By: Huffman, Creighton S.B. No. 322
Schwertner
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, Government Code, is amended by
amending Subsection (a) and adding Subsection (e) 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.
(e) The board may adopt rules necessary to implement this
section.
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) and subject to
Subsection (j), 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 expected 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 May 1 of each year following the 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) 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 in the biennial report required by Section
801.203. The report must compile and summarize the information
received under this section by the board during the preceding two
fiscal years.
(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.
(j) The following reports may be used by the applicable
public retirement systems to satisfy the requirement for a report
of an evaluation under this section:
(1) an investment report under Section 10A, Article
6243g-4, Revised Statutes;
(2) an investment report under Section 2D, Chapter 88
(H.B. 1573), Acts of the 77th Legislature, Regular Session, 2001
(Article 6243h, Vernon's Texas Civil Statutes); and
(3) a report on a review conducted on the retirement
system's investments under Section 2B, Article 6243e.2(1), Revised
Statutes.
(k) The board may adopt rules necessary to implement this
section.
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 May 1, 2020.
SECTION 5. A state agency is required to implement a
provision of this Act only if the legislature appropriates money
specifically for that purpose. If the legislature does not
appropriate money specifically for that purpose, the agency may,
but is not required to, implement a provision of this Act using
other appropriations available for that purpose.
SECTION 6. 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, 2019.