By: Middleton H.B. No. 4536
A BILL TO BE ENTITLED
AN ACT
relating to the consideration of pecuniary factors in certain state
investments.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 802.001, Government Code, is amended by
adding Subdivisions (5), (6), and (7) as follows:
(5) "Pecuniary Factor" means a factor that a governing
body or investment manager, operating as the fiduciary in
accordance with Chapter 802, Government Code, has determined is
expected to have a material effect on the risk or return of an
investment based on appropriate investment horizons consistent
with the investment objectives of a plan established in accordance
to Chapter 802, Government Code, and the funding policy established
by Sections 802.2011 and 802.208.
(6) "Funded ratio" means the ratio of a public
retirement system's actuarial value of assets divided by the
system's actuarial accrued liability.
(7) "Governmental entity" has the meaning assigned by
Section 802.1012.
SECTION 2. Section 802.002, Government Code, is amended to
read as follows:
Sec. 802.002. EXEMPTIONS. (a) Except as provided by
Subsection (b), the Employees Retirement System of Texas, the
Teacher Retirement System of Texas, the Texas County and District
Retirement System, the Texas Municipal Retirement System, and the
Judicial Retirement System of Texas Plan Two are exempt from
Sections 802.101(a), 802.101(b), 802.101(d), 802.102, 802.103(a),
802.103(b), 802.2015, 802.2016, 802.202, 802.203, 802.204,
802.205, 802.206, and 802.207. The Judicial Retirement System of
Texas Plan One is exempt from all of Subchapters B and C except
Sections 802.104, [and] 802.105, and 802.208. The optional
retirement program governed by Chapter 830 is exempt from all of
Subchapters B and C except Section 802.106 and 802.208.
(b) If a public retirement system or program that is exempt
under Subsection (a) is required by law to make an actuarial
valuation of the assets of the system or program and publish
actuarial information about the system or program, the actuary
making the valuation and the governing body publishing the
information must include the information required by Section
802.101(b).
(c) Notwithstanding any other law, a defined contribution
plan is exempt from Sections 802.101, 802.1012, 802.1014, 802.103,
802.104, and 802.202(d). This subsection may not be construed to
exempt any plan from Section 802.105, [or] 802.106(h), and 802.208.
(d) Notwithstanding any other law, a retirement system that
is organized under the Texas Local Fire Fighters Retirement Act
(Article 6243e, Vernon's Texas Civil Statutes) for a fire
department consisting exclusively of volunteers as defined by that
Act is exempt from Sections 802.101, 802.1012, 802.1014, 802.102,
802.103, 802.104, and 802.202(d). This subsection may not be
construed to exempt any plan from Section 802.105, [or] 802.106(h),
and 802.208.
(e) Notwithstanding any other law, a retirement system,
program, or plan that is exempt under Subsections (a), (c), and (d)
is not exempt from Sections 802.202(d)(1), 802.203(a)(4), and
802.205(d)(6), as applicable, for the purpose of compliance with
Section 802.208.
SECTION 3. Section 802.106, Government Code, is amended by
adding Subsection (i) to read as follows:
(i) A public retirement system shall distribute to each
active member and retiree a summary of any investment or investment
course of action in accordance to Section 802.208.
SECTION 4. Section 802.107, Government Code, is amended by
amending Subsection (c) to read as follows:
(c) A public retirement system shall post on a publicly
available Internet website:
(1) the name, business address, and business telephone
number of a system administrator of the public retirement system;
[and]
(2) a copy of the most recent edition of each report
and other written information that is required by this chapter or
Chapter 801 to be submitted to the board; and
(3) a copy of a summary of any investment or investment
course of action in accordance to Section 802.208.
SECTION 5. 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.
(b)] The governing body of a public retirement system shall:
(1) adopt a written funding policy that details the
governing body's plan for achieving a funded ratio of the system
that is equal to or greater than 100 percent;
(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) submit a copy of the policy 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.
SECTION 6. Section 802.202, Government Code, is amended by
amending Subsection (d) to read as follows:
(d) The governing body of a public retirement system shall:
(1) develop and adopt a written investment policy, in
accordance with Section 802.208;
(2) maintain for public review at its main office a
copy of the policy;
(3) file a copy of the policy with the State Pension
Review Board not later than the 90th day after the date the policy
is adopted; and
(4) file a copy of each change to the policy with the
State Pension Review Board not later than the 90th day after the
change is adopted.
SECTION 7. Section 802.203, Government Code, is amended by
amending Subsection (a) to read as follows:
(a) In making and supervising investments of the reserve
fund of a public retirement system, an investment manager or the
governing body shall discharge its duties solely in the interest of
the participants and beneficiaries:
(1) for the exclusive purposes of:
(A) providing benefits to participants and their
beneficiaries; and
(B) defraying reasonable expenses of
administering the system;
(2) with the care, skill, prudence, and diligence
under the prevailing circumstances that a prudent person acting in
a like capacity and familiar with matters of the type would use in
the conduct of an enterprise with a like character and like aims;
(3) by diversifying the investments of the system to
minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so; [and]
(4) by considering only pecuniary factors in the
evaluation of an investment or investment course of action; and
(5) in accordance with the documents and instruments
governing the system to the extent that the documents and
instruments are consistent with this subchapter.
SECTION 8. Section 802.204, Government Code, is amended by
amending Subsection (c) to read as follows:
(c) In a contract made under this section, the governing
body shall specify any policies, requirements, or restrictions,
including criteria for determining the quality of investments and
for the use of standard rating services in accordance with Section
802.208, that the governing body adopts for investments of the
system.
SECTION 9. Section 802.205, Government Code, is amended by
amending Subsection (d) to read as follows:
(d) If the governing body enters into a contract under
Subsection (a) with a brokerage firm, the firm must:
(1) be a broker-dealer registered with the Securities
and Exchange Commission;
(2) be a member of a national securities exchange;
(3) be a member of the Securities Investor Protection
Corporation;
(4) be registered with the State Securities Board;
[and]
(5) maintain net regulatory capital of at least $200
million; and
(6) only consider pecuniary factors in the evaluation
of an investment or investment course of action.
SECTION 10. Subchapter B, Chapter 802, Government Code, is
amended by adding Section 802.208 to read as follows:
Sec. 802.208. INVESTMENT POLICY REQUIREMENTS AND
RESTRICTIONS. (a) The governing body of a public retirement system
shall create an investment policy or investment course of action
pursuant to this section.
(b) An investment policy or investment course of action
under Subsection (a) shall:
(1) instruct investment managers or persons with a
fiduciary responsibility, established under Section 802.203, to
consider only pecuniary factors in the evaluation of an investment
or investment course of action; and
(2) establish a plan for the divestment from any
indirect holdings in actively or passively managed investment funds
or private equity funds that have been evaluated using factors
other than pecuniary factors, not in accordance with this section.
(c) An investment or investment course of action made on
behalf of, for the benefit of, or in relation to a public retirement
system shall not be evaluated considering factors other than
pecuniary factors, except as provided by Subsection (d).
(d) If the evaluation of an investment or investment course
of action, in accordance with Subsections (b) and (c), determines
that investments or investment courses of action would have an
indistinguishable material effect on the risk or return of an
investment or investment course of action, the investment manager
or person with a fiduciary responsibility, established under
Section 802.203, may consider factors other than pecuniary factors
to evaluate an investment or investment course of action.
(e) If an investment manager or person with a fiduciary
responsibility established under Section 802.203 considers factors
other than pecuniary factors under Subsection (d), the investment
manager or person with a fiduciary duty shall document:
(1) the reason pecuniary factors were insufficient in
the evaluation;
(2) a comparison of the investment or investment
course of action with alternative investments or investment courses
of action; and
(3) the factors other than pecuniary factors
considered in the evaluation of an investment or investment course
of action.
(f) Any documented use of factors other than pecuniary
factors in the consideration of an investment or investment course
of action, in accordance to Subsection (d), shall:
(1) be published in a monthly report; and
(2) be prominently available on the Internet website
of the public retirement system.
(g) Not later than January 5 of each year, each state
governmental entity 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 this section; and
(2) identifies all prohibited investments under this
section.
(h) This section applies to all public retirement systems.
SECTION 11. This Act takes effect September 1, 2021.