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) proposes amendments to §§53.1, 53.3 - 53.5, and new §§53.6 - 53.17, for the certification of companies offering qualified investment products through what are commonly referred to as "403(b) plans," which educational institutions make available to their employees, and the registration of those products. The proposed amendments are part of TRS' four-year rule review of Chapter 53 in Title 34, Part 3, of the Texas Administrative Code (TAC). TRS proposes amendments to 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 proposes to adopt 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 registered products and investment options; §53.12, relating to TRS actions regarding certification and 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 proposes to adopt the new rules at the same TRS repeals existing rule §§53.6 - 53.9 and §§53.11 - 53.20.

The proposed amendments to §53.1 amend the definitions of the words "certified company," "certify," "company," "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 and investment options," "closed," "investment option," "product registration system," "proprietary company," "registered product," and "restricted" to clarify the meaning of other rules containing those terms.

The proposed amendments to §53.3 provide the maximum fees, costs, and penalties that apply to TRS registered products and investment options registered on or after October 1, 2018 and salary reduction agreements entered into on or after November 16, 2018. The proposed amendments also clarify terminology. For those products registered on or after October 1, 2018, the proposed new fees prohibit registration of a product with a front or back-end sales load. Additionally, the amendments provide by asset class the maximum asset-based fees that a certified company may charge for annuity products and the maximum asset-based fees that a certified company may charge for non-annuity products. The amendments set the maximum annual account maintenance fee at $60 and set the maximum loan initiation fee at $25. The amendments provide that an employee may continue to make or adjust any contributions toward the purchase of a product or investment option registered prior to October 1, 2018 and purchased via salary reduction agreement prior to November 16, 2018, provided that those products and investment options meet the fee limitations that were in adopted by the TRS Board of Trustees for products and investment options registered prior to October 1, 2018 and entered into via salary reduction agreement prior to November 16, 2018.

The proposed amendments to §53.4 clarify that proprietary companies offer qualified investment products that are annuity contracts.

The proposed amendments to §53.5 clarify the qualifications necessary for certification of a company that offers qualified investment products other than annuity contracts.

Proposed new §53.6, titled "Application and Fee for Certification," sets the company certification fee at $5,000 per five-year company certification period. It also 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 new rule provides that certification of a non-annuity company is not conditioned on the provision of the customer services disclosed in the application.

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

Proposed 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.

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. 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 registration fees, TRS would not have the resources to meet the needs of updating the TRS 403(b) Product Registration System to capture more transparent product and investment option information.

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

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

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

Proposed 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.

Proposed 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.

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

Proposed 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.

Proposed new §53.17, titled, "Administrative Service Providers," moves the existing provisions from current rule section 53.20.

Rebecca Merrill, Director of Strategic Initiatives, estimates that, for each year of the first five years that proposed amendments to §§53.1, 53.3, 53.4, and 53.5, and proposed new §§53.6, 53.7, 53.8, 53.9, 53.10, 53.11, 53.12, 53.13, 53.14, 53.15, 53.16, and 53.17 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 amended rules. Any cost to administer the new rules or update the Product Registration System will be offset by the $5,000 company certification fee and the $10,000 proposed product and investment option 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 will be to bring clarity to the 403(b) market for members of TRS by improving the company certification and product registration process and amending the rules to reflect current certification and registration practices. Additionally, the proposed rules benefit public education employees purchasing products in the 403(b) market by lowering fee caps that companies may charge for annuity and non-annuity products and by requiring companies seeking certification and re-certification to provide non-annuity products to submit to TRS customer service information. Ms. Merrill has also determined that the probable economic costs to entities or persons required to comply with the proposed rules are the fees charged for certification of companies and registration of products and the costs associated with developing and registering products that meet the new fee caps. 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 amended 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 amended and 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 amended and new rules do not affect any other statutes.

§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) [(2)] Board of trustees--The board of trustees of the Teacher Retirement System of Texas (TRS).

(4) [(3)] 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 [has not] expired, suspended, surrendered [or been withdrawn], denied, or revoked.

(5) [(4)] Certify--To [submit all required information to TRS and] meet all requirements [required qualifications] 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) [(5)] Company--A financial services entity that offers qualified investment products. [An entity that offers a qualified investment product, including a platform company. Except for a platform company, a company is the issuer of the qualified investment product and has primary liability to the purchaser for performance of the obligations described in the product, contract, annuity contract or annuity certificate, or policy. A company offering qualified investment products that are not annuity contracts may be an affiliate by common ownership or control of the issuer of the qualified investment products. Generally, unless a person or entity, or its affiliate, has primary liability for performance of the obligations in the product or contract, or such person or entity is a platform company, "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].

(8) [(6)] Contract--An agreement through which an employee purchases or enrolls in a qualified investment product[, such as an insurance policy, an annuity contract, or an annuity certificate in a group annuity contract, or establishes a qualified investment product such as a custodial account].

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

(10) [(8)] Eligible qualified investment product--A qualified investment product offered by a company that is certified to the board of trustees and offers:

(A) [is certified to the board of trustees to offer] qualified investment products that are annuity contracts; or

(B) [is certified to the board of trustees to offer] qualified investment products other than annuity contracts.

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

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

(13) [(10)] 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 [certified] company.

(14) [(11)] 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 [that meets certification requirements and has certified to TRS in accordance with this chapter].

(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) [(12)] Qualified investment product--A product [An annuity or investment] 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) [(13)] Register--To submit all required information to TRS [the retirement system] about products to be offered and to pay the fees prescribed by TRS [meet all required qualifications for registration,] as indicated by [retirement system acceptance of a company's application to register to offer products and] inclusion of the company's individual products on the TRS list of registered products [system's Web site].

(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) [(14)] Representative--A person, including an investment advisor, who sells or offers for sale an eligible qualified investment product as an agent [on behalf] of a certified company and who is licensed or registered if [so] required by law.

(21) [(15)] 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.

(23) [(16)] 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) [(17)] 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 [service of qualified investment] 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, 2018, 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, 2018, a [A] certified company offering TRS registered [qualified investment] 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.

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

(1) [(c)] 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) [(d)] A certified company may charge an annual fixed dollar fee of no more than $50.00 per year per TRS registered [qualified investment] 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) [(e)] For a TRS registered [qualified investment] 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.

[(f)] [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.]

(4) [(g)] 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, 2018, 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, 2018, 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 section 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)

(c) On or after October 1, 2018, 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 paragraphs (1) - (8) of this subsection.

(d) On or after October 1, 2018, 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, 2018, is the subject of a salary reduction agreement that was signed before November 16, 2018, and does not exceed the fee limitations of subsections (a)(1) - (4) and (e) of this section, then on or after November 16, 2018, an employee may:

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

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

(3) execute a revised or updated salary reduction agreement.

(g) On or after October 1, 2018, 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) [(h)] 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 proprietary company may certify to TRS that it offers qualified investment products 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 [complies with the following standards:]

[(A) the company's actuarial opinions required under §425.054 or §802.002, Insurance Code, have not been adverse or qualified in the five years preceding the date the certification is filed;]

[(B) the company is subject to the annual audit requirements of §401.004, Insurance Code, and its most recent audit of financial strength conducted by an independent certified public accountant is timely filed and does not indicate the existence of any material adverse financial conditions in the company for the five years preceding the filing deadlines for the audit;]

[(C) the company has not been the subject of any of the following administrative or regulatory actions by the Texas Department of Insurance in the five years preceding the date the certification is filed:]

[(i) an order to rectify one or more conditions that render the continued operation of the company hazardous to policyholders, creditors, or the general public, pursuant to §404.003, Insurance Code;]

[(ii) a supervision, conservation, or forfeiture or cancellation of the charter of the company pursuant to Chapter 441, Insurance Code; or]

[(iii) a cease and desist order issued to the company pursuant to §83.051, Insurance Code, or its predecessor statute, Article 110A, Insurance Code.]

[(D) the company has maintained total adjusted capital during the five years preceding the date the certification is filed of an average of at least 400 percent of the authorized control level risk-based capital, as calculated in accordance with the risk-based capital requirements established in rules adopted by the Texas Department of Insurance, with the five-year average to be calculated using the company's financial results as of December 31 of the five preceding years;]

[(E) the company's total adjusted capital has not fallen below 300 percent of the authorized control level risk-based capital, as calculated in accordance with the risk-based capital requirements established in rules adopted by the Texas Department of Insurance, at any time in the five years preceding the date the certification is filed; and]

[(F) the company has at least five years' of experience in offering qualified investment products and has a specialized department dedicated to the service of qualified investment products. If a company is part of an Insurance Holding Company System as described in §823.006, Insurance Code, and an affiliate of the company has met the five years of experience requirement of this section, the company is deemed to have the same experience of its affiliate for purposes of this section;]

[(4)] [the company's products 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 proprietary company[, other than a platform company,] that offers qualified investment products and investment options other than annuity contracts may certify to TRS 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 [service] 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 platform company that offers qualified investment products and investment options other than annuity contracts may certify to TRS 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 [service] 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, the Texas Department of Banking, 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 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.

§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 and §53.13 of this title regarding annual demonstration.

§53.8.Product and Investment Option Registration Requirements.

(a) A certified company required to register its eligible qualified investment products and investment options under Article 6228a-5, Texas Revised Civil Statutes shall submit an application for approval to register products and investment options and a product registration fee to TRS in accordance with this chapter.

(b) The executive director of TRS or his designee may establish the form and content of the registration application.

(c) An eligible qualified investment product or investment option that is offered to an employee on or after January 1, 2008, and that is, or is intended to be, the subject of a salary reduction agreement is required to be registered under this chapter unless excepted under Article 6228a-5, Texas Revised Civil Statutes.

(d) An eligible qualified investment product or investment option that is the subject of a salary reduction agreement that is signed before January 1, 2008, is not required to be registered with respect to that salary reduction agreement. If a salary reduction agreement was signed before January 1, 2008, but only the amount of the contribution is changed by agreement of the employee and the educational institution on or after January 1, 2008, the eligible qualified investment product or investment option that is the subject of the salary reduction agreement is not required to be registered with respect to that salary reduction agreement. A certified company or employee may demonstrate to the educational institution, in a manner deemed acceptable by the institution, that product or investment option registration is not required in order for the company to receive employee contributions to, or payments for purchase of, an eligible qualified investment product or investment option that is the subject of the salary reduction agreement signed before January 1, 2008.

(e) TRS shall offer at least one but not more than two product registration periods each calendar year. Unless otherwise designated by TRS, the standard product or investment option registration periods are from October 1 through November 15 and from April 1 through May 15 each calendar year.

(f) A company must be certified by TRS as required in this chapter in order to apply for approval to register eligible qualified investment products or investment options. A company may submit an application for company certification and an application for approval to register qualified investment products or investment options simultaneously.

§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.

§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' 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 or investment option 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.

§53.11.Ongoing Company Responsibilities Regarding Certification and TRS Registered Products and Investment Options.

(a) No later than thirty (30) calendar days after one of the following relevant triggering events, a certified company shall notify TRS in writing:

(1) if at any time, the company is not in compliance with the qualifications for certification, including as a result of a merger or change in ownership;

(2) of any erroneous, out of date, or misleading information provided to TRS as part of the application for certification or the application approval to register products and investment options.

(3) of any changes to the certified company's information appearing on the list of certified companies;

(4) of any changes to the contact information or the contact person provided to TRS on a form promulgated by TRS for that purpose;

(5) if a certified company offers, as the subject of a salary reduction agreement, a product or investment option that is not a TRS registered product and is required by law to be registered with TRS; and

(6) if a product or investment option that is offered as the subject of a salary reduction agreement is no longer eligible to be registered.

(b) The certified company shall provide TRS information sufficient to explain the occurrence leading to a notification under subsection (a), including the nature of non-compliance or reason a product or investment option is not registered or qualified to be registered, the date of the occurrence, and other information requested by TRS to determine whether a company should remain certified.

(c) A certified company shall correct any erroneous, out of date, or misleading information provided in the TRS 403(b) Product Registration System regarding a TRS registered product or investment option no later than ten (10) business days after the erroneous, out of date, or misleading information is identified.

(d) If a product or investment option is no longer eligible to be registered, a certified company shall restrict and no longer offer the TRS registered product or investment option as the subject of new salary reduction agreements but may continue to allow additional contributions under existing salary reduction agreements.

(e) To offer products or investment options under new salary reduction agreements or to continue to accept contributions under existing salary reduction agreements, a certified company shall

(1) maintain its certification and approval to register products and investment options; and

(2) demonstrate annually that each of its representatives is properly licensed and qualified, by training and continuing education, to sell and service the certified company's TRS registered products or investment options.

(f) To maintain its certification and approval to register products and investment options, a company shall provide to TRS all required information and pay the requisite fees in effect no later than thirty (30) days before expiration of its existing certification or approval to register products and investment options,

(g) A company whose certification or approval to register products and investment options expires may re-apply for certification and approval to register products and investment options.

(h) A certified company may:

(1) update information for its TRS registered products or investment options between the registration periods specified in §53.8 of this chapter (relating to Product and Investment Options Registration Requirements) by submitting the information in the manner prescribed by TRS.

(2) surrender its certification or approval to register products and investment options by notifying TRS in writing thirty (30) days before a company would like the TRS registered products or investment options to be moved to the list of closed products or investment options maintained on the TRS web site.

(3) restrict and no longer offer a TRS registered product or investment option as the subject of new salary reduction agreements, but continue to allow additional contributions under existing salary reduction agreements; or

(4) close and no longer offer a TRS registered product or investment option to both additional contributions under existing salary reduction agreements and new salary reduction agreements.

(i) If a certified company restricts a product or investment option under this section, the certified company shall maintain and renew its company certification and approval to register products and investment options for any restricted product or investment option during any period in which the certified company continues to receive contributions pursuant to existing salary reduction agreements.

(j) If a certified company restricts or closes a product or investment option, then the certified company shall move the restricted or closed product or investment option to the correct list in the TRS403 (b) Product Registration System no later than ten (10) business days after the company elects to restrict or close the product or investment option.

§53.12.TRS Actions Regarding Certification and TRS Registered Products and Investment Options.

(a) TRS may create and maintain lists of active, restricted, and closed products and investment options on its web site.

(b) TRS may move any TRS registered product or investment option from the active product list to the restricted product and investment option list or the closed product and investment option list if:

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

(2) the certified company allows its company certification or approval to register products and investment options to expire; or

(3) pursuant to §53.14 (relating to Suspension or Revocation of Certification), TRS suspends or revokes:

(A) a certified company's certification;

(B) a certified company's approval to register products and investment options;

(C) registration for one or more specific TRS registered product; and

(D) registration for one or more specific TRS registered investment option.

(c) If a certified company surrenders its certification or allows the certification to expire, then TRS may remove the name of the company from the list of certified companies on the TRS web site.

§53.13.Coordination with Regulatory and Enforcement Agencies.

(a) TRS shall refer complaints about qualified investment products or investment options or the companies or persons offering them to the Texas Department of Insurance, the Texas Department of Banking, or the State Securities Board, depending on whether one or more agencies have jurisdiction over the complaint or over the person or company that is the subject of the complaint.

(b) TRS may receive notifications from the Texas Department of Insurance, the Texas Department of Banking, the State Securities Board, or the Texas Attorney General regarding a product, investment option or company that violates certification requirements or standards.

§53.14.Suspension or Revocation of Certification.

(a) If a certified company no longer meets the qualifications for certification or approval to register products and investment options or if TRS receives notification of a violation of Article 6228a-5, Texas Revised Civil Statutes regarding a certified company or the certified company's products or investment options, TRS may suspend or revoke:

(1) a certified company's certification;

(2) a certified company's approval to register products and investment options;

(3) registration for one or more specific TRS registered product; and

(4) registration for one or more specific TRS registered investment options underlying a specific TRS registered product.

(b) A proceeding to revoke or suspend is a contested case proceeding under Chapter 2001, Government Code.

(c) The procedures of Chapter 43 of this title (relating to Contested Cases) are adopted by reference for the conduct of a proceeding subject to this section.

(d) A period of suspension of certification or approval to register products and investment options shall not extend the five (5) year period of company certification or approval to register products and investment options.

(e) In the event that a certified company is adversely affected by a decision or action of TRS to revoke or suspend a company's certification, a company's approval to register products and investment options, or a company's TRS registered products or investment options, the certified company may request review by the designee of the TRS executive director.

(f) The executive director's designee shall mail a final written administrative decision regarding the requested review to the company. The administrative decision shall include a statement that the company may appeal the decision to the executive director and the deadline for doing so.

(g) A certified company adversely affected by a final written administrative decision of the executive director's designee may appeal the decision to the executive director of TRS as provided in §43.5 of this title (relating to Request for Adjudicative Hearing). The executive director or his designee shall determine whether the appeal should be docketed and set for a contested case hearing pursuant to §43.9 of this title (relating to Docketing of Appeal for Adjudicative Hearing and Dismissal for Failure to Obtain Setting).

(h) Suspension or revocation of a company's certification also suspends or revokes registration of all the company's products and investment options.

(i) If a proprietary company's products or investment options are suspended or revoked, then the suspension and revocation extends to those same products or investment options registered by a platform company.

§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, 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

§53.16.Electronic Signature.

TRS may develop a policy governing the acceptance of electronic filings and signatures for any forms or documents required under this chapter provided that the policy complies with state and federal law governing electronic documentation and signatures.

§53.17.Administrative Service Providers.

(a) A person, other than an employee of an educational institution, or an affiliate of the person may not enter into or renew a contract with an educational institution on or after September 1, 2009 under which the person is to provide services for or administer a plan offered by the institution under §403(b), Internal Revenue Code of 1986, unless the person:

(1) holds a license or certificate of authority issued by the Texas Department of Insurance;

(2) is registered as a securities dealer or agent or investment adviser with the State Securities Board; or

(3) is a financial institution that:

(A) is authorized by state or federal law to exercise fiduciary powers; and

(B) has its main office, a branch office, or a trust office in this state.

(b) A person who has entered into or renewed a contract with an educational institution on or after September 1, 2009 under which the person is to administer a plan offered by the institution under §403(b) of the Internal Revenue Code of 1986, and who holds a meeting at the institution that is open to employees of the institution and at which qualified investment products will be marketed, must provide representatives of certified companies that have previously agreed to comply with the institution's administrative requirements an opportunity to attend and market their qualified investment products at the meeting.

(c) For purposes of complying with subsection (b) of this section, the person administering the institution's plan may maintain a registry of certified companies with the right to an opportunity to attend meetings and market their qualified investment products. Such a certified company shall be responsible for providing the email addresses of the company's representatives responsible for receiving email notification of meetings described in subsection (b) of this section. The person administering the institution's plan provides an opportunity to attend a meeting described in subsection (b) of this section if the person sends to the email addresses provided by the certified company a notice containing the date, time and physical location of the meeting, and such notice is sent no later than seven (7) days prior to the meeting.

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 September 11, 2017.

TRD-201703599

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Earliest possible date of adoption: October 22, 2017

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