88R7612 JCG-D
 
  By: Paul H.B. No. 2068
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the fiduciary responsibility of governmental entities
  and the investment agents, plan administrators, or qualified
  vendors acting on behalf of those entities.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subchapter A, Chapter 609, Government Code, is
  amended by adding Section 609.0015 to read as follows:
         Sec. 609.0015.  INVESTMENT AND VOTING STANDARDS FOR
  GOVERNMENTAL ENTITIES, PLAN ADMINISTRATORS, AND QUALIFIED VENDORS;
  DUTY TO REPORT VOTES; INVESTIGATION. (a) Sections 802.203(a) and
  802.2031 through 802.2036 apply to any governmental entity, plan
  administrator, or qualified vendor who administers or offers a
  qualified investment product in a deferred compensation plan under
  this chapter in the same manner as those sections apply to an
  investment agent or the governing body of a public retirement
  system.
         (b)  Notwithstanding any other provision of this chapter, a
  plan administrator may approve a vendor to be a qualified vendor
  only if the vendor has a practice of following, and agrees in
  writing to follow, guidelines that are consistent with the plan
  administrator's duty under Subsection (a) to act solely in the
  pecuniary interests of the plan's participants and beneficiaries.
         SECTION 2.  Section 802.001, Government Code, is amended by
  adding Subdivisions (2-a), (2-b), and (2-c) to read as follows:
               (2-a)  "Investment agent" means any person with respect
  to a public retirement system, other than the governing body, who:
                     (A)  exercises any discretionary authority over
  or control in or has any responsibility in the administration of the
  public retirement system, including:
                           (i)  controlling or disposing of the
  system's assets; or
                           (ii)  advising on or exercising the right to
  vote any shares of the system, including proxy votes; or
                     (B)  provides, for compensation, directly or
  indirectly, investment advice regarding the assets of the system.
               (2-b)  "Material factor," with respect to a risk,
  return, or investment:
                     (A)  means a factor for which there is a
  substantial likelihood that a reasonable investor would find
  important when evaluating the potential financial returns and risks
  of an investment or whether to exercise any right in connection with
  a security; and
                     (B)  does not include any portion of the factor
  that:
                           (i)  primarily relates to events that
  involve a high degree of uncertainty regarding what may occur in the
  distant future; and
                           (ii)  is systemic, general, or not
  investment-specific in nature.
               (2-c)  "Pecuniary factor" means a material factor that
  has an effect on the financial returns and risks of an investment
  based on appropriate investment horizons.
         SECTION 3.  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,] 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 4.  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 agent [manager]
  or the governing body of a public retirement system shall discharge
  its duties solely in the pecuniary interest of the participants and
  beneficiaries:
               (1)  for the exclusive purposes of:
                     (A)  providing pecuniary 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 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 5.  Subchapter C, Chapter 802, Government Code, is
  amended by adding Sections 802.2031 through 802.2036 to read as
  follows:
         Sec. 802.2031.  INVESTMENT STANDARDS: OBLIGATION TO ACT
  BASED SOLELY ON PECUNIARY INTERESTS. (a) Except as provided by
  this section and for purposes of Section 802.203(a), the governing
  body of a public retirement system or an investment agent:
               (1)  may not take any action or consider any factor,
  including when determining whether a factor is a material factor,
  with a purpose of furthering an environmental, social, or political
  goal or any other similar goal; and
               (2)  shall take into account only pecuniary factors
  when evaluating the potential financial returns and risks of an
  investment or whether to exercise any right in connection with a
  security.
         (b)  The governing body of a public retirement system or an
  investment agent may take into account under Subsection (a) an
  environmental, social, or political factor or any other similar
  factor only to the extent that:
               (1)  the factor presents a financial risk or
  opportunity that an experienced investment professional would
  treat as a material financial factor under generally accepted
  investment theories; and
               (2)  the weight given to the factor is limited to the
  impact of the factor on the financial risk or opportunity that a
  similarly situated prudent investor would give.
         (c)  In taking into account a factor as provided by
  Subsection (b) regarding a potential investment, the governing body
  or investment agent must compare the investment with other
  available alternative investments that would serve a similar
  purpose as the original investment being evaluated, including:
               (1)  how the original investment and the alternative
  investments each impact the level of diversification of the
  system's portfolio;
               (2)  the degree of liquidity of each investment;
               (3)  the potential financial returns and risks of each
  investment; and
               (4)  whether greater returns can be achieved through
  the alternative investments that have little impact on
  environmental, social, political, or similar factors.
         (d)  To the extent of a conflict between this section and any
  other law, this section prevails.
         Sec. 802.2032.  DUTY TO VOTE SHARES BASED SOLELY ON
  PECUNIARY INTERESTS. (a) In accordance with Section 802.203(a),
  all shares held directly or indirectly by or on behalf of a public
  retirement system or the system's participants and beneficiaries,
  as applicable, shall be voted solely in the pecuniary interest of
  the system's participants and beneficiaries and may not be voted
  with a purpose of furthering an environmental, social, or political
  goal or any other similar goal.
         (b)  The governing body of a public retirement system may
  delegate proxy voting authority to an investment agent only if the
  agent has a practice of following, and commits in writing to follow,
  guidelines that are consistent with the governing body's duty to
  act solely in the pecuniary interests of the system's participants
  and beneficiaries.
         Sec. 802.2033.  EVIDENCE OF VIOLATION OF INVESTMENT
  STANDARDS. Evidence of a violation of Section 802.203(a) may
  include a statement of a governing body of a public retirement
  system or an investment agent indicating the governing body's or
  agent's purpose in selecting investments, engaging with portfolio
  companies, or voting shares or proxy votes, or a similar statement
  by any coalition, initiative, or organization that the governing
  body or agent is a member of or otherwise participates in, at the
  time the statement was made.
         Sec. 802.2034.  COMMITMENT IN WRITING. Unless an
  economically practicable alternative is not available:
               (1)  the assets of a public retirement system may not be
  entrusted to an investment agent unless that agent has a practice of
  following, and commits in writing to follow, guidelines when
  engaging with portfolio companies that are consistent with the
  governing body's duty to act solely in the pecuniary interest of the
  system's participants and beneficiaries; and
               (2)  the governing body of a public retirement system
  or an investment agent that manages the assets of a public
  retirement system may not adopt a practice of following the
  recommendations of a proxy advisor or other similar service
  provider unless the advisor or provider has a practice of
  following, and commits in writing to follow, proxy voting
  guidelines that are consistent with the duty of the governing body
  or investment agent to act solely in the pecuniary interest of the
  system's participants and beneficiaries.
         Sec. 802.2035.  REPORT ON PROXY VOTES. The governing body of
  a public retirement system shall tabulate all proxy votes made on
  behalf of the system and report the votes annually to the State
  Pension Review Board. For each vote, the report must contain a vote
  caption, the system's vote, and, as applicable, the recommendation
  of the investment agent or any proxy advisor. The State Pension
  Review Board shall post reports submitted under this section to the
  board's publicly accessible Internet website.
         Sec. 802.2036.  INVESTIGATION BY ATTORNEY GENERAL. If the
  attorney general has reasonable cause to believe that a person
  engaged in, is engaging in, or is likely to engage in an act that
  violates Section 802.203(a), 802.2034, or 802.2035, the attorney
  general may:
               (1)  require the person to file, in a form and manner
  prescribed by the attorney general, a statement or report in
  writing, under oath, as to:
                     (A)  all the facts and circumstances concerning
  the violation; or
                     (B)  any other relevant information the attorney
  general considers necessary;
               (2)  examine any person under oath in connection with
  the violation;
               (3)  examine any record, book, document, account,
  paper, sample, or other material in connection with the violation;
  or
               (4)  apply to a district court to issue a subpoena for
  any record, book, document, account, paper, sample, or other
  material in connection with the violation and retain the material
  until the completion of all related proceedings taken under this
  section.
         SECTION 6.  Section 815.307, Government Code, is amended to
  read as follows:
         Sec. 815.307.  DUTY OF CARE. The assets of the retirement
  system shall be invested and reinvested without distinction as to
  their source in accordance with Section 67, Article XVI, Texas
  Constitution. [A determination of whether the board of trustees
  has exercised prudence with respect to an investment decision must
  be made taking into consideration the investment of all assets of
  the trust or all assets of the collective investment vehicle, as
  applicable, over which the board has management and control, rather
  than considering the prudence of a single investment of the trust or
  the collective investment vehicle, as applicable.]
         SECTION 7.  Section 840.303, Government Code, is amended to
  read as follows:
         Sec. 840.303.  DUTY OF CARE. The assets of the retirement
  system shall be invested and reinvested without distinction as to
  their source in accordance with Section 67, Article XVI, Texas
  Constitution. [A determination of whether the board of trustees
  has exercised prudence with respect to an investment decision must
  be made taking into consideration the investment of all assets of
  the trust or all assets of the collective investment vehicle, as
  applicable, over which the board has management and control, rather
  than considering the prudence of a single investment of the trust or
  the collective investment vehicle, as applicable.]
         SECTION 8.  Section 855.303, Government Code, is amended to
  read as follows:
         Sec. 855.303.  PRUDENCE REGARDING INVESTMENTS. [A
  determination of whether the board of trustees has exercised
  prudence in an investment decision must be made by considering the
  investment of all of the assets of the trust over which the board
  has management and control, rather than by considering the prudence
  of a single investment.] In making investments for the retirement
  system, the board of trustees shall exercise the judgment and care,
  under the circumstances, that persons of prudence, discretion, and
  intelligence exercise in the management of their own affairs,
  considering the probable income from the securities and probable
  safety of their capital.
         SECTION 9.  Section 865.008(b), Government Code, is amended
  to read as follows:
         (b)  The assets of the pension system shall be invested and
  reinvested in accordance with Section 67, Article XVI, Texas
  Constitution. [A determination of whether the state board has
  exercised prudence with respect to an investment decision must be
  made, taking into consideration the investment of all assets of the
  trust over which the state board has management and control rather
  than considering the prudence of a single investment.]
         SECTION 10.  Section 7.04(b), Chapter 824 (S.B. 817), Acts
  of the 73rd Legislature, Regular Session, 1993 (Article 6243o,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         (b)  The board shall diversify the investment of the fund to
  minimize the risk of large losses unless under the circumstances it
  is clearly prudent not to do so. [In determining whether the board
  has exercised prudence concerning an investment decision, the
  investment of all assets of the fund, rather than the prudence of a
  single investment of the fund, shall be considered.]
         SECTION 11.  Section 6.04(b), Chapter 1332 (S.B. 1568), Acts
  of the 75th Legislature, Regular Session, 1997 (Article 6243q,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         (b)  The board shall diversify the investment of the reserve
  funds to minimize the risk of large losses unless under the
  circumstances it is clearly prudent not to do so. [In determining
  whether the board has exercised prudence concerning an investment
  decision, the investment of all assets of the funds, rather than the
  prudence of a single investment of the funds, shall be considered.]
         SECTION 12.  Section 802.2032, Government Code, as added by
  this Act, applies to the authority to vote shares and proxy votes
  granted before, on, or after the effective date of this Act.
         SECTION 13.  This Act takes effect September 1, 2023.