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