§ 802.109 — INVESTMENT PRACTICES AND PERFORMANCE REPORTS.

Texas § 802.109

• Jurisdiction: Texas
• Code GV: Government Code

Text

Sec. 802.109. INVESTMENT PRACTICES AND PERFORMANCE REPORTS. (a) Except as provided by Subsection (e) and subject to Subsections (c) and (k), a public retirement system shall 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. Each evaluation must include:
(1) a summary of the independent firm's experience in evaluating institutional investment practices and performance and a statement that the firm's experience meets the experience required by this subsection;
(2) a statement indicating the nature of any existing relationship between the independent firm and the public retirement system and confirming that the firm and any related entity are not involved in directly or indirectly managing the investments of the system;
(3) a list of the types of remuneration received by the independent firm from sources other than the public retirement system for services provided to the system;
(4) a statement identifying any potential conflict of interest or any appearance of a conflict of interest that could impact the analysis included in the evaluation due to an existing relationship between the independent firm and:
(A) the public retirement system; or
(B) any current or former member of the governing body of the system; and
(5) an explanation of the firm's determination regarding whether to include a recommendation for each of the following evaluated matters:
(A) 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;
(B) a detailed review of the retirement system's investment asset allocation, including:
(i) the process for determining target allocations;
(ii) the expected risk and expected rate of return, categorized by asset class;
(iii) the appropriateness of selection and valuation methodologies of alternative and illiquid assets; and
(iv) future cash flow and liquidity needs;
(C) a review of the appropriateness of investment fees and commissions paid by the retirement system;
(D) 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
(E) a review of the retirement system's investment manager selection and monitoring process.
(b) The governing body of a public retirement system may determine additional specific areas to be evaluated under Subsection (a) and may select particular asset classes on which to focus, but the first evaluation must be a comprehensive analysis of the retirement system's investment program that covers all asset classes.
(c) In selecting an independent firm to conduct the evaluation described by Subsection (a), a public retirement system:
(1) subject to Subdivision (2), may select a firm regardless of whether the firm has an existing relationship with the retirement system; and
(2) may not select a firm that directly or indirectly manages investments of the retirement system.
(d) In accordance with a schedule of deadlines prescribed by the board and except as provided by Subsection (e), a public retirement system shall conduct an evaluation under Subsection (a):
(1) once every three years, if the total assets of the retirement system as of the date of the preceding evaluation were at least $100 million; or
(2) subject to Subsection (d-1), once every six years, if the total assets of the retirement system as of the date of the preceding evaluation were at least $30 million and less than $100 million.
(d-1) If a public retirement system is conducting evaluations every six years as required by Subsection (d)(2) and the system's total pension liability increases to at least $100 million during a fiscal year, the system shall complete the next evaluation under Subsection (a) by the next appropriate deadline, as determined by the board, under the evaluation schedule.
(d-2) Subject to Subsection (d-1) and except as provided by Subsection (e), a public retirement system subject to an evaluation requirement under Subsection (d)(1) or (2) remains subject to that same requirement unless both the total assets and the total pension liability of the system decrease to an amount that is below the minimum amount prescribed by the applicable requirement.
(e) A public retirement system is not required to conduct an evaluation under Subsection (a) if the total assets of the retirement system were less than $30 million as of the last day of the fiscal year immediately preceding the next evaluation deadline under the evaluation schedule.
(e-1) An independent firm that completes an evaluation described by Subsection (a) shall:
(1) submit to the public retirement system for purposes of discussion and clarification a substantially completed draft of the evaluation report; and
(2) request in writing that the system submit to the firm:
(A) a description of any action taken or expected to be taken in response to a recommendation made in the evaluation; and
(B) any written response of the system that the system wants to accompany the final evaluation report.
(f) The independent firm shall file the final evaluation report, including the evaluation results and any response received from the public retirement system, with the governing body of the system.
(g) The governing body of a public retirement system that receives a report of an evaluation under this section shall submit the report to the board.
(h) A governmental entity that is the employer of active members of a public retirement system evaluated under Subsection (a) may pay all or part of the costs of the evaluation. The public retirement system shall pay any remaining unpaid costs of the evaluation.
(i) The board shall 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 in the biennial report required by Section 801.203 . The report must compile and summarize the information received under this section by the board during the preceding two fiscal years.
(j) In this section:
(1) "Evaluation schedule" means the schedule of deadlines prescribed by the board under Subsection (d).
(2) "Total pension liability" means the portion of the present value of projected retirement benefit payments to be provided through the retirement system to active and inactive members that is attributable to those members' past periods of service, in compliance with Statement No. 68 of the Governmental Accounting Standards Board.
(k) The following reports may be used by the applicable public retirement systems to satisfy the requirement for a report of an evaluation under this section:
(1) an investment report under Section 10A, Article 6243g-4, Revised Statutes;
(2) an investment report under Section 2D, Chapter 88 (H.B. 1573), Acts of the 77th Legislature, Regular Session, 2001 (Article 6243h , Vernon's Texas Civil Statutes); and
(3) a report on a review conducted on the retirement system's investments under Section 2B, Article 6243e.2(1), Revised Statutes.
(l) The board may adopt rules necessary to implement this section.
SUBCHAPTER C. ADMINISTRATION OF ASSETS

Legislative History

Added by Acts 2019, 86th Leg., R.S., Ch. 578 (S.B. 322 ), Sec. 3, eff. June 10, 2019. Amended by: Acts 2021, 87th Leg., R.S., Ch. 141 (H.B. 1585 ), Sec. 20(1), eff. May 26, 2021. Acts 2021, 87th Leg., R.S., Ch. 1033 (H.B. 3898 ), Sec. 2, eff. September 1, 2021. Acts 2025, 89th Leg., R.S., Ch. 275 (H.B. 3474 ), Sec. 1, eff. September 1, 2025.