Texas 2023 - 88th Regular

Texas Senate Bill SB1446 Compare Versions

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1	1	88R29911 JCG-F
2	2	By: Hughes S.B. No. 1446
3	3	(Capriglione)
4	4	Substitute the following for S.B. No. 1446: No.
5	5
6	6
7	7	A BILL TO BE ENTITLED
8	8	AN ACT
9	9	relating to the fiduciary responsibility of the governing body of
10	10	the public retirement systems in this state and the investment
11	11	managers and proxy advisors acting on behalf of those systems.
12	12	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
13	13	SECTION 1. Section 802.001, Government Code, is amended by
14	14	adding Subdivisions (1-b), (2-a), and (2-b) to read as follows:
15	15	(1-b) "Financial factor" means a factor taken into
16	16	consideration when making investment decisions that a prudent
17	17	investor would expect to have a material effect on controlling risk
18	18	and achieving a rate of return for an investment based on
19	19	appropriate investment horizons and consistent with the objectives
20	20	of any controlling investment plan.
21	21	(2-a) "Investment manager" means a person who for
22	22	compensation provides professional investment management services
23	23	and may include a person eligible for appointment as an investment
24	24	manager under Section 802.204. The term does not include:
25	25	(A) an employee or member of an advisory
26	26	committee of a public retirement system; or
27	27	(B) a seller of security interests.
28	28	(2-b) "Proxy advisor" means a person who for
29	29	compensation provides corporate governance ratings, proxy research
30	30	and analyses, proxy voting, or other similar services to the
31	31	shareholders of a publicly traded entity, or other interested
32	32	parties, for the purpose of advising a shareholder on how to vote on
33	33	measures under consideration by shareholders or proxy voting on
34	34	behalf of a shareholder.
35	35	SECTION 2. Section 802.002(a), Government Code, is amended
36	36	to read as follows:
37	37	(a) Except as provided by Subsection (b), the Employees
38	38	Retirement System of Texas, the Teacher Retirement System of Texas,
39	39	the Texas County and District Retirement System, the Texas
40	40	Municipal Retirement System, and the Judicial Retirement System of
41	41	Texas Plan Two are exempt from Sections 802.101(a), 802.101(b),
42	42	802.101(d), 802.102, 802.103(a), 802.103(b), 802.2015, 802.2016,
43	43	802.202, 802.203(c), (d), and (e) [802.203], 802.204, 802.205,
44	44	802.206, and 802.207. The Judicial Retirement System of Texas Plan
45	45	One is exempt from all of Subchapters B and C except Sections
46	46	802.104 and 802.105. The optional retirement program governed by
47	47	Chapter 830 is exempt from all of Subchapters B and C except Section
48	48	802.106.
49	49	SECTION 3. Section 802.203(a), Government Code, is amended
50	50	to read as follows:
51	51	(a) In making and supervising investments of the reserve
52	52	fund of a public retirement system, an investment manager or the
53	53	governing body of a public retirement system shall discharge its
54	54	duties solely in the financial interest of the participants and
55	55	beneficiaries:
56	56	(1) for the exclusive purposes of:
57	57	(A) managing risk and providing financial
58	58	benefits to participants and their beneficiaries; and
59	59	(B) defraying reasonable expenses of
60	60	administering the system;
61	61	(2) with the care, skill, prudence, and diligence
62	62	under the prevailing circumstances that a prudent person acting in
63	63	a like capacity and familiar with matters of the type would use in
64	64	the conduct of an enterprise with a like character and like aims;
65	65	(3) by diversifying the investments of the system to
66	66	minimize the risk of large financial losses, unless under the
67	67	circumstances it is clearly prudent not to do so; and
68	68	(4) in accordance with the documents and instruments
69	69	governing the system to the extent that the documents and
70	70	instruments are consistent with this subchapter.
71	71	SECTION 4. Subchapter C, Chapter 802, Government Code, is
72	72	amended by adding Sections 802.2031 through 802.2038 to read as
73	73	follows:
74	74	Sec. 802.2031. INVESTMENT STANDARDS: OBLIGATION TO
75	75	DISCHARGE DUTY BASED SOLELY ON CERTAIN FINANCIAL INTERESTS. (a)
76	76	For purposes of discharging its duties solely in the financial
77	77	interest of participants and beneficiaries under Section
78	78	802.203(a) and except as provided by Chapters 808, 809, and 2270 and
79	79	Chapter 2274, as added by Chapters 529 (S.B. 13), 530 (S.B. 19), 833
80	80	(S.B. 4), and 975 (S.B. 2116), Acts of the 87th Legislature, Regular
81	81	Session, 2021, the governing body of the public retirement system
82	82	or an investment manager:
83	83	(1) shall:
84	84	(A) make all investments prudently and in
85	85	accordance with applicable fiduciary and ethical standards; and
86	86	(B) take into account only financial factors when
87	87	discharging its duties with respect to a plan administered by the
88	88	system; and
89	89	(2) may not use the system's assets to take any action
90	90	with the purpose of furthering social, political, or ideological
91	91	interests.
92	92	(b) In accordance with this section and Section 802.203(a),
93	93	all shares held by or on behalf of a public retirement system or the
94	94	system's participants and beneficiaries, as applicable, if voted,
95	95	shall be voted solely based on financial factors.
96	96	Sec. 802.2032. REQUIRED INVESTMENT CONTRACT PROVISIONS;
97	97	EFFECT ON CERTAIN OTHER LAW. (a) The governing body of a public
98	98	retirement system may not enter into a contract with an investment
99	99	manager or a proxy advisor relating to investing the system's
100	100	assets or voting, or advising on voting, shares held by the system
101	101	unless the contract contains a requirement that the manager or
102	102	advisor, as applicable:
103	103	(1) take into account only financial factors when
104	104	discharging the manager's or advisor's duties under the contract,
105	105	with respect to investing the system's assets and voting, or
106	106	advising on voting, shares held by the system; and
107	107	(2) not take any action under the contract with the
108	108	purpose of furthering social, political, or ideological interests,
109	109	including an action with respect to investing the system's assets
110	110	or voting, or advising on voting, shares held by the system.
111	111	(b) Notwithstanding Section 809.051, the list maintained
112	112	under that section may not contain an investment manager, proxy
113	113	advisor, or other financial company who enters into a contract
114	114	under this section for the period during which the contract is in
115	115	effect.
116	116	Sec. 802.2033. PROXY VOTING AUTHORITY. (a) The governing
117	117	body of a public retirement system may not grant proxy voting
118	118	authority to a proxy advisor unless:
119	119	(1) the proxy advisor offers a policy for proxy voting
120	120	advice:
121	121	(A) that is consistent with the requirements for
122	122	voting shares imposed on the system under Section 802.2031(b); and
123	123	(B) the sole goal of which is to maximize
124	124	financial return and control associated levels of risk; and
125	125	(2) the grant of proxy voting authority requires the
126	126	proxy advisor to follow that policy.
127	127	(b) The policy may include additions or customizations only
128	128	if those additions or customizations are consistent with the sole
129	129	goal of the policy as described by Subsection (a).
130	130	(c) The governing body of a public retirement system that
131	131	grants proxy voting authority in accordance with this section shall
132	132	provide the State Pension Review Board a copy of the policy
133	133	described by Subsection (a)(1). If the public retirement system is
134	134	subject to Section 802.2035, the governing body of the system shall
135	135	provide a copy of the policy to the State Pension Review Board at
136	136	the same time the governing body provides the board with the annual
137	137	report required under that section.
138	138	Sec. 802.2034. PROXY VOTING: PUBLIC NOTICE AND ANNUAL
139	139	REPORT. (a) This section applies only to a public retirement
140	140	system that holds shares that the system is entitled to vote by
141	141	proxy.
142	142	(b) Subject to Subsection (c), the governing body of a
143	143	public retirement system shall post on the system's publicly
144	144	accessible Internet website how a proxy advisor will cast a proxy
145	145	vote made on behalf of the system or the system's participants and
146	146	beneficiaries, if possible, not later than the earlier of:
147	147	(1) the seventh day before the date a proxy vote is to
148	148	be cast; or
149	149	(2) 48 hours after receiving a vote recommendation
150	150	from the proxy advisor on the proxy vote.
151	151	(c) A public retirement system shall post on the system's
152	152	publicly accessible Internet website how a proxy advisor will cast
153	153	a proxy vote made on behalf of the system or the system's
154	154	participants and beneficiaries not later than 24 hours before the
155	155	proxy vote is to be cast.
156	156	(d) Except as provided by Subsection (e), not later than the
157	157	180th day after the last day of a public retirement system's fiscal
158	158	year, the governing body of the system shall tabulate all proxy
159	159	votes made on behalf of the system by proxy advisors during the
160	160	preceding fiscal year of the system and report the votes to the
161	161	State Pension Review Board. For each vote, the report must contain a
162	162	vote caption, the system's vote, the recommendation, if any, of the
163	163	company holding the election, and, as applicable, the
164	164	recommendation of the proxy advisor. The State Pension Review Board
165	165	shall post reports submitted under this subsection to the board's
166	166	publicly accessible Internet website.
167	167	(e) In lieu of submitting a report under Subsection (d), the
168	168	governing body of a public retirement system may provide to the
169	169	State Pension Review Board the location of a report posted to the
170	170	system's publicly accessible Internet website that contains the
171	171	information required by that subsection.
172	172	(f) Except as provided by Subsection (g), if the governing
173	173	body of a public retirement system grants proxy voting authority to
174	174	an investment manager, the investment manager shall submit a report
175	175	to the retirement system, and the retirement system shall submit a
176	176	report to the State Pension Review Board, that tabulates all proxy
177	177	votes cast by the investment manager on behalf of the system for
178	178	each 12-month period the investment manager is managing any assets
179	179	of the system. The State Pension Review Board shall post the reports
180	180	submitted under this subsection to the board's publicly accessible
181	181	Internet website.
182	182	(g) Subsection (f) does not apply to an investment manager
183	183	that manages less than $50 million of a public retirement system's
184	184	assets.
185	185	Sec. 802.2035. ANNUAL REPORT TO STATE PENSION REVIEW BOARD
186	186	ON CERTAIN INVESTMENT RELATIONSHIPS. (a) This section applies
187	187	only to a public retirement system with more than $100 million in
188	188	assets.
189	189	(b) Annually, the governing body of a public retirement
190	190	system shall submit a report to the State Pension Review Board that
191	191	details investment relationships maintained by the system and, if
192	192	applicable, shall consolidate the report with any annual
193	193	comprehensive financial report required of the system under other
194	194	law. The report required by this section must include information
195	195	regarding each:
196	196	(1) subject to Subsection (c), fund or investment
197	197	entity the system is invested in or has invested in during the
198	198	preceding 12-month period; and
199	199	(2) subject to Subsection (d), investment manager with
200	200	which the system contracts to provide investment management
201	201	services.
202	202	(c) For purposes of Subsection (b)(1), regarding each fund
203	203	or investment entity described by that subdivision, the report
204	204	required by this section must contain:
205	205	(1) the name of the fund or investment entity;
206	206	(2) the date on which the fund or investment entity
207	207	described by Subdivision (1) was established and each date during
208	208	the applicable 12-month period the system invested in the fund or
209	209	entity;
210	210	(3) with respect to a fund or investment entity, the
211	211	amount of money, expressed in dollars, the system:
212	212	(A) committed to the fund or entity described by
213	213	Subdivision (1);
214	214	(B) is invested in or has invested in the fund or
215	215	entity during the applicable 12-month period under Subsection
216	216	(b)(1); and
217	217	(C) received from any fund or investment entity
218	218	during the applicable 12-month period;
219	219	(4) the total amount of fees, including expenses,
220	220	charges, and other compensation, assessed against the system by, or
221	221	paid by the system to, any fund or investment entity in which the
222	222	system is invested in or has invested in during the applicable
223	223	12-month period; and
224	224	(5) the internal rate of return, or other standard of
225	225	investment return, on money invested in each fund or investment
226	226	entity, and the date on which the return was calculated.
227	227	(d) For purposes of Subsection (b)(2), regarding each
228	228	contract with an investment manager providing investment manager
229	229	services, the report required by this section must contain:
230	230	(1) the net value of the assets being managed under the
231	231	contract; and
232	232	(2) the total amount of fees, including expenses,
233	233	charges, and other compensation, assessed against the system by, or
234	234	paid by the system to, any fund or investment entity in which the
235	235	system is invested in or has invested in during the preceding
236	236	12-month period.
237	237	(e) The State Pension Review Board shall post the report
238	238	received under this section to the board's publicly accessible
239	239	Internet website.
240	240	Sec. 802.2036. INJUNCTION BY RETIREMENT SYSTEMS. (a) A
241	241	public retirement system may bring an action in district court to
242	242	restrain or enjoin an investment manager or proxy advisor from
243	243	breaching a contract provision required under Section 802.2032 or
244	244	violating Section 802.203(a).
245	245	(b) The court may award court costs and reasonable
246	246	attorney's fees to a party who prevails in an action brought under
247	247	this section.
248	248	(c) The court in which the action is brought shall give
249	249	precedence to proceedings in the same manner as provided for an
250	250	election contest under Section 23.101.
251	251	Sec. 802.2037. INAPPLICABILITY OF REQUIREMENTS
252	252	INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES.
253	253	(a) A public retirement system is not subject to a requirement of
254	254	Sections 802.203 through 802.2035 if the system determines that the
255	255	requirement would be inconsistent with its fiduciary
256	256	responsibility with respect to the investment of system assets or
257	257	other duties imposed by law relating to the investment of system
258	258	assets, including the duty of care established under Section 67,
259	259	Article XVI, Texas Constitution.
260	260	(b) If a public retirement system determines that complying
261	261	with the requirement in a specific case is inconsistent with its
262	262	fiduciary responsibility as described by Subsection (a), the system
263	263	shall notify in writing the State Pension Review Board of the
264	264	determination and the board shall post the determination on the
265	265	board's publicly accessible Internet website.
266	266	Sec. 802.2038. RULES ON INVESTMENTS, VOTING SHARES, AND
267	267	RELATED REPORTS. The State Pension Review Board may adopt rules to
268	268	implement Section 802.203, 802.2031, 802.2032, 802.2033, 802.2034,
269	269	802.2035, or 802.2037.
270	270	SECTION 5. The changes in law made by this Act apply only to
271	271	a contract entered into on or after the effective date of this Act.
272	272	A contract entered into before the effective date of this Act is
273	273	governed by the law in effect on the date the contract was entered
274	274	into, and the former law is continued in effect for that purpose.
275	275	SECTION 6. (a) Notwithstanding any other section of this
276	276	Act, in a state fiscal year, the State Pension Review Board is not
277	277	required to implement a provision found in another section of this
278	278	Act that is drafted as a mandatory provision imposing a duty on the
279	279	board to take an action unless money is specifically appropriated
280	280	to the board for that fiscal year to carry out that duty. The State
281	281	Pension Review Board may implement the provision in that fiscal
282	282	year to the extent other funding is available to the board to do so.
283	283	(b) If, as authorized by Subsection (a) of this section, the
284	284	State Pension Review Board does not implement the mandatory
285	285	provision in a state fiscal year, the board, in its legislative
286	286	budget request for the next state fiscal biennium, shall certify
287	287	that fact to the Legislative Budget Board and include a written
288	288	estimate of the costs of implementing the provision in each year of
289	289	that next state fiscal biennium.
290	290	(c) This section expires and any duty suspended by
291	291	Subsection (a) of this section becomes mandatory on September 1,
292	292	2027.
293	293	SECTION 7. It is the intent of the 88th Legislature, Regular
294	294	Session, 2023, that the amendments made by this Act be harmonized
295	295	with another Act of the 88th Legislature, Regular Session, 2023,
296	296	relating to nonsubstantive additions to and corrections in enacted
297	297	codes.
298	298	SECTION 8. This Act takes effect September 1, 2023.