86R360 KFF-D
By: Anchia H.B. No. 1170
A BILL TO BE ENTITLED
AN ACT
relating to prohibiting the investment of certain state retirement
system funds in companies that manufacture firearms or firearm
ammunition.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle A, Title 8, Government Code, is amended
by adding Chapter 809 to read as follows:
CHAPTER 809. PROHIBITION ON INVESTMENT IN COMPANIES THAT
MANUFACTURE FIREARMS OR FIREARM AMMUNITION
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 809.001. DEFINITIONS. In this chapter:
(1) "Company" means a for-profit sole proprietorship,
organization, association, corporation, partnership, joint
venture, limited partnership, limited liability partnership, or
limited liability company, including a wholly owned subsidiary,
majority-owned subsidiary, parent company, or affiliate of those
entities or business associations that exists to make a profit.
(2) "Direct holdings" means, with respect to a
company, all securities of that company held directly by a state
retirement system in an account or fund in which a state retirement
system owns all shares or interests.
(3) "Firearm" has the meaning assigned by Section
46.01, Penal Code.
(4) "Firearm ammunition" means ammunition or
cartridge cases, primers, bullets, or propellant powder designed
for use in a firearm.
(5) "Indirect holdings" means, with respect to a
company, all securities of that company held in an account or fund,
such as a mutual fund, managed by one or more persons not employed
by a state retirement system, in which the state retirement system
owns shares or interests together with other investors not subject
to the provisions of this chapter. The term does not include money
invested under a plan described by Section 401(k) or 457 of the
Internal Revenue Code of 1986.
(6) "Listed company" means a company listed by the
comptroller under Section 809.051.
(7) "State retirement system" means:
(A) the Employees Retirement System of Texas,
including a retirement system administered by that system;
(B) the Teacher Retirement System of Texas;
(C) the Texas Municipal Retirement System; and
(D) the Texas County and District Retirement
System.
Sec. 809.002. OTHER LEGAL OBLIGATIONS. With respect to
actions taken in compliance with this chapter, including all good
faith determinations regarding companies as required by this
chapter, a state retirement system and the comptroller are exempt
from any conflicting statutory or common law obligations, including
any obligations with respect to making investments, divesting from
any investment, preparing or maintaining any list of companies, or
choosing asset managers, investment funds, or investments for the
state retirement system's securities portfolios.
Sec. 809.003. INDEMNIFICATION OF STATE GOVERNMENTAL
ENTITIES, EMPLOYEES, AND OTHERS. In a cause of action based on an
action, inaction, decision, divestment, investment, company
communication, report, or other determination made or taken in
connection with this chapter, the state shall, without regard to
whether the person performed services for compensation, indemnify
and hold harmless for actual damages, court costs, and attorney's
fees adjudged against, and defend:
(1) an employee, a member of the governing body, or any
other officer of a state retirement system;
(2) a contractor of a state retirement system;
(3) a former employee, a former member of the
governing body, or any other former officer of a state retirement
system who was an employee, member of the governing body, or other
officer when the act or omission on which the damages are based
occurred;
(4) a former contractor of a state retirement system
who was a contractor when the act or omission on which the damages
are based occurred; and
(5) a state retirement system.
Sec. 809.004. NO PRIVATE CAUSE OF ACTION. (a) A person,
including a member, retiree, or beneficiary of a state retirement
system to which this chapter applies, an association, a research
firm, a company, or any other person may not sue or pursue a private
cause of action against the state, a state retirement system, a
current or former employee, a member of the governing body, or any
other officer of a state retirement system, or a contractor of a
state retirement system, for any claim or cause of action,
including breach of fiduciary duty, or for violation of any
constitutional, statutory, or regulatory requirement in connection
with any action, inaction, decision, divestment, investment,
company communication, report, or other determination made or taken
in connection with this chapter.
(b) A person who files suit against the state, a state
retirement system, an employee, a member of the governing body, or
any other officer of a state retirement system, or a contractor of a
state retirement system, is liable for paying the costs and
attorney's fees of a person sued in violation of this section.
Sec. 809.005. INAPPLICABILITY OF REQUIREMENTS INCONSISTENT
WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES. A state
retirement system is not subject to a requirement of this chapter if
the state retirement system determines that the requirement would
be inconsistent with its fiduciary responsibility with respect to
the investment of system assets or other duties imposed by law
relating to the investment of system assets, including the duty of
care established under Section 67, Article XVI, Texas Constitution.
Sec. 809.006. RELIANCE ON COMPANY RESPONSE. The
comptroller and a state retirement system may rely on a company's
response to a notice or communication made under this chapter
without conducting any further investigation, research, or
inquiry.
SUBCHAPTER B. DUTIES REGARDING INVESTMENTS
Sec. 809.051. LISTED COMPANIES. (a) The comptroller shall
prepare and maintain, and provide to each state retirement system,
a list of all companies that manufacture firearms or firearm
ammunition. In maintaining the list, the comptroller may review
and rely, as appropriate in the comptroller's judgment, on publicly
available information regarding companies, including information
provided by the state, nonprofit organizations, research firms,
international organizations, and governmental entities.
(b) The comptroller shall update the list annually or more
often as the comptroller considers necessary, but not more often
than quarterly, based on information from, among other sources,
those listed in Subsection (a).
(c) Not later than the 30th day after the date the list of
companies that manufacture firearms or firearm ammunition is first
provided or updated, the comptroller shall file the list with the
presiding officer of each house of the legislature and the attorney
general and post the list on a publicly available website.
Sec. 809.052. IDENTIFICATION OF INVESTMENT IN LISTED
COMPANIES. Not later than the 30th day after the date a state
retirement system receives the list provided under Section 809.051,
the state retirement system shall notify the comptroller of the
listed companies in which the state retirement system owns direct
holdings or indirect holdings.
Sec. 809.053. ACTIONS RELATING TO LISTED COMPANY. (a) For
each listed company identified under Section 809.052, the state
retirement system shall send a written notice informing the company
of its status as a listed company and warning the company that it
may become subject to divestment by state retirement systems.
(b) Not later than the 90th day after the date the company
receives notice under Subsection (a), the company must cease
manufacturing firearms or firearm ammunition, as applicable, in
order to avoid qualifying for divestment by state retirement
systems.
(c) If, during the time provided by Subsection (b), the
company ceases manufacturing firearms or firearm ammunition, as
applicable, the comptroller shall remove the company from the list
maintained under Section 809.051 and this chapter will no longer
apply to the company unless it resumes manufacturing firearms or
firearm ammunition, as applicable.
(d) If, after the period provided by Subsection (b) expires,
the company continues manufacturing firearms or firearm
ammunition, as applicable, the state retirement system shall sell,
redeem, divest, or withdraw all publicly traded securities of the
company, except securities described by Section 809.055, according
to the schedule provided by Section 809.054.
Sec. 809.054. DIVESTMENT OF ASSETS. (a) A state retirement
system required to sell, redeem, divest, or withdraw all publicly
traded securities of a listed company shall comply with the
following schedule:
(1) at least 50 percent of those assets must be removed
from the state retirement system's assets under management not
later than the 180th day after the date the company receives notice
under Section 809.053 or Subsection (b) unless the state retirement
system determines, based on a good faith exercise of its fiduciary
discretion and subject to Subdivision (2), that a later date is more
prudent; and
(2) 100 percent of those assets must be removed from
the state retirement system's assets under management not later
than the 360th day after the date the company receives notice under
Section 809.053 or Subsection (b).
(b) If a company that ceased manufacturing firearms or
firearm ammunition, as applicable, after receiving notice under
Section 809.053 resumes its manufacturing of firearms or firearm
ammunition, as applicable, the state retirement system shall send a
written notice to the company informing it that the state
retirement system will sell, redeem, divest, or withdraw all
publicly traded securities of the company according to the schedule
in Subsection (a).
(c) Except as provided by Subsection (a), a state retirement
system may delay the schedule for divestment under that subsection
only to the extent that the state retirement system determines, in
the state retirement system's good faith judgment, and consistent
with the system's fiduciary duty, that divestment from listed
companies will likely result in a loss in value or a benchmark
deviation described by Section 809.056(a). If a state retirement
system delays the schedule for divestment, the state retirement
system shall submit a report to the presiding officer of each house
of the legislature and the attorney general stating the reasons and
justification for the state retirement system's delay in divestment
from listed companies. The report must include documentation
supporting its determination that the divestment would result in a
loss in value or a benchmark deviation described by Section
809.056(a), including objective numerical estimates. The state
retirement system shall update the report every six months.
Sec. 809.055. INVESTMENTS EXEMPTED FROM DIVESTMENT. A
state retirement system is not required to divest from any indirect
holdings in actively or passively managed investment funds or
private equity funds. The state retirement system shall submit
letters to the managers of each investment fund containing listed
companies requesting that they remove those companies from the fund
or create a similar actively or passively managed fund with
indirect holdings devoid of listed companies. If a manager creates
a similar fund with substantially the same management fees and same
level of investment risk and anticipated return, the state
retirement system may replace all applicable investments with
investments in the similar fund in a time frame consistent with
prudent fiduciary standards but not later than the 450th day after
the date the fund is created.
Sec. 809.056. AUTHORIZED INVESTMENT IN LISTED COMPANIES.
(a) A state retirement system may cease divesting from one or more
listed companies only if clear and convincing evidence shows that:
(1) the state retirement system has suffered or will
suffer a loss in the hypothetical value of all assets under
management by the state retirement system as a result of having to
divest from listed companies under this chapter; or
(2) an individual portfolio that uses a
benchmark-aware strategy would be subject to an aggregate expected
deviation from its benchmark as a result of having to divest from
listed companies under this chapter.
(b) A state retirement system may cease divesting from a
listed company as provided by this section only to the extent
necessary to ensure that the state retirement system does not
suffer a loss in value or deviate from its benchmark as described by
Subsection (a).
(c) Before a state retirement system may cease divesting
from a listed company under this section, the state retirement
system must provide a written report to the comptroller, the
presiding officer of each house of the legislature, and the
attorney general setting forth the reason and justification,
supported by clear and convincing evidence, for deciding to cease
divestment or to remain invested in a listed company.
(d) The state retirement system shall update the report
required by Subsection (c) semiannually, as applicable.
(e) This section does not apply to reinvestment in a company
that is no longer a listed company.
Sec. 809.057. PROHIBITED INVESTMENTS. Except as provided
by Section 809.056, a state retirement system may not acquire
securities of a listed company.
SUBCHAPTER C. REPORT; ENFORCEMENT
Sec. 809.101. REPORT. Not later than January 5 of each
year, each state retirement system shall file a publicly available
report with the presiding officer of each house of the legislature
and the attorney general that:
(1) identifies all securities sold, redeemed,
divested, or withdrawn in compliance with Section 809.054;
(2) identifies all prohibited investments under
Section 809.057; and
(3) summarizes any changes made under Section 809.055.
Sec. 809.102. ENFORCEMENT. The attorney general may bring
any action necessary to enforce this chapter.
SECTION 2. This Act takes effect September 1, 2019.