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.
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.
