In what may be a windfall for investment consultants, a new law requires Texas public pension funds with assets greater than $30 million to hire outside firms to evaluate the efficacy of investment activities of the fund and suggest improvements in a report to the Texas Pension Review Board, Austin.
On June 10, Texas Gov. Greg Abbott signed Senate Bill 322, mandating public pension funds to provide "comprehensive analysis of the retirement system's investment process that covers all asset classes," according to the text of the law.
Texas public funds will have until June 1, 2020, to submit their first evaluation reports. Thereafter, evaluation reports must be filed every three years for plans with more than $100 million in assets and every six years for plans with assets between $30 million and $100 million. Plans with less than $30 million are exempt from the reporting requirement.
State Rep. James Murphy said he and bill co-sponsor, Sen. Joan Huffman, introduced the bill to make it easier for the Texas Pension Review Board to make apples-to-apples comparisons of the investment health of the public pension plans it oversees.
Part of their motivation was to make sure that the Pension Review Board has adequate data from each pension fund to identify plans that might be in trouble with regard to investment performance or funded status, Mr. Murphy said.
Mr. Murphy said constituents and taxpayers expressed concern to him about the status of Texas public plans between legislative sessions (Texas has a biennial schedule) after reform legislation was passed in the 2017 session to shore up the $2.1 billion Dallas Police & Fire Pension System and the $4.2 billion Houston Firefighters' Relief and Retirement Fund, the $3 billion Houston Municipal Employees Pension System and the $5.5 billion Houston Police Officers' Pension System.
"Investment performance and benefit structures can become uncoupled leading to problems," Mr. Murphy said, noting that pension funds may be able to "self-correct" deficiencies using the suggestions for improvement provided by the external reviewers negating "the need for big brother to step in."
Observers noted that Texas is home to a high number of small public pension funds and legislators likely are taking a protective stance with the legislation.
Of the 99 public pension funds in the state, 41 have assets of more than $100 million and 24 have assets between $30 million and $100 million.
"Texas has a very large number of very small pension funds, and legislators are making sure these funds are reporting information on their funding and investment policies so action can be taken if there are problems," said Timothy Lee, executive director of the Texas Retired Teachers Association, Austin.