Teacher Retirement System of Texas

Addendum Number 2 to Request for Proposals (“RFP”)

Solicitation Name: Professional Audit Services Solicitation Number: TRS000679

Purpose: This Addendum is issued to provide answers to questions submitted by Vendors and make the following changes to the Solicitation

Issued By: Aundre Petty Aundre Petty, Lead Contract Specialist Date: 5/21/2026

NOTE: VENDORS ARE REQUESTED TO ACKNOWLEDGE RECEIPT OF THIS ADDENDUM BY

SIGNING AND DATING BELOW AND INCLUDING THIS SIGNED AND DATED COVER PAGE

WITH THE SUBMITTED RESPONSE. RESPONSES MAY BE CONSIDERED NON-RESPONSIVE IF

THIS COVER PAGE IS NOT SIGNED AND RETURNED.

Respondent Signature Date

TRS Solicitation Name: Profession Audit Services Addendum No.: 2

Solicitation Modifications

The Teacher Retirement System of Texas (“TRS”) hereby modifies the Solicitation as follows. Vendors are responsible for incorporating the following modifications into their Responses.

1. Subsection 2b of section B, Description of Work, of the Scope of Work section of Section IX, Draft Contract is hereby deleted in its entirety and replaced with the following:

b. OPEB Liability Schedules: GASB Statement No. 75 - The System’s Schedule of Employer’s Proportionate Shares (Allocations) and the total for all entities of the columns titled net OPEB liability end of year, total deferred outflows of resources, total deferred inflows of resources, and total OPEB expense included in the Schedule of OPEB Amounts by Employer and related notes.

Contractor shall perform these GASB audits for Fiscal Years 2027 – 2032. TRS may also require additional services or advice to ensure new GASB reporting requirements are properly applied.

2. Subsection 8 of section D, Acceptance Criteria for Deliverables, of the Scope of Work section of Section IX, Draft Contract is hereby deleted in its entirety.

3. Subsection 2 of section E, Reporting Deadlines, of the Scope of Work section of Section IX, Draft Contract is hereby deleted in its entirety and replaced with the following:

2. For FY2027, Contractor shall deliver the audited financial report in December 2027 and GASB employer allocation opinion reports (defined benefit and OPEB) around June 2028. The GASB audits are performed in the spring of the following year.

4. The Price Form is hereby revised to require Respondents to provide complete, all-inclusive pricing for Fiscal Years 2027 through 2032 for both the Annual Comprehensive Financial Report and GASB 68/75 schedules.

5. “TRS Optional Renewal Terms” of Section I, Summary Details, is hereby deleted in its entirety and replaced with the following:

TRS Optional Renewal Terms Four (4) one-year optional renewals. If the awarded Contract includes optional renewal terms, proposed annual pricing will be applied to each such term. TRS does not allow for escalation of pricing for renewals under this Solicitation.

TRS Solicitation Name: Profession Audit Services

NOTE: Revised versions of the RFP (inclusive of the Draft Contract) and Price Form can be found as separate documents in PAVES with this Addendum 2, which can be found in the “Overview” tab > “Round Documents.”

[submitted questions and responses start on next page]

Submitted Questions and TRS Responses

Below are questions submitted during the question-and-answer period and TRS’ responses.

# Submitted Question TRS Response

1. General, Questionnaire: Would the government please elaborate on whether there are any expectations regarding font size, font type, or page count for the attachment responses for the Response Qualifications, Proposed Performance Details, Respondent’s Key Personnel, and Pricing sections?

TRS does not have any specific requirements regarding font size, font type, or page count.

2. Draft Contract, Section A, Item 2:

Could the government elaborate whether remote work will be allowed for the engagement?

TRS prefers a hybrid engagement model where the audit team is on-site during the summer for control testing and returns for several weeks in the fall to support year-end fieldwork and substantive testing. To support a strong start to the engagement, it may be beneficial for the Contractor to spend additional time on-site during the first year. This would allow for in-person interviews, walkthroughs, and relationship-building with key stakeholders. The specific balance between on-site and remote work would be determined at the beginning of each year and approved by TRS’ Chief Audit Executive.

3. General: Could the government provide historical fee ranges and/or average hours worked by the contractor for prior engagements to aid in developing a reasonable pricing model?

We are not able to share this information.

4. General: Are there any file size limitations within PAVES that the respondents should consider in preparing submissions?

The maximum file size for a single document upload in PAVES is 56120 KB.

TRS Solicitation Name: Profession Audit Services

5. Draft Contract, Scope of Work, D.

Acceptance Criteria for Deliverables: This section references customized, audit related ad hoc and supplemental reports upon Texas Teachers Retirement System (TRS) request.

Could the government provide examples of what items such as these were requested in the past?

Subsection 8 of section D, Acceptance Criteria for Deliverables, of the Scope of Work section of Section IX, Draft Contract is being deleted in its entirety.

6. Draft Contract, General Terms and Conditions, Item 4: This section states the contractor will reimburse TRS for any criminal background checks. Could TRS estimate the cost of these criminal background checks per person?

The current cost for criminal background checks is $37.00 per person.

7. Draft Contract, Scope of Work, B.

Description of Work: Section 1.a.

lists audits of the financial statements Fiscal Years 2027 – 2032; Section 2 identifies Governmental Accounting Standards Board (GASB) audits (Other Post-Employment Benefits [OPEB] and Pension Schedules) Fiscal Years 2026 – 2032. Could TRS clarify whether the current contractor is performing the audit of the financial statements for Fiscal Year 2026?

The current contractor is performing the audit of the financial statements for Fiscal Year 2026. The current contractor will also perform GASB audits (Other Post- Employment Benefits [OPEB] and Pension Schedules) for Fiscal Year 2026 during Spring 2027.

8. Draft Contract, Scope of Work, E.

Reporting Deadlines: This section refers to deadlines in June and December 2026. Could TRS clarify if this is accurate? We understood from the bidders’ conference that no work would be performed until calendar year 2027 for the successful respondent.

Subsection 2 of section E, Reporting Deadlines, of the Scope of Work section of Section IX, Draft Contract is being replaced with new language.

9. Draft Contract, Data Security Terms and Conditions: This

Contractor is responsible for creating and maintaining audit documentation

TRS Solicitation Name: Profession Audit Services section states the contractor must security return all data, including backup and recovery data, and sanitize (clear, purge, or destroy) all TRS data in its entirety. Could TRS clarify how the contractor will create and maintain its audit documentation?

evidencing data return, sanitization, and/or destruction, including completion of TRS’ Data Destruction/Return Certification and record of destruction.

10. Reference to TX-RAMP: Does TRS require the software companies utilized for audit documentation and coordination by the contractor to go through the TX- RAMP process?

TX-RAMP certification requirement will be determined after vendor award recommendation and TRS review of said vendor’s submitted Third-Party Assessment Form or SOC 2 Type II Report.

11. General: We understand the process to review, score, and interview prospective contractors is arduous and involves multiple people. Could TRS share how it will communicate to respondents throughout this process? Will respondents be notified if they did/did not progress to the potential interview stage?

Only Respondents that are selected to advance through the different rounds of the evaluation process will be notified, via email, by the named TRS Procurement and Contracts Representative for this Solicitation.

12. General: Will the incumbent contractor be requested to respond to the current solicitation?

No

13. General: Does TRS anticipate necessary contractor travel to sites beyond Austin to gather and audit school district data? Has the accumulating of the needed census data typically been centralized through the Austin office? Has the needed census data been accumulating electronically through secured portals?

TRS does not anticipate contractor travel to specific school districts. Data and documentation needed for census data testing may be obtained electronically and without on-site presence. Contractor is expected to provide a secure means to transfer electronic information with reporting employers.

14. How many hours did the SAO spend on the Financial Statement audit annually? Or alternatively, We are not able to provide this information.

TRS Solicitation Name: Profession Audit Services please describe the composition of the audit team (how many team members, what level) and how long they dedicated to each section of audit work and the time of year the work was performed.

15. How many hours of TRS Internal audit work was used by the SAO annually?

Last year, TRS Internal Audit’s assistance totaled 600 project hours, of which 500 were for fieldwork. The number of hours can vary from year to year, depending on factors such as new information systems, team composition, and number of issues discovered.

16. Please describe the types of testing provided by TRS Internal Audit to the SAO.

Internal Audit tested several samples to validate annuitant payment changes, confirm legitimacy of prior-year payments, verify TRS-Care eligibility and premiums, and ensure accuracy of new annuitant data and benefit calculations.

17. Does TRS prepare the Financial Statements and GASB Schedules or does the auditor?

TRS prepares financial statements and GASB schedules for submission to auditors.

18. What financially significant IT systems are utilized by TRS? For each identified system, are there SOC reports available

TRS utilizes several financially significant IT systems. SOC 2 Type 2 reports are confidential and are not available.

19. Have there been changes to financially significant systems in the past year or planned for the next 5 years?

We are not able to provide this information.

20. Please provide any deficiencies, significant deficiencies or material weaknesses that have been received from the SAO over the last 2 years.

There have been no significant deficiencies or material weaknesses that have been received from SAO over the last two years.

21. Please provide any audit adjustments, both posted and waived over the last 2 years.

There was one audit adjustment requested and made related to Derivatives made during FY2025. Details will be provided at time of audit.

TRS Solicitation Name: Profession Audit Services

22. Have you had any turnover in the finance department over the past year?

We have had a few team member changes in the Accounts Payable and Budget departments. However, there was no impact to day-to-day operations.

23. Do you expect in person, remote or a hybrid for the audit work?

summer for control testing and returns for several weeks in the fall to support year-end fieldwork and substantive testing. To support a strong start to the engagement, it may be beneficial for Contractor to spend additional time on-site during the first year.

This would allow for in-person interviews, walkthroughs, and relationship-building with key stakeholders. The specific balance between on-site and remote work would be determined at the beginning of each year and approved by TRS’ Chief Audit Executive.

24. Are there any anticipated changes in key third party service providers in the next year (investment custodian, actuary, etc.)?

TRS does not anticipate material changes to its key third-party service providers (including custodian and actuary) during the next year. Routine evaluations are performed as part of ongoing vendor management and procurement processes.

25. Have there been any significant changes in the composition of members/census in the past year or anticipated in the next 5 years?

No significant changes.

26. Outside of the nature of services required, are there any specific expectations of focus that you are looking for in your next audit service provider to prioritize?

No

27. Does TRS incorporate artificial intelligence (AI) into your business and financial reporting processes? If not, do you have a plan or desire to do so in the next several years?

TRS incorporates a number of artificial intelligence features and platforms to increase business efficiency.

28. Are there changes in investment policies or allocations anticipated in the next year?

TRS periodically evaluates investment policies and strategic asset allocation as part of its governance process. While adjustments may occur, no material changes

TRS Solicitation Name: Profession Audit Services are currently anticipated outside of normal portfolio management activities.

29. Does management use third party specialists to assist with determining fair value for harder to value segments of their portfolio? If so, who and how frequently is the valuation performed?

Yes. TRS utilizes a combination of external managers, fund administrators, and, where appropriate, independent third-party valuation specialists to support fair value determinations for less liquid investments.

Valuations are typically performed quarterly, consistent with underlying fund reporting cycles.

30. Please describe the scope of census testing historically performed (approximate number of contributing employers, active members tested, etc.).

Census data testing has historically focused on validating key attributes, such as name, date of birth, gender, years of service, and eligible compensation. Building on this foundation, Contractor will have the flexibility to expand or modify scope by testing additional attributes as needed. In addition, Contractor will determine the appropriate sample size, number of employers to include, and most efficient approach to achieve sufficient coverage.

31. What is the one thing that is most valuable to you in the audit process?

Great collaboration with internal audit, finance, and business unit staff to meet state reporting deadlines.

32. What were the fees for the prior year’s audits, broken down between the financial statement audit and the GASB 68 and GASB 75 reports?

We are not able to disclose this information.

33. Can you provide copies of the prior year’s GASB 68 and GASB 75 reports?

Yes.

https://www.trs.texas.gov/employers/gasb-statements/gasb-67-and-68 and https://www.trs.texas.gov/employers/gasb-statements/gasb-74-and-75. Go to Resources section.

34. How many hours did the prior audit firm propose for each service in its previous proposal?

We do not have this information.

35. How many adjusting entries were there in the prior year, and if applicable, what was the nature of those adjusting entries?

There was one audit adjustment requested and made related to Derivatives to break out between assets and liabilities made during

FY2025.

TRS Solicitation Name: Profession Audit Services Addendum No.: 2 https://www.trs.texas.gov/employers/gasb-statements/gasb-67-and-68 https://www.trs.texas.gov/employers/gasb-statements/gasb-67-and-68 https://www.trs.texas.gov/employers/gasb-statements/gasb-74-and-75 https://www.trs.texas.gov/employers/gasb-statements/gasb-74-and-75

36. Do you allow auditors read-only access to your financial accounting system and/or pension administration system?

Yes, we allow auditors to have read-only access to our pension administration system and financial systems.

37. What pension administration system or application does TRS use for member and employer accounts, benefit calculations, and related functions?

TRS uses an internally developed application called TRUST which includes various modules that support member and employer benefit calculations, accounts receivable, and other related functions.

38. How many employers did the prior audit firm select for testing active member census data?

Contractor will determine the appropriate sample size, number of employers to include, and most efficient approach to achieve coverage that it considers adequate.

39. How many samples were selected from each employer for testing individual member census data?

Contractor will determine the appropriate sample size, number of employers to include, and most efficient approach to achieve coverage that it considers adequate.

40. Are audits conducted remotely, using a hybrid model, or fully in person? Is TRS open to audits being performed remotely?

summer for control testing and returns for several weeks in the fall to support year-end fieldwork and substantive testing. To support a strong start to the engagement, it may be beneficial for Contractor to spend additional time on-site during the first year.

This would allow for in-person interviews, walkthroughs, and relationship-building with key stakeholders. The specific balance between on-site and remote work would be determined at the beginning of each year and approved by TRS’ Chief Audit Executive.

41. Have there been recent changes in key personnel within the accounting or finance functions, or are there any known upcoming changes (such as retirements)?

There have been no changes in key personnel within the accounting or finance functions and changes are not anticipated any time soon.

42. Does TRS expect any significant changes to the accounting system or other systems relevant to financial reporting during the contract term?

TRS recently implemented enhancements that added an additional module called Payroll, Benefit Adjustment and Tax to the TRUST system in FY2026. However, this update may not be considered “new” by the time of the FY2027 audit.

TRS Solicitation Name: Profession Audit Services

43. Is there anything specific TRS is looking for in a potential new professional services firm?

We are seeking an innovative approach that supports a smooth and efficient transition.

We continually look for opportunities to improve efficiency throughout the financial audit engagement and experience with similarly sized—or larger—pension systems would further strengthen the transition process.

44. What aspects of the current or prior engagement process would TRS like to see improved?

A user-friendly communication tool for secure document sharing and a smooth transition.

45. How many hours of Internal Audit support are available, and in what specific areas?

See responses to questions 15 and 16.

46. The Price Form requests pricing for fiscal years 2026–2030, while the Scope of Work references ACFR audits for fiscal years 2027– 2032 and GASB 68/75 audits for fiscal years 2026–2032. Please confirm which fiscal years respondents should price in the Price Form and how pricing beyond fiscal year 2030 will be addressed.

The Price Form is being revised to require Respondents to provide complete, all-inclusive pricing for Fiscal Years 2027 through 2032 for both the Annual Comprehensive Financial Report (“ACFR”) and GASB 68/75 schedules.

47. The RFP indicates that Internal Audit support is optional, while the pre-proposal conference described significant Internal Audit involvement in benefits and eligibility testing. Please clarify whether TRS expects respondents to assume reliance on Internal Audit work in their proposed audit approach or whether respondents should propose a fully independent testing model.

Internal Audit will continue to provide the same scope and level of support upon request. Respondents may assume reliance on Internal Audit at this level. However, Respondents should propose a fully independent testing approach, if they do not intend to leverage Internal Audit resources.

48. For purposes of the Artificial Intelligence Assessment requirement, please clarify what constitutes an “Artificial Intelligence component.”

For purposes of the Artificial Intelligence (“AI”) Assessment requirement, an “Artificial Intelligence component” refers to the use of AI technologies (e.g., models, algorithms, or generative systems) that are

TRS Solicitation Name: Profession Audit Services

Specifically, does the use of internal audit analytics tools, automation, or commercially available audit software trigger this requirement if AI is not embedded in client deliverables or decision-making outputs.

integrated into the contractor’s product, service, or outputs delivered to TRS, or that materially influence decision-making, data processing, or results provided to TRS. The use of internal tools (e.g., audit analytics, automation, or commercially available software) does not, in and of itself, trigger the requirement, unless such tools incorporate AI capabilities that directly affect deliverables, outputs, or decisions relied upon by TRS.

49. Section IV of the RFP requests completion of the pricing form for fiscal years ending 2026 through 2030 (five years). However, Section B of the Scope of Work within the draft contract outlines differing service periods:

The ACFR audit scope states:

“Audit TRS’ financial statements as of August 31 for Fiscal Years 2027–2032” (six years).

The GASB 68 and GASB 75 audit scope states: “Contractor shall perform these GASB audits for Fiscal Years 2026–2032” (seven years).

Could you please clarify the intended service periods for each component and how proposers should reflect them in the pricing form, given the differing timelines outlined above?

See response to question 46.

50. Based on the information shared during the pre-proposal meeting, the State is in the process of performing the ACFR audit for fiscal year 2026 and will not be issuing the related GASB 68/GASB 75 opinion. Have you considered engaging the State to issue the 2026 GASB 68/75 reports to avoid potentially significant duplicative audit testing since the State is

The State will perform the audit of the 2026 GASB 68/75 reports with work scheduled for Spring 2027. Please refer to the revised scope of work and pricing form for details.

performing the 2026 ACFR audit and thereby, likely would be performing many of the procedures a separate auditor of the GASB 68/75 reports would have to perform in order to issue those separate opinions?

51. Could you provide us with a breakdown of your previous audit fees between the ACFR engagement and the GASB 68/75 schedules?

We are not able to provide this information.

52. It appears the state auditor has traditionally performed the audit of TRS. Why is TRS now looking to engage an external public accounting firm to perform the audit going forward?

Due to new legislative priorities, the State Auditor will no longer perform these audits after Fiscal Year 2026.

53. What were the number of hours spent on the engagement by the State AG’s office?

We do not have this information.

54. Could you provide us with a breakdown of your most recent year audit fees between the ACFR engagement and the GASB 68/75 schedules?

We are not able to provide this information.

55. During the pre-proposal call, Internal Audit indicated they have historically provided up to 500 hours to assist with benefit testing. Could you please confirm whether this support could also be extended to other audit areas, such as testing of census data or investments?

No. Like the current vendor, Contractor will be responsible for performing its own census data and investment testing.

56. What were the number of hours spent on the engagement by the State AG’s office?

We do not have this information.

57. What controls are in place related to ensure the accuracy and completeness of census data that is collected and forwarded to the actuary?

TRS uses standardized reporting requirements, automated system validations, and post-submission review processes to help ensure census data is complete and accurate. Reporting

TRS Solicitation Name: Profession Audit Services employers submit data through file layouts with required fields and reconciliation checks, while the TRUST system applies layered edit checks (format, business rules, and cross-record validations) to prevent incomplete or invalid data from posting. In addition, TRS performs exception monitoring and risk-based employer audits to identify and correct data issues.

58. Based on the information provided on your website, it appears TRS’ Internal Audit department is performing active members’ census data accuracy testing under the employer audits program. How many employers are selected annually?

The number of employers selected for Reporting Employer Testing varies each year based on Internal Audit’s risk assessment.

59. How many employers did the State auditors select for actives census testing?

We are not able to provide this information.

60. With respect to the investments valued at NAVPS, what processes or controls are in place to validate the reported values as used by TRS relative to the audited financial statements and capital statements? Please address the procedures and/or controls for investments that use a different year-end from TRS.

TRS’ investment accounting team reviews general partner (“GP”) statements and calculates cash flow adjusted market value based on market value reported from the statement. Before closing the book of each month, TRS calculated market values are reconciled with TRS’ custodian bank’s reported market values.

61. Per the footnotes to the ACFR, noted for equity investments that TRS does not receive readily available market values, TRS categorizes these as Level 3 investments. What is TRS’ process to value these investments in accordance with GAAP?

TRS’ custodian bank applies the last available market value on those securities.

62. For alternative investments that are valued by the general parters and fund administrators, do all of them have audited financial

GPs are required to provide audited annual financial statements to TRS with approved exceptions.

TRS Solicitation Name: Profession Audit Services statements? If not how are they valued?

63. How is your finance and accounting department organized? Have there been any material changes to internal controls, staffing, or governance affecting financial reporting or investment operations?

There have been no material changes to internal controls, staffing, or governance affecting financial reporting or investment operations.

64. What core financial, investment accounting, and benefits administration systems are used, and are there any system conversions or upgrades planned for the years related to the contracted audit period?

TRS uses CAPPS financial, TRUST (pension administration system) and is in the process of implementing a shadow/parallel investment accounting system.

65. Has the audit been performed virtually – in person or within a hybrid (combination of virtual & in person)? And what is your preference going forward?

summer for control testing and returns for several weeks in the fall to support year-end fieldwork and substantive testing. To support a strong start to the engagement, it may be beneficial for Contractor to spend additional time on-site during the first year.

This would allow for in-person interviews, walkthroughs, and relationship-building with key stakeholders. The specific balance between on-site and remote work would be determined at the beginning of each year and approved by TRS’ Chief Audit Executive.

66. Do you anticipate any major changes in the business or expect any significant and unusual items in FY26?

Not that TRS is aware of (for investment accounting and TRS overall).

67. In addition to the minimum qualifications and experience expectations noted in the RFP, are there any other things you are looking for in a future service provider?

The auditor should bring deep experience auditing large public pension systems paired with strong credentials, independence, and a proven quality record. Beyond technical capability, the auditor should demonstrate a disciplined, well-structured audit approach, delivering clear and timely reports, and effectively managing timelines and staffing.

Just as important, the auditor should

TRS Solicitation Name: Profession Audit Services operate as a collaborative partner— communicating clearly, integrating with TRS processes, and driving efficiencies through data, technology, and continuous improvement.

68. What do you see as the biggest challenge in the near term and long term for TRS, and how are you addressing them?

TRS is facing challenges akin to those encountered by other public pension systems of comparable size. TRS will share key risk reports with Contractor at the time of audit.

69. Can you provide us a copy of the required communications report provided to management and the governing body to share the results of the audit from the prior year as well as any recent management letters? We would like to understand whether there any audit adjustments, deficiencies in internal control, or areas of significant auditor judgment identified during your last audit.

Yes, TRS can provide this information at the time of audit.

70. What was the timeline of planning, interim, and year-end fieldwork for the audit in the prior year?

With the current vendor, the audit engagement typically runs from mid-July through November 20 when the audit opinion is delivered. The new vendor may propose a revised timeline, provided all contractual reporting deadlines are met.

71. Is the information for the audit available all electronically? If not, what is the exception?

Yes

72. Do you incorporate artificial intelligence (AI) into your business and financial reporting processes? And if not, do you have a plan or desire to do so in the next several years?

See response to question 27.

73. Would TRS permit the use of artificial intelligence (AI) solutions during audit procedures, recognizing that such solutions could vary significantly?

Based on the purpose of the AI tool, its use may be permitted. However, any such use must be approved by TRS’ Chief Audit Executive in coordination with TRS’

TRS Solicitation Name: Profession Audit Services

Information Security Office prior to the time of such use.

74. When are the actuarial valuations for pension and OPEB plans typically available for the auditor review

Final valuation reports are usually completed by the second week in November.

75. Are there any anticipated changes in key third party service providers in the next year (investment custodian, actuary, etc.)? Are relevant SOC reports available and obtained and reviewed by management?

No changes are anticipated. TRS utilizes SOC 2 Type 2 reports to validate that a third party’s internal controls are properly designed and actively operating.

76. When is the next experience study going to be performed and are there any assumptions anticipated to have material changes?

TRS conducts experience studies every four years. TRS’ Board of Trustees (“Board”) adopted the recommendations included in the most recent experience study at the April 2026 Board meeting. The experience study can be found here. The next experience study will be conducted at the end of 2029 and presented to the Board on or around February 2030.

77. Are healthcare claims data held in-house? If not, how many third-party administrators do you have?

TRS health claims data is held in TRS’ data warehouse.

78. Do you utilize any actuaries to assist in assessing the appropriateness of the healthcare claims liability. If so, how many different actuarial lag analyses are there?

TRS uses both in-house and external actuaries to assess the appropriateness of TRS health trust funds claim liabilities.

Actuarial lag analyses are performed per plan.

79. Any expected changes in your investment portfolio?

The portfolio is expected to evolve as part of ongoing investment activity, including commitments to new funds and the natural lifecycle of existing investments. No atypical or material structural changes are anticipated.

80. Do you utilize external appraisers or valuation specialists to assist in valuing investments (e.g., privately held equity, real estate, or infrastructure), and

Yes. TRS utilizes external managers, fund administrators, and, where appropriate, third-party valuation specialists. Most alternative investments are externally valued, with TRS providing oversight and

TRS Solicitation Name: Profession Audit Services Addendum No.: 2 https://www.trs.texas.gov/learning-resources/publications/actuarial-valuation-reports approximately what percentage of investments are valued using external experts versus in-house?

Further, please describe how privately held and real asset investments are valued, including the valuation methodologies applied, who performs the valuations of the underlying assets, whether approaches differ across asset classes, and the approximate proportion of NAV attributable to each valuation approach (e.g., practical expedient versus internal valuation).

validation. Valuations are primarily based on net asset value (“NAV”) (practical expedient) or fair value methodologies (market and income approaches), typically performed quarterly. A substantial majority of NAV is derived using the practical expedient, with limited investments subject to additional internal review. Refer to TRS’ Investment Policy Statement (“IPS”) or ACFR for more information.

81. Are all pooled investments that are held at net asset value audited? If not, what % of these investments are not audited? Do all these investments qualify as investment companies under US GAAP, including applying Topic 946 to prepare their financial statements?

Because TRS’ fiscal year ends in August, NAVs of pooled investments reported by GPs are typically unaudited at year-end. As part of the ACFR preparation process, TRS reviews GP audited financial statements to gain confidence over reported valuations.

82. Do you apply a lag period in valuing pooled investments at year-end? E.g. use the net asset value as of June 30 to value the investment at TRS's August 31 year-end?

Yes, TRS applies a lag in valuing certain pooled investments where more current information is not available at the reporting date. The most recent available NAV (e.g., prior quarter-end) is utilized and evaluated for material market or investment-specific changes between the valuation date and TRS’ reporting date. Adjustments are made where necessary to reflect known and observable events.

83. What % of the pooled investments held at net asset value have a year-end of August 31? What % has a year-end of December 31? What % has a year end of June 30? What % has a year end of March 31? What % has a year end of September 30?

TRS invests in a diversified portfolio of pooled investments with varying fiscal year ends. The majority align with December 31 and June 30 reporting periods.

TRS Solicitation Name: Profession Audit Services

84. What system does TRS use to record and track realized gains/losses on investments and what system does TRS use to track the investment portfolio holdings?

TRS utilizes a combination of its custodian’s accounting platform and internal investment accounting and portfolio management systems to record and track investment holdings and realized gains/losses. The custodian maintains the official book of record, while TRS maintains parallel internal systems to support operational oversight, performance analysis, and reconciliation processes.

85. How many unique investments do they hold within private equity and real asset positions? What valuation approaches/techniques are predominantly used to value these investments? Are all these companies audited? If not, what % are not audited?

TRS maintains a highly diversified portfolio across private equity and real asset investments which consists of many underlying fund positions. Valuations are primarily based on NAV provided by fund managers and administrators and inputs consistent with industry standards (e.g., market comparables, discounted cash flow, and third-party appraisals, where applicable). Most underlying investments are supported by audited financial statements at the fund level. However, some may rely on unaudited information depending on the reporting cycle and fund structure. Refer to TRS’ IPS or ACFR for more information.

86. Under the assumption that TRS applies the practical expedient for certain investments, how does TRS assess and track which investments qualify for its use, what percentage of investments are valued using this approach, and how are investments that do not qualify for the practical expedient valued? Additionally, what percentage of private equity and real asset investments are supported by audited financial statements provided at the fund level (i.e., the specific fund in which TRS is invested rather than a related or “main” fund)?

Where appropriate, TRS applies the practical expedient for certain investments measured at NAV in accordance with applicable accounting standards. Eligibility is based on fund structure, redemption characteristics, and availability of NAV as a fair value proxy.

TRS tracks qualifying investments through its investment accounting and reporting processes. For investments not qualifying for practical expedient, fair value is determined by using alternative valuation methodologies aligned with industry practices. A significant portion of private equity and real asset investments are supported by audited financial statements at the underlying fund level, though timing differences may result in the use of

TRS Solicitation Name: Profession Audit Services preliminary or unaudited data in certain periods.

87. How many employees/members are covered in each plan?

For the pension trust plan: ~2.1 million members (active members ~1.5 million;

retirees ~500,000). For TRS Care (retiree health plan): ~216,000 retirees and dependents. For TRS ActiveCare (active employee health plan): ~420,000 active employees and dependents.

88. Do you have a system/member portal for member census data?

Yes

89. How many employers or members does the internal audit test every year for annuity accuracy, census data and eligibility? Does the internal auditor contact the employer to obtain copy of supporting documents (such as I-9, enrollment form, termination form, etc.)?

Annuity accuracy is annually tested as part of the ACFR. Key drivers of accuracy, such as final average salary, annuity terms, and retirement age, are continuously monitored through automated data analytics. Certain census data elements (e.g., valid SSN and date of birth) are continuously monitored via analytics. Comprehensive validation occurs periodically through reporting employer testing where internal audit staff confirm data against source documents (e.g., driver’s licenses, contracts, paystubs).

The most recent reporting employer testing engagement was in FY2025. Retirement eligibility for all new normal and early service retirements is continuously validated through automated analytics.

90. How long does it usually take for internal audit to complete the audit over census data? Does the sample, timing and nature of work align with the independent audit requirements?

The SAO conducted census data testing itself and did not request TRS’ support. The length of time will depend on the number of sample items and attributes tested.

91. When are drafts of actuarial valuations and GASB 68/75 allocations made available to the audit firm for the different funds?

Draft actuarial valuation reports are usually available in the third week of October (GASB 67/74) and TRS’ first draft actuarial valuation reports are usually available by the first week in November.

92. How many reporting employers were selected for census data testing by SAO?

We are not able to answer this question.

TRS Solicitation Name: Profession Audit Services

93. We noted internal audit also performed separate reporting employer audits. In the past, has internal audit supported SAO with any census data testing? If so, please describe that support.

No. The SAO conducted census data testing itself and did not request TRS’ support.

94. Does TRS have any upcoming significant system upgrades anticipated within the contract period? If so, please describe.

TRS is implementing a shadow investment accounting system.

95. Why is TRS going out for proposal?

Due to new legislative priorities, the State Auditor will not be able to continue performing these audits beyond Fiscal Year 2026.

96. Please confirm/clarify the scope of work and the fiscal year end(s) that the bidder will commence auditing. Section B of the draft contract identifies the bidder would begin audit services with the GASB 68 (pension liability schedules) and 75 (OPEB liability schedules) schedules for FYE 2026. The audit of the TRS plan financial statements would be audited by the bidder commencing with FYE 2027.

Subsection 2b of section B, Description of Work, of the Scope of Work section of Section IX, Draft Contract is being replaced with new language.

97. Were there any adjustments proposed by the auditors for FY 2025 or FY 2024?

There was one audit adjustment requested and made related to Derivatives during

FY2025.

98. When did the interim fieldwork occur? How many auditors were in the field during interim? For how many days?

Around July.

99. When did final (year-end) fieldwork occur? How many auditors were in the field during final fieldwork? For how many days?

In the Fall.

100. If TRS could change one thing about the audit process what would that be?

Focus on materiality and fewer repetitive questions.

TRS Solicitation Name: Profession Audit Services

101. If TRS changed to new auditors what transition issues would be a concern to TRS?

TRS expects Contractor to be well-versed in auditing large public pension systems.

Accordingly, it would be a concern if the audit team spent excessive time developing a basic understanding of the public pension environment. Otherwise, TRS anticipates the typical transition considerations that accompany a change in external auditors.

102. What is TRS’ expectation of the audit process, such as length of time the audit team would spend on site for interim and final fieldwork? Is TRS open to a hybrid approach (remote and onsite)?

summer for control testing and returns for several weeks in the fall to support year-end fieldwork and substantive testing. To support a strong start to the engagement, it may be beneficial for Contractor to spend additional time on-site during the first year.

This would allow for in-person interviews, walkthroughs, and relationship-building with key stakeholders. The specific balance between on-site and remote work would be determined at the beginning of each year and approved by TRS’ Chief Audit Executive.

103. What controls are in place to monitor and record calls and distributions for real estate and private equity investments, or other alternative investments?

(internal or outside consultants?)

TRS maintains established internal controls over the monitoring and recording of capital calls and distributions across alternative investments. These include segregation of duties across investment, operations, and accounting functions; review and approval workflows for all transactions; and reconciliation to custodian and/or administrator records. TRS also uses external managers and fund administrators as primary sources of record, supplemented by internal oversight.

104. What reconciliation procedures are performed between the different investment managers and custodians and how often?

TRS performs regular reconciliations between internal records, investment managers, and the custodian. Cash and public market positions are typically reconciled daily, or monthly, alternative investments are reconciled in line with reporting cycles (generally quarterly), and exceptions are investigated and resolved through established processes.

TRS Solicitation Name: Profession Audit Services

105. Are there going to be any significant changes to the TRS that would significantly change its investment vehicles or benefits provided? If so, what are they?

TRS is not aware of any planned changes that would materially alter its investment vehicles or benefit structure outside of standard legislative or governance processes.

106. What are the key qualities that TRS expects from their auditors?

The auditor should bring deep experience auditing large public pension systems paired with strong credentials, independence, and a proven quality record. Beyond technical capability, the auditor should demonstrate a disciplined, well-structured audit approach, deliver clear and timely reports, and effectively manage timelines and staffing.

Just as important, the auditor should operate as a collaborative partner — communicating clearly, integrating with TRS processes, and driving efficiencies through data, technology, and continuous improvement.

107. How long does TRS keep its books open for any true-up of fair value of the alternative investments?

TRS uses adjustment periods for August month-end to update fair values, if needed.

108. Are any of the hard to value investments audited financial statements prepared on a basis of accounting other than US GAAP?

If so, does TRS do a translation for reporting purposes?

Very few alternative-investment audited financial statements are prepared on a non- US GAAP basis. TRS does not translate for reporting purposes.

109. Are there any internally managed funds for TRS? If so, what are the investment types and the approximate dollar amounts?

TRS does maintain internally managed portfolios, primarily in liquid asset classes such as public equities and fixed income, which represent a portion of total plan assets. Refer to IPS or ACFR for more information.

110. Who maintains the book of record for the internally managed funds?

The official book of record is maintained by the custodian. TRS maintains internal books and records for operational oversight and reconciliation purposes.

111. How many employers were selected for census testing in the prior 2 years for each cost sharing plan?

We do not have that information.

TRS Solicitation Name: Profession Audit Services

112. Were there any errors noted in the census testing performed in the prior 2 years?

No

113. What were the audit fees for 2025 and 2024 and the projected (or budget) for 2026 for the following?

a. ACFR

b. GASB 68/Census Data Testing

c. GASB 75 report and Census Data Testing

We are not able to share this information.

114. How many hours were contributed by internal audit for direct fieldwork assistance in 2025? Is there an estimate of the number of hours available to assist the external auditors with the audit or other measures that could be provided to gauge the level of involvement for each fiscal year?

Last year, TRS Internal Audit staff assistance totaled 600 project hours, 500 of which were for fieldwork. The number of hours can vary from year to year, depending on factors such as new information systems, team composition, and number of issues discovered.

115. Where are claims data held for testing purposes for OPEB and/or TRS-ActiveCare?

Claim data is stored in TRS’ health data warehouse to support OPEB testing and possible TRS-ActiveCare testing.

116. Our process also includes a requirement to sign an annual engagement letter on commercially reasonable terms.

Is TRS amenable to signing that?

Should we include a sample engagement letter in our response?

Yes. TRS and the current vendor have executed an engagement letter which outlines audit objectives, management responsibilities, and auditor responsibilities, among other key terms. The letter is signed by the State Auditor and TRS’ Executive Director and provided to the Board for awareness.

117. Would TRS like proposal structured according to the evaluation criteria outlined in Solicitation Section VI: Evaluation Process and Criteria, or is a different proposal format preferred?

Respondents will find proposal structure instructions in the PAVES questionnaire.

118. Please provide the fees paid for audit services for the past three fiscal years. Please indicate if there were any billings above

We are not able to provide this information.

TRS Solicitation Name: Profession Audit Services contracted amounts for “out-of-scope” or additional services not contemplated at contract award.

119. Is the incumbent firm allowed to propose?

Due to new legislative priorities, the State Auditor will not be able to continue performing these audits beyond Fiscal Year 2026.

120. What are the expectations for performance of the fieldwork? Is there a preference as to whether the work is performed remotely, on-site, or a hybrid model?

summer for control testing and returns for several weeks in the fall to support year-end fieldwork and substantive testing. To support a strong start to the engagement, it may be beneficial for Contractor to spend additional time on-site during the first year.

This would allow for in-person interviews, walkthroughs, and relationship-building with key stakeholders. The specific balance between on-site and remote work would be determined at the beginning of each year and approved by TRS’ Chief Audit Executive.

121. What general ledger package does TRS use?

The statewide Enterprise Resource Planning system widely known as Centralized Accounting and Payroll/Personnel System.

122. When does TRS prefer interim and year-end fieldwork to be performed?

The current team performs interim work around July and fieldwork in the Fall.

123. Is there anything about your current audit process that you would like changed in the future?

We are not able to provide a response at this time.

124. What are the three biggest challenges affecting TRS?

TRS is facing challenges akin to those encountered by other public pension systems of comparable size. TRS will provide key risk reports to Contractor at time of audit to support work.

125. Have there been any disagreements between management and your independent auditor during the prior three engagements?

No

126. Is there an expectation of the entrance and exit conferences to…