Bill Text: FL S2186 | 2010 | Regular Session | Comm Sub

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: State Board of Administration [WPSC]

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Failed) 2010-04-30 - Died in Committee on Policy & Steering Committee on Ways and Means, companion bill(s) passed, see CS/CS/HB 1307 (Ch. 2010-180) [S2186 Detail]

Download: Florida-2010-S2186-Comm_Sub.html

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Florida Senate - 2010                             CS for SB 2186 
 
By the Committee on Governmental Oversight and Accountability; 
and Senator Ring 
585-02808A-10                                         20102186c1 
1                        A bill to be entitled 
2         An act relating to the State Board of Administration; 
3         amending s. 121.4501, F.S.; requiring that certain 
4         investment products and approved providers conform 
5         with the Public Employee Optional Retirement Program 
6         Investment Policy Statement as approved by the 
7         executive director of the board and approved by the 
8         Investment Advisory Council; requiring that such 
9         statement be presented to the council for approval; 
10         amending s. 215.44, F.S.; requiring that the board 
11         establish and maintain the salaries of its officers 
12         and employees in a manner consistent with its 
13         fiduciary duties; requiring that the council initiate 
14         an investigation at specified intervals for specified 
15         purposes; requiring that the council present the 
16         results of such study to the board; authorizing the 
17         board to delegate certain authority and duties to the 
18         executive director; requiring that the board create an 
19         audit committee for specified purposes; providing for 
20         membership on the committee and term limits of 
21         committee members; providing purposes and duties of 
22         the committee; requiring that the board produce 
23         certain financial statements on an annual basis and 
24         report the information contained in such statements to 
25         the Legislature; requiring that such statements be 
26         audited by an independent third-party firm working 
27         under the direction of the audit committee; amending 
28         s. 215.441, F.S.; requiring that the board appoint an 
29         executive director; providing duties of the executive 
30         director; providing requirements for appointment as 
31         executive director; removing a requirement that the 
32         Governor vote in favor of the selection of the 
33         executive director; providing for the determination of 
34         the executive director’s compensation; providing for 
35         the creation, operation, and membership of a search 
36         committee for the purpose of selecting the executive 
37         director; amending s. 215.442, F.S.; requiring that 
38         the executive director present certain information 
39         quarterly to the Investment Advisory Council; amending 
40         s. 215.444, F.S.; requiring that the council meet with 
41         the board’s staff at specified intervals and provide a 
42         quarterly report to the board’s trustees; clarifying 
43         the function of council members; expanding 
44         prerequisites for membership on the council to include 
45         knowledge of and experience with institutional 
46         investments and fiduciary responsibilities; providing 
47         that a council member is an officer, employee, or 
48         agent of the state for specified purposes; requiring 
49         that appointees to the council undergo specified 
50         training; requiring that council members make 
51         recommendations consistent with fiduciary 
52         responsibilities applicable to the board; specifying 
53         duties of the council; authorizing the council to 
54         create subcommittees and direct the executive director 
55         to enter into certain contracts; amending s. 215.475, 
56         F.S.; conforming provisions to changes made by the 
57         act; creating s. 215.4754, F.S.; providing intent; 
58         requiring that the contract for an investment adviser 
59         or manager include a standard of conduct; providing 
60         for termination of the contract of an adviser or 
61         manager who violates the standard of conduct; 
62         prohibiting a member of the Investment Advisory 
63         Council from contracting with or providing services 
64         for the investment of certain funds during his or her 
65         service on the board and for a specified period 
66         thereafter; creating s. 215.4755, F.S.; requiring that 
67         an investment advisor or manager annually certify to 
68         the board certain activities regarding investment 
69         decisions and standards of behavior; requiring that 
70         certain disclosures be made at the request of the 
71         board regarding pecuniary interests of an investment 
72         adviser or manager; amending s. 215.52, F.S.; 
73         authorizing the board to implement certain policies, 
74         restrictions, or guidelines; providing an effective 
75         date. 
76 
77  Be It Enacted by the Legislature of the State of Florida: 
78 
79         Section 1. Subsection (14) of section 121.4501, Florida 
80  Statutes, is amended to read: 
81         121.4501 Public Employee Optional Retirement Program.— 
82         (14) INVESTMENT POLICY STATEMENT.— 
83         (a) Investment products and approved providers selected for 
84  the Public Employee Optional Retirement Program shall conform 
85  with the Public Employee Optional Retirement Program Investment 
86  Policy Statement, herein referred to as the “statement,” as 
87  developed by the executive director and approved by the 
88  Investment Advisory Council and Trustees of the State Board of 
89  Administration. The statement must include, among other items, 
90  the investment objectives of the Public Employee Optional 
91  Retirement Program, manager selection and monitoring guidelines, 
92  and performance measurement criteria. As required from time to 
93  time, the executive director of the state board may present 
94  recommended changes in the statement to the board for approval. 
95         (b) Before Prior to presenting the statement, or any 
96  recommended changes thereto, to the state board, the executive 
97  director of the board shall present such statement or changes to 
98  the Investment Advisory Council for review and approval. The 
99  council shall present the results of its review to the board 
100  prior to the board’s final approval of the statement or changes 
101  in the statement. 
102         Section 2. Subsections (1) and (2) of section 215.44, 
103  Florida Statutes, are amended to read: 
104         215.44 Board of Administration; powers and duties in 
105  relation to investment of trust funds.— 
106         (1) Except when otherwise specifically provided by the 
107  State Constitution and subject to any limitations of the trust 
108  agreement relating to a trust fund, the Board of Administration, 
109  hereinafter sometimes referred to as “trustees” or “board,” 
110  composed of the Governor as chair, the Chief Financial Officer, 
111  and the Attorney General, shall invest all the funds in the 
112  System Trust Fund, as defined in s. 121.021(36), and all other 
113  funds specifically required by law to be invested by the board 
114  pursuant to ss. 215.44-215.53 to the fullest extent that is 
115  consistent with the cash requirements, trust agreement, and 
116  investment objectives of the fund. Notwithstanding any other law 
117  to the contrary, the State Board of Administration may invest 
118  any funds of any state agency or any unit of local government 
119  pursuant to the terms of a trust agreement with the head of the 
120  state agency or the governing body of the unit of local 
121  government, which trust agreement shall govern the investment of 
122  such funds, provided that the board shall approve the 
123  undertaking of such investment before execution of the trust 
124  agreement by the State Board of Administration. The funds and 
125  the earnings therefrom are exempt from the service charge 
126  imposed by s. 215.20. As used in this subsection, the term 
127  “state agency” has the same meaning as that provided in s. 
128  216.001, and the terms “governing body” and “unit of local 
129  government” have the same meaning as that provided in s. 
130  218.403. 
131         (2)(a) The board shall have the power to make purchases, 
132  sales, exchanges, investments, and reinvestments for and on 
133  behalf of the funds referred to in subsection (1), and it shall 
134  be the duty of the board to see that moneys invested under the 
135  provisions of ss. 215.44-215.53 are at all times handled in the 
136  best interests of the state. 
137         (b) Pursuant to s. 110.205, the State Board of 
138  Administration shall establish and maintain the salaries and 
139  benefits of its officers and employees in a manner consistent 
140  with the board’s fiduciary responsibility to recruit and retain 
141  highly qualified and effective key personnel. Not less than 
142  every 5 years, the Investment Advisory Council shall cause a 
143  total compensation study to be conducted by a private consulting 
144  firm having expertise in institutional investments salary and 
145  benefit administration. The study shall be designed to determine 
146  competitive salary ranges, other compensation, and benefits for 
147  positions within the board based on comparable public-sector 
148  peer investment entities. The Investment Advisory Council shall 
149  present the total compensation study along with its 
150  recommendations to the board, and such recommendations are 
151  subject to review and ratification or reversal by the board. The 
152  board may delegate to the executive director the authority and 
153  duty to set staff salaries within the ranges approved by the 
154  board. 
155         (c)(b) In exercising investment authority pursuant to s. 
156  215.47, the board may retain investment advisers or managers, or 
157  both, external to in-house staff, to assist the board in 
158  carrying out the power specified in paragraph (a). 
159         (d) The board shall create an audit committee to assist the 
160  board in fulfilling its oversight responsibilities. The 
161  committee shall consist of three members appointed by the board. 
162  Members shall be appointed for 4-year terms. A vacancy shall be 
163  filled for the remainder of the unexpired term. The committee 
164  shall annually elect a chair and vice chair from its membership. 
165  A member may not be elected to consecutive terms as chair or 
166  vice chair. Persons appointed to the audit committee must have 
167  relevant knowledge and expertise as determined by the board. The 
168  audit committee shall serve as an independent and objective 
169  party to monitor processes for financial reporting, internal 
170  controls and risk assessment, audit processes, and compliance 
171  with laws, rules, and regulations. The audit committee shall 
172  direct the efforts of the board’s independent external auditors 
173  and the board’s internal audit staff. The committee shall 
174  periodically, but no less than quarterly, report to the 
175  executive director and the board. The board shall produce a set 
176  of financial statements for the Florida Retirement System 
177  programs on an annual basis, which shall be reported to the 
178  Legislature and audited by a commercial independent third-party 
179  audit firm under the direction of the audit committee. 
180         Section 3. Section 215.441, Florida Statutes, is amended to 
181  read: 
182         215.441 Board of Administration; appointment of executive 
183  director.— 
184         (1) The board shall appoint an executive director to manage 
185  and invest funds as directed by the board. The executive 
186  director shall, at a minimum, possess substantial experience, 
187  proven knowledge, and expertise in the oversight of 
188  institutional investment portfolios and must meet any other 
189  requirements determined by the board to be necessary to the 
190  overall management and investment of funds. 
191         (2) The appointment of the executive director of the State 
192  Board of Administration shall be subject to the approval by a 
193  majority vote of the Board of Trustees of the State Board of 
194  Administration, and the Governor must vote on the prevailing 
195  side. Such appointment must be reaffirmed in the same manner by 
196  the board of trustees on an annual basis. 
197         (3) The compensation for the executive director shall be 
198  determined by the board, consistent with the requirements of s. 
199  215.44(2)(b). 
200         (4) Before the appointment of the executive director, the 
201  board shall appoint a search committee to develop minimum 
202  position requirements, review applications, and make 
203  recommendations to the board with regard to qualified applicants 
204  for the position. At a minimum, the search committee shall 
205  consist of at least three members of the Investment Advisory 
206  Council. 
207         Section 4. Subsection (1) of section 215.442, Florida 
208  Statutes, is amended to read: 
209         215.442 Executive director; reporting requirements; public 
210  meeting.— 
211         (1) Beginning October 2007 and quarterly thereafter, the 
212  executive director shall present to the Board of Trustees and 
213  the Investment Advisory Council of the State Board of 
214  Administration a quarterly report to include the following: 
215         (a) The name of each equity in which the State Board of 
216  Administration has invested for the quarter. 
217         (b) The industry category of each equity. 
218         Section 5. Section 215.444, Florida Statutes, is amended to 
219  read: 
220         215.444 Investment Advisory Council.— 
221         (1) There is created a six-member Investment Advisory 
222  Council to review the investments made by the staff of the Board 
223  of Administration and to make recommendations to the board 
224  regarding investment policy, strategy, and procedures. The 
225  council shall meet with staff of the board no less than 
226  quarterly and shall provide a quarterly report directly to the 
227  trustees at a meeting of the board. 
228         (2) The members of the council shall be appointed by the 
229  board as a resource to the trustees and shall be subject to 
230  confirmation by the Senate. These individuals shall possess 
231  special knowledge, experience, and familiarity with financial 
232  investments and portfolio management, institutional investments, 
233  and fiduciary responsibilities. Members shall be appointed for 
234  4-year terms. A vacancy shall be filled for the remainder of the 
235  unexpired term. The council shall annually elect a chair and a 
236  vice chair from its membership. A member may not be elected to 
237  consecutive terms as chair or vice chair. 
238         (3) In carrying out the provisions of this section, a 
239  member of the council is an officer, employee, or agent of the 
240  state for purposes of the state’s waiver of sovereign immunity 
241  contained in s. 768.28. Appointees to the council must undergo 
242  regular fiduciary training as required by the board, and must 
243  complete an annual conflict disclosure statement. In carrying 
244  out their duties, council members must make recommendations 
245  consistent with the fiduciary standards applicable to the board. 
246         (4) The duties of the council shall include approval of the 
247  investment policy statements of the board, participation in the 
248  selection process regarding an executive director, engaging 
249  periodic compensation studies and providing recommendations 
250  thereon, meeting quarterly to review the investment performance 
251  of funds, and any other duties as determined by the board. The 
252  council may create subcommittees as necessary to carry out its 
253  duties and responsibilities and may direct the executive 
254  director to enter into contracts with independent compensation 
255  consultants. 
256         Section 6. Subsection (1) of section 215.475, Florida 
257  Statutes, is amended to read: 
258         215.475 Investment policy statement.— 
259         (1) In making investments for the System Trust Fund 
260  pursuant to ss. 215.44-215.53, the board shall make no 
261  investment which is not in conformance with the Florida 
262  Retirement System Defined Benefit Plan Investment Policy 
263  Statement, hereinafter referred to as “the IPS,” as developed by 
264  the executive director and approved by the Investment Advisory 
265  Council and the board. The IPS must include, among other items, 
266  the investment objectives of the System Trust Fund; permitted 
267  types of securities in which the board may invest; and 
268  evaluation criteria necessary to measure the investment 
269  performance of the fund. As required from time to time, the 
270  executive director of the board may present recommended changes 
271  in the IPS to the Investment Advisory Council and the board for 
272  approval. 
273         Section 7. Section 215.4754, Florida Statutes, is created 
274  to read: 
275         215.4754 Ethics requirements for investment advisers and 
276  managers and members of the Investment Advisory Council.—The 
277  intent of this section is to promote independence and the 
278  avoidance of conflicts and improper influence by certain 
279  investment advisers and managers without creating unnecessary 
280  barriers to the board performing its investment duties 
281  consistent with its fiduciary standards, investment performance, 
282  and business relationships. 
283         (1) A contract under which an investment adviser or manager 
284  has been retained to exercise investment authority on behalf of 
285  the board for direct holdings, as defined in s. 215.473(1)(e), 
286  shall require that the investment adviser or manager abide by a 
287  standard of conduct, and any such contract may be terminated by 
288  the board if the investment adviser or manager violates such 
289  standard of conduct. 
290         (2) An Investment Advisory Council member or any business 
291  organization or any affiliate thereof which is owned by or 
292  employs such member may not directly or indirectly contract with 
293  or provide any services for the investment of trust funds 
294  invested by the board during the time of such member’s service 
295  on the council or for 2 years thereafter. 
296         Section 8. Section 215.4755, Florida Statutes, is created 
297  to read: 
298         215.4755 Certification and disclosure requirements for 
299  investment advisers and managers.— 
300         (1) An investment adviser or manager who has discretionary 
301  investment authority for direct holdings, as defined in s. 
302  215.473(1)(e), and who is retained as provided in s. 
303  215.44(2)(c) shall agree pursuant to contract to annually 
304  certify in writing to the board that: 
305         (a) All investment decisions made on behalf of the trust 
306  funds and the board are made in the best interests of the trust 
307  funds and the board, and not made in a manner to the advantage 
308  of such investment adviser or manager, other persons, or clients 
309  to the detriment of the trust funds and the board. 
310         (b) Appropriate policies, procedures, or other safeguards 
311  have been adopted and implemented to ensure that relationships 
312  with any affiliated persons or entities do not adversely 
313  influence the investment decisions made on behalf of the trust 
314  funds and the board. 
315         (c) A written code of ethics, conduct, or other set of 
316  standards, which governs the professional behavior and 
317  expectations of owners, general partners, directors or managers, 
318  officers, and employees of the investment adviser or manager, 
319  has been adopted and implemented and is effectively monitored 
320  and enforced. The investment advisers’ and managers’ code of 
321  ethics shall require that: 
322         1. Officers and employees involved in the investment 
323  process shall refrain from personal business activity that could 
324  conflict with the proper execution and management of the 
325  investment program over which the investment adviser or manager 
326  has discretionary investment authority or that could impair 
327  their ability to make impartial decisions with respect to such 
328  investment program; and 
329         2. Officers and employees shall refrain from undertaking 
330  personal investment transactions with the same individual with 
331  whom business is conducted on behalf of the board. 
332         (d) The investment adviser or manager has proactively and 
333  promptly disclosed to the board, notwithstanding subsection (2), 
334  any known circumstances or situations that a prudent person 
335  could expect to create an actual, potential, or perceived 
336  conflict of interest, including specifically: 
337         1. Any material interests in or with financial institutions 
338  with which officers and employees conduct business on behalf of 
339  the trust funds and the board; and 
340         2. Any personal financial or investment positions of the 
341  investment advisor or manager which could be related to the 
342  performance of an investment program over which the investment 
343  adviser or manager has discretionary investment authority on 
344  behalf of the board. 
345         (2) At the board’s request, an investment adviser or 
346  manager who has discretionary investment authority over direct 
347  holdings, as defined in s. 215.473(1)(e), and who is retained as 
348  provided in s. 215.44(2)(c) shall disclose in writing to the 
349  board: 
350         (a) Any nonconfidential, nonproprietary information or 
351  reports to substantiate the certifications required under 
352  subsection (1). 
353         (b) All direct or indirect pecuniary interests that the 
354  investment adviser or manager has in or with any party to a 
355  transaction with the board, if the transaction is related to any 
356  discretionary investment authority that the investment adviser 
357  or manager exercises on behalf of the board. 
358         (3) An investment adviser or manager certification required 
359  under subsection (1) shall be provided annually, no later than 
360  January 31, for the reporting period of the previous calendar 
361  year on a form prescribed by the board. 
362         Section 9. Section 215.52, Florida Statutes, is amended to 
363  read: 
364         215.52 Rules and regulations.—The board shall have the 
365  power and authority to make reasonable rules, policies, and 
366  regulations necessary or appropriate to carry out the provisions 
367  of ss. 215.44-215.53. To ensure full transparency and 
368  accountability in fulfillment of its fiduciary duties, the board 
369  may implement any policies, restrictions, or guidelines 
370  necessary to the application of relevant provisions, including, 
371  but not limited to, policy in the areas of compliance, ethics, 
372  training, audit procedures, service providers, vendors, and 
373  third parties who do business with the board. 
374         Section 10. This act shall take effect July 1, 2010.