By: Huffman, et al. S.B. No. 509     (Flynn, Paul)           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 801.209(a), Government Code, is amended   to read as follows:          (a)  For each public retirement system, the board shall post   on the board's Internet website, or on a publicly available website   that is linked to the board's website, the most recent data from   reports received under Sections 802.101, 802.103, 802.104,   802.105, 802.108, 802.109, 802.2015, and 802.2016.          SECTION 2.  Section 802.103(a), Government Code, is amended   to read as follows:          (a)  The [Except as provided by Subsection (c), the]   governing body of a public retirement system shall publish an   annual financial report showing the financial condition of the   system as of the last day of the fiscal year covered in the report.     The report must include:                (1)  the financial statements and schedules examined in   the most recent audit performed as required by Section 802.102;                (2)  [and must include] a statement of opinion by the   certified public accountant as to whether or not the financial   statements and schedules are presented fairly and in accordance   with generally accepted accounting principles;                (3)  a listing, by asset class, of all direct and   indirect commissions and fees paid by the retirement system during   the system's previous fiscal year for the sale, purchase, or   management of system assets; and                (4)  the names of investment managers engaged by the   retirement system.          SECTION 3.  Subchapter B, Chapter 802, Government Code, is   amended by adding Section 802.109 to read as follows:          Sec. 802.109.  INVESTMENT PRACTICES AND PERFORMANCE   REPORTS. (a)  Except as provided by Subsection (d), 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)  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;                (2)  a detailed review of the retirement system's   investment asset allocation, including:                      (A)  the process for determining target   allocations;                       (B)  the expected risk and assumed rate of return,   categorized by asset class;                       (C)  the appropriateness of selection and   valuation methodologies of alternative and illiquid assets; and                       (D)  future cash flow and liquidity needs;                (3)  a review of the appropriateness of investment fees   and commissions paid by the retirement system;                (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                 (5)  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)  A public retirement system shall conduct the evaluation   described by Subsection (a):                (1)  once every three years, if the retirement system   has total assets the book value of which, as of the last day of the   last fiscal year considered in an evaluation under this section,   was at least $100 million; or                (2)  once every six years, if the retirement system has   total assets the book value of which, as of the last day of the last   fiscal year considered in an evaluation under this section, was at   least $30 million and less than $100 million.          (d)  A public retirement system is not required to conduct   the evaluation described by Subsection (a) if the retirement system   has total assets the book value of which, as of the last day of the   preceding fiscal year, was less than $30 million.          (e)  A report of an evaluation under this section must be   filed with the governing body of the public retirement system not   later than December 1 of each year in which the system is evaluated   under Subsection (c).          (f)  Not later than the 31st day after the date the governing   body of a public retirement system receives a report of an   evaluation under this section, the governing body shall submit the   report to the board.          (g)  A public retirement system shall pay the costs of each   evaluation of the system under this section.          (h)  Not later than February 1 of each year, 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. The report must   compile and summarize the information received under this section   by the board during the preceding calendar year.          (i)  A report of an evaluation by the Teacher Retirement   System of Texas and an investment report that includes the Teacher   Retirement System of Texas under this section satisfies the   requirements of Section 825.512.          SECTION 4.  Notwithstanding Section 802.109(c), Government   Code, as added by this Act, a report of the first evaluation of a   public retirement system, as required by Section 802.109,   Government Code, as added by this Act, must be filed with the   governing body of the system not later than January 1, 2018.          SECTION 5.  This Act takes effect immediately if it receives   a vote of two-thirds of all the members elected to each house, as   provided by Section 39, Article III, Texas Constitution.  If this   Act does not receive the vote necessary for immediate effect, this   Act takes effect September 1, 2017.