By: Huffman, Schwertner  S.B. No. 1372          (In the Senate - Filed March 10, 2021; March 18, 2021, read   first time and referred to Committee on Finance; April 9, 2021,   reported adversely, with favorable Committee Substitute by the   following vote:  Yeas 15, Nays 0; April 9, 2021, sent to printer.)Click here to see the committee vote     COMMITTEE SUBSTITUTE FOR S.B. No. 1372 By:  Huffman     A BILL TO BE ENTITLED   AN ACT     relating to the evaluation and reporting of investment practices   and performance of certain public retirement systems.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 802.109, Government Code, is amended by   amending Subsections (a), (d), (e), (f), and (h) and adding   Subsection (e-1) to read as follows:          (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) [(2)]  a detailed review of the retirement   system's investment asset allocation, including:                            (i) [(A)]  the process for determining   target allocations;                            (ii) [(B)]  the expected risk and expected   rate of return, categorized by asset class;                            (iii) [(C)]  the appropriateness of   selection and valuation methodologies of alternative and illiquid   assets; and                            (iv) [(D)]  future cash flow and liquidity   needs;                      (C) [(3)]  a review of the appropriateness of   investment fees and commissions paid by the retirement system;                      (D) [(4)]  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) [(5)]  a review of the retirement system's   investment manager selection and monitoring process.          (d)  A public retirement system shall conduct the evaluation   described by Subsection (a):                (1)  once every three years, if the total assets of the   retirement system [has total assets the book value of which,] as of   the last day of the preceding [last] fiscal year were [considered in   an evaluation under this section, was] at least $100 million; or                (2)  once every six years, if the total assets of the   retirement system [has total assets the book value of which,] as of   the last day of the preceding [last] fiscal year were [considered in   an evaluation under this section, was] at least $30 million and less   than $100 million.          (e)  A public retirement system is not required to conduct   the evaluation described by Subsection (a) if the total assets of   the retirement system [has total assets the book value of which,] as   of the last day of the preceding fiscal year were[, was] less than   $30 million.          (e-1)  Not later than the 30th day after the date an   independent firm completes an evaluation described by Subsection   (a), the independent firm shall:                (1)  submit to the public retirement system for   purposes of discussion and clarification a substantially completed   preliminary draft of the evaluation report; and                (2)  request in writing that the system, on or before   the 30th day after the date the system receives the preliminary   draft, 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, [A report of an evaluation under   this section must be filed] with the governing body of the [public   retirement] system:                (1)  not earlier than the 31st day after the date on   which the preliminary draft is submitted to the system; and                (2)  not later than the later of:                      (A)  the 60th day after the date on which the   preliminary draft is submitted to the system; or                      (B)  May 1 in the [of each] year following the year   in which the system is evaluated under Subsection (a) [(d)].          (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 [A]   public retirement system shall pay any remaining unpaid [the] costs   of the [each] evaluation [of the system under this section].          SECTION 2.  Section 802.109, Government Code, as amended by   this Act, applies only to an evaluation commenced on or after the   effective date of this Act. An evaluation commenced before the   effective date of this Act is governed by the law in effect on the   date the evaluation was commenced, and the former law is continued   in effect for that purpose.          SECTION 3.  This Act takes effect September 1, 2021.     * * * * *