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A BILL TO BE ENTITLED
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AN ACT
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relating to the consideration of pecuniary factors in certain state |
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investments. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 802.001, Government Code, is amended by |
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adding Subdivisions (5), (6), and (7) as follows: |
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(5) "Pecuniary Factor" means a factor that a governing |
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body or investment manager, operating as the fiduciary in |
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accordance with Chapter 802, Government Code, has determined is |
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expected to have a material effect on the risk or return of an |
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investment based on appropriate investment horizons consistent |
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with the investment objectives of a plan established in accordance |
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to Chapter 802, Government Code, and the funding policy established |
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by Sections 802.2011 and 802.208. |
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(6) "Funded ratio" means the ratio of a public |
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retirement system's actuarial value of assets divided by the |
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system's actuarial accrued liability. |
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(7) "Governmental entity" has the meaning assigned by |
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Section 802.1012. |
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SECTION 2. Section 802.002, Government Code, is amended to |
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read as follows: |
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Sec. 802.002. EXEMPTIONS. (a) Except as provided by |
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Subsection (b), the Employees Retirement System of Texas, the |
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Teacher Retirement System of Texas, the Texas County and District |
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Retirement System, the Texas Municipal Retirement System, and the |
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Judicial Retirement System of Texas Plan Two are exempt from |
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Sections 802.101(a), 802.101(b), 802.101(d), 802.102, 802.103(a), |
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802.103(b), 802.2015, 802.2016, 802.202, 802.203, 802.204, |
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802.205, 802.206, and 802.207. The Judicial Retirement System of |
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Texas Plan One is exempt from all of Subchapters B and C except |
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Sections 802.104, [and] 802.105, and 802.208. The optional |
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retirement program governed by Chapter 830 is exempt from all of |
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Subchapters B and C except Section 802.106 and 802.208. |
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(b) If a public retirement system or program that is exempt |
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under Subsection (a) is required by law to make an actuarial |
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valuation of the assets of the system or program and publish |
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actuarial information about the system or program, the actuary |
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making the valuation and the governing body publishing the |
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information must include the information required by Section |
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802.101(b). |
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(c) Notwithstanding any other law, a defined contribution |
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plan is exempt from Sections 802.101, 802.1012, 802.1014, 802.103, |
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802.104, and 802.202(d). This subsection may not be construed to |
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exempt any plan from Section 802.105, [or] 802.106(h), and 802.208. |
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(d) Notwithstanding any other law, a retirement system that |
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is organized under the Texas Local Fire Fighters Retirement Act |
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(Article 6243e, Vernon's Texas Civil Statutes) for a fire |
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department consisting exclusively of volunteers as defined by that |
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Act is exempt from Sections 802.101, 802.1012, 802.1014, 802.102, |
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802.103, 802.104, and 802.202(d). This subsection may not be |
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construed to exempt any plan from Section 802.105, [or] 802.106(h), |
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and 802.208. |
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(e) Notwithstanding any other law, a retirement system, |
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program, or plan that is exempt under Subsections (a), (c), and (d) |
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is not exempt from Sections 802.202(d)(1), 802.203(a)(4), and |
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802.205(d)(6), as applicable, for the purpose of compliance with |
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Section 802.208. |
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SECTION 3. Section 802.106, Government Code, is amended by |
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adding Subsection (i) to read as follows: |
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(i) A public retirement system shall distribute to each |
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active member and retiree a summary of any investment or investment |
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course of action in accordance to Section 802.208. |
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SECTION 4. Section 802.107, Government Code, is amended by |
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amending Subsection (c) to read as follows: |
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(c) A public retirement system shall post on a publicly |
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available Internet website: |
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(1) the name, business address, and business telephone |
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number of a system administrator of the public retirement system; |
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[and] |
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(2) a copy of the most recent edition of each report |
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and other written information that is required by this chapter or |
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Chapter 801 to be submitted to the board; and |
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(3) a copy of a summary of any investment or investment |
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course of action in accordance to Section 802.208. |
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SECTION 5. Section 802.2011, Government Code, is amended to |
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read as follows: |
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Sec. 802.2011. FUNDING POLICY. [(a) In this section: |
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(1) "Funded ratio" means the ratio of a public |
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retirement system's actuarial value of assets divided by the |
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system's actuarial accrued liability. |
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(2) "Governmental entity" has the meaning assigned by |
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Section 802.1012. |
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(b)] The governing body of a public retirement system shall: |
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(1) adopt a written funding policy that details the |
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governing body's plan for achieving a funded ratio of the system |
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that is equal to or greater than 100 percent; |
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(2) maintain for public review at its main office a |
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copy of the policy; |
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(3) file a copy of the policy and each change to the |
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policy with the board not later than the 31st day after the date the |
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policy or change, as applicable, is adopted; and |
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(4) submit a copy of the policy and each change to the |
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policy to the system's associated governmental entity not later |
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than the 31st day after the date the policy or change is adopted. |
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SECTION 6. Section 802.202, Government Code, is amended by |
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amending Subsection (d) to read as follows: |
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(d) The governing body of a public retirement system shall: |
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(1) develop and adopt a written investment policy, in |
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accordance with Section 802.208; |
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(2) maintain for public review at its main office a |
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copy of the policy; |
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(3) file a copy of the policy with the State Pension |
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Review Board not later than the 90th day after the date the policy |
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is adopted; and |
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(4) file a copy of each change to the policy with the |
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State Pension Review Board not later than the 90th day after the |
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change is adopted. |
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SECTION 7. Section 802.203, Government Code, is amended by |
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amending Subsection (a) to read as follows: |
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(a) In making and supervising investments of the reserve |
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fund of a public retirement system, an investment manager or the |
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governing body shall discharge its duties solely in the interest of |
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the participants and beneficiaries: |
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(1) for the exclusive purposes of: |
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(A) providing benefits to participants and their |
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beneficiaries; and |
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(B) defraying reasonable expenses of |
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administering the system; |
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(2) with the care, skill, prudence, and diligence |
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under the prevailing circumstances that a prudent person acting in |
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a like capacity and familiar with matters of the type would use in |
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the conduct of an enterprise with a like character and like aims; |
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(3) by diversifying the investments of the system to |
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minimize the risk of large losses, unless under the circumstances |
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it is clearly prudent not to do so; [and] |
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(4) by considering only pecuniary factors in the |
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evaluation of an investment or investment course of action; and |
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(5) in accordance with the documents and instruments |
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governing the system to the extent that the documents and |
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instruments are consistent with this subchapter. |
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SECTION 8. Section 802.204, Government Code, is amended by |
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amending Subsection (c) to read as follows: |
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(c) In a contract made under this section, the governing |
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body shall specify any policies, requirements, or restrictions, |
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including criteria for determining the quality of investments and |
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for the use of standard rating services in accordance with Section |
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802.208, that the governing body adopts for investments of the |
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system. |
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SECTION 9. Section 802.205, Government Code, is amended by |
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amending Subsection (d) to read as follows: |
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(d) If the governing body enters into a contract under |
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Subsection (a) with a brokerage firm, the firm must: |
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(1) be a broker-dealer registered with the Securities |
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and Exchange Commission; |
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(2) be a member of a national securities exchange; |
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(3) be a member of the Securities Investor Protection |
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Corporation; |
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(4) be registered with the State Securities Board; |
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[and] |
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(5) maintain net regulatory capital of at least $200 |
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million; and |
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(6) only consider pecuniary factors in the evaluation |
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of an investment or investment course of action. |
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SECTION 10. Subchapter B, Chapter 802, Government Code, is |
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amended by adding Section 802.208 to read as follows: |
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Sec. 802.208. INVESTMENT POLICY REQUIREMENTS AND |
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RESTRICTIONS. (a) The governing body of a public retirement system |
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shall create an investment policy or investment course of action |
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pursuant to this section. |
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(b) An investment policy or investment course of action |
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under Subsection (a) shall: |
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(1) instruct investment managers or persons with a |
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fiduciary responsibility, established under Section 802.203, to |
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consider only pecuniary factors in the evaluation of an investment |
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or investment course of action; and |
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(2) establish a plan for the divestment from any |
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indirect holdings in actively or passively managed investment funds |
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or private equity funds that have been evaluated using factors |
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other than pecuniary factors, not in accordance with this section. |
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(c) An investment or investment course of action made on |
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behalf of, for the benefit of, or in relation to a public retirement |
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system shall not be evaluated considering factors other than |
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pecuniary factors, except as provided by Subsection (d). |
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(d) If the evaluation of an investment or investment course |
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of action, in accordance with Subsections (b) and (c), determines |
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that investments or investment courses of action would have an |
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indistinguishable material effect on the risk or return of an |
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investment or investment course of action, the investment manager |
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or person with a fiduciary responsibility, established under |
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Section 802.203, may consider factors other than pecuniary factors |
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to evaluate an investment or investment course of action. |
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(e) If an investment manager or person with a fiduciary |
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responsibility established under Section 802.203 considers factors |
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other than pecuniary factors under Subsection (d), the investment |
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manager or person with a fiduciary duty shall document: |
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(1) the reason pecuniary factors were insufficient in |
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the evaluation; |
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(2) a comparison of the investment or investment |
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course of action with alternative investments or investment courses |
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of action; and |
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(3) the factors other than pecuniary factors |
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considered in the evaluation of an investment or investment course |
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of action. |
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(f) Any documented use of factors other than pecuniary |
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factors in the consideration of an investment or investment course |
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of action, in accordance to Subsection (d), shall: |
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(1) be published in a monthly report; and |
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(2) be prominently available on the Internet website |
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of the public retirement system. |
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(g) Not later than January 5 of each year, each state |
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governmental entity shall file a publicly available report with the |
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presiding officer of each house of the legislature and the attorney |
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general that: |
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(1) identifies all securities sold, redeemed, |
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divested, or withdrawn in compliance with this section; and |
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(2) identifies all prohibited investments under this |
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section. |
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(h) This section applies to all public retirement systems. |
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SECTION 11. This Act takes effect September 1, 2021. |