H.B. No. 3898
AN ACT
relating to the funding of public retirement systems.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 28(h), Texas Local Fire Fighters
Retirement Act (Article 6243e, Vernon's Texas Civil Statutes), is
amended to read as follows:
(h) A retirement system established under this Act is exempt
from Subchapter C, Chapter 802, Government Code, except Sections
802.2011, 802.2015, 802.202, 802.205, and 802.207.
SECTION 2. Section 802.109, Government Code, is amended by
amending Subsections (a), (d), (e), (f), and (h) and adding
Subsection (e-1) to read as follows:
(a) Except as provided by Subsection (e) and subject to
Subsections (c) and (k), 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) a summary of the independent firm's experience in
evaluating institutional investment practices and performance and
a statement that the firm's experience meets the experience
required by this subsection;
(2) a statement indicating the nature of any existing
relationship between the independent firm and the public retirement
system and confirming that the firm and any related entity are not
involved in directly or indirectly managing the investments of the
system;
(3) a list of the types of remuneration received by the
independent firm from sources other than the public retirement
system for services provided to the system;
(4) a statement identifying any potential conflict of
interest or any appearance of a conflict of interest that could
impact the analysis included in the evaluation due to an existing
relationship between the independent firm and:
(A) the public retirement system; or
(B) any current or former member of the governing
body of the system; and
(5) an explanation of the firm's determination
regarding whether to include a recommendation for each of the
following evaluated matters:
(A) 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;
(B) [(2)] a detailed review of the retirement
system's investment asset allocation, including:
(i) [(A)] the process for determining
target allocations;
(ii) [(B)] the expected risk and expected
rate of return, categorized by asset class;
(iii) [(C)] the appropriateness of
selection and valuation methodologies of alternative and illiquid
assets; and
(iv) [(D)] future cash flow and liquidity
needs;
(C) [(3)] a review of the appropriateness of
investment fees and commissions paid by the retirement system;
(D) [(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
(E) [(5)] a review of the retirement system's
investment manager selection and monitoring process.
(d) A public retirement system shall conduct the evaluation
described by Subsection (a):
(1) once every three years, if the total assets of the
retirement system [has total assets the book value of which,] as of
the last day of the preceding [last] fiscal year were [considered in
an evaluation under this section, was] at least $100 million; or
(2) once every six years, if the total assets of the
retirement system [has total assets the book value of which,] as of
the last day of the preceding [last] fiscal year were [considered in
an evaluation under this section, was] at least $30 million and less
than $100 million.
(e) A public retirement system is not required to conduct
the evaluation described by Subsection (a) if the total assets of
the retirement system [has total assets the book value of which,] as
of the last day of the preceding fiscal year were[, was] less than
$30 million.
(e-1) Not later than the 30th day after the date an
independent firm completes an evaluation described by Subsection
(a), the independent firm shall:
(1) submit to the public retirement system for
purposes of discussion and clarification a substantially completed
preliminary draft of the evaluation report; and
(2) request in writing that the system, on or before
the 30th day after the date the system receives the preliminary
draft, submit to the firm:
(A) a description of any action taken or expected
to be taken in response to a recommendation made in the evaluation;
and
(B) any written response of the system that the
system wants to accompany the final evaluation report.
(f) The independent firm shall file the final evaluation
report, including the evaluation results and any response received
from the public retirement system, [A report of an evaluation under
this section must be filed] with the governing body of the [public
retirement] system:
(1) not earlier than the 31st day after the date on
which the preliminary draft is submitted to the system; and
(2) not later than the later of:
(A) the 60th day after the date on which the
preliminary draft is submitted to the system; or
(B) May 1 in the [of each] year following the year
in which the system is evaluated under Subsection (a) [(d)].
(h) A governmental entity that is the employer of active
members of a public retirement system evaluated under Subsection
(a) may pay all or part of the costs of the evaluation. The [A]
public retirement system shall pay any remaining unpaid [the] costs
of the [each] evaluation [of the system under this section].
SECTION 3. Section 802.2011, Government Code, is amended to
read as follows:
Sec. 802.2011. FUNDING POLICY. (a) In this section:
(1) "Funded ratio" means the ratio of a public
retirement system's actuarial value of assets divided by the
system's actuarial accrued liability.
(2) "Governmental entity" has the meaning assigned by
Section 802.1012.
(3) "Statewide 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 County and District Retirement
System;
(D) the Texas Emergency Services Retirement
System; and
(E) the Texas Municipal Retirement System.
(b) The governing body of a public retirement system and, if
the system is not a statewide retirement system, its associated
governmental entity shall:
(1) jointly, if applicable:
(A) develop and adopt a written funding policy
that details a [the governing body's] plan for achieving a funded
ratio of the system that is equal to or greater than 100 percent;
and
(B) timely revise the policy to reflect any
significant changes to the policy, including changes required as a
result of formulating and implementing a funding soundness
restoration plan, including a revised funding soundness
restoration plan, under Section 802.2015 or 802.2016;
(2) maintain for public review at its main office a
copy of the policy;
(3) file a copy of the policy and each change to the
policy with the board not later than the 31st day after the date the
policy or change, as applicable, is adopted; and
(4) post [submit] a copy of the most recent edition of
the policy on a publicly available Internet website in accordance
with Section 802.107(c)(2) [and each change to the policy to the
system's associated governmental entity not later than the 31st day
after the date the policy or change is adopted].
(c) For purposes of Subsection (b)(1)(B), the written
funding policy must outline any automatic contribution or benefit
changes designed to prevent having to formulate a revised funding
soundness restoration plan under Section 802.2015(d), including
any automatic risk-sharing mechanisms that have been implemented,
the adoption of an actuarially determined contribution structure,
and other adjustable benefit or contribution mechanisms.
(d) The board may adopt rules necessary to implement this
section.
SECTION 4. Section 802.2015, Government Code, is amended by
amending Subsections (a), (c), (d), (e), (f), and (g) and adding
Subsections (d-1), (e-1), (e-2), (e-3), (e-4), and (h) to read as
follows:
(a) In this section:
(1) "Funded ratio" has the meaning assigned by Section
802.2011.
(2) "Governmental [, "governmental] entity" has the
meaning assigned by Section 802.1012.
(c) A public retirement system shall notify the associated
governmental entity in writing if the [retirement] system receives
an actuarial valuation indicating that the system's actual
contributions are not sufficient to amortize the unfunded actuarial
accrued liability within 30 [40] years. The [If a public retirement
system's actuarial valuation shows that the system's amortization
period has exceeded 40 years for three consecutive annual actuarial
valuations, or two consecutive actuarial valuations in the case of
a system that conducts the valuations every two or three years, the]
governing body of the public retirement system and the governing
body of the associated governmental entity shall jointly formulate
a funding soundness restoration plan under Subsection (e) if the
system's actuarial valuation shows that the system's expected
funding period:
(1) has exceeded 30 years for three consecutive annual
actuarial valuations, or two consecutive annual actuarial
valuations in the case of a system that conducts the valuations
every two or three years; or
(2) effective September 1, 2025:
(A) exceeds 40 years; or
(B) exceeds 30 years and the funded ratio of the
system is less than 65 percent [in accordance with the system's
governing statute].
(d) Except as provided by Subsection (d-1), the [The]
governing body of a public retirement system and the governing body
of the associated governmental entity that have an existing
[formulated a] funding soundness restoration plan under Subsection
(e) shall formulate a revised funding soundness restoration plan
under Subsection (e-1) [that subsection, in accordance with the
system's governing statute,] if the system becomes subject to
Subsection (c) before the 10th anniversary of the date prescribed
by Subsection (e)(2)(A) or (B), as applicable [conducts an
actuarial valuation showing that:
[(1) the system's amortization period exceeds 40 years;
and
[(2) the previously formulated funding soundness
restoration plan has not been adhered to].
(d-1) The governing body of a public retirement system and
the governing body of the associated governmental entity are not
subject to Subsection (d) if:
(1) the system's actuarial valuation shows that the
system's expected funding period exceeds 30 years but is less than
or equal to 40 years; and
(2) the system is:
(A) adhering to an existing funding soundness
restoration plan that was formulated before September 1, 2025; or
(B) implementing a contribution rate structure
that uses or will ultimately use an actuarially determined
contribution structure and the system's actuarial valuation shows
that the system is expected to achieve full funding.
(e) A funding soundness restoration plan formulated under
this section must:
(1) be developed by the public retirement system and
the associated governmental entity in accordance with the system's
governing statute; [and]
(2) be designed to achieve a contribution rate that
will be sufficient to amortize the unfunded actuarial accrued
liability within 30 [40] years not later than the later of:
(A) the second [10th] anniversary of the
valuation date stated in the actuarial valuation that required
formulation of the plan under this subsection; or
(B) September 1, 2025;
(3) be based on actions agreed to be taken by the
system and entity that were approved by the respective governing
bodies of both the system and the entity before the plan was
adopted; and
(4) be adopted at open meetings of the respective
governing bodies of the system and the entity not later than the
second anniversary of the date the actuarial valuation that
required application of this subsection was adopted by the
governing body of the system [on which the final version of a
funding soundness restoration plan is agreed to].
(e-1) A revised funding soundness restoration plan
formulated under this section must:
(1) be developed by the public retirement system and
the associated governmental entity in accordance with the system's
governing statute;
(2) be designed to achieve a contribution rate that
will be sufficient to amortize the unfunded actuarial accrued
liability within 25 years not later than the second anniversary of
the valuation date stated in the actuarial valuation that required
formulation of a revised plan under this subsection;
(3) be based on actions, including automatic
risk-sharing mechanisms, an actuarially determined contribution
structure, and other adjustable benefit or contribution
mechanisms, agreed to be taken by the system and entity that were
approved by the respective governing bodies of both the system and
the entity before the plan was adopted; and
(4) be adopted at open meetings by the respective
governing bodies of the system and the entity not later than the
second anniversary of the date the actuarial valuation that
required application of this subsection was adopted by the
governing body of the system.
(e-2) Not later than the 90th day after the date on which the
plan is adopted by both the governing body of the system and the
governing body of the associated governmental entity, a system may
submit to the board an actuarial valuation required under Section
802.101(a) or other law that shows the combined impact of all
changes to a funding soundness restoration plan adopted under this
section, including a revised funding soundness restoration plan
adopted under Subsection (e-1). If a system does not provide an
actuarial valuation to the board in accordance with this
subsection, the board may request that the system provide a
separate analysis of the combined impact of all changes to a funding
soundness restoration plan adopted under this section not later
than the 90th day after the date the board makes the request. An
actuarial valuation or separate analysis conducted under this
subsection must include:
(1) an actuarial projection of the public retirement
system's expected future assets and liabilities between the
valuation date described by Subsection (e)(2)(A) or (e-1)(2), as
applicable, and the date at which the plan is expected to achieve
full funding; and
(2) a description of all assumptions and methods used
to perform the analysis which must comply with actuarial standards
of practice.
(e-3) The associated governmental entity may pay all or part
of the costs of the separate analysis required under Subsection
(e-2). The public retirement system shall pay any costs for the
analysis not paid by the associated governmental entity.
(e-4) A funding soundness restoration plan adopted under
this section, including a revised funding soundness restoration
plan adopted under Subsection (e-1), may not include actions that
are subject to future approval by the governing bodies of either the
public retirement system or the associated governmental entity.
(f) A public retirement system and the associated
governmental entity required to [that] formulate a funding
soundness restoration plan under this section, including a revised
funding soundness restoration plan, shall provide a report to the
board on [any updates of] progress made by the system and entity in
formulating the plan, including a draft of any plan and a
description of any changes under consideration for inclusion in a
plan, not later than the first anniversary of the date of the
actuarial valuation that required formulation of the plan under
Subsection (e) or (e-1) and each subsequent six-month period until
the plan is submitted to the board under this section [entities
toward improved actuarial soundness to the board every two years].
(g) Each public retirement system that formulates a funding
soundness restoration plan as provided by this section shall submit
a copy of that plan to the board and any change to the plan not later
than the 31st day after the date on which the plan is adopted by both
the governing body of the system and the governing body of the
associated governmental entity or the date the change is agreed to.
(h) The board may adopt rules necessary to implement this
section.
SECTION 5. Section 802.2016, Government Code, is amended to
read as follows:
Sec. 802.2016. FUNDING SOUNDNESS RESTORATION PLAN FOR
CERTAIN PUBLIC RETIREMENT SYSTEMS. (a) In this section:
(1) "Funded ratio" has the meaning assigned by Section
802.2011.
(2) "Governmental [, "governmental] entity" has the
meaning assigned by Section 802.1012.
(b) This section applies only to a public retirement system
that is governed by Article 6243i, Revised Statutes, and its
associated governmental entity.
(c) A public retirement system shall notify the associated
governmental entity in writing if the [retirement] system receives
an actuarial valuation indicating that the system's actual
contributions are not sufficient to amortize the unfunded actuarial
accrued liability within 30 [40] years. The governing body of [If a
public retirement system's actuarial valuation shows that the
system's amortization period has exceeded 40 years for three
consecutive annual actuarial valuations, or two consecutive
actuarial valuations in the case of a system that conducts the
valuations every two or three years,] the associated governmental
entity shall formulate a funding soundness restoration plan under
Subsection (e) if the system's actuarial valuation shows that the
system's expected funding period:
(1) has exceeded 30 years for three consecutive annual
actuarial valuations, or two consecutive annual actuarial
valuations in the case of a system that conducts the valuations
every two or three years; or
(2) effective September 1, 2025:
(A) exceeds 40 years; or
(B) exceeds 30 years and the funded ratio of the
system is less than 65 percent [in accordance with the public
retirement system's governing statute].
(d) Except as provided by Subsection (d-1), the governing
body of an [An] associated governmental entity that has an existing
[formulated a] funding soundness restoration plan under Subsection
(e) shall formulate a revised funding soundness restoration plan
under Subsection (e-1) [that subsection, in accordance with the
public retirement system's governing statute,] if the system
becomes subject to Subsection (c) before the 10th anniversary of
the date prescribed by Subsection (e)(2)(A) or (B), as applicable
[conducts an actuarial valuation showing that:
[(1) the system's amortization period exceeds 40 years;
and
[(2) the previously formulated funding soundness
restoration plan has not been adhered to].
(d-1) The associated governmental entity is not subject to
Subsection (d) if:
(1) the system's actuarial valuation shows that the
system's expected funding period exceeds 30 years but is less than
or equal to 40 years; and
(2) the system is:
(A) adhering to an existing funding soundness
restoration plan that was formulated before September 1, 2025; or
(B) implementing a contribution rate structure
that uses or will ultimately use an actuarially determined
contribution structure and the system's actuarial valuation shows
that the system is expected to achieve full funding.
(e) A funding soundness restoration plan formulated under
this section must:
(1) be developed in accordance with the public
retirement system's governing statute by the associated
governmental entity; [and]
(2) be designed to achieve a contribution rate that
will be sufficient to amortize the unfunded actuarial accrued
liability within 30 [40] years not later than the later of:
(A) the second [10th] anniversary of the
valuation date stated in the actuarial valuation that required
formulation of the plan under this subsection; or
(B) September 1, 2025;
(3) be based on actions, including automatic
risk-sharing mechanisms, an actuarially determined contribution
structure, and other adjustable benefit or contribution
mechanisms, agreed to be taken by the system and entity that were
approved by the governing body of the associated governmental
entity before the plan was adopted; and
(4) be adopted at an open meeting of the governing body
of the associated governmental entity not later than the second
anniversary of the date the actuarial valuation that required
application of this subsection was adopted by the governing body of
the system [on which the final version of a funding soundness
restoration plan is formulated].
(e-1) A revised funding soundness restoration plan
formulated under this section must:
(1) be developed by the associated governmental
entity in accordance with the system's governing statute;
(2) be designed to achieve a contribution rate that
will be sufficient to amortize the unfunded actuarial accrued
liability within 25 years not later than the second anniversary of
the valuation date stated in the actuarial valuation that required
formulation of a revised plan under this subsection;
(3) be based on actions agreed to be taken by the
system and entity that were approved by the governing body of the
associated governmental entity before the plan was adopted; and
(4) be adopted at an open meeting of the governing body
of the associated governmental entity not later than the second
anniversary of the date the actuarial valuation that required
application of this subsection was adopted by the governing body of
the system.
(e-2) Not later than the 90th day after the date on which the
plan is adopted by the governing body of the associated
governmental entity, a system may submit to the board an actuarial
valuation required under Section 802.101(a) or other law that shows
the combined impact of all changes to a funding soundness
restoration plan adopted under this section, including a revised
funding soundness restoration plan adopted under Subsection (e-1).
If a system does not provide an actuarial valuation to the board in
accordance with this subsection, the board may request that the
system provide a separate analysis of the combined impact of all
changes to a funding soundness restoration plan adopted under this
section not later than the 90th day after the date the board makes
the request. An actuarial valuation or the separate analysis
conducted under this subsection must include:
(1) an actuarial projection of the public retirement
system's expected future assets and liabilities between the
valuation date described by Subsection (e)(2)(A) or (e-1)(2), as
applicable, and the date at which the plan is expected to achieve
full funding; and
(2) a description of all assumptions and methods used
to perform the analysis which must comply with actuarial standards
of practice.
(e-3) The associated governmental entity may pay all or part
of the costs of the separate analysis required under Subsection
(e-2). The public retirement system shall pay any costs for the
analysis not paid by the associated governmental entity.
(e-4) A funding soundness restoration plan adopted under
this section, including a revised funding soundness restoration
plan adopted under Subsection (e-1), may not include actions that
are subject to future approval by the governing body of the
associated governmental entity.
(f) An associated governmental entity required to formulate
[that formulates] a funding soundness restoration plan under this
section, including a revised funding soundness restoration plan,
shall provide a report to the board on [any updates of] progress
made by the [public retirement system and] associated governmental
entity in formulating the plan, including a draft of any plan and a
description of any changes under consideration for inclusion in a
plan, not later than the first anniversary of the date of the
actuarial valuation that required formulation of the plan under
Subsection (e) or (e-1) and each subsequent six-month period until
the plan is submitted to the board under this section [toward
improved actuarial soundness to the board every two years].
(g) An associated governmental entity that formulates a
funding soundness restoration plan as provided by this section
shall submit a copy of that plan to the board and any change to the
plan not later than the 31st day after the date on which the plan is
adopted by the governing body of the associated governmental entity
or the date the change is formulated.
(h) The board may adopt rules necessary to implement this
section.
SECTION 6. Section 802.109, Government Code, as amended by
this Act, applies only to an evaluation commenced on or after the
effective date of this Act. An evaluation commenced before the
effective date of this Act is governed by the law in effect on the
date the evaluation was commenced, and the former law is continued
in effect for that purpose.
SECTION 7. The changes in law made by this Act apply to a
funding soundness restoration plan that is formulated or revised
under Section 802.2015 or 802.2016, Government Code, as applicable,
on or after the effective date of this Act. A funding soundness
restoration plan formulated or revised before the effective date of
this Act other than a plan that is subject to Section 802.2015(d-1)
or Section 802.2016(d-1), Government Code, as added by this Act, is
governed by the law as it existed immediately before that date, and
the former law is continued in effect for that purpose, except if:
(1) the public retirement system and its associated
governmental entity are required to formulate a revised funding
soundness restoration plan under Section 802.2015(d), Government
Code, as that section existed immediately before the effective date
of this Act, the system and its associated governmental entity
shall formulate the plan under Section 802.2015(e), Government
Code, as amended by this Act, rather than as that section existed
immediately before the effective date of this Act; or
(2) a public retirement system's associated
governmental entity is required to formulate a revised funding
soundness restoration plan under Section 802.2016(d), Government
Code, as that section existed immediately before the effective date
of this Act, the associated governmental entity shall formulate the
plan under Section 802.2016(e), Government Code, as amended by this
Act, rather than as that section existed immediately before the
effective date of this Act.
SECTION 8. This Act takes effect September 1, 2021.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 3898 was passed by the House on May
11, 2021, by the following vote: Yeas 119, Nays 24, 2 present, not
voting; and that the House concurred in Senate amendments to H.B.
No. 3898 on May 28, 2021, by the following vote: Yeas 122, Nays 23,
2 present, not voting.
______________________________
Chief Clerk of the House
I certify that H.B. No. 3898 was passed by the Senate, with
amendments, on May 26, 2021, by the following vote: Yeas 31, Nays
0.
______________________________
Secretary of the Senate
APPROVED: __________________
Date
__________________
Governor