Texas 2025 - 89th Regular

Texas House Bill HB4807 Compare Versions

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1	1		By: Paul H.B. No. 4807
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4	6		A BILL TO BE ENTITLED
5	7		AN ACT
6	8		relating to the fiduciary responsibility of the governing body of
7	9		the public retirement systems in this state and the investment
8	10		managers and proxy advisors acting on behalf of those systems.
9	11		BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	12		SECTION 1. Section 802.001, Government Code, is amended by
11	13		adding Subdivisions (1-b), (2-a), and (2-b) to read as follows:
12	14		(1-b) "Financial factor" means a factor taken into
13	15		consideration when making investment decisions that a prudent
14	16		investor would expect to have a material effect on controlling risk
15	17		and achieving a rate of return for an investment based on
16	18		appropriate investment horizons and consistent with the objectives
17	19		of any controlling investment plan.
18	20		(2-a) "Investment manager" means a person who for
19	21		compensation provides professional investment management services
20	22		and may include a person eligible for appointment as an investment
21	23		manager under Section 802.204. The term does not include:
22	24		(A) an employee or member of an advisory
23	25		committee of a public retirement system; or
24	26		(B) a seller of security interests.
25	27		(2-b) "Proxy advisor" means a person who for
26	28		compensation provides corporate governance ratings, proxy research
27	29		and analyses, proxy voting, or other similar services to the
28	30		shareholders of a publicly traded entity, or other interested
29	31		parties, for the purpose of advising a shareholder on how to vote on
30	32		measures under consideration by shareholders or proxy voting on
31	33		behalf of a shareholder.
32	34		SECTION 2. Section 802.002(a), Government Code, is amended
33	35		to read as follows:
34	36		(a) Except as provided by Subsection (b), the Employees
35	37		Retirement System of Texas, the Teacher Retirement System of Texas,
36	38		the Texas County and District Retirement System, the Texas
37	39		Municipal Retirement System, and the Judicial Retirement System of
38	40		Texas Plan Two are exempt from Sections 802.101(a), 802.101(b),
39	41		802.101(d), 802.102, 802.103(a), 802.103(b), 802.2015, 802.2016,
40	42		802.202, 802.203(c), (d), and (e) [802.203], 802.204, 802.205,
41	43		802.206, and 802.207. The Judicial Retirement System of Texas Plan
42	44		One is exempt from all of Subchapters B and C except Sections
43	45		802.104 and 802.105. The optional retirement program governed by
44	46		Chapter 830 is exempt from all of Subchapters B and C except Section
45	47		802.106.
46	48		SECTION 3. Section 802.203(a), Government Code, is amended
47	49		to read as follows:
48	50		(a) In making and supervising investments of the reserve
49	51		fund of a public retirement system, an investment manager or the
50	52		governing body of a public retirement system shall discharge its
51	53		duties solely in the financial interest of the participants and
52	54		beneficiaries:
53	55		(1) for the exclusive purposes of:
54	56		(A) managing risk and providing financial
55	57		benefits to participants and their beneficiaries; and
56	58		(B) defraying reasonable expenses of
57	59		administering the system;
58	60		(2) with the care, skill, prudence, and diligence
59	61		under the prevailing circumstances that a prudent person acting in
60	62		a like capacity and familiar with matters of the type would use in
61	63		the conduct of an enterprise with a like character and like aims;
62	64		(3) by diversifying the investments of the system to
63	65		minimize the risk of large financial losses, unless under the
64	66		circumstances it is clearly prudent not to do so; and
65	67		(4) in accordance with the documents and instruments
66	68		governing the system to the extent that the documents and
67	69		instruments are consistent with this subchapter.
68	70		SECTION 4. Subchapter C, Chapter 802, Government Code, is
69	71		amended by adding Sections 802.2031 through 802.2038 to read as
70	72		follows:
71	73		Sec. 802.2031. INVESTMENT STANDARDS: OBLIGATION TO
72	74		DISCHARGE DUTY BASED SOLELY ON CERTAIN FINANCIAL INTERESTS. (a)
73	75		For purposes of discharging its duties solely in the financial
74	76		interest of participants and beneficiaries under Section
75	77		802.203(a) and except as provided by Chapters 808, 809, and 2270 and
76	78		Chapter 2274, as added by Chapters 529 (S.B. 13), 530 (S.B. 19), 833
77	79		(S.B. 4), and 975 (S.B. 2116), Acts of the 87th Legislature, Regular
78	80		Session, 2021, the governing body of the public retirement system
79	81		or an investment manager:
80	82		(1) shall:
81	83		(A) make all investments prudently and in
82	84		accordance with applicable fiduciary and ethical standards; and
83	85		(B) take into account only financial factors when
84	86		discharging its duties with respect to a plan administered by the
85	87		system; and
86	88		(2) may not use the system's assets to take any action
87	89		with the purpose of furthering social, political, or ideological
88	90		interests.
89	91		(b) In accordance with this section and Section 802.203(a),
90	92		all shares held by or on behalf of a public retirement system or the
91	93		system's participants and beneficiaries, as applicable, if voted,
92	94		shall be voted solely based on financial factors.
93	95		Sec. 802.2032. REQUIRED INVESTMENT CONTRACT PROVISIONS;
94	96		EFFECT ON CERTAIN OTHER LAW. (a) The governing body of a public
95	97		retirement system may not enter into a contract with an investment
96	98		manager or a proxy advisor relating to investing the system's
97	99		assets or voting, or advising on voting, shares held by the system
98	100		unless the contract contains a requirement that the manager or
99	101		advisor, as applicable:
100	102		(1) take into account only financial factors when
101	103		discharging the manager's or advisor's duties under the contract,
102	104		with respect to investing the system's assets and voting, or
103	105		advising on voting, shares held by the system; and
104	106		(2) not take any action under the contract with the
105	107		purpose of furthering social, political, or ideological interests,
106	108		including an action with respect to investing the system's assets
107	109		or voting, or advising on voting, shares held by the system.
108	110		(b) Notwithstanding Section 809.051, the list maintained
109	111		under that section may not contain an investment manager, proxy
110	112		advisor, or other financial company who enters into a contract
111	113		under this section for the period during which the contract is in
112	114		effect.
113	115		Sec. 802.2033. PROXY VOTING AUTHORITY. (a) The governing
114	116		body of a public retirement system may not grant proxy voting
115	117		authority to a proxy advisor unless:
116	118		(1) the proxy advisor offers a policy for proxy voting
117	119		advice:
118	120		(A) that is consistent with the requirements for
119	121		voting shares imposed on the system under Section 802.2031(b); and
120	122		(B) the sole goal of which is to maximize
121	123		financial return and control associated levels of risk; and
122	124		(2) the grant of proxy voting authority requires the
123	125		proxy advisor to follow that policy.
124	126		(b) The policy may include additions or customizations only
125	127		if those additions or customizations are consistent with the sole
126	128		goal of the policy as described by Subsection (a).
127	129		(c) The governing body of a public retirement system that
128	130		grants proxy voting authority in accordance with this section shall
129	131		provide the State Pension Review Board a copy of the policy
130	132		described by Subsection (a)(1). If the public retirement system is
131	133		subject to Section 802.2035, the governing body of the system shall
132	134		provide a copy of the policy to the State Pension Review Board at
133	135		the same time the governing body provides the board with the annual
134	136		report required under that section.
135	137		Sec. 802.2034. PROXY VOTING: PUBLIC NOTICE AND ANNUAL
136	138		REPORT. (a) This section applies only to a public retirement
137	139		system that holds shares that the system is entitled to vote by
138	140		proxy.
139	141		(b) Subject to Subsection (c), the governing body of a
140	142		public retirement system shall post on the system's publicly
141	143		accessible Internet website how a proxy advisor will cast a proxy
142	144		vote made on behalf of the system or the system's participants and
143	145		beneficiaries, if possible, not later than the earlier of:
144	146		(1) the seventh day before the date a proxy vote is to
145	147		be cast; or
146	148		(2) 48 hours after receiving a vote recommendation
147	149		from the proxy advisor on the proxy vote.
148	150		(c) A public retirement system shall post on the system's
149	151		publicly accessible Internet website how a proxy advisor will cast
150	152		a proxy vote made on behalf of the system or the system's
151	153		participants and beneficiaries not later than 24 hours before the
152	154		proxy vote is to be cast.
153	155		(d) Except as provided by Subsection (e), not later than the
154	156		180th day after the last day of a public retirement system's fiscal
155	157		year, the governing body of the system shall tabulate all proxy
156	158		votes made on behalf of the system by proxy advisors during the
157	159		preceding fiscal year of the system and report the votes to the
158	160		State Pension Review Board. For each vote, the report must contain
159	161		a vote caption, the system's vote, the recommendation, if any, of
160	162		the company holding the election, and, as applicable, the
161	163		recommendation of the proxy advisor. The State Pension Review Board
162	164		shall post reports submitted under this subsection to the board's
163	165		publicly accessible Internet website.
164	166		(e) In lieu of submitting a report under Subsection (d), the
165	167		governing body of a public retirement system may provide to the
166	168		State Pension Review Board the location of a report posted to the
167	169		system's publicly accessible Internet website that contains the
168	170		information required by that subsection.
169	171		(f) Except as provided by Subsection (g), if the governing
170	172		body of a public retirement system grants proxy voting authority to
171	173		an investment manager, the investment manager shall submit a
172	174		report to the retirement system, and the retirement system shall
173	175		submit a report to the State Pension Review Board, that tabulates
174	176		all proxy votes cast by the investment manager on behalf of the
175	177		system for each 12-month period the investment manager is managing
176	178		any assets of the system. The State Pension Review Board shall post
177	179		the reports submitted under this subsection to the board's
178	180		publicly accessible Internet website.
179	181		(g) Subsection (f) does not apply to an investment manager
180	182		that manages less than $50 million of a public retirement system's
181	183		assets.
182	184		Sec. 802.2035. ANNUAL REPORT TO STATE PENSION REVIEW BOARD
183	185		ON CERTAIN INVESTMENT RELATIONSHIPS. (a) This section applies
184	186		only to a public retirement system with more than $100 million in
185	187		assets.
186	188		(b) Annually, the governing body of a public retirement
187	189		system shall submit a report to the State Pension Review Board that
188	190		details investment relationships maintained by the system and, if
189	191		applicable, shall consolidate the report with any annual
190	192		comprehensive financial report required of the system under other
191	193		law. The report required by this section must include information
192	194		regarding each:
193	195		(1) subject to Subsection (c), fund or investment
194	196		entity the system is invested in or has invested in during the
195	197		preceding 12-month period; and
196	198		(2) subject to Subsection (d), investment manager with
197	199		which the system contracts to provide investment management
198	200		services.
199	201		(c) For purposes of Subsection (b)(1), regarding each fund
200	202		or investment entity described by that subdivision, the report
201	203		required by this section must contain:
202	204		(1) the name of the fund or investment entity;
203	205		(2) the date on which the fund or investment entity
204	206		described by Subdivision (1) was established and each date during
205	207		the applicable 12-month period the system invested in the fund or
206	208		entity;
207	209		(3) with respect to a fund or investment entity, the
208	210		amount of money, expressed in dollars, the system:
209	211		(A) committed to the fund or entity described by
210	212		Subdivision (1);
211	213		(B) is invested in or has invested in the fund or
212	214		entity during the applicable 12-month period under Subsection
213	215		(b)(1); and
214	216		(C) received from any fund or investment entity
215	217		during the applicable 12-month period;
216	218		(4) the total amount of fees, including expenses,
217	219		charges, and other compensation, assessed against the system by,
218	220		or paid by the system to, any fund or investment entity in which the
219	221		system is invested in or has invested in during the applicable
220	222		12-month period; and
221	223		(5) the internal rate of return, or other standard of
222	224		investment return, on money invested in each fund or investment
223	225		entity, and the date on which the return was calculated.
224	226		(d) For purposes of Subsection (b)(2), regarding each
225	227		contract with an investment manager providing investment manager
226	228		services, the report required by this section must contain:
227	229		(1) the net value of the assets being managed under the
228	230		contract; and
229	231		(2) the total amount of fees, including expenses,
230	232		charges, and other compensation, assessed against the system by,
231	233		or paid by the system to, any fund or investment entity in which the
232	234		system is invested in or has invested in during the preceding
233	235		12-month period.
234	236		(e) The State Pension Review Board shall post the report
235	237		received under this section to the board's publicly accessible
236	238		Internet website.
237	239		Sec. 802.2036. INJUNCTION BY RETIREMENT SYSTEMS. (a) A
238	240		public retirement system may bring an action in district court to
239	241		restrain or enjoin an investment manager or proxy advisor from
240	242		breaching a contract provision required under Section 802.2032 or
241	243		violating Section 802.203(a).
242	244		(b) The court may award court costs and reasonable
243	245		attorney's fees to a party who prevails in an action brought under
244	246		this section.
245	247		(c) The court in which the action is brought shall give
246	248		precedence to proceedings in the same manner as provided for an
247	249		election contest under Section 23.101.
248	250		Sec. 802.2037. INAPPLICABILITY OF REQUIREMENTS
249	251		INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES.
250	252		(a) A public retirement system is not subject to a requirement of
251	253		Sections 802.203 through 802.2035 if the system determines that
252	254		the requirement would be inconsistent with its fiduciary
253	255		responsibility with respect to the investment of system assets or
254	256		other duties imposed by law relating to the investment of system
255	257		assets, including the duty of care established under Section 67,
256	258		Article XVI, Texas Constitution.
257	259		(b) If a public retirement system determines that complying
258	260		with the requirement in a specific case is inconsistent with its
259	261		fiduciary responsibility as described by Subsection (a), the system
260	262		shall notify in writing the State Pension Review Board of the
261	263		determination and the board shall post the determination on the
262	264		board's publicly accessible Internet website.
263	265		Sec. 802.2038. RULES ON INVESTMENTS, VOTING SHARES, AND
264	266		RELATED REPORTS. The State Pension Review Board may adopt rules to
265	267		implement Section 802.203, 802.2031, 802.2032, 802.2033,
266	268		802.2034, 802.2035, or 802.2037.
267	269		SECTION 5. The changes in law made by this Act apply only to
268	270		a contract entered into on or after the effective date of this Act.
269	271		A contract entered into before the effective date of this Act is
270	272		governed by the law in effect on the date the contract was entered
271	273		into, and the former law is continued in effect for that purpose.
272	274		SECTION 6. (a) Notwithstanding any other section of this
273	275		Act, in a state fiscal year, the State Pension Review Board is not
274	276		required to implement a provision found in another section of this
275	277		Act that is drafted as a mandatory provision imposing a duty on the
276	278		board to take an action unless money is specifically appropriated
277	279		to the board for that fiscal year to carry out that duty. The State
278	280		Pension Review Board may implement the provision in that fiscal
279	281		year to the extent other funding is available to the board to do so.
280	282		(b) If, as authorized by Subsection (a) of this section, the
281	283		State Pension Review Board does not implement the mandatory
282	284		provision in a state fiscal year, the board, in its legislative
283	285		budget request for the next state fiscal biennium, shall certify
284	286		that fact to the Legislative Budget Board and include a written
285	287		estimate of the costs of implementing the provision in each year of
286	288		that next state fiscal biennium.
287	289		(c) This section expires and any duty suspended by
288	290		Subsection (a) of this section becomes mandatory on September 1,
289	291		2027.
290	292		SECTION 7. It is the intent of the 88th Legislature, Regular
291	293		Session, 2023, that the amendments made by this Act be harmonized
292	294		with another Act of the 88th Legislature, Regular Session, 2023,
293	295		relating to nonsubstantive additions to and corrections in enacted
294	296		codes.
295	297		SECTION 8. This Act takes effect September 1, 2025.