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BILL ANALYSIS

 

 

Senate Research Center

S.B. 322

86R2464 LED‑D

By: Huffman

 

State Affairs

 

3/22/2019

 

As Filed

 

 

 

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

 

Recently, some public retirement systems' investment practices have been scrutinized.

 

S.B. 322 requires a public retirement system to have an independent firm evaluate the retirement system's investment practices and performance.

 

S.B. 322 will increase transparency, strengthen oversight, and protect retirement systems from self-inflicted investment catastrophes that jeopardize their members' benefits. Furthermore, by reporting this information to the Pension Review Board, it enables the Pension Review Board to: (1) conduct better investment analysis of systems; (2) provide assistance to systems; (3) provide comparative investment strategy data among peer systems; and (4) help foster informed decision making.

 

As proposed, S.B. 322 amends current law relating to the evaluation and reporting of investment practices and performance of certain public retirement systems.

 

RULEMAKING AUTHORITY

 

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

 

SECTION BY SECTION ANALYSIS

 

SECTION 1. Amends Section 801.209(a), Government Code, as follows:

 

(a) Requires the State Pension Review Board (PRB), for each public retirement system, to post on PRB's Internet website, or on a publicly available website that is linked to PRB's website, the most recent data from reports received under certain sections, including Section 802.109.

 

SECTION 2. Amends Section 802.103(a), Government Code, as follows:

 

(a) Requires the governing body of a public retirement system to publish an annual financial report showing the financial condition of the system as of the last day of the fiscal year covered in the report. Deletes text providing for an exception under Subsection (c) (repealed). Requires the report to include:

 

(1)�(2) Makes nonsubstantive changes to these subdivisions;

 

(3) a listing, by asset class, of all direct and indirect commissions and fees paid by the retirement system during the system's previous fiscal year for the sale, purchase, or management of system assets; and

 

(4) the names of investment managers engaged by the retirement system.

 

SECTION 3. Amends Subchapter B, Chapter 802, Government Code, by adding Section 802.109, as follows:

 

Sec. 802.109. INVESTMENT PRACTICES AND PERFORMANCE REPORTS. (a) Requires a public retirement system, except as provided by Subsection (d), to select an independent firm with substantial experience in evaluating institutional investment practices and performance to evaluate the appropriateness, adequacy, and effectiveness of the retirement system's investment practices and performance and to make recommendations for improving the retirement system's investment policies, procedures, and practices. Requires each evaluation to include:

 

(1) an analysis of any investment policy or strategic investment plan adopted by the retirement system and the retirement system's compliance with that policy or plan;

 

(2) a detailed review of the retirement system's investment asset allocation, including the process for determining target allocations; the expected risk and assumed rate of return, categorized by asset class; the appropriateness of selection and valuation methodologies of alternative and illiquid assets; and future cash flow and liquidity needs;

 

(3) a review of the appropriateness of investment fees and commissions paid by the retirement system;

 

(4) a review of the retirement system's governance processes related to investment activities, including investment decision‑making processes, delegation of investment authority, and board investment expertise and education; and

 

(5) a review of the retirement system's investment manager selection and monitoring process.

 

�(b) Authorizes the governing body of a public retirement system to determine additional specific areas to be evaluated under Subsection (a) and to select particular asset classes on which to focus, but requires that the first evaluation be a comprehensive analysis of the retirement system's investment program that covers all asset classes.

 

(c) Requires a public retirement system to conduct the evaluation described by Subsection (a):

 

(1) once every three years, if the retirement system has total assets the book value of which, as of the last day of the last fiscal year considered in an evaluation under this section, was at least $100 million; or

 

(2) once every six years, if the retirement system has total assets the book value of which, as of the last day of the last fiscal year considered in an evaluation under this section, was at least $30 million and less than $100 million.

 

(d) Provides that a public retirement system is not required to conduct the evaluation described by Subsection (a) if the retirement system has total assets the book value of which, as of the last day of the preceding fiscal year, was less than $30 million.

 

(e) Requires a report of an evaluation under this section to be filed with the governing body of the public retirement system not later than December 1 of each year in which the system is evaluated under Subsection (c).

 

(f) Requires the governing body to submit the report to PRB not later than the 31st day after the date the governing body of a public retirement system receives a report of an evaluation under this section.

 

(g) Requires a public retirement system to pay the costs of each evaluation of the system under this section.

 

(h) Requires PRB, not later than February 1 of each year, to submit an investment performance report to the governor, the lieutenant governor, the speaker of the house of representatives, and the legislative committees having principal jurisdiction over legislation governing public retirement systems. Requires the report to compile and summarize the information received under this section by PRB during the preceding calendar year.

 

(i) Provides that a report of an evaluation by the Teacher Retirement System of Texas (TRS) and an investment report that includes TRS under this section satisfies the requirements of Section 825.512 (Investment Practices and Performance Reports).

 

SECTION 4. Requires that a report of the first evaluation of a public retirement system, as required by Section 802.109, Government Code, as added by this Act, be filed with the governing body of the system not later than January 1, 2020, not withstanding Section 802.109(c).

 

SECTION 5. Effective date: upon passage or September 1, 2019.