Bill not drafted by TLC or Senate E&E.
Line and page numbers may not match official copy.
By Tillery H.B. No. 3068
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the investment and management of assets for public
1-3 pension plans organized and governed under the laws of the State of
1-4 Texas.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. PURPOSE AND DEFINITIONS. (a) The purpose of
1-7 this Act is to establish a uniform standard for the investment and
1-8 management of assets for public pension plans organized and
1-9 governed under the laws of the State of Texas.
1-10 (b) DEFINITIONS.
1-11 (1) The term "manager" means a person who invests and
1-12 manages assets for a public pension plan organized and governed
1-13 under the laws of the State of Texas.
1-14 (2) The term "plan" means a public pension plan
1-15 organized and governed under the laws of the State of Texas.
1-16 SECTION 2. PRUDENT INVESTOR RULE. (a) Except as otherwise
1-17 provided in subsection (b), a manager who invests and manages plan
1-18 assets owes a duty to the beneficiaries of the plan to comply with
1-19 the prudent investor rule set forth in this Act.
1-20 (b) The prudent investor rule, a default rule, may be
1-21 expanded, restricted, eliminated, or otherwise altered by the
1-22 provisions of a plan. A manager is not liable to a beneficiary to
1-23 the extent that the manager acted in reasonable reliance on the
1-24 provisions of the plan.
2-1 SECTION 3. STANDARD OF CARE; PORTFOLIO STRATEGY; RISK AND
2-2 RETURN OBJECTIVES. (a) A manager shall invest and manage plan
2-3 assets as a prudent investor would, by considering the purposes,
2-4 terms, distribution requirements, and other circumstances of the
2-5 plan. In satisfying this standard, the manager shall exercise
2-6 reasonable care, skill, and caution.
2-7 (b) A manager's investment and management decisions
2-8 respecting individual assets must be evaluated not in isolation but
2-9 in the context of the plan portfolio as a whole and as a part of an
2-10 overall investment strategy having risk and return objectives
2-11 reasonably suited to the plan.
2-12 (c) Among circumstances that a manager shall consider in
2-13 investing and managing plan assets are such of the following as are
2-14 relevant to the plan or its beneficiaries:
2-15 (1) general economic conditions;
2-16 (2) the possible effect of inflation or deflation;
2-17 (3) the expected tax consequences of investment
2-18 decisions or strategies;
2-19 (4) the role that each investment or course of action
2-20 plays within the overall plan portfolio, which may include
2-21 financial assets, interests in closely held enterprises, tangible
2-22 and intangible personal property, and real property;
2-23 (5) the expected total return from income and the
2-24 appreciation of capital;
2-25 (6) other resources of the beneficiaries;
2-26 (7) needs for liquidity, regularity of income, and
2-27 preservation or appreciation of capital; and
2-28 (8) an asset's special relationship or special value,
2-29 if any, to the purposes of the plan or to one or more of the
2-30 beneficiaries.
3-1 (d) A manager shall make a reasonable effort to verify facts
3-2 relevant to the investment and management of plan assets.
3-3 (e) A manager may invest in any kind of property or type of
3-4 investment consistent with the standards of this Act.
3-5 (f) A manager who has special skills or expertise, or is
3-6 named manager in reliance upon the manager's representation that
3-7 the manager has special skills or expertise, has a duty to use
3-8 those special skills or expertise.
3-9 SECTION 4. DIVERSIFICATION. A manager shall diversify the
3-10 investments of the plan unless the manager reasonably determines
3-11 that, because of special circumstances, the purposes of the plan
3-12 are better served without diversifying.
3-13 SECTION 5. DUTIES AT INCEPTION OF MANAGEMENT. Within a
3-14 reasonable time after accepting management or receiving plan
3-15 assets, a manager shall review the plan assets and make and
3-16 implement decisions concerning the retention and disposition of
3-17 assets, in order to bring the plan portfolio into compliance with
3-18 the purposes, terms, distribution requirements, and other
3-19 circumstances of the plan, and with the requirements of this Act.
3-20 SECTION 6. LOYALTY. A manager shall invest and manage the
3-21 plan assets solely in the interest of the beneficiaries.
3-22 SECTION 7. IMPARTIALITY. If a plan has two or more
3-23 beneficiaries, the manager shall act impartially in investing and
3-24 managing the plan assets, taking into account any differing
3-25 interests of the beneficiaries.
3-26 SECTION 8. INVESTMENT COSTS. In investing and managing plan
3-27 assets, a manager may only incur costs that are appropriate and
3-28 reasonable in relation to the assets, the purposes of the plan, and
3-29 the skills of the manager.
3-30 SECTION 9. REVIEWING COMPLIANCE. Compliance with the
4-1 prudent investor rule is determined in light of the facts and
4-2 circumstances existing at the time of a manager's decision or
4-3 action and not by hindsight.
4-4 SECTION 10. DELEGATION OF INVESTMENT AND MANAGEMENT
4-5 FUNCTIONS. (a) A manager may delegate investment and management
4-6 functions that a prudent manager of comparable skills could
4-7 properly delegate under the circumstances. The manager shall
4-8 exercise reasonable care, skill, and caution in:
4-9 (1) selecting an agent;
4-10 (2) establishing the scope and terms of the
4-11 delegation, consistent with the purposes and terms of the plan; and
4-12 (3) periodically reviewing the agent's actions in
4-13 order to monitor the agent's performance and compliance with the
4-14 terms of the delegation.
4-15 (b) In performing a delegated function, an agent owes a duty
4-16 to the plan to exercise reasonable care to comply with the terms of
4-17 the delegation.
4-18 (c) A manager who complies with the requirements of
4-19 subsection (a) is not liable to the beneficiaries or to the plan
4-20 for the decisions or actions of the agent to whom the function was
4-21 delegated.
4-22 (d) By accepting the delegation of a management function
4-23 from the manager of a plan that is subject to the law of this
4-24 State, an agent submits to the jurisdiction of the courts of this
4-25 State.
4-26 SECTION 11. LANGUAGE INVOKING STANDARD OF ACT. The
4-27 following terms or comparable language in the provisions of a plan,
4-28 unless otherwise limited or modified, authorizes any investment or
4-29 strategy permitted under this Act: "investments permissible by law
4-30 for investment of plan funds," "legal investments," "authorized
5-1 investments," "using the judgment and care under the circumstances
5-2 then prevailing that persons of prudence, discretion, and
5-3 intelligence exercise in the management of their own affairs, not
5-4 in regard to speculation but in regard to the permanent disposition
5-5 of their funds, considering the probable income as well as the
5-6 probable safety of their capital," "prudent man rule," "prudent
5-7 manager rule," "prudent person rule," and "prudent investor rule."
5-8 SECTION 12. APPLICATION TO EXISTING PLANS. This Act applies
5-9 to plans existing on and created after its effective date. As
5-10 applied to plans existing on its effective date, this Act governs
5-11 only decisions or actions occurring after that date.
5-12 SECTION 13. SHORT TITLE. This Act may be cited as the
5-13 "Texas Uniform Prudent Pension Investor Act."
5-14 SECTION 14. SEVERABILITY. If any provision of this Act or
5-15 its application to any person or circumstance is held invalid, the
5-16 invalidity does not affect other provisions or applications of this
5-17 Act which can be given effect without the invalid provision or
5-18 application, and to this end the provisions of this Act are
5-19 severable.
5-20 SECTION 15. This Act takes effect on January 1, 1998.
5-21 SECTION 16. The importance of this legislation and the
5-22 crowded condition of the calendars in both houses create an
5-23 emergency and an imperative public necessity that the
5-24 constitutional rule requiring bills to be read on three several
5-25 days in each house be suspended, and this rule is hereby suspended.