Texas 2025 - 89th Regular

Texas Senate Bill SB312 Compare Versions

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1	1	89R2179 JCG-F
2	2	By: Hughes S.B. No. 312
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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	The term:
24	24	(A) includes a person eligible for appointment as
25	25	an investment manager under Section 802.204; and
26	26	(B) does not include:
27	27	(i) an employee or member of an advisory
28	28	committee of a public retirement system; or
29	29	(ii) a seller of security interests.
30	30	(2-b) "Proxy advisor" means a person who for
31	31	compensation provides corporate governance ratings, proxy research
32	32	and analyses, proxy voting, or other similar services to the
33	33	shareholders of a publicly traded entity, or other interested
34	34	parties, for the purpose of advising a shareholder or other
35	35	interested party on how to vote on measures under consideration by
36	36	shareholders or voting on behalf of a shareholder by proxy.
37	37	SECTION 2. Section 802.002(a), Government Code, is amended
38	38	to read as follows:
39	39	(a) Except as provided by Subsection (b), the Employees
40	40	Retirement System of Texas, the Teacher Retirement System of Texas,
41	41	the Texas County and District Retirement System, the Texas
42	42	Municipal Retirement System, and the Judicial Retirement System of
43	43	Texas Plan Two are exempt from Sections 802.101(a), 802.101(b),
44	44	802.101(d), 802.102, 802.103(a), 802.103(b), 802.2015, 802.2016,
45	45	802.202, 802.203(c), (d), and (e) [802.203], 802.204, 802.205,
46	46	802.206, and 802.207. The Judicial Retirement System of Texas Plan
47	47	One is exempt from all of Subchapters B and C except Sections
48	48	802.104 and 802.105. The optional retirement program governed by
49	49	Chapter 830 is exempt from all of Subchapters B and C except Section
50	50	802.106.
51	51	SECTION 3. Section 802.203(a), Government Code, is amended
52	52	to read as follows:
53	53	(a) In making and supervising investments of the reserve
54	54	fund of a public retirement system, an investment manager or the
55	55	governing body of a public retirement system shall discharge its
56	56	duties solely in the financial interest of the participants and
57	57	beneficiaries:
58	58	(1) for the exclusive purposes of:
59	59	(A) managing risk and providing financial
60	60	benefits to participants and their beneficiaries; and
61	61	(B) defraying reasonable expenses of
62	62	administering the system;
63	63	(2) with the care, skill, prudence, and diligence
64	64	under the prevailing circumstances that a prudent person acting in
65	65	a like capacity and familiar with matters of the type would use in
66	66	the conduct of an enterprise with a like character and like aims;
67	67	(3) by diversifying the investments of the system to
68	68	minimize the risk of large financial losses, unless under the
69	69	circumstances it is clearly prudent not to do so; and
70	70	(4) in accordance with the documents and instruments
71	71	governing the system to the extent that the documents and
72	72	instruments are consistent with this subchapter.
73	73	SECTION 4. Subchapter C, Chapter 802, Government Code, is
74	74	amended by adding Sections 802.2031 through 802.2038 to read as
75	75	follows:
76	76	Sec. 802.2031. INVESTMENT STANDARDS: OBLIGATION TO
77	77	DISCHARGE DUTY BASED SOLELY ON CERTAIN FINANCIAL INTERESTS. (a)
78	78	For purposes of discharging its duties solely in the financial
79	79	interest of participants and beneficiaries under Section
80	80	802.203(a) and except as provided by Chapters 808, 809, 2270, 2271,
81	81	2274, 2275, 2276, and 2277, the governing body of the public
82	82	retirement system 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)(1)(B).
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 the hour in which a vote
150	150	recommendation on the proxy vote is received from the proxy
151	151	advisor.
152	152	(c) A public retirement system shall post on the system's
153	153	publicly accessible Internet website how a proxy advisor will cast
154	154	a proxy vote made on behalf of the system or the system's
155	155	participants and beneficiaries not later than 24 hours before the
156	156	hour the proxy vote is to be cast.
157	157	(d) Except as provided by Subsection (e), not later than the
158	158	180th day after the last day of a public retirement system's fiscal
159	159	year, the governing body of the system shall tabulate all proxy
160	160	votes made on behalf of the system by proxy advisors during the
161	161	preceding fiscal year of the system and report the votes to the
162	162	State Pension Review Board. For each vote, the report must contain a
163	163	vote caption, the system's vote, the recommendation, if any, of the
164	164	company holding the election, and, as applicable, the
165	165	recommendation of the proxy advisor. The State Pension Review Board
166	166	shall post reports submitted under this subsection to the board's
167	167	publicly accessible Internet website.
168	168	(e) Instead of submitting a report under Subsection (d), the
169	169	governing body of a public retirement system may provide to the
170	170	State Pension Review Board the location of a report posted to the
171	171	system's publicly accessible Internet website that contains the
172	172	information required by that subsection.
173	173	(f) Except as provided by Subsection (g), if the governing
174	174	body of a public retirement system grants proxy voting authority to
175	175	an investment manager, the investment manager shall submit a report
176	176	to the retirement system, and the retirement system shall submit a
177	177	report to the State Pension Review Board, that tabulates all proxy
178	178	votes cast by the investment manager on behalf of the system for
179	179	each 12-month period the investment manager is managing any assets
180	180	of the system. The State Pension Review Board shall post the reports
181	181	submitted under this subsection to the board's publicly accessible
182	182	Internet website.
183	183	(g) Subsection (f) does not apply to an investment manager
184	184	that manages less than $50 million of a public retirement system's
185	185	assets.
186	186	Sec. 802.2035. ANNUAL REPORT TO STATE PENSION REVIEW BOARD
187	187	ON CERTAIN INVESTMENT RELATIONSHIPS. (a) This section applies
188	188	only to a public retirement system with more than $100 million in
189	189	assets.
190	190	(b) Annually, the governing body of a public retirement
191	191	system shall submit a report to the State Pension Review Board that
192	192	details investment relationships maintained by the system and, if
193	193	applicable, shall consolidate the report with any annual
194	194	comprehensive financial report required of the system under other
195	195	law. The report required by this section must include information
196	196	regarding each:
197	197	(1) subject to Subsection (c), fund or investment
198	198	entity the system is invested in or has invested in during the
199	199	preceding 12-month period; and
200	200	(2) subject to Subsection (d), investment manager with
201	201	which the system contracts to provide investment management
202	202	services.
203	203	(c) For purposes of Subsection (b)(1), regarding each fund
204	204	or investment entity described by that subdivision, the report
205	205	required by this section must contain:
206	206	(1) the name of the fund or investment entity;
207	207	(2) the date on which the fund or investment entity
208	208	described by Subdivision (1) was established and each date during
209	209	the applicable 12-month period the system invested in the fund or
210	210	entity;
211	211	(3) with respect to a fund or investment entity, the
212	212	amount of money, expressed in dollars, the system:
213	213	(A) committed to the fund or entity described by
214	214	Subdivision (1);
215	215	(B) is invested in or has invested in the fund or
216	216	entity during the applicable 12-month period under Subsection
217	217	(b)(1); and
218	218	(C) received from any fund or investment entity
219	219	during the applicable 12-month period;
220	220	(4) the total amount of fees, including expenses,
221	221	charges, and other compensation, assessed against the system by, or
222	222	paid by the system to, any fund or investment entity in which the
223	223	system is invested in or has invested in during the applicable
224	224	12-month period; and
225	225	(5) the internal rate of return, or other standard of
226	226	investment return, on money invested in each fund or investment
227	227	entity, and the date on which the return was calculated.
228	228	(d) For purposes of Subsection (b)(2), regarding each
229	229	contract with an investment manager providing investment manager
230	230	services, the report required by this section must contain:
231	231	(1) the net value of the assets being managed under the
232	232	contract; and
233	233	(2) the total amount of fees, including expenses,
234	234	charges, and other compensation, assessed against the system by, or
235	235	paid by the system to, any fund or investment entity in which the
236	236	system is invested in or has invested in during the preceding
237	237	12-month period.
238	238	(e) The State Pension Review Board shall post the report
239	239	received under this section to the board's publicly accessible
240	240	Internet website.
241	241	Sec. 802.2036. INJUNCTION BY RETIREMENT SYSTEMS. (a) A
242	242	public retirement system may bring an action in district court to
243	243	restrain an investment manager or proxy advisor from breaching a
244	244	contract provision required under Section 802.2032 or violating
245	245	Section 802.203(a).
246	246	(b) The court may award court costs and reasonable
247	247	attorney's fees to a party who prevails in an action brought under
248	248	this section.
249	249	(c) The court in which the action is brought shall give
250	250	precedence to proceedings in the same manner as provided for an
251	251	election contest under Section 23.101.
252	252	Sec. 802.2037. INAPPLICABILITY OF REQUIREMENTS
253	253	INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES.
254	254	(a) A public retirement system is not subject to a requirement of
255	255	Sections 802.203 through 802.2035 if the system determines that the
256	256	requirement would be inconsistent with its fiduciary
257	257	responsibility with respect to the investment of system assets or
258	258	other duties imposed by law relating to the investment of system
259	259	assets, including the duty of care established under Section 67,
260	260	Article XVI, Texas Constitution.
261	261	(b) If a public retirement system determines that complying
262	262	with the requirement in a specific case is inconsistent with its
263	263	fiduciary responsibility as described by Subsection (a), the system
264	264	shall notify in writing the State Pension Review Board of the
265	265	determination and the board shall post the determination on the
266	266	board's publicly accessible Internet website.
267	267	Sec. 802.2038. RULES ON INVESTMENTS, VOTING SHARES, AND
268	268	RELATED REPORTS. The State Pension Review Board may adopt rules to
269	269	implement Section 802.203, 802.2031, 802.2032, 802.2033, 802.2034,
270	270	802.2035, or 802.2037.
271	271	SECTION 5. The changes in law made by this Act apply only to
272	272	a contract entered into on or after the effective date of this Act.
273	273	A contract entered into before the effective date of this Act is
274	274	governed by the law in effect on the date the contract was entered
275	275	into, and the former law is continued in effect for that purpose.
276	276	SECTION 6. This Act takes effect September 1, 2025.