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.