Bill Text: FL S2186 | 2010 | Regular Session | Comm Sub
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
Florida Senate - 2010 CS for CS for SB 2186 By the Committees on Community Affairs; and Governmental Oversight and Accountability; and Senator Ring 578-03537-10 20102186c2 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; requiring 28 that the board meet at specified intervals and receive 29 reports containing certain information from specified 30 entities; amending s. 215.441, F.S.; requiring that 31 the board appoint an executive director; providing 32 duties of the executive director; providing 33 requirements for appointment as executive director; 34 removing a requirement that the Governor vote in favor 35 of the selection of the executive director; providing 36 for the determination of the executive director’s 37 compensation; providing for the creation, operation, 38 and membership of a search committee for the purpose 39 of selecting the executive director; amending s. 40 215.442, F.S.; requiring that the executive director 41 present certain information quarterly to the 42 Investment Advisory Council; creating s. 215.443, 43 F.S.; creating the Agency for Professional Fund 44 Management; providing for the makeup of the agency; 45 amending s. 215.444, F.S.; requiring that the council 46 meet with the board’s staff at specified intervals and 47 provide a quarterly report to the board’s trustees; 48 clarifying the function of council members; expanding 49 prerequisites for membership on the council to include 50 knowledge of and experience with institutional 51 investments and fiduciary responsibilities; providing 52 that a council member is an officer, employee, or 53 agent of the state for specified purposes; requiring 54 that appointees to the council undergo specified 55 training; requiring that council members make 56 recommendations consistent with fiduciary 57 responsibilities applicable to the board; specifying 58 duties of the council; authorizing the council to 59 create subcommittees and direct the executive director 60 to enter into certain contracts; amending s. 215.475, 61 F.S.; conforming provisions to changes made by the 62 act; creating s. 215.4754, F.S.; providing intent; 63 requiring that the contract for an investment adviser 64 or manager include a standard of conduct; providing 65 for termination of the contract of an adviser or 66 manager who violates the standard of conduct; 67 prohibiting a member of the Investment Advisory 68 Council from contracting with or providing services 69 for the investment of certain funds during his or her 70 service on the board and for a specified period 71 thereafter; creating s. 215.4755, F.S.; requiring that 72 an investment advisor or manager annually certify to 73 the board certain activities regarding investment 74 decisions and standards of behavior; requiring that 75 certain disclosures be made at the request of the 76 board regarding pecuniary interests of an investment 77 adviser or manager; amending s. 215.52, F.S.; 78 authorizing the board to implement certain policies, 79 restrictions, or guidelines; providing an effective 80 date. 81 82 Be It Enacted by the Legislature of the State of Florida: 83 84 Section 1. Subsection (14) of section 121.4501, Florida 85 Statutes, is amended to read: 86 121.4501 Public Employee Optional Retirement Program.— 87 (14) INVESTMENT POLICY STATEMENT.— 88 (a) Investment products and approved providers selected for 89 the Public Employee Optional Retirement Program shall conform 90 with the Public Employee Optional Retirement Program Investment 91 Policy Statement, herein referred to as the “statement,” as 92 developed by the executive director of the state board and 93 approved by the Investment Advisory Council and Trustees of the 94 State Board of Administration. The statement must include, among 95 other items, the investment objectives of the Public Employee 96 Optional Retirement Program, manager selection and monitoring 97 guidelines, and performance measurement criteria. As required 98 from time to time, the executive director of the state board may 99 present recommended changes in the statement to the board for 100 approval. 101 (b) BeforePrior topresenting the statement, or any 102 recommended changes thereto, to the state board, the executive 103 director of the board shall present such statement or changes to 104 the Investment Advisory Council for review and approval. The 105 council shall present the results of its review to the board 106 prior to the board’s final approval of the statement or changes 107 in the statement. 108 Section 2. Subsections (1) and (2) of section 215.44, 109 Florida Statutes, are amended to read: 110 215.44 Board of Administration; powers and duties in 111 relation to investment of trust funds.— 112 (1) Except when otherwise specifically provided by the 113 State Constitution and subject to any limitations of the trust 114 agreement relating to a trust fund, the Board of Administration, 115 hereinafter sometimes referred to as “trustees” or “board,” 116 composed of the Governor as chair, the Chief Financial Officer, 117 and the Attorney General, shall invest all the funds in the 118 System Trust Fund, as defined in s. 121.021(36), and all other 119 funds specifically required by law to be invested by the board 120 pursuant to ss. 215.44-215.53 to the fullest extent that is 121 consistent with the cash requirements, trust agreement, and 122 investment objectives of the fund. Notwithstanding any other law 123 to the contrary, the State Board of Administration may invest 124 any funds of any state agency or any unit of local government 125 pursuant to the terms of a trust agreement with the head of the 126 state agency or the governing body of the unit of local 127 government, which trust agreement shall govern the investment of 128 such funds, provided that the board shall approve the 129 undertaking of such investment before execution of the trust 130 agreement by the State Board of Administration. The funds and 131 the earnings therefrom are exempt from the service charge 132 imposed by s. 215.20. As used in this subsection, the term 133 “state agency” has the same meaning as that provided in s. 134 216.001, and the terms “governing body” and “unit of local 135 government” have the same meaning as that provided in s. 136 218.403. 137 (2)(a) The board shall have the power to make purchases, 138 sales, exchanges, investments, and reinvestments for and on 139 behalf of the funds referred to in subsection (1), and it shall 140 be the duty of the board to see that moneys invested under the 141 provisions of ss. 215.44-215.53 are at all times handled in the 142 best interests of the state. 143 (b) Pursuant to s. 110.205, the State Board of 144 Administration shall establish and maintain the salaries and 145 benefits of its officers and employees in a manner consistent 146 with the board’s fiduciary responsibility to recruit and retain 147 highly qualified and effective key personnel. Not less than 148 every 5 years, the Investment Advisory Council shall cause a 149 total compensation study to be conducted by a private consulting 150 firm having expertise in institutional investments salary and 151 benefit administration. The study shall be designed to determine 152 competitive salary ranges, other compensation, and benefits for 153 positions within the board based on comparable public-sector 154 peer investment entities. The Investment Advisory Council shall 155 present the total compensation study along with its 156 recommendations to the board, and such recommendations are 157 subject to review and ratification or reversal by the board. The 158 board may delegate to the executive director the authority and 159 duty to set staff salaries within the ranges approved by the 160 board. 161 (c)(b)In exercising investment authority pursuant to s. 162 215.47, the board may retain investment advisers or managers, or 163 both, external to in-house staff, to assist the board in 164 carrying out the power specified in paragraph (a). 165 (d) The board shall create an audit committee to assist the 166 board in fulfilling its oversight responsibilities. The 167 committee shall consist of three members appointed by the board. 168 Members shall be appointed for 4-year terms. A vacancy shall be 169 filled for the remainder of the unexpired term. The committee 170 shall annually elect a chair and vice chair from its membership. 171 A member may not be elected to consecutive terms as chair or 172 vice chair. Persons appointed to the audit committee must have 173 relevant knowledge and expertise as determined by the board. The 174 audit committee shall serve as an independent and objective 175 party to monitor processes for financial reporting, internal 176 controls and risk assessment, audit processes, and compliance 177 with laws, rules, and regulations. The audit committee shall 178 direct the efforts of the board’s independent external auditors 179 and the board’s internal audit staff. The committee shall 180 periodically, but no less than quarterly, report to the 181 executive director of the state board and the board. The board 182 shall produce a set of financial statements for the Florida 183 Retirement System programs on an annual basis, which shall be 184 reported to the Legislature and audited by a commercial 185 independent third-party audit firm under the direction of the 186 audit committee. 187 (e) The board shall meet at least quarterly and shall 188 receive reports from the audit committee, investment advisory 189 committee, inspector general, general counsel, executive 190 director, and such other persons or entities as the board may 191 require about the financial status, operations, and investment 192 activities of the board. 193 Section 3. Section 215.441, Florida Statutes, is amended to 194 read: 195 215.441 Board of Administration; appointment of executive 196 director.— 197 (1) The board shall appoint an executive director to manage 198 and invest funds as directed by the board. The executive 199 director shall, at a minimum, possess substantial experience, 200 proven knowledge, and expertise in the oversight of 201 institutional investment portfolios and must meet any other 202 requirements determined by the board to be necessary to the 203 overall management and investment of funds. 204 (2) The appointment of the executive director of the State 205 Board of Administration shall be subject to the approval by a 206 majority vote of the Board of Trustees of the State Board of 207 Administration, and the Governor must vote on the prevailing208side. Such appointment must be reaffirmed in the same manner by 209 the board of trustees on an annual basis. 210 (3) The compensation for the executive director shall be 211 determined by the board, consistent with the requirements of s. 212 215.44(2)(b). 213 (4) Before the appointment of the executive director, the 214 board shall appoint a search committee to develop minimum 215 position requirements, review applications, and make 216 recommendations to the board with regard to qualified applicants 217 for the position. At a minimum, the search committee shall 218 consist of at least three members of the Investment Advisory 219 Council. 220 Section 4. Subsection (1) of section 215.442, Florida 221 Statutes, is amended to read: 222 215.442 Executive director; reporting requirements; public 223 meeting.— 224 (1) Beginning October 2007 and quarterly thereafter, the 225 executive director shall present to the Board of Trustees and 226 the Investment Advisory Council of the State Board of 227 Administration a quarterly report to include the following: 228 (a) The name of each equity in which the State Board of 229 Administration has invested for the quarter. 230 (b) The industry category of each equity. 231 Section 5. Section 215.443, Florida Statutes, is created to 232 read: 233 215.443 Agency for Professional Fund Management.— 234 (1) Effective January 1, 2011, there is created within the 235 State Board of Administration the Agency for Professional Fund 236 Management which shall provide active oversight of the 237 investment portfolios under the authority of the board. 238 (2) The agency shall consist of five members appointed by 239 the board and subject to confirmation by the Senate. The members 240 shall annually elect a chair from among their membership. 241 Members shall meet at least every other month; however, an 242 emergency meeting may be convened at the call of the chair. The 243 members shall receive no compensation for their services but are 244 entitled to receive reimbursement for expenses pursuant to s. 245 112.061. Members shall serve 4-year terms and may be suspended 246 or removed for cause by the board. 247 (3) Members of the agency shall be considered fiduciaries 248 in the discharge of their duties and shall be required to file 249 financial disclosure as required of state officers pursuant to 250 s. 112.3145. 251 (4) Members of the agency must be distinguished by the 252 attainment of the highest professional and experiential 253 requirements consistent with the investment responsibilities 254 they bear. Each must have a minimum of 5 years of progressively 255 responsible experience in the direct management, analysis, 256 supervision, or investment of financial assets as an officer or 257 a named fiduciary with a public or private organization that has 258 at least $1 billion in investable assets. Members who possess 259 licenses or certification from professional organizations or 260 other federal or state regulatory bodies must maintain those 261 licenses in good standing, free from sanction, limitation, or 262 compromise by the issuing authority, through the duration of 263 their service. 264 (5) The members shall have active oversight of the 265 investment decisions made on behalf of the participants in each 266 of the portfolios managed by the board and decisions made by the 267 executive director or staff on the allocation of funds within 268 the permitted statutory ranges. 269 (6) Decisions made by the agency may be altered only by 270 unanimous vote of all three members of the board in a public 271 meeting. 272 Section 6. Section 215.444, Florida Statutes, is amended to 273 read: 274 215.444 Investment Advisory Council.— 275 (1) There is created a six-member Investment Advisory 276 Council to review the investments made by the staff of the Board 277 of Administration and to make recommendations to the board 278 regarding investment policy, strategy, and procedures. The 279 council shall meet with staff of the board no less than 280 quarterly and shall provide a quarterly report directly to the 281 trustees at a meeting of the board. 282 (2) The members of the council shall be appointed by the 283 board as a resource to the trustees and shall be subject to 284 confirmation by the Senate. These individuals shall possess 285 special knowledge, experience, and familiarity withfinancial286investments andportfolio management, institutional investments, 287 and fiduciary responsibilities. Members shall be appointed for 288 4-year terms. A vacancy shall be filled for the remainder of the 289 unexpired term. The council shall annually elect a chair and a 290 vice chair from its membership. A member may not be elected to 291 consecutive terms as chair or vice chair. 292 (3) In carrying out the provisions of this section, a 293 member of the council is an officer, employee, or agent of the 294 state for purposes of the state’s waiver of sovereign immunity 295 contained in s. 768.28. Appointees to the council must undergo 296 regular fiduciary training as required by the board, and must 297 complete an annual conflict disclosure statement. In carrying 298 out their duties, council members must make recommendations 299 consistent with the fiduciary standards applicable to the board. 300 (4) The duties of the council shall include approval of the 301 investment policy statements of the board, participation in the 302 selection process regarding an executive director, engaging 303 periodic compensation studies and providing recommendations 304 thereon, meeting quarterly to review the investment performance 305 of funds, and any other duties as determined by the board. The 306 council may create subcommittees as necessary to carry out its 307 duties and responsibilities and may direct the executive 308 director to enter into contracts with independent compensation 309 consultants. 310 Section 7. Subsection (1) of section 215.475, Florida 311 Statutes, is amended to read: 312 215.475 Investment policy statement.— 313 (1) In making investments for the System Trust Fund 314 pursuant to ss. 215.44-215.53, the board shall make no 315 investment which is not in conformance with the Florida 316 Retirement System Defined Benefit Plan Investment Policy 317 Statement, hereinafter referred to as “the IPS,” as developed by 318 the executive director and approved by the Investment Advisory 319 Council and the board. The IPS must include, among other items, 320 the investment objectives of the System Trust Fund; permitted 321 types of securities in which the board may invest; and 322 evaluation criteria necessary to measure the investment 323 performance of the fund. As required from time to time, the 324 executive director of the board may present recommended changes 325 in the IPS to the Investment Advisory Council and the board for 326 approval. 327 Section 8. Section 215.4754, Florida Statutes, is created 328 to read: 329 215.4754 Ethics requirements for investment advisers and 330 managers and members of the Investment Advisory Council.—The 331 intent of this section is to promote independence and the 332 avoidance of conflicts and improper influence by certain 333 investment advisers and managers without creating unnecessary 334 barriers to the board performing its investment duties 335 consistent with its fiduciary standards, investment performance, 336 and business relationships. 337 (1) A contract under which an investment adviser or manager 338 has been retained to exercise investment authority on behalf of 339 the board for direct holdings, as defined in s. 215.473(1)(e), 340 shall require that the investment adviser or manager abide by a 341 standard of conduct pursuant to s. 215.4755, and any such 342 contract may be terminated by the board if the investment 343 adviser or manager violates such standard of conduct. 344 (2) An Investment Advisory Council member or any business 345 organization or any affiliate thereof which is owned by or 346 employs such member may not directly or indirectly contract with 347 or provide any services for the investment of trust funds 348 invested by the board during the time of such member’s service 349 on the council or for 2 years thereafter. 350 Section 9. Section 215.4755, Florida Statutes, is created 351 to read: 352 215.4755 Certification and disclosure requirements for 353 investment advisers and managers.— 354 (1) An investment adviser or manager who has discretionary 355 investment authority for direct holdings, as defined in s. 356 215.473(1)(e), and who is retained as provided in s. 357 215.44(2)(c) shall agree pursuant to contract to annually 358 certify in writing to the board that: 359 (a) All investment decisions made on behalf of the trust 360 funds and the board are made in the best interests of the trust 361 funds and the board, and not made in a manner to the advantage 362 of such investment adviser or manager, other persons, or clients 363 to the detriment of the trust funds and the board. 364 (b) Appropriate policies, procedures, or other safeguards 365 have been adopted and implemented to ensure that relationships 366 with any affiliated persons or entities do not adversely 367 influence the investment decisions made on behalf of the trust 368 funds and the board. 369 (c) A written code of ethics, conduct, or other set of 370 standards, which governs the professional behavior and 371 expectations of owners, general partners, directors or managers, 372 officers, and employees of the investment adviser or manager, 373 has been adopted and implemented and is effectively monitored 374 and enforced. The investment advisers’ and managers’ code of 375 ethics shall require that: 376 1. Officers and employees involved in the investment 377 process shall refrain from personal business activity that could 378 conflict with the proper execution and management of the 379 investment program over which the investment adviser or manager 380 has discretionary investment authority or that could impair 381 their ability to make impartial decisions with respect to such 382 investment program; and 383 2. Officers and employees shall refrain from undertaking 384 personal investment transactions with the same individual with 385 whom business is conducted on behalf of the board. 386 (d) The investment adviser or manager has proactively and 387 promptly disclosed to the board, notwithstanding subsection (2), 388 any known circumstances or situations that a prudent person 389 could expect to create an actual, potential, or perceived 390 conflict of interest, including specifically: 391 1. Any material interests in or with financial institutions 392 with which officers and employees conduct business on behalf of 393 the trust funds and the board; and 394 2. Any personal financial or investment positions of the 395 investment advisor or manager which could be related to the 396 performance of an investment program over which the investment 397 adviser or manager has discretionary investment authority on 398 behalf of the board. 399 (2) At the board’s request, an investment adviser or 400 manager who has discretionary investment authority over direct 401 holdings, as defined in s. 215.473(1)(e), and who is retained as 402 provided in s. 215.44(2)(c) shall disclose in writing to the 403 board: 404 (a) Any nonconfidential, nonproprietary information or 405 reports to substantiate the certifications required under 406 subsection (1). 407 (b) All direct or indirect pecuniary interests that the 408 investment adviser or manager has in or with any party to a 409 transaction with the board, if the transaction is related to any 410 discretionary investment authority that the investment adviser 411 or manager exercises on behalf of the board. 412 (3) An investment adviser or manager certification required 413 under subsection (1) shall be provided annually, no later than 414 January 31, for the reporting period of the previous calendar 415 year on a form prescribed by the board. 416 Section 10. Section 215.52, Florida Statutes, is amended to 417 read: 418 215.52 Rules and regulations.—The board shall have the 419 power and authority to make reasonable rules, policies, and 420 regulations necessary or appropriate to carry out the provisions 421 of ss. 215.44-215.53. To ensure full transparency and 422 accountability in fulfillment of its fiduciary duties, the board 423 may implement any policies, restrictions, or guidelines 424 necessary to the application of relevant provisions, including, 425 but not limited to, policy in the areas of compliance, ethics, 426 training, audit procedures, service providers, vendors, and 427 third parties who do business with the board. 428 Section 11. This act shall take effect July 1, 2010.
