Bill Text: TX HB2068 | 2023-2024 | 88th Legislature | Introduced

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Bill Title: Relating to the fiduciary responsibility of governmental entities and the investment agents, plan administrators, or qualified vendors acting on behalf of those entities.

Spectrum: Partisan Bill (Republican 7-0)

Status: (Introduced - Dead) 2023-03-08 - Referred to Pensions, Investments & Financial Services [HB2068 Detail]

Download: Texas-2023-HB2068-Introduced.html

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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.