BILL ANALYSIS C.S.H.B. 3474 By: Lambert Pensions, Investments & Financial Services Committee Report (Substituted) BACKGROUND AND PURPOSE Current state law requires certain public retirement systems in Texas to select an independent firm to complete an investment practices and performance evaluation (IPPE) to assess the system's investment practices and performance and make recommendations regarding areas for improvement. The law specifically requires retirement systems with total assets of at least $100 million to conduct the evaluation every three years and retirement systems with total assets between $30 million and $100 million to do so every six years. In its 2024 Investment Performance Report, the Pension Review Board (PRB) recommended that the legislature update and clarify several requirements regarding IPPE reports regarding applicability and reporting timelines to improve consistency and predictability for retirement systems and the PRB. C.S.H.B. 3474 seeks to implement these recommendations by requiring the PRB to develop a schedule of deadlines for conducting IPPE evaluations consistent with current law and clarifying the criteria that subjects systems to certain evaluation requirements. CRIMINAL JUSTICE IMPACT It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 3474 amends the Government Code to specify that the statutory requirement for a public retirement system to conduct an evaluation on the appropriateness, adequacy, and effectiveness of the system's investment practices and performance at certain times based on a system's total assets is in accordance with a schedule of deadlines prescribed by the Pension Review Board (PRB). The bill requires the PRB to develop that schedule of deadlines not later than January 1, 2026. With respect to the statutorily-prescribed schedule, the bill changes the point at which the amount of a system's total assets is identified for purposes of determining the frequency with which the system must conduct the evaluation, as follows: for evaluations required once every three years, from total assets being at least $100 million as of the last day of the preceding fiscal year to total assets being at least that amount as of the date of the preceding evaluation; and for evaluations required once every six years, from total assets being at least $30 million and less than $100 million as of the last day of the preceding fiscal year to total assets being such an amount as of the date of the preceding evaluation. The bill requires a public retirement system that is conducting evaluations every six years in accordance with those provisions and whose total pension liability increases to at least $100 million during a fiscal year to complete the next evaluation by the next appropriate deadline, as determined by the PRB, under the evaluation schedule. The bill establishes that a public retirement system subject to a statutorily-prescribed evaluation requirement remains subject to that same requirement unless both the total assets and the total pension liability of the system decrease to an amount that is below the minimum amount prescribed by the applicable requirement. C.S.H.B. 3474 changes the condition under which a public retirement system is not required to conduct an evaluation from the system's total assets being less than $30 million as of the last day of the preceding fiscal year to the system's total assets being less than that amount as of the last day of the fiscal year immediately preceding the next evaluation deadline under the evaluation schedule. The bill removes the filing periods and deadlines prescribed for the following requirements: the requirement for an independent firm that completes an evaluation to submit a substantially completed draft of the evaluation report to the applicable system and to request the system to submit certain response information by a certain deadline, which is also removed by the bill; the requirement for the firm to file the final evaluation report with the system's governing body; and the requirement for the governing body of a public retirement system that receives a final evaluation report to submit the report to the PRB. With respect to that requirement for an applicable firm to submit a substantially completed draft of the evaluation report, the bill removes the specification that the draft be a preliminary draft. C.S.H.B. 3474 defines the following terms: "evaluation schedule" as the schedule of deadlines prescribed by the PRB under certain provisions relating to investment practices and performance reports; and "total pension liability" as the portion of the present value of projected retirement benefit payments to be provided through the retirement system to active and inactive members that is attributable to those members' past periods of service, in compliance with Statement No. 68 of the Governmental Accounting Standards Board. EFFECTIVE DATE September 1, 2025. COMPARISON OF INTRODUCED AND SUBSTITUTE While C.S.H.B. 3474 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill. With respect to the requirement that a public retirement system conduct an evaluation on the appropriateness, adequacy, and effectiveness of the system's investment practices and performance at certain times based on a system's total assets, the substitute specifies that the evaluation be conducted in accordance with a schedule of deadlines prescribed by the PRB, whereas the introduced required the PRB to establish a schedule to ensure that a system conduct the evaluation at the statutorily-prescribed times. Both the introduced and the substitute changed the point at which the amount of a system's total assets is identified for purposes of determining the frequency with which a system must conduct an evaluation. However, the substitute specifies that a system's total assets are identified as of the date of the preceding evaluation, whereas the introduced removed the specification that those assets are identified as of the last day of the preceding fiscal year. Both the introduced and the substitute require certain public retirement systems to complete the next evaluation by the next appropriate deadline as prescribed by the PRB. However, the substitute requires a system to do so if the system conducts an evaluation every six years and the system's total pension liability increases to at least $100 million during a fiscal year, whereas the introduced required a public retirement system to do so if the system's total assets increase in a fiscal year to above at least $30 million or $100 million, as applicable. The substitute establishes that a public retirement system subject to a statutorily-prescribed evaluation requirement remains subject to the same requirement unless both the total assets and the total pension liability of the system decrease to an amount that is below the minimum amount prescribed by the applicable requirement, whereas the introduced established that a system that has completed an evaluation pursuant to applicable requirements provided under applicable state law remains subject to the requirement based on total pension liability. The substitute includes provisions absent from the introduced that do the following: removes the specification that the substantially completed draft of an evaluation report an applicable firm must submit to a system be a preliminary draft; and includes definitions for "evaluation schedule" and "total pension liability." The substitute omits a provision included in the introduced requiring a report of the first evaluation of a public retirement system to be filed with the PRB not later than September 1, 2026.
BILL ANALYSIS
# BILL ANALYSIS
C.S.H.B. 3474
By: Lambert
Pensions, Investments & Financial Services
Committee Report (Substituted)
C.S.H.B. 3474
By: Lambert
Pensions, Investments & Financial Services
Committee Report (Substituted)
BACKGROUND AND PURPOSE Current state law requires certain public retirement systems in Texas to select an independent firm to complete an investment practices and performance evaluation (IPPE) to assess the system's investment practices and performance and make recommendations regarding areas for improvement. The law specifically requires retirement systems with total assets of at least $100 million to conduct the evaluation every three years and retirement systems with total assets between $30 million and $100 million to do so every six years. In its 2024 Investment Performance Report, the Pension Review Board (PRB) recommended that the legislature update and clarify several requirements regarding IPPE reports regarding applicability and reporting timelines to improve consistency and predictability for retirement systems and the PRB. C.S.H.B. 3474 seeks to implement these recommendations by requiring the PRB to develop a schedule of deadlines for conducting IPPE evaluations consistent with current law and clarifying the criteria that subjects systems to certain evaluation requirements.
CRIMINAL JUSTICE IMPACT It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.
ANALYSIS C.S.H.B. 3474 amends the Government Code to specify that the statutory requirement for a public retirement system to conduct an evaluation on the appropriateness, adequacy, and effectiveness of the system's investment practices and performance at certain times based on a system's total assets is in accordance with a schedule of deadlines prescribed by the Pension Review Board (PRB). The bill requires the PRB to develop that schedule of deadlines not later than January 1, 2026. With respect to the statutorily-prescribed schedule, the bill changes the point at which the amount of a system's total assets is identified for purposes of determining the frequency with which the system must conduct the evaluation, as follows: for evaluations required once every three years, from total assets being at least $100 million as of the last day of the preceding fiscal year to total assets being at least that amount as of the date of the preceding evaluation; and for evaluations required once every six years, from total assets being at least $30 million and less than $100 million as of the last day of the preceding fiscal year to total assets being such an amount as of the date of the preceding evaluation. The bill requires a public retirement system that is conducting evaluations every six years in accordance with those provisions and whose total pension liability increases to at least $100 million during a fiscal year to complete the next evaluation by the next appropriate deadline, as determined by the PRB, under the evaluation schedule. The bill establishes that a public retirement system subject to a statutorily-prescribed evaluation requirement remains subject to that same requirement unless both the total assets and the total pension liability of the system decrease to an amount that is below the minimum amount prescribed by the applicable requirement. C.S.H.B. 3474 changes the condition under which a public retirement system is not required to conduct an evaluation from the system's total assets being less than $30 million as of the last day of the preceding fiscal year to the system's total assets being less than that amount as of the last day of the fiscal year immediately preceding the next evaluation deadline under the evaluation schedule. The bill removes the filing periods and deadlines prescribed for the following requirements: the requirement for an independent firm that completes an evaluation to submit a substantially completed draft of the evaluation report to the applicable system and to request the system to submit certain response information by a certain deadline, which is also removed by the bill; the requirement for the firm to file the final evaluation report with the system's governing body; and the requirement for the governing body of a public retirement system that receives a final evaluation report to submit the report to the PRB. With respect to that requirement for an applicable firm to submit a substantially completed draft of the evaluation report, the bill removes the specification that the draft be a preliminary draft. C.S.H.B. 3474 defines the following terms: "evaluation schedule" as the schedule of deadlines prescribed by the PRB under certain provisions relating to investment practices and performance reports; and "total pension liability" as the portion of the present value of projected retirement benefit payments to be provided through the retirement system to active and inactive members that is attributable to those members' past periods of service, in compliance with Statement No. 68 of the Governmental Accounting Standards Board.
EFFECTIVE DATE September 1, 2025.
COMPARISON OF INTRODUCED AND SUBSTITUTE While C.S.H.B. 3474 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill. With respect to the requirement that a public retirement system conduct an evaluation on the appropriateness, adequacy, and effectiveness of the system's investment practices and performance at certain times based on a system's total assets, the substitute specifies that the evaluation be conducted in accordance with a schedule of deadlines prescribed by the PRB, whereas the introduced required the PRB to establish a schedule to ensure that a system conduct the evaluation at the statutorily-prescribed times. Both the introduced and the substitute changed the point at which the amount of a system's total assets is identified for purposes of determining the frequency with which a system must conduct an evaluation. However, the substitute specifies that a system's total assets are identified as of the date of the preceding evaluation, whereas the introduced removed the specification that those assets are identified as of the last day of the preceding fiscal year. Both the introduced and the substitute require certain public retirement systems to complete the next evaluation by the next appropriate deadline as prescribed by the PRB. However, the substitute requires a system to do so if the system conducts an evaluation every six years and the system's total pension liability increases to at least $100 million during a fiscal year, whereas the introduced required a public retirement system to do so if the system's total assets increase in a fiscal year to above at least $30 million or $100 million, as applicable. The substitute establishes that a public retirement system subject to a statutorily-prescribed evaluation requirement remains subject to the same requirement unless both the total assets and the total pension liability of the system decrease to an amount that is below the minimum amount prescribed by the applicable requirement, whereas the introduced established that a system that has completed an evaluation pursuant to applicable requirements provided under applicable state law remains subject to the requirement based on total pension liability. The substitute includes provisions absent from the introduced that do the following: removes the specification that the substantially completed draft of an evaluation report an applicable firm must submit to a system be a preliminary draft; and includes definitions for "evaluation schedule" and "total pension liability." The substitute omits a provision included in the introduced requiring a report of the first evaluation of a public retirement system to be filed with the PRB not later than September 1, 2026.
BACKGROUND AND PURPOSE
Current state law requires certain public retirement systems in Texas to select an independent firm to complete an investment practices and performance evaluation (IPPE) to assess the system's investment practices and performance and make recommendations regarding areas for improvement. The law specifically requires retirement systems with total assets of at least $100 million to conduct the evaluation every three years and retirement systems with total assets between $30 million and $100 million to do so every six years. In its 2024 Investment Performance Report, the Pension Review Board (PRB) recommended that the legislature update and clarify several requirements regarding IPPE reports regarding applicability and reporting timelines to improve consistency and predictability for retirement systems and the PRB. C.S.H.B. 3474 seeks to implement these recommendations by requiring the PRB to develop a schedule of deadlines for conducting IPPE evaluations consistent with current law and clarifying the criteria that subjects systems to certain evaluation requirements.
CRIMINAL JUSTICE IMPACT
It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.
ANALYSIS
C.S.H.B. 3474 amends the Government Code to specify that the statutory requirement for a public retirement system to conduct an evaluation on the appropriateness, adequacy, and effectiveness of the system's investment practices and performance at certain times based on a system's total assets is in accordance with a schedule of deadlines prescribed by the Pension Review Board (PRB). The bill requires the PRB to develop that schedule of deadlines not later than January 1, 2026. With respect to the statutorily-prescribed schedule, the bill changes the point at which the amount of a system's total assets is identified for purposes of determining the frequency with which the system must conduct the evaluation, as follows:
for evaluations required once every three years, from total assets being at least $100 million as of the last day of the preceding fiscal year to total assets being at least that amount as of the date of the preceding evaluation; and
for evaluations required once every six years, from total assets being at least $30 million and less than $100 million as of the last day of the preceding fiscal year to total assets being such an amount as of the date of the preceding evaluation.
The bill requires a public retirement system that is conducting evaluations every six years in accordance with those provisions and whose total pension liability increases to at least $100 million during a fiscal year to complete the next evaluation by the next appropriate deadline, as determined by the PRB, under the evaluation schedule. The bill establishes that a public retirement system subject to a statutorily-prescribed evaluation requirement remains subject to that same requirement unless both the total assets and the total pension liability of the system decrease to an amount that is below the minimum amount prescribed by the applicable requirement.
C.S.H.B. 3474 changes the condition under which a public retirement system is not required to conduct an evaluation from the system's total assets being less than $30 million as of the last day of the preceding fiscal year to the system's total assets being less than that amount as of the last day of the fiscal year immediately preceding the next evaluation deadline under the evaluation schedule. The bill removes the filing periods and deadlines prescribed for the following requirements:
the requirement for an independent firm that completes an evaluation to submit a substantially completed draft of the evaluation report to the applicable system and to request the system to submit certain response information by a certain deadline, which is also removed by the bill;
the requirement for the firm to file the final evaluation report with the system's governing body; and
the requirement for the governing body of a public retirement system that receives a final evaluation report to submit the report to the PRB.
With respect to that requirement for an applicable firm to submit a substantially completed draft of the evaluation report, the bill removes the specification that the draft be a preliminary draft.
C.S.H.B. 3474 defines the following terms:
"evaluation schedule" as the schedule of deadlines prescribed by the PRB under certain provisions relating to investment practices and performance reports; and
"total pension liability" as the portion of the present value of projected retirement benefit payments to be provided through the retirement system to active and inactive members that is attributable to those members' past periods of service, in compliance with Statement No. 68 of the Governmental Accounting Standards Board.
EFFECTIVE DATE
September 1, 2025.
COMPARISON OF INTRODUCED AND SUBSTITUTE
While C.S.H.B. 3474 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.
With respect to the requirement that a public retirement system conduct an evaluation on the appropriateness, adequacy, and effectiveness of the system's investment practices and performance at certain times based on a system's total assets, the substitute specifies that the evaluation be conducted in accordance with a schedule of deadlines prescribed by the PRB, whereas the introduced required the PRB to establish a schedule to ensure that a system conduct the evaluation at the statutorily-prescribed times.
Both the introduced and the substitute changed the point at which the amount of a system's total assets is identified for purposes of determining the frequency with which a system must conduct an evaluation. However, the substitute specifies that a system's total assets are identified as of the date of the preceding evaluation, whereas the introduced removed the specification that those assets are identified as of the last day of the preceding fiscal year.
Both the introduced and the substitute require certain public retirement systems to complete the next evaluation by the next appropriate deadline as prescribed by the PRB. However, the substitute requires a system to do so if the system conducts an evaluation every six years and the system's total pension liability increases to at least $100 million during a fiscal year, whereas the introduced required a public retirement system to do so if the system's total assets increase in a fiscal year to above at least $30 million or $100 million, as applicable.
The substitute establishes that a public retirement system subject to a statutorily-prescribed evaluation requirement remains subject to the same requirement unless both the total assets and the total pension liability of the system decrease to an amount that is below the minimum amount prescribed by the applicable requirement, whereas the introduced established that a system that has completed an evaluation pursuant to applicable requirements provided under applicable state law remains subject to the requirement based on total pension liability.
The substitute includes provisions absent from the introduced that do the following:
removes the specification that the substantially completed draft of an evaluation report an applicable firm must submit to a system be a preliminary draft; and
includes definitions for "evaluation schedule" and "total pension liability."
The substitute omits a provision included in the introduced requiring a report of the first evaluation of a public retirement system to be filed with the PRB not later than September 1, 2026.