89R2179 JCG-F     By: Hughes S.B. No. 312       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.   The term:                      (A)  includes a person eligible for appointment as   an investment manager under Section 802.204; and                      (B)   does not include:                            (i)  an employee or member of an advisory   committee of a public retirement system; or                            (ii)  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 or other   interested party on how to vote on measures under consideration by   shareholders or voting on behalf of a shareholder by proxy.          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, 2270, 2271,   2274, 2275, 2276, and 2277, 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 the 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;   EFFECT ON CERTAIN OTHER LAW. (a) 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 the   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.          (b)  Notwithstanding Section 809.051, the list maintained   under that section may not contain an investment manager, proxy   advisor, or other financial company who enters into a contract   under this section for the period during which the contract is in   effect.          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)(1)(B).          (c)  The governing body of a public retirement system that   grants proxy voting authority in accordance with this section shall   provide the State Pension Review Board a copy of the policy   described by Subsection (a)(1). If the public retirement system is   subject to Section 802.2035, the governing body of the system shall   provide a copy of the policy to the State Pension Review Board at   the same time the governing body provides the board with the annual   report required under that section.          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 the hour in which a vote   recommendation on the proxy vote is received from the proxy   advisor.          (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   hour the proxy vote is to be cast.          (d)  Except as provided by Subsection (e), not later than the   180th day after the last day of a public retirement system's fiscal   year, the governing body of the system shall tabulate all proxy   votes made on behalf of the system by proxy advisors during the   preceding fiscal year of the system 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)  Instead 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 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   Sections 802.203 through 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.  This Act takes effect September 1, 2025.