By: Hughes  S.B. No. 1446
         (In the Senate - Filed March 2, 2023; March 16, 2023, read
  first time and referred to Committee on State Affairs;
  April 17, 2023, reported adversely, with favorable Committee
  Substitute by the following vote:  Yeas 10, Nays 0; April 17, 2023,
  sent to printer.)
Click here to see the committee vote
 
  COMMITTEE SUBSTITUTE FOR S.B. No. 1446 By:  Hughes
 
 
A BILL TO BE ENTITLED
 
AN ACT
 
  relating to the fiduciary responsibility of the governing body of
  the public retirement systems in this state and the investment
  managers and proxy advisors acting on behalf of those systems.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 802.001, Government Code, is amended by
  adding Subdivisions (1-b), (2-a), and (2-b) to read as follows:
               (1-b)  "Financial factor" means a factor taken into
  consideration when making investment decisions that a prudent
  investor would expect to have a material effect on controlling risk
  and achieving a rate of return for an investment based on
  appropriate investment horizons and consistent with the objectives
  of any controlling investment plan.
               (2-a)  "Investment manager" means a person who for
  compensation provides professional investment management services
  and may include a person eligible for appointment as an investment
  manager under Section 802.204.  The term does not include:
                     (A)  an employee or member of an advisory
  committee of a public retirement system; or
                     (B)  a seller of security interests.
               (2-b)  "Proxy advisor" means a person who for
  compensation provides corporate governance ratings, proxy research
  and analyses, proxy voting, or other similar services to the
  shareholders of a publicly traded entity, or other interested
  parties, for the purpose of advising a shareholder on how to vote on
  measures under consideration by shareholders or proxy voting on
  behalf of a shareholder.
         SECTION 2.  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(c), (d), and (e) [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 3.  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 manager or the
  governing body of a public retirement system shall discharge its
  duties solely in the financial interest of the participants and
  beneficiaries:
               (1)  for the exclusive purposes of:
                     (A)  managing risk and providing financial
  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 financial 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 4.  Subchapter C, Chapter 802, Government Code, is
  amended by adding Sections 802.2031 through 802.2038 to read as
  follows:
         Sec. 802.2031.  INVESTMENT STANDARDS: OBLIGATION TO
  DISCHARGE DUTY BASED SOLELY ON CERTAIN FINANCIAL INTERESTS. (a)
  For purposes of discharging its duties solely in the financial
  interest of participants and beneficiaries under Section
  802.203(a) and except as provided by Chapters 808, 809, and 2270 and
  Chapter 2274, as added by Chapters 529 (S.B. 13), 530 (S.B. 19), 833
  (S.B. 4), and 975 (S.B. 2116), Acts of the 87th Legislature, Regular
  Session, 2021, the governing body of the public retirement system
  or an investment manager:
               (1)  shall:
                     (A)  make all investments prudently and in
  accordance with applicable fiduciary and ethical standards; and
                     (B)  take into account only financial factors when
  discharging its duties with respect to a plan administered by the
  system; and
               (2)  may not use the system's assets to take any action
  with a purpose of furthering social, political, or ideological
  interests.
         (b)  In accordance with this section and Section 802.203(a),
  all shares held by or on behalf of a public retirement system or the
  system's participants and beneficiaries, as applicable, if voted,
  shall be voted solely based on financial factors.
         Sec. 802.2032.  REQUIRED INVESTMENT CONTRACT PROVISIONS.
  The governing body of a public retirement system may not enter into
  a contract with an investment manager or a proxy advisor relating to
  investing the system's assets or voting, or advising on voting,
  shares held by the system unless the contract contains a
  requirement that the manager or advisor, as applicable: 
               (1)  take into account only financial factors when
  discharging the manager's or advisor's duties under the contract,
  with respect to investing the system's assets and voting, or
  advising on voting, shares held by the system; and
               (2)  not take any action under the contract with a
  purpose of furthering social, political, or ideological interests,
  including an action with respect to investing the system's assets
  or voting, or advising on voting, shares held by the system. 
         Sec. 802.2033.  PROXY VOTING AUTHORITY.  (a)  The governing
  body of a public retirement system may not grant proxy voting
  authority to a proxy advisor unless:
               (1)  the proxy advisor offers a policy for proxy voting
  advice:
                     (A)  that is consistent with the requirements for
  voting shares imposed on the system under Section 802.2031(b); and
                     (B)  the sole goal of which is to maximize
  financial return and control associated levels of risk; and
               (2)  the grant of proxy voting authority requires the
  proxy advisor to follow that policy.
         (b)  The policy may include additions or customizations only
  if those additions or customizations are consistent with the sole
  goal of the policy as described by Subsection (a).
         Sec. 802.2034.  PROXY VOTING: PUBLIC NOTICE AND ANNUAL
  REPORT.  (a)  This section applies only to a public retirement
  system that holds shares that the system is entitled to vote by
  proxy.
         (b)  Subject to Subsection (c), the governing body of a
  public retirement system shall post on the system's publicly
  accessible Internet website how a proxy advisor will cast a proxy
  vote made on behalf of the system or the system's participants and
  beneficiaries, if possible, not later than the earlier of:
               (1)  the seventh day before the date a proxy vote is to
  be cast; or
               (2)  48 hours after receiving a vote recommendation
  from the proxy advisor on the proxy vote.
         (c)  A public retirement system shall post on the system's
  publicly accessible Internet website how a proxy advisor will cast
  a proxy vote made on behalf of the system or the system's
  participants and beneficiaries not later than 24 hours before the
  proxy vote is to be cast.
         (d)  Except as provided by Subsection (e), not later than
  November 1 of each year, the governing body of a public retirement
  system shall tabulate all proxy votes made on behalf of the system
  by proxy advisors during the preceding state fiscal year and report
  the votes to the State Pension Review Board. For each vote, the
  report must contain a vote caption, the system's vote, the
  recommendation, if any, of the company holding the election, and,
  as applicable, the recommendation of the proxy advisor. The State
  Pension Review Board shall post reports submitted under this
  subsection to the board's publicly accessible Internet website.
         (e)  In lieu of submitting a report under Subsection (d), the
  governing body of a public retirement system may provide to the
  State Pension Review Board the location of a report posted to the
  system's publicly accessible Internet website that contains the
  information required by that subsection. 
         (f)  Except as provided by Subsection (g), if the governing
  body of a public retirement system grants proxy voting authority to
  an investment manager, the investment manager shall submit a report
  to the retirement system, and the retirement system shall submit a
  report to the State Pension Review Board, that tabulates all proxy
  votes cast by the investment manager on behalf of the system for
  each 12-month period the investment manager is managing any assets
  of the system. The State Pension Review Board shall post the reports
  submitted under this subsection to the board's publicly accessible
  Internet website.
         (g)  Subsection (f) does not apply to an investment manager
  that manages less than $50 million of a public retirement system's
  assets.
         Sec. 802.2035.  ANNUAL REPORT TO STATE PENSION REVIEW BOARD
  ON CERTAIN INVESTMENT RELATIONSHIPS.  (a)  This section applies
  only to a public retirement system with more than $100 million in
  assets.
         (b)  Annually, the governing body of a public retirement
  system shall submit a report to the State Pension Review Board that
  details investment relationships maintained by the system and, if
  applicable, shall consolidate the report with any annual
  comprehensive financial report required of the system under other
  law. The report required by this section must include information
  regarding each:
               (1)  subject to Subsection (c), fund or investment
  entity the system is invested in or has invested in during the
  preceding 12-month period; and
               (2)  subject to Subsection (d), investment manager with
  which the system contracts to provide investment management
  services.
         (c)  For purposes of Subsection (b)(1), regarding each fund
  or investment entity described by that subdivision, the report
  required by this section must contain:
               (1)  the name of the fund or investment entity;
               (2)  the date on which the fund or investment entity
  described by Subdivision (1) was established and each date during
  the applicable 12-month period the system invested in the fund or
  entity;
               (3)  with respect to a fund or investment entity, the
  amount of money, expressed in dollars, the system:
                     (A)  committed to the fund or entity described by
  Subdivision (1);
                     (B)  is invested in or has invested in the fund or
  entity during the applicable 12-month period under Subsection
  (b)(1); and
                     (C)  received from any fund or investment entity
  during the applicable 12-month period;
               (4)  the total amount of fees, including expenses,
  charges, and other compensation, assessed against the system by, or
  paid by the system to, any fund or investment entity in which the
  system is invested in or has invested in during the applicable
  12-month period; and
               (5)  the internal rate of return, or other standard of
  investment return, on money invested in each fund or investment
  entity, and the date on which the return was calculated.
         (d)  For purposes of Subsection (b)(2), regarding each
  contract with an investment manager providing investment manager
  services, the report required by this section must contain:
               (1)  the net value of the assets being managed under the
  contract; and
               (2)  the total amount of fees, including expenses,
  charges, and other compensation, assessed against the system by, or
  paid by the system to, any fund or investment entity in which the
  system is invested in or has invested in during the preceding
  12-month period.
         (e)  The State Pension Review Board shall post the report
  received under this section to the board's publicly accessible
  Internet website.
         Sec. 802.2036.  INJUNCTION BY RETIREMENT SYSTEMS.  (a)  A
  public retirement system may bring an action in district court to
  restrain or enjoin an investment manager or proxy advisor from
  breaching a contract provision required under Section 802.2032 or
  violating Section 802.203(a).
         (b)  The court may award court costs and reasonable
  attorney's fees to a party who prevails in an action brought under
  this section.
         (c)  The court in which the action is brought shall give
  precedence to proceedings in the same manner as provided for an
  election contest under Section 23.101.
         Sec. 802.2037.  INAPPLICABILITY OF REQUIREMENTS
  INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES.  
  (a)  A public retirement system is not subject to a requirement of
  Section 802.203, 802.2031, 802.2033, 802.2034, or 802.2035 if the
  system determines that the requirement would be inconsistent with
  its fiduciary responsibility with respect to the investment of
  system assets or other duties imposed by law relating to the
  investment of system assets, including the duty of care established
  under Section 67, Article XVI, Texas Constitution.
         (b)  If a public retirement system determines that complying
  with the requirement in a specific case is inconsistent with its
  fiduciary responsibility as described by Subsection (a), the system
  shall notify in writing the State Pension Review Board of the
  determination and the board shall post the determination on the
  board's publicly accessible Internet website.
         Sec. 802.2038.  RULES ON INVESTMENTS, VOTING SHARES, AND
  RELATED REPORTS. The State Pension Review Board may adopt rules to
  implement Section 802.203, 802.2031, 802.2032, 802.2033, 802.2034,
  802.2035, or 802.2037.
         SECTION 5.  The changes in law made by this Act apply only to
  a contract entered into on or after the effective date of this Act.
  A contract entered into before the effective date of this Act is
  governed by the law in effect on the date the contract was entered
  into, and the former law is continued in effect for that purpose.
         SECTION 6.  (a)  Notwithstanding any other section of this
  Act, in a state fiscal year, the State Pension Review Board is not
  required to implement a provision found in another section of this
  Act that is drafted as a mandatory provision imposing a duty on the
  board to take an action unless money is specifically appropriated
  to the board for that fiscal year to carry out that duty. The State
  Pension Review Board may implement the provision in that fiscal
  year to the extent other funding is available to the board to do so.
         (b)  If, as authorized by Subsection (a) of this section, the
  State Pension Review Board does not implement the mandatory
  provision in a state fiscal year, the board, in its legislative
  budget request for the next state fiscal biennium, shall certify
  that fact to the Legislative Budget Board and include a written
  estimate of the costs of implementing the provision in each year of
  that next state fiscal biennium.
         (c)  This section expires and any duty suspended by
  Subsection (a) becomes mandatory on September 1, 2027.
         SECTION 7.  It is the intent of the 88th Legislature, Regular
  Session, 2023, that the amendments made by this Act be harmonized
  with another Act of the 88th Legislature, Regular Session, 2023,
  relating to nonsubstantive additions to and corrections in enacted
  codes.
         SECTION 8.  This Act takes effect September 1, 2023.
 
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