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  H.B. No. 3898
 
 
 
 
AN ACT
  relating to the funding of public retirement systems.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 28(h), Texas Local Fire Fighters
  Retirement Act (Article 6243e, Vernon's Texas Civil Statutes), is
  amended to read as follows:
         (h)  A retirement system established under this Act is exempt
  from Subchapter C, Chapter 802, Government Code, except Sections
  802.2011, 802.2015, 802.202, 802.205, and 802.207.
         SECTION 2.  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 3.  Section 802.2011, Government Code, is amended to
  read as follows:
         Sec. 802.2011.  FUNDING POLICY. (a) In this section:
               (1)  "Funded ratio" means the ratio of a public
  retirement system's actuarial value of assets divided by the
  system's actuarial accrued liability.
               (2)  "Governmental entity" has the meaning assigned by
  Section 802.1012.
               (3)  "Statewide 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 County and District Retirement
  System; 
                     (D)  the Texas Emergency Services Retirement
  System; and
                     (E)  the Texas Municipal Retirement System.
         (b)  The governing body of a public retirement system and, if
  the system is not a statewide retirement system, its associated
  governmental entity shall:
               (1)  jointly, if applicable:
                     (A)  develop and adopt a written funding policy
  that details a [the governing body's] plan for achieving a funded
  ratio of the system that is equal to or greater than 100 percent;
  and
                     (B)  timely revise the policy to reflect any
  significant changes to the policy, including changes required as a
  result of formulating and implementing a funding soundness
  restoration plan, including a revised funding soundness
  restoration plan, under Section 802.2015 or 802.2016;
               (2)  maintain for public review at its main office a
  copy of the policy;
               (3)  file a copy of the policy and each change to the
  policy with the board not later than the 31st day after the date the
  policy or change, as applicable, is adopted; and
               (4)  post [submit] a copy of the most recent edition of
  the policy on a publicly available Internet website in accordance
  with Section 802.107(c)(2) [and each change to the policy to the
  system's associated governmental entity not later than the 31st day
  after the date the policy or change is adopted].
         (c)  For purposes of Subsection (b)(1)(B), the written
  funding policy must outline any automatic contribution or benefit
  changes designed to prevent having to formulate a revised funding
  soundness restoration plan under Section 802.2015(d), including
  any automatic risk-sharing mechanisms that have been implemented,
  the adoption of an actuarially determined contribution structure,
  and other adjustable benefit or contribution mechanisms.
         (d)  The board may adopt rules necessary to implement this
  section.
         SECTION 4.  Section 802.2015, Government Code, is amended by
  amending Subsections (a), (c), (d), (e), (f), and (g) and adding
  Subsections (d-1), (e-1), (e-2), (e-3), (e-4), and (h) to read as
  follows:
         (a)  In this section:
               (1)  "Funded ratio" has the meaning assigned by Section
  802.2011.
               (2)  "Governmental [, "governmental] entity" has the
  meaning assigned by Section 802.1012.
         (c)  A public retirement system shall notify the associated
  governmental entity in writing if the [retirement] system receives
  an actuarial valuation indicating that the system's actual
  contributions are not sufficient to amortize the unfunded actuarial
  accrued liability within 30 [40] years. The [If a public retirement
  system's actuarial valuation shows that the system's amortization
  period has exceeded 40 years for three consecutive annual actuarial
  valuations, or two consecutive actuarial valuations in the case of
  a system that conducts the valuations every two or three years, the]
  governing body of the public retirement system and the governing
  body of the associated governmental entity shall jointly formulate
  a funding soundness restoration plan under Subsection (e) if the
  system's actuarial valuation shows that the system's expected
  funding period:
               (1)  has exceeded 30 years for three consecutive annual
  actuarial valuations, or two consecutive annual actuarial
  valuations in the case of a system that conducts the valuations
  every two or three years; or
               (2)  effective September 1, 2025:
                     (A)  exceeds 40 years; or
                     (B)  exceeds 30 years and the funded ratio of the
  system is less than 65 percent [in accordance with the system's
  governing statute].
         (d)  Except as provided by Subsection (d-1), the [The]
  governing body of a public retirement system and the governing body
  of the associated governmental entity that have an existing
  [formulated a] funding soundness restoration plan under Subsection
  (e) shall formulate a revised funding soundness restoration plan
  under Subsection (e-1) [that subsection, in accordance with the
  system's governing statute,] if the system becomes subject to
  Subsection (c) before the 10th anniversary of the date prescribed
  by Subsection (e)(2)(A) or (B), as applicable [conducts an
  actuarial valuation showing that:
               [(1) the system's amortization period exceeds 40 years;
  and
               [(2) the previously formulated funding soundness
  restoration plan has not been adhered to].
         (d-1)  The governing body of a public retirement system and
  the governing body of the associated governmental entity are not
  subject to Subsection (d) if:
               (1)  the system's actuarial valuation shows that the
  system's expected funding period exceeds 30 years but is less than
  or equal to 40 years; and
               (2)  the system is:
                     (A)  adhering to an existing funding soundness
  restoration plan that was formulated before September 1, 2025; or
                     (B)  implementing a contribution rate structure
  that uses or will ultimately use an actuarially determined
  contribution structure and the system's actuarial valuation shows
  that the system is expected to achieve full funding.
         (e)  A funding soundness restoration plan formulated under
  this section must:
               (1)  be developed by the public retirement system and
  the associated governmental entity in accordance with the system's
  governing statute; [and]
               (2)  be designed to achieve a contribution rate that
  will be sufficient to amortize the unfunded actuarial accrued
  liability within 30 [40] years not later than the later of:
                     (A)  the second [10th] anniversary of the
  valuation date stated in the actuarial valuation that required
  formulation of the plan under this subsection; or
                     (B)  September 1, 2025;
               (3)  be based on actions agreed to be taken by the
  system and entity that were approved by the respective governing
  bodies of both the system and the entity before the plan was
  adopted; and
               (4)  be adopted at open meetings of the respective
  governing bodies of the system and the entity not later than the
  second anniversary of the date the actuarial valuation that
  required application of this subsection was adopted by the
  governing body of the system [on which the final version of a
  funding soundness restoration plan is agreed to].
         (e-1)  A revised funding soundness restoration plan
  formulated under this section must:
               (1)  be  developed by the public retirement system and
  the associated governmental entity in accordance with the system's
  governing statute;
               (2)  be designed to achieve a contribution rate that
  will be sufficient to amortize the unfunded actuarial accrued
  liability within 25 years not later than the second anniversary of
  the valuation date stated in the actuarial valuation that required
  formulation of a revised plan under this subsection; 
               (3)  be based on actions, including automatic
  risk-sharing mechanisms, an actuarially determined contribution
  structure, and other adjustable benefit or contribution
  mechanisms, agreed to be taken by the system and entity that were
  approved by the respective governing bodies of both the system and
  the entity before the plan was adopted; and
               (4)  be adopted at open meetings by the respective
  governing bodies of the system and the entity not later than the
  second anniversary of the date the actuarial valuation that
  required application of this subsection was adopted by the
  governing body of the system.
         (e-2)  Not later than the 90th day after the date on which the
  plan is adopted by both the governing body of the system and the
  governing body of the associated governmental entity, a system may
  submit to the board an actuarial valuation required under Section
  802.101(a) or other law that shows the combined impact of all
  changes to a funding soundness restoration plan adopted under this
  section, including a revised funding soundness restoration plan
  adopted under Subsection (e-1). If a system does not provide an
  actuarial valuation to the board in accordance with this
  subsection, the board may request that the system provide a
  separate analysis of the combined impact of all changes to a funding
  soundness restoration plan adopted under this section not later
  than the 90th day after the date the board makes the request. An
  actuarial valuation or separate analysis conducted under this
  subsection must include:
               (1)  an actuarial projection of the public retirement
  system's expected future assets and liabilities between the
  valuation date described by Subsection (e)(2)(A) or (e-1)(2), as
  applicable, and the date at which the plan is expected to achieve
  full funding; and
               (2)  a description of all assumptions and methods used
  to perform the analysis which must comply with actuarial standards
  of practice.
         (e-3)  The associated governmental entity may pay all or part
  of the costs of the separate analysis required under Subsection
  (e-2). The public retirement system shall pay any costs for the
  analysis not paid by the associated governmental entity.
         (e-4)  A funding soundness restoration plan adopted under
  this section, including a revised funding soundness restoration
  plan adopted under Subsection (e-1), may not include actions that
  are subject to future approval by the governing bodies of either the
  public retirement system or the associated governmental entity.
         (f)  A public retirement system and the associated
  governmental entity required to [that] formulate a funding
  soundness restoration plan under this section, including a revised
  funding soundness restoration plan, shall provide a report to the
  board on [any updates of] progress made by the system and entity in
  formulating the plan, including a draft of any plan and a
  description of any changes under consideration for inclusion in a
  plan, not later than the first anniversary of the date of the
  actuarial valuation that required formulation of the plan under
  Subsection (e) or (e-1) and each subsequent six-month period until
  the plan is submitted to the board under this section [entities
  toward improved actuarial soundness to the board every two years].
         (g)  Each public retirement system that formulates a funding
  soundness restoration plan as provided by this section shall submit
  a copy of that plan to the board and any change to the plan not later
  than the 31st day after the date on which the plan is adopted by both
  the governing body of the system and the governing body of the
  associated governmental entity or the date the change is agreed to.
         (h)  The board may adopt rules necessary to implement this
  section.
         SECTION 5.  Section 802.2016, Government Code, is amended to
  read as follows:
         Sec. 802.2016.  FUNDING SOUNDNESS RESTORATION PLAN FOR
  CERTAIN PUBLIC RETIREMENT SYSTEMS. (a) In this section:
               (1)  "Funded ratio" has the meaning assigned by Section
  802.2011.
               (2)  "Governmental [, "governmental] entity" has the
  meaning assigned by Section 802.1012.
         (b)  This section applies only to a public retirement system
  that is governed by Article 6243i, Revised Statutes, and its
  associated governmental entity.
         (c)  A public retirement system shall notify the associated
  governmental entity in writing if the [retirement] system receives
  an actuarial valuation indicating that the system's actual
  contributions are not sufficient to amortize the unfunded actuarial
  accrued liability within 30 [40] years. The governing body of [If a
  public retirement system's actuarial valuation shows that the
  system's amortization period has exceeded 40 years for three
  consecutive annual actuarial valuations, or two consecutive
  actuarial valuations in the case of a system that conducts the
  valuations every two or three years,] the associated governmental
  entity shall formulate a funding soundness restoration plan under
  Subsection (e) if the system's actuarial valuation shows that the
  system's expected funding period:
               (1)  has exceeded 30 years for three consecutive annual
  actuarial valuations, or two consecutive annual actuarial
  valuations in the case of a system that conducts the valuations
  every two or three years; or
               (2)  effective September 1, 2025:
                     (A)  exceeds 40 years; or
                     (B)  exceeds 30 years and the funded ratio of the
  system is less than 65 percent [in accordance with the public
  retirement system's governing statute].
         (d)  Except as provided by Subsection (d-1), the governing
  body of an [An] associated governmental entity that has an existing
  [formulated a] funding soundness restoration plan under Subsection
  (e) shall formulate a revised funding soundness restoration plan
  under Subsection (e-1) [that subsection, in accordance with the
  public retirement system's governing statute,] if the system
  becomes subject to Subsection (c) before the 10th anniversary of
  the date prescribed by Subsection (e)(2)(A) or (B), as applicable
  [conducts an actuarial valuation showing that:
               [(1) the system's amortization period exceeds 40 years;
  and
               [(2) the previously formulated funding soundness
  restoration plan has not been adhered to].
         (d-1)  The associated governmental entity is not subject to
  Subsection (d) if:
               (1)  the system's actuarial valuation shows that the
  system's expected funding period exceeds 30 years but is less than
  or equal to 40 years; and
               (2)  the system is:
                     (A)  adhering to an existing funding soundness
  restoration plan that was formulated before September 1, 2025; or
                     (B)  implementing a contribution rate structure
  that uses or will ultimately use an actuarially determined
  contribution structure and the system's actuarial valuation shows
  that the system is expected to achieve full funding.
         (e)  A funding soundness restoration plan formulated under
  this section must:
               (1)  be developed in accordance with the public
  retirement system's governing statute by the associated
  governmental entity; [and]
               (2)  be designed to achieve a contribution rate that
  will be sufficient to amortize the unfunded actuarial accrued
  liability within 30 [40] years not later than the later of:
                     (A)  the second [10th] anniversary of the
  valuation date stated in the actuarial valuation that required
  formulation of the plan under this subsection; or
                     (B)  September 1, 2025;
               (3)  be based on actions, including automatic
  risk-sharing mechanisms, an actuarially determined contribution
  structure, and other adjustable benefit or contribution
  mechanisms, agreed to be taken by the system and entity that were
  approved by the governing body of the associated governmental
  entity before the plan was adopted; and
               (4)  be adopted at an open meeting of the governing body
  of the associated governmental entity not later than the second
  anniversary of the date the actuarial valuation that required
  application of this subsection was adopted by the governing body of
  the system [on which the final version of a funding soundness
  restoration plan is formulated].
         (e-1)  A revised funding soundness restoration plan
  formulated under this section must:
               (1)  be  developed by the associated governmental
  entity in accordance with the system's governing statute;
               (2)  be designed to achieve a contribution rate that
  will be sufficient to amortize the unfunded actuarial accrued
  liability within 25 years not later than the second anniversary of
  the valuation date stated in the actuarial valuation that required
  formulation of a revised plan under this subsection;
               (3)  be based on actions agreed to be taken by the
  system and entity that were approved by the governing body of the
  associated governmental entity before the plan was adopted; and
               (4)  be adopted at an open meeting of the governing body
  of the associated governmental entity not later than the second
  anniversary of the date the actuarial valuation that required
  application of this subsection was adopted by the governing body of
  the system.
         (e-2)  Not later than the 90th day after the date on which the
  plan is adopted by the governing body of the associated
  governmental entity, a system may submit to the board an actuarial
  valuation required under Section 802.101(a) or other law that shows
  the combined impact of all changes to a funding soundness
  restoration plan adopted under this section, including a revised
  funding soundness restoration plan adopted under Subsection (e-1).
  If a system does not provide an actuarial valuation to the board in
  accordance with this subsection, the board may request that the
  system provide a separate analysis of the combined impact of all
  changes to a funding soundness restoration plan adopted under this
  section not later than the 90th day after the date the board makes
  the request. An actuarial valuation or the separate analysis
  conducted under this subsection must include:
               (1)  an actuarial projection of the public retirement
  system's expected future assets and liabilities between the
  valuation date described by Subsection (e)(2)(A) or (e-1)(2), as
  applicable, and the date at which the plan is expected to achieve
  full funding; and
               (2)  a description of all assumptions and methods used
  to perform the analysis which must comply with actuarial standards
  of practice.
         (e-3)  The associated governmental entity may pay all or part
  of the costs of the separate analysis required under Subsection
  (e-2). The public retirement system shall pay any costs for the
  analysis not paid by the associated governmental entity.
         (e-4)  A funding soundness restoration plan adopted under
  this section, including a revised funding soundness restoration
  plan adopted under Subsection (e-1), may not include actions that
  are subject to future approval by the governing body of the
  associated governmental entity.
         (f)  An associated governmental entity required to formulate
  [that formulates] a funding soundness restoration plan under this
  section, including a revised funding soundness restoration plan,
  shall provide a report to the board on [any updates of] progress
  made by the [public retirement system and] associated governmental
  entity in formulating the plan, including a draft of any plan and a
  description of any changes under consideration for inclusion in a
  plan, not later than the first anniversary of the date of the
  actuarial valuation that required formulation of the plan under
  Subsection (e) or (e-1) and each subsequent six-month period until
  the plan is submitted to the board under this section [toward
  improved actuarial soundness to the board every two years].
         (g)  An associated governmental entity that formulates a
  funding soundness restoration plan as provided by this section
  shall submit a copy of that plan to the board and any change to the
  plan not later than the 31st day after the date on which the plan is
  adopted by the governing body of the associated governmental entity
  or the date the change is formulated.
         (h)  The board may adopt rules necessary to implement this
  section.
         SECTION 6.  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 7.  The changes in law made by this Act apply to a
  funding soundness restoration plan that is formulated or revised
  under Section 802.2015 or 802.2016, Government Code, as applicable,
  on or after the effective date of this Act. A funding soundness
  restoration plan formulated or revised before the effective date of
  this Act other than a plan that is subject to Section 802.2015(d-1)
  or Section 802.2016(d-1), Government Code, as added by this Act, is
  governed by the law as it existed immediately before that date, and
  the former law is continued in effect for that purpose, except if:
               (1)  the public retirement system and its associated
  governmental entity are required to formulate a revised funding
  soundness restoration plan under Section 802.2015(d), Government
  Code, as that section existed immediately before the effective date
  of this Act, the system and its associated governmental entity
  shall formulate the plan under Section 802.2015(e), Government
  Code, as amended by this Act, rather than as that section existed
  immediately before the effective date of this Act; or
               (2)  a public retirement system's associated
  governmental entity is required to formulate a revised funding
  soundness restoration plan under Section 802.2016(d), Government
  Code, as that section existed immediately before the effective date
  of this Act, the associated governmental entity shall formulate the
  plan under Section 802.2016(e), Government Code, as amended by this
  Act, rather than as that section existed immediately before the
  effective date of this Act.
         SECTION 8.  This Act takes effect September 1, 2021.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 3898 was passed by the House on May
  11, 2021, by the following vote:  Yeas 119, Nays 24, 2 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 3898 on May 28, 2021, by the following vote:  Yeas 122, Nays 23,
  2 present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 3898 was passed by the Senate, with
  amendments, on May 26, 2021, by the following vote:  Yeas 31, Nays
  0.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor