TITLE 34. PUBLIC FINANCE

PART 3. TEACHER RETIREMENT SYSTEM OF TEXAS

CHAPTER 53. CERTIFICATION BY COMPANIES OFFERING QUALIFIED INVESTMENT PRODUCTS

34 TAC §53.6

The Teacher Retirement System of Texas (TRS) proposes new rule §53.6, relating to application and fee for certification. TRS proposes the new rule at the same TRS repeals existing rule §53.6. TRS issued notice of the proposed repeal of existing §53.6 on June 16, 2017. On June 16, 2017, TRS also proposed a new rule §53.6 to replace the rule proposed for repeal. TRS is withdrawing new §53.6 as proposed on June 16, 2017, and replacing it with proposed updated rule language. Specifically, TRS is proposing a different Company Certification Fee than was noticed on June 16, 2017.

Proposed 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 proposed 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 proposed rules set the five-year company certification fee at $5,000.

Rebecca Merrill, Director of Strategic Initiatives, estimates that, for each year of the first five years that the proposed new §53.6 will be in effect, there will be no foreseeable implications relating to cost or revenues of the state or local governments as a result of enforcing or administering the new rules. Any cost to administer the new rules or update the certified company list will be offset by the $5,000 company certification fee.

For each year of the first five years that the proposals will be in effect, Ms. Merrill and Brian Guthrie, TRS Executive Director, have determined that the public benefit is an effective and sustainable 403(b) company certification program. Article 6228a-5, Vernon's Texas Civil Statutes, requires TRS to certify annuity and non-annuity companies and provide a list of such companies on the TRS web site. The statute provides that TRS may set a company certification fee that does not exceed $5,000. The administrative and legal issues surrounding company certification have grown in complexity over the last several years as the 403(b) market has evolved. Difficult legal and process issues surrounding company certification necessitate additional resources.

TRS may not use TRS pension trust funds or TRS health care insurance trust funds to subsidize the 403(b) company certification program. Additionally, the state does not appropriate general revenue funds for administration of the program. Therefore, absent the proposed fees, TRS would not have the resources to meet the company certification needs of an increasingly complex 403(b) market.

Ms. Merrill has determined that the probable economic costs to entities or persons required to comply with the proposed rules are limited to the fees charged for certification of companies. There will be no effect on a local economy because of the proposals, and therefore no local employment impact statement is required under §2001.022 of the Government Code. Moreover, there will be no direct adverse economic effect on small businesses or micro-businesses as a result of enforcing the proposed rules, and therefore no statement about the effect of the proposals on small businesses is required under §2006.002 of the Government Code.

Comments may be submitted in writing to Brian Guthrie, Executive Director, 1000 Red River Street, Austin, Texas 78701-2698. Written comments must be received by TRS no later than 30 days after publication of this notice.

Statutory Authority: The new rules are proposed 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.

Cross-Reference to Statute: The proposed new rules do not affect any other statutes.

§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 Texas Department of Banking, 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.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 10, 2017.

TRD-201702587

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Earliest possible date of adoption: August 20, 2017

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


34 TAC §53.9

The Teacher Retirement System of Texas (TRS) proposes to adopt the new rule §53.9, relating to application and fee for approval to register products and investment options. TRS proposes to adopt the new rule at the same TRS repeals existing rule §53.9. TRS issued notice of the proposed repeal of existing §53.9 on June 16, 2017. On June 16, 2017, TRS also proposed a new rule §53.9 to replace the rule proposed for repeal. TRS is withdrawing new §53.9 as proposed on June 16, 2017, and replacing it with proposed updated rule language. Specifically, TRS is proposing a different Product Registration Fee than was noticed on June 16, 2017.

Proposed 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.

Rebecca Merrill, Director of Strategic Initiatives, estimates that, for each year of the first five years that proposed new §53.9 will be in effect, there will be no foreseeable implications relating to cost or revenues of the state or local governments as a result of enforcing or administering the new rules. Any cost to administer the new rules or update the Product Registration System will be offset by the $10,000 proposed product registration fee.

For each year of the first five years that the proposals will be in effect, Ms. Merrill and Brian Guthrie, TRS Executive Director, have determined that the public benefit is an effective and sustainable 403(b) product registration program. Article 6228a-5, Vernon's Texas Civil Statutes, requires TRS to register eligible qualified investment products and provide a list of such products on the TRS web site. The statute requires TRS to set the fee for registration of a qualified investment product at a reasonable amount necessary to recover the cost to TRS of administering the product registration program. The administrative and legal issues surrounding product registration have grown in complexity over the last several years as the 403(b) market has evolved. Additionally, TRS is updating its Product Registration System to provide more transparency for the public, including capturing information such as investment option asset class and the breakout of product administrative fees and expense ratio fees. Addressing these complexities and updating the Product Registration System necessitates additional resources.

TRS may not use TRS pension trust funds or TRS health care insurance trust funds to subsidize the 403(b) product registration program. Additionally, the state does not appropriate general revenue funds for administration of the program. Therefore, absent the proposed fees, TRS would not have the resources to meet the needs of an increasingly complex 403(b) market and update the Product Registration System to capture more transparent product and investment option information.

Ms. Merrill has determined that the probable economic costs to entities or persons required to comply with the proposed rules are limited to the fees charged for registration of products. There will be no effect on a local economy because of the proposals, and, therefore, no local employment impact statement is required under §2001.022 of the Government Code. Moreover, there will be no direct adverse economic effect on small businesses or micro-businesses as a result of enforcing the proposed rules, and, therefore, no statement about the effect of the proposals on small businesses is required under §2006.002 of the Government Code.

Comments may be submitted in writing to Brian Guthrie, Executive Director, 1000 Red River Street, Austin, Texas 78701-2698. Written comments must be received by TRS no later than 30 days after publication of this notice.

Statutory Authority: The new rules are proposed 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.

Cross-Reference to Statute: The proposed new rules do not affect any other statutes.

§53.9.Application and Fee for Approval to Register Products and Investment Options.

(a) In order to register eligible qualified investment products or investment options, a certified company shall apply for and receive from TRS an approval to register products and investment options.

(b) A certified company may apply for approval to register products and investment options by providing all the information required by TRS and by paying the required registration fee at the time it submits the application. A certified company shall submit information in the format and manner required by TRS. TRS may require a company to provide information electronically.

(c) Approval to register products and investment options is effective on the date TRS notifies a company by letter or electronic mail of the approval. Approval to register products and investment options remains in effect for a period of five (5) years from the effective date, unless the approval to register products and investment options is suspended, revoked, or withdrawn.

(d) A certified company shall pay a registration fee of $10,000 to TRS when the company submits its application for approval to register products and investment options.

(e) A certified company that submits an application for approval to register products and investment options 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.

(f) TRS may deny a certified company's application for approval to register products and investment options if the company does not provide all of the required information, if the information provided indicates the certified company does not meet the requirements for approval to register products and investment options, or if the certified company fails to pay the registration fee.

(g) TRS shall notify a certified company if it determines that the application for approval to register products and investment options should be denied. A certified company whose application for approval to register products and investment options is denied may re-apply for approval to register products and investment options by submitting a new application for approval to register products and investment options and showing that it meets the requirements.

(h) If TRS denies the application for approval to register products and investment options, TRS may retain the amount of the registration fee sufficient to reimburse TRS for its administrative costs associated with review of the application. TRS may hold the entire registration fee for no more than forty-five (45) business days after denial or withdrawal in order to determine whether the company will submit a new application for approval to register products and investment options.

(i) No portion of a product registration fee is refundable if TRS revokes or suspends an approval to register products and investment options or if a company surrenders its approval to register products and investment options after it has been issued by TRS.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 10, 2017.

TRD-201702588

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Earliest possible date of adoption: August 20, 2017

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