Texas 2023 - 88th Regular

Texas House Bill HB2068 Compare Versions

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1	1	88R7612 JCG-D
2	2	By: Paul H.B. No. 2068
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to the fiduciary responsibility of governmental entities
8	8	and the investment agents, plan administrators, or qualified
9	9	vendors acting on behalf of those entities.
10	10	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
11	11	SECTION 1. Subchapter A, Chapter 609, Government Code, is
12	12	amended by adding Section 609.0015 to read as follows:
13	13	Sec. 609.0015. INVESTMENT AND VOTING STANDARDS FOR
14	14	GOVERNMENTAL ENTITIES, PLAN ADMINISTRATORS, AND QUALIFIED VENDORS;
15	15	DUTY TO REPORT VOTES; INVESTIGATION. (a) Sections 802.203(a) and
16	16	802.2031 through 802.2036 apply to any governmental entity, plan
17	17	administrator, or qualified vendor who administers or offers a
18	18	qualified investment product in a deferred compensation plan under
19	19	this chapter in the same manner as those sections apply to an
20	20	investment agent or the governing body of a public retirement
21	21	system.
22	22	(b) Notwithstanding any other provision of this chapter, a
23	23	plan administrator may approve a vendor to be a qualified vendor
24	24	only if the vendor has a practice of following, and agrees in
25	25	writing to follow, guidelines that are consistent with the plan
26	26	administrator's duty under Subsection (a) to act solely in the
27	27	pecuniary interests of the plan's participants and beneficiaries.
28	28	SECTION 2. Section 802.001, Government Code, is amended by
29	29	adding Subdivisions (2-a), (2-b), and (2-c) to read as follows:
30	30	(2-a) "Investment agent" means any person with respect
31	31	to a public retirement system, other than the governing body, who:
32	32	(A) exercises any discretionary authority over
33	33	or control in or has any responsibility in the administration of the
34	34	public retirement system, including:
35	35	(i) controlling or disposing of the
36	36	system's assets; or
37	37	(ii) advising on or exercising the right to
38	38	vote any shares of the system, including proxy votes; or
39	39	(B) provides, for compensation, directly or
40	40	indirectly, investment advice regarding the assets of the system.
41	41	(2-b) "Material factor," with respect to a risk,
42	42	return, or investment:
43	43	(A) means a factor for which there is a
44	44	substantial likelihood that a reasonable investor would find
45	45	important when evaluating the potential financial returns and risks
46	46	of an investment or whether to exercise any right in connection with
47	47	a security; and
48	48	(B) does not include any portion of the factor
49	49	that:
50	50	(i) primarily relates to events that
51	51	involve a high degree of uncertainty regarding what may occur in the
52	52	distant future; and
53	53	(ii) is systemic, general, or not
54	54	investment-specific in nature.
55	55	(2-c) "Pecuniary factor" means a material factor that
56	56	has an effect on the financial returns and risks of an investment
57	57	based on appropriate investment horizons.
58	58	SECTION 3. Section 802.002(a), Government Code, is amended
59	59	to read as follows:
60	60	(a) Except as provided by Subsection (b), the Employees
61	61	Retirement System of Texas, the Teacher Retirement System of Texas,
62	62	the Texas County and District Retirement System, the Texas
63	63	Municipal Retirement System, and the Judicial Retirement System of
64	64	Texas Plan Two are exempt from Sections 802.101(a), 802.101(b),
65	65	802.101(d), 802.102, 802.103(a), 802.103(b), 802.2015, 802.2016,
66	66	802.202, [802.203,] 802.204, 802.205, 802.206, and 802.207. The
67	67	Judicial Retirement System of Texas Plan One is exempt from all of
68	68	Subchapters B and C except Sections 802.104 and 802.105. The
69	69	optional retirement program governed by Chapter 830 is exempt from
70	70	all of Subchapters B and C except Section 802.106.
71	71	SECTION 4. Section 802.203(a), Government Code, is amended
72	72	to read as follows:
73	73	(a) In making and supervising investments of the reserve
74	74	fund of a public retirement system, an investment agent [manager]
75	75	or the governing body of a public retirement system shall discharge
76	76	its duties solely in the pecuniary interest of the participants and
77	77	beneficiaries:
78	78	(1) for the exclusive purposes of:
79	79	(A) providing pecuniary benefits to participants
80	80	and their beneficiaries; and
81	81	(B) defraying reasonable expenses of
82	82	administering the system;
83	83	(2) with the care, skill, prudence, and diligence
84	84	under the prevailing circumstances that a prudent person acting in
85	85	a like capacity and familiar with matters of the type would use in
86	86	the conduct of an enterprise with a like character and like aims;
87	87	(3) by diversifying the investments of the system to
88	88	minimize the risk of large losses, unless under the circumstances
89	89	it is clearly prudent not to do so; and
90	90	(4) in accordance with the documents and instruments
91	91	governing the system to the extent that the documents and
92	92	instruments are consistent with this subchapter.
93	93	SECTION 5. Subchapter C, Chapter 802, Government Code, is
94	94	amended by adding Sections 802.2031 through 802.2036 to read as
95	95	follows:
96	96	Sec. 802.2031. INVESTMENT STANDARDS: OBLIGATION TO ACT
97	97	BASED SOLELY ON PECUNIARY INTERESTS. (a) Except as provided by
98	98	this section and for purposes of Section 802.203(a), the governing
99	99	body of a public retirement system or an investment agent:
100	100	(1) may not take any action or consider any factor,
101	101	including when determining whether a factor is a material factor,
102	102	with a purpose of furthering an environmental, social, or political
103	103	goal or any other similar goal; and
104	104	(2) shall take into account only pecuniary factors
105	105	when evaluating the potential financial returns and risks of an
106	106	investment or whether to exercise any right in connection with a
107	107	security.
108	108	(b) The governing body of a public retirement system or an
109	109	investment agent may take into account under Subsection (a) an
110	110	environmental, social, or political factor or any other similar
111	111	factor only to the extent that:
112	112	(1) the factor presents a financial risk or
113	113	opportunity that an experienced investment professional would
114	114	treat as a material financial factor under generally accepted
115	115	investment theories; and
116	116	(2) the weight given to the factor is limited to the
117	117	impact of the factor on the financial risk or opportunity that a
118	118	similarly situated prudent investor would give.
119	119	(c) In taking into account a factor as provided by
120	120	Subsection (b) regarding a potential investment, the governing body
121	121	or investment agent must compare the investment with other
122	122	available alternative investments that would serve a similar
123	123	purpose as the original investment being evaluated, including:
124	124	(1) how the original investment and the alternative
125	125	investments each impact the level of diversification of the
126	126	system's portfolio;
127	127	(2) the degree of liquidity of each investment;
128	128	(3) the potential financial returns and risks of each
129	129	investment; and
130	130	(4) whether greater returns can be achieved through
131	131	the alternative investments that have little impact on
132	132	environmental, social, political, or similar factors.
133	133	(d) To the extent of a conflict between this section and any
134	134	other law, this section prevails.
135	135	Sec. 802.2032. DUTY TO VOTE SHARES BASED SOLELY ON
136	136	PECUNIARY INTERESTS. (a) In accordance with Section 802.203(a),
137	137	all shares held directly or indirectly by or on behalf of a public
138	138	retirement system or the system's participants and beneficiaries,
139	139	as applicable, shall be voted solely in the pecuniary interest of
140	140	the system's participants and beneficiaries and may not be voted
141	141	with a purpose of furthering an environmental, social, or political
142	142	goal or any other similar goal.
143	143	(b) The governing body of a public retirement system may
144	144	delegate proxy voting authority to an investment agent only if the
145	145	agent has a practice of following, and commits in writing to follow,
146	146	guidelines that are consistent with the governing body's duty to
147	147	act solely in the pecuniary interests of the system's participants
148	148	and beneficiaries.
149	149	Sec. 802.2033. EVIDENCE OF VIOLATION OF INVESTMENT
150	150	STANDARDS. Evidence of a violation of Section 802.203(a) may
151	151	include a statement of a governing body of a public retirement
152	152	system or an investment agent indicating the governing body's or
153	153	agent's purpose in selecting investments, engaging with portfolio
154	154	companies, or voting shares or proxy votes, or a similar statement
155	155	by any coalition, initiative, or organization that the governing
156	156	body or agent is a member of or otherwise participates in, at the
157	157	time the statement was made.
158	158	Sec. 802.2034. COMMITMENT IN WRITING. Unless an
159	159	economically practicable alternative is not available:
160	160	(1) the assets of a public retirement system may not be
161	161	entrusted to an investment agent unless that agent has a practice of
162	162	following, and commits in writing to follow, guidelines when
163	163	engaging with portfolio companies that are consistent with the
164	164	governing body's duty to act solely in the pecuniary interest of the
165	165	system's participants and beneficiaries; and
166	166	(2) the governing body of a public retirement system
167	167	or an investment agent that manages the assets of a public
168	168	retirement system may not adopt a practice of following the
169	169	recommendations of a proxy advisor or other similar service
170	170	provider unless the advisor or provider has a practice of
171	171	following, and commits in writing to follow, proxy voting
172	172	guidelines that are consistent with the duty of the governing body
173	173	or investment agent to act solely in the pecuniary interest of the
174	174	system's participants and beneficiaries.
175	175	Sec. 802.2035. REPORT ON PROXY VOTES. The governing body of
176	176	a public retirement system shall tabulate all proxy votes made on
177	177	behalf of the system and report the votes annually to the State
178	178	Pension Review Board. For each vote, the report must contain a vote
179	179	caption, the system's vote, and, as applicable, the recommendation
180	180	of the investment agent or any proxy advisor. The State Pension
181	181	Review Board shall post reports submitted under this section to the
182	182	board's publicly accessible Internet website.
183	183	Sec. 802.2036. INVESTIGATION BY ATTORNEY GENERAL. If the
184	184	attorney general has reasonable cause to believe that a person
185	185	engaged in, is engaging in, or is likely to engage in an act that
186	186	violates Section 802.203(a), 802.2034, or 802.2035, the attorney
187	187	general may:
188	188	(1) require the person to file, in a form and manner
189	189	prescribed by the attorney general, a statement or report in
190	190	writing, under oath, as to:
191	191	(A) all the facts and circumstances concerning
192	192	the violation; or
193	193	(B) any other relevant information the attorney
194	194	general considers necessary;
195	195	(2) examine any person under oath in connection with
196	196	the violation;
197	197	(3) examine any record, book, document, account,
198	198	paper, sample, or other material in connection with the violation;
199	199	or
200	200	(4) apply to a district court to issue a subpoena for
201	201	any record, book, document, account, paper, sample, or other
202	202	material in connection with the violation and retain the material
203	203	until the completion of all related proceedings taken under this
204	204	section.
205	205	SECTION 6. Section 815.307, Government Code, is amended to
206	206	read as follows:
207	207	Sec. 815.307. DUTY OF CARE. The assets of the retirement
208	208	system shall be invested and reinvested without distinction as to
209	209	their source in accordance with Section 67, Article XVI, Texas
210	210	Constitution. [A determination of whether the board of trustees
211	211	has exercised prudence with respect to an investment decision must
212	212	be made taking into consideration the investment of all assets of
213	213	the trust or all assets of the collective investment vehicle, as
214	214	applicable, over which the board has management and control, rather
215	215	than considering the prudence of a single investment of the trust or
216	216	the collective investment vehicle, as applicable.]
217	217	SECTION 7. Section 840.303, Government Code, is amended to
218	218	read as follows:
219	219	Sec. 840.303. DUTY OF CARE. The assets of the retirement
220	220	system shall be invested and reinvested without distinction as to
221	221	their source in accordance with Section 67, Article XVI, Texas
222	222	Constitution. [A determination of whether the board of trustees
223	223	has exercised prudence with respect to an investment decision must
224	224	be made taking into consideration the investment of all assets of
225	225	the trust or all assets of the collective investment vehicle, as
226	226	applicable, over which the board has management and control, rather
227	227	than considering the prudence of a single investment of the trust or
228	228	the collective investment vehicle, as applicable.]
229	229	SECTION 8. Section 855.303, Government Code, is amended to
230	230	read as follows:
231	231	Sec. 855.303. PRUDENCE REGARDING INVESTMENTS. [A
232	232	determination of whether the board of trustees has exercised
233	233	prudence in an investment decision must be made by considering the
234	234	investment of all of the assets of the trust over which the board
235	235	has management and control, rather than by considering the prudence
236	236	of a single investment.] In making investments for the retirement
237	237	system, the board of trustees shall exercise the judgment and care,
238	238	under the circumstances, that persons of prudence, discretion, and
239	239	intelligence exercise in the management of their own affairs,
240	240	considering the probable income from the securities and probable
241	241	safety of their capital.
242	242	SECTION 9. Section 865.008(b), Government Code, is amended
243	243	to read as follows:
244	244	(b) The assets of the pension system shall be invested and
245	245	reinvested in accordance with Section 67, Article XVI, Texas
246	246	Constitution. [A determination of whether the state board has
247	247	exercised prudence with respect to an investment decision must be
248	248	made, taking into consideration the investment of all assets of the
249	249	trust over which the state board has management and control rather
250	250	than considering the prudence of a single investment.]
251	251	SECTION 10. Section 7.04(b), Chapter 824 (S.B. 817), Acts
252	252	of the 73rd Legislature, Regular Session, 1993 (Article 6243o,
253	253	Vernon's Texas Civil Statutes), is amended to read as follows:
254	254	(b) The board shall diversify the investment of the fund to
255	255	minimize the risk of large losses unless under the circumstances it
256	256	is clearly prudent not to do so. [In determining whether the board
257	257	has exercised prudence concerning an investment decision, the
258	258	investment of all assets of the fund, rather than the prudence of a
259	259	single investment of the fund, shall be considered.]
260	260	SECTION 11. Section 6.04(b), Chapter 1332 (S.B. 1568), Acts
261	261	of the 75th Legislature, Regular Session, 1997 (Article 6243q,
262	262	Vernon's Texas Civil Statutes), is amended to read as follows:
263	263	(b) The board shall diversify the investment of the reserve
264	264	funds to minimize the risk of large losses unless under the
265	265	circumstances it is clearly prudent not to do so. [In determining
266	266	whether the board has exercised prudence concerning an investment
267	267	decision, the investment of all assets of the funds, rather than the
268	268	prudence of a single investment of the funds, shall be considered.]
269	269	SECTION 12. Section 802.2032, Government Code, as added by
270	270	this Act, applies to the authority to vote shares and proxy votes
271	271	granted before, on, or after the effective date of this Act.
272	272	SECTION 13. This Act takes effect September 1, 2023.