly over the past two decades) and, as a consequence, there is now a much bigger disconnect between the two entities. By changing the basis for the activity limit in this area, the Board will actually have more precise control in setting the maximum exposure level. It is also worth noting that this change is intended to be at least “activity neutral” in the sense that the combined move to a higher percentage limit (i.e., 30 to 50 percent) and a lower portfolio basis (i.e., total TRS portfolio to just the portfolio of eligible securities held by the bank custodian) will not permit for an overall increase in lending activity. In fact, as the analysis provided by IMD indicates, the maximum amount of assets that could be on loan is substantially higher under the current policy than it would be under the proposed revision. Finally, note that the proposed policy language defining the securities eligible for lending has been modified as follows (cf. Section 3.1):

“Domestic and international equity and fixed income securities held by a bank custodian may be loaned, except those securities which the Investment Division specifies from time to time are not available for lending. TRS securities held in custody by a prime broker are not eligible for securities lending.”

Thus, in order to understand what the new basis for securities lending is at any point in time, the Board will have to know (1) the amount of applicable TRS securities held by the bank custodian, and (2) any of the securities held by the bank custodian that have been specifically removed from eligibility by IMD.

Aon Hewitt | Retirement and Investment 200 E. Randolph Street, Suite 1500 | Chicago, IL 60601 t +1.312.381.1200 | f +1.312.381.1366 | aonhewitt.com Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company

Memo

To Board of Trustees, Teacher Retirement System of Texas (“TRS”)

From Steve Voss; Mike McCormick; Mike Comstock

Date April 5, 2019

Re 2019 Review of Securities Lending Policy

Introduction The ongoing review of the TRS Investment Policy and the ancillary policies represents an important responsibility of the Board, and an area where we spend a considerable amount of time. These policies govern TRS investment activities and are a critical component of good governance. While the TRS Investment policy is reviewed on a biennial basis, the ancillary policies are reviewed less frequently; however, the policies can be revisited at any time deemed appropriate. Proposed Changes We are comfortable with the proposed changes to the policy and recommend the Board adopt them as presented by the Investment Management Division (IMD). These changes are based on thorough discussion and debate and include feedback and comments from fiduciary counsel, TRS Legal and Compliance, and the Board’s investment consultant and advisor. Below we outline the proposed changes within the Securities Lending Policy. Securities Lending Given changes in the composition of the Board, we think it is important to reiterate comments from past reviews of the securities lending policy. The comment below has been included in our reviews of securities lending policy in 2003, 2006, 2010, 2013, and 2016.

We view securities lending predominantly as a way to offset some of the plan’s custody and other expenses, not as a source to add value to an investment program. The focus of a securities lending program should be on controlling risk, not maximizing returns.

We believe securities lending programs should be conservative and the global financial crisis provided several examples of the risks inherent in certain aspects of these programs. We are comfortable with TRS continuing to lend securities under the policy as it currently stands – which in our view remains conservative in nature. The policy’s objectives are clearly stated -- risks are to be controlled and the impact on the broader investment activities of TRS minimized while conservatively reinvesting collateral.

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Modification 1: Addition of section 1.4 and 2.5.4, and modification of section 2.2 and 5; Amend language to allow State Street (lending agent) to borrow TRS securities in a principal capacity and net collateral across the program to reduce borrowing costs. The proposed change will allow TRS to net collateral received through securities lending with collateral required for short sales and financing levered long positions. This change will result in reduced borrowing costs, and create total expected cost reductions of approximately $4.4 million (18.4%). We are in favor of this change as it will bring TRS in-line with many of its peers, reduce the cost of borrowing securities, and allows for an efficient use of TRS capital. Modification 2: 3.10.2 and addition of section 3.10.3; Reduce the collateral requirements for international fixed income and international equity. The proposed change will reduce the initial collateral requirement for international fixed income from 105% to 102%. The change will also reduce the ongoing collateral requirement for individual international fixed income loans from 105% to 100%. The aggregate ongoing collateral requirement for international fixed income would be 102%. The proposed change will also reduce the ongoing collateral requirement for individual international equity loans from 105% to 103%. The aggregate ongoing collateral requirement for international equity would be 105%. We are in favor of this change as it will bring TRS in-line with market collateral requirements. The current above market collateral requirements have resulted in an extremely low utilization level for international fixed income. The proposed change should result in higher utilization and income generation of the securities lending program. Modification 3: 4.3; Modify the manner in which the maximum market value of TRS securities permitted to be on loan is calculated. The proposed change will amend the way the maximum securities on loan is calculated. The current methodology was implemented when illiquid securities represented a smaller proportion of the Trust, and allows for 30% of the Trust to be on loan. The proposed calculation would allow for 50% of the securities available for lending to be loaned. This represents an $18.5 billion (42%) reduction in the maximum market value on loan. We are in favor of changing the manner in which the maximum market value on loan is calculated, as we believe this is a more applicable calculation for maintaining liquidity of the Trust. Additionally, we are comfortable with the maximum being set at 50%, but we would also be comfortable with this percentage being higher. Remaining Modifications The remaining modifications to the policy represent administrative edits, including name changes and grammatical changes.

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In totality we are comfortable with the changes being proposed, but more importantly we find the policy to be consistent with contemporary best practices and conservative in nature.

1Securities Lending Policy

SECURITIES LENDING POLICY (rev. effective [month] May January 1, 2019 2017)

This Securities Lending Policy is adopted by the Board of Trustees of the Teacher Retirement System of Texas (the “Board”) pursuant to section 825.303 of the Texas Government Code. The staff shall include the provisions of this Policy in any contract with a securities lending agent engaged to lend TRS securities under Tex. Gov’t Code section 825.303.

1. Objectives The TRS securities lending program is designed to achieve the following objectives:

1.1. Earn a competitive market return on securities lending through conservative securities lending practices, consistently with the preservation of capital.

1.2. Manage Minimize risk to a reasonable and acceptable level with respect to both the broker and /borrower and the collateral.

1.3. Operate the securities lending program so that it will not interfere with the management of the TRS portfolios.

1.4. Participate in an enhanced custody program that facilitates both TRS borrowing of securities and lending of securities to the lending agent as a principal.

2. Controls 2.1. The Executive Director will ensure assure that the responsibilities for the securities lending

program are appropriately allocated and implemented as between the Chief Investment Officer and the Chief Financial Officer.

2.2. The Chief Investment Officer and his or her designated employees staff are responsible for implementing and monitoring the securities lending program to insure compliance with TRS policy and guidelines and restrictions by the lending agent(s). Such monitoring will include at least an annual review of the creditworthiness of the lending agent(s), as lending agent and as borrower. The Chief Financial Officer is responsible for monitoring the program and providing accurate and timely accounting for the securities lending program.

2.3. The Board will select the lending agent(s) that will perform the securities-lending function. The selection will be made in accordance with applicable statutory requirements and any other factors deemed appropriate pursuant to a competitive evaluation process and due diligence by the staff.

2.4. The Investment Division Staff will negotiate a securities lending authorization agreement and execute a contract with the lending agent(s) selected by the Board consistent with this policy and


applicable law. The executive director or designee must execute the agreement and any amendments to the agreement.

2.5 The lending agent(s) selected by the Board must shall agree to conduct securities lending activities pursuant to the following minimum requirements. Only the Board may determine whether to waive any such requirement.

2.5.1 The lending agent may will not take actions that would cause TRS to engage in a prohibited non-exempt transaction under prohibited by section 503 of the Internal Revenue Code ("Code”).

2.5.2 The lending agent shall assist the Investment Division TRS staff to monitor the creditworthiness of all borrowers and shall obtain the most recent audited statement of a borrower's financial condition (or the most recent unaudited statement, if more recent) as part of this process.

2.5.3 The lending agent shall perform its responsibilities in a manner consistent with that of a professional securities lending agent with the care, skill prudence and diligence under the circumstances then prevailing that a professional securities lending agent acting in like capacity and familiar with such matters would use, all in accordance with applicable federal and state laws.

2.5.32.5.4 The lending agent may, pursuant to a separate written agreement signed by the executive director or designee, and subject to the TRS Code of Ethics for Contractors, be authorized to borrow TRS securities in a principal capacity for its own account (including for re-lending to other clients). To the extent that TRS and the lending agent, acting as a principal, have offsetting collateral delivery obligations in connection with TRS as a borrower of securities and the lending agent as a principal borrower, such collateral delivery obligations may be netted to maximize efficiency in fees and the delivery of collateral.

3. Guidelines The TRS securities lending program will include the following types of loan collateral, short-term cash collateral investments, and loan terms:

3.1. Securities eligible for lending. Domestic and international equity and fixed income securities held by a bank custodian may be loaned, except those securities which the Investment Division specifies from time to time are not available for lending. TRS securities held in custody by a prime broker are not eligible for securities lending by the prime broker.

3.2. Compliance monitoring. Except as specifically provided in these guidelines with respect to maintaining the required market value of collateral for loaned securities, compliance with these guidelines shall be determined as of the time of the investment of cash collateral.

3.3. Collateral received. Collateral received from borrowers must should be delivered in the form of cash or government securities eligible for book entry in either the Federal Reserve System or the Participants Trust Company, or their respective successors.

3.4. Cash collateral collective investments authorized. Cash collateral may be invested in (a) any collective trust fund the assets of which are invested in compliance with these guidelines, is qualified for exemption from taxation under Internal Revenue Service Ruling 81-100, 1981-1C.B. 326, or any successor ruling, regulation or similar pronouncement (the “qualified trust fund exemption”), and of which the current TRS bank custodian or securities lending agent is the trustee;


or (b) if approved by the Chief Investment Officer, (1) any open-ended money market mutual fund managed by a registered investment adviseor or (2) any short-term money market investment collective trust fund that has the qualified trust fund exemption and of which the current TRS bank custodian or securities lending agent is the trustee. No more than 10% of cash collateral may be invested in funds authorized in clause subsection (b)(2) of the preceding sentence.

3.5. Cash collateral authorized portfolio investments. All investments of cash collateral must be denominated in U.S. dollars. When the borrower of a TRS security delivers cash collateral to secure its obligations to redeliver the borrowed security to the lending agent, such cash collateral shall be invested only in the following types of instruments in accordance with these guidelines:

3.5.1 U.S. Government sSecurities and U.S. government-sponsored enterprise (GSE) or agency sSecurities.

3.5.2 Money market instruments including but not limited to commercial paper, master notes, time deposits, bank certificates of deposit and bankers’ acceptances.

3.5.3 Repurchase agreements, either deliverable or triparty, that are fully collateralized by collateral determined by the lending agent consistently with its established practices and in its reasonable discretion, which collateral may include, but is not be limited to, any of the following: U.S. Treasuries, U.S. Treasury STRIPS, fFederal Aagency oObligations, mMortgage- bBacked Ssecurities, aAgency REMICS and /CMOs, cCommercial pPaper, cCorporates, Aasset- Bbacked sSecurities, eEquities, wWhole lLoans, or any combination of these thereof. The lending agent shall notify the Investment Division TRS when other types of collateral are used. The market value of collateral received under any repurchase agreement must exceed the market value of the cash distributed by a margin of not less than two percent.

3.5.4 Fixed or floating rate debt obligations, including, but not limited to, corporate and medium term notes, automobile loans (including dealer inventory financing), credit card receivables, student loans, home equity, and residential and commercial mortgage issues. Any floating rate obligation must meet the following criteria:

3.5.4.1 Interest must be based upon a coupon formula that resets at least quarterly.

3.5.4.2 The coupon formula must be tied to one of the following: the Federal Funds Effective Rate, the U.S. prime lending rate, the three-month U.S. Treasury Bill rate, the one- or three-month London Interbank Offered Rate (LIBOR), the Secured Overnight Financing Rate (SOFR), the Overnight Bank Funding Rate (OBFR), any similar successor rate indices that may be designated to replace LIBOR, or a published composite index for interest rates on commercial paper or certificates of deposit.

3.5.4.3 The coupon formula must be based upon a constant spread relationship between the security coupon rate and the reference rate. Step-up or -down floaters are permitted. Prohibited floaters include, but are not limited to, complex derivative structures such as inverse floating rate notes, and defined range floating rate notes. No investment may be made in any instrument for which a negative coupon interest rate is possible. Zero coupon securities such as commercial paper, short term discount notes, and original issue discount notes , and Treasury bills purchased at prevailing market yields are acceptable for purchase.

3.5.5 All other fixed and floating rate obligations, including but not limited to, corporate and medium term notes.


3.5.63.5.5 Derivative instruments, including but not limited to, futures contracts and options on futures, interest rate swaps, credit default swaps, total return swaps, and options on securities and securities indices. No individual derivative instrument may exceed applicable guideline limits, and no derivative exposure, either individually or in the aggregate, may cause the collateral fund to exceed applicable guideline limits. All derivatives exposure must shall be measured on a net basis.

3.6. Maturity limits for individual cash collateral investments. 3.6.1 At the time of purchase, the expected final maturity of any individual fixed-rate instrument

(expected weighted-average life in the case of amortizing fixed-rate investments) may not exceed 36 months.

3.6.2 At the time of purchase, the expected final maturity of any individual floating-rate instrument (expected weighted-average life in the case of amortizing floating-rate investments) may not exceed seven years.

3.7. Portfolio maturity limits for cash collateral investments. 3.7.1 The par value, dollar-weighted average maturity of the collective cash collateral investment portfolio may not exceed 120 days. For purposes of this calculation, the maturity of any floating rate obligation may be considered the remaining time to the instrument’s next coupon reset. Additionally, for the purpose of this calculation, the weighted-average life of any amortizing, fixed-rate obligation may be substituted for the instrument’s maturity.

3.8. Minimum credit quality ratings for individual cash collateral investments. 3.8.1 Each instrument having a maturity at the time of purchase of less than 13 months must be

rated in one of the two highest short-term ratings categories of the following Nationally Recognized Statistical Ratings Organizations (NRSROs): – Moody’s Investors Service, Inc.;, S&P Global Ratings Standard & Poor’s,; Fitch Ratings, Inc.; or DBRS, Inc.; – or be determined considered by the Board to be of comparable quality based on a recommendation by the Chief Investment Officer or his designee.

3.8.2 Each instrument having a maturity at the time of purchase greater than 13 months must be rated at the time of purchase within the highest major, long-term rating category of an NRSRO (e.g., Moody’s A3 or S&P Global’s Standard & Poor’s A-), or, if unrated, be determined to be of comparable quality by the Board based on a recommendation by the Chief Investment Officer or his designee.

3.9. Downgraded Securities. If, subsequent to purchase, a security is downgraded by an NRSRO such that the security no longer meets the minimum credit rating requirements prescribed in Section 3.88 above, the securities lending agent shall inform one or more of the Chief Investment Officer, Deputy Chief Investment Officer, or the Chief Risk Officer head of Risk Management of the downgrade in writing by email or through another type of electronic transmission transmittal within 72 hours of the downgrade action. Upon receipt of such a notice, the Chief Risk Officerhead of Risk Management, or his or her designee, will conduct a review of the downgraded security and submit a recommended action to the Chief Investment Officer or the Deputy Chief Investment Officer within 72 hours of the receipt of written notice from the securities lending agent. Within 48 hours of the receipt of this recommendation, the Chief Investment Officer or his or her designee will instruct the securities lending agent as to how to administer the downgraded security.

3.10. Initial collateral; marking to market. Loaned securities and initial collateral delivered by the borrower of TRS securities shall be marked to current market value in the applicable currency at the close of each business day, as “business day” may be defined in an applicable securities lending authorization agreement between TRS and the securities lending agent.


3.10.1 Domestic securities. For purposes of this policy, domestic securities are securities denominated in U.S. dollars and whose primary trading markets are in the United States. The initial collateral delivered to secure a loan of domestic securities must have a market value of at least 102% of the initial market value of the loaned securities. If, while an individual the loan to a borrower is outstanding, the current market value of the collateral initially delivered by the borrower is less than 100% of the current market value of the loaned securities, or if the aggregated current market value of the collateral for all domestic securities loaned to a borrower is less than 102% of the current market value of all such securities loaned to a borrower, the securities lending agent must require the borrower to deliver additional collateral to restore the value of the collateral to 102% of the then-current market value of the relevant loan or loans of such loaned securities.

3.10.2 International equity securities. For purposes of this policy, international securities are securities not denominated in U.S. dollars or whose primary trading markets are not in the United States. The initial collateral delivered to secure a loan of international equity securities must have a market value of at least 105% of the initial market value of the loaned securities. If, while an individual the loan is outstanding, the current market value of the collateral initially delivered by the borrower is less than 103105% of the current market value of the loaned international equity securities, or if the aggregated current market value of the collateral for all such securities loaned to a borrower is less than 105% of the aggregated current market value of all securities loaned to a borrower, the securities lending agent must require the borrower to deliver additional collateral to restore the market value of the collateral to 105% of the then-current market value of the relevant loan or loans of such loaned securities.

3.10.3 International sovereign debt and non-U.S. corporate debt securities. In the case of loans of (i) sovereign debt issued by non-U.S. governments and (ii) non-U.S. corporate debt securities, the initial collateral delivered must have a market value of at least 102% of the initial market value of the loaned securities. If, while an individual loan is outstanding the current market value of the collateral is less than 100% of the current market value of the loaned international sovereign debt and non-U.S. corporate debt securities, or if the aggregated current market value of the collateral for all such securities loaned to a borrower is less than 102% of the aggregated current market value of all securities loaned to a borrower, the securities lending agent must require the borrower to deliver additional collateral to restore the value of the collateral to 102% of the then-current market value of the relevant loan or loans of such securities.

3.10.33.10.4 Invested cash collateral. When cash collateral is invested for the account of TRS, the borrower is not required to deliver additional collateral based on a drop in the market value of such cash collateral investments except as provided in the applicable securities loan agreement.

3.11. Loans must be callable by the Investment Division TRS or the lending agent for so as to make timely delivery on the applicable trade settlement date if the loaned security is sold by a TRS portfolio. Any term loans that are not callable must be approved in advance by the Chief Investment Officer or his or her designee.

4. Restrictions 4.1. A fundamental investment based approach will be used to identify collateral investments

appropriate for the relevant portfolio guidelines. A The fundamental investment approach employs


both internal and external quantitative and qualitative research to monitor credit quality within the active universe of investable credits. Several factors are analyzed including: capitalization levels, funding profiles, trends in earnings, credit rating trends, standard financial ratio analysis, changes in regulatory environments, and fluctuations in relevant macroeconomic conditions that could potentially impact an issuer’s creditworthiness profile. Maturity restrictions, as identified below, are assigned to individual securities, and notional credit limits are determined for each issuer, in order to manage the portfolio exposure to each issuer’s credit. All limits within this Section 4 are reviewed regularly to address issuer credit exposure concentration risks and are managed on a real-time basis.

4.2. Collectively, the maturity limits established for individual securities and the weighted average limits for the entire cash collateral portfolio, as specified in paragraphs 3.6.1 and 3.6.2, respectively, coupled with the parameters defined for floating rate securities in paragraph 3.5.4, are intended to control the market-value sensitivity of the portfolio relative to overall changes in interest rates. In addition to these parameters, the cash collateral portfolio will be constructed in a manner that will limit the sensitivity of the fair market value of the portfolio to changes in interest rates as follows:

4.2.1. “Change in interest rates” is defined as an instantaneous, parallel shift in yield curves affecting the entire term structure of interest rates, as indicated by the yields on U.S. Treasury securities, and the interest rate indices referenced in paragraph 3.5.4.2.

4.2.2. The fair market value sensitivity of the portfolio and individual investments will be calculated as the percentage change in the fair market value of the portfolio or investment per 1 basis point change in interest rates paid per annum. Additionally, the fair market value sensitivity limit will be applied to changes in interest rates of any and every magnitude (i.e., the ratio of the percentage change in the fair market value of the portfolio to a 1 basis point change in interest rates must remain within the specified limits if interest rates change by any amount).

4.2.3. The fair market value of the portfolio must not decline by more than .0035 percent per 1 basis point change in interest rates.

4.3. The maximum market value of TRS securities on loan at any one time shall not exceed 50%30% of the market value of the eligible securities available for loan under Section 3.1 in the total TRS investment portfolio.

4.4. No mortgages or mortgage-backed securities may be loaned in "dollar roll" transactions in which the identical borrowed securities are not returned to TRS.

4.5. On at least an annual basis, the lending agent will deliver to the Investment Division furnish a list of proposed potential borrowers and corresponding dollar loan limits. The Chief Investment Officer or his/her designee has the discretion to remove any name from the potential borrower list and may require the lending agent to deliver obtain an updated list of proposed potential borrowers on request.

4.6. Securities lending agreements entered into with borrowers by the securities lending agent must will be evidenced by covered by written contracts that comply consistent with this policy and applicable law. The lending agent may use a proprietary form for such written agreements.

4.7. Diversification requirements.

4.7.1 No more than 10% of total cash collateral investments may be made in issues of any one non-governmental entity. There are no concentration limits for U.S. Treasury and aAgency securities. The single counterparty exposure on a repurchase agreement may


not exceed 5% of the total cash collateral account unless those transactions are covered by an indemnification agreement that is sponsored by an organization that bears a long-term NRSRO rating of A- or better and is enhanced by acceptable collateral as specified by section 5.3 of the guidelines. For purposes of this requirement, counterparty includes the counterparty’s subsidiaries.

4.7.2 Exclusive of approved money market funds, no more than 40% of cash collateral investments may be made in asset-backed commercial paper.

4.7.3 Exclusive of approved money market funds, no more than 50% of cash collateral investments may be made in foreign debt obligations.

4.8. Investments in structured notes are prohibited with the exception of those listed in Section 3.5 of the guidelines.

5. Reports

The Investment Division Staff will review the progress of the securities lending program, including an overall evaluation of the performance of the lending agent lender(s) and the program, with the Investment Risk Committee of the Board of Trustees at least annually. This review will include a written report on the lending volume, income generated, the lending agent’s borrowing balance and its credit limit as a principal, and the most-recent maximum broker loan limits .top borrower balances and their respective credit limits.

SECURITIES LENDING POLICY (rev. effective May 1, 2019)

This Securities Lending Policy is adopted by the Board of Trustees of the Teacher Retirement System of Texas (the “Board”) pursuant to section 825.303 of the Texas Government Code. The staff shall include the provisions of this Policy in any contract with a securities lending agent engaged to lend TRS securities under Tex. Gov’t Code section 825.303.

1. Objectives The securities lending program is designed to achieve the following objectives:

1.1. Earn a competitive market return on securities lending through conservative securities lending practices, consistently with the preservation of capital.

1.2. Manage risk to a reasonable and acceptable level with respect to both the broker and borrower and the collateral.

1.3. Operate the securities lending program so that it will not interfere with the management of the TRS portfolios.

1.4. Participate in an enhanced custody program that facilitates both TRS borrowing of securities and lending of securities to the lending agent as a principal.

2. Controls 2.1. The Executive Director will ensure that the responsibilities for the securities lending program are

appropriately allocated and implemented as between the Chief Investment Officer and the Chief Financial Officer.

2.2. The Chief Investment Officer and his or her designated employees are responsible for implementing and monitoring the securities lending program to insure compliance with TRS policy and guidelines and restrictions by the lending agent(s). Such monitoring will include at least an annual review of the creditworthiness of the lending agent(s), as lending agent and as borrower. The Chief Financial Officer is responsible for monitoring the program and providing accurate and timely accounting for the securities lending program.

2.3. The Board will select the lending agent(s) that will perform the securities-lending function. The selection will be made in accordance with applicable statutory requirements and any other factors deemed appropriate pursuant to a competitive evaluation process and due diligence by the staff.

1 Securities Lending Policy

2.4. The Investment Division will negotiate a securities lending authorization agreement with the lending agent(s) selected by the Board consistent with this policy and applicable law. The executive director or designee must execute the agreement and any amendments to the agreement.

2.5 The lending agent(s) selected by the Board must agree to conduct securities lending activities pursuant to the following minimum requirements. Only the Board may determine whether to waive any such requirement.

2.5.1 The lending agent may not take actions that would cause TRS to engage in a prohibited transaction under section 503 of the Internal Revenue Code ("Code”).

2.5.2 The lending agent shall assist the Investment Division to monitor the creditworthiness of all borrowers and shall obtain the most recent audited statement of a borrower's financial condition (or the most recent unaudited statement, if more recent) as part of this process.

2.5.3 The lending agent shall perform its responsibilities in a manner consistent with that of a professional securities lending agent with the care, skill prudence and diligence under the circumstances then prevailing that a professional securities lending agent acting in like capacity and familiar with such matters would use, all in accordance with applicable federal and state laws.

2.5.4 The lending agent may, pursuant to a separate written agreement signed by the executive director or designee, and subject to the TRS Code of Ethics for Contractors, be authorized to borrow TRS securities in a principal capacity for its own account (including for re-lending to other clients). To the extent that TRS and the lending agent, acting as a principal, have offsetting collateral delivery obligations in connection with TRS as a borrower of securities and the lending agent as a principal borrower, such collateral delivery obligations may be netted to maximize efficiency in fees and the delivery of collateral.

3. Guidelines The securities lending program will include the following types of loan collateral, short-term cash collateral investments, and loan terms: 3.1. Securities eligible for lending. Domestic and international equity and fixed income securities held

by a bank custodian may be loaned, except those securities which the Investment Division specifies from time to time are not available for lending. TRS securities held in custody by a prime broker are not eligible for securities lending.

3.2. Compliance monitoring. Except as specifically provided in these guidelines with respect to maintaining the required market value of collateral for loaned securities, compliance with these guidelines shall be determined as of the time of the investment of cash collateral.

3.3. Collateral received. Collateral received from borrowers must be delivered in the form of cash or government securities eligible for book entry in either the Federal Reserve System or the Participants Trust Company, or their respective successors.

3.4. Cash collateral collective investments authorized. Cash collateral may be invested in (a) any collective trust fund the assets of which are invested in compliance with these guidelines, is qualified for exemption from taxation under Internal Revenue Service Ruling 81-100, 1981-1C.B. 326, or any successor ruling, regulation or similar pronouncement (the “qualified trust fund exemption”), and of which the current bank custodian or securities lending agent is the trustee; or (b) if approved by the Chief Investment Officer, (1) any open-ended money market mutual fund managed by a registered investment adviser or (2) any short-term money market investment


collective trust fund that has the qualified trust fund exemption and of which the current bank custodian or securities lending agent is the trustee. No more than 10% of cash collateral may be invested in funds authorized in clause (b)(2) of the preceding sentence.

3.5. Cash collateral authorized portfolio investments. All investments of cash collateral must be denominated in U.S. dollars. When the borrower of a TRS security delivers cash collateral to secure its obligations to redeliver the borrowed security to the lending agent, such cash collateral shall be invested only in the following types of instruments in accordance with these guidelines:

3.5.1 U.S. Government securities and U.S. government-sponsored enterprise (GSE) or agency securities.

3.5.2 Money market instruments including but not limited to commercial paper, master notes, time deposits, bank certificates of deposit and bankers’ acceptances.

3.5.3 Repurchase agreements, either deliverable or triparty, that are fully collateralized by collateral determined by the lending agent consistently with its established practices and in its reasonable discretion, which collateral may include, but is not limited to, any of the following: U.S. Treasuries, U.S. Treasury STRIPS, federal agency obligations, mortgage-backed securities, agency REMICS and CMOs, commercial paper, corporates, asset-backed securities, equities, whole loans, or any combination of these. The lending agent shall notify the Investment Division when other types of collateral are used. The market value of collateral received under any repurchase agreement must exceed the market value of the cash distributed by a margin of not less than two percent.

3.5.4 Fixed or floating rate debt obligations, including, but not limited to, corporate and medium term notes, automobile loans (including dealer inventory financing), credit card receivables, student loans, home equity, and residential and commercial mortgage issues. Any floating rate obligation must meet the following criteria: 3.5.4.1 Interest must be based upon a coupon formula that resets at least quarterly.

3.5.4.2 The coupon formula must be tied to one of the following: the Federal Funds Effective Rate, the U.S. prime lending rate, the three-month U.S. Treasury Bill rate, the one- or three-month London Interbank Offered Rate (LIBOR), the Secured Overnight Financing Rate (SOFR), the Overnight Bank Funding Rate (OBFR), any similar successor rate indices that may be designated to replace LIBOR, or a published composite index for interest rates on commercial paper or certificates of deposit.

3.5.4.3 The coupon formula must be based upon a constant spread relationship between the security coupon rate and the reference rate. Step-up or -down floaters are permitted. Prohibited floaters include, but are not limited to, complex derivative structures such as inverse floating rate notes, and defined range floating rate notes. No investment may be made in any instrument for which a negative coupon interest rate is possible. Zero coupon securities such as commercial paper, short term discount notes, and original issue discount notes purchased at prevailing market yields are acceptable for purchase.

3.5.5 Derivative instruments, including but not limited to, futures contracts and options on futures, interest rate swaps, credit default swaps, total return swaps, and options on securities and securities indices. No individual derivative instrument may exceed applicable guideline limits, and no derivative exposure, either individually or in the aggregate, may cause the collateral fund to exceed applicable guideline limits. All derivatives exposure must be measured on a net basis.


3.6. Maturity limits for individual cash collateral investments. 3.6.1 At the time of purchase, the expected final maturity of any individual fixed-rate instrument

(expected weighted-average life in the case of amortizing fixed-rate investments) may not exceed 36 months.

3.6.2 At the time of purchase, the expected final maturity of any individual floating-rate instrument (expected weighted-average life in the case of amortizing floating-rate investments) may not exceed seven years.

3.7. Portfolio maturity limits for cash collateral investments. The par value, dollar-weighted average maturity of the collective cash collateral investment portfolio may not exceed 120 days. For purposes of this calculation, the maturity of any floating rate obligation may be considered the remaining time to the instrument’s next coupon reset. Additionally, for the purpose of this calculation, the weighted-average life of any amortizing, fixed-rate obligation may be substituted for the instrument’s maturity.

3.8. Minimum credit quality ratings for individual cash collateral investments. 3.8.1 Each instrument having a maturity at the time of purchase of less than 13 months must be

rated in one of the two highest short-term ratings categories of the following Nationally Recognized Statistical Ratings Organizations (NRSROs): Moody’s Investors Service, Inc.; S&P Global Ratings; Fitch Ratings, Inc.; or DBRS, Inc.; or be determined by the Board to be of comparable quality based on a recommendation by the Chief Investment Officer or his designee.

3.8.2 Each instrument having a maturity at the time of purchase greater than 13 months must be rated at the time of purchase within the highest major, long-term rating category of an NRSRO (e.g., Moody’s A3 or S&P Global’s A-), or, if unrated, be determined to be of comparable quality by the Board based on a recommendation by the Chief Investment Officer or his designee.

3.9. Downgraded Securities. If, subsequent to purchase, a security is downgraded by an NRSRO such that the security no longer meets the minimum credit rating requirements prescribed in Section 3.8 above, the securities lending agent shall inform one or more of the Chief Investment Officer, Deputy Chief Investment Officer, or the Chief Risk Officer of the downgrade in writing by email through another type of electronic transmission within 72 hours of the downgrade action. Upon receipt of such a notice, the Chief Risk Officer, or his or her designee, will conduct a review of the downgraded security and submit a recommended action to the Chief Investment Officer or the Deputy Chief Investment Officer within 72 hours of the receipt of written notice from the securities lending agent. Within 48 hours of the receipt of this recommendation, the Chief Investment Officer or his or her designee will instruct the securities lending agent as to how to administer the downgraded security.

3.10. Initial collateral; marking to market. Loaned securities and initial collateral delivered by the borrower of TRS securities shall be marked to current market value in the applicable currency at the close of each business day, as “business day” may be defined in an applicable securities lending authorization agreement between TRS and the securities lending agent.

3.10.1 Domestic securities. For purposes of this policy, domestic securities are securities denominated in U.S. dollars and whose primary trading markets are in the United States. The initial collateral delivered to secure a loan of domestic securities must have a market value of at least 102% of the initial market value of the loaned securities. If, while an individual loan to a borrower is outstanding, the current market value of the collateral initially delivered by the borrower is less than 100% of the current market value of the


loaned securities, or if the aggregated current market value of the collateral for all domestic securities loaned to a borrower is less than 102% of the current market value of all such securities loaned to a borrower, the securities lending agent must require the borrower to deliver additional collateral to restore the value of the collateral to 102% of the then-current market value of the relevant loan or loans of such securities.

3.10.2 International equity securities. For purposes of this policy, international securities are securities not denominated in U.S. dollars or whose primary trading markets are not in the United States. The initial collateral delivered to secure a loan of international equity securities must have a market value of at least 105% of the initial market value of the loaned securities. If, while an individual loan is outstanding, the current market value of the collateral initially delivered by the borrower is less than 103% of the current market value of the loaned international equity securities, or if the aggregated current market value of the collateral for all such securities loaned to a borrower is less than 105% of the aggregated current market value of all securities loaned to a borrower, the securities lending agent must require the borrower to deliver additional collateral to restore the market value of the collateral to 105% of the then-current market value of the relevant loan or loans of such securities.

3.10.3 International sovereign debt and non-U.S. corporate debt securities. In the case of loans of (i) sovereign debt issued by non-U.S. governments and (ii) non-U.S. corporate debt securities, the initial collateral delivered must have a market value of at least 102% of the initial market value of the loaned securities. If, while an individual loan is outstanding the current market value of the collateral is less than 100% of the current market value of the loaned international sovereign debt and non-U.S. corporate debt securities, or if the aggregated current market value of the collateral for all such securities loaned to a borrower is less than 102% of the aggregated current market value of all securities loaned to a borrower, the securities lending agent must require the borrower to deliver additional collateral to restore the value of the collateral to 102% of the then-current market value of the relevant loan or loans of such securities.

3.10.4 Invested cash collateral. When cash collateral is invested for the account of TRS, the borrower is not required to deliver additional collateral based on a drop in the market value of such cash collateral investments except as provided in the applicable securities loan agreement.

3.11. Loans must be callable by the Investment Division or the lending agent for timely delivery on the applicable trade settlement date if the loaned security is sold by a TRS portfolio. Any term loans that are not callable must be approved in advance by the Chief Investment Officer or his or her designee.

4. Restrictions 4.1. A fundamental investment approach will be used to identify collateral investments appropriate for

the relevant portfolio guidelines. A fundamental investment approach employs both internal and external quantitative and qualitative research to monitor credit quality within the active universe of investable credits. Several factors are analyzed including: capitalization levels, funding profiles, trends in earnings, credit rating trends, standard financial ratio analysis, changes in regulatory environments, and fluctuations in relevant macroeconomic conditions that could potentially impact an issuer’s creditworthiness profile. Maturity restrictions, as identified below, are assigned to individual securities, and notional credit limits are determined for each issuer, in order to manage


the portfolio exposure to each issuer’s credit. All limits within this Section 4 are reviewed regularly to address issuer credit exposure concentration risks and are managed on a real-time basis.

4.2. Collectively, the maturity limits established for individual securities and the weighted average limits for the entire cash collateral portfolio, as specified in paragraphs 3.6.1 and 3.6.2, respectively, coupled with the parameters for floating rate securities in paragraph 3.5.4, are intended to control the market-value sensitivity of the portfolio relative to overall changes in interest rates. In addition to these parameters, the cash collateral portfolio will be constructed in a manner that will limit the sensitivity of the fair market value of the portfolio to changes in interest rates as follows: 4.2.1. “Change in interest rates” is defined as an instantaneous, parallel shift in yield curves

affecting the entire term structure of interest rates, as indicated by the yields on U.S. Treasury securities, and the interest rate indices referenced in paragraph 3.5.4.2.

4.2.2. The fair market value sensitivity of the portfolio and individual investments will be calculated as the percentage change in the fair market value of the portfolio or investment per 1 basis point change in interest rates paid per annum. Additionally, the fair market value sensitivity limit will be applied to changes in interest rates of any and every magnitude (i.e., the ratio of the percentage change in the fair market value of the portfolio to a 1 basis point change in interest rates must remain within the specified limits if interest rates change by any amount).

4.2.3. The fair market value of the portfolio must not decline by more than .0035 percent per 1 basis point change in interest rates.

4.3. The maximum market value of TRS securities on loan at any one time shall not exceed 50% of the market value of the eligible securities available for loan under Section 3.1 in the TRS investment portfolio.

4.4. No mortgage-backed securities may be loaned in "dollar roll" transactions in which the identical borrowed securities are not returned to TRS.

4.5. On at least an annual basis, the lending agent will deliver to the Investment Division a list of proposed borrowers and corresponding dollar loan limits. The Chief Investment Officer or his/her designee has the discretion to remove any name from the borrower list and may require the lending agent to deliver an updated list of proposed borrowers on request.

4.6. Securities lending agreements entered into with borrowers by the securities lending agent must be evidenced by written contracts that comply with this policy and applicable law. The lending agent may use a proprietary form for such written agreements.

4.7. Diversification requirements. 4.7.1 No more than 10% of total cash collateral investments may be made in issues of any one

non-governmental entity. There are no concentration limits for U.S. Treasury and agency securities. The single counterparty exposure on a repurchase agreement may not exceed 5% of the total cash collateral account unless those transactions are covered by an indemnification agreement that is sponsored by an organization that bears a long-term NRSRO rating of A- or better and is enhanced by acceptable collateral as specified by section 5.3 of the guidelines. For purposes of this requirement, counterparty includes the counterparty’s subsidiaries.

4.7.2 Exclusive of approved money market funds, no more than 40% of cash collateral investments may be made in asset-backed commercial paper.


4.7.3 Exclusive of approved money market funds, no more than 50% of cash collateral investments may be made in foreign debt obligations.

4.8. Investments in structured notes are prohibited with the exception of those listed in Section 3.5 of the guidelines.

5. Reports

The Investment Division will review the progress of the securities lending program, including an overall evaluation of the performance of the lending agent and the program, with the Investment Committee of the Board of Trustees at least annually. This review will include a written report on the lending volume, income generated, the lending agent’s borrowing balance and its credit limit as a principal, and top borrower balances and their respective credit limits.


Adopted Amendments in Chapter 51 and Adopted New Rule 25.11 Carolina de Onís, General CounselApril 25, 2019

LEGAL AND COMPLIANCETeacher Retirement System of Texas

ADOPTED AMENDED AND NEW RULES

2

ADOPTED AMENDED AND NEW RULES – AMENDMENTS TO CHAPTER 51

Adopted Amendments to Chapter 51• The amendments to Rule 51.2 (relating to Vendor Protests, Dispute Resolution, and Hearing) and Rule

51.11 (relating to Historically Underutilized Businesses) are non-substantive.

Adopted Amendments Description of Change

51.2, 51.11 Updates three out-of-date references to other Texas Administrative Code provisions

3

ADOPTED AMENDED AND NEW RULES – NEW RULE 25.11

Adopted New Rule 25.11

• The rule provides that employees of a subsidiary of TRS that has its principal office located outside the United States are not eligible for TRS membership.

– Tex. Gov’t Code § 825.102: The Board of Trustees has the authority to adopt administrative rules for eligibility for membership.

– Rule will provide clarity that employees of TRS offices in foreign jurisdictions, including TRICOT, are not eligible for membership with TRS.

4

IMPACT OF NEW RULE 25.11 ON TRS OFFICES IN FOREIGN JURISDICTIONS

EXAMPLE: Potential Direct Employees of TRICOT

• Will be part of UK auto-enrollment in mandatory pension scheme regulated by the Financial Conduct Authority instead of TRS pension plan.

• UK pension is defined contribution, with a minimum 3% employer contribution and 5% employee contribution on earnings between £6,032 and £46,350 per year.

• An employer can adjust contribution rates or covered earnings above the minimum if desired, but total contributions per employee are limited to £10,000/ year.

5

Proposed Amended Rules: Ch. 25, 29, 41, and 47Carolina de Onís, General CounselKevin Wakley, Assistant General CounselClarke Howard, Assistant General CounselApril 25, 2019

LEGAL AND COMPLIANCETeacher Retirement System of Texas

ACTUARIAL TABLE UPDATES

2

ACTUARIAL TABLE UPDATES – PROPOSED AMENDED RULES CH. 25, 29, AND 47

What are the TRS actuarial tables?

• State law instructs TRS to use actuarial assumptions to administer several aspects of the retirement plan,including calculating costs of service credit purchases and reductions to annuity payments for memberswho retire early. TRS’ actuary prepares tables that incorporate these assumptions.

Why does TRS need to update the tables?

• The actuary has recommended updates to these tables based on the Board’s newly adopted investment return assumption and the adoption of adjusted mortality assumptions.

3

ACTUARIAL TABLE UPDATES – PROPOSED AMENDED RULES CH. 25, 29, AND 47

Proposed amended rules• TRS proposes to amend rules in Chapter 25, 29 and 47 to incorporate the updated actuarial tables.

Table Types Proposed Amended Rules Specific Tables Affected

Service Credit Purchases 25.162, 25.302 and 25.303

Relating to service credit purchases, compensationcredit purchases, and state sick and personal leaveservice credit purchases.

Retirement Benefits 29.11, 29.21 and 29.71Relating to early retirement, optional retirement, reservetransfer factors, beneficiary life expectancy, and partiallump sum options.

Alternate PayeePayments 47.17

Relating to payments to an alternate payee underSection 804.005

4

HEALTH CARE PROPOSED RULES

HEALTH CARE PROPOSED RULES – CHAPTER 41

Proposed amended rules• As a result of the rule review process, TRS proposes various minor substantive changes and non-substantive

changes to Chapter 41 to update the health care rules.

PROPOSED AMENDMENTS DESCRIPTION OF CHANGES

41.8, 41.9, 41.15, 41.31 and 41.32Minor substantive changes to bidding rules thatprovide greater consistency and flexibility in theprocurement process.

41.1, 41.3, 41.7, 41.11 and 41.39Non-substantive changes that harmonize the rulewith relevant statutory or rule provisions or BoardBylaw language.

41.2, 41.4, 41.34, 41.41, and 41.50Non-substantive changes which remove parts ofthe rule which have become irrelevant due to thepassage of time.

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APPENDIX

APPENDIX - LIST OF TABLES AFFECTED

Proposed Amended Rules Tables Affected

25.162 New Conversion Factor Tables for state personal or sick leave servicecredit purchases;

25.302

Three new Actuarial Cost Tables for service credit purchases by,respectively, Tier 1 and Tier 2 members, Tier 3 and Tier 4 members,and Tier 5 and Tier 6 members; Repealed Actuarial Cost Tables for Tier1 and 2 and Tier 3 and 4 members that applied only to purchasescompleted or installment agreements initiated prior to September 1,2012.

25.303Three new Actuarial Cost Tables for compensation credit purchases by,respectively, Tier 1 and Tier 2 members, Tier 3 and Tier 4 members,and Tier 5 and Tier 6 members.

29.11New tables for Early Age Reduction Factors, Optional AnnuityReduction Factors for Service Retirement, Optional Annuity ReductionFactors for Disability Retirement, and Reserve Transfer Factors.

29.21 New Tables for Unisex Joint Beneficiary Life for optional annuitybeneficiary changes.

29.71 New Factor Tables for Partial Lump-Sum Option Payments

47.17New Life Annuity Factors, Interest Annuity Factors, and InterestAccumulation Factors for distributions to alternate payees underSection 804.005, Government Code.

8

Legal & Compliance

Memorandum

April 25, 2019

TO: Policy Committee of the Board of Trustees (“Policy Committee”)

FROM: Carolina de Onís, General Counsel, Clarke Howard, Assistant General Counsel

COPY: Brian Guthrie, Executive Director

RE: Proposed Amendments to Rules in Chapter 41 of Title 34, Part 3 of the Texas Administrative Code: TRS-Care Program: Rules 41.1 -- Initial Enrollment Periods for the Health Benefit Program under the Texas Public School Retired Employees Group Benefits Act (TRS-Care), 41.2 -- Additional Enrollment Opportunities, 41.3 -- Retirees Advisory Committee, 41.4 -- Employer Health Benefit Surcharge, 41.7 -- Effective Date of Coverage, 41.8 -- Eligible Bidders, 41.9 – Bid Procedure, and 41.11 -- Years of Service Credit Used to Determine Premiums. Long-Term Care Insurance Program: Rule 41.15 -- Requirements to Bid on Group Long-Term Care Insurance Under Chapter 1576 of the Insurance Code. TRS-ActiveCare Program: Rules 41.31 -- Eligible Bidders, 41.32 -- Bid Procedure, 41.34 -- Eligibility for Coverage under the Texas School Employees Uniform Group Health Coverage Program, 41.39 -- Coverage for Individuals Changing Employers, 41.41 -- Premium Payments, and 41.50 -- Appeals Relating to Claims or Other Benefits.

Requested Action TRS Staff asks the Policy Committee to authorize publication in the Texas Register of proposed amendments to: (1) TRS-Care Program Rules 41.1, 41.2, 41.3, 41.4, 41.7, 41.8, 41.9 and 41.11;

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(2) Long-Term Care Insurance Program Rule 41.15; and (3) TRS-ActiveCare Program Rules 41.31, 41.32, 41.34, 41.39, 41.41, and 41.50. Proposed Amendments to these Rules TRS-Care Program Rule 41.1 -- Initial Enrollment Periods for the Health Benefit Program under the Texas Public School Retired Employees Group Benefits Act (TRS-Care): In addition to a few initial, non-substantive proposed amendments to streamline the wording of this rule, amendments are also being proposed in subsection (e). Specific references to initial enrollment opportunities for new spouses and new dependent children are being eliminated, replaced by references to broader enrollment opportunities under Rule 41.2 and under applicable law, which themselves include initial enrollment opportunities for new spouses and new dependent children. Therefore, these proposed amendments in subsection (e) also do not make any substantive changes to the initial enrollment periods available to potential enrollees. TRS-Care Program Rule 41.2 -- Additional Enrollment Opportunities: Subsection (a) of this rule expired on December 31, 2017, as evidenced by subsection (a)(9). Accordingly, at this time, TRS Staff is recommending the deletion of subsection (a), along with the re-lettering of the remainder of the subsections of this rule. Also, with the passage of time, existing subsection (b)(3) is no longer needed. TRS-Care Program Rule 41.3 -- Retirees Advisory Committee: Along with the correction of a typographical reference to the “Committees” in subsection (g), the proposed amendment concerning subsection (b) more closely aligns this subsection's language with the language found in Section 1.7(t) of the TRS Board Bylaws. TRS-Care Program Rule 41.4 -- Employer Health Benefit Surcharge: With the passage of time, the introductory phrase in subsection (c), along with existing subsections (b), (j) and (k), are no longer needed. All of the other amendments proposed in this rule simply re-letter references to the remaining subsections of this rule. TRS-Care Program Rule 41.7 -- Effective Date of Coverage: The proposed amendments in subsection (g) and subsection (h) are responsive to the above noted re-lettering of the remaining subsections of Rule 41.2. TRS Staff proposes the addition of a new subsection (n), which provides notice to enrollees in a Medicare plan under TRS-Care that their effective date of coverage is determined by the federal laws, regulations, policies and procedures that control the Medicare program.

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TRS-Care Program Rule 41.8 -- Eligible Bidders TRS-Care Program Rule 41.9 -- Bid Procedure Long-Term Care Insurance Program Rule 41.15 -- Requirements to Bid on Group Long-Term

Care Insurance Under Chapter 1576 of the Insurance Code TRS-ActiveCare Program Rule 41.31 -- Eligible Bidders TRS ActiveCare Program Rule 41.32 -- Bid Procedure All five (5) of these rules deal with bidding issues associated with the TRS-Care, Long-Term Care Insurance, and TRS-ActiveCare programs addressed under Chapter 41. The proposed revisions to these rules have two objectives in mind: (1) where appropriate, to create greater consistency between and among these rules, given that all of them address bidding issues; and (2) to eliminate specific bidding terms (e.g., in current Rule 41.15 (b)(2), with its reference to “capital and surplus of at least $500 million”) which may be outdated in today’s marketplace and are more appropriately addressed in the bid materials created by TRS for each specific procurement. Specific bidding terms are now included in the minimum qualification standards outlined in each solicitation, when appropriate; accordingly, the proposed revisions include for each program more general and more flexible requirements that each bidder “must comply with the minimum qualification standards contained in the applicable solicitation from TRS” and each bid must be ”submitted in compliance with the bid requirements provided by TRS.” TRS Staff is proposing the deletion of existing subsections (c) and (d) of Rule 41.15 because the possible offering of permanent life insurance and disability insurance are not a part of the Long-Term Care Insurance Program and, therefore, should not be included in this rule, which exclusively addresses the Long-Term Care Insurance Program. TRS-Care Program Rule 41.11 -- Years of Service Credit Used to Determine Premiums: Subsection (a) provides that TRS may (emphasis added) use years of service credit to determine applicable premium rates. TRS Staff is proposing the addition of the marked, introductory phrases in subsections (b) and (c) in order to clarify that subsections (b) and (c), with their mandatory “will use the retiree’s years of service credit” language, are subject first and foremost to an election by TRS under subsection (a) to use such years of service credit in determining premiums. TRS-ActiveCare Program Rule 41.34 -- Eligibility for Coverage under the Texas School Employees Uniform Group Health Coverage Program: As marked in subsections (1), (2), (3), (5) and (6), the proposed substitution of the word “title” for “chapter” align these references with similar such references found in other rules under Chapter 41, which also use the word “title.” These above noted proposed amendments make no substantive changes to this rule. With the passage of time, the introductory phrase in subsection (8), along with existing subsection (9), are no longer needed.

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TRS-ActiveCare Program Rule 41.39 -- Coverage for Individuals Changing Employers: The only proposed amendment to this rule is found in subsection (d). Subsection (d) provides that an eligible employee who has previously waived coverage may enroll during any subsequent open enrollment period. However, a change in employment that takes place during the same plan year in which the employee waived coverage, but outside of an open-enrollment period, will not allow the employee to enroll in TRS-ActiveCare. Yet, Rule 41.36(b) provides that if an eligible part-time employee waives coverage during an enrollment opportunity and later, during that same plan year, becomes an eligible full-time employee, then that employee has a 31-day enrollment opportunity to enter into TRS-ActiveCare; this change in status to a full-time employee could take place when the employee changes employment during the same plan year in which the employee previously waived coverage. This proposed amendment provides notice to enrollees of this exception to the general prohibition found in subsection (d) of Rule 41.39. TRS-ActiveCare Program Rule 41.41 -- Premium Payments: With the passage of time, existing subsection (a), along with the introductory phrase in subsection (b), are no longer needed. All of the other amendments proposed in this rule simply re-letter references to the remaining subsections of this rule. TRS-ActiveCare Program Rule 41.50 -- Appeals Relating to Claims or Other Benefits: With the passage of time, the phrase in subsection (a) that references “September 1, 2011,” along with existing subsection (b), are no longer needed. Marked drafts of the proposed changes to the rules are attached as Attachment 1 and clean versions are attached as Attachment 2. Conclusion If the Policy Committee authorizes publication, the proposed amendments will be published in the Texas Register for public comment for at least 30 days before presentation to the Policy Committee and Board of Trustees for final adoption.

Attachment 1

2018 Four-Year Rule Review

Marked Textual Amendments

TRS-Care Rules: RULE §41.1 Initial Enrollment Periods for the Health Benefit Program under the Texas Public School Retired Employees Group Benefits Act (TRS-Care) (a) The initial enrollment period in the health benefits program under the Texas Public School Retired

Employees Group Benefits Act (TRS-Care) for eligible Teacher Retirement System of Texas (TRS) retirees who take a service retirement and who are eligible to enroll in TRS-Care at the time of retirement expires at the end of the later of:

(1) the last day of the month that is 3 consecutive calendar months, but in no event less than 90

days, after their effective retirement date; or

(2) the last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, following the last day of the month in which their election to retire is received by TRS.

(b) The initial enrollment period in TRS-Care for eligible TRS disability retirees expires at the end of the

last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, after the date that the disability retirement is approved by the TRS Medical Board.

(c) The initial enrollment period in TRS-Care for an eligible surviving spouse of a deceased retiree and

for an eligible surviving dependent child of a deceased retiree expires on the last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, after the retiree died.

(d) The initial enrollment period in TRS-Care for an eligible surviving spouse of a deceased active

member and for an eligible surviving dependent child of a deceased active member expires on the last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, after the active member died.

(e) Notwithstanding the other provisions of this section, a participant shall be entitled to enroll in TRS-

Care:

(1) under the additional enrollment opportunities found in §41.2 of this titleA retiree may enroll a new spouse within 31 days of the date on which the retiree marries; and

(2) under applicable law, including A retiree or surviving spouse may enroll a child who becomes a dependent as defined by § 1575.003, Insurance Code, within 31 days after the date on which the child becomes a dependent eligible for coverage under TRS-Care; and

(3) A participant shall be entitled to all applicable COBRA rights under the Federal Public Health Service Act.

(f) If a retiree fails to enroll a newly eligible spouse or dependent child or if a surviving spouse fails to

enroll a newly eligible dependent child within the time periods set out in subsection (e) of this section, the retiree or surviving spouse will not be able to enroll the spouse or dependent child in TRS-Care until a subsequent enrollment period.

RULE §41.2 Additional Enrollment Opportunities

(a) Age 65 Additional Enrollment Opportunity. "Eligible participants," as defined in paragraph (1) of this subsection, have an additional enrollment opportunity in TRS-Care as described in this subsection when they become 65 years old (the "Age 65 Additional Enrollment Opportunity").

(1) For purposes of this subsection, the term "eligible participants" means:

(A) all TRS retirees who are enrolled in TRS-Care;

(B) dependents, as defined in Insurance Code, §1575.003, who are enrolled in TRS-Care

and who are eligible to enroll in TRS-Care in their own right as a TRS service or disability retiree; and

(C) surviving spouses, as defined in Insurance Code, §1575.003 who are enrolled in TRS-

Care.

(2) Those eligible participants who are enrolled in TRS-Care on August 31, 2004, and who become 65 years old after that date have the Age 65 Additional Enrollment Opportunity on the date that they become 65 years old.

(3) Those eligible participants who enroll in TRS-Care after August 31, 2004, and who become 65 years old after the date of their enrollment have the Age 65 Additional Enrollment Opportunity on the date that they become 65 years old.

(4) The Age 65 Additional Enrollment Opportunity for those eligible participants who enroll in

TRS-Care after August 31, 2004, and who are 65 years old or older when they enroll in TRS-Care runs concurrently with the initial enrollment period as set out in §41.1 of this title (relating to Initial Enrollment Periods for the Health Benefits Program Under the Texas Public School Retired Employees Group Benefits Act (TRS-Care)).

(5) An eligible participant who is not enrolled in Medicare Part A at the time of his or her Age 65

Additional Enrollment Opportunity can enroll:

(A) in any plan, for which he or she is eligible under law, located in the next-higher TRS-Care coverage tier (level of coverage), as determined by TRS-Care; and

(B) add dependent coverage in any plan, for which the dependent is eligible under law, located in that same coverage tier (level of coverage).

(6) An eligible participant who is enrolled in Medicare Part A at the time of his or her Age 65

Additional Enrollment Opportunity can enroll:

(A) in any plan, for which he or she is eligible under law, located in any TRS-Care coverage tier (level of coverage); and

(B) add dependent coverage in any plan, for which the dependent is eligible under law, located in that same coverage tier (level of coverage).

(7) An eligible participant, at the time of his or her Age 65 Additional Enrollment Opportunity,

can:

(A) choose to remain in the same TRS-Care coverage tier (level of coverage);

(B) enroll in any plan, for which he or she is eligible under law, located in that same TRS-Care coverage tier (level of coverage); and

(C) add dependent coverage in any plan, for which the dependent is eligible under law,

in that same coverage tier (level of coverage).

(8) The period to exercise the Age 65 Additional Enrollment Opportunity for eligible participants described in paragraph (2) or (3) of this subsection expires at the end of the later of:

(A) the 31st day following the last day of the month in which the eligible participant becomes 65 years old; or

(B) the 31st day after the date printed on the notice of the additional enrollment opportunity sent to the eligible participant at the eligible participant's last-known address, as shown in the TRS-Care records.

(9) This subsection expires December 31, 2017.

(a)(b) Age 65 Enrollment Opportunity.

(1) Upon reaching 65 years of age, a retiree or surviving spouse is eligible to be enrolled in TRS-Care under terms, conditions and limitations established by the trustee unless expelled from the program under provisions of Chapter 1575, Insurance Code (the "Age 65 Enrollment Opportunity"). The retiree or surviving spouse may select any coverage provided under TRS-Care for which the individual or a dependent is otherwise eligible.

(2) The enrollment period for an individual who becomes eligible for coverage under paragraph (1) of this subsection shall begin on the date the individual reaches 65 years of age and ends 31 calendar days from the end of the month in which the individual reaches 65 years of age. To make an effective election, a completed TRS-Care application must be received by TRS no later than the end of this enrollment period.

(3) This subsection becomes effective January 1, 2018.

(b)(c) Special Enrollment Opportunity under the Health Insurance Portability and Accountability Act

(HIPAA). (1) An individual who becomes eligible for coverage under the special enrollment provisions of

HIPAA may elect to enroll in TRS-Care. (2) The enrollment period for an individual who becomes eligible for coverage due to a special

enrollment event under paragraph (1) of this subsection shall be the 31 calendar days immediately after the date of the special enrollment event. To make an effective election, a completed TRS-Care application must be received by TRS within this 31-day period.

(c)(d) Enrollment Opportunity Established by TRS. An eligible individual may enroll in TRS-Care during

an enrollment period established by TRS. (d)(e) This section does not affect the right of a TRS service retiree or surviving spouse enrolled in a

TRS-Care plan to drop coverage or drop dependents at any time.

RULE §41.3 Retirees Advisory Committee

(a) The task and purpose of the Retirees Advisory Committee (Committee) is to:

(1) hold public hearings on group insurance benefits;

(2) recommend to the Board of Trustees of TRS (Board) minimum standards and features of the plan or plans that it considers appropriate; and

(3) recommend to the Board desirable changes in rules and legislation affecting the program.

(b) The Board will appoint members and officers designate the chairman of the Committee. (c) A majority of the Committee will constitute a quorum. (d) The executive director of TRS will provide a secretary to the Committee to prepare minutes of the

Committee's meetings. The executive director shall be custodian of the records of the Committee. (e) The executive director may designate the time, dates, and place of the meetings of the Committee.

The Committee shall meet at least twice per year, and at the call of the Board. (f) In the event of an emergency, a majority of the Committee's members may call a meeting by

notifying the executive director in writing at least 10 days before the meeting. (g) The executive director shall file all meeting notices for the Committee Committees as required by

the Texas Open Meetings law. (h) The Committee will report to the Benefits Committee of the Board or directly to the Board as

appropriate.

RULE §41.4 Employer Health Benefit Surcharge

(a) When used in this section, the term "employer" has the meaning given in §821.001(7), Government Code.

(b) For school years prior to the 2013-2014 school year, for each report month a retiree is enrolled in

the health benefits program (TRS-Care) provided pursuant to the Texas Public School Retired Employees Group Benefits Act and working for an employer or a third party entity as defined in §824.601, Government Code, in a position eligible for membership in TRS, the employer that reports the retiree on the Employment of Retired Members Report shall pay the monthly surcharge described in this section to the Retired School Employees Group Insurance Fund (the Fund).

(b)(c) Beginning September 1, 2013, forFor each report month a retiree is enrolled in TRS-Care and

working for an employer for more than the equivalent of four clock hours for each work day in that calendar month, the employer that reports the employment of the retiree on the Employment of Retired Members Report to TRS shall pay monthly to the Fund a surcharge established by the Board of Trustees of TRS.

(c)(d) The criteria used to determine if the retiree is working more than the equivalent of four clock

hours for each work day in that calendar month are the same as the criteria for determining one-half time employment under §31.14 of this title (relating to One-half Time Employment).

(d)(e) The surcharge is also owed by the employer on any retiree who is enrolled in TRS-Care, is

working for a third party entity but is working for more than the equivalent of four clock hours for each work day in that calendar month and who is considered an employee of that employer under §824.601(d) of the Government Code.

(e)(f) The surcharge under this section is not owed:

(1) by an employer for any retiree who retired from TRS before September 1, 2005; or

(2) by an employer for a retiree reported as working under the exception for Substitute Service as provided in §31.13 of this title (relating to Substitute Service) unless that retiree combines Substitute Service under §31.13 of this title with other employment with the same or another employer or third party entity in the same calendar month. For each calendar month that the retiree combines substitute service and other employment as described so that the work exceeds one-half time as described in §31.14(e) of this title, the surcharge is owed by each employer as provided in this section.

(f)(g) A retiree who is enrolled in TRS-Care, is working for an employer or third party entity for more

than the equivalent of four clock hours for each work day in that calendar month, and is reported on the Employment of Retired Members Report to TRS shall inform the employer of all employers of the retiree and all employers of any other retiree enrolled under the same account identification number. An employer who reports to TRS the employment of a retiree who is enrolled in TRS-Care and is working more than the equivalent of four clock hours for each work day in that calendar

month shall inform TRS as soon as possible in writing of the name, address, and telephone number of any other employer that employs the retiree or any other retiree who is also enrolled under the same account identification number.

(g)(h) If more than one employer reports the employment of a retiree who is enrolled in TRS-Care to TRS during any part of a month, the surcharge under this section required to be paid into the Fund by each reporting employer for that month is the total amount of the surcharge due that month divided by the number of reporting employers. The pro rata share owed by each employer is not based on the number of hours respectively worked by the retiree for each employer, nor is it based on the number of days respectively worked during the month by the retiree for each employer.

(h)(i) If a retiree who is enrolled in TRS-Care is employed concurrently by one or more employers in

more than one position, the surcharge is owed if the combined employment is for more than the equivalent of four clock hours for each work day in that calendar month. If the employment is with more than one employer, the surcharge will be paid according to subsection (g)(h) of this section by each employer.

(j) For school years prior to the 2013-2014 school year, if a retiree who is enrolled in TRS-Care is

employed concurrently in more than one position and one of the positions is eligible for TRS membership and one is not, the surcharge is owed on the combined employment. If the employment is with more than one employer, the surcharge will be paid according to subsection (h) of this section by each employer.

(k) For school years prior to the 2013-2014 school year, if a retiree who is enrolled in TRS-Care is

employed in a position eligible for TRS membership, the surcharge will be paid according to subsection (h) of this section by each employer on all subsequent employment, whether eligible for membership or not, with a TRS-covered employer for the same school year.

(i)(l) The employer shall maintain the confidentiality of any information provided to the employer

under this section and shall use the information only as needed to carry out the purposes stated in this section and related applicable rules or statutes.

RULE §41.7 Effective Date of Coverage

(a) Except as allowed by subsection (c) of this section, for TRS members who take a service or disability retirement and enroll in coverage during their initial enrollment period as described in §41.1 of this title (relating to Initial Enrollment Periods for the Health Benefits Program Under the Texas Public School Retired Employees Group Benefits Act (TRS-Care)), the effective date of coverage is:

(1) the first day of the month following the effective date of retirement if the application for

coverage is received by TRS-Care on or before the effective retirement date; or

(2) the first day of the month following the receipt of the application for coverage by TRS-Care if the application is received after the effective retirement date but within the initial enrollment period.

(b) A TRS member who takes a service or disability retirement and enrolls in coverage during his or her

initial enrollment period may, at any time during his or her initial enrollment period, make changes

to his or her coverage elections. The effective date of coverage for the new elections is the first day of the month following receipt by TRS-Care of the application requesting the change in coverage.

(c) Regardless of the date a TRS member submits his application for retirement, if a TRS member enrolls

in coverage during his initial enrollment period as described in §41.1 of this title, the TRS member may defer the effective date of coverage described in subsection (a) of this section for himself and his eligible dependents to the first day of any of the three (3) months immediately following the month after the effective date of retirement. This deferment period runs concurrent with, and does not extend, the enrollment period as described in §41.1 of this title. In no event may a TRS member defer the effective date of TRS-Care coverage to a date prior to the date upon which TRS-Care receives the application for coverage from the TRS member.

(d) Surviving spouses and surviving dependent child(ren) who are currently enrolled with the retiree at

the time of the retiree's death will continue to be enrolled in the same coverage plan, subject to the applicable eligibility requirements of that coverage plan.

(e) If the surviving spouse or the surviving dependent child was not enrolled in TRS-Care immediately

preceding his or her becoming eligible for coverage, the effective date of coverage will be, at the election of the surviving spouse or the surviving dependent child, either the first day of the month following:

(1) TRS-Care's receipt of an application during the initial enrollment period as described in

§41.1 of this title; or

(2) the month of the death of the deceased TRS service or disability retiree or deceased active TRS member, provided TRS-Care receives an application during the initial enrollment period as described in §41.1 of this title.

(f) The effective date of coverage for an eligible dependent who is enrolled under a retiree's or

surviving spouse's TRS-Care coverage during the initial enrollment period is the same date as the retiree or surviving spouse's effective date of coverage unless the dependent is enrolled after the retiree's effective retirement date and after the retiree has enrolled but within the initial enrollment period, in which case the dependent's effective date of coverage will be the first day of the month following TRS-Care's receipt of the application to enroll the dependent.

(g) The effective date of coverage for an eligible individual who is enrolled in TRS-Care as a result of a

special enrollment event, as described in §41.2(b) §41.2(c) of this title (concerning Additional Enrollment Opportunities), is the date specified under the provisions of the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996)).

(h) The effective date of coverage for an eligible individual who is enrolled in TRS-Care as a result of the

Age 65 enrollment opportunity, as described in §41.2(a) §41.2(b) of this title is:

(1) the first day of the month following the month of the retiree's or surviving spouse's 65th birthday if the application for coverage is received by TRS-Care before or during the month of the retiree's or surviving spouse's 65th birthday; or

(2) the first day of the month following the receipt of the application by TRS-Care if the application for coverage is received after the month of the retiree's or surviving spouse's 65th birthday but within the enrollment period.

(i) Except as provided in subsections (k), (l), and (m) of this section, the effective date of changes in coverage due to the acquisition of Medicare Part A and/or Medicare Part B is the first of the month following the date of TRS-Care's receipt of proof, satisfactory to TRS-Care, of the participant's or dependent's Medicare Part A and/or Medicare Part B coverage.

(j) A retiree, surviving spouse, or surviving dependent child may cancel any coverage by submitting the

appropriate notice of cancellation form to TRS-Care. Cancellations will be effective on the later of:

(1) the first day of the month following TRS-Care's receipt of the completed notice of cancellation form; or

(2) the date requested by the retiree, surviving spouse, or surviving dependent child on the completed notice of cancellation form received by TRS-Care.

(k) Where a participant has Medicare Part A coverage and TRS-Care has been paying primary to

Medicare on Medicare Part A claims, TRS-Care may seek the recovery of funds and may make the effective date of the correct coverage retroactive to the first day of the earliest month for which recovery of such overpaid funds is possible under Medicare rules.

(l) Where a participant has Medicare Part A coverage and TRS-Care has been paying primary to

Medicare on Medicare Part A claims, TRS-Care may make the effective date of the correct coverage retroactive to when the participant was first enrolled in both Medicare and TRS-Care to a maximum retroactive period of twelve months, including the month in which proof, satisfactory to TRS-Care, of Medicare Part A coverage is received by TRS-Care, and based thereon, TRS-Care may refund or credit the amount due to the participant.

(m) Upon TRS-Care's discovery that a participant does not have Medicare Part A coverage, in contrast to

TRS-Care records indicating the participant has Medicare Part A coverage, TRS-Care will contact the participant and advise the participant that the cost of coverage and the coverage will be adjusted prospectively effective the first day of the next month unless proof, satisfactory to TRS-Care, of Medicare Part A coverage is received by TRS-Care prior to that date. Claims will be paid based upon the coverage in effect at the time the services were provided. Any claims already paid as if Medicare Part A were in effect will not be adjusted.

(n) Notwithstanding any other provision of this section to the contrary, the effective date of coverage of individuals who enroll in a Medicare plan associated with TRS-Care is subject to the federal laws, regulations, policies and procedures that control the Medicare program.

RULE §41.8 Eligible Bidders

(a) TRS-Care may include separate contracts for:

(1) a health benefit plans;

(2) prescription drug plans;

(2)(3) a utilization review services; and

(4) administrative services; and (3)(5) ancillary services to provide other ancillary benefits.

(b) To be eligible to bid on any of the contracts in subsection (a) of this section, a bidder must comply

with the minimum qualification standards contained in the applicable solicitation from TRScurrently be servicing at least twice as many persons as will be covered under TRS-Care.

(c) Bidders who desire to bid on the administrative services only of a TRS benefits program that

includes group health benefits are not covered by subsection (d) of this section. (d) Bidders who wish to bid on services or products available to the entire state or to a region of the

state shall provide information for each area, consisting of a county and all adjacent counties, on the number and types of qualified providers willing to participate in coverage or plan for which the bid is made.

(e) In determining the quality of the bids, the Board of Trustees of the Teacher Retirement System of

Texas or its designee may consider such factors and criteria as they deem relevant and appropriate under the circumstances.

RULE §41.9 Bid Procedure

(a) All bids for contracts under TRS-Care must be submitted in compliance with the bid requirements and all applicable questions answered on the bid specification forms adopted and provided by the Teacher Retirement System of Texas (TRS).

(b) All bids must be submitted in duplicate in separate sealed envelopes to the Director of TRS-Care,

Teacher Retirement System of Texas, 1000 Red River Street, Austin, Texas 78701-2698. (c) All bids must be received no later than the date and time set by TRS on the bid specification forms. (d)(b) The bid opening shallwill take place at a date and time set by TRS in the TRS building at 1000

Red River Street, Austin, Texas.

(c) In determining the quality of the bids, TRS may consider such factors and criteria as it deems relevant and appropriate under the circumstances.

(d) TRS shall not provide compensation to bidders for any expenses incurred by the bidders for bids preparation or for any demonstrations that may be made. Bidders submit bids at their own risk and expense.

RULE §41.11 Years of Service Credit Used to Determine Premiums

(a) In addition to other criteria that TRS may use to determine premiums, pursuant to section 1575.212, Insurance Code, TRS may use years of service credit to determine applicable premium rates.

(b) If TRS uses years of service credit to determine applicable premium rates, then to To determine the

applicable premium for a retiree, regardless of the retiree's effective date of retirement, TRS will use the retiree's years of service credit to which the retiree is entitled under the Chapter 823, Government Code, at the time of the TRS retirement.

(c) If TRS uses years of service credit to determine applicable premium rates, then to To determine the

applicable premium for surviving spouses and divorced spouses who elect COBRA coverage, TRS will use the retiree's years of service credit as determined by subsection (b) of this section.

Long-Term Care Rules:

RULE §41.15 Requirements to Bid on Group Long-Term Care Insurance for School District Employees and Retirees Under Chapter 1576 of the Insurance Code

(a) All contractors contracting and providing coverage under Chapter 1576, Insurance Code, must:

(1) administer enrollment;

(2) adjudicate all claims related to the coverage, except for eligibility of participants under the statute, which remains the responsibility of TRS as trustee;

(3) coordinate services under the insurance coverages provided under Chapter 1576, Insurance

Code; and

(4) account for any premiums collected and disbursed under the coverages.

(b) To be eligible to bid on providing group long-term care insurance, a carrier must:

(1) comply with the minimum qualification standards contained in the applicable solicitation from TRS.have had during the preceding calendar year at least $10 million of long-term care premium income;

(2) currently have capital and surplus of at least $500 million; and (3) currently have at least three ratings within the top four rating categories as defined by the

major insurance industry rating agencies. If a carrier is not rated, it may satisfy this requirement by showing that the carrier has twice the minimum financial requirements as stated in paragraphs (1) and (2) of this subsection.

(c) All bids to provide group long-term care insurance must be submitted in compliance with the bid

requirements provided by TRS.

(d) The bid opening shall take place at a date and time set by TRS.

(e) In determining the quality of the bids, TRS may consider such factors and criteria as it deems

relevant and appropriate under the circumstances. (f) TRS shall not provide compensation to bidders for any expenses incurred by the bidder for bids

preparation or for any demonstrations that may be made. Bidders submit bids at their own risk and expense.

(c) To be eligible to bid on providing optional permanent life insurance a carrier must: (1) have had at least $200 million of individual life premium income during the last calendar year;

(2) currently have capital and surplus of at least $500 million; and

(3) currently have at least three ratings within the top four rating categories as defined by the

major insurance industry rating agencies. If a carrier is not rated, it may satisfy this requirement by showing that the carrier has twice the minimum financial requirements as stated in paragraphs (1) and (2) of this subsection.

(d) To be eligible to bid on providing disability insurance a carrier must:

(1) have had during the preceding calendar year at least $50 million of short-term and long-term disability combined premium income;

(2) currently have capital and surplus of at least $500 million; and

(3) currently have at least three ratings within the top four rating categories as defined by the

major insurance industry rating agencies. If not rated, a carrier may satisfy this requirement by showing that the carrier has twice the minimum financial requirements as stated in paragraphs (1) and (2) of this subsection.

TRS-ActiveCare Rules:

RULE §41.31 Eligible Bidders

(a) The health benefits program offered under the Texas School Employees Uniform Group Health Coverage Act TRS-ActiveCare may include separate contracts for:

(1) health benefit plans;

(2) prescription drug plansprovider;

(3) utilization review servicesadministrative services;

(4) administrative servicesutilization review; and

(5) ancillary services. (b) Except for health maintenance organizations, which must meet other requirements in this section,

to be eligible to bid on any of the contracts in subsection (a) of this section, a bidder must comply with the minimum qualification standards contained in the applicable solicitation from TRS.health benefit services or products, prescription drugs or administrative services, a bidder must have:

(1) annual health benefit premiums or services or product income of at least $1 billion; and (2) currently be servicing at least twice as many persons as will be covered under this program

as determined by TRS. (c) TRS may approve a health maintenance organization (HMO) to offer a health benefit plan to

participants in TRS-ActiveCare in areas of the state determined by TRS. TRS may establish, for different areas of the state, different criteria for HMOs to qualify to offer a health benefit plan. TRS may at any time establish or change the number, if any, of HMOs approved to offer a health benefit plan in each area of the state. In order to be approvedeligible to bid, an HMO must satisfy all of the following conditions:

(1) The HMO must hold a valid certificate of authority issued by the Texas Department of

Insurance to operate in the State of Texas.

(2) The HMO must have been providing services in the applicable service area for at least 12 months prior to the date the bid response is due to be filed with TRS. Also, the HMO must demonstrate the capacity to provide adequate services, as determined by TRS, to the program participants in TRS-ActiveCare.

(3) The HMO must submit a responsive bid, with rates, to TRS within the timeframe and in the

manner and format prescribed by TRS. Once adopted by TRS, the rates and benefits submitted by an HMO may not be modified during a plan year without the prior written approval of TRS.

(4) A request for expansion to a non-contiguous of a service area shall require a separate

responsive bid and approval by TRS.

(5)(4) Any other criteria established by TRS.The HMO must comply with the other minimum qualification standards contained in the applicable solicitation from TRS.

(d) TRS shall use a competitive bidding process to approve one or more HMOs to offer a health benefit

plan to TRS-ActiveCare participants in areas of the state determined by TRS. TRS may establish, for different areas of the state, different criteria for HMOs to qualify to bid. TRS may at any time establish or change the number, if any, of HMOs to approve in each area. If TRS elects to request bids for such plans, TRS will establish:

(1) the criteria to be used to approve HMOs; (2) the length and terms of the contracts with approved HMOs; and

(3) other matters at the discretion of TRS. RULE §41.32 Bid Procedure

(a) All bids must be received no later than the date and time set by the Teacher Retirement System of Texas (TRS). Late bids will be returned to the bidder unopened. Late bids will not be considered under any circumstancesfor contracts under TRS-ActiveCare must be submitted in compliance with the bid requirements provided by TRS.

(b) The bid opening shall take place at a date and time set by TRS. (c) In determining the quality of the bids, TRS the Board of Trustees or its designee may consider such

factors and criteria as it deems they deem relevant and appropriate under the circumstances. (d) Bids must be valid for at least 120 days following the proposal receipt date. (e) TRS shall not provide compensation to bidders for any expenses incurred by the bidder for bids


RULE §41.34 Eligibility for Coverage under the Texas School Employees Uniform Group Health Coverage Program

The following persons are eligible to be enrolled in TRS-ActiveCare under terms, conditions and limitations established by the trustee unless expelled from the program under provisions of Chapter 1579, Insurance Code:

(1) A full-time employee as defined in §41.33 of this titlechapter (relating to Definitions Applicable to the Texas School Employees Uniform Group Health Coverage Program).

(2) A part-time employee as defined in §41.33 of this titlechapter.

(3) Dependents, as defined in §41.33 of this titlechapter pursuant to §1579.004, Insurance Code. A child defined in §1579.004(3), Insurance Code, who is 26 years of age or older, is eligible for coverage only if, and only for so long as, such child's mental disability or physical incapacity is a medically determinable condition that prevents the child from engaging in self-sustaining employment as determined by TRS.

(4) Individuals employed or formerly employed by a participating entity, and their dependents,

who are eligible for, or participating in, continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L. 99-272), through a group health benefit plan sponsored by the individual's employer on the first day that employer becomes a participating entity if such individuals or their dependents would have met the requirements for eligibility in paragraph (1), (2), or (3) of this section on the individual's last day of employment with the participating entity. Notwithstanding the foregoing, the individual is

eligible to participate in TRS-ActiveCare only for the duration of the individual's eligibility for COBRA continuation coverage.

(5) An individual who qualifies for coverage pursuant to §41.38(b) of this titlechapter (relating

to Termination Date of Coverage), and their dependents.

(6) Full-time or part-time employees as defined in §41.33 of this titlechapter and their eligible dependents may participate in an approved HMO if they reside, live, or work in the approved service area of the HMO and are otherwise eligible to participate in the HMO under the terms of the TRS contract with the HMO.

(7) Individuals who become eligible as determined by TRS for continuation coverage under the

Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L. No. 99-272), through their participation in TRS-ActiveCare.

(8) As a result of a special enrollment event that occurs on or after September 1, 2011,

individuals Individuals who become eligible for coverage under the special enrollment provisions of the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996)).

(9) As a result of a special enrollment event that occurs on or before August 31, 2011,

individuals who become eligible for coverage under the special enrollment provisions of TRS-ActiveCare.

(9)(10) Any other individuals who are required to be covered under applicable law.

RULE §41.39 Coverage for Individuals Changing Employers

(a) A full-time or part-time employee enrolled in TRS-ActiveCare who, on or after September 1, 2011, changes employment from one participating entity to another participating entity within the same plan year may not change coverage plans or add dependents unless:

(1) changes to add dependents are authorized due to a special enrollment event under

provisions of the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996));

(2) an open-enrollment period exists on the first day of the new employment and the full-time or part-time employee makes such changes in compliance with open-enrollment conditions prescribed by the trustee; or

(3) the new employment is with a participating entity that does not make available the option

under which the individual was covered on the last date of previous employment, provided that options are offered under TRS-ActiveCare that are not applicable to all participating entities.

(b) A full-time or part-time employee enrolled in TRS-ActiveCare who, on or before August 31, 2011, changes employment from one participating entity to another participating entity within the same plan year may not change coverage plans or add dependents unless:

(1) changes to add dependents are authorized due to a special enrollment event under special

enrollment provisions of TRS-ActiveCare; (2) an open-enrollment period exists on the first day of the new employment and the full-time

or part-time employee makes such changes in compliance with open-enrollment conditions prescribed by the trustee; or



(c) No break in coverage will occur for a full-time or part-time employee enrolled in TRS-ActiveCare

who changes employment from one participating entity to another participating entity within the same plan year if all the criteria set forth in paragraphs (1) - (3) of this subsection are met. The former employer participating entity shall determine the last date of employment for purposes of this subsection.

(1) The new employer makes available the same coverage option under which the full-time or

part-time employee was enrolled on the last day of employment with the former employer;

(2) The individual is employed by the new participating entity no later than the last day of the next calendar month after the last date of employment with the former participating entity employer; and

(3) The individual promptly files an election to continue coverage with the new participating

entity employer with coverage to be effective in the calendar month in which the individual is first employed with the new participating entity.

(d) Full-time or part-time employees who initially waive coverage under TRS-ActiveCare may enroll

during any open-enrollment period as prescribed by the trustee; however, they may not enroll due to a change in employment from one participating entity to another during the same plan year unless the change occurs during a concurrent open enrollment or the employee satisfies the requirements for an enrollment opportunity provided under §41.36(b) of this title.

RULE §41.41 Premium Payments

(a) For each bill generated by TRS or its designee on or before August 31, 2013, each participating entity shall remit to TRS the amount on each bill directed to the participating entity by TRS or the administering firm. The participating entity shall remit payment on or before the sixth day after the last day of each month in which TRS or the administering firm issued a bill. Payment shall be delivered in the same manner (e.g., currently, TEXNET) in which the participating entity delivers retirement contributions. Any waiver granted to a participating entity under §825.408(a),

Government Code, does not apply to amounts billed under this section or to amounts otherwise owed to TRS for TRS-ActiveCare.

(a)(b) For each bill generated by TRS or its designee on or after September 1, 2013, each Each

participating entity shall remit to TRS the amount on each bill directed to the participating entity by TRS or the administering firm. The participating entity shall remit payment on or before the fifteenth day of each month in which TRS or the administering firm issued a bill. Payment shall be delivered in the same manner (e.g., currently, TEXNET) in which the participating entity delivers retirement contributions. Any waiver granted to a participating entity under §825.408(a), Government Code, does not apply to amounts billed under this section or to amounts otherwise owed to TRS for TRS-ActiveCare.

(b)(c) A participating entity will be billed for all full-time and part-time employees enrolled in TRS-

ActiveCare who were employed by the participating entity on the date that TRS or its designee generates the bill for that billing month as reported by the participating entity. In addition, a participating entity will be billed retroactively for all full-time and part-time employees who enroll after the date on which the bill is generated for that month and choose coverage for that month. A participating entity will also be billed for any individual covered in accordance with §41.40 of this title (relating to Coverage Continuation While on Leave Without Pay). Participating entities are responsible for collecting all applicable premiums and other costs that are required to be paid by its full-time employees, part-time employees, and any individuals covered in accordance with §41.40 of this title. A participating entity shall remit the full amount billed each month.

(c)(d) Participating entities shall not modify the amount of any bill or remit any amount different from

the amount billed. A participating entity shall report adopted adjustments, including those seeking credit for terminated employees, to the administering firm no later than the 45th day after the billing date. TRS may reject any adopted adjustments that are inappropriate or untimely, including those adjustments seeking credit for terminated employees reported later than 45 days after the billing date on which the employee was first incorrectly reported as eligible for coverage. Approved adjustments will be reflected on a subsequent bill.

(d)(e) TRS may take corrective action against a participating entity that fails to remit payment in

accordance with the timelines and other requirements of this section, including but not limited to placement of a warrant hold with the Comptroller of Public Accounts.

RULE §41.50 Appeals Relating to Claims or Other Benefits

(a) For appeals that relate to claims or other benefits and that are received on or after September 1, 2011, the following procedures apply:

(1) A person enrolled in TRS-ActiveCare, other than a person enrolled in a health maintenance

organization (HMO) participating in TRS-ActiveCare, who is denied payment of a claim or other benefit ("Claimant") may appeal the denial through a written request filed with the administering firm in accordance with procedures established by the administering firm.

(2) The final decision by the administering firm or by any external review organization, whichever occurs later, shall be the final decision on the appeal.

(b) For appeals that relate to claims or other benefits and that are received before September 1, 2011,

the following procedures apply:

(1) A Claimant may appeal the denial through a written request filed with the administering firm in accordance with procedures established by the administering firm. All such procedures must be exhausted before the administering firm will issue a final decision.

(2) A Claimant may appeal the final denial of the claim or other benefit by the administering firm to the Teacher Retirement System of Texas (TRS), acting in its capacity as trustee of TRS-ActiveCare.

(3) An appeal made pursuant to paragraph (2) of this subsection must be submitted by the

Claimant in writing and received by TRS before September 1, 2011 and no later than 60 days after the date of the letter from the administering firm finally denying the claim. The appeal shall be directed to the attention of the TRS-ActiveCare Grievance Administrator.

(4) An appeal made pursuant to paragraph (2) of this subsection shall state the nature of the

claim and shall include copies of all relevant documents that were considered by the administering firm, including copies of the correspondence to and from the administering firm.

(5) The TRS Appeal Committee ("Committee") is responsible for review and determination of

appeals made pursuant to paragraph (2) of this subsection. The Committee shall be appointed by the TRS Deputy Director or, if the position of the Deputy Director is vacant, the TRS Chief Financial Officer and shall serve at the discretion of the Deputy Director or, if the position of the Deputy Director is vacant, the Chief Financial Officer.

(6) The Committee shall apply the TRS-ActiveCare plan design and rules in effect on the date

the first of the following events occurs:

(A) the date the claim was incurred; or (B) the date the benefit was denied by the administering firm.

(7) If the Committee determines that the claim should be paid or a benefit allowed, it shall so

inform the administering firm and the Claimant.

(8) If the Committee determines that the information submitted with the appeal supports the denial by the administering firm, the Committee shall provide a written decision, which shall include an explanation of the reasons for the decision, to the Claimant and to the administering firm. The written decision shall include information on how the Claimant may request an appeal conference or an appeal to the executive director.

(9) The initial written decision of the Committee may be appealed by the Claimant to the

Committee for an appeal conference. A request for an appeal conference must be submitted by the Claimant in writing and must be received by TRS no later than 45 days after the date of the initial written decision by the Committee. The request for an appeal

conference shall be directed to the attention of the TRS-ActiveCare Grievance Administrator.

(10) Upon receipt of a timely request for an appeal conference, the TRS-ActiveCare Grievance

Administrator shall schedule an appeal conference with the Committee. The Grievance Administrator shall notify the Claimant and the administering firm of the time, date, and manner of the conference, as well as the procedures applicable to the conference.

(11) At any time prior to the appeal conference, the Committee may decide to grant the appeal

and will notify the Claimant of this determination without the necessity of an appeal conference. The Committee cannot deny a claim after an appeal conference has been requested without holding the conference, but the initial denial by the Committee shall stand until the conference is held.

(12) At the conference, the Committee shall consider the medical information previously

submitted to the administering firm in support of the payment of the claim or benefit, as well as the administering firm's determination regarding medical issues. The Committee may request additional review by the administering firm on medical issues before the Committee issues a decision.

(13) The Committee shall decide the appeal and shall notify the Claimant and the administering

firm of the decision in writing. The decision will include an explanation of the basis for the decision.

(14) The initial written decision of the Committee or the written decision by the Committee

made pursuant to an appeal conference may be appealed by the Claimant to the executive director. A request for an appeal to the executive director must be submitted by the Claimant in writing and must be received by TRS no later than 45 days after the date of the initial written decision by the Committee or no later than 30 days after the date of the written decision by the Committee made pursuant to an appeal conference. The request for an appeal to the executive director shall be directed to the attention of the TRS-ActiveCare Grievance Administrator. The appeal shall specifically describe why the Claimant alleges that the Committee's decision is erroneous. The executive director shall make a decision based on the written appeal and based on the written decision of the Committee, as well as any written documents reviewed by the Committee. Subject to paragraph (15) of this subsection and pursuant to the delegation of authority through this section, the decision of the executive director is the final decision of TRS.

(15) The Committee shall review an appeal made pursuant to paragraph (2), (9), or (14) of this

subsection for timeliness and may deny an appeal that is not timely received by TRS. An appeal made pursuant to paragraph (2), (9), or (14) of this subsection that is denied because TRS did not timely receive the appeal is a final decision by TRS.

(b)(c) For appeals that relate to claims or other benefits, persons enrolled in an HMO under contract

with TRS-ActiveCare shall follow the appeal procedures set out by the HMO.

Attachment 2

2018 Four-Year Rule Review

Clean Textual Amendments

TRS-Care Rules: RULE §41.1 Initial Enrollment Periods for the Health Benefit Program under the Texas Public School Retired Employees Group Benefits Act (TRS-Care) (a) The initial enrollment period in the health benefits program under TRS-Care for eligible TRS retirees

who take a service retirement and who are eligible to enroll in TRS-Care at the time of retirement expires at the end of the later of:

(1) the last day of the month that is 3 consecutive calendar months, but in no event less than 90

days, after their effective retirement date; or

(2) the last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, following the last day of the month in which their election to retire is received by TRS.

(b) The initial enrollment period in TRS-Care for eligible TRS disability retirees expires at the end of the

last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, after the date that the disability retirement is approved by the TRS Medical Board.

(c) The initial enrollment period in TRS-Care for an eligible surviving spouse of a deceased retiree and

for an eligible surviving dependent child of a deceased retiree expires on the last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, after the retiree died.

(d) The initial enrollment period in TRS-Care for an eligible surviving spouse of a deceased active

member and for an eligible surviving dependent child of a deceased active member expires on the last day of the month that is 3 consecutive calendar months, but in no event less than 90 days, after the active member died.

(e) Notwithstanding the other provisions of this section, a participant shall be entitled to enroll in TRS-

Care:

(1) under the additional enrollment opportunities found in §41.2 of this title; and

(2) under applicable law, including all applicable COBRA rights under the Federal Public Health Service Act.

(f) If a retiree fails to enroll a newly eligible spouse or dependent child or if a surviving spouse fails to

enroll a newly eligible dependent child within the time periods set out in subsection (e) of this

section, the retiree or surviving spouse will not be able to enroll the spouse or dependent child in TRS-Care until a subsequent enrollment period.

RULE §41.2 Additional Enrollment Opportunities (a) Age 65 Enrollment Opportunity.

(1) Upon reaching 65 years of age, a retiree or surviving spouse is eligible to be enrolled in TRS-Care under terms, conditions and limitations established by the trustee unless expelled from the program under provisions of Chapter 1575, Insurance Code (the "Age 65 Enrollment Opportunity"). The retiree or surviving spouse may select any coverage provided under TRS-Care for which the individual or a dependent is otherwise eligible.

(2) The enrollment period for an individual who becomes eligible for coverage under paragraph (1) of this subsection shall begin on the date the individual reaches 65 years of age and ends 31 calendar days from the end of the month in which the individual reaches 65 years of age. To make an effective election, a completed TRS-Care application must be received by TRS no later than the end of this enrollment period.

(b) Special Enrollment Opportunity under the Health Insurance Portability and Accountability Act

(HIPAA).

(1) An individual who becomes eligible for coverage under the special enrollment provisions of HIPAA may elect to enroll in TRS-Care.

(2) The enrollment period for an individual who becomes eligible for coverage due to a special

enrollment event under paragraph (1) of this subsection shall be the 31 calendar days immediately after the date of the special enrollment event. To make an effective election, a completed TRS-Care application must be received by TRS within this 31-day period.

(c) Enrollment Opportunity Established by TRS. An eligible individual may enroll in TRS-Care during an

enrollment period established by TRS. (d) This section does not affect the right of a TRS service retiree or surviving spouse enrolled in a TRS-

Care plan to drop coverage or drop dependents at any time. RULE §41.3 Retirees Advisory Committee (a) The task and purpose of the Retirees Advisory Committee (Committee) is to:

(1) hold public hearings on group insurance benefits;

(2) recommend to the Board of Trustees of TRS (Board) minimum standards and features of the plan or plans that it considers appropriate; and

(3) recommend to the Board desirable changes in rules and legislation affecting the program.

(b) The Board will appoint members and officers of the Committee. (c) A majority of the Committee will constitute a quorum. (d) The executive director of TRS will provide a secretary to the Committee to prepare minutes of the

Committee's meetings. The executive director shall be custodian of the records of the Committee. (e) The executive director may designate the time, dates, and place of the meetings of the Committee.

The Committee shall meet at least twice per year, and at the call of the Board. (f) In the event of an emergency, a majority of the Committee's members may call a meeting by

notifying the executive director in writing at least 10 days before the meeting. (g) The executive director shall file all meeting notices for the Committee as required by the Texas

Open Meetings law. (h) The Committee will report to the Benefits Committee of the Board or directly to the Board as

appropriate. RULE §41.4 Employer Health Benefit Surcharge (a) When used in this section, the term "employer" has the meaning given in §821.001(7), Government

Code. (b) For each report month a retiree is enrolled in TRS-Care and working for an employer for more than

the equivalent of four clock hours for each work day in that calendar month, the employer that reports the employment of the retiree on the Employment of Retired Members Report to TRS shall pay monthly to the Fund a surcharge established by the Board of Trustees of TRS.

(c) The criteria used to determine if the retiree is working more than the equivalent of four clock hours

for each work day in that calendar month are the same as the criteria for determining one-half time employment under §31.14 of this title (relating to One-half Time Employment).

(d) The surcharge is also owed by the employer on any retiree who is enrolled in TRS-Care, is working

for a third party entity but is working for more than the equivalent of four clock hours for each work day in that calendar month and who is considered an employee of that employer under §824.601(d) of the Government Code.

(e) The surcharge under this section is not owed:

(1) by an employer for any retiree who retired from TRS before September 1, 2005; or

(2) by an employer for a retiree reported as working under the exception for Substitute Service as provided in §31.13 of this title (relating to Substitute Service) unless that retiree combines Substitute Service under §31.13 of this title with other employment with the same or another employer or third party entity in the same calendar month. For each calendar

month that the retiree combines substitute service and other employment as described so that the work exceeds one-half time as described in §31.14(e) of this title, the surcharge is owed by each employer as provided in this section.

(f) A retiree who is enrolled in TRS-Care, is working for an employer or third party entity for more than

the equivalent of four clock hours for each work day in that calendar month, and is reported on the Employment of Retired Members Report to TRS shall inform the employer of all employers of the retiree and all employers of any other retiree enrolled under the same account identification number. An employer who reports to TRS the employment of a retiree who is enrolled in TRS-Care and is working more than the equivalent of four clock hours for each work day in that calendar month shall inform TRS as soon as possible in writing of the name, address, and telephone number of any other employer that employs the retiree or any other retiree who is also enrolled under the same account identification number.

(g) If more than one employer reports the employment of a retiree who is enrolled in TRS-Care to TRS

during any part of a month, the surcharge under this section required to be paid into the Fund by each reporting employer for that month is the total amount of the surcharge due that month divided by the number of reporting employers. The pro rata share owed by each employer is not based on the number of hours respectively worked by the retiree for each employer, nor is it based on the number of days respectively worked during the month by the retiree for each employer.

(h) If a retiree who is enrolled in TRS-Care is employed concurrently by one or more employers in more

than one position, the surcharge is owed if the combined employment is for more than the equivalent of four clock hours for each work day in that calendar month. If the employment is with more than one employer, the surcharge will be paid according to subsection (g) of this section by each employer.

(i) The employer shall maintain the confidentiality of any information provided to the employer under

this section and shall use the information only as needed to carry out the purposes stated in this section and related applicable rules or statutes.

RULE §41.7 Effective Date of Coverage (a) Except as allowed by subsection (c) of this section, for TRS members who take a service or disability

retirement and enroll in coverage during their initial enrollment period as described in §41.1 of this title (relating to Initial Enrollment Periods for the Health Benefits Program Under the Texas Public School Retired Employees Group Benefits Act (TRS-Care)), the effective date of coverage is:

(1) the first day of the month following the effective date of retirement if the application for

coverage is received by TRS-Care on or before the effective retirement date; or

(2) the first day of the month following the receipt of the application for coverage by TRS-Care if the application is received after the effective retirement date but within the initial enrollment period.

(b) A TRS member who takes a service or disability retirement and enrolls in coverage during his or her

initial enrollment period may, at any time during his or her initial enrollment period, make changes

to his or her coverage elections. The effective date of coverage for the new elections is the first day of the month following receipt by TRS-Care of the application requesting the change in coverage.

(c) Regardless of the date a TRS member submits his application for retirement, if a TRS member enrolls

in coverage during his initial enrollment period as described in §41.1 of this title, the TRS member may defer the effective date of coverage described in subsection (a) of this section for himself and his eligible dependents to the first day of any of the three (3) months immediately following the month after the effective date of retirement. This deferment period runs concurrent with, and does not extend, the enrollment period as described in §41.1 of this title. In no event may a TRS member defer the effective date of TRS-Care coverage to a date prior to the date upon which TRS-Care receives the application for coverage from the TRS member.

(d) Surviving spouses and surviving dependent child(ren) who are currently enrolled with the retiree at

the time of the retiree's death will continue to be enrolled in the same coverage plan, subject to the applicable eligibility requirements of that coverage plan.

(e) If the surviving spouse or the surviving dependent child was not enrolled in TRS-Care immediately

preceding his or her becoming eligible for coverage, the effective date of coverage will be, at the election of the surviving spouse or the surviving dependent child, either the first day of the month following:

(1) TRS-Care's receipt of an application during the initial enrollment period as described in

§41.1 of this title; or

(2) the month of the death of the deceased TRS service or disability retiree or deceased active TRS member, provided TRS-Care receives an application during the initial enrollment period as described in §41.1 of this title.

(f) The effective date of coverage for an eligible dependent who is enrolled under a retiree's or

surviving spouse's TRS-Care coverage during the initial enrollment period is the same date as the retiree or surviving spouse's effective date of coverage unless the dependent is enrolled after the retiree's effective retirement date and after the retiree has enrolled but within the initial enrollment period, in which case the dependent's effective date of coverage will be the first day of the month following TRS-Care's receipt of the application to enroll the dependent.

(g) The effective date of coverage for an eligible individual who is enrolled in TRS-Care as a result of a

special enrollment event, as described in §41.2(b) of this title (concerning Additional Enrollment Opportunities), is the date specified under the provisions of the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996)).

(h) The effective date of coverage for an eligible individual who is enrolled in TRS-Care as a result of the

Age 65 enrollment opportunity, as described in §41.2(a) of this title is:

(1) the first day of the month following the month of the retiree's or surviving spouse's 65th birthday if the application for coverage is received by TRS-Care before or during the month of the retiree's or surviving spouse's 65th birthday; or

(2) the first day of the month following the receipt of the application by TRS-Care if the application for coverage is received after the month of the retiree's or surviving spouse's 65th birthday but within the enrollment period.

(i) Except as provided in subsections (k), (l), and (m) of this section, the effective date of changes in

coverage due to the acquisition of Medicare Part A and/or Medicare Part B is the first of the month following the date of TRS-Care's receipt of proof, satisfactory to TRS-Care, of the participant's or dependent's Medicare Part A and/or Medicare Part B coverage.

(j) A retiree, surviving spouse, or surviving dependent child may cancel any coverage by submitting the

appropriate notice of cancellation form to TRS-Care. Cancellations will be effective on the later of:

(1) the first day of the month following TRS-Care's receipt of the completed notice of cancellation form; or

(2) the date requested by the retiree, surviving spouse, or surviving dependent child on the completed notice of cancellation form received by TRS-Care.

(k) Where a participant has Medicare Part A coverage and TRS-Care has been paying primary to

Medicare on Medicare Part A claims, TRS-Care may seek the recovery of funds and may make the effective date of the correct coverage retroactive to the first day of the earliest month for which recovery of such overpaid funds is possible under Medicare rules.

(l) Where a participant has Medicare Part A coverage and TRS-Care has been paying primary to

Medicare on Medicare Part A claims, TRS-Care may make the effective date of the correct coverage retroactive to when the participant was first enrolled in both Medicare and TRS-Care to a maximum retroactive period of twelve months, including the month in which proof, satisfactory to TRS-Care, of Medicare Part A coverage is received by TRS-Care, and based thereon, TRS-Care may refund or credit the amount due to the participant.

(m) Upon TRS-Care's discovery that a participant does not have Medicare Part A coverage, in contrast to

TRS-Care records indicating the participant has Medicare Part A coverage, TRS-Care will contact the participant and advise the participant that the cost of coverage and the coverage will be adjusted prospectively effective the first day of the next month unless proof, satisfactory to TRS-Care, of Medicare Part A coverage is received by TRS-Care prior to that date. Claims will be paid based upon the coverage in effect at the time the services were provided. Any claims already paid as if Medicare Part A were in effect will not be adjusted.

(n) Notwithstanding any other provision of this section to the contrary, the effective date of coverage of

individuals who enroll in a Medicare plan associated with TRS-Care is subject to the federal laws, regulations, policies and procedures that control the Medicare program.

RULE §41.8 Eligible Bidders (a) TRS-Care may include separate contracts for:



(3) utilization review services;

(4) administrative services; and (5) ancillary services.

(b) To be eligible to bid on any of the contracts in subsection (a) of this section, a bidder must comply

with the minimum qualification standards contained in the applicable solicitation from TRS. RULE §41.9 Bid Procedure (a) All bids for contracts under TRS-Care must be submitted in compliance with the bid requirements

provided by TRS. (b) The bid opening shall take place at a date and time set by TRS. (c) In determining the quality of the bids, TRS may consider such factors and criteria as it deems

relevant and appropriate under the circumstances. (d) TRS shall not provide compensation to bidders for any expenses incurred by the bidders for bids


RULE §41.11 Years of Service Credit Used to Determine Premiums (a) In addition to other criteria that TRS may use to determine premiums, pursuant to section 1575.212,

Insurance Code, TRS may use years of service credit to determine applicable premium rates. (b) If TRS uses years of service credit to determine applicable premium rates, then to determine the

applicable premium for a retiree, regardless of the retiree's effective date of retirement, TRS will use the retiree's years of service credit to which the retiree is entitled under the Chapter 823, Government Code, at the time of the TRS retirement.

(c) If TRS uses years of service credit to determine applicable premium rates, then to determine the

applicable premium for surviving spouses and divorced spouses who elect COBRA coverage, TRS will use the retiree's years of service credit as determined by subsection (b) of this section.

Long-Term Care Rules: RULE §41.15 Requirements to Bid on Group Long-Term Care Insurance Under Chapter 1576 of the Insurance Code (a) All contractors contracting and providing coverage under Chapter 1576, Insurance Code, must:

(1) administer enrollment;

(2) adjudicate all claims related to the coverage, except for eligibility of participants under the statute, which remains the responsibility of TRS as trustee;

(3) coordinate services under the insurance coverages provided under Chapter 1576, Insurance

Code; and

(4) account for any premiums collected and disbursed under the coverages.

(b) To be eligible to bid on providing group long-term care insurance, a carrier must comply with the minimum qualification standards contained in the applicable solicitation from TRS.

(c) All bids to provide group long-term care insurance must be submitted in compliance with the bid

requirements provided by TRS. (d) The bid opening shall take place at a date and time set by TRS. (e) In determining the quality of the bids, TRS may consider such factors and criteria as it deems

relevant and appropriate under the circumstances. (f) TRS shall not provide compensation to bidders for any expenses incurred by the bidder for bids


TRS-ActiveCare Rules: RULE §41.31 Eligible Bidders (a) TRS-ActiveCare may include separate contracts for:



(3) utilization review services;

(4) administrative services; and

(5) ancillary services.

(b) Except for health maintenance organizations, which must meet other requirements in this section,

to be eligible to bid on any of the contracts in subsection (a) of this section, a bidder must comply with the minimum qualification standards contained in the applicable solicitation from TRS.

(c) TRS may approve a health maintenance organization (HMO) to offer a health benefit plan to

participants in TRS-ActiveCare in areas of the state determined by TRS. TRS may establish, for different areas of the state, different criteria for HMOs to qualify to offer a health benefit plan. TRS may at any time establish or change the number, if any, of HMOs approved to offer a health benefit plan in each area of the state. In order to be approved, an HMO must satisfy all of the following conditions:

(1) The HMO must hold a valid certificate of authority issued by the Texas Department of

Insurance to operate in the State of Texas.

(2) The HMO must demonstrate the capacity to provide adequate services, as determined by TRS, to the participants in TRS-ActiveCare.

(3) Once adopted by TRS, the rates and benefits submitted by an HMO may not be modified

during a plan year without the prior written approval of TRS. (4) A request for expansion of a service area shall require a separate responsive bid and

approval by TRS.

(5) The HMO must comply with the other minimum qualification standards contained in the applicable solicitation from TRS.

RULE §41.32 Bid Procedure (a) All bids for contracts under TRS-ActiveCare must be submitted in compliance with the bid

requirements provided by TRS. (b) The bid opening shall take place at a date and time set by TRS. (c) In determining the quality of the bids, TRS may consider such factors and criteria as it deems

relevant and appropriate under the circumstances. (d) TRS shall not provide compensation to bidders for any expenses incurred by the bidder for bids


RULE §41.34 Eligibility for Coverage under the Texas School Employees Uniform Group Health Coverage Program The following persons are eligible to be enrolled in TRS-ActiveCare under terms, conditions and limitations established by the trustee unless expelled from the program under provisions of Chapter 1579, Insurance Code:

(1) A full-time employee as defined in §41.33 of this title (relating to Definitions Applicable to the Texas School Employees Uniform Group Health Coverage Program).

(2) A part-time employee as defined in §41.33 of this title. (3) Dependents, as defined in §41.33 of this title pursuant to §1579.004, Insurance Code. A

child defined in §1579.004(3), Insurance Code, who is 26 years of age or older, is eligible for coverage only if, and only for so long as, such child's mental disability or physical incapacity is a medically determinable condition that prevents the child from engaging in self-sustaining employment as determined by TRS.

(4) Individuals employed or formerly employed by a participating entity, and their dependents,

who are eligible for, or participating in, continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L. 99-272), through a group health benefit plan sponsored by the individual's employer on the first day that employer becomes a participating entity if such individuals or their dependents would have met the requirements for eligibility in paragraph (1), (2), or (3) of this section on the individual's last day of employment with the participating entity. Notwithstanding the foregoing, the individual is eligible to participate in TRS-ActiveCare only for the duration of the individual's eligibility for COBRA continuation coverage.

(5) An individual who qualifies for coverage pursuant to §41.38(b) of this title (relating to

Termination Date of Coverage), and their dependents.

(6) Full-time or part-time employees as defined in §41.33 of this title and their eligible dependents may participate in an approved HMO if they reside, live, or work in the approved service area of the HMO and are otherwise eligible to participate in the HMO under the terms of the TRS contract with the HMO.

(7) Individuals who become eligible as determined by TRS for continuation coverage under the

Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L. No. 99-272), through their participation in TRS-ActiveCare.

(8) Individuals who become eligible for coverage under the special enrollment provisions of the

Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996)).

(9) Any other individuals who are required to be covered under applicable law.

RULE §41.39 Coverage for Individuals Changing Employers (a) A full-time or part-time employee enrolled in TRS-ActiveCare who, on or after September 1, 2011,

changes employment from one participating entity to another participating entity within the same plan year may not change coverage plans or add dependents unless:

(1) changes to add dependents are authorized due to a special enrollment event under

provisions of the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996));

(2) an open-enrollment period exists on the first day of the new employment and the full-time or part-time employee makes such changes in compliance with open-enrollment conditions prescribed by the trustee; or



(b) A full-time or part-time employee enrolled in TRS-ActiveCare who, on or before August 31, 2011,

changes employment from one participating entity to another participating entity within the same plan year may not change coverage plans or add dependents unless:

(1) changes to add dependents are authorized due to a special enrollment event under special

enrollment provisions of TRS-ActiveCare; (2) an open-enrollment period exists on the first day of the new employment and the full-time

or part-time employee makes such changes in compliance with open-enrollment conditions prescribed by the trustee; or



(c) No break in coverage will occur for a full-time or part-time employee enrolled in TRS-ActiveCare

who changes employment from one participating entity to another participating entity within the same plan year if all the criteria set forth in paragraphs (1) - (3) of this subsection are met. The former employer participating entity shall determine the last date of employment for purposes of this subsection.

(1) The new employer makes available the same coverage option under which the full-time or

part-time employee was enrolled on the last day of employment with the former employer;

(2) The individual is employed by the new participating entity no later than the last day of the next calendar month after the last date of employment with the former participating entity employer; and

(3) The individual promptly files an election to continue coverage with the new participating

entity employer with coverage to be effective in the calendar month in which the individual is first employed with the new participating entity.

(d) Full-time or part-time employees who initially waive coverage under TRS-ActiveCare may enroll

during any open-enrollment period as prescribed by the trustee; however, they may not enroll due to a change in employment from one participating entity to another during the same plan year unless the change occurs during a concurrent open enrollment or the employee satisfies the requirements for an enrollment opportunity provided under §41.36(b) of this title.

RULE §41.41 Premium Payments (a) Each participating entity shall remit to TRS the amount on each bill directed to the participating

entity by TRS or the administering firm. The participating entity shall remit payment on or before the fifteenth day of each month in which TRS or the administering firm issued a bill. Payment shall be delivered in the same manner (e.g., currently, TEXNET) in which the participating entity delivers retirement contributions. Any waiver granted to a participating entity under §825.408(a), Government Code, does not apply to amounts billed under this section or to amounts otherwise owed to TRS for TRS-ActiveCare.

(b) A participating entity will be billed for all full-time and part-time employees enrolled in TRS-

ActiveCare who were employed by the participating entity on the date that TRS or its designee generates the bill for that billing month as reported by the participating entity. In addition, a participating entity will be billed retroactively for all full-time and part-time employees who enroll after the date on which the bill is generated for that month and choose coverage for that month. A participating entity will also be billed for any individual covered in accordance with §41.40 of this title (relating to Coverage Continuation While on Leave Without Pay). Participating entities are responsible for collecting all applicable premiums and other costs that are required to be paid by its full-time employees, part-time employees, and any individuals covered in accordance with §41.40 of this title. A participating entity shall remit the full amount billed each month.

(c) Participating entities shall not modify the amount of any bill or remit any amount different from the

amount billed. A participating entity shall report adopted adjustments, including those seeking credit for terminated employees, to the administering firm no later than the 45th day after the billing date. TRS may reject any adopted adjustments that are inappropriate or untimely, including those adjustments seeking credit for terminated employees reported later than 45 days after the billing date on which the employee was first incorrectly reported as eligible for coverage. Approved adjustments will be reflected on a subsequent bill.

(d) TRS may take corrective action against a participating entity that fails to remit payment in

accordance with the timelines and other requirements of this section, including but not limited to placement of a warrant hold with the Comptroller of Public Accounts.

RULE §41.50 Appeals Relating to Claims or Other Benefits (a) For appeals that relate to claims or other benefits, the following procedures apply:

(1) A person enrolled in TRS-ActiveCare, other than a person enrolled in a health maintenance organization (HMO) participating in TRS-ActiveCare, who is denied payment of a claim or other benefit ("Claimant") may appeal the denial through a written request filed with the administering firm in accordance with procedures established by the administering firm.

(2) The final decision by the administering firm or by any external review organization, whichever occurs later, shall be the final decision on the appeal.

(b) For appeals that relate to claims or other benefits, persons enrolled in an HMO under contract with

TRS-ActiveCare shall follow the appeal procedures set out by the HMO.

Legal & Compliance

Memorandum

DATE: April 25, 2019

TO: Policy Committee of the Board of Trustees

FROM: Carolina de Onis, General Counsel

Heather Traeger, Chief Compliance Officer

COPY: Board of Trustees

Keith Johnson, Fiduciary Counsel

RE: Revisions to the TRS Code of Ethics for Contractors

Pursuant to the Policy Review Schedule, the comprehensive review of the Code of Ethics for Contractors, Contractor Annual Ethics Compliance Statement, Expenditure Reporting Form for Contractors, Conflict of Interest Disclosure and Request for Determination, and Disclosure Statement for Financial Services Providers is due.

The Code of Ethics for Contractors ("Code") sets forth the ethical responsibilities and requirements of Contractors in performing services for TRS.

At this time, Legal & Compliance is not proposing any substantive changes to the Code or associated forms – Contractor Annual Ethics Compliance Statement, Expenditure Reporting Form for Contractors, Conflict of Interest Disclosure and Request for Determination, or Disclosure Statement for Financial Services Providers. TRS is proposing 4 categories of non-substantive changes, several of which are designed to reflect current practices: (1) changes to reflect the February 2018 name change for the Audit Committee to the Audit, Ethics, and Compliance Committee; (2) changes to reflect TRS practices regarding the conflict disclosures by Contractors to the Executive Director, General Counsel, and Chief Compliance; (3) change the due date for annual forms from April 15 to April 1 to provide time for TRS to review and resolve issues prior to the statutory deadline; and (4) minor “clean-up” edits.


Code of Ethics for Contractors Adopted: September 9, 1994 Revised Effective as of June 16, 2016April XX, 2019:

I, the undersigned, acknowledge that I have read this Code and am familiar with, and agree to be bound by, the standards that govern the conduct of Contractors.

I, the undersigned, am responsible for compliance and administration of the Code, including any ethics matters that may arise thereunder. If those obligations reside with another representative of the Contractor, I have included the contact information for that person below.

If the undersigned is executing this Code on behalf of an entity engaged by TRS as a Contractor, I further acknowledge that I have distributed this Code to those persons who work for or represent the Contractor on TRS matters. They have read this Code and are familiar with, and agree to be bound by, the standards that govern the conduct of Contractors.

Further, the Contractor shall distribute this Code (i) immediately to any other person with the Contractor who begins working on or representing the Contractor on TRS matters and (ii) once a year to all persons with the Contractor who work on or represent the Contractor on TRS matters.

Signature Title

Printed Name Contractor Entity Name

Date

Contact for Code administration: _______________________

Phone number: _____________________________________

Email address: ______________________________________

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TABLE OF CONTENTS

Page

I. Conflicts of Interest ........................................................................................................... 2 A. Conflicts of Interest Defined ................................................................................. 2 B. Determination of Potential and Actual Conflicts of Interest ................................. 2 C. Conflict Determination .......................................................................................... 3

i. Financial Services Provider ....................................................................... 3 ii. All Other Contractors ................................................................................ 4

D. Conflict Resolution ............................................................................................... 4 i. Financial Services Provider ....................................................................... 4

ii. All Other Contractors ................................................................................ 6 E. Termination ........................................................................................................... 7 F. Reporting ............................................................................................................... 7

II. Standards of Conduct ........................................................................................................ 7 A. Professional Standards and Laws ............................................................................. 7 B. Benefits ................................................................................................................. 7 C. Individual Advisor ................................................................................................ 7 D. Personal Business Relationship ............................................................................. 7 E. Employment of Former Trustee or Employee ....................................................... 8 F. Use or Disclosure of TRS Information ................................................................. 8 G. Bids ............................................................................................................................ 8 H. Controls ...................................................................................................................... 8 I. Foreseeable Conflicts of Interest ........................................................................... 9 J. Foreseeable Violation of Standards of Conduct .................................................... 9 K. Signed Acknowledgement ..................................................................................... 9 L. Reporting ............................................................................................................... 9 M. Covered Contractor Ethics .................................................................................... 9

III. Periodic Disclosures ........................................................................................................ 9 A. Annual Compliance Statement .............................................................................. .9 B. Disclosure Statement for Financial Services Providers ......................................... 10 C. Expenditure Report ............................................................................................... 10 D. Ongoing Report ..................................................................................................... 10

IV. Compliance and Enforcement ......................................................................................... 10 A. Enforcement .......................................................................................................... 11 B. Contracts; Violations ............................................................................................. 11

i. Termination ............................................................................................... 11 ii. Notice and Cure ........................................................................................ 11

C. Fiduciary Duties .................................................................................................... 12 D. Report Violations .................................................................................................. 12 E. Internal Reporting and Enforcement ..................................................................... 12

Appendix A – Definitions ............................................................................................................. 13 Appendix B – Conflict of Interest Disclosure and Request for Determination (“Disclosure Statement”) Form TRS 541C ........................................................................................................ 15 Appendix C – Annual Ethics Compliance Statement Form TRS 550 ........................................... 16 Appendix D – Disclosure Statement for Financial Services Providers Form TRS 630 ................ 17 Appendix E – Expenditure Reporting Form for Contractors Form TRS 543 ................................ 18

Code of Ethics for Contractors

The Teacher Retirement System of Texas (“TRS”) is charged by the Texas Constitution and state law with the administration and investment of pension assets held in trust for the exclusive benefit of active or retired TRS members and their beneficiaries; assets may not be diverted for other purposes. The TRS Board of Trustees is the trustee of all plan assets, responsible for the general administration and operation of TRS and authorized by law to adopt rules for TRS administration and Board business. The Board has similar responsibilities for the health benefits programs under the Texas Public School Retired Employees Group Benefits Act, the Texas School Employees Uniform Group Health Coverage Act, and other trusts or programs authorized by law to be administered by TRS. The Code of Ethics for Contractors ("Code") sets forth the ethical responsibilities and requirements of Contractors, as that term is defined in the Code, in performing services for TRS.

Section I. Conflicts of Interest

A. Conflicts of Interest Defined. A conflict of interest exists for a Contractor when the Contractor has:

1. A relationship with any party to a transaction with TRS, or with an Employee, or Trustee, other than a relationship necessary to the services that the Contractor performs for TRS, if a reasonable person could expect the relationship to diminish the Contractor’s independence of judgment in the performance of the Contractor’s responsibilities; or

2. A direct or indirect pecuniary interest in any party to a transaction with TRS if the transaction is connected with services the Contractor provides to TRS or to the Trustees in connection with the management or investment of TRS assets.

A person's independence of judgment reasonably could be diminished when he or she is in a position to take action or not take action with respect to TRS or its business and a reasonable person could expect that such action or inaction on behalf of TRS is influenced by considerations of gain, loss avoidance, or benefit to the Contractor or a third party, rather than motivated by the best interests of TRS.

A conflict of interest will not exist under this Code if any benefit is merely incidental to the Contractor’s membership in a large class sharing a common interest, such as the class of TRS members. Further, a conflict of interest will not be deemed to exist solely because a Contractor is or has a relative who is a TRS member, retiree, annuitant or beneficiary who is not also an Employee.

B. Disclosure of Potential and Actual Conflicts of Interest.

If a Contractor either:

1. Has determined that it has a potential or actual conflict of interest; or 2. Is uncertain whether it has or would have a conflict of interest under a particular set

of circumstances then existing or reasonably anticipated to occur,

the Contractor should promptly disclose the underlying circumstances to the General 4

Counsel or Chief Compliance Officer in writing by submitting a completed Conflict of Interest Disclosure and Request for Determination (the “Code Conflict Disclosure Statement”,) (Form TRS 541C). (See Appendix B.) to the Chief Compliance Officer. In completing the Code Conflict Disclosure Statement, a Contractor must provide full disclosure of all relevant facts and circumstances related to the potential or actual conflict.

A contractor who files a Code Conflict Disclosure Statement must refrain from giving advice or making decisions about any matters affected by the potential or actual conflict of interest until the Contractor cures the conflict or obtains guidance to proceed from the Chief Compliance Officer General Counsel or Executive Director.

If a Contractor with a duty to disclose conflicts reasonably believes that disclosure to the General Counsel would be ineffective, the Contractor shall disclose the potential or actual conflict of interest to the Executive Director.

Teacher Retirement System of Texas Executive Director

1000 Red River Street Austin, Texas 78701-2698

Whether disclosure is made to the General Counsel, Chief Compliance Officer, or to the Executive Director, a Contractor shall provide a copy of the Code Conflict Disclosure Statement to the Employee assigned to monitor or manage the performance of the Contractor.

C. Conflict Determination.

The process for determining whether a conflict of interest exists or may exist under the circumstances described in the Code Conflict Disclosure Statement will be based on the type of Contractor: (i) Financial Services Provider or (ii) all other Contractors.

1. Financial Services Provider. Upon receipt of a Code Conflict Disclosure Statement, the Executive Director, in consultation with the General Counsel and Chief Compliance Officer, will determine whether a potential or actual conflict of interest exists or would arise under the circumstances disclosed.

If the Executive Director determines that a conflict does not exist, the Contractor will be notified of such determination in writing by the General Counsel Chief Compliance Officer. The Chief Compliance Officer General Counsel will record the determination on the Code Conflict Disclosure Statement and the Code Conflict Disclosure Statement will be retained in the Legal & Compliance departmentOffice of the General Counsel.

If the Executive Director determines that either (i) a conflict does not exist presently but would exist upon the occurrence of future events or circumstances identified by the Contractor in the Code Conflict Disclosure Statement or otherwise or (ii) a conflict exists, the Chief Compliance Officer General Counsel will notify the Contractor of the Executive Director’s determination in writing, and resolution of the conflict will

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be addressed as provided in Section I.D.

When a Code Conflict Disclosure Statement has been provided directly to the Executive Director, the Executive Director may consult with the Chief Compliance Officer and/or another member of the Legal & Compliance or Investment Management staff, as appropriate, for guidance in making a determination regarding the existence of and resolution of a conflict. In such cases, the Code Conflict Disclosure Statement will be updated and retained as provided in this Section I.C. and in Section I.D.

2. All Other Contractors.

Upon receipt of a Code Conflict Disclosure Statement, the General Counsel will determine whether a potential or actual conflict of interest exists or would arise under the circumstances disclosed.

If the General Counsel determines that a conflict does not exist, the Contractor will be notified of such determination in writing by the Chief Compliance. The Chief Compliance Officer General Counsel will record the determination on the Code Conflict Disclosure Statement and the Code Conflict Disclosure Statement will be retained in the Legal & Compliance departmentOffice of the General Counsel.

If the General Counsel determines that either (i) a conflict does not exist presently but would exist upon the occurrence of future events or circumstances identified by the Contractor in the Code Conflict Disclosure Statement or otherwise, or (ii) a conflict exists, the Chief Compliance Officer General Counsel will notify the Contractor of the determination in writing, and resolution of the conflict will be addressed as provided in Section I.D.

D. Conflict Resolution. A Contractor with a conflict of interest must disclose the conflict and cure it. A conflict may be cured by mitigating, controlling or eliminating the conflict. For each determination that a conflict exists, the cure, or the absence of a cure, will be documented by the Chief Compliance Officer General Counsel on the Code Conflict Disclosure Statement submitted by the Contractor. The documentation will summarize the reasons supporting the decision, including any conditions required as part of the cure. The Code Conflict Disclosure Statement will be retained in the Legal & Compliance departmentOffice of the General Counsel, with a copy to be provided to the Contractor.

The process for evaluating whether a conflict of interest has been cured will be based on the type of Contractor: (i) Financial Services Provider or (ii) all other Contractors.

1. Financial Services Provider.

Upon receipt of a Code Conflict Disclosure Statement, the Executive Director, in consultation with the General Counsel and Chief Compliance Officer, and as appropriate, the Chief Investment Officer, will make any determinations regarding whether a conflict of interest has been cured under this Section I.D.1 in his sole discretion.

a. When evaluating whether a conflict has been or can be cured, the Executive 6

Director may consider, among others, the following factors relating to the Contractor’s disclosures and steps to mitigate, control, or eliminate the conflict: i. Whether the Contractor is a fiduciary; ii. The nature and extent of the Contractor’s disclosed pecuniary interests and

relationships; iii. Whether, applying the reasonable person standard, the Contractor’s exercise of

judgment on behalf of TRS in performing such services is, or is likely to be, affected by the Contractor’s interests and/or relationships;

iv. Whether the information disclosed regarding the conflict is contrary to or materially inconsistent with the known facts underlying the conflict;

v. Whether the Contractor’s interests are in fact substantially aligned with TRS’ best interests (or the degree to which they are not harmful or opposed to TRS’ interests) in the transaction;

vi. Whether TRS’ best interests will be best served by proceeding with the Contractor’s services even though the Contractor also has an interest;

vii. A cost-benefit analysis, including a review of pricing and fee structures, that demonstrates that TRS will not suffer any economic or other disadvantages or can reasonably expect cost-savings or pecuniary benefits (including loss avoidance) if TRS consents to the services;

viii. The nature and extent of transparency and reporting that the Contractor will be required to deliver with respect to its own interests and relationships in connection with its services, and, if applicable, whether the Contractor’s contract for services with TRS will, or should be amended to, require such transparency and reporting;

ix. Whether the Contractor proposes to create information barriers between business units, lines of business, relationship contacts, personnel, and affiliates with respect to confidential TRS or transaction information and due diligence matters;

x. The Contractor’s qualifications, reputation, and experience in the industry for the services to be provided for the relevant transaction;

xi. Whether an RFP or Trustee approval was part of the engagement process for the Contractor;

xii. The prior experience with and quality of the Contractor’s services in previous TRS transactions; and

xiii. Whether, in relation to the provision of analysis or research from a Financial Services Provider that is a Broker or independent research provider, the disclosures provided by the Contractor are sufficient under the circumstances to cure the conflict by informing TRS of the nature and extent of any bias, and to form a judgment about the credibility or value of the Contractor’s services, particularly if the services are of a limited nature – such as research.

b. When evaluating whether a conflict has been or can be cured, the Executive Director may also consider the type of services underlying the conflict of interest and the value such services provide within the different segments of TRS’ business. For example, whether the Contractor proposes, in addition to providing the financial services it provides to TRS under an existing or proposed agreement,

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to: i. Act as a principal or counterparty (including as an agent for a disclosed or

undisclosed third party principal) opposed to TRS in a financial or investment transaction or series of transactions;

ii. Offer inconsistent or, alternatively, numerous services by different areas of the Contractor’s organization;

iii. Engage an affiliate to perform services for TRS that may or may not provide an indirect or direct benefit to the Contractor;

iv. Recapture commissions for certain services it provides; or v. Provide investment advice to TRS in connection with a TRS investment and the

Contractor has a conflict or holds or intends to hold or acquire a direct or indirect pecuniary interest in the same portfolio investment or transaction as TRS whether for itself as a principal or as an agent on behalf of disclosed or undisclosed third parties.

c. The Executive Director may consider whether a Contractor has or can cure a potential or actual conflict if the Contractor or the Contractor's Employee or affiliate prudently refrains or withdraws from taking action on a particular TRS matter provided that: i. The person, persons, or Contractor may be, is or are effectively separated from

influencing the action taken; ii. The action may properly and prudently be taken by others without undue risk

to the interests of TRS; and iii. The nature of the conflict is not such that the person, persons, or Contractor

must regularly and consistently withdraw from decisions that are normally his or her, their, or its responsibility with respect to the services provided to TRS.

d. The Executive Director may elect to impose conditions as part of a determination that a conflict has been or can be cured. Such conditions will be tailored to the particular facts and circumstances. They may include, among others, requirements to: i. Further disclose the Contractor’s interests and relationships in any written

advice, prudence letter, or recommendation provided to TRS for the transaction or series of transactions to which the determination relates;

ii. Revisit the “disclosure and cure” determination upon the occurrence of certain facts or circumstances;

iii. Agree to contractual amendments; iv. Conduct ongoing monitoring and reporting; or v. Acknowledge possible reconsideration of the Contractor’s disclosures at any

time.

In each instance where the Executive Director has determined that a potential or actual conflict of interest has been cured, a Contractor may only proceed with the actions giving rise to the conflict upon written notice from the Chief Compliance Officer, General Counsel or Executive Director. In the event the Executive Director determines that the conflict has not been cured, the Contractor may not proceed with the services and must terminate its relationship with TRS, as described in Section I.E.

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The General Counsel, in consultation with the Chief Compliance Officer, will make any determinations regarding whether a Contractor’s conflict of interest has been cured under this Section I.D.2. In reviewing the Code Conflict Disclosure Statement, the General Counsel may consider the same factors identified in Section I.D.1, as applicable.

Following the same process, the Executive Director may undertake a conflicts determination for those conflicts where the Code Conflict Disclosure Statement was filed directly with the Executive Director.

E. Termination.

A Contractor who cannot or does not want to cure a conflict of interest must terminate his, her or its relationship with TRS as promptly as responsibly and legally possible. The decision to terminate, and a summary of the analysis related to that decision, will be documented by the Chief Compliance Officer General Counsel on the Code Conflict Disclosure Statement submitted by the Contractor. The Code Conflict Disclosure Statement will be retained in the Legal & Compliance departmentOffice of the General Counsel, with a copy to be provided to the Contractor.

F. Reporting.

The Chief Compliance Officer shall regularly provide a report to the Executive Director, General Counsel, the Chief Audit Executive and the Audit, Compliance, and Ethics Committee of the Board regarding all Code Conflict Disclosure Statements evidencing a conflict of interest and violations of the conflicts provisions.

Section II. Standards of Conduct

A. Professional Standards and Laws.

Contractors must comply with all applicable state, federal and non-U.S. professional standards and laws, including, without limitation, the following:

1. Section 36.02 of the Texas Penal Code, which prohibits bribery. 2. Section 36.09 of the Texas Penal Code, which prohibits the offering or conferring

of benefits to public servants. 3. Section 572.054 of the Texas Government Code. 4. Section 825.212 of the Texas Government Code. 5. Section 2252.908 of the Texas Government Code. 6. Chapter 2263 of the Texas Government Code. 7. All applicable securities and commodities laws. 1. Section 36.02. Bribery. Texas Penal Code. 2. Section 36.09. Offering Gift to Public Servant. Texas Penal Code. 3. Section 572.054. Representation by Former Officer or Employee of Regulatory

Agency Restricted; Criminal Offense. Texas Government Code. 4. Section 825.212. Retirement System Ethics Policy. Texas Government Code. 5. Section 2252.908. Disclosure of Interested Parties. Texas Government Code.

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6. Chapter 2263. Ethics and Disclosure Requirements for Outside Financial Advisors and Service Providers. Texas Government Code.

7. All applicable securities and commodities laws.

B. Benefits.

Contractors must avoid offering, conferring, soliciting, or accepting any benefit to or from Trustees, Employees, or Covered Contractors, except as otherwise allowed in Trustee and Employee ethics policies, incorporated herein by reference and available at http://www.trs.texas.gov. For example, a Contractor may not provide a special discount on services to a TRS Trustee or Employee if the discount is based on the Contractor's relationship with TRS.

C. Individual Advisor.

Irrespective of compensation, a Contractor may not be a representative of or be engaged by an individual Trustee if, in either case, the Contractor's role with respect to the Trustee is to provide advice that could reasonably be expected to form the basis for a significant TRS decision made by the Trustee.

D. Personal Business Relationship. A personal business relationship exists when a Contractor and a Trustee or Employee own or operate a business together or co-invest in a business, other than through publicly traded securities. Contractors may not have a personal business relationship with a Trustee or Employee unless the Executive Director consents to the continuation of TRS' relationship with the Contractor after full disclosure. If a personal business relationship exists, a Contractor must promptly disclose the personal business relationship to the Executive Director by filing a Code Conflict Disclosure Statement with the Chief Compliance Officer General Counsel. The Executive Director, after consultation with the General Counsel and Chief Compliance Officer, will then determine whether to approve the continuation of TRS' relationship with the Contractor while the Trustee or Employee continues in his or her respective role for TRS. Alternatively, the Executive Director may require the Contractor, Trustee and/or Employee to be screened from TRS matters in which the personal business relationship may reasonably be expected to diminish the Contractor's independence of judgment in the performance of duties for TRS.

E. Employment of Former Trustee or Executive Director.

Contractors may not employ a former Trustee or a former Executive Director for two years after termination of such former Trustee's TRS board service or such Executive Director's Employee relationship with TRS unless the former Trustee or Executive Director will not provide services to TRS or work on or have any involvement in TRS- related business of the Contractor. Further, Contractors may not employ any former Trustee or Employee, including the former Executive Director, at any time if the person’s services to TRS, work, and involvement in TRS-related business of the Contractor would violate Government Code Section 572.054(b) of the Texas “Revolving Door” statute. To the extent that it does not violate statutory law or that it would be in the best interest of TRS, the Executive Director may waive the application of this prohibition in a specific

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http://www.trs.texas.gov/


situation.

TRS cannot enter into a contract with a former or current Executive Director or with a Contractor which employs a former Executive Director without Board approval in an open meeting.

F. Use or Disclosure of TRS Information.

A Contractor may not use or disclose any information acquired as a result of the relationship with TRS except as needed to provide the services required by the contract for TRS business purposes. A Contractor receiving or having access to sensitive or confidential TRS information must use its best efforts to protect such TRS information from unauthorized access, use or disclosure.

G. Bids.

A Contractor may not be awarded a contract that is funded in whole or in part by appropriations from the general revenue fund of the State of Texas if (i) TRS paid the Contractor to participate in preparing the specifications for, or request for proposals related to, the contract or (ii) the Contractor assisted TRS in the selection process to award the contract.

H. Controls Contractors must observe the accounting and operating controls established by law and TRS policies, including restrictions and prohibitions on the use of TRS property for non- TRS purposes, including personal purposes.

I. Foreseeable Conflicts of Interest.

Contractors may not take action personally or on behalf of TRS that would reasonably be likely to result in a foreseeable conflict of interest. If a Contractor believes that taking a particular action would be in the best interest of TRS but such action would foreseeably result in a conflict of interest for the Contractor, the Contractor must proceed under the conflict of interest provisions of Section I.

J. Foreseeable Violation of Standards of Conduct. If a Contractor anticipates that future conduct by the Contractor itself, its employees or its affiliates could or is likely to violate the Standards of Conduct, but such conduct may not itself, without more, be a potential or actual conflict of interest, the Contractor may seek to “cure” that anticipated violation by following the process outlined in Section I.B. through I.D. for disclosing and curing potential and actual conflicts of interest by mitigating, controlling, or eliminating the violation.

As in Section I., the Executive Director will review Code Conflict Disclosure Statements for Financial Services Providers and the General Counsel will review Code Conflict Disclosure Statements for all other Contractors. Any use of this sub-section will be reported on a regular basis by the Chief Compliance Office to the Executive Director, the Chief Audit Executive, and the Audit, Compliance, and Ethics Committee of the Board.

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K. Signed Acknowledgement.

On the commencement of business with TRS (including but not limited to entering into a contract with TRS or being named as a Broker to the TRS Approved Broker List) and at any time this Code is revised by TRS, each Contractor must sign, date, and return to TRS a copy of this Code. The process for acknowledgment may be through electronic means.

L. Reporting.

Contractors shall complete all reporting requirements in accordance with TRS prescribed systems or processes, including any electronic reporting system implemented by TRS.

M. Covered Contractor Ethics.

Covered Contractors are subject to the Employee Ethics Policy, incorporated herein by reference and available at http://www.trs.texas.gov and, as applicable, any warranties and representations made in TRS questionnaires related to political contributions, improper influence, placement agents and finders.

Section III. Periodic Disclosures

A. Annual Compliance Statement.

On the commencement of business with TRS (including but not limited to entering into a contract with TRS or being named as a Broker to the TRS Approved Broker List), the Contractor will have signed this Code in acknowledgement of the responsibilities and obligations thereunder and the consequences for non-compliance with the Code. At least once every twelve-month period, each Contractor must read and review any applicable policies and sign and date a Contractor Annual Ethics Compliance Statement (the “Annual Compliance Statement”, ) (Form TRS 550, ) (Appendix C) and any other forms as required by TRS.

B. Disclosure Statement for Financial Services Providers.

In addition to the Annual Compliance Statement filed pursuant to the paragraph immediately above, all Financial Services Providers shall also file annually a Disclosure Statement for Financial Services Providers (Form TRS 630, ) (Appendix D) with the Executive Director and the State Auditor’s Office. Also, all Financial Services Providers must promptly file a new or amended Disclosure Statement for Financial Services Providers with the Executive Director and the State Auditor’s Office whenever there is new information to report. In filing this statement, a Financial Services Provider will disclose in writing the following:

(i) Any relationship (without regard to whether the relationship is direct, indirect, personal, private, commercial, or business) the Financial Services Provider has with any party to a transaction with TRS, other than a relationship necessary to the advice or services that the Financial Services Provider performs for TRS, if a

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reasonable person could expect the relationship to diminish the Financial Services Provider’s independence of judgment in the performance of its responsibilities to TRS; and

(ii) Any direct or indirect pecuniary interests in any party to a transaction with TRS if the transaction is connected with services the Contractor provides to TRS or to the Trustees in connection with the management or investment of TRS assets.

If no relationship or pecuniary interest described in (i) or (ii) immediately above existed during the disclosure period, then the Contractor must affirmatively state that fact. The Disclosure Statement for Financial Services Providers must be filed not later than April 15 and will cover the previous calendar year (the reporting period).

C. Expenditure Report. Each Contractor must file annually an Expenditure Reporting Form for Contractors (Form TRS 543, ) (Appendix E), including itemized, reasonably detailed lists of expenditures of more than $50 per day made by or on behalf of the Contractor with respect to or for the benefit of each Trustee or Employee. The Expenditure Reporting Form for Contractors must be filed not later than April 15 and will cover expenditures for the previous calendar year.

D. Ongoing Report.

Each Contractor has an ongoing obligation to determine whether it must file Code Conflict Disclosure Statements or update its Annual Compliance Statement to reflect new information related to potential or actual conflicts of interest or the standards of conduct discussed in this Code.

Section IV. Compliance and Enforcement A. Enforcement.

The Executive Director is responsible for implementation and enforcement of this Code. The Executive Director will inform the Board of any significant enforcement action taken by TRS concerning a violation of this Code. The Executive Director may authorize and approve a system or process through which Contractors may electronically submit to TRS the forms, disclosures, and statements required by this Code. Any such system must, to the Executive Director’s satisfaction, require Contractors to submit all information required by this Code with sufficient guarantees of reliability, accuracy, and authenticity. Implementation of any such system in no way alters or waives any requirement of submitting any form, disclosure, or other information. The Executive Director also may authorize any updates and revisions to TRS forms used for compliance with this Code so long as the changes are not inconsistent with the Code.

The Executive Director or General Counsel may, in unique and limited circumstances, grant exceptions to the policies proscribed in the Code. Any such exceptions must be reported to the Audit, Compliance, and Ethics Committee of the Board and the Chief Audit Executive.

The General Counsel may delegate certain of its responsibilities under the Code to the

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Chief Compliance Officer.

B. Contracts; Violations. This Code must be incorporated into and form part of each contract with a Contractor.

1. Termination.

Violations of this Code by any Contractor are grounds for terminating the contract or relationship, and may constitute a material breach of contract with no penalty to TRS for terminating the contract or relationship. Any Contractor whose contract or business relationship with TRS is terminated by TRS because of a violation of this Code may not receive a contract award from TRS for up to ten years, as determined by the Executive Director or his designee, commencing from the date of the termination. The Executive Director will maintain and serve as custodian for a list of the Contractors whose contract or relationship with TRS has been terminated because they were found to be in violation of this Code. This listing shall include information regarding the length of time during which the Contractor may not receive another contract award with TRS.

2. Notice and Cure.

Notwithstanding the foregoing, to the extent that a violation of the Code (i) is disclosed to the General Counsel or Chief Compliance Officer within seven days of the discovery of the occurrence of such violation and (ii) such violation can be cured within 30 days of proper and complete disclosure based on the procedures in Section I.B. and Section I.D., such violation may be resolved and such contract may remain in effect. The disclosure noted in clause (i) of this paragraph must be made through a Code Conflict Disclosure Statement and must describe in detail the violation and the action proposed to cure such violation. The determination of whether such violation has been appropriately cured will be made by the Executive Director. All violations of this Code, whether cured or not, will be reported to the Audit, Compliance, and Ethics Committee of the Board.

C. Fiduciary Duties.

Contractors who are Fiduciaries shall take appropriate action as co-fiduciaries in the event a violation of this Code involves a breach of fiduciary duties. Such Contractors should be mindful that a decision by the Executive Director that a conflict has been properly disclosed and cured does not lessen a Contractor’s duty of care to TRS or continuing duty of loyalty under the Contractor’s fiduciary duty.

D. Report Violations.

Contractors with knowledge of a violation of this Code, by themselves or others, must report promptly such violation to the Executive Director, General Counsel or Chief Compliance Officer.

E. Internal Reporting and Enforcement.

A Contractor shall be responsible for compliance with this Code by the Contractor and each of its employees and affiliates working on TRS matters. Any disclosure or report

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required by this Code must be submitted to TRS by the Contractor entity rather than by individual employees and affiliates. A Contractor is responsible for making a diligent inquiry of each of the Contractor's employees and affiliates working on TRS matters before each submission and from time to time during engagement as a Contractor to determine if further submissions are required. The Contractor's inquiry shall include any employee or affiliates who worked on TRS matters during the reporting period, regardless of whether the employee or affiliate works on TRS matters at the reporting time, ceased working on TRS matters during that time or has since left employment with the Contractor. This inquiry obligation may be satisfied by an inquiry made near or at the time of a former employee's departure from a Contractor's employment. A Contractor must ensure that any Code Conflict Disclosure Statement required by this Code contains all relevant and material facts and circumstances necessary for TRS to fully understand the details of the potential or actual conflict of interest and, if applicable, the factors supporting a proposed cure for the conflict. This may involve updating a Code Conflict Disclosure Statement prior to TRS making a conflict or cure determination.

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DRAFT Appendix A – Definitions

In this Code the following definitions apply unless the context requires otherwise:

“Affiliate.” Entities (units, divisions, parents, subsidiaries, etc.) and individual agents, representatives, contractors, and employees of the Contractor organization.

“Agent.” An entity or person, engaged as an independent contractor, performing material or significant duties on behalf of TRS as its representative. An Agent would include an unpaid intern or volunteer. For purposes of this Code, the term “Agent” does not include a Financial Services Provider. However, if an Agent also falls within the definition of a Consultant, the entity or person is considered a Consultant under this Code. If an Agent also falls within the definition of Financial Services Provider, the entity or person is considered a Financial Services Provider for all purposes. If questions exist regarding who constitutes an Agent, the Executive Director or his designee shall make that determination after consultation with the General Counsel or Chief Compliance Officer.

Notwithstanding the above, there may be certain entities or persons engaged by TRS, performing material or significant duties on behalf of TRS as its representative, that will be considered outside the scope of this Code. Any such determinations will be made on a case by case basis in the best interest of TRS, and a record of such determination will be maintained by the Legal & Compliance departmentOffice of the General Counsel.

“Board.” The Board of Trustees of TRS.

“Broker.” See Financial Services Provider.

“Consultant.” An entity or person, other than an Employee or Trustee, (i) who provides advice to TRS intended to affect or form a basis for significant TRS decisions, including but not limited to an actuary or insurance and health care plan advisor or (ii) who provides advice to TRS and may reasonably be expected to receive for his, her, or its services more than $10,000 in compensation from TRS during a fiscal year (September 1 to August 31). Consultant does not include a Financial Services Provider. However, if a Consultant also falls within the definition of a Financial Services Provider, the entity or person is considered a Financial Services Provider, respectively, for all purposes. If questions exist regarding who constitutes a Consultant, the Executive Director or his designee shall make that determination after consultation with the General Counsel or Chief Compliance Officer.

“Contractors.” A collective term used to signify inclusion of all groups. For example, Agents, Consultants, and Financial Services Providers, as each separate term is defined herein.

“Covered Contractor.” A Contractor who works on location at TRS or a worker assigned by or paid, directly or indirectly, by the Contractor to work at TRS. A secondee to TRS from a Financial Services Provider would be a Covered Contractor.

“Employee.” A person who works for TRS in an employer-employee relationship (including a paid intern) and not in an independent contractor capacity, and includes the Executive Director and Chief Investment Officer of TRS.

“Executive Director.” The individual appointed as the executive director pursuant to Section of the Texas Government Code. “Fiduciary.” For purposes of this Code, a Contractor identified or appointed by contract or otherwise designated by TRS as a TRS fiduciary. If questions exist regarding who constitutes a Fiduciary for purposes of this Code, the Executive Director or his designee shall make that determination after consultation with the General Counsel or the Chief Compliance Officer.

“Financial Advisor.” See Financial Services Provider.

DRAFT “Financial Services Provider.” A person or entity, other than an Employee or Trustee, who provides: (i) financial management or advice to TRS or to the Board that is the a basis for significant financial, investment, or fund management decisions or actions by or on behalf of TRS, and whose primary role is to provide such management or advice; (ii) financial services to TRS or advice in connection with the management or investment of TRS trust funds and who may reasonably expect to receive for his, her, or its services more than $10,000 in compensation from TRS during a fiscal year (September 1 to August 31); or (iii) assistance to TRS in the buying or selling of stocks, bonds, commodities, options, and other securities, including related analysis or research (for example, on a security, company, industry, or sector) and who is named from time to time on the TRS Approved Broker List. A Financial Services Provider would include but is not limited to (i) financial advisors, (ii) financial consultants, (iii) investment counselors, (iv) money or investment managers, (v) custodian banks and security lending agents, (vi) Strategic Partners, (vii) external managers retained pursuant to agency agreements and (viii) brokers. For purposes of reporting compliance, the term “Financial Services Provider” includes an entity or person who appeared on the TRS Approved Broker List or the TRS Code Restricted Contractors List during any portion of the period of time covered by a particular report, even if that entity or person is no longer named on the TRS Approved Broker List or TRS Code Restricted Contractors List.

If questions exist regarding who constitutes a Financial Services Provider, the Executive Director or his designee shall make that determination after consultation with the General Counsel or the Chief Compliance Officer.

Notwithstanding the above, the following persons or entities are not considered Financial Services Providers: (i) attorneys and law firms, (ii) companies that provide actuarial services that impact investment strategies, (iii) companies that only provide financial information, research or advice that is not created for TRS’ exclusive use, or software by subscription or license agreement, (iv) companies that provide software and services to transmit data between or among TRS operating systems, (v) the medical board, and (vi) health care consultants.

“General Counsel.” The Employee of TRS serving in the position of chief legal advisor for TRS.

“Strategic Partner.” The institutions that are advisors that provide services under relationships designated by TRS as Strategic Partners.

“TRS.” The Teacher Retirement System of Texas.

“Trustee.” A member of the Board of TRS.

DRAFT Appendix B – Conflict of Interest Disclosure and Request for Determination (“Code Conflict Disclosure Statement”) Form TRS 541C

DRAFT

CONFLICT OF INTEREST DISCLOSURE and REQUEST FOR DETERMINATION

Contractor’s Complete Name: _______________________________________________________________ Under Section I.B. of the TRS Code of Ethics for Contractors (“Code”), a Contractor should promptly inform the General Counsel or and Chief Compliance Officer by use of this TRS Form 541C if the Contractor either:

• has determined that it has a potential or actual conflict of interest; or

• is uncertain whether it has or would have a conflict of interest under a particular set of circumstances then existing or reasonably anticipated to occur.1 A signed copy of this form may be emailed to the TRS Chief Compliance Officer or such other address as may be specified by TRS. If you have reason to believe that disclosure to the General Counsel would be ineffective, your TRS Form 541C should be sent directly to the Executive Director. You must include all relevant and material facts and circumstances necessary for TRS to fully understand the details surrounding the possible, potential or actual conflict of interest. If any information you provide below requires updating or amending, immediately inform the General Counsel or Chief Compliance Officer (or Executive Director, as applicable) and promptly provide the updated or amended information.

I. Conflict Determination Describe fully the facts and circumstances that create the possible, potential or actual conflict of interest. Specify the interest or relationship that creates the conflict. Name all relevant parties. If there are non-confidential documents or related materials, attach those materials to your submission or provide website links to where those materials may be found.

As a reminder, Section I.A. of the Code provides that a conflict of interest exists when a Contractor has:

1. A relationship with any party to a transaction with TRS, or with an Employee or Trustee, other than a relationship necessary to the services that the Contractor performs for TRS, if a reasonable person could expect the relationship to diminish the Contractor’s independence of judgment in the performance of the Contractor’s responsibilities; or


_____________________________________________________________________________________ _____________________________________________________________________________________ ______________________________________________________________________________________ Enter a complete, reasonably detailed description of the facts and circumstances here. Provide your preliminary analysis of why you believe the situation may or may not be a conflict of interest under the definition of conflict in Section I.A. of the Code. Please address each element of the definition of conflict of interest as set forth in items 1. or 2. above, as applicable to your circumstances.

1 Contractors should complete TRS Form 541C in the same manner proscribed for addressing conflicts of interest when (1) reporting potential or actual violations of the Standards of Conduct in the Code, pursuant to Section II.J., or (2) using the Notice and Cure provisions in Section IV.B.2.

DRAFT _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Enter your preliminary analysis here, explaining why there is or is not a possible, potential or actual conflict of interest.

For TRS: _____No Conflict _____Conflict

_____Conflict Upon Occurrence of Future Events

II. Cure Determination Provide your preliminary analysis of why you believe the conflict of interest has or may be cured. Use the factors outlined in Section II.D. of the Code, among others that you may consider relevant, to describe how and whether the conflict has been mitigated, controlled or eliminated. In addition to the factors, your analysis should discuss, as applicable, the type of service underlying the conflict, the value of the service, any cost-benefit analysis that has been performed related to the service, and any restrictions on persons or activities in relation to the service or relationship underlying the conflict. If there are non-confidential documents or related materials, attach those materials to your submission or provide website links to where those materials may be found. _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Enter your preliminary analysis here, explaining whether and how the conflict has or may be cured.

For TRS:

_____Conflict Not Cured or Incurable

_____Conflict Cured _____Conflict Cured with Conditions (see below)

For TRS:

Conditions Required as Part of Cure Determination: __________________________________________________________________

Identify conditions required as part of the cure determination pursuant to Section ______ I have withdrawn from participation in this matter pending further notification from TRS.

______ I believe that I can effectively withdraw from participation in this matter.

Why or why not? ___________________________________

III. Reporting Obligations

A. Self-reporting by Covered Contractor I have provided a copy of this disclosure statement to my supervisor, team leader or manager, or monitoring personnel. If "no," why not? ____________________________________________________________________________________________________________________________________________________________________________________________ Please provide requested explanation, if applicable.

DRAFT

B. Reporting of Others _____ I believe another individual or entity has a conflict of interest, as defined in the Code. _____ I have knowledge that the other individual or entity has withdrawn from participation in the matters affected

by the conflict of interest pending further notification from TRS. _____ I have provided a copy of this TRS Form 541C to the TRS personnel who supervise or monitor the individual

or entity that is the subject of this disclosure statement. __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Please provide additional explanation regarding the known facts surrounding a potential conflict of interest by another individual or entity. As, or on behalf of, the Contractor listed below, I certify that all of the information provided in this TRS Form 541C is accurate and complete. ______________________________________________________________ Contractor

______________________________________________________________ Signature Printed

______________________________________________________________ Name

_______________________________________________________________ Title or Position of Individual Named Immediately Above

_______________________________________________________________ Phone Number and Email Address

_______________________________________________________________ Date

For TRS:

______Contract Continued

______Contract Terminated

_____________Date

DRAFT Appendix C – Annual Ethics Compliance Statement Form TRS 550

DRAFT

CONTRACTOR ANNUAL ETHICS COMPLIANCE STATEMENT

Consistent with Section IV. E. of the Code of Ethics for Contractors (the “Code”), an entity engaged by TRS as a Contractor shall be responsible for compliance with the Code by each of its employees and representatives and the authorized representative completing and executing this Statement does so on behalf of the entity itself and all of its employees. In this regard, any response, disclosure, or report required by this Code must be submitted to TRS by such entity rather than by individual employees and representatives, and such entity is responsible for making a diligent inquiry before each submission and from time to time during its engagement as a Contractor to determine if further submissions are required.

CAPITALIZED WORDS APPEARING HEREIN HAVE THE SAME MEANING ASSIGNED TO THEM IN THE CODE.

FOR ALL CONTRACTORS

♦ After diligent inquiry, Contractor represents that the Code has been read by those persons who work or represent the Contractor on TRS matters and that these individuals are familiar with the standards that govern the conduct of TRS’s Contractors.

♦ Contactor agrees to comply with both the letter and spirit of the Code (including prohibitions upon offering or conferring

any gifts, entertainment, or other economic benefits to Trustees and Employees, found in Section II.B of the Code) and the Expenditure Reporting Form and Memorandum. Contractor understands that a violation of the Code is grounds for termination of the contract or relationship with TRS, and constitute a material breach of contract with no penalty to TRS for terminating the contract or relationship. Contractor further understands that termination of a contract or relationship because of a violation of the Code can preclude another contract or relationship with TRS as provided in the Code.

♦ Contractor agrees to report in writing to the General Counsel or to the Executive Director as required in the Code if Contractor:

1) has determined that it has a potential or actual conflict of interest as defined in the Code, or

2) is uncertain whether it has or would have a conflict of interest under a particular set of circumstances then existing or reasonably anticipated to occur, or

3) has knowledge that a Trustee, Employee, or Contractor has violated the Code, or

4) has violated the Code or has an interest or relationship which violates the Code.

Such written report should be made on the TRS Form 541C, Conflict of Interest Disclosure and Request for Determination. ♦ Contractor agrees to provide a copy of any such disclosure to the Employee who monitors or manages the Contractor’s work.

♦ Contractor agrees to not take action personally or on behalf of TRS which is reasonably likely to result in a foreseeable conflict

of interest unless permitted under Section II.I or II.J. of the Code or pursuant to Section I.D. of the Code. ♦ To the best of the knowledge and belief of Contractor, Contractor does not have a conflict of interest, nor has Contractor

engaged in any activity that constitutes a conflict of interest, as defined in the Code, except as indicated below.

(Write “None” if there is nothing to report. If there is something to report that requires additional space, please use and attach an additional sheet to this form.)

♦ To the best of the knowledge and belief of Contractor, Contractor has no personal business relationship with a Trustee or

Employee, except as indicated below.

(Write “None” if there is nothing to report.)

DRAFT ♦ To the best of the knowledge and belief of Contractor, Contractor has not violated the Code, except as indicated below.

(Write “None” if there is nothing to report.) ♦ To the best of the knowledge and belief of Contractor, Contractor is unaware of any violations of:

1) the TRS policy prohibiting the offering or accepting of gifts, entertainment, or other economic benefits involving any

Trustee, Employee, or Contractor. or

2) the Code by any other Contractor, except as indicated below.

(Write “None” if there is nothing to report.) ♦ Contractor agrees that if any change in circumstances occurs which should be reported in accordance with the Code, Contractor

will promptly report this change to the General Counsel or to the Executive Director. ♦ If Contractor was a Contractor during the prior calendar year, Contractor hereby certifies and represents that Contractor filed the

Expenditure Reporting Form for Contractors that was due by April 15 of this calendar year. Contractor agrees to file by April 15 of the next calendar year an Expenditure Reporting Form for Contractors addressing expenditures made in this calendar year.

♦ Contractor is in compliance with all professional standards and laws that apply to Contractor.

Signature Name of Contractor

Printed Name and Position Date

DRAFT Appendix D – Disclosure Statement for Financial Services Providers Form TRS 630

DRAFT

DISCLOSURE STATEMENT FOR FINANCIAL SERVICES PROVIDERS

DUE ANNUALLY NO LATER THAN APRIL 15 OR WHENEVER THERE IS NEW INFORMATION TO REPORT

INSTRUCTIONS: 1) The reporting period covered by this statement consists of the preceding calendar year. 2) This statement must be filed annually, not later than April 15. 3) A new or amended statement must be promptly filed with the parties listed in step 54 of these instructions whenever there is new information

to report under Texas government code, section 2263.005 (a) or Section III.B of the TRS cCode of eEthics for cContractors. 4) This statement must be submitted even if you answer “no” to questions 1 and 2 in part 2. 5) Submit a copy of this statement to the following:

a. The eExecutive dDirector of the tTeacher rRetirement sSystem of Texas (“TRS”) (mail to 1000 rRed rRiver sStreet, Austin, TX, 78701-2698)

b. The sState aAuditor (mail to P.O. Box 12067, Austin, TX, 78711-2067 Attn: dDisclosure sStatement) 6) The term “fFinancial sServices pProvider” has the meaning given to it by the TRS cCode of eEthics for cContractors.

PART 1: GENERAL INFORMATION

FILING TYPE (check one): ANNUAL DISCLOSURE FOR YEAR ENDING DECEMBER 31, 20__ ___ UPDATED DISCLOSURE

FILER (check one): INDIVIDUAL BUSINESS ENTITY (on behalf of itself and all of its employees or representatives who provided

advice or services to TRS)

NAME OF INDIVIDUAL___________________________________________________ JOB TITLE________________________________________

NAME OF BUSINESS ENTITY (if any)_________________________________________ TYPE OF FINANCIAL ADVICE OR SERVICE PROVIDED______________________

ADDRESS_________________________________________________________________________________________________________________

CITY____________________________________________ STATE______________ ZIP_________________ PHONE__________________

IF YOU ARE PROVIDING FINANCIAL ADVICE OR FINANCIAL SERVICES CONCERNING TRS MATTERS TO A TRS TRUSTEE, BUT NOT TO TRS ITSELF, PLEASE PROVIDE THE NAME(S) OF THE TRUSTEE(S)____________________________________________________ (if there are none, please answer “NONE”) (Note: A current listing of trustees can be found at the TRS website – www.trs.texas.gov. Once at this site, go to the left margin and click on “About TRS.” Then click on “Board of Trustees” for a current listing of TRS trustees.)

PART 2: DISCLOSURES

DISCLOSURE REQUIREMENTS FOR FINANCIAL SERVICES PROVIDERS Financial Services Providers must disclose information regarding certain relationships and interests to the TRS Executive Director and the Texas State Auditor pursuant to Texas Government Code Section 2263.005.

1) Do you or your business entity have or did you or your business entity have any relationship with any party to a transaction with TRS (other than

a relationship necessary to the services that you or your business entity will perform, are performing, or performed for TRS) that a reasonable person could expect the relationship to diminish your or your business entity’s independence of judgment in the performance of your or your business entity’s responsibilities to TRS?

Yes No

If yes, please explain in detail the nature of such relationships. (Attach additional sheets as needed.)

_______________________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________________


DRAFT 2) Do you or your business entity have or did you or your business entity have any direct or indirect pecuniary interests in any party to a

transaction with TRS where the transaction is or was connected with any financial advice or service that you or your business entity provide to or provided to TRS or to a TRS trustee concerning TRS matters?

Yes No

If yes, please explain in detail the nature of such pecuniary interests. (Attach additional sheets as needed.)

_________________________________________________________________________________________________________________________

___________________________________________________________________________________________________________________________________________________

PART 3: SIGNATURE AND DATE

TO BE COMPLETED BY AN ENTITY ENGAGED BY TRS Pursuant to Section IV. E. of the Code of Ethics for Contractors (the “Code”), an entity engaged by TRS as a Financial Services Provider shall be responsible for compliance with the Code by each of its employees and representatives. This Disclosure Statement must be submitted to TRS by such entity rather than by individual employees and representatives, and such entity is responsible for making a diligent inquiry before each submission and from time to time during its engagement as a Financial Services Provider to determine if further submissions are required. Consistent with Section IV. E. of the Code, I hereby attest that I am authorized to file this Disclosure Statement on behalf of the business entity named above and that all information provided above is complete and accurate with respect to the business entity and all of its employees and representatives that provide financial advice or services to TRS. I further attest that a diligent inquiry of such employees and representatives was made by the business entity before each submission and periodically during the time that the business entity provides financial advice or services to TRS. Acting on behalf of Through the signature of the authorized individual below, the business entity, it hereby acknowledges its responsibility to submit promptly a new or amended Disclosure Statement to the parties listed in step 5 of the above instructions if any of the above information changes. Signature____________________________________ Date____________________ Printed Name and Position_____________________________________________________

TO BE COMPLETED BY AN INDIVIDUAL ENGAGED BY TRS I hereby attest that all information provided above is complete and accurate. I hereby acknowledge my responsibility to submit promptly a new or amended Disclosure Statement to the parties listed in step 5 of the above instructions if any of the above information changes. Signature___________________________________ Date__________________________ Printed Name______________________________________________________________

DRAFT Appendix E – Expenditure Reporting Form for Contractors Form TRS 543

DRAFT

EXPENDITURE REPORTING FORM FOR CONTRACTORS

Required for: Expenditures of more than $50 per day made on behalf of any one tTrustee or TRS eEmployee by a TRS Contractor (as defined in the TRS Code of Ethics for Contractors; not including any other provider of goods or services)

Return to: Executive DirectorCCO, Teacher Retirement System of Texas

Due by: April 15, following the calendar year covered by the report

PLEASE CHECK THE APPROPRIATE BLANK:

____ Contractor made no reportable expenditures during the calendar year covered by this report. If this blank is checked, please sign and provide the information requested in the signature block located at the end of this form.

____ Contractor made reportable expenditures during the calendar year covered by this report. If this blank is

checked, please complete the rest of this form AND sign and provide the information requested in the signature block located at the end of this form.

NOTE: If daily expenditures which total in excess of $50 fall within two or more categories noted in Item 1 of the TRS Expenditure Reporting Memorandum, then a separate form for each tTrustee or eEmployee and for each category may be filed with TRS.

Recipient tTrustee's or eEmployee’s Name(s): __________________________________________________________ Were spouses/other guests in attendance? YES_____ NO_____ Have you reported expenditures on spouses/guests of TRS recipients as expenditures on behalf of the TRS recipients? YES_____ NO_____ Category of Expenditure: __________________________________________________________________________ (For example, food and beverages. Refer to Item 1 of the Expenditure Reporting Memorandum for other categories.) Description of Expenditure:_________________________________________________________________________ (Be very specific in your description.) Vendor/Provider Name: _____________________________________________________________________________________________ Street Address: _____________________________________________________________________________________ City, State: ________________________________________________________________________________________ Location Served/Held (if different from address immediately above):

Name: ___________________________________________________________________________________________ Street Address: _____________________________________________________________________________________ City, State: ________________________________________________________________________________________

DRAFT

Amount of Expenditure per day per tTrustee or eEmployee: ___________________________________________

___________________________________________ ___________________________________________

Date of Expenditure: _______________ (For consumption, use, purchase, receipt.) Date of Receipt: ________________ (If different from date of expenditure.)

BY MY SIGNATURE, I HEREBY CERTIFY AND REPRESENT THAT THE INFORMATION CONTAINED HEREIN IS TRUE AND CORRECT.

Signature Printed Name Title Name of Contractor Contractor’s Address Date of Signature

20__ __ CALENDAR YEAR COVERED BY THIS REPORT


Code of Ethics for Contractors Adopted: September 9, 1994 Revised Effective as of April XX, 2019:

I, the undersigned, acknowledge that I have read this Code and am familiar with, and agree to be bound by, the standards that govern the conduct of Contractors.

I, the undersigned, am responsible for compliance and administration of the Code, including any ethics matters that may arise thereunder. If those obligations reside with another representative of the Contractor, I have included the contact information for that person below.

If the undersigned is executing this Code on behalf of an entity engaged by TRS as a Contractor, I further acknowledge that I have distributed this Code to those persons who work for or represent the Contractor on TRS matters. They have read this Code and are familiar with, and agree to be bound by, the standards that govern the conduct of Contractors.

Further, the Contractor shall distribute this Code (i) immediately to any other person with the Contractor who begins working on or representing the Contractor on TRS matters and (ii) once a year to all persons with the Contractor who work on or represent the Contractor on TRS matters.

Signature Title

Printed Name Contractor Entity Name

Date

Contact for Code administration: _______________________

Phone number: _____________________________________

Email address: ______________________________________

TABLE OF CONTENTS

Page

I. Conflicts of Interest ........................................................................................................... 2 A. Conflicts of Interest Defined ................................................................................. 2 B. Determination of Potential and Actual Conflicts of Interest ................................. 2 C. Conflict Determination .......................................................................................... 3

i. Financial Services Provider ....................................................................... 3 ii. All Other Contractors ................................................................................ 4

D. Conflict Resolution ............................................................................................... 4 i. Financial Services Provider ....................................................................... 4

ii. All Other Contractors ................................................................................ 6 E. Termination ........................................................................................................... 7 F. Reporting ............................................................................................................... 7

II. Standards of Conduct ........................................................................................................ 7 A. Professional Standards and Laws ............................................................................. 7 B. Benefits ................................................................................................................. 7 C. Individual Advisor ................................................................................................ 7 D. Personal Business Relationship ............................................................................. 7 E. Employment of Former Trustee or Employee ....................................................... 8 F. Use or Disclosure of TRS Information ................................................................. 8 G. Bids ............................................................................................................................ 8 H. Controls ...................................................................................................................... 8 I. Foreseeable Conflicts of Interest ........................................................................... 9 J. Foreseeable Violation of Standards of Conduct .................................................... 9 K. Signed Acknowledgement ..................................................................................... 9 L. Reporting ............................................................................................................... 9 M. Covered Contractor Ethics .................................................................................... 9

III. Periodic Disclosures ........................................................................................................ 9 A. Annual Compliance Statement .............................................................................. .9 B. Disclosure Statement for Financial Services Providers ......................................... 10 C. Expenditure Report ............................................................................................... 10 D. Ongoing Report ..................................................................................................... 10

IV. Compliance and Enforcement ......................................................................................... 10 A. Enforcement .......................................................................................................... 11 B. Contracts; Violations ............................................................................................. 11

i. Termination ............................................................................................... 11 ii. Notice and Cure ........................................................................................ 11

C. Fiduciary Duties .................................................................................................... 12 D. Report Violations .................................................................................................. 12 E. Internal Reporting and Enforcement ..................................................................... 12

Appendix A – Definitions ............................................................................................................. 13 Appendix B – Conflict of Interest Disclosure and Request for Determination (“Disclosure Statement”) Form TRS 541C ........................................................................................................ 15 Appendix C – Annual Ethics Compliance Statement Form TRS 550 ........................................... 16 Appendix D – Disclosure Statement for Financial Services Providers Form TRS 630 ................ 17 Appendix E – Expenditure Reporting Form for Contractors Form TRS 543 ................................ 18

Code of Ethics for Contractors

The Teacher Retirement System of Texas (“TRS”) is charged by the Texas Constitution and state law with the administration and investment of pension assets held in trust for the exclusive benefit of active or retired TRS members and their beneficiaries; assets may not be diverted for other purposes. The TRS Board of Trustees is the trustee of all plan assets, responsible for the general administration and operation of TRS and authorized by law to adopt rules for TRS administration and Board business. The Board has similar responsibilities for the health benefits programs under the Texas Public School Retired Employees Group Benefits Act, the Texas School Employees Uniform Group Health Coverage Act, and other trusts or programs authorized by law to be administered by TRS. The Code of Ethics for Contractors ("Code") sets forth the ethical responsibilities and requirements of Contractors, as that term is defined in the Code, in performing services for TRS.

Section I. Conflicts of Interest

A. Conflicts of Interest Defined. A conflict of interest exists for a Contractor when the Contractor has:

1. A relationship with any party to a transaction with TRS, or with an Employee, or Trustee, other than a relationship necessary to the services that the Contractor performs for TRS, if a reasonable person could expect the relationship to diminish the Contractor’s independence of judgment in the performance of the Contractor’s responsibilities; or


A person's independence of judgment reasonably could be diminished when he or she is in a position to take action or not take action with respect to TRS or its business and a reasonable person could expect that such action or inaction on behalf of TRS is influenced by considerations of gain, loss avoidance, or benefit to the Contractor or a third party, rather than motivated by the best interests of TRS.

A conflict of interest will not exist under this Code if any benefit is merely incidental to the Contractor’s membership in a large class sharing a common interest, such as the class of TRS members. Further, a conflict of interest will not be deemed to exist solely because a Contractor is or has a relative who is a TRS member, retiree, annuitant or beneficiary who is not also an Employee.

B. Disclosure of Potential and Actual Conflicts of Interest.

If a Contractor either:

1. Has determined that it has a potential or actual conflict of interest; or 2. Is uncertain whether it has or would have a conflict of interest under a particular set

of circumstances then existing or reasonably anticipated to occur,

the Contractor should promptly disclose the underlying circumstances to the General 4

Counsel or Chief Compliance Officer in writing by submitting a completed Conflict of Interest Disclosure and Request for Determination (the “Code Conflict Disclosure Statement”, Form TRS 541C) (See Appendix B) to the Chief Compliance Officer. In completing the Code Conflict Disclosure Statement, a Contractor must provide full disclosure of all relevant facts and circumstances related to the potential or actual conflict.

A contractor who files a Code Conflict Disclosure Statement must refrain from giving advice or making decisions about any matters affected by the potential or actual conflict of interest until the Contractor cures the conflict or obtains guidance to proceed from the Chief Compliance Officer.

If a Contractor with a duty to disclose conflicts reasonably believes that disclosure to the General Counsel would be ineffective, the Contractor shall disclose the potential or actual conflict of interest to the Executive Director.

Teacher Retirement System of Texas Executive Director

1000 Red River Street Austin, Texas 78701-2698

Whether disclosure is made to the General Counsel, Chief Compliance Officer, or to the Executive Director, a Contractor shall provide a copy of the Code Conflict Disclosure Statement to the Employee assigned to monitor or manage the performance of the Contractor.

C. Conflict Determination.

The process for determining whether a conflict of interest exists or may exist under the circumstances described in the Code Conflict Disclosure Statement will be based on the type of Contractor: (i) Financial Services Provider or (ii) all other Contractors.

1. Financial Services Provider. Upon receipt of a Code Conflict Disclosure Statement, the Executive Director, in consultation with the General Counsel and Chief Compliance Officer, will determine whether a potential or actual conflict of interest exists or would arise under the circumstances disclosed.

If the Executive Director determines that a conflict does not exist, the Contractor will be notified of such determination in writing by the Chief Compliance Officer. The Chief Compliance Officer will record the determination on the Code Conflict Disclosure Statement and the Code Conflict Disclosure Statement will be retained in the Legal & Compliance department.

If the Executive Director determines that either (i) a conflict does not exist presently but would exist upon the occurrence of future events or circumstances identified by the Contractor in the Code Conflict Disclosure Statement or otherwise or (ii) a conflict exists, the Chief Compliance Officer will notify the Contractor of the Executive Director’s determination in writing, and resolution of the conflict will be addressed as provided in Section I.D.

5

When a Code Conflict Disclosure Statement has been provided directly to the Executive Director, the Executive Director may consult with the Chief Compliance Officer and/or another member of the Legal & Compliance or Investment Management staff, as appropriate, for guidance in making a determination regarding the existence of and resolution of a conflict. In such cases, the Code Conflict Disclosure Statement will be updated and retained as provided in this Section I.C. and in Section I.D.


Upon receipt of a Code Conflict Disclosure Statement, the General Counsel will determine whether a potential or actual conflict of interest exists or would arise under the circumstances disclosed.

If the General Counsel determines that a conflict does not exist, the Contractor will be notified of such determination in writing by the Chief Compliance. The Chief Compliance Officer will record the determination on the Code Conflict Disclosure Statement and the Code Conflict Disclosure Statement will be retained in the Legal & Compliance department.

If the General Counsel determines that either (i) a conflict does not exist presently but would exist upon the occurrence of future events or circumstances identified by the Contractor in the Code Conflict Disclosure Statement or otherwise, or (ii) a conflict exists, the Chief Compliance Officer will notify the Contractor of the determination in writing, and resolution of the conflict will be addressed as provided in Section I.D.

D. Conflict Resolution. A Contractor with a conflict of interest must disclose the conflict and cure it. A conflict may be cured by mitigating, controlling or eliminating the conflict. For each determination that a conflict exists, the cure, or the absence of a cure, will be documented by the Chief Compliance Officer on the Code Conflict Disclosure Statement submitted by the Contractor. The documentation will summarize the reasons supporting the decision, including any conditions required as part of the cure. The Code Conflict Disclosure Statement will be retained in the Legal & Compliance department, with a copy to be provided to the Contractor.

The process for evaluating whether a conflict of interest has been cured will be based on the type of Contractor: (i) Financial Services Provider or (ii) all other Contractors.

1. Financial Services Provider.

Upon receipt of a Code Conflict Disclosure Statement, the Executive Director, in consultation with the General Counsel and Chief Compliance Officer, and as appropriate, the Chief Investment Officer, will make any determinations regarding whether a conflict of interest has been cured under this Section I.D.1 in his sole discretion.

a. When evaluating whether a conflict has been or can be cured, the Executive Director may consider, among others, the following factors relating to the Contractor’s disclosures and steps to mitigate, control, or eliminate the conflict:

6

i. Whether the Contractor is a fiduciary; ii. The nature and extent of the Contractor’s disclosed pecuniary interests and

relationships; iii. Whether, applying the reasonable person standard, the Contractor’s exercise of

judgment on behalf of TRS in performing such services is, or is likely to be, affected by the Contractor’s interests and/or relationships;

iv. Whether the information disclosed regarding the conflict is contrary to or materially inconsistent with the known facts underlying the conflict;

v. Whether the Contractor’s interests are in fact substantially aligned with TRS’ best interests (or the degree to which they are not harmful or opposed to TRS’ interests) in the transaction;

vi. Whether TRS’ best interests will be best served by proceeding with the Contractor’s services even though the Contractor also has an interest;

vii. A cost-benefit analysis, including a review of pricing and fee structures, that demonstrates that TRS will not suffer any economic or other disadvantages or can reasonably expect cost-savings or pecuniary benefits (including loss avoidance) if TRS consents to the services;

viii. The nature and extent of transparency and reporting that the Contractor will be required to deliver with respect to its own interests and relationships in connection with its services, and, if applicable, whether the Contractor’s contract for services with TRS will, or should be amended to, require such transparency and reporting;

ix. Whether the Contractor proposes to create information barriers between business units, lines of business, relationship contacts, personnel, and affiliates with respect to confidential TRS or transaction information and due diligence matters;

x. The Contractor’s qualifications, reputation, and experience in the industry for the services to be provided for the relevant transaction;

xi. Whether an RFP or Trustee approval was part of the engagement process for the Contractor;

xii. The prior experience with and quality of the Contractor’s services in previous TRS transactions; and

xiii. Whether, in relation to the provision of analysis or research from a Financial Services Provider that is a Broker or independent research provider, the disclosures provided by the Contractor are sufficient under the circumstances to cure the conflict by informing TRS of the nature and extent of any bias, and to form a judgment about the credibility or value of the Contractor’s services, particularly if the services are of a limited nature – such as research.

b. When evaluating whether a conflict has been or can be cured, the Executive Director may also consider the type of services underlying the conflict of interest and the value such services provide within the different segments of TRS’ business. For example, whether the Contractor proposes, in addition to providing the financial services it provides to TRS under an existing or proposed agreement, to: i. Act as a principal or counterparty (including as an agent for a disclosed or

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undisclosed third party principal) opposed to TRS in a financial or investment transaction or series of transactions;

ii. Offer inconsistent or, alternatively, numerous services by different areas of the Contractor’s organization;

iii. Engage an affiliate to perform services for TRS that may or may not provide an indirect or direct benefit to the Contractor;

iv. Recapture commissions for certain services it provides; or v. Provide investment advice to TRS in connection with a TRS investment and the

Contractor has a conflict or holds or intends to hold or acquire a direct or indirect pecuniary interest in the same portfolio investment or transaction as TRS whether for itself as a principal or as an agent on behalf of disclosed or undisclosed third parties.

c. The Executive Director may consider whether a Contractor has or can cure a potential or actual conflict if the Contractor or the Contractor's Employee or affiliate prudently refrains or withdraws from taking action on a particular TRS matter provided that: i. The person, persons, or Contractor may be, is or are effectively separated from

influencing the action taken; ii. The action may properly and prudently be taken by others without undue risk

to the interests of TRS; and iii. The nature of the conflict is not such that the person, persons, or Contractor

must regularly and consistently withdraw from decisions that are normally his or her, their, or its responsibility with respect to the services provided to TRS.

d. The Executive Director may elect to impose conditions as part of a determination that a conflict has been or can be cured. Such conditions will be tailored to the particular facts and circumstances. They may include, among others, requirements to: i. Further disclose the Contractor’s interests and relationships in any written

advice, prudence letter, or recommendation provided to TRS for the transaction or series of transactions to which the determination relates;

ii. Revisit the “disclosure and cure” determination upon the occurrence of certain facts or circumstances;

iii. Agree to contractual amendments; iv. Conduct ongoing monitoring and reporting; or v. Acknowledge possible reconsideration of the Contractor’s disclosures at any

time.

In each instance where the Executive Director has determined that a potential or actual conflict of interest has been cured, a Contractor may only proceed with the actions giving rise to the conflict upon written notice from the Chief Compliance Officer, General Counsel or Executive Director. In the event the Executive Director determines that the conflict has not been cured, the Contractor may not proceed with the services and must terminate its relationship with TRS, as described in Section I.E.


The General Counsel, in consultation with the Chief Compliance Officer, will make any 8

determinations regarding whether a Contractor’s conflict of interest has been cured under this Section I.D.2. In reviewing the Code Conflict Disclosure Statement, the General Counsel may consider the same factors identified in Section I.D.1, as applicable.

Following the same process, the Executive Director may undertake a conflicts determination for those conflicts where the Code Conflict Disclosure Statement was filed directly with the Executive Director.

E. Termination.

A Contractor who cannot or does not want to cure a conflict of interest must terminate his, her or its relationship with TRS as promptly as responsibly and legally possible. The decision to terminate, and a summary of the analysis related to that decision, will be documented by the Chief Compliance Officer on the Code Conflict Disclosure Statement submitted by the Contractor. The Code Conflict Disclosure Statement will be retained in the Legal & Compliance department, with a copy to be provided to the Contractor.

F. Reporting.

The Chief Compliance Officer shall regularly provide a report to the Executive Director, General Counsel, the Chief Audit Executive and the Audit, Compliance, and Ethics Committee of the Board regarding all Code Conflict Disclosure Statements evidencing a conflict of interest and violations of the conflicts provisions.

Section II. Standards of Conduct

A. Professional Standards and Laws.

Contractors must comply with all applicable state, federal and non-U.S. professional standards and laws, including, without limitation, the following: 1. Section 36.02. Bribery. Texas Penal Code. 2. Section 36.09. Offering Gift to Public Servant. Texas Penal Code. 3. Section 572.054. Representation by Former Officer or Employee of Regulatory

Agency Restricted; Criminal Offense. Texas Government Code. 4. Section 825.212. Retirement System Ethics Policy. Texas Government Code. 5. Section 2252.908. Disclosure of Interested Parties. Texas Government Code. 6. Chapter 2263. Ethics and Disclosure Requirements for Outside Financial Advisors

and Service Providers. Texas Government Code. 7. All applicable securities and commodities laws.

B. Benefits.

Contractors must avoid offering, conferring, soliciting, or accepting any benefit to or from Trustees, Employees, or Covered Contractors, except as otherwise allowed in Trustee and Employee ethics policies, incorporated herein by reference and available at http://www.trs.texas.gov. For example, a Contractor may not provide a special discount on services to a TRS Trustee or Employee if the discount is based on the Contractor's relationship with TRS.

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C. Individual Advisor.

Irrespective of compensation, a Contractor may not be a representative of or be engaged by an individual Trustee if, in either case, the Contractor's role with respect to the Trustee is to provide advice that could reasonably be expected to form the basis for a significant TRS decision made by the Trustee.

D. Personal Business Relationship.

A personal business relationship exists when a Contractor and a Trustee or Employee own or operate a business together or co-invest in a business, other than through publicly traded securities. Contractors may not have a personal business relationship with a Trustee or Employee unless the Executive Director consents to the continuation of TRS' relationship with the Contractor after full disclosure. If a personal business relationship exists, a Contractor must promptly disclose the personal business relationship to the Executive Director by filing a Code Conflict Disclosure Statement with the Chief Compliance Officer. The Executive Director, after consultation with the General Counsel and Chief Compliance Officer, will then determine whether to approve the continuation of TRS' relationship with the Contractor while the Trustee or Employee continues in his or her respective role for TRS. Alternatively, the Executive Director may require the Contractor, Trustee and/or Employee to be screened from TRS matters in which the personal business relationship may reasonably be expected to diminish the Contractor's independence of judgment in the performance of duties for TRS.

E. Employment of Former Trustee or Executive Director.

Contractors may not employ a former Trustee or a former Executive Director for two years after termination of such former Trustee's TRS board service or such Executive Director's Employee relationship with TRS unless the former Trustee or Executive Director will not provide services to TRS or work on or have any involvement in TRS- related business of the Contractor. Further, Contractors may not employ any former Trustee or Employee, including the former Executive Director, at any time if the person’s services to TRS, work, and involvement in TRS-related business of the Contractor would violate Government Code Section 572.054(b) of the Texas “Revolving Door” statute. To the extent that it does not violate statutory law or that it would be in the best interest of TRS, the Executive Director may waive the application of this prohibition in a specific situation.

TRS cannot enter into a contract with a former or current Executive Director or with a Contractor which employs a former Executive Director without Board approval in an open meeting.

F. Use or Disclosure of TRS Information.

A Contractor may not use or disclose any information acquired as a result of the relationship with TRS except as needed to provide the services required by the contract for TRS business purposes. A Contractor receiving or having access to sensitive or confidential TRS information must use its best efforts to protect such TRS information from unauthorized access, use or disclosure.

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G. Bids.

A Contractor may not be awarded a contract that is funded in whole or in part by appropriations from the general revenue fund of the State of Texas if (i) TRS paid the Contractor to participate in preparing the specifications for, or request for proposals related to, the contract or (ii) the Contractor assisted TRS in the selection process to award the contract.

H. Controls Contractors must observe the accounting and operating controls established by law and TRS policies, including restrictions and prohibitions on the use of TRS property for non- TRS purposes, including personal purposes.

I. Foreseeable Conflicts of Interest.

Contractors may not take action personally or on behalf of TRS that would reasonably be likely to result in a foreseeable conflict of interest. If a Contractor believes that taking a particular action would be in the best interest of TRS but such action would foreseeably result in a conflict of interest for the Contractor, the Contractor must proceed under the conflict of interest provisions of Section I.

J. Foreseeable Violation of Standards of Conduct.

If a Contractor anticipates that future conduct by the Contractor itself, its employees or its affiliates could or is likely to violate the Standards of Conduct, but such conduct may not itself, without more, be a potential or actual conflict of interest, the Contractor may seek to “cure” that anticipated violation by following the process outlined in Section I.B. through I.D. for disclosing and curing potential and actual conflicts of interest by mitigating, controlling, or eliminating the violation.

As in Section I., the Executive Director will review Code Conflict Disclosure Statements for Financial Services Providers and the General Counsel will review Code Conflict Disclosure Statements for all other Contractors. Any use of this sub-section will be reported on a regular basis by the Chief Compliance Office to the Executive Director, the Chief Audit Executive, and the Audit, Compliance, and Ethics Committee of the Board.

K. Signed Acknowledgement.

On the commencement of business with TRS (including but not limited to entering into a contract with TRS or being named as a Broker to the TRS Approved Broker List) and at any time this Code is revised by TRS, each Contractor must sign, date, and return to TRS a copy of this Code. The process for acknowledgment may be through electronic means.

L. Reporting.

Contractors shall complete all reporting requirements in accordance with TRS prescribed systems or processes, including any electronic reporting system implemented by TRS.

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M. Covered Contractor Ethics.

Covered Contractors are subject to the Employee Ethics Policy, incorporated herein by reference and available at http://www.trs.texas.gov and, as applicable, any warranties and representations made in TRS questionnaires related to political contributions, improper influence, placement agents and finders.

Section III. Periodic Disclosures

A. Annual Compliance Statement.

On the commencement of business with TRS (including but not limited to entering into a contract with TRS or being named as a Broker to the TRS Approved Broker List), the Contractor will have signed this Code in acknowledgement of the responsibilities and obligations thereunder and the consequences for non-compliance with the Code. At least once every twelve-month period, each Contractor must read and review any applicable policies and sign and date a Contractor Annual Ethics Compliance Statement (Form TRS 550, Appendix C) and any other forms as required by TRS.

B. Disclosure Statement for Financial Services Providers.

In addition to the Annual Compliance Statement filed pursuant to the paragraph immediately above, all Financial Services Providers shall also file annually a Disclosure Statement for Financial Services Providers (Form TRS 630, Appendix D) with the Executive Director and the State Auditor’s Office. Also, all Financial Services Providers must promptly file a new or amended Disclosure Statement for Financial Services Providers with the Executive Director and the State Auditor’s Office whenever there is new information to report. In filing this statement, a Financial Services Provider will disclose in writing the following:

(i) Any relationship (without regard to whether the relationship is direct, indirect, personal, private, commercial, or business) the Financial Services Provider has with any party to a transaction with TRS, other than a relationship necessary to the advice or services that the Financial Services Provider performs for TRS, if a reasonable person could expect the relationship to diminish the Financial Services Provider’s independence of judgment in the performance of its responsibilities to TRS; and

(ii) Any direct or indirect pecuniary interests in any party to a transaction with TRS if the transaction is connected with services the Contractor provides to TRS or to the Trustees in connection with the management or investment of TRS assets.

If no relationship or pecuniary interest described in (i) or (ii) immediately above existed during the disclosure period, then the Contractor must affirmatively state that fact. The Disclosure Statement for Financial Services Providers must be filed not later than April 1 and will cover the previous calendar year (the reporting period).

C. Expenditure Report.

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Each Contractor must file annually an Expenditure Reporting Form for Contractors (Form TRS 543, Appendix E), including itemized, reasonably detailed lists of expenditures of more than $50 per day made by or on behalf of the Contractor with respect to or for the benefit of each Trustee or Employee. The Expenditure Reporting Form for Contractors must be filed not later than April 1 and will cover expenditures for the previous calendar year.

D. Ongoing Report.

Each Contractor has an ongoing obligation to determine whether it must file Code Conflict Disclosure Statements or update its Annual Compliance Statement to reflect new information related to potential or actual conflicts of interest or the standards of conduct discussed in this Code.

Section IV. Compliance and Enforcement A. Enforcement.

The Executive Director is responsible for implementation and enforcement of this Code. The Executive Director will inform the Board of any significant enforcement action taken by TRS concerning a violation of this Code. The Executive Director may authorize and approve a system or process through which Contractors may electronically submit to TRS the forms, disclosures, and statements required by this Code. Any such system must, to the Executive Director’s satisfaction, require Contractors to submit all information required by this Code with sufficient guarantees of reliability, accuracy, and authenticity. Implementation of any such system in no way alters or waives any requirement of submitting any form, disclosure, or other information. The Executive Director also may authorize any updates and revisions to TRS forms used for compliance with this Code so long as the changes are not inconsistent with the Code.

The Executive Director or General Counsel may, in unique and limited circumstances, grant exceptions to the policies proscribed in the Code. Any such exceptions must be reported to the Audit, Compliance, and Ethics Committee of the Board and the Chief Audit Executive.

The General Counsel may delegate certain of its responsibilities under the Code to the Chief Compliance Officer.

B. Contracts; Violations. This Code must be incorporated into and form part of each contract with a Contractor.

1. Termination.

Violations of this Code by any Contractor are grounds for terminating the contract or relationship, and may constitute a material breach of contract with no penalty to TRS for terminating the contract or relationship. Any Contractor whose contract or business relationship with TRS is terminated by TRS because of a violation of this Code may not receive a contract award from TRS for up to ten years, as determined by the Executive Director or his designee, commencing from the date of the termination. The Executive Director will maintain and serve as custodian for a list of the Contractors

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whose contract or relationship with TRS has been terminated because they were found to be in violation of this Code. This listing shall include information regarding the length of time during which the Contractor may not receive another contract award with TRS.

2. Notice and Cure.

Notwithstanding the foregoing, to the extent that a violation of the Code (i) isdisclosed to the General Counsel or Chief Compliance Officer within seven days of thediscovery of the occurrence of such violation and (ii) such violation can be curedwithin 30 days of proper and complete disclosure based on the procedures in SectionI.B. and Section I.D., such violation may be resolved and such contract may remain ineffect. The disclosure noted in clause (i) of this paragraph must be made through aCode Conflict Disclosure Statement and must describe in detail the violation and theaction proposed to cure such violation. The determination of whether such violationhas been appropriately cured will be made by the Executive Director. All violations ofthis Code, whether cured or not, will be reported to the Audit, Compliance, and EthicsCommittee of the Board.

C. Fiduciary Duties.

Contractors who are Fiduciaries shall take appropriate action as co-fiduciaries in the event a violation of this Code involves a breach of fiduciary duties. Such Contractors should be mindful that a decision by the Executive Director that a conflict has been properly disclosed and cured does not lessen a Contractor’s duty of care to TRS or continuing duty of loyalty under the Contractor’s fiduciary duty.

D. Report Violations.

Contractors with knowledge of a violation of this Code, by themselves or others, must report promptly such violation to the Executive Director, General Counsel or Chief Compliance Officer.

E. Internal Reporting and Enforcement.

A Contractor shall be responsible for compliance with this Code by the Contractor and each of its employees and affiliates working on TRS matters. Any disclosure or report required by this Code must be submitted to TRS by the Contractor entity rather than by individual employees and affiliates. A Contractor is responsible for making a diligent inquiry of each of the Contractor's employees and affiliates working on TRS matters before each submission and from time to time during engagement as a Contractor to determine if further submissions are required. The Contractor's inquiry shall include any employee or affiliates who worked on TRS matters during the reporting period, regardless of whether the employee or affiliate works on TRS matters at the reporting time, ceased working on TRS matters during that time or has since left employment with the Contractor. This inquiry obligation may be satisfied by an inquiry made near or at the time of a former employee's departure from a Contractor's employment. A Contractor must ensure that any Code Conflict Disclosure Statement required by this Code contains all relevant and material facts and circumstances necessary for TRS to fully understand the details of the potential or actual conflict of interest and, if applicable, the factors

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supporting a proposed cure for the conflict. This may involve updating a Code Conflict Disclosure Statement prior to TRS making a conflict or cure determination.

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Appendix A – Definitions

In this Code the following definitions apply unless the context requires otherwise:

“Affiliate.” Entities (units, divisions, parents, subsidiaries, etc.) and individual agents, representatives, contractors, and employees of the Contractor organization.

“Agent.” An entity or person, engaged as an independent contractor, performing material or significant duties on behalf of TRS as its representative. An Agent would include an unpaid intern or volunteer. For purposes of this Code, the term “Agent” does not include a Financial Services Provider. However, if an Agent also falls within the definition of a Consultant, the entity or person is considered a Consultant under this Code. If an Agent also falls within the definition of Financial Services Provider, the entity or person is considered a Financial Services Provider for all purposes. If questions exist regarding who constitutes an Agent, the Executive Director or his designee shall make that determination after consultation with the General Counsel or Chief Compliance Officer.

Notwithstanding the above, there may be certain entities or persons engaged by TRS, performing material or significant duties on behalf of TRS as its representative, that will be considered outside the scope of this Code. Any such determinations will be made on a case by case basis in the best interest of TRS, and a record of such determination will be maintained by the Legal & Compliance department.

“Board.” The Board of Trustees of TRS.

“Broker.” See Financial Services Provider.

“Consultant.” An entity or person, other than an Employee or Trustee, (i) who provides advice to TRS intended to affect or form a basis for significant TRS decisions, including but not limited to an actuary or insurance and health care plan advisor or (ii) who provides advice to TRS and may reasonably be expected to receive for his, her, or its services more than $10,000 in compensation from TRS during a fiscal year (September 1 to August 31). Consultant does not include a Financial Services Provider. However, if a Consultant also falls within the definition of a Financial Services Provider, the entity or person is considered a Financial Services Provider, respectively, for all purposes. If questions exist regarding who constitutes a Consultant, the Executive Director or his designee shall make that determination after consultation with the General Counsel or Chief Compliance Officer.

“Contractors.” A collective term used to signify inclusion of all groups. For example, Agents, Consultants, and Financial Services Providers, as each separate term is defined herein.

“Covered Contractor.” A Contractor who works on location at TRS or a worker assigned by or paid, directly or indirectly, by the Contractor to work at TRS. A secondee to TRS from a Financial Services Provider would be a Covered Contractor.

“Employee.” A person who works for TRS in an employer-employee relationship (including a paid intern) and not in an independent contractor capacity, and includes the Executive Director and Chief Investment Officer of TRS.

“Executive Director.” The individual appointed as the executive director pursuant to Section of the Texas Government Code. “Fiduciary.” For purposes of this Code, a Contractor identified or appointed by contract or otherwise designated by TRS as a TRS fiduciary. If questions exist regarding who constitutes a Fiduciary for purposes of this Code, the Executive Director or his designee shall make that determination after consultation with the General Counsel or the Chief Compliance Officer.

“Financial Advisor.” See Financial Services Provider.

“Financial Services Provider.” A person or entity, other than an Employee or Trustee, who provides: (i) financial management or advice to TRS or to the Board that is a basis for significant financial, investment, or fund management decisions or actions by or on behalf of TRS, and whose primary role is to provide such management or advice; (ii) financial services to TRS or advice in connection with the management or investment of TRS trust funds and who may reasonably expect to receive for his, her, or its services more than $10,000 in compensation from TRS during a fiscal year (September 1 to August 31); or (iii) assistance to TRS in the buying or selling of stocks, bonds, commodities, options, and other securities, including related analysis or research (for example, on a security, company, industry, or sector) and who is named from time to time on the TRS Approved Broker List. A Financial Services Provider would include but is not limited to (i) financial advisors, (ii) financial consultants, (iii) investment counselors, (iv) money or investment managers, (v) custodian banks and security lending agents, (vi) Strategic Partners, (vii) external managers retained pursuant to agency agreements and (viii) brokers. For purposes of reporting compliance, the term “Financial Services Provider” includes an entity or person who appeared on the TRS Approved Broker List or the TRS Restricted Contractors List during any portion of the period of time covered by a particular report, even if that entity or person is no longer named on the TRS Approved Broker List or TRS Restricted Contractors List.

If questions exist regarding who constitutes a Financial Services Provider, the Executive Director or his designee shall make that determination after consultation with the General Counsel or the Chief Compliance Officer.

Notwithstanding the above, the following persons or entities are not considered Financial Services Providers: (i) attorneys and law firms, (ii) companies that provide actuarial services that impact investment strategies, (iii) companies that only provide financial information, research or advice that is not created for TRS’ exclusive use, or software by subscription or license agreement, (iv) companies that provide software and services to transmit data between or among TRS operating systems, (v) the medical board, and (vi) health care consultants.

“General Counsel.” The Employee of TRS serving in the position of chief legal advisor for TRS.

“Strategic Partner.” The institutions that are advisors that provide services under relationships designated by TRS as Strategic Partners.

“TRS.” The Teacher Retirement System of Texas.

“Trustee.” A member of the Board of TRS.

Appendix B – Conflict of Interest Disclosure and Request for Determination (“Code Conflict Disclosure Statement”)

Form TRS 541C

CONFLICT OF INTEREST DISCLOSURE and REQUEST FOR DETERMINATION

Contractor’s Complete Name: _______________________________________________________________

Under Section I.B. of the TRS Code of Ethics for Contractors (“Code”), a Contractor should promptly inform the General Counsel or Chief Compliance Officer by use of this TRS Form 541C if the Contractor either:

• has determined that it has a potential or actual conflict of interest; or

• is uncertain whether it has or would have a conflict of interest under a particular set of circumstances then existing orreasonably anticipated to occur.1

A signed copy of this form may be emailed to the TRS Chief Compliance Officer or such other address as may be specified by TRS. If you have reason to believe that disclosure to the General Counsel would be ineffective, your TRS Form 541C should be sent directly to the Executive Director.

You must include all relevant and material facts and circumstances necessary for TRS to fully understand the details surrounding the possible, potential or actual conflict of interest. If any information you provide below requires updating or amending, immediately inform the General Counsel or Chief Compliance Officer (or Executive Director, as applicable) and promptly provide the updated or amended information.

I. Conflict Determination

Describe fully the facts and circumstances that create the possible, potential or actual conflict of interest. Specify the interest or relationship that creates the conflict. Name all relevant parties. If there are non-confidential documents or related materials, attach those materials to your submission or provide website links to where those materials may be found.

As a reminder, Section I.A. of the Code provides that a conflict of interest exists when a Contractor has:

1. A relationship with any party to a transaction with TRS, or with an Employee or Trustee, other than arelationship necessary to the services that the Contractor performs for TRS, if a reasonable person could expect the relationship to diminish the Contractor’s independence of judgment in the performance of the Contractor’s responsibilities; or

2. A direct or indirect pecuniary interest in any party to a transaction with TRS if the transaction is connectedwith services the Contractor provides to TRS or to the Trustees in connection with the management or investment of TRS assets.

_____________________________________________________________________________________ _____________________________________________________________________________________ ______________________________________________________________________________________ Enter a complete, reasonably detailed description of the facts and circumstances here.

Provide your preliminary analysis of why you believe the situation may or may not be a conflict of interest under the definition of conflict in Section I.A. of the Code. Please address each element of the definition of conflict of interest as set forth in items 1. or 2. above, as applicable to your circumstances.

1 Contractors should complete TRS Form 541C in the same manner proscribed for addressing conflicts of interest when (1) reporting potential or actual violations of the Standards of Conduct in the Code, pursuant to Section II.J., or (2) using the Notice and Cure provisions in Section IV.B.2.

_____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Enter your preliminary analysis here, explaining why there is or is not a possible, potential or actual conflict of interest.

For TRS: _____No Conflict _____Conflict _____Conflict Upon Occurrence of Future Events

II. Cure Determination

Provide your preliminary analysis of why you believe the conflict of interest has or may be cured. Use the factors outlined in Section II.D. of the Code, among others that you may consider relevant, to describe how and whether the conflict has been mitigated, controlled or eliminated. In addition to the factors, your analysis should discuss, as applicable, the type of service underlying the conflict, the value of the service, any cost-benefit analysis that has been performed related to the service, and any restrictions on persons or activities in relation to the service or relationship underlying the conflict. If there are non-confidential documents or related materials, attach those materials to your submission or provide website links to where those materials may be found. _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Enter your preliminary analysis here, explaining whether and how the conflict has or may be cured.

For TRS: _____Conflict Not Cured or Incurable _____Conflict Cured _____Conflict Cured with Conditions (see below)

For TRS: Conditions Required as Part of Cure Determination: __________________________________________________________________ Identify conditions required as part of the cure determination pursuant to Section

______ I have withdrawn from participation in this matter pending further notification from TRS.

______ I believe that I can effectively withdraw from participation in this matter. Why or why not? ___________________________________

III. Reporting Obligations

A. Self-reporting by Covered Contractor I have provided a copy of this disclosure statement to my supervisor, team leader or manager, or monitoring personnel. If "no," why not? ____________________________________________________________________________________________________________________________________________________________________________________________ Please provide requested explanation, if applicable.

B. Reporting of Others

_____ I believe another individual or entity has a conflict of interest, as defined in the Code.

_____ I have knowledge that the other individual or entity has withdrawn from participation in the matters affected by the conflict of interest pending further notification from TRS.

_____ I have provided a copy of this TRS Form 541C to the TRS personnel who supervise or monitor the individual or entity that is the subject of this disclosure statement.

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Please provide additional explanation regarding the known facts surrounding a potential conflict of interest by another individual or entity.

As, or on behalf of, the Contractor listed below, I certify that all of the information provided in this TRS Form 541C is accurate and complete.

______________________________________________________________ Contractor

______________________________________________________________ Signature Printed

______________________________________________________________ Name

_______________________________________________________________ Title or Position of Individual Named Immediately Above

_______________________________________________________________ Phone Number and Email Address

_______________________________________________________________ Date

For TRS: ______Contract Continued

______Contract Terminated

_____________Date

Appendix C – Annual Ethics Compliance Statement

Form TRS 550

CONTRACTOR ANNUAL ETHICS COMPLIANCE STATEMENT

Consistent with Section IV. E. of the Code of Ethics for Contractors (the “Code”), an entity engaged by TRS as a Contractor shall be responsible for compliance with the Code by each of its employees and representatives and the authorized representative completing and executing this Statement does so on behalf of the entity itself and all of its employees. In this regard, any response, disclosure, or report required by this Code must be submitted to TRS by such entity rather than by individual employees and representatives, and such entity is responsible for making a diligent inquiry before each submission and from time to time during its engagement as a Contractor to determine if further submissions are required.

CAPITALIZED WORDS APPEARING HEREIN HAVE THE SAME MEANING ASSIGNED TO THEM IN THE CODE.

FOR ALL CONTRACTORS

♦ After diligent inquiry, Contractor represents that the Code has been read by those persons who work or represent the Contractoron TRS matters and that these individuals are familiar with the standards that govern the conduct of TRS Contractors.

♦ Contactor agrees to comply with both the letter and spirit of the Code (including prohibitions upon offering or conferringany gifts, entertainment, or other economic benefits to Trustees and Employees, found in Section II.B of the Code) and theExpenditure Reporting Form and Memorandum. Contractor understands that a violation of the Code is grounds for terminationof the contract or relationship with TRS, and constitute a material breach of contract with no penalty to TRS for terminating thecontract or relationship. Contractor further understands that termination of a contract or relationship because of aviolation of the Code can preclude another contract or relationship with TRS as provided in the Code.

♦ Contractor agrees to report in writing to the General Counsel or to the Executive Director as required in the Code if Contractor:

1) has determined that it has a potential or actual conflict of interest as defined in the Code, or

2) is uncertain whether it has or would have a conflict of interest under a particular set of circumstances thenexisting or reasonably anticipated to occur, or

3) has knowledge that a Trustee, Employee, or Contractor has violated the Code, or

4) has violated the Code or has an interest or relationship which violates the Code.

Such written report should be made on the TRS Form 541C, Conflict of Interest Disclosure and Request for Determination.

♦ Contractor agrees to provide a copy of any such disclosure to the Employee who monitors or manages the Contractor’s work.

♦ Contractor agrees to not take action personally or on behalf of TRS which is reasonably likely to result in a foreseeable conflictof interest unless permitted under Section II.I or II.J. of the Code or pursuant to Section I.D. of the Code.

♦ To the best of the knowledge and belief of Contractor, Contractor does not have a conflict of interest, nor has Contractorengaged in any activity that constitutes a conflict of interest, as defined in the Code, except as indicated below.

(Write “None” if there is nothing to report. If there is something to report that requires additional space, please use and attach an additional sheet to this form.)

♦ To the best of the knowledge and belief of Contractor, Contractor has no personal business relationship with a Trustee orEmployee, except as indicated below.


♦ To the best of the knowledge and belief of Contractor, Contractor has not violated the Code, except as indicated below.


♦ To the best of the knowledge and belief of Contractor, Contractor is unaware of any violations of:

1) the TRS policy prohibiting the offering or accepting of gifts, entertainment, or other economic benefits involving anyTrustee, Employee, or Contractor.

2) the Code by any other Contractor, except as indicated below.


♦ Contractor agrees that if any change in circumstances occurs which should be reported in accordance with the Code, Contractorwill promptly report this change to the General Counsel or to the Executive Director.

♦ If Contractor was a Contractor during the prior calendar year, Contractor hereby certifies and represents that Contractor filed theExpenditure Reporting Form for Contractors that was due by April 1 of this calendar year. Contractor agrees to file by April 1of the next calendar year an Expenditure Reporting Form for Contractors addressing expenditures made in this calendar year.

♦ Contractor is in compliance with all professional standards and laws that apply to Contractor.

Signature Name of Contractor

Printed Name and Position Date

Appendix D – Disclosure Statement for Financial Services Providers

Form TRS 630

DISCLOSURE STATEMENT FOR FINANCIAL SERVICES PROVIDERS

DUE ANNUALLY NO LATER THAN APRIL 1 OR WHENEVER THERE IS NEW INFORMATION TO REPORT

INSTRUCTIONS: 1) The reporting period covered by this statement consists of the preceding calendar year.2) This statement must be filed annually, not later than April 1.3) A new or amended statement must be promptly filed with the parties listed in step 5 of these instructions whenever there is new information

to report under Texas government code, section 2263.005 (a) or Section III.B of the TRS Code of Ethics for Contractors.4) This statement must be submitted even if you answer “no” to questions 1 and 2 in part 2.5) Submit a copy of this statement to the following:

a. The Executive Director of the Teacher Retirement System of Texas (“TRS”) (mail to 1000 Red River Street, Austin, TX, 78701-2698)b. The State Auditor (mail to P.O. Box 12067, Austin, TX, 78711-2067 Attn: Disclosure Statement)

6) The term “Financial Services Provider” has the meaning given to it by the TRS Code of Ethics for Contractors.

PART 1: GENERAL INFORMATION

FILING TYPE (check one): ANNUAL DISCLOSURE FOR YEAR ENDING DECEMBER 31, 20__ __ UPDATED DISCLOSURE

FILER (check one): INDIVIDUAL BUSINESS ENTITY (on behalf of itself and all of its employees or representatives who provided advice or services to TRS)

NAME OF INDIVIDUAL___________________________________________________ JOB TITLE________________________________________

NAME OF BUSINESS ENTITY (if any)_________________________________________ TYPE OF FINANCIAL ADVICE OR SERVICE PROVIDED______________________

ADDRESS_________________________________________________________________________________________________________________

CITY____________________________________________ STATE______________ ZIP_________________ PHONE__________________

IF YOU ARE PROVIDING FINANCIAL ADVICE OR FINANCIAL SERVICES CONCERNING TRS MATTERS TO A TRS TRUSTEE, BUT NOT TO TRS ITSELF, PLEASE PROVIDE THE NAME(S) OF THE TRUSTEE(S)____________________________________________________ (if there are none, please answer “NONE”) (Note: A current listing of trustees can be found at the TRS website – www.trs.texas.gov.)

PART 2: DISCLOSURES

DISCLOSURE REQUIREMENTS FOR FINANCIAL SERVICES PROVIDERS Financial Services Providers must disclose information regarding certain relationships and interests to the TRS Executive Director and the Texas State Auditor pursuant to Texas Government Code Section 2263.005.

1) Do you or your business entity have or did you or your business entity have any relationship with any party to a transaction with TRS (other thana relationship necessary to the services that you or your business entity will perform, are performing, or performed for TRS) that a reasonableperson could expect to diminish your or your business entity’s independence of judgment in the performance of your or your business entity’sresponsibilities to TRS?

Yes No

If yes, please explain in detail the nature of such relationships. (Attach additional sheets as needed.)

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________


2) Do you or your business entity have or did you or your business entity have any direct or indirect pecuniary interests in any party to atransaction with TRS where the transaction is or was connected with any financial advice or service that you or your business entity provide to or provided to TRS or to a TRS trustee concerning TRS matters?

Yes No

If yes, please explain in detail the nature of such pecuniary interests. (Attach additional sheets as needed.)

_________________________________________________________________________________________________________________________

___________________________________________________________________________________________________________________________________________________

PART 3: SIGNATURE AND DATE

TO BE COMPLETED BY AN ENTITY ENGAGED BY TRS

Pursuant to Section IV. E. of the Code of Ethics for Contractors (the “Code”), an entity engaged by TRS as a Financial Services Provider shall be responsible for compliance with the Code by each of its employees and representatives. This Disclosure Statement must be submitted to TRS by such entity rather than by individual employees and representatives, and such entity is responsible for making a diligent inquiry before each submission and from time to time during its engagement as a Financial Services Provider to determine if further submissions are required.

Consistent with Section IV. E. of the Code, I hereby attest that I am authorized to file this Disclosure Statement on behalf of the business entity named above and that all information provided above is complete and accurate with respect to the business entity and all of its employees and representatives that provide financial advice or services to TRS. I further attest that a diligent inquiry of such employees and representatives was made by the business entity before each submission and periodically during the time that the business entity provides financial advice or services to TRS. Through the signature of the authorized individual below, the business entity hereby acknowledges its responsibility to submit promptly a new or amended Disclosure Statement to the parties listed in step 5 of the above instructions if any of the above information changes.

Signature____________________________________ Date____________________

Printed Name and Position_____________________________________________________

TO BE COMPLETED BY AN INDIVIDUAL ENGAGED BY TRS

I hereby attest that all information provided above is complete and accurate. I hereby acknowledge my responsibility to submit promptly a new or amended Disclosure Statement to the parties listed in step 5 of the above instructions if any of the above information changes.

Signature___________________________________ Date__________________________

Printed Name______________________________________________________________

Appendix E – Expenditure Reporting Form for Contractors

Form TRS 543

EXPENDITURE REPORTING FORM FOR CONTRACTORS

Required for: Expenditures of more than $50 per day made on behalf of any one Trustee or TRS Employee by a TRS Contractor (as defined in the TRS Code of Ethics for Contractors; not including any other provider of goods or services)

Return to: CCO, Teacher Retirement System of Texas

Due by: April 1, following the calendar year covered by the report

PLEASE CHECK THE APPROPRIATE BLANK:

____ Contractor made no reportable expenditures during the calendar year covered by this report. If this blank is checked, please sign and provide the information requested in the signature block located at the end of this form.

____ Contractor made reportable expenditures during the calendar year covered by this report. If this blank is checked, please complete the rest of this form AND sign and provide the information requested in the signature block located at the end of this form.

NOTE: If daily expenditures which total in excess of $50 fall within two or more categories noted in Item 1 of the TRS Expenditure Reporting Memorandum, then a separate form for each Trustee or Employee and for each category may be filed with TRS.

Recipient Trustee's or Employee’s Name(s): __________________________________________________________

Were spouses/other guests in attendance? YES_____ NO_____

Have you reported expenditures on spouses/guests of TRS recipients as expenditures on behalf of the TRS recipients? YES_____ NO_____

Category of Expenditure: __________________________________________________________________________ (For example, food and beverages. Refer to Item 1 of the Expenditure Reporting Memorandum for other categories.)

Description of Expenditure:_________________________________________________________________________

(Be very specific in your description.)

Vendor/Provider Name: _____________________________________________________________________________________________ Street Address: _____________________________________________________________________________________ City, State: ________________________________________________________________________________________

Location Served/Held (if different from address immediately above):

Name: ___________________________________________________________________________________________ Street Address: _____________________________________________________________________________________ City, State: ________________________________________________________________________________________

Amount of Expenditure per day per Trustee or Employee: ___________________________________________ ___________________________________________ ___________________________________________

Date of Expenditure: _______________ (For consumption, use, purchase, receipt.)

Date of Receipt: ________________ (If different from date of expenditure.)

BY MY SIGNATURE, I HEREBY CERTIFY AND REPRESENT THAT THE INFORMATION CONTAINED HEREIN IS TRUE AND CORRECT.

Signature

Printed Name

Title

Name of Contractor

Contractor’s Address

Date of Signature

20__ __ CALENDAR YEAR COVERED BY THIS REPORT

Legal & Compliance Memorandum


TO: Policy Committee of the Board of Trustees

FROM: Carolina de Onis, General Counsel

Heather Traeger, Chief Compliance Officer

COPY: Board of Trustees

Keith Johnson, Fiduciary Counsel

RE: Revisions to the TRS General Authority Resolution

The TRS General Authority Resolutions (“GAR”) evidence the Board’s delegation of approval authority to certain TRS employees with respect to investment and related matters. The GAR is also the framework from which we build a detailed series of transaction approvals, workflows and controls in order to effect investment purchases and sales as well as other investment related matters such as contracts. Finally, the GAR is the document that external parties (such as custody banks, counterparties, external managers and brokers) use in order to authenticate TRS transactions. Legal & Compliance is proposing the following three changes to the GAR: 1) an additional title to be added to the Financial Group to reflect the changes to the list of new signatories who can approve and sign vouchers; 2) a title change from “Investment Accounting Team Lead” to “Senior Investment Oversight Analyst” to reflect changes within the Financial Group; and 3) title change from “Deputy Director” to “Chief Operations and Administration Officer” to reflect changes within the Executive group.

Board of Trustees

Revised General Authority Resolutions Adopted September 21, 2018April XX, 2019

Investment Group

Resolved, That Investment Division employees holding the following TRS working titles are members of the “Investment Group”:

Chief Investment Officer Deputy Chief Investment Officer Senior Managing Director Managing Director Senior Director Director Senior Investment Manager

Resolved further, That the Executive Director is authorized and directed to designate in writing those individual members of the Investment Group who are authorized within the investment areas designated by the Executive Director, in addition to the Chief Investment Officer and the Deputy Chief Investment Officer, to take any one or more of the following actions authorized below in accordance with these resolutions until the authority is revoked.

Resolved further, That the Executive Director is authorized and directed to designate in writing, by investment area and category or item designation, the specific authorities granted to each authorized member of the Investment Group, until the authority is revoked.

A. General Authority for Investment Matters other than Derivatives

Resolved further, That the Chief Investment Officer, Deputy Chief Investment Officer, and any other member of the Investment Group designated by the Executive Director as having such authority, in addition to any other authority expressly designated by the Executive Director under these resolutions, may act on behalf of TRS to: A.1 Buy, sell, or give orders or instructions for transactions in currencies and securities, and any amendments or modifications of

such orders or instructions. A.2 Direct Investment Operations personnel to deliver, pay, expend, or receive cash, currencies, monies, securities (including

restricted or Rule 144A securities) in connection with a contract to buy or sell securities. A.3 Give directions and instructions to members of the Trading Group or external managers relating to execution, brokerage,

clearing or settlement of securities transactions. A.4 Direct Investment Operations personnel to fund subscribed investment funds or capital called by investment funds; transfer

funds or assets between custodial accounts, including external manager separate accounts; transfer funds to pay fees under an investment contract; and to instruct other cash movements, including movements of cash to and from custodial accounts held by the Comptroller of Public Accounts and transfers of assets in kind for investment under an investment contract.

Notwithstanding any provision of this Section A, authority granted under this Section A does not extend to transactions in derivatives, which are governed exclusively by Section C of these resolutions.

B. Investment Contracting Authority other than Derivatives

Resolved further, That the Chief Investment Officer, Deputy Chief Investment Officer, and any other member of the Investment Group designated by the Executive Director as having such authority, in addition to any other authority expressly designated by the Executive Director under these resolutions, may act on behalf of TRS to: B.1 Make, execute, deliver, waive, modify, amend, renew, extend, assign, terminate, or transfer, in each case in writing, investment-

related documents, including without limitation, written contracts, investment management agreements, subscription agreements, capital commitments, account agreements, consents, certificates, powers of attorney, notes, deeds, security agreements, pledges, mortgages, endorsements, directions and instructions to amend, modify, fix, and execute written investment guidelines in investment management agreements with external managers and fund managers, and any and all documents necessary or proper to effectuate the authority granted in this Section B.1.

TRS General Authority Resolutions – Page 1 of 3

B.2 Jointly with a member of the Financial Group or the Executive Group, execute investment fund redemption and withdrawal notices and instructions for the transfer or delivery by wire or physical transfer of cash or securities to a TRS account by a third-party fund, external manager, account, debtor, except that an authorized member of the Investment Group may be the sole TRS signatory on subscription agreements, side letter agreements, or other investment-related documents executed by TRS in connection with a new investment, and any amendments or modifications to such documents and agreements other than redemption and withdrawal notices and corresponding instructions for the transfer or delivery by wire or physical transfer of cash or securities.

Notwithstanding any provision of this Section B, the authority granted under this Section B does not extend to transactions in derivatives, which are governed exclusively by Section C of these resolutions.

C. Derivatives Authority

Resolved further, That the Chief Investment Officer or the Deputy Chief Investment Officer and any member of the Investment Group who is designated by the Executive Director as a member of the derivatives team, in addition to any authority expressly designated by the Executive Director under these resolutions is authorized may act on behalf of TRS to: C.1 Negotiate, make, fix, execute, waive, amend, modify, renew, extend, transfer, assign, endorse, or terminate, in each case in

writing, documents related to derivatives transactions, including without limitation, master agreements, schedules, credit support annexes, collateral-management agreements, transaction confirmations, account agreements, and clearing agreements, and deliverables relating to such documents and agreements.

C.2 Make, execute, waive, amend, modify, renew, extend, transfer, assign, endorse, or terminate, in each case in writing, disclosures, questionnaires, elections, certifications, or other administrative documents and deliverables related to derivatives accounts or transactions.

C.3 Jointly with a member of the Financial Group or the Executive Group, execute, amend, modify, or terminate documents, directions, and instructions to deliver and pay cash, currencies, monies, or securities, to margin, collateralize, or settle derivatives transactions.

C.4 Direct Investment Operations personnel to receive cash, currencies, monies, or securities, to margin, collateralize, or settle derivatives transactions.

C.5 Buy, sell, or give orders or instructions for transactions in derivatives, and any amendments or modifications of such orders or instructions.

C.6 Give directions and instructions to members of the Trading Group or external managers relating to execution, brokerage, clearing or settlement of derivatives transactions.

Financial Group

Resolved further, That the “Financial Group” comprises employees holding the following TRS working titles:

Chief Financial Officer Director of Investment Accounting Director of Accounting Operations Investment Accounting Team Lead Senior

Investment Oversight Analyst

Director of Administrative Operations Budget Manager

Resolved further, That each member of the Financial Group is authorized and empowered on behalf of TRS, jointly with an authorized member of the Investment Group or the Executive Group, to execute redemption and withdrawal notices and instructions for the transfer or delivery by wire or physical transfer of cash, collateral, margin, or securities to a TRS account by a third-party fund, account, debtor, or derivatives counterparty, except that an authorized member of the Investment Group may be the sole TRS signatory on subscription agreements and side letter agreements and any amendments to subscription agreements or side letter agreements. Resolved further, That each member of the Financial Group is authorized and empowered on behalf of TRS, to execute authorizations to fund subscribed investment funds or capital called by investment funds; transfer funds or assets between custodial accounts, including external manager separate accounts; transfer funds to pay fees under an investment contract; instruct other cash movements, including movements of assets to and from custodial accounts held by the Comptroller of Public Accounts and transfers of assets in kind for investment under an investment contract. Resolved further, That each member of the Financial Group is authorized and empowered on behalf of TRS to authorize and direct members of the Investment Accounting team to verify or confirm to a custodian or prime broker any order for the transfer or delivery of currencies, monies, securities, or contracts to any other person.


Executive Group

Resolved further, That the “Executive Group” comprises employees holding the TRS working titles of Executive Director and Chief Operations and Administration OfficerDeputy Director, and each member of the Executive Group is authorized and empowered to perform, with respect to a particular matter or transaction, any and all of the acts that any and all employees in the Investment Group or the Financial Group are authorized to perform, except that when joint action by a member of the Investment Group and a member of the Financial Group is required, only one member of the Executive Group may act jointly with a member of either of the Investment Group or the Financial Group.

Trading Group

Resolved further, That the “Trading Group” comprises the employees holding the following TRS working titles: Managing Director, Director, and Trader. Each member of the Trading Group is authorized and empowered on behalf of TRS to take the following actions: to place orders or agree with brokers, dealers and market-makers to purchase or sell securities, derivatives, forward contracts, or currency; to monitor and supervise execution and settlement of such orders or agreements; and to negotiate, fix, and vary the commissions, spreads, or discounts for individual orders or agreements to purchase or sell securities, derivatives, forward contracts, or currency.

Fixed Income, Currency, and Commodities Trading Group

Resolved further, That the “Fixed Income, Currency, and Commodities (“FICC”) Trading Group” comprises the employees holding the following TRS working titles: FICC Trader. Each member of the FICC Trading Group is authorized and empowered on behalf of TRS to take the following actions: to place orders or agree with brokers, dealers and market-makers to purchase or sell fixed income securities, derivatives, forward contracts, or currency; to monitor and supervise execution and settlement of such orders or agreements; and to negotiate, fix and vary the commissions, spreads, or discounts for individual orders or agreements to purchase or sell fixed income securities, derivatives, forward contracts, or currency.

Chief Compliance Officer

Resolved further, That the “Chief Compliance Officer” is authorized and empowered on behalf of TRS to take the following actions: to execute and deliver compliance-related disclosures, reports, filings, and certifications and, with the Chief Investment Officer and Executive Director’s approval, to develop, disseminate and collect disclosure forms to monitor the requirements of the Investment Policy Statement.


Board of Trustees

Revised General Authority Resolutions Adopted April XX, 2019

Investment Group

Resolved, That Investment Division employees holding the following TRS working titles are members of the “Investment Group”:

Chief Investment Officer Deputy Chief Investment Officer Senior Managing Director Managing Director Senior Director Director Senior Investment Manager

Resolved further, That the Executive Director is authorized and directed to designate in writing those individual members of the Investment Group who are authorized within the investment areas designated by the Executive Director, in addition to the Chief Investment Officer and the Deputy Chief Investment Officer, to take any one or more of the following actions authorized below in accordance with these resolutions until the authority is revoked.

Resolved further, That the Executive Director is authorized and directed to designate in writing, by investment area and category or item designation, the specific authorities granted to each authorized member of the Investment Group, until the authority is revoked.

A. General Authority for Investment Matters other than Derivatives

Resolved further, That the Chief Investment Officer, Deputy Chief Investment Officer, and any other member of the Investment Group designated by the Executive Director as having such authority, in addition to any other authority expressly designated by the Executive Director under these resolutions, may act on behalf of TRS to: A.1 Buy, sell, or give orders or instructions for transactions in currencies and securities, and any amendments or modifications of

such orders or instructions. A.2 Direct Investment Operations personnel to deliver, pay, expend, or receive cash, currencies, monies, securities (including

restricted or Rule 144A securities) in connection with a contract to buy or sell securities. A.3 Give directions and instructions to members of the Trading Group or external managers relating to execution, brokerage,

clearing or settlement of securities transactions. A.4 Direct Investment Operations personnel to fund subscribed investment funds or capital called by investment funds; transfer

funds or assets between custodial accounts, including external manager separate accounts; transfer funds to pay fees under an investment contract; and to instruct other cash movements, including movements of cash to and from custodial accounts held by the Comptroller of Public Accounts and transfers of assets in kind for investment under an investment contract.

Notwithstanding any provision of this Section A, authority granted under this Section A does not extend to transactions in derivatives, which are governed exclusively by Section C of these resolutions.

B. Investment Contracting Authority other than Derivatives

Resolved further, That the Chief Investment Officer, Deputy Chief Investment Officer, and any other member of the Investment Group designated by the Executive Director as having such authority, in addition to any other authority expressly designated by the Executive Director under these resolutions, may act on behalf of TRS to: B.1 Make, execute, deliver, waive, modify, amend, renew, extend, assign, terminate, or transfer, in each case in writing, investment-

related documents, including without limitation, written contracts, investment management agreements, subscription agreements, capital commitments, account agreements, consents, certificates, powers of attorney, notes, deeds, security agreements, pledges, mortgages, endorsements, directions and instructions to amend, modify, fix, and execute written investment guidelines in investment management agreements with external managers and fund managers, and any and all documents necessary or proper to effectuate the authority granted in this Section B.1.


B.2 Jointly with a member of the Financial Group or the Executive Group, execute investment fund redemption and withdrawal notices and instructions for the transfer or delivery by wire or physical transfer of cash or securities to a TRS account by a third-party fund, external manager, account, debtor, except that an authorized member of the Investment Group may be the sole TRS signatory on subscription agreements, side letter agreements, or other investment-related documents executed by TRS in connection with a new investment, and any amendments or modifications to such documents and agreements other than redemption and withdrawal notices and corresponding instructions for the transfer or delivery by wire or physical transfer of cash or securities.

Notwithstanding any provision of this Section B, the authority granted under this Section B does not extend to transactions in derivatives, which are governed exclusively by Section C of these resolutions.

C. Derivatives Authority

Resolved further, That the Chief Investment Officer or the Deputy Chief Investment Officer and any member of the Investment Group who is designated by the Executive Director as a member of the derivatives team, in addition to any authority expressly designated by the Executive Director under these resolutions is authorized may act on behalf of TRS to: C.1 Negotiate, make, fix, execute, waive, amend, modify, renew, extend, transfer, assign, endorse, or terminate, in each case in

writing, documents related to derivatives transactions, including without limitation, master agreements, schedules, credit support annexes, collateral-management agreements, transaction confirmations, account agreements, and clearing agreements, and deliverables relating to such documents and agreements.

C.2 Make, execute, waive, amend, modify, renew, extend, transfer, assign, endorse, or terminate, in each case in writing, disclosures, questionnaires, elections, certifications, or other administrative documents and deliverables related to derivatives accounts or transactions.

C.3 Jointly with a member of the Financial Group or the Executive Group, execute, amend, modify, or terminate documents, directions, and instructions to deliver and pay cash, currencies, monies, or securities, to margin, collateralize, or settle derivatives transactions.

C.4 Direct Investment Operations personnel to receive cash, currencies, monies, or securities, to margin, collateralize, or settle derivatives transactions.

C.5 Buy, sell, or give orders or instructions for transactions in derivatives, and any amendments or modifications of such orders or instructions.

C.6 Give directions and instructions to members of the Trading Group or external managers relating to execution, brokerage, clearing or settlement of derivatives transactions.

Financial Group

Resolved further, That the “Financial Group” comprises employees holding the following TRS working titles:

Chief Financial Officer Director of Investment Accounting Director of Accounting Operations Senior Investment Oversight Analyst Director of Administrative Operations Budget Manager

Resolved further, That each member of the Financial Group is authorized and empowered on behalf of TRS, jointly with an authorized member of the Investment Group or the Executive Group, to execute redemption and withdrawal notices and instructions for the transfer or delivery by wire or physical transfer of cash, collateral, margin, or securities to a TRS account by a third-party fund, account, debtor, or derivatives counterparty, except that an authorized member of the Investment Group may be the sole TRS signatory on subscription agreements and side letter agreements and any amendments to subscription agreements or side letter agreements. Resolved further, That each member of the Financial Group is authorized and empowered on behalf of TRS, to execute authorizations to fund subscribed investment funds or capital called by investment funds; transfer funds or assets between custodial accounts, including external manager separate accounts; transfer funds to pay fees under an investment contract; instruct other cash movements, including movements of assets to and from custodial accounts held by the Comptroller of Public Accounts and transfers of assets in kind for investment under an investment contract. Resolved further, That each member of the Financial Group is authorized and empowered on behalf of TRS to authorize and direct members of the Investment Accounting team to verify or confirm to a custodian or prime broker any order for the transfer or delivery of currencies, monies, securities, or contracts to any other person.


Executive Group

Resolved further, That the “Executive Group” comprises employees holding the TRS working titles of Executive Director and Chief Operations and Administration Officer, and each member of the Executive Group is authorized and empowered to perform, with respect to a particular matter or transaction, any and all of the acts that any and all employees in the Investment Group or the Financial Group are authorized to perform, except that when joint action by a member of the Investment Group and a member of the Financial Group is required, only one member of the Executive Group may act jointly with a member of either of the Investment Group or the Financial Group.

Trading Group

Resolved further, That the “Trading Group” comprises the employees holding the following TRS working titles: Managing Director, Director, and Trader. Each member of the Trading Group is authorized and empowered on behalf of TRS to take the following actions: to place orders or agree with brokers, dealers and market-makers to purchase or sell securities, derivatives, forward contracts, or currency; to monitor and supervise execution and settlement of such orders or agreements; and to negotiate, fix, and vary the commissions, spreads, or discounts for individual orders or agreements to purchase or sell securities, derivatives, forward contracts, or currency.

Fixed Income, Currency, and Commodities Trading Group

Resolved further, That the “Fixed Income, Currency, and Commodities (“FICC”) Trading Group” comprises the employees holding the following TRS working titles: FICC Trader. Each member of the FICC Trading Group is authorized and empowered on behalf of TRS to take the following actions: to place orders or agree with brokers, dealers and market-makers to purchase or sell fixed income securities, derivatives, forward contracts, or currency; to monitor and supervise execution and settlement of such orders or agreements; and to negotiate, fix and vary the commissions, spreads, or discounts for individual orders or agreements to purchase or sell fixed income securities, derivatives, forward contracts, or currency.

Chief Compliance Officer

Resolved further, That the “Chief Compliance Officer” is authorized and empowered on behalf of TRS to take the following actions: to execute and deliver compliance-related disclosures, reports, filings, and certifications and, with the Chief Investment Officer and Executive Director’s approval, to develop, disseminate and collect disclosure forms to monitor the requirements of the Investment Policy Statement.


Memorandum


TO: TRS Policy Committee

FROM: Don Green, Chief Financial Officer Richard L. Scheel, Controller and Director of Accounting Through: Brian Guthrie, Executive Director

Andrew Roth, COAO

RE: Review of the Resolution Designating Persons Authorized to Sign TRS Vouchers

ACTION REQUESTED Staff asks the Policy Committee to:

• Take no action; and

• Maintain the Resolution with no recommended changes, continuing with the five year review cycle.

BACKGROUND AND DISCUSSION Pursuant to the Policy Review Schedule, a review of the Resolution Designating Persons Authorized to Sign TRS Vouchers (Voucher Authority Resolution or Resolution) occurs every five years. On December 14, 2018, the Board adopted the Resolution which provides the Executive Director the authority to authorize employees to approve and sign vouchers for payment from accounts of TRS without having to return to the Board for approval. The delegation of such authority has improved administrative efficiency. As part of our commitment, we’re updating the Board with actions taken between Board meetings as follows:

1

Designated signatories prior to resolution

Name Title Caballero, Arlene B Payroll Manager Duarte, Janie Director of Operations Burroughs, Lauren Investment Accounting Team Lead Scheel, Richard Controller, Director of Accounting Leith, Scot Director of Investment Accounting

Designated Signatories subsequent to resolution Name Title Zigmond, Ann Financial Reporting Team Lead Brown, Jessica Budget Director Ruiz, Roberto Senior Budget Analyst Segovia, Bobby Accounts Payable Manager

Current Signatories Name Title Caballero, Arlene B Payroll Manager Duarte, Janie Director of Operations Scheel, Richard Controller, Director of Accounting Leith, Scot Director of Investment Accounting Zigmond, Ann Financial Reporting Team Lead Brown, Jessica Budget Director Segovia, Bobby Accounts Payable Manager

Staff recommends maintaining the Resolution with no recommended changes for it continues to serve the purpose for which it was adopted. If the Committee finds no changes to the Resolution, then no further action is required from the Committee.

2

RESOLUTION AUTHORIZING EXECUTIVE DIRECTOR TO DESIGNATE PERSONS AUTHORIZED TO SIGN TRS VOUCHERS December 14, 2018 WHEREAS, In accordance with section 825.104 of the Texas Government Code and Section 5.6 of the Bylaws of the Board of Trustees ("Board") of the Teacher Retirement System of Texas ("TRS"); and WHEREAS, In addition to designating certain TRS officers and employees, pursuant to Section 2103.061 of the Texas Government Code, the Board may also authorize the TRS Executive Director to designate one or more TRS officers or employees to approve vouchers for TRS; now, therefore, be it RESOLVED, That the Board authorizes the TRS Executive Director to designate one or more TRS employees to approve and sign vouchers for payment from accounts of TRS on or after December 14, 2018, and until the designation is revoked or until the designated person separates from employment with TRS, is no longer employed in any capacity for which authority is granted, or is not re-designated by the Executive Director, whichever occurs first.

3

Memorandum DATE: April 25, 2019

TO: TRS Policy Committee

FROM: Rebecca Merrill, Chief Strategy Officer, and Carolyn Perez, Director of Communications

Through: Brian Guthrie, Executive Director and Andrew Roth, COAO

RE: Review of External Communication Policy

ACTION REQUESTED Staff asks the Policy Committee to:

• Take no action; and

• Maintain the External Communications Policy with no recommended changes, continuing with the five year review cycle.

BACKGROUND AND DISCUSSION

Pursuant to the Policy Review Schedule, a review of the External Communications Policy occurs every five years. On March 28, 2014, the Board adopted the Policy which provides guidelines to Trustees on social media commentary, media interactions, communications with elected officials and text/voice mail use. Staff recommends maintaining the Policy with no recommended changes as it continues to serve the purpose for which it was adopted. If the Committee finds no changes to the Policy, then no further action is required from the Committee.

Documents

Policy Committee Meeting