By: Huffman, Schwertner S.B. No. 1372
(In the Senate - Filed March 10, 2021; March 18, 2021, read
first time and referred to Committee on Finance; April 9, 2021,
reported adversely, with favorable Committee Substitute by the
following vote: Yeas 15, Nays 0; April 9, 2021, sent to printer.)
Click here to see the committee vote
COMMITTEE SUBSTITUTE FOR S.B. No. 1372 By: Huffman
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 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 2. 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 3. This Act takes effect September 1, 2021.
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