TITLE 34. PUBLIC FINANCE

PART 3. TEACHER RETIREMENT SYSTEM OF TEXAS

CHAPTER 53. CERTIFICATION BY COMPANIES OFFERING QUALIFIED INVESTMENT PRODUCTS

34 TAC §§53.1, 53.3 - 53.17

The Teacher Retirement System of Texas (TRS) adopts amended and new rules to Chapter 53, §§53.1 and 53.3 - 53.17, relating to certification by companies offering qualified investment products to employees of school districts or open-enrollment charter schools through what are commonly referred to as "403(b) plans," with changes to the text of §§53.1; 53.3 - 53.7; 53.10; and §53.15 as published in the September 22, 2017, issue of the Texas Register (42 TexReg 4970).

The proposed new and amended rules update the application requirements, certification and registration processes, and maximum allowable fees that companies may charge for the sale of 403(b) annuity and non-annuity products to public education employees. As part of the current comprehensive four-year rule review of Chapter 53 in Title 34, Part 3, of the Texas Administrative Code (TAC), TRS has determined that the amended and new rules are necessary to continue the effective implementation of the article, as required by law. TRS adopts the new and amended rules at the same time it repeals existing rules §§53.6-53.9 and §§53.11-53.20.

TRS amends the following sections of its 403(b) rules: §53.1, relating to definitions; §53.3, relating to maximum fees, costs, and penalties; §53.4, relating to qualifications for certification by companies offering qualified investment products that are annuity contracts; and §53.5, relating to qualifications for certification by companies offering qualified investment products other than annuity contracts. TRS adopts the following new rules: §53.6, relating to application and fee for certification; §53.7, relating to listing of certified companies; §53.8, relating to product and investment option registration requirements; §53.9, relating to application and fee for approval to register products and investment options; §53.10, relating to registration and listing of products and investment options; §53.11, relating to ongoing company responsibilities regarding certification and TRS registered products and investment options; §53.12, relating to TRS actions regarding certification and TRS registered products and investment options; §53.13, relating to coordination with regulatory and enforcement agencies; §53.14, relating to suspension or revocation of certification; §53.15, relating to notice to potential purchaser of annuity contracts; §53.16, relating to electronic signature; and §53.17, relating to administrative service providers. TRS adopts the new rules at the same time TRS repeals existing rules §§53.6-53.9 and §§53.11-53.20.

Amended §53.1 amends the definitions of the words "certified company," "certify," "company," "contract," "eligible qualified investment product," "platform company," "product," "qualified investment product," "register," "representative," and "specialized department" and adds a definition for the terms "approval to register products," "closed," "investment option," "product registration system," "proprietary company," "TRS registered product," and "restricted" to clarify the meaning of other rules containing those terms.

Amended §53.3 modifies the maximum fees, costs, and penalties a certified company may charge for annuity or non-annuity products and investment options that are registered on or after October 1, 2019 and sold through salary reduction agreement on or after November 16, 2019. It provides that products or investment options that are registered before October 1, 2019 and sold through salary reduction agreement before November 16, 2019 are restricted as of November 16, 2019 and employees who have purchased those products may continue, change or resume contributions under an existing salary reduction agreement or execute an updated or amended salary reduction agreement with the same or a new employer. The amended fees, costs, and penalties taking effect for products registered on or after October 1, 2019 and sold on or after November 16, 2019, prohibit registration of a product with a front or back-end sales load, adjust the allowable asset-based fee by asset class and sets maximum allowable fees for annuity products and non-annuity products, lower the allowable loan initiation fee, and increase the maximum allowable account maintenance fee.

Amended §53.4 clarifies that a company offering annuity products can certify to TRS as a proprietary company, if the company meets the certification requirements. Also, removes a restatement of the statute.

Amended §53.5 clarifies that a company offering non-annuity products can certify to TRS as a proprietary company or a platform company, if the company meets the certification requirements.

New §53.6, titled, "Application and Fee for Certification," clarifies the application requirements for companies providing both annuity and non-annuity products and sets out new application requirements regarding customer service disclosures for companies providing non-annuity products and investment options. The rule provisions provide that certification of a non-annuity company is not conditioned on the provision of the customer services disclosed in the application. Additionally, the rules set the five-year company certification fee at $5,000.

New §53.7, titled, "Listing of Certified Companies," clarifies TRS's process of listing newly certified companies on the TRS web site.

New §53.8, titled, "Product and Investment Option Registration Requirements," clarifies the registration requirements for products and clarifies that certified companies may register investment options in addition to products.

New §53.9, titled, "Application and Fee for Approval to Register Products and Investment Options," clarifies the process to apply to register products and investment options, and sets the product registration fee at $10,000 per five-year product registration period.

New §53.10, titled, "Registration and Listing of Products and Investment Options," clarifies TRS's process for listing newly registered products and investment options.

New §53.11, titled, "Ongoing Company Responsibilities Regarding Certification and TRS Registered Products and Investment Options," provides the ongoing responsibilities of companies to maintain company certification and product and investment option registration.

New §53.12, titled, "TRS Actions Regarding Certification and TRS Registered Products and Investment Options," provides the actions TRS may take regarding certified companies and registered products and investment options.

New §53.13, titled, "Coordination with Regulatory and Enforcement Agencies," provides the process that TRS must follow when it receives complaints regarding products and investment options.

New §53.14, titled, "Suspension or Revocation of Certification," clarifies the process regarding suspension and revocation of company certification or registration of products or investment options.

New §53.15, titled, "Notice to Potential Purchaser of Annuity Contracts," adopts the rule provisions found in current rule §53.9 regarding notices to potential purchasers of annuity contracts.

New §53.16, titled, "Electronic Signature," provides that TRS may develop a policy to accept electronic filings and electronic signatures of applications for company certification and registration of products and investment options.

New §53.17, titled, "Administrative Service Providers," adopts the rule provisions found in current rule §53.20 regarding administrative service providers.

TRS took over a year to develop the final rules after commencing the rule review. As part of this process, TRS issued a general questionnaire to stakeholders regarding potential rule improvements, held two informal conferences to take stakeholder input, considered stakeholder letters and comments, and met individually with stakeholders upon request to receive feedback. TRS also gathered data from stakeholders on the potential impact of the rule amendments through two different industry surveys and received advice and input on the rules from Aon Hewitt, an independent consulting firm with expertise in institutional 403(b) administration, products, and fees. The timeline and process for conducting the rule review and adopting the final rules is laid out below.

Figure: 34 TAC Chapter 53--Preamble (.pdf)

Based on stakeholder comments, TRS withdrew the June 16, 2017, and July 21, 2017, rule proposals and published a new version of the proposed new and amended rules on September 22, 2017. Therefore, in the comment summaries and responses below, TRS will only address the comments received during the comment period for the most recent iteration of the proposed rules, which were published for public comment in the Texas Register on September 22, 2017. TRS has provided information on stakeholder input and the development of the rules prior to the September 22, 2017, rule version merely as background.

For the September 22, 2017, rule proposal, TRS received five sets of comments from the following business entities and organizations representing business: PlanMember Financial Corporation (PlanMember), National Tax-Deferred Savings Association (NTSA) on behalf of the American Retirement Association and NTSA, Variable Annuity Life Insurance Company (VALIC), AXA Equitable Financial Services, LLC (AXA), and the Texas Association of Life and Health Insurers (TALHI).

Commenters noted that the September 22, 2017, rules represented an improvement over the June 16, 2017, and July 21, 2017, proposed amended and new rules by stating:

The proposed rules continue to be structured in a manner that supports choice in investment products, service models, and investment styles for Texas public school employees.

The updated proposed rule would allow companies to continue to offer annuity products and many of the investment options that are currently used by TRS members.

The updated proposed rules are workable and represent a significant shift from the original proposed rules.

Commenters asked for amendments to the proposed rules. The principal reasons and requested changes fall into one of the nine following categories:

1- Concern with the rule review deadline and the process TRS used to develop the new rules.

2- The maximum allowable asset-based fee, including capping the maximum allowable asset-based fee by asset class, could reduce the number of 403(b) products and investment options available to employees.

3- The prohibition on sales loads will eliminate some high-performing fund options and is inconsistent with the language of Article 6228a-5.

4- The reduction in the maximum allowable loan initiation fee could be administratively difficult on some companies and make it financially difficult for companies to offer loans.

5- Concern as to how Registered Investment Advisors (RIA) will register their model portfolios under the new asset-based fee asset class breakout.

6- Requested amendments to the grandfather provisions and the definition of restricted products.

7- Clarification of the suspension and revocation procedures to include removing all references to Chapter 43 of TRS rules in the suspension and revocation process.

8- Concerns about the increase in company certification and product registration fees.

9- Other general comments and general revisions.

TRS modified the proposed rules in response to some of the requested amendments. To the extent TRS did not modify the proposed rules as requested, TRS overrules the requested amendments for the following reasons indicated.

1- Concern with the rule review deadline and the process TRS used to develop the new rules. Some commenters asserted that TRS has until March 2018 to complete the Chapter 53 rule review and, therefore, TRS does not need to adopt rules by December 2017. Commenters also expressed concern that TRS was not inclusive in developing rules in the early part of the rule review process. TRS disagrees that it has until March 2018 to complete the rule review and that it was not inclusive of stakeholders during any part of this process. On September 22, 2016, the Policy Committee of the TRS Board of Trustees ("Policy Committee") adopted an updated Policy Review Schedule that lays out the review deadlines for all rules and policies of the TRS Board. The Policy Committee does this annually each September in order for the Policy Committee and the Board to plan their work. In that schedule, the Policy Committee adopted a review schedule that set December 18, 2017, as the deadline to complete the rule review. This deadline was based on the date the last rule review notice of completion was filed with the Secretary of State, which was December 18, 2013. The deadline for the December 2013 rule review was March 10, 2014. However, when TRS completed the review in December 2013, it adjusted the subsequent review deadline to December 2017. As for the process, TRS believes it has conducted an open and transparent rule review process that has sought input and comment from all stakeholders. The review of the 403(b) rules officially began in September 2016 with authorization of the rule review by the TRS Board of Trustees. Two informal conferences were held in December 2016 and June 2017 following publication of the original proposed rules. Additionally, TRS staff made presentations to the TRS Board of Trustees on multiple occasions at each step of the process (February, June, and twice in September 2017). From the time the original proposed rules were published in June 2016 to final adoption in October, stakeholders had four opportunities to testify before the TRS Board of Trustees. This is in addition to the opportunity to provide written comments following publication of rules in the Texas Register.

2- The maximum allowable asset-based fee, including capping the maximum allowable asset-based fee by asset class, could reduce the number of 403(b) products and investment options available to employees. Commenters requested that TRS either amend the most recently proposed maximum allowable asset-based fees to not impose the asset fee classes rule on variable annuities or to postpone adopting any final rules until TRS can obtain better information on both the actual costs and the "performance" of various fund groups in order to set maximum fees that do not eliminate legitimate products. Commenters noted that a number of factors other than fees impact the quality of a fund and urged TRS to take those factors into account, including diversity, past and future performance and quality of managers, so that a potentially better performing fund is not eliminated as a choice for Texans. Commenters offered that variable annuity account fees should either remain at 2.75% or not be reduced below 2.70%. They noted that the actual fees imposed by any insurer will vary and are a competitive factor in the market place. Such a maximum would still reflect a reasonable amount for the additional costs and benefits associated with an annuity contract and also considers the fact that variable annuity may have asset fees it must pay for certain assets offered through the variable annuity. Commenters also stated that the total maximum fees by asset class contain assumptions regarding the expense ratios of funds that are incorrect and inapplicable for the TRS 403(b) marketplace. Commenters noted that using the dollar weighted average orients around large institutional investors that may be able to receive institutional pricing with discounted fees. Individual TRS school districts have lower assets under management and would not qualify for this discounted pricing. A minority of investment options will no longer be able to be offered to TRS members due to conversion to asset-class based fee caps. Commenters encouraged TRS in the future to thoroughly examine not just Morningstar data but the data most relevant to TRS, which includes existing investment options within the TRS marketplace, as well as data regarding 403(b) plans more generally. TRS disagrees with the assertion that variable annuity products and investment options are not appropriate for registration by asset class. The investment options underlying the variable annuity products span a wide range of funds so that investors can develop portfolios that serve their financial goals within those annuity products. Some investors may opt for a more conservative money market fund while others prefer funds with a more aggressive risk/reward option. By setting the maximum allowable asset-based fee by asset class, TRS is ensuring that investors choosing a more conservative investment option that is typically less expensive to manage do not pay the same level of expense ratio as investors selecting a more complex fund, such as a real assets fund. Additionally, TRS believes it would take a legislative change to require companies to report fund performance data to TRS before TRS could take performance into account when developing the maximum allowable asset-based fee. TRS also disagrees that the expense ratios identified by TRS are inappropriate for the Texas 403(b) market. In determining the maximum fee cap for the various asset classes, TRS used annual expense ratio data from Morningstar as of December 31, 2015. Morningstar's expense ratio data includes information on over 12,000 funds, representing over $9 trillion in assets, broken down by asset class. TRS staff reviewed expense ratio data based on percentiles (25th and 75th), medians, and averages. Since mutual fund expense ratios do not change frequently, TRS believes this study to be a relevant comparison. Ultimately, TRS chose to use the dollar weighted average fees to set the proposed expense ratio caps because this measure represents how investors have allocated capital in the marketplace. TRS found that looking at a wide range of investments regardless of investment type provided a more appropriate measure of expense ratios of funds than limiting analysis to just the 403(b) market. Moreover, combining the expense ratios with the administrative fee into a single maximum allowable asset-based fee lessens the impact of the proposed change because the expense ratio is not a stand-alone cap. Companies can offer products with expense ratios higher than the dollar-weighted Morningstar average provided that the entire asset-based fee (expense ratio and administrative fee) are lower than the total maximum allowable asset-based fee.

3- The prohibition on sales loads will eliminate some high-performing fund options and is inconsistent with the language of Article 6228a-5. Commenters asserted that TRS should not prohibit front and back-end sales loads because a few variable products have some type of either front or back load. Commenters noted that the marketplace, not TRS, should be the regulator of these loads. Moreover, commenters stated that the legislature knew in 2001, when it enacted Article 6228a-5, that front-load and back-load 403(b) mutual funds were one of several products that were offered to Texas public education employees. The legislature did not empower TRS to eliminate all front or back end fees; therefore, TRS is not authorized to do so. Commenters also stated that a low-cost fund that results in low or negative performance may not be better than an actively managed fund that achieves better performance. Commenters noted that individuals who invest in a particular mutual fund for a long time may be better served by selecting a front-end or back-end load option as compared to a no-load fund with poor performance and annual fees. Commenters asserted that funds that have no-loads instead charge annual charges often referred to as 12b-1 fees. Commenters asserted that the need for the brokers to explain and compare potential advantages and disadvantages regarding products is crucial. The elimination of all front-end load funds may eliminate brokers and eliminate those potentially higher performing funds as a choice. Finally, commenters requested clarification that the term "back-end load" (which is not a defined term) does not include a surrender or withdrawal charge. TRS does not agree with the comments regarding a lack of legal authority to prohibit sales loads. The legislature gave TRS the authority to establish maximum fees, costs, and penalties. This necessarily implies the authority to determine that certain fees charged in addition to other allowable fees would result in excessive charges in the aggregate. Moreover, if the legislature had intended the market and, not TRS, to be the sole regulator for these types of fees, then the legislature would have drawn TRS's authority to set maximum fees, costs, and penalties more narrowly. Out of the current products registered with TRS, the average front-end sales load is 5.07%. The average asset-based fee for those same products is 1.35%. That means an employee purchasing one of these products would pay an average first year fee of 6.42%. By way of comparison, the yield of the current S&P 500 index was 2.39% as of June 30, 2017. This means that an employee annually earning the average return of the S&P 500 would spend all of the first and second year's and over half of the third year's earnings on fees alone. TRS recognizes that variable annuities are complex products with features such as guaranteed income riders that mitigate against the erosive effect of fees. Fundamentally, however, employees purchasing a sales-loaded product must earn more on their investment than employees purchasing a no-load product to reach the same savings goal. Additionally, the comments suggest that for investors the choice is either: 1) pay a sales load with little to no annual asset-based fee; or 2) pay no sales load with a higher annual asset-based fee. However, the data in TRS's product registration system does not support this "either / or" assertion. All of the products in TRS's system with a front-end sales load also have an annual asset-based fee. Out of the products and investment options that charge a back-end sales load, only 0.45% do not have an annual asset-based fee. Therefore, the vast majority of employees who buy products with sales loads are also paying annual asset-based fees. TRS disagrees that the elimination of sales loads may eliminate brokers. TRS has increased the administrative-fee portion of the maximum allowable annual asset-based fee from the 1.25% that was originally built into the rule in 2002 to 1.50% for non-annuity products and 1.75% for variable annuity products. These maximum allowable administrative fees are then combined with the maximum allowable expense ratio for each asset class to establish a maximum annual allowable asset-based fee. TRS recognizes the importance for agents and brokers to market to educational institution employees, including in small or rural school districts, and believes that the maximum annual allowable asset-based fee will allow agents and brokers to be compensated for such sales without sales loads. Additionally, TRS finds that there are sufficient products and investment options available to allow employee choice even with the elimination of sales loads. Finally, TRS does not believe the term "back-end sales load" needs to be defined as separate from a surrender charge. Previously, in the rules, back-end sales loads and surrender charges were not defined, had different maximum allowable amounts, and were communicated and implemented without confusion.

4- The reduction in the maximum allowable loan initiation fee could be administratively difficult on some companies and make it financially difficult for companies to offer loans. Commenters noted that the vast majority of variable annuity products have loan provisions in the policy that typically reflect a fee of $50. Changing the loan fee could require an insurer to refile and obtain approval for all of those products with the Texas Department of Insurance (TDI) and then be registered again with TRS. Other commenters noted that lowering the maximum allowable loan fee will result in fewer companies offering products that allow for loans. TRS disagrees. In developing the rule, TRS consulted with TDI on their approval of forms process. TDI noted that they have a "file and use" process for annuity products that meet certain requirements. Insurers who use this process do not have to wait for approval before using the forms. There is also an exempt filing process that, depending on the nature of the forms, could be an alternative to the standard filing process. Given the various and expedited options for filing forms at TDI, TRS finds that lowering the maximum allowable loan initiation fee will not cause an administrative burden for companies. Moreover, TRS believes that lowering the maximum allowable loan initiation fee serves two public policy goals: 1) a potential reduction in the amount of products that offer loans mitigates against the retirement savings leakage that comes from loans; and 2) if an employee is determined to purchase a product or investment option that offers a loan, then lowering the fee reduces the burden of fee, costs, and penalties on the employee.

5- Concern as to how Registered Investment Advisors (RIA) will register their model portfolios under the new asset-based fee asset class breakout. Some commenters requested that TRS allow RIA services to be registered in the "Other" asset class category or create an RIA-specific category. Additionally, they requested that TRS allow RIAs to use the blended average weighted expenses of the portfolio to meet the asset-based fee caps. Finally, RIAs noted the logistical difficulty for platform companies to register products and investment options in the TRS 403(b) Product Registration System (PRS). Commenters requested that the Board instruct Texas TRS staff to work with California 403bcompare.com to update its website, search functions and coverage for all company registrations by product. TRS finds it unnecessary to allow RIA offerings to be registered under the "Other" asset class category, as the responsibility for selecting the appropriate asset class for a registered investment option resides only with the proprietary company offering the investment option. RIAs may only certify with TRS as platform companies. At no point in the registration process would a platform company select an asset class. For example, a proprietary company will continue to register its investment options, including determining the appropriate asset class(es). The platform company will then link to the already-registered investment options. TRS disagrees with the recommendation to create a stand-alone RIA asset class category as each individual mutual fund in an RIA model portfolio should comply with the appropriate fee cap by asset class. TRS does not believe that it is feasible to allow RIAs or any company to stay below the maximum fee caps by using a blended average weighted portfolio expense. TRS understands that typically employees do not purchase just a single fund; rather, they purchase a variety of funds to make up a portfolio. However, TRS is charged with registering individual funds, not portfolios. So, there would be a fundamental mismatch between the statutory structure of the program and the allowable maximum fees, if TRS were to attempt to set the maximum allowable asset-based fee by portfolio. Moreover, if TRS allowed individual investment options to exceed the fee caps based on the premise that the weighted average of the portfolio would not exceed the caps, TRS would have no way to verify that customers will not be overcharged. Therefore, it is reasonable for TRS to meet the statutory charge of registering funds and adopting maximum fees, costs, and penalties by setting fee caps at the fund, not portfolio, level. TRS agrees that in the current PRS, it is difficult for platform companies, such as RIAs, to register proprietary company products. TRS is examining ways to update and improve the PRS for all companies and specifically to improve the process for platform companies to register products. This includes looking at how other states manage their 403(b) program, including 403bcompare.

6- Requested amendments to the grandfather provisions and the definition of restricted products. Commenters requested clarification in the definition of "Restricted" to change "and" between subsections (B) and (C) to "or". Commenters also requested adding language to clarify that an employee may execute a revised or updated salary reduction agreement with the same or a different employer. Finally, commenters offered that the language in §53.8(d) should be updated to match the options available for restricted products. TRS disagrees that "and" between subsections (B) and (C) should be changed to "or". The options available for restricted products are cumulative not in the alternative. For a restricted product or investment option, an employee could conceivably keep making contributions, increase the amount, and execute a new salary reduction agreement to reflect as such. TRS agrees that employees should be allowed to continue contributing to a restricted product or investment option if they change employers. Therefore, TRS has added clarification that an employee may execute a revised or updated salary reduction agreement with the same or a different employer. TRS disagrees that the language in §53.8(d) should be updated to reflect the same options for restricted products because that provision details the exception built into the rule for unregistered products that were purchased before 2008. The rule provides that employees can continue to contribute to those products in an existing salary reduction agreement but only the amount of the contribution may be changed. To update the language in §53.8(d) to match the restricted products language would be broadening the exception for unregistered products and is not consistent with TRS's legislative authority.

7- Clarification of the suspension and revocation procedures to include removing all references to Chapter 43 of TRS rules in the suspension and revocation process. Commenters stated that referencing the administrative procedures of Chapter 43 of the Texas Administrative Code (TAC) for a suspension or revocation contested case proceeding is inappropriate for 403(b) proceedings. Commenters suggested using the procedures for contested cases in 1 TAC Chapter 155. Commenters noted that Chapter 2001 of the Administrative Procedures Act (APA) requires reasonable notice of a hearing of not less than 10 days and an opportunity to respond and present evidence on each issue involved in the case. Therefore, referencing Chapter 43, which does not have the same notice provisions, is inconsistent with due process. TRS disagrees that the suspension and revocation proceedings are inconsistent with due process because the rule language explicitly provides that a suspension or revocation is a contested case proceeding under Chapter 2001 of the APA. As commenters noted, that necessarily entails reasonable notice and an opportunity for a hearing. Moreover, the reference to Chapter 43 is not a new addition to the rules. The references to the procedures in Chapter 43 have been in the rules for 15 years and have not been used as a vehicle to suspend or revoke without due process. Therefore, TRS is not convinced that it is inappropriate or a violation of due process to reference the procedures in Chapter 43.

8- Concerns about the increase in company certification and product registration fees. Commenters offered that the increased company certification and product registration fees may exceed amounts authorized in law. Commenters note that the fees are being increased significantly with no explanation as to why the costs associated with the program are increasing or will increase. Additionally, commenters requested distinction in the fees between certification and recertification and annuity and non-annuity companies. TRS disagrees that the fee increases exceed TRS's statutory authority or have been left unexplained. Art. 6228a-5 §7 authorizes TRS to collect an administrative fee for certification of companies and registration of products that is not to exceed the administrative cost of the system. The certification fee is capped at $5,000. However, the registration fee is not capped. The fees charged for participation in the 403(b) program are important because the TRS pension trust fund cannot subsidize the 403(b) program. Prior to 2016, TRS developed an allocation methodology to determine direct and indirect costs associated with the 403(b) program. However, that methodology had not been revisited until recently. A 2016 TRS internal audit report recommended that TRS start tracking the cost of administration for fee-setting purposes to ensure the trust fund is not subsidizing 403(b). Therefore, all TRS staff who work on 403(b) matters-ot just employees who are directly allocated to the 403(b) program-pdated the amount of time spent on 403(b) matters for fiscal years 2016 and 2017. The increase in time dedicated to 403(b) matters for support functions across TRS was significant. For example, analysis by TRS's budget staff shows that indirect payroll costs (cost for staff providing support services such as legal and information technology services) increased 800%. This is due, partly, to increased complexities in company certification matters. For example, several companies seeking certification in the last year have raised complicated legal questions about which certification requirements they can meet through common ownership or control. Additionally, just in the last year, TRS has had to navigate complex legal questions involving federal banking law and preemption as it relates to certification. Moreover, commenters ignore other indirect costs associated with the program such as the use of space and equipment and the regular cost of information technology personnel to update the certification and registration lists and troubleshoot technical issues. Therefore, the TRS Budget Department continues to work on refining the methodology for tracking the amount of TRS resources spent on 403(b) matters, and TRS will continue to examine the issue. What is clear, however, from the data is that administration of the 403(b) program is more costly than previously assessed under the previous allocation methodology and the lower fee amounts are not sufficient. As it relates specifically to the product registration fee increase, TRS staff have twice publicly presented about the costs associated with the Product Registration System (PRS) rebuild. The goal of the PRS rebuild is to enable the system to capture new asset class data to improve transparency of fee information, improve the company interface to make it easier for companies to register their products and investment options, and update the public interface to ensure the PRS matches the look and feel of the TRS web presence. TRS estimates 6,500 hours to update the PRS utilizing seven different positions to manage and execute on the project. Overall, TRS estimates the project to cost around $500,000 and under the current product registration fee, TRS would collect less than $130,000 in fiscal year 2018. Therefore, an increase in the product registration fee is necessary to update the PRS. TRS disagrees that recertification is less costly than certification as the processes are exactly the same, including verifying company eligibility. Additionally, whether a company is entering the program for the first time or renewing its certification, various needs arise during the five-year period that TRS must provide resources to address. For example, the costs associated with the statutorily required annual demonstration process must be borne by the certification fee, as there is not a separate annual demonstration fee for cost recovery. Finally, TRS disagrees that annuity companies and non-annuity companies should be charged separate certification fees. The certification fee is not based on company type because both sets of certification requirements present an administrative hurdle that TRS must work with companies to navigate as they enter-nd continue to participate in-he program.

9- Other general comments and general revisions.

Commenters requested to revise the second sentences of §53.3(a) and (b) to make it clear that this is referring to the same product or investment option fees, costs, and penalties identified in the previous sentence and not, potentially, sweeping in amounts payable for services outside of the product and withdrawn from the account, such a third-party administration fees or account advisory fees. TRS disagrees that this delineation is necessary because §53.3(a), (b), and (e) provide maximums for specifically delineated fees. TRS does not cap, and therefore is silent on, the types of fees identified by commenters such as third-party administration fees or advisory services fees.

Commenters provided that it was unnecessary and administratively inefficient to create a definition for "approval to register." Commenters asserted that companies should be allowed to just file their company certification application and register products without a separate document. TRS disagrees that the "approval to register" is unnecessary. Companies register for a five-year period and when product registration was adopted in 2007 the majority of companies were in the middle of their certification period. To allow those companies to begin registering products as soon as possible, TRS created the product registration process, which necessitates a separate application because it runs on a separate five-year timeline for most companies. If TRS were to do away with this application, which has been in place for 10 years, TRS would have no way to track where a company's five-year period for registering products begins and ends as it often does not line up with the company's five-year certification period.

Commenters requested clarification and uniformity that companies are certified to TRS and not to the "TRS Board of Trustees." TRS agrees and has made this modification.

Commenters offered that it is unclear as to why the definition of company needs to be changed and requested keeping the current definition. Moreover, commenters noted that in some federal privacy regulations they are expressly excluded from the term "financial services entity." TRS disagrees that the definition of "ompany"is inappropriate or too inexact. While commenters may be not be considered a "inancial services entity"for some privacy regulations, those provisions are not controlling in this circumstance. Moreover, it is reasonable for a company offering qualified investment products under, as per the definition, to be characterized as a financial services entity. TRS believes the definition of company needs to be changed to increase clarity in the rules. The definition of company was amended in 2009 to address platform companies. In order to contemplate platform companies, the distinction between platform companies and other types of companies was built into the definition of "company" itself. TRS believes it is better to define company more broadly and then create separate definitions for platform company and proprietary company. The effect is a funnel. "Company" is the broadest term. If a company meets the certification requirements as a proprietary annuity company or proprietary non-annuity company, then the company may certify as such. If a company meets the certification requirements for a platform non-annuity company, then the company may certify as such. Thus, proprietary and platform companies are types of companies that each have their own criteria and definitions. This untangles the definitions of platform company and proprietary company.

Commenters noted that in §53.4, the word "proprietary" is added but the word "company" by itself is used elsewhere in the section. TRS agrees that the inconsistency should be remedied. TRS has clarified in §53.4 that a company certifies to TRS as a proprietary annuity company if it meets those certification requirements. TRS has clarified in §53.5 that a company certifies to TRS as either a proprietary non-annuity or a platform non-annuity company, if it meets those certification requirements.

Commenters suggested amending §53.15 as proposed to clarify the specific section of Art. 6228a-5 that requires notice. TRS agrees and has amended the section as requested.

Statutory Authority: The amended and new rules are adopted under the following statutes: §6(a) of Article 6228a-5, Vernon's Texas Civil Statutes, which authorizes TRS, after consultation with the Texas Department of Insurance, the Texas Department of Banking, and the State Securities Board, to adopt rules to administer §§5, 6 7, 8, 8A, 9A, 9B, 11, 12, and 13 of Article 6228a-5 relating to 403(b) company certification and product registration; and §825.102, Government Code, which authorizes the Board to adopt rules for the administration of the funds of the retirement system.

§53.1.Definitions.

The following words and terms when used in this chapter shall have the following meanings, unless the context clearly indicates otherwise:

(1) Annuity or annuity contract--A qualified investment product that meets the requirements for a fixed or variable annuity contract under applicable insurance laws and rules.

(2) Approval to register products and investment options--A certified company that has received credentials from TRS to register products and investment options in the TRS 403(b) Product Registration System.

(3) Board of trustees--The board of trustees of the Teacher Retirement System of Texas (TRS).

(4) Certified company--A company that meets all certification requirements, that has certified to TRS and been placed on the TRS list of certified companies, and whose certification is not expired, suspended, surrendered, denied, or revoked.

(5) Certify--To meet all requirements for certification, as indicated by TRS's inclusion of a company on the TRS list of certified companies.

(6) Closed--A TRS registered product for which an employee may no longer make contributions under an existing salary reduction agreement or enter into a new salary reduction agreement.

(7) Company--A financial services entity that offers qualified investment products.

(8) Contract--An agreement through which an employee purchases or enrolls in a qualified investment product.

(9) Educational institution--A school district or an open-enrollment charter school.

(10) Eligible qualified investment product--A qualified investment product offered by a company that is certified with TRS and offers:

(A) qualified investment products that are annuity contracts; or

(B) qualified investment products other than annuity contracts.

(11) Employee--An employee of an educational institution.

(12) Investment option--An individual fund underlying a TRS registered product.

(13) Platform company--A certified company that offers, under §403(b)(7) of the Internal Revenue Code of 1986, qualified investment products other than annuity contracts, including a company that offers custodial accounts that hold only investment products issued and registered with TRS by a proprietary company.

(14) Product--For the purpose of registration under this chapter, an annuity contract or custodial account, as defined under §403(b)(1) and §403(b)(7) of the Internal Revenue Code of 1986, offered by a certified company.

(15) Product Registration System--The TRS online portal through which certified companies register products.

(16) Proprietary Company--A certified company that offers eligible qualified investment products to employees of educational institutions for purchase or enrollment. A proprietary company is the issuer of TRS registered products and has primary liability to the employees for performance of the obligations described in the product. "Proprietary company" does not include:

(A) a reinsurance company;

(B) a third party administrator;

(C) an entity performing duties under an administrative services only contract; or

(D) a representative such as a licensed or registered agent, broker, or investment advisor.

(17) Qualified investment product--A product that:

(A) meets the requirements of §403(b), Internal Revenue Code of 1986, and its subsequent amendments;

(B) complies with applicable federal insurance and securities laws and regulations; and

(C) complies with applicable state insurance and securities laws and rules.

(18) Register--To submit all required information to TRS about products to be offered and to pay the fees prescribed by TRS as indicated by inclusion of the company's individual products on the TRS list of registered products.

(19) TRS Registered product--An eligible qualified investment product that has been registered with TRS and is on the list of TRS registered products.

(20) Representative--A person, who sells or offers for sale an eligible qualified investment product as an agent of a certified company and who is licensed or registered if required by law.

(21) Retirement system or TRS--The Teacher Retirement System of Texas.

(22) Restricted--A TRS registered product for which an employee may not enter into a new salary reduction agreement but for which an employee may:

(A) continue to make contributions under an existing salary reduction agreement;

(B) increase or decrease the amount of contributions under an existing salary reduction agreement; and

(C) execute a revised or updated salary reduction agreement with the same or a different employer.

(23) Salary reduction agreement--An agreement between an educational institution and an employee to reduce the employee's salary for the purpose of making direct contributions to or purchases of a qualified investment product.

(24) Specialized department--One or more employees of a certified company or a company affiliated with the certified company dedicated to servicing employee 403(b) accounts or registered products. If the certified company is authorized by the Texas Department of Insurance to issue annuity contracts in the State of Texas, the affiliated company must be part of an Insurance Holding Company System as described in §823.006, Insurance Code.

§53.3.Maximum Fees, Costs, and Penalties.

(a) Prior to October 1, 2019, a certified company offering TRS registered products and investment options may not register a product or investment option with fees, costs, or penalties in excess of the amounts established in subsections (a)(1)-(4) and (e) of this section. Prior to November 16, 2019, a certified company offering TRS registered products and investment options may not assess fees, costs, or penalties in excess of the amounts established in subsections (a)(1)-(4) and (e) of this section.

(1) A certified company may charge a front-end sales load or back-end sales load that in the aggregate does not exceed six percent (6%) of the amount identified in the contract as subject to sales load charges, such as premiums paid or the price of the fund shares.

(2) A certified company may charge an annual fixed dollar fee of no more than $50.00 per year per TRS registered product, contract, policy, or account. A fixed dollar fee is not dependent on account values, loan amounts, or any other amount for its determination.

(3) For a TRS registered product other than an annuity contract and for the portion of an annuity contract that consists of a variable account, a certified company may assess a charge of no more than 2.75 percent annually of the total value of assets in the employee's variable annuity contract account or other investment product account.

(4) A certified company may charge a loan initiation fee of no more than $50.00. This subsection does not prohibit a company from charging interest on a loan in addition to a loan initiation fee. If the investment product is an annuity contract, loan terms must comply with applicable requirements of insurance laws, including Chapter 1110, Insurance Code.

(b) On or after October 1, 2019, a certified company may not register a product or investment option with fees, costs, or penalties in excess of the amounts established in subsections (b)(1)-(4) and (e). On or after November 16, 2019, a certified company offering TRS registered products and investment options may not assess fees, costs, or penalties in excess of the amounts established in subsections (b)(1)-(4) and (e) of this subsection except as provided in subsection (f) of this section.

(1) A certified company may not register a product or investment options that charges a front-end sales load or a back-end sales load.

(2) A certified company may charge an annual fixed dollar maintenance fee or minimum account fee of no more than $60.00 per year per registered product, contract, policy, or account. A fixed dollar fee is not dependent on account values, loan amounts, or any other amount for its determination.

(3) A certified company may charge a loan initiation fee of no more than $25.00. This subsection does not prohibit a company from charging interest on a loan in addition to a loan initiation fee. If the investment product is an annuity contract, loan terms must comply with applicable requirements of insurance laws, including Chapter 1110, Insurance Code.

(4) For a TRS registered product or investment option other than an annuity contract and for the portion of an annuity contract that consists of a variable account, a certified company may not assess an asset-based fee that exceeds the maximum annual asset-based fee by asset class in the following table.

Figure: 34 TAC §53.3(b)(4) (.pdf)

(c) On or after October 1, 2019, a certified company shall register its investment options as follows:

(1) register in the money market asset class any investment option with a portfolio of over 50% of the fund's assets invested in short-term money market securities consistent with the preservation of capital;

(2) register in the diversified bond asset class any investment option with a portfolio of over 50% of the fund's assets invested in U.S. government obligations, corporate bonds, foreign bonds, and high-yield debt securities;

(3) register in the asset allocation class any investment option with a portfolio of over 50% of the fund's assets invested in a mix of stocks, bonds, and cash;

(4) register in the large cap U.S. equity asset class any investment option with a portfolio of over 50% of the fund's assets invested in large-cap U.S. stocks diversified across growth and value styles in the top 70% of the total capitalization of the U.S. equity market;

(5) register in the small/mid cap U.S. equity asset class any investment option with a portfolio of over 50% of the fund's assets invested in mid- and small-cap U.S. stocks diversified across growth and value in the bottom 30% of the total capitalization of the U.S. equity market;

(6) register in the international equity asset class any investment option with a portfolio of over 50% of the fund's assets invested in large-, mid-, and small-cap international stocks that are diversified in growth and value styles across developed and emerging equity markets. These portfolios will have less than 20% of assets invested in U.S. stocks;

(7) register in the global equity asset class any investment option with a portfolio of over 50% of the fund's assets invested in large-, mid-, and small-cap stocks diversified across growth and value styles anywhere in the world. These portfolios have 20%-60% of assets in U.S. stocks;

(8) register in the real estate asset class any investment option with a portfolio of over 50% of the fund's assets invested in mix of mortgage companies, property management companies, and Real Estate Investment Trusts (REITS); and

(9) register in the other asset class any investment option with a portfolio that does not meet the requirements of subsections (c)(1) through (c)(8) of this section.

(d) On or after October 1, 2019, the maximum asset-based fee does not include transaction fees such as:

(1) redemption fees;

(2) short-term trading fees;

(3) closeout fees;

(4) excessive trading fees; and

(5) one-time fees, including:

(A) transfer fees;

(B) withdrawal fees; and

(C) termination fees.

(e) A certified company may charge a surrender or withdrawal charge on an annuity contract account that may not exceed ten percent (10%) of the accumulation (account) value, the individual deposits, or the premiums paid, whichever is specified in the contract. Surrender charges must terminate within ten (10) years of the inception of the employee's contract unless a disclosure is made informing the employee of a longer period of not in excess of twelve (12) years. No surrender or withdrawal charge may be longer than twelve (12) years from the inception of the employee's contract. Surrender or withdrawal charges shall decline annually. Surrender or withdrawal charges imposed for longer than ten (10) years are limited to no more than one percent (1%) in year eleven and one percent (1%) in year twelve. Surrender or withdrawal charges may be based on the accumulation value of an annuity or a component part thereof, as specified and defined in the contract.

(f) If a TRS registered product or investment option that was registered prior to October 1, 2019, is the subject of a salary reduction agreement that was signed before November 16, 2019, and does not exceed the fee limitations of subsections (a)(1) through (a)(4) and (e) of this section, then on or after November 16, 2019, the product is restricted and a company may continue to charge the fees that are authorized under subsections (a)(1) through (a)(4) and (e) of this section for that product and for that product an employee may:

(1) continue to make contributions to the restricted product under the existing salary reduction agreement;

(2) increase or decrease the amount of contributions to the restricted product under the existing salary reduction agreement; and

(3) execute a revised or updated salary reduction agreement with the same or a different employer.

(g) On or after October 1, 2019, all fees charged or assessed by a certified company to an employee must be reported to TRS in the Product Registration System.

(h) This section does not establish or govern the amount of commission a certified company may pay a broker, agent, or other representative.

(i) This section does not authorize a certified company offering qualified investment products that are annuity contracts to charge fees, costs, or penalties in excess of any charges established or approved by the Texas Department of Insurance for the company or for the annuity contract.

§53.4.Qualifications for Certification by Companies Offering Qualified Investment Products and Investment Options that are Annuity Contracts.

(a) A company may certify to TRS that it is a proprietary company that offers qualified investment products and investment options that are annuity contracts if the company meets the requirements of this section.

(b) A company may certify to TRS under this section if the company:

(1) is authorized to issue annuity contracts in the State of Texas at the time the certification is filed;

(2) does not assess fees, costs, or penalties in an annuity contract that exceed the maximum amounts established by this chapter; and

(3) provides products that comply with the registration requirements of Article 6228a-5, Texas Revised Civil Statutes, and this chapter, as applicable.

§53.5.Qualifications for Certification by Companies Offering Qualified Investment Products and Investment Options Other than Annuity Contracts.

(a) A company that offers qualified investment products and investment options other than annuity contracts may certify to TRS that it is a proprietary company if it meets the following requirements:

(1) The company has at least five years' experience in managing qualified investment products and has a specialized department dedicated to the servicing of qualified investment products.

(2) The company is licensed and qualified to do business in the State of Texas.

(3) The company, or an affiliate of the company related by common ownership or control, has a current issuer's authorization from the State Securities Board.

(4) The company has not had a license or registration suspended or revoked by state or federal regulators within the five years preceding the date the certification is filed.

(5) The company manages assets totaling at least $2 billion.

(6) The company does not assess fees, costs, or penalties that exceed the maximum amounts established by this chapter.

(7) The company's products comply with the registration requirements of Article 6228a-5, Texas Revised Civil Statutes, and this chapter, as applicable.

(b) A company that offers qualified investment products and investment options other than annuity contracts may certify to TRS that it is a platform company if it meets the following requirements:

(1) The company has at least five years' experience in managing qualified investment products and has a specialized department dedicated to the servicing of qualified investment products.

(2) The company is licensed and qualified to do business in the State of Texas.

(3) The company is registered as a securities dealer, agent, or investment advisor with the State Securities Board, if required by the State Securities Board or other law.

(4) The company has not had a license or registration suspended or revoked by state or federal regulators within the five years preceding the date the certification is filed.

(5) The company manages accounts totaling at least $1 billion.

(6) The company does not assess fees, costs, or penalties, inclusive of investment option fees underlying the product, that exceed the maximum amounts established by this chapter.

(7) The products offered by the company comply with the registration requirements of Article 6228a-5, Texas Revised Civil Statutes, and this chapter, as applicable.

§53.6.Application and Fee for Certification.

(a) A company that meets the qualifications for certification may certify to TRS that it offers one or more qualified investment products, which shall be identified in the certification as annuity contracts, qualified investment products other than annuity contracts, including custodial accounts under §403(b)(7) of the Internal Revenue Code of 1986, or both.

(b) A company applies for certification to TRS by providing all information required in this chapter in a form prescribed by TRS for this purpose and by paying the required certification fee.

(c) A company that applies for certification shall pay a certification fee of $5,000 to TRS at the time its application is filed.

(d) As part of its application for certification, a company shall affirm that each of its representatives is properly licensed and qualified, by training and continuing education, to sell and service the company's eligible qualified investment products and that the company will demonstrate this annually to TRS, as required by Article 6228a-5, Texas Revised Civil Statutes.

(e) As part of its application for certification, a company that offers qualified investment products other than annuity contracts shall disclose to TRS as part of its application whether it provides the following customer services:

(1) Call center services, including enrollment and member support for all program inquiries such as case management, escalation and problem resolution.

(2) Data management services, including creation and maintenance of records, transaction data and history, supplier interfaces and necessary files for updating payroll systems.

(3) Custody services, including state and federal tax withholding and form preparation.

(4) Member information services, including:

(A) providing to each employee an account statement both quarterly and upon request in either written or electronic form as specified by the employee; and

(B) disclosing to each employee the amount of product administration fees, administrative services fees, and investment management fees.

(5) Processing services, including:

(A) depositing member contributions within a required number of business days of receiving all required information; and

(B) releasing funds to a member pursuant to a distribution request or rolling over funds to another account within a required number of business days of receiving all required information.

(6) Plan-level services, including reporting of total assets on an educational institution level upon request and annual disclosure of all investment and administrative services fees paid by employees.

(f) Certification of a company that offers qualified investment products and investment options other than annuity contracts shall not be conditioned on whether the company offers the customer services listed in subsection (e) of this section.

(g) A company applying for certification that offers both annuity contracts and investments other than annuity contracts, including custodial accounts, shall pay one certification fee if the company files its application for both types of qualified investment products at the same time. If the applications are filed separately, a company shall pay a separate certification fee for each separate certification.

(h) A company applying for certification under both §53.5(a) and (b) of this chapter (relating to Qualifications for Certification by Companies Offering Qualified Investment Products Other than Annuity Contracts) shall pay one certification fee if the company files its application under both §53.5(a) and (b) at the same time. If the applications are filed separately, the company shall pay a separate certification fee for each separate application.

(i) If a company proposes to certify more than one legal entity, the company shall submit separate applications and fees for each legal entity.

(j) A company that submits an application for certification shall notify TRS immediately upon discovery that it has submitted erroneous or misleading information in its application. TRS shall deny any application containing erroneous or misleading information unless the company submits a corrected application within five (5) business days after notifying TRS of the erroneous or misleading information.

(k) TRS shall issue a letter or email notice verifying that a company is certified upon determining that it meets the qualifications for certification as required under Article 6228a-5, Texas Revised Civil Statutes and payment of the certification fee.

(l) Certification is effective for five (5) years from the date that TRS issues, by letter or electronic mail notice, that a company has been certified.

(m) Certification remains in effect in accordance with the provisions of this section unless revoked or suspended by TRS or withdrawn by the company through written notice to TRS.

(n) TRS may deny a company's application for certification if the company does not provide all of the required information, if the information provided indicates the company does not meet the requirements for certification, or if TRS receives notification of a violation regarding the company from the Texas Department of Insurance, the State Securities Board, the Texas Attorney General, or the company.

(o) TRS shall notify a company if it determines that the application for certification should be denied. A company whose application for certification is denied may re-apply for certification by submitting a new application and showing that it meets the requirements.

(p) If TRS denies the application for certification, TRS may retain the amount of the certification fee sufficient to reimburse TRS for its administrative costs associated with review of the application. TRS may hold the entire certification fee for no more than forty-five (45) business days after denial in order to determine whether the company will submit a new application for certification.

(q) No portion of a certification fee is refundable if TRS revokes or suspends a certification or if a company surrenders its certification after it has been issued by TRS.

§53.7.Listing of Certified Companies.

(a) TRS shall include the name of a certified company on the list maintained on the TRS web site no later than thirty (30) days after certification.

(b) TRS may indicate on the list of certified companies maintained on the TRS web site whether a certified company has complied with the requirements of Article 6228a-5, Texas Revised Civil Statutes and §53.6 of this title regarding annual demonstration.

§53.10.Registration and Listing of Products and Investment Options.

(a) Upon receiving approval to register products and investment options, a certified company may access TRS's Product Registration System to register products or investment options as follows:

(1) A proprietary company certified to offer eligible qualified investment products or investment options that are annuity contracts may register annuity products.

(2) A proprietary company certified to offer eligible qualified investment products or investment options other than annuity contracts may register such other investment products or investment options.

(3) A proprietary company certified to offer both annuity contracts and eligible qualified investment products and investment options other than annuity contracts may register both product types.

(4) A platform company certified to offer eligible qualified investment products or investment options, other than annuity contracts, issued and registered with TRS by a proprietary company, may register such other eligible qualified investment products or investment options.

(b) In registering eligible qualified investment products or investment options, a certified company shall provide information concerning all the fees charged to an employee in connection with the participation in, or purchase, sale, or administration of, each eligible qualified investment product or investment option, including any other applicable fees. The information concerning fees shall be provided in the format and manner required by TRS. A certified company shall also provide to TRS a contract for a fixed annuity and a prospectus for an eligible qualified investment product other than a fixed annuity.

(c) A certified company that has been approved to register qualified eligible investment products or investment options shall submit information to TRS on each product and investment option that is required to be registered. During its five-year registration period, a certified company may submit information on additional products and investment options during the registration dates established in this chapter. Registration of an eligible qualified investment product or investment option is effective when TRS posts the product or investment option on the TRS web site. Registration of an eligible qualified investment product or investment option terminates when a company's approval to register products and investment options terminates, regardless of the TRS registered product's or investment option's effective date.

(d) A certified company shall provide to TRS information regarding fees that may be deducted from employee contributions for a registered investment product or investment option by an entity other than the company named in the salary reduction agreement. In order for an eligible qualified investment product or investment option to be registered, the fees charged by the company and the other entity, when combined, shall not exceed the amounts established in §53.3 of this chapter (relating to Maximum Fees, Costs, and Penalties).

(e) A product's or investment option's registration remains in effect in accordance with the provisions of this section unless:

(1) A company surrenders its certification or approval to register products and investment options;

(2) A company's certification or approval to register products and investment options expires; or

(3) TRS revokes or suspends the company's certification or approval to register products and investment options.

(f) Upon verification that all required product and investment option information has been provided, TRS will include the certified company's TRS registered products and investment options on the list maintained on the TRS web site.

§53.15.Notice to Potential Purchaser of Annuity Contracts.

(a) A representative who offers to sell an annuity contract that is or may be the subject of a salary reduction agreement shall provide notice and other information to an employee as required under Article 6228a-5, §11, Texas Revised Civil Statutes.

(b) The notice must be given to the employee at the time an application form is signed.

(c) The form of the notice for an annuity contract shall be as provided by TRS on its web site. A company shall use the form notice as the basis for its annuity contract notices to employee.

(d) A certified company shall provide TRS a copy of its notice relating to a specific contract within ten (10) business days of a request by TRS

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on November 22, 2017.

TRD-201704783

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Effective date: December 12, 2017

Proposal publication date: September 22, 2017

For further information, please call: (512) 542-6840


34 TAC §§53.6 - 53.9, 53.11 - 53.20

The Teacher Retirement System of Texas (TRS) adopts the repeal of §§53.6 - 53.9 and §§53.11 - 53.20, relating to certification by companies offering qualified investment products to employees of school districts or open-enrollment charter schools through what are commonly referred to as "403(b) plans," as published in the June 16, 2017, issue of the Texas Register (42 TexReg 3125). TRS repeals the rules at the same time the agency adopts new rules that update the application requirements and processes a company follows to certify to offer annuity or non-annuity products and investment options to public education employees through a salary reduction agreement and to register annuity and non-annuity products and investment options with TRS. The adoption of the repealed, new and amended rules are part of TRS' four-year rule review of Chapter 53 in Title 34, Part 3, of the Texas Administrative Code (TAC).

TRS repeals the following rules: §53.6, relating to procedures for certification; §53.7, relating to certification fee; §53.8, relating to list of certified companies; §53.9, relating to notice to potential purchaser; §53.11, relating to coordination with regulatory agencies; §53.12, relating to company notification of non-compliance; §53.13, relating to suspension or revocation of certification; §53.14, relating to re-certification; §53.15, relating to product registration requirement; §53.16, relating procedure for product registration; §53.17, relating to product registration fee; §53.18, relating to list of registered products; §53.19, relating to proceedings to suspend or revoke certification or registration; and §53.20, relating to administrative service providers.

No comments were received regarding the repeal of these rules.

Statutory Authority: The adoption of the repealed rules is pursuant to the following statute: §6(a) of Article 6228a-5, Vernon's Texas Civil Statutes, which authorizes TRS, after consultation with the Texas Department of Insurance, the Texas Department of Banking, and the State Securities Board, to adopt rules to administer §§5, 6 7, 8, 8A, 9A, 9B, 11, 12, and 13 of Article 6228a-5 relating to 403(b) company certification and product registration; and §825.102, Government Code, which authorizes the Board to adopt rules for the administration of the funds of the retirement system.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on November 22, 2017.

TRD-201704784

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Effective date: December 12, 2017

Proposal publication date: June 16, 2017

For further information, please call: (512) 542-6840