89R3100 JCG-D     By: Hughes S.B. No. 667       A BILL TO BE ENTITLED   AN ACT   relating to prohibiting state retirement systems from investing in   certain Chinese-affiliated entities.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Subtitle A, Title 8, Government Code, is amended   by adding Chapter 809A to read as follows:   CHAPTER 809A. PROHIBITION ON INVESTMENT IN CERTAIN   CHINESE-AFFILIATED ENTITIES   SUBCHAPTER A. GENERAL PROVISIONS          Sec. 809A.001.  DEFINITIONS. In this chapter:                (1)  "Chinese-affiliated entity" means an entity that:                      (A)  is incorporated or headquartered in the   People's Republic of China, other than a U.S. subsidiary, as that   term is defined by 15 C.F.R. Section 772.1;                      (B)  is publicly confirmed to be controlled by the   People's Republic of China, the Chinese Communist Party, or a   provincial division, municipality, governmental agency, sovereign   wealth fund, or political instrumentality of the People's Republic   of China; or                      (C)  is identified by one or more of the   appropriate government agencies to be required by the National   Intelligence Law of the People's Republic of China (2017), as   amended in 2018, or any successor law, to support, assist, and   cooperate with the state intelligence work of the People's Republic   of China and keep the secrets of the national intelligence work of   the People's Republic of China.                (2)  "Direct holdings" means, with respect to a   restricted entity, all securities of that restricted entity held   directly by a state retirement system in an account or fund in which   a state retirement system owns all shares or interests.                (3)  "Entity" means a for-profit sole proprietorship,   organization, association, corporation, partnership, joint   venture, limited partnership, limited liability partnership, or   limited liability company, including a wholly owned subsidiary,   majority-owned subsidiary, parent company, or affiliate of those   entities or business associations, that exists to make a profit.                (4)  "Indirect holdings" means, with respect to a   restricted entity, all securities of that restricted entity held in   an account or fund, such as a mutual fund, managed by one or more   persons not employed by a state retirement system, in which the   state retirement system owns shares or interests together with   other investors not subject to the provisions of this chapter. The   term does not include money invested under a plan described by   Section 401(k) or 457 of the Internal Revenue Code of 1986 (26   U.S.C. Section 401(k) or 457).                (5)  "Listed restricted entity" means a restricted   entity listed by the comptroller under Section 809A.051.                (6)  "Restricted entity" means a Chinese-affiliated   entity or other entity associated with the People's Republic of   China that is identified or included on an entities list maintained   by the federal government for the purpose of imposing prohibitions   or restrictions on or against entities to address national security   concerns, protect human rights, or combat unfair trade practices.     The term includes an entity that:                      (A)  is listed on the entity list under supplement   No. 4 to 15 C.F.R. Part 744 as associated with the People's Republic   of China because there is reasonable cause to believe the entity is   involved, has been involved, or poses a significant risk of being or   becoming involved in activities contrary to the national security   or foreign policy interests of the United States of America; and                      (B)  is listed in the Federal Register by the   United States Secretary of Defense as a Chinese military company   operating directly or indirectly in the United States or in any   territory or possession of the United States on the most recent list   compiled under Section 1260H of the William M. (Mac) Thornberry   National Defense Authorization Act for Fiscal Year 2021 (Pub. L.   No. 116-283, reprinted in note, 10 U.S.C. Section 113), or any   successor list of Chinese military companies the secretary is   required by law to compile and publish.                (7)  "State retirement system" means:                      (A)  the Employees Retirement System of Texas,   including a retirement system administered by that system;                      (B)  the Teacher Retirement System of Texas;                      (C)  the Texas Municipal Retirement System;                      (D)  the Texas County and District Retirement   System; or                      (E)  the Texas Emergency Services Retirement   System.          Sec. 809A.002.  OTHER LEGAL OBLIGATIONS.  With respect to   actions taken in compliance with this chapter, including all good   faith determinations regarding restricted entities as required by   this chapter, a state retirement system and the comptroller are   exempt from any conflicting statutory or common law obligations,   including any obligations with respect to making investments,   divesting from any investment, preparing or maintaining any list of   restricted entities, or choosing asset managers, investment funds,   or investments for the state retirement system's securities   portfolios.          Sec. 809A.003.  INDEMNIFICATION OF STATE RETIREMENT   SYSTEMS, EMPLOYEES, AND OTHERS.  In a cause of action based on an   action, inaction, decision, divestment, investment, restricted   entity communication, report, or other determination made or taken   in connection with this chapter, the state shall, without regard to   whether the person performed services for compensation, indemnify   and hold harmless for actual damages, court costs, and attorney's   fees adjudged against, and defend:                (1)  an employee, a member of the governing body, or any   other officer of a state retirement system;                (2)  a contractor of a state retirement system;                (3)  a former employee, a former member of the   governing body, or any other former officer of a state retirement   system who was an employee, member of the governing body, or other   officer when the act or omission on which the damages are based   occurred;                (4)  a former contractor of a state retirement system   who was a contractor when the act or omission on which the damages   are based occurred; and                (5)  a state retirement system.          Sec. 809A.004.  NO PRIVATE CAUSE OF ACTION.  (a)  A person,   including a member, retiree, or beneficiary of a retirement system   to which this chapter applies, an association, a research firm, a   restricted entity, or any other person may not sue or pursue a   private cause of action against the state, a state retirement   system, a current or former employee, a member of the governing   body, or any other officer of a state retirement system, or a   contractor of a state retirement system, for any claim or cause of   action, including breach of fiduciary duty, or for violation of any   constitutional, statutory, or regulatory requirement in connection   with any action, inaction, decision, divestment, investment,   restricted entity communication, report, or other determination   made or taken in connection with this chapter.          (b)  A person who files suit against the state, a state   retirement system, an employee, a member of the governing body, or   any other officer of a state retirement system, or a contractor of a   state retirement system, is liable for paying the costs and   attorney's fees of a person sued in violation of this section.          Sec. 809A.005.  INAPPLICABILITY OF REQUIREMENTS   INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES.  A   state retirement system is not subject to a requirement of this   chapter if the state retirement system determines that the   requirement would be inconsistent with its fiduciary   responsibility with respect to the investment of entity assets or   other duties imposed by law relating to the investment of entity   assets, including the duty of care established under Section 67,   Article XVI, Texas Constitution.          Sec. 809A.006.  RELIANCE ON FEDERAL DETERMINATION AND   RESTRICTED ENTITY RESPONSE.  The comptroller may rely on the   following, in the following order of priority, without conducting   any further investigation, research, or inquiry:                (1)  a determination by a federal agency or officer   made under a federal law, regulation, or executive order regarding   whether an entity is a restricted entity; and                (2)  a restricted entity's response to a communication   made under this chapter.   SUBCHAPTER B.  DUTIES REGARDING INVESTMENTS          Sec. 809A.051.  LISTED RESTRICTED ENTITIES.  (a)  The   comptroller shall prepare and maintain, and provide to each state   retirement system, a list of all restricted entities.  In   maintaining the list, the comptroller may:                (1)  review and rely, as appropriate in the   comptroller's judgment, on publicly available information   regarding restricted entities, including information provided or   made available by federal, state, or local governments, nonprofit   organizations, research firms, and international organizations;   and                (2)  request written verification from a restricted   entity that it does not meet any of the criteria in Section   809A.001(6) and rely, as appropriate in the comptroller's judgment   and without conducting further investigation, research, or   inquiry, on the entity's written response to the request.          (b)  A restricted entity that fails to provide to the   comptroller a written verification under Subsection (a)(2) before   the 61st day after receiving the request from the comptroller is   presumed to be a restricted entity.          (c)  The comptroller shall update the list annually or more   often as the comptroller considers necessary, but not more often   than quarterly, based on information from, among other sources,   those listed in Subsection (a).          (d)  Not later than the 30th day after the date the list of   restricted entities is first provided or updated, the comptroller   shall file the list with the presiding officer of each house of the   legislature and the attorney general and post the list on a publicly   available Internet website.          Sec. 809A.052.  IDENTIFICATION OF INVESTMENT IN LISTED   RESTRICTED ENTITIES.  Not later than the 30th day after the date a   state retirement system receives the list provided under Section   809A.051, the state retirement system shall notify the comptroller   of the restricted entities in which the state retirement system   owns direct holdings or indirect holdings.          Sec. 809A.053.  NOTICE OF DIVESTMENT TO LISTED RESTRICTED   ENTITY.  For each listed restricted entity identified under Section   809A.052, the state retirement system shall send a written notice:                (1)  informing the restricted entity of its status as a   restricted entity; and                (2)  warning the restricted entity that it may become   subject to divestment by the state retirement system.          Sec. 809A.054.  DIVESTMENT OF ASSETS. (a) A state   retirement system required to sell, redeem, divest, or withdraw all   publicly traded securities of a listed restricted entity shall   comply with the following schedule:                (1)  at least 50 percent of those assets must be removed   from the state retirement system's assets under management not   later than the 180th day after the date the restricted entity   receives notice under Section 809A.053 unless the state retirement   system determines, based on a good faith exercise of its fiduciary   discretion and subject to Subdivision (2), that a later date is more   prudent; and                (2)  100 percent of those assets must be removed from   the state retirement system's assets under management not later   than the 360th day after the date the restricted entity receives   notice under Section 809A.053.          (b)  Except as provided by Subsection (a), a state retirement   system may delay the schedule for divestment under that subsection   only to the extent that the state retirement system determines, in   the state retirement system's good faith judgment, and consistent   with the state retirement system's fiduciary duty, that divestment   from listed restricted entities will likely result in a loss in   value or a benchmark deviation described by Section 809A.056(a).   If a state retirement system delays the schedule for divestment,   the state retirement system shall submit a report to the presiding   officer of each house of the legislature and the attorney general   stating the reason and justification for the state retirement   system's delay in divestment from listed restricted entities. The   report must include documentation supporting its determination   that the divestment would result in a loss in value or a benchmark   deviation described by Section 809A.056(a), including objective   numerical estimates. The state retirement system shall update the   report every six months.          Sec. 809A.055.  INVESTMENTS EXEMPTED FROM DIVESTMENT. A   state retirement system is not required to divest from any indirect   holdings in actively or passively managed investment funds or   private equity funds. The state retirement system shall submit   letters to the managers of each investment fund containing listed   restricted entities requesting that they remove those restricted   entities from the fund or create a similar actively or passively   managed fund with indirect holdings devoid of listed restricted   entities. If a manager creates a similar fund with substantially   the same management fees and same level of investment risk and   anticipated return, the state retirement system may replace all   applicable investments with investments in the similar fund in a   time frame consistent with prudent fiduciary standards but not   later than the 450th day after the date the fund is created.          Sec. 809A.056.  AUTHORIZED INVESTMENT IN LISTED RESTRICTED   ENTITIES. (a) A state retirement system may cease divesting from   one or more listed restricted entities only if clear and convincing   evidence shows that:                (1)  the state retirement system has suffered or will   suffer a loss in the hypothetical value of all assets under   management by the state retirement system as a result of having to   divest from listed restricted entities under this chapter; or                (2)  an individual portfolio that uses a   benchmark-aware strategy would be subject to an aggregate expected   deviation from its benchmark as a result of having to divest from   listed restricted entities under this chapter.          (b)  A state retirement system may cease divesting from a   listed restricted entity as provided by this section only to the   extent necessary to ensure that the state retirement system does   not suffer a loss in value or deviate from its benchmark as   described by Subsection (a).          (c)  Before a state retirement system may cease divesting   from a listed restricted entity under this section, the state   retirement system must provide a written report to the comptroller,   the presiding officer of each house of the legislature, and the   attorney general setting forth the reason and justification,   supported by clear and convincing evidence, for deciding to cease   divestment or to remain invested in a listed restricted entity.          (d)  The state retirement system shall update the report   required by Subsection (c) semiannually, as applicable.          Sec. 809A.057.  PROHIBITED INVESTMENTS. Except as provided   by Section 809A.056, a state retirement system may not acquire   securities of a listed restricted entity.   SUBCHAPTER C. REPORT; ENFORCEMENT          Sec. 809A.101.  REPORT. Not later than January 5 of each   year, each state retirement system shall file a publicly available   report with the presiding officer of each house of the legislature   and the attorney general that:                (1)  identifies all securities sold, redeemed,   divested, or withdrawn in compliance with Section 809A.054;                (2)  identifies all prohibited investments under   Section 809A.057; and                (3)  summarizes any changes made under Section   809A.055.          Sec. 809A.102.  ENFORCEMENT. The attorney general may bring   any action necessary to enforce this chapter.          SECTION 2.  This Act takes effect September 1, 2025.