BILL ANALYSIS Senate Research Center S.B. 312 89R2179 JCG-F By: Hughes State Affairs 4/22/2025 As Filed AUTHOR'S / SPONSOR'S STATEMENT OF INTENT Texas law currently states that public retirement funds must be managed "for the exclusive purposes of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the system." S.B. 312 enhances those protections in the following ways: 1. Focus on Financial Benefits: Clarifies that the "benefits" referred to in Texas law are "financial benefits," in line with U.S. Supreme Court case law interpreting identical language in federal law. See Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 421 (2014). Also requires the governing bodies of public retirement systems to take into account only "financial factors," and prohibits using system assets with a purpose of furthering social, political, or ideological interests. Ensures that public retirement funds are managed exclusively for the financial benefit of retirees, not for purported social, political, or ideological benefits. 2. Investment Management Protections: Requires third-party investment managers for public retirement systems to take into account only financial factors when discharging their contractual duties, and not take any action with a purpose of furthering social, political, or ideological goals. Ensures that investment managers managing public retirement funds are managing those funds based solely on financial factors. 3. Proxy Voting Protections: Requires that shares of stock held by public retirement systems be voted based solely on financial factors, and that those votes be reported publicly. Also requires that third-party proxy advisors for public retirement funds agree not to take actions based on social, political, or ideological interests; to avoid conflicts of interest; and to provide financial analysis for their recommendations to override the judgment of a company's board of directors. Ensures that shareholder votes are used by public retirement funds solely for the purpose of financially benefiting participants and beneficiaries. 4. Reporting and Remedies: Systems with over $100 million in assets must report investment relationships, detailing funds, investment entities, and managers, including fees, returns, and commitments. Reports are posted on the State Pension Review Board's website. Also allows public retirement systems to seek an injunction if an investment manager or proxy advisor is breaching its obligations to the system. As proposed, S.B. 312 amends current law relating to the fiduciary responsibility of the governing body of the public retirement systems in this state and the investment managers and proxy advisors acting on behalf of those systems. RULEMAKING AUTHORITY Rulemaking authority is expressly granted to the State Pension Review Board in SECTION 4 (Section 802.2038, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 802.001, Government Code, by adding Subdivisions (1-b), (2-a), and (2-b) to define "financial factor," "investment manager," and "proxy advisor." SECTION 2. Amends Section 802.002(a), Government Code, as follows: (a) Provides that, except as provided by Subsection (b) (relating to a public retirement system or program that is exempt under Subsection (a) and required to make an actuarial valuation of the assets of the system or program and publish certain information), the Employees Retirement System of Texas, the Teacher Retirement System of Texas, the Texas County and District Retirement System, the Texas Municipal Retirement System, and the Judicial Retirement System of Texas Plan Two are exempt from certain provisions, including Sections 802.203(c) (relating to a trustee not being liable for the acts or omissions of an investment manager appointed under Section 802.204 (Investment Manager) nor being obligated to invest or otherwise manage any asset of the system subject to management by the investment manager), (d) (relating to an acknowledgement of fiduciary responsibility made by an investment manager appointed under Section 802.204), and (e) (relating to certain standards, policies, or requirements for, or restrictions on, the investment of funds of a public retirement system), rather than Section 802.203 (Fiduciary Responsibility). SECTION 3. Amends Section 802.203(a), Government Code, as follows: (a) Requires an investment manager or the governing body of a public retirement system, in making and supervising investments of the reserve fund of a public retirement system, to discharge its duties solely in the financial interest of the participants and beneficiaries: (1) for the exclusive purposes of certain goals, including managing risk and providing financial benefits to participants and their beneficiaries; (2) makes no changes to this subdivision; (3) by diversifying the investments of the system to minimize the risk of large financial losses, rather than large losses, unless under the circumstances it is clearly prudent not to do so; and (4) makes no changes to this subdivision. SECTION 4. Amends Subchapter C, Chapter 802, Government Code, by adding Sections 802.2031 through 802.2038, as follows: Sec. 802.2031. INVESTMENT STANDARDS: OBLIGATION TO DISCHARGE DUTY BASED SOLELY ON CERTAIN FINANCIAL INTERESTS. (a) Provides that the governing body of the public retirement system or an investment manager, for purposes of discharging its duties solely in the financial interest of participants and beneficiaries under Section 802.203(a) and except as provided by certain chapters, is required to make all investments prudently and in accordance with applicable fiduciary and ethical standards and take into account only financial factors when discharging its duties with respect to a plan administered by the system and is prohibited from using the system's assets to take any action with the purpose of furthering social, political, or ideological interests. (b) Requires that, in accordance with this section and Section 802.203(a), all shares held by or on behalf of a public retirement system or the system's participants and beneficiaries, as applicable, if voted, be voted solely based on financial factors. Sec. 802.2032. REQUIRED INVESTMENT CONTRACT PROVISIONS; EFFECT ON CERTAIN OTHER LAW. (a) Prohibits the governing body of a public retirement system from entering into a contract with an investment manager or a proxy advisor relating to investing the system's assets or voting, or advising on voting, shares held by the system unless the contract contains a requirement that the manager or advisor, as applicable: (1) take into account only financial factors when discharging the manager's or advisor's duties under the contract, with respect to investing the system's assets and voting, or advising on voting, shares held by the system; and (2) not take any action under the contract with the purpose of furthering social, political, or ideological interests, including an action with respect to investing the system's assets or voting, or advising on voting, shares held by the system. (b) Prohibits the list maintained under Section 809.051 (Listed Financial Companies), notwithstanding that section, from containing an investment manager, proxy advisor, or other financial company who enters into a contract under this section for the period during which the contract is in effect. Sec. 802.2033. PROXY VOTING AUTHORITY. (a) Prohibits the governing body of a public retirement system from granting proxy voting authority to a proxy advisor unless: (1) the proxy advisor offers a policy for proxy voting advice: (A) that is consistent with the requirements for voting shares imposed on the system under Section 802.2031(b); and (B) the sole goal of which is to maximize financial return and control associated levels of risk; and (2) the grant of proxy voting authority requires the proxy advisor to follow that policy. (b) Authorizes the policy to include additions or customizations only if those additions or customizations are consistent with the sole goal of the policy as described by Subsection (a)(1)(B). (c) Requires the governing body of a public retirement system that grants proxy voting authority in accordance with this section to provide the State Pension Review Board (PRB) a copy of the policy described by Subsection (a)(1). Requires the governing body of the public retirement system, if the system is subject to Section 802.2035, to provide a copy of the policy to PRB at the same time the governing body provides the board with the annual report required under that section. Sec. 802.2034. PROXY VOTING: PUBLIC NOTICE AND ANNUAL REPORT. (a) Provides that this section applies only to a public retirement system that holds shares that the system is entitled to vote by proxy. (b) Requires the governing body of a public retirement system, subject to Subsection (c), to post on the system's publicly accessible Internet website how a proxy advisor will cast a proxy vote made on behalf of the system or the system's participants and beneficiaries, if possible, not later than the earlier of the seventh day before the date a proxy vote is to be cast or 48 hours after the hour in which a vote recommendation on the proxy vote is received from the proxy advisor. (c) Requires a public retirement system to post on the system's publicly accessible Internet website how a proxy advisor will cast a proxy vote made on behalf of the system or the system's participants and beneficiaries not later than 24 hours before the hour the proxy vote is to be cast. (d) Requires the governing body of a public retirement system, except as provided by Subsection (e), not later than the 180th day after the last day of the system's fiscal year, to tabulate all proxy votes made on behalf of the system by proxy advisors during the preceding fiscal year of the system and report the votes to PRB. Requires that the report, for each vote, contain a vote caption, the system's vote, the recommendation, if any, of the company holding the election, and, as applicable, the recommendation of the proxy advisor. Requires PRB to post reports submitted under this subsection to the board's publicly accessible Internet website. (e) Authorizes the governing body of a public retirement system, instead of submitting a report under Subsection (d), to provide to PRB the location of a report posted to the system's publicly accessible Internet website that contains the information required by that subsection. (f) Requires an investment manager, except as provided by Subsection (g), if the governing body of a public retirement system grants proxy voting authority to the investment manager, to submit a report to the retirement system, and retirement system to submit a report to PRB, that tabulates all proxy votes cast by the investment manager on behalf of the system for each 12-month period the investment manager is managing any assets of the system. Requires PRB to post the reports submitted under this subsection to the board's publicly accessible Internet website. (g) Provides that Subsection (f) does not apply to an investment manager that manages less than $50 million of a public retirement system's assets. Sec. 802.2035. ANNUAL REPORT TO STATE PENSION REVIEW BOARD ON CERTAIN INVESTMENT RELATIONSHIPS. (a) Provides that this section applies only to a public retirement system with more than $100 million in assets. (b) Requires the governing body of a public retirement system, annually, to submit a report to PRB that details investment relationships maintained by the system and, if applicable, to consolidate the report with any annual comprehensive financial report required of the system under other law. Requires that the report required by this section include information regarding each: (1) subject to Subsection (c), fund or investment entity the system is invested in or has invested in during the preceding 12-month period; and (2) subject to Subsection (d), investment manager with which the system contracts to provide investment management services. (c) Requires that the report required by this section, for purposes of Subsection (b)(1), regarding each fund or investment entity described by that subdivision, contain: (1) the name of the fund or investment entity; (2) the date on which the fund or investment entity described by Subdivision (1) was established and each date during the applicable 12-month period the system invested in the fund or entity; (3) with respect to a fund or investment entity, the amount of money, expressed in dollars, the system committed to the fund or entity described by Subdivision (1), is invested in or has invested in the fund or entity during the applicable 12-month period under Subsection (b)(1), and received from any fund or investment entity during the applicable 12-month period; (4) the total amount of fees, including expenses, charges, and other compensation, assessed against the system by, or paid by the system to, any fund or investment entity in which the system is invested in or has invested in during the applicable 12-month period; and (5) the internal rate of return, or other standard of investment return, on money invested in each fund or investment entity, and the date on which the return was calculated. (d) Requires that the report required by this section, for purposes of Subsection (b)(2), regarding each contract with an investment manager providing investment manager services, contain the net value of the assets being managed under the contract and the total amount of fees, including expenses, charges, and other compensation, assessed against the system by, or paid by the system to, any fund or investment entity in which the system is invested in or has invested in during the preceding 12-month period. (e) Requires PRB to post the report received under this section to PRB's publicly accessible Internet website. Sec. 802.2036. INJUNCTION BY RETIREMENT SYSTEMS. (a) Authorizes a public retirement system to bring an action in district court to restrain an investment manager or proxy advisor from breaching a contract provision required under Section 802.2032 or violating Section 802.203(a). (b) Authorizes the court to award court costs and reasonable attorney's fees to a party who prevails in an action brought under this section. (c) Requires the court in which the action is brought to give precedence to proceedings in the same manner as provided for an election contest under Section 23.101 (Primary Priorities). Sec. 802.2037. INAPPLICABILITY OF REQUIREMENTS INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES. (a) Provides that a public retirement system is not subject to a requirement of Sections 802.203 through 802.2035 if the system determines that the requirement would be inconsistent with its fiduciary responsibility with respect to the investment of system assets or other duties imposed by law relating to the investment of system assets, including the duty of care established under Section 67 (State and Local Retirement Systems), Article XVI (General Provisions), Texas Constitution. (b) Requires a public retirement system, if the system determines that complying with the requirement in a specific case is inconsistent with its fiduciary responsibility as described by Subsection (a), to notify in writing PRB of the determination and requires PRB to post the determination on PRB's publicly accessible Internet website. Sec. 802.2038. RULES ON INVESTMENTS, VOTING SHARES, AND RELATED REPORTS. Authorizes PRB to adopt rules to implement Section 802.203, 802.2031, 802.2032, 802.2033, 802.2034, 802.2035, or 802.2037. SECTION 5. Makes application of this Act prospective. SECTION 6. Effective date: September 1, 2025.
BILL ANALYSIS
Senate Research Center S.B. 312
89R2179 JCG-F By: Hughes
State Affairs
4/22/2025
As Filed
Senate Research Center
S.B. 312
89R2179 JCG-F
By: Hughes
State Affairs
4/22/2025
As Filed
AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
Texas law currently states that public retirement funds must be managed "for the exclusive purposes of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the system." S.B. 312 enhances those protections in the following ways:
1. Focus on Financial Benefits: Clarifies that the "benefits" referred to in Texas law are "financial benefits," in line with U.S. Supreme Court case law interpreting identical language in federal law. See Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 421 (2014). Also requires the governing bodies of public retirement systems to take into account only "financial factors," and prohibits using system assets with a purpose of furthering social, political, or ideological interests.
Ensures that public retirement funds are managed exclusively for the financial benefit of retirees, not for purported social, political, or ideological benefits.
2. Investment Management Protections: Requires third-party investment managers for public retirement systems to take into account only financial factors when discharging their contractual duties, and not take any action with a purpose of furthering social, political, or ideological goals.
Ensures that investment managers managing public retirement funds are managing those funds based solely on financial factors.
3. Proxy Voting Protections: Requires that shares of stock held by public retirement systems be voted based solely on financial factors, and that those votes be reported publicly. Also requires that third-party proxy advisors for public retirement funds agree not to take actions based on social, political, or ideological interests; to avoid conflicts of interest; and to provide financial analysis for their recommendations to override the judgment of a company's board of directors.
Ensures that shareholder votes are used by public retirement funds solely for the purpose of financially benefiting participants and beneficiaries.
4. Reporting and Remedies: Systems with over $100 million in assets must report investment relationships, detailing funds, investment entities, and managers, including fees, returns, and commitments. Reports are posted on the State Pension Review Board's website. Also allows public retirement systems to seek an injunction if an investment manager or proxy advisor is breaching its obligations to the system.
As proposed, S.B. 312 amends current law relating to the fiduciary responsibility of the governing body of the public retirement systems in this state and the investment managers and proxy advisors acting on behalf of those systems.
RULEMAKING AUTHORITY
Rulemaking authority is expressly granted to the State Pension Review Board in SECTION 4 (Section 802.2038, Government Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 802.001, Government Code, by adding Subdivisions (1-b), (2-a), and (2-b) to define "financial factor," "investment manager," and "proxy advisor."
SECTION 2. Amends Section 802.002(a), Government Code, as follows:
(a) Provides that, except as provided by Subsection (b) (relating to a public retirement system or program that is exempt under Subsection (a) and required to make an actuarial valuation of the assets of the system or program and publish certain information), the Employees Retirement System of Texas, the Teacher Retirement System of Texas, the Texas County and District Retirement System, the Texas Municipal Retirement System, and the Judicial Retirement System of Texas Plan Two are exempt from certain provisions, including Sections 802.203(c) (relating to a trustee not being liable for the acts or omissions of an investment manager appointed under Section 802.204 (Investment Manager) nor being obligated to invest or otherwise manage any asset of the system subject to management by the investment manager), (d) (relating to an acknowledgement of fiduciary responsibility made by an investment manager appointed under Section 802.204), and (e) (relating to certain standards, policies, or requirements for, or restrictions on, the investment of funds of a public retirement system), rather than Section 802.203 (Fiduciary Responsibility).
SECTION 3. Amends Section 802.203(a), Government Code, as follows:
(a) Requires an investment manager or the governing body of a public retirement system, in making and supervising investments of the reserve fund of a public retirement system, to discharge its duties solely in the financial interest of the participants and beneficiaries:
(1) for the exclusive purposes of certain goals, including managing risk and providing financial benefits to participants and their beneficiaries;
(2) makes no changes to this subdivision;
(3) by diversifying the investments of the system to minimize the risk of large financial losses, rather than large losses, unless under the circumstances it is clearly prudent not to do so; and
(4) makes no changes to this subdivision.
SECTION 4. Amends Subchapter C, Chapter 802, Government Code, by adding Sections 802.2031 through 802.2038, as follows:
Sec. 802.2031. INVESTMENT STANDARDS: OBLIGATION TO DISCHARGE DUTY BASED SOLELY ON CERTAIN FINANCIAL INTERESTS. (a) Provides that the governing body of the public retirement system or an investment manager, for purposes of discharging its duties solely in the financial interest of participants and beneficiaries under Section 802.203(a) and except as provided by certain chapters, is required to make all investments prudently and in accordance with applicable fiduciary and ethical standards and take into account only financial factors when discharging its duties with respect to a plan administered by the system and is prohibited from using the system's assets to take any action with the purpose of furthering social, political, or ideological interests.
(b) Requires that, in accordance with this section and Section 802.203(a), all shares held by or on behalf of a public retirement system or the system's participants and beneficiaries, as applicable, if voted, be voted solely based on financial factors.
Sec. 802.2032. REQUIRED INVESTMENT CONTRACT PROVISIONS; EFFECT ON CERTAIN OTHER LAW. (a) Prohibits the governing body of a public retirement system from entering into a contract with an investment manager or a proxy advisor relating to investing the system's assets or voting, or advising on voting, shares held by the system unless the contract contains a requirement that the manager or advisor, as applicable:
(1) take into account only financial factors when discharging the manager's or advisor's duties under the contract, with respect to investing the system's assets and voting, or advising on voting, shares held by the system; and
(2) not take any action under the contract with the purpose of furthering social, political, or ideological interests, including an action with respect to investing the system's assets or voting, or advising on voting, shares held by the system.
(b) Prohibits the list maintained under Section 809.051 (Listed Financial Companies), notwithstanding that section, from containing an investment manager, proxy advisor, or other financial company who enters into a contract under this section for the period during which the contract is in effect.
Sec. 802.2033. PROXY VOTING AUTHORITY. (a) Prohibits the governing body of a public retirement system from granting proxy voting authority to a proxy advisor unless:
(1) the proxy advisor offers a policy for proxy voting advice:
(A) that is consistent with the requirements for voting shares imposed on the system under Section 802.2031(b); and
(B) the sole goal of which is to maximize financial return and control associated levels of risk; and
(2) the grant of proxy voting authority requires the proxy advisor to follow that policy.
(b) Authorizes the policy to include additions or customizations only if those additions or customizations are consistent with the sole goal of the policy as described by Subsection (a)(1)(B).
(c) Requires the governing body of a public retirement system that grants proxy voting authority in accordance with this section to provide the State Pension Review Board (PRB) a copy of the policy described by Subsection (a)(1). Requires the governing body of the public retirement system, if the system is subject to Section 802.2035, to provide a copy of the policy to PRB at the same time the governing body provides the board with the annual report required under that section.
Sec. 802.2034. PROXY VOTING: PUBLIC NOTICE AND ANNUAL REPORT. (a) Provides that this section applies only to a public retirement system that holds shares that the system is entitled to vote by proxy.
(b) Requires the governing body of a public retirement system, subject to Subsection (c), to post on the system's publicly accessible Internet website how a proxy advisor will cast a proxy vote made on behalf of the system or the system's participants and beneficiaries, if possible, not later than the earlier of the seventh day before the date a proxy vote is to be cast or 48 hours after the hour in which a vote recommendation on the proxy vote is received from the proxy advisor.
(c) Requires a public retirement system to post on the system's publicly accessible Internet website how a proxy advisor will cast a proxy vote made on behalf of the system or the system's participants and beneficiaries not later than 24 hours before the hour the proxy vote is to be cast.
(d) Requires the governing body of a public retirement system, except as provided by Subsection (e), not later than the 180th day after the last day of the system's fiscal year, to tabulate all proxy votes made on behalf of the system by proxy advisors during the preceding fiscal year of the system and report the votes to PRB. Requires that the report, for each vote, contain a vote caption, the system's vote, the recommendation, if any, of the company holding the election, and, as applicable, the recommendation of the proxy advisor. Requires PRB to post reports submitted under this subsection to the board's publicly accessible Internet website.
(e) Authorizes the governing body of a public retirement system, instead of submitting a report under Subsection (d), to provide to PRB the location of a report posted to the system's publicly accessible Internet website that contains the information required by that subsection.
(f) Requires an investment manager, except as provided by Subsection (g), if the governing body of a public retirement system grants proxy voting authority to the investment manager, to submit a report to the retirement system, and retirement system to submit a report to PRB, that tabulates all proxy votes cast by the investment manager on behalf of the system for each 12-month period the investment manager is managing any assets of the system. Requires PRB to post the reports submitted under this subsection to the board's publicly accessible Internet website.
(g) Provides that Subsection (f) does not apply to an investment manager that manages less than $50 million of a public retirement system's assets.
Sec. 802.2035. ANNUAL REPORT TO STATE PENSION REVIEW BOARD ON CERTAIN INVESTMENT RELATIONSHIPS. (a) Provides that this section applies only to a public retirement system with more than $100 million in assets.
(b) Requires the governing body of a public retirement system, annually, to submit a report to PRB that details investment relationships maintained by the system and, if applicable, to consolidate the report with any annual comprehensive financial report required of the system under other law. Requires that the report required by this section include information regarding each:
(1) subject to Subsection (c), fund or investment entity the system is invested in or has invested in during the preceding 12-month period; and
(2) subject to Subsection (d), investment manager with which the system contracts to provide investment management services.
(c) Requires that the report required by this section, for purposes of Subsection (b)(1), regarding each fund or investment entity described by that subdivision, contain:
(1) the name of the fund or investment entity;
(2) the date on which the fund or investment entity described by Subdivision (1) was established and each date during the applicable 12-month period the system invested in the fund or entity;
(3) with respect to a fund or investment entity, the amount of money, expressed in dollars, the system committed to the fund or entity described by Subdivision (1), is invested in or has invested in the fund or entity during the applicable 12-month period under Subsection (b)(1), and received from any fund or investment entity during the applicable 12-month period;
(4) the total amount of fees, including expenses, charges, and other compensation, assessed against the system by, or paid by the system to, any fund or investment entity in which the system is invested in or has invested in during the applicable 12-month period; and
(5) the internal rate of return, or other standard of investment return, on money invested in each fund or investment entity, and the date on which the return was calculated.
(d) Requires that the report required by this section, for purposes of Subsection (b)(2), regarding each contract with an investment manager providing investment manager services, contain the net value of the assets being managed under the contract and the total amount of fees, including expenses, charges, and other compensation, assessed against the system by, or paid by the system to, any fund or investment entity in which the system is invested in or has invested in during the preceding 12-month period.
(e) Requires PRB to post the report received under this section to PRB's publicly accessible Internet website.
Sec. 802.2036. INJUNCTION BY RETIREMENT SYSTEMS. (a) Authorizes a public retirement system to bring an action in district court to restrain an investment manager or proxy advisor from breaching a contract provision required under Section 802.2032 or violating Section 802.203(a).
(b) Authorizes the court to award court costs and reasonable attorney's fees to a party who prevails in an action brought under this section.
(c) Requires the court in which the action is brought to give precedence to proceedings in the same manner as provided for an election contest under Section 23.101 (Primary Priorities).
Sec. 802.2037. INAPPLICABILITY OF REQUIREMENTS INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES. (a) Provides that a public retirement system is not subject to a requirement of Sections 802.203 through 802.2035 if the system determines that the requirement would be inconsistent with its fiduciary responsibility with respect to the investment of system assets or other duties imposed by law relating to the investment of system assets, including the duty of care established under Section 67 (State and Local Retirement Systems), Article XVI (General Provisions), Texas Constitution.
(b) Requires a public retirement system, if the system determines that complying with the requirement in a specific case is inconsistent with its fiduciary responsibility as described by Subsection (a), to notify in writing PRB of the determination and requires PRB to post the determination on PRB's publicly accessible Internet website.
Sec. 802.2038. RULES ON INVESTMENTS, VOTING SHARES, AND RELATED REPORTS. Authorizes PRB to adopt rules to implement Section 802.203, 802.2031, 802.2032, 802.2033, 802.2034, 802.2035, or 802.2037.
SECTION 5. Makes application of this Act prospective.
SECTION 6. Effective date: September 1, 2025.