Paul’s Pension Rules Let Each Board Exempt Itself

The text as introduced · 2,535 words

By: Paul
H.B. No. 4807

A BILL TO BE ENTITLED

AN ACT

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.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 802.001, Government Code, is amended by

adding Subdivisions (1-b), (2-a), and (2-b) to read as follows:

(1-b) "Financial factor" means a factor taken into

consideration when making investment decisions that a prudent

investor would expect to have a material effect on controlling risk

and achieving a rate of return for an investment based on

appropriate investment horizons and consistent with the objectives

of any controlling investment plan.

(2-a) "Investment manager" means a person who for

compensation provides professional investment management services

and may include a person eligible for appointment as an investment

manager under Section 802.204. The term does not include:

(A) an employee or member of an advisory

committee of a public retirement system; or

(B) a seller of security interests.

(2-b) "Proxy advisor" means a person who for

compensation provides corporate governance ratings, proxy research

and analyses, proxy voting, or other similar services to the

shareholders of a publicly traded entity, or other interested

parties, for the purpose of advising a shareholder on how to vote on

measures under consideration by shareholders or proxy voting on

behalf of a shareholder.

SECTION 2. Section 802.002(a), Government Code, is amended

to read as follows:

(a) Except as provided by Subsection (b), 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 Sections 802.101(a), 802.101(b),

802.101(d), 802.102, 802.103(a), 802.103(b), 802.2015, 802.2016,

802.202, 802.203(c), (d), and (e) [ 802.203 ], 802.204, 802.205,

802.206, and 802.207. The Judicial Retirement System of Texas Plan

One is exempt from all of Subchapters B and C except Sections

802.104 and 802.105. The optional retirement program governed by

Chapter 830 is exempt from all of Subchapters B and C except Section

802.106.

SECTION 3. Section 802.203(a), Government Code, is amended

to read as follows:

(a) In making and supervising investments of the reserve

fund of a public retirement system, an investment manager or the

governing body of a public retirement system shall discharge its

duties solely in the financial interest of the participants and

beneficiaries:

(1) for the exclusive purposes of:

(A) managing risk and providing financial

benefits to participants and their beneficiaries; and

(B) defraying reasonable expenses of

administering the system;

(2) with the care, skill, prudence, and diligence

under the prevailing circumstances that a prudent person acting in

a like capacity and familiar with matters of the type would use in

the conduct of an enterprise with a like character and like aims;

(3) by diversifying the investments of the system to

minimize the risk of large financial losses, unless under the

circumstances it is clearly prudent not to do so; and

(4) in accordance with the documents and instruments

governing the system to the extent that the documents and

instruments are consistent with this subchapter.

SECTION 4. Subchapter C, Chapter 802, Government Code, is

amended by adding Sections 802.2031 through 802.2038 to read as

follows:

Sec. 802.2031. INVESTMENT STANDARDS: OBLIGATION TO

DISCHARGE DUTY BASED SOLELY ON CERTAIN FINANCIAL INTERESTS. (a)

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 Chapters 808, 809, and 2270 and

Chapter 2274, as added by Chapters 529 (S.B. 13), 530 (S.B. 19), 833

(S.B. 4), and 975 (S.B. 2116), Acts of the 87th Legislature, Regular

Session, 2021, the governing body of the public retirement system

or an investment manager:

(1) shall:

(A) make all investments prudently and in

accordance with applicable fiduciary and ethical standards; and

(B) take into account only financial factors when

discharging its duties with respect to a plan administered by the

system; and

(2) may not use the system's assets to take any action

with the purpose of furthering social, political, or ideological

interests.

(b) 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,

shall be voted solely based on financial factors.

Sec. 802.2032. REQUIRED INVESTMENT CONTRACT PROVISIONS;

EFFECT ON CERTAIN OTHER LAW. (a) The governing body of a public

retirement system may not enter 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) Notwithstanding Section 809.051, the list maintained

under that section may not contain 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) The governing

body of a public retirement system may not grant 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) The policy may include additions or customizations only

if those additions or customizations are consistent with the sole

goal of the policy as described by Subsection (a).

(c) The governing body of a public retirement system that

grants proxy voting authority in accordance with this section shall

provide the State Pension Review Board a copy of the policy

described by Subsection (a)(1). If the public retirement system is

subject to Section 802.2035, the governing body of the system shall

provide a copy of the policy to the State Pension Review Board 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) This section applies only to a public retirement

system that holds shares that the system is entitled to vote by

proxy.

(b) Subject to Subsection (c), the governing body of a

public retirement system shall 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:

(1) the seventh day before the date a proxy vote is to

be cast; or

(2) 48 hours after receiving a vote recommendation

from the proxy advisor on the proxy vote.

(c) A public retirement system shall 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

proxy vote is to be cast.

(d) Except as provided by Subsection (e), not later than the

180th day after the last day of a public retirement system's fiscal

year, the governing body of the system shall 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 the

State Pension Review Board. For each vote, the report must 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. The State Pension Review Board

shall post reports submitted under this subsection to the board's

publicly accessible Internet website.

(e) In lieu of submitting a report under Subsection (d), the

governing body of a public retirement system may provide to the

State Pension Review Board the location of a report posted to the

system's publicly accessible Internet website that contains the

information required by that subsection.

(f) Except as provided by Subsection (g), if the governing

body of a public retirement system grants proxy voting authority to

an investment manager, the investment manager shall submit a

report to the retirement system, and the retirement system shall

submit a report to the State Pension Review Board, 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. The State Pension Review Board shall post

the reports submitted under this subsection to the board's

publicly accessible Internet website.

(g) 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) This section applies

only to a public retirement system with more than $100 million in

assets.

(b) Annually, the governing body of a public retirement

system shall submit a report to the State Pension Review Board that

details investment relationships maintained by the system and, if

applicable, shall consolidate the report with any annual

comprehensive financial report required of the system under other

law. The report required by this section must 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) For purposes of Subsection (b)(1), regarding each fund

or investment entity described by that subdivision, the report

required by this section must 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:

(A) committed to the fund or entity described by

Subdivision (1);

(B) is invested in or has invested in the fund or

entity during the applicable 12-month period under Subsection

(b)(1); and

(C) 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) For purposes of Subsection (b)(2), regarding each

contract with an investment manager providing investment manager

services, the report required by this section must contain:

(1) the net value of the assets being managed under the

contract; and

(2) 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) The State Pension Review Board shall post the report

received under this section to the board's publicly accessible

Internet website.

Sec. 802.2036. INJUNCTION BY RETIREMENT SYSTEMS. (a) A

public retirement system may bring an action in district court to

restrain or enjoin an investment manager or proxy advisor from

breaching a contract provision required under Section 802.2032 or

violating Section 802.203(a).

(b) The court may award court costs and reasonable

attorney's fees to a party who prevails in an action brought under

this section.

(c) The court in which the action is brought shall give

precedence to proceedings in the same manner as provided for an

election contest under Section 23.101.

Sec. 802.2037. INAPPLICABILITY OF REQUIREMENTS

INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES.

(a) 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,

Article XVI, Texas Constitution.

(b) If a public retirement system determines that complying

with the requirement in a specific case is inconsistent with its

fiduciary responsibility as described by Subsection (a), the system

shall notify in writing the State Pension Review Board of the

determination and the board shall post the determination on the

board's publicly accessible Internet website.

Sec. 802.2038. RULES ON INVESTMENTS, VOTING SHARES, AND

RELATED REPORTS. The State Pension Review Board may adopt rules to

implement Section 802.203, 802.2031, 802.2032, 802.2033,

802.2034, 802.2035, or 802.2037.

SECTION 5. The changes in law made by this Act apply only to

a contract entered into on or after the effective date of this Act.

A contract entered into before the effective date of this Act is

governed by the law in effect on the date the contract was entered

into, and the former law is continued in effect for that purpose.

SECTION 6. (a) Notwithstanding any other section of this

Act, in a state fiscal year, the State Pension Review Board is not

required to implement a provision found in another section of this

Act that is drafted as a mandatory provision imposing a duty on the

board to take an action unless money is specifically appropriated

to the board for that fiscal year to carry out that duty. The State

Pension Review Board may implement the provision in that fiscal

year to the extent other funding is available to the board to do so.

(b) If, as authorized by Subsection (a) of this section, the

State Pension Review Board does not implement the mandatory

provision in a state fiscal year, the board, in its legislative

budget request for the next state fiscal biennium, shall certify

that fact to the Legislative Budget Board and include a written

estimate of the costs of implementing the provision in each year of

that next state fiscal biennium.

(c) This section expires and any duty suspended by

Subsection (a) of this section becomes mandatory on September 1,

2027.

SECTION 7. It is the intent of the 88th Legislature, Regular

Session, 2023, that the amendments made by this Act be harmonized

with another Act of the 88th Legislature, Regular Session, 2023,

relating to nonsubstantive additions to and corrections in enacted

codes.

SECTION 8. This Act takes effect September 1, 2025.