By: Huffman, et al. S.B. No. 509
(Flynn, Paul)
A BILL TO BE ENTITLED
AN ACT
relating to the evaluation and reporting of investment practices
and performance of certain public retirement systems.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 801.209(a), Government Code, is amended
to read as follows:
(a) For each public retirement system, the board shall post
on the board's Internet website, or on a publicly available website
that is linked to the board's website, the most recent data from
reports received under Sections 802.101, 802.103, 802.104,
802.105, 802.108, 802.109, 802.2015, and 802.2016.
SECTION 2. Section 802.103(a), Government Code, is amended
to read as follows:
(a) The [Except as provided by Subsection (c), the]
governing body of a public retirement system shall publish an
annual financial report showing the financial condition of the
system as of the last day of the fiscal year covered in the report.
The report must include:
(1) the financial statements and schedules examined in
the most recent audit performed as required by Section 802.102;
(2) [and must include] a statement of opinion by the
certified public accountant as to whether or not the financial
statements and schedules are presented fairly and in accordance
with generally accepted accounting principles;
(3) a listing, by asset class, of all direct and
indirect commissions and fees paid by the retirement system during
the system's previous fiscal year for the sale, purchase, or
management of system assets; and
(4) the names of investment managers engaged by the
retirement system.
SECTION 3. Subchapter B, Chapter 802, Government Code, is
amended by adding Section 802.109 to read as follows:
Sec. 802.109. INVESTMENT PRACTICES AND PERFORMANCE
REPORTS. (a) Except as provided by Subsection (d), a public
retirement system shall select an independent firm with substantial
experience in evaluating institutional investment practices and
performance to evaluate the appropriateness, adequacy, and
effectiveness of the retirement system's investment practices and
performance and to make recommendations for improving the
retirement system's investment policies, procedures, and
practices. Each evaluation must include:
(1) an analysis of any investment policy or strategic
investment plan adopted by the retirement system and the retirement
system's compliance with that policy or plan;
(2) a detailed review of the retirement system's
investment asset allocation, including:
(A) the process for determining target
allocations;
(B) the expected risk and assumed rate of return,
categorized by asset class;
(C) the appropriateness of selection and
valuation methodologies of alternative and illiquid assets; and
(D) future cash flow and liquidity needs;
(3) a review of the appropriateness of investment fees
and commissions paid by the retirement system;
(4) a review of the retirement system's governance
processes related to investment activities, including investment
decision-making processes, delegation of investment authority, and
board investment expertise and education; and
(5) a review of the retirement system's investment
manager selection and monitoring process.
(b) The governing body of a public retirement system may
determine additional specific areas to be evaluated under
Subsection (a) and may select particular asset classes on which to
focus, but the first evaluation must be a comprehensive analysis of
the retirement system's investment program that covers all asset
classes.
(c) A public retirement system shall conduct the evaluation
described by Subsection (a):
(1) once every three years, if the retirement system
has total assets the book value of which, as of the last day of the
last fiscal year considered in an evaluation under this section,
was at least $100 million; or
(2) once every six years, if the retirement system has
total assets the book value of which, as of the last day of the last
fiscal year considered in an evaluation under this section, was at
least $30 million and less than $100 million.
(d) A public retirement system is not required to conduct
the evaluation described by Subsection (a) if the retirement system
has total assets the book value of which, as of the last day of the
preceding fiscal year, was less than $30 million.
(e) A report of an evaluation under this section must be
filed with the governing body of the public retirement system not
later than December 1 of each year in which the system is evaluated
under Subsection (c).
(f) Not later than the 31st day after the date the governing
body of a public retirement system receives a report of an
evaluation under this section, the governing body shall submit the
report to the board.
(g) A public retirement system shall pay the costs of each
evaluation of the system under this section.
(h) Not later than February 1 of each year, the board shall
submit an investment performance report to the governor, the
lieutenant governor, the speaker of the house of representatives,
and the legislative committees having principal jurisdiction over
legislation governing public retirement systems. The report must
compile and summarize the information received under this section
by the board during the preceding calendar year.
(i) A report of an evaluation by the Teacher Retirement
System of Texas and an investment report that includes the Teacher
Retirement System of Texas under this section satisfies the
requirements of Section 825.512.
SECTION 4. Notwithstanding Section 802.109(c), Government
Code, as added by this Act, a report of the first evaluation of a
public retirement system, as required by Section 802.109,
Government Code, as added by this Act, must be filed with the
governing body of the system not later than January 1, 2018.
SECTION 5. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2017.