Bill Text: MI SB1105 | 2013-2014 | 97th Legislature | Engrossed
Bill Title: Retirement; pension oversight; investment in a hazardous waste deep disposal well facility by an investment fiduciary of a large sponsored system; limit. Amends secs. 12d & 13 of 1965 PA 314 (MCL 38.1132d & 38.1133).
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Passed) 2014-12-31 - Assigned Pa 0545'14 With Immediate Effect [SB1105 Detail]
Download: Michigan-2013-SB1105-Engrossed.html
SB-1105, As Passed Senate, November 13, 2014
SENATE BILL No. 1105
October 2, 2014, Introduced by Senator HOPGOOD and referred to the Committee on Reforms, Restructuring and Reinventing.
A bill to amend 1965 PA 314, entitled
"Public employee retirement system investment act,"
by amending sections 12d and 13 (MCL 38.1132d and 38.1133), section
12d as amended by 2008 PA 425 and section 13 as amended by 2014 PA
185.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 12d. (1) "National rating services" means Moody's
investors service, inc.; Standard & Poor's ratings group; Fitch
investors service inc.; Duff & Phelps credit rating corp.; or any
other nationally recognized statistical rating organization as
determined by the state treasurer.
(2) "Net earnings available for fixed charges" means net
income after deducting operating and maintenance expenses, taxes
other than federal and state income taxes, depreciation, and
depletion, but excluding extraordinary expenses appearing in the
regular financial statements of the system.
(3) "Obligations" means bonds, notes, collateral trust
certificates, convertible bonds, debentures, equipment trust
certificates, conditional sales agreements, guaranteed mortgage
certificates, pass-through certificates, participation
certificates, mortgages, trust deeds, general obligation bonds,
revenue bonds, or other similar interest bearing instruments of
debt. Obligations may be secured or unsecured and may be publicly
offered or privately placed.
(4) "Party in interest" means, as it relates to a system, any
of the following:
(a) An investment fiduciary, counsel, or employee of the
system.
(b) A person providing services to the system.
(c) The political subdivision sponsoring the system.
(d) An organization, any of whose members are covered by the
system.
(e) A spouse, ancestor, lineal descendant, or spouse of a
lineal descendant of an individual described in subdivision (a) or
(b).
(f) An entity controlled by an individual or organization
described in subdivisions (a) to (e).
(5) "Plan for adjustment" means a plan for the adjustment of
debts entered and approved by a federal bankruptcy court for a city
that has established a large sponsored system.
(6) (5)
"Portfolio company" means
an entity in which the
investment fiduciary has invested or has considered investing
system assets.
(7) (6)
"Private equity" means an
asset class consisting of
equity or debt securities in entities that are not publicly traded,
which
that may include, but are not limited to, investments in
leveraged buyouts, venture capital, growth capital, distressed or
special situations, mezzanine capital, and secondary investments in
equity or debt interests.
Sec.
13. (1) This act shall supersede supersedes any
investment authority previously granted to a system under any other
law of this state.
(2) The assets of a system may be invested, reinvested, held
in nominee form, and managed by an investment fiduciary subject to
the terms, conditions, and limitations provided in this act. An
investment fiduciary of a defined contribution plan may arrange for
1 or more investment options to be directed by the participants of
the defined contribution plan. The limitations on the percentage of
total assets for investments provided in this act do not apply to a
defined contribution plan in which a participant directs the
investment of the assets in his or her individual account, and that
participant is not considered an investment fiduciary under this
act.
(3) An investment fiduciary shall discharge his or her duties
solely in the interest of the participants and the beneficiaries,
and shall do all of the following:
(a) Act with the same care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent person
acting in a similar capacity and familiar with those matters would
use in the conduct of a similar enterprise with similar aims.
(b) Act with due regard for the management, reputation, and
stability of the issuer and the character of the particular
investments being considered.
(c) Make investments for the exclusive purposes of providing
benefits to participants and participants' beneficiaries, and of
defraying reasonable expenses of investing the assets of the
system.
(d) Give appropriate consideration to those facts and
circumstances that the investment fiduciary knows or should know
are relevant to the particular investment or investment course of
action involved, including the role the investment or investment
course of action plays in that portion of the system's investments
for which the investment fiduciary has responsibility; and act
accordingly. For purposes of this subsection, "appropriate
consideration" includes, but is not limited to, a determination by
the investment fiduciary that a particular investment or investment
course of action is reasonably designed, as part of the investments
of the system, to further the purposes of the system, taking into
consideration the risk of loss and the opportunity for gain or
other return associated with the investment or investment course of
action; and consideration of the following factors as they relate
to the investment or investment course of action:
(i) The diversification of the investments of the system.
(ii) The liquidity and current return of the investments of the
system relative to the anticipated cash flow requirements of the
system.
(iii) The projected return of the investments of the system
relative to the funding objectives of the system.
(e) Give appropriate consideration to investments that would
enhance the general welfare of this state and its citizens if those
investments offer the safety and rate of return comparable to other
investments permitted under this act and available to the
investment fiduciary at the time the investment decision is made.
(f) Prepare and maintain written objectives, policies, and
strategies with clearly defined accountability and responsibility
for implementing and executing the system's investments.
(g) Monitor the investment of the system's assets with regard
to the limitations on those investments under this act. Upon
discovery that an investment causes the system to exceed a
limitation prescribed in this act, the investment fiduciary shall
reallocate
assets in a prudent manner in order to comply with the
prescribed limitation.
(h) Prepare and maintain written policies regarding ethics and
professional training and education, including travel, which
policies contain clearly defined accountability and reporting
requirements for the system's investment fiduciaries.
(i) Publish a summary annual report that includes all of the
following:
(i) The name of the system.
(ii) The names of the system's investment fiduciaries.
(iii) The names of the system's service providers.
(iv) The system's assets and liabilities and changes in net
plan assets on a plan-year basis.
(v) The system's funded ratio based upon the ratio of
valuation assets to actuarial accrued liabilities on a plan-year
basis.
(vi) Except as otherwise provided in this subparagraph, the
system's investment performance net of fees on a rolling calendar-
year basis for the previous 1-, 3-, 5-, 7-, and 10-year periods.
For a system for which the state treasurer is the investment
fiduciary,
the summary annual report shall must
include the
system's investment performance net of fees on a rolling calendar-
year and fiscal-year basis for the previous 1-, 3-, 5-, 7-, and 10-
year periods.
(vii) The system's administrative and investment expenditures
pursuant to standards of the governmental accounting standards
board, including, but not limited to, a list of all expenditures
made with soft dollars and all expenditures for professional
training and education, including travel expenditures, by or on
behalf of system board members that are paid by the system, if any.
(viii) The system's itemized budget containing all projected
expenditures, including, but not limited to, expenditures for
professional training and education, including travel expenditures,
by or on behalf of system board members that are paid by the
system.
(ix) The following information as provided in the system's most
recent annual actuarial valuation report:
(A) The number of active members.
(B) The number of retirees and beneficiaries.
(C) The average annual retirement allowance.
(D) The total annual retirement allowances being paid.
(E) The valuation payroll.
(F) The employer's computed normal cost of benefits expressed
as a percentage of valuation payroll.
(G) The employer's total contribution rate expressed as a
percentage of valuation payroll.
(H) The weighted average of member contributions, if any.
(I) The actuarial assumed rate of investment return.
(J) The actuarial assumed rate of long-term wage inflation.
(K) The smoothing method utilized to determine the funding
value of assets.
(l) The amortization method and period utilized for funding the
system's unfunded actuarial accrued liabilities, if any.
(M) The system's actuarial cost method.
(N) Whether system membership is open or closed to specific
groups of employees.
(x) In addition to the expenditures reported under
subparagraph (vii), for a large sponsored system a travel report
listing all travel outside this state in the immediately preceding
fiscal year that was funded in whole or in part with public funds.
The report must include the total expenses for all out-of-state
travel funded during the immediately preceding fiscal year and all
of the following information for each travel occurrence:
(A) The name of each person receiving reimbursement for travel
outside this state or whose travel costs were paid by the large
sponsored system and funded in whole or in part with public funds.
(B) The destination.
(C) The dates.
(D) A brief statement of the reason for the travel.
(E) An itemization of the transportation and related costs,
including, but not limited to, the amount for food, lodging, and
vehicle rental and listing the names of hotels, restaurants,
vehicle rental agencies, and vehicle models.
(j) An investment fiduciary of a large sponsored system shall
submit a summary annual report described in subdivision (i) to the
financial review commission created under the Michigan financial
review commission act, 2014 PA 181, MCL 141.1631 to 141.1643.
(4) An investment fiduciary who is an investment fiduciary of
any of the following shall comply with the divestment from terror
act, 2008 PA 234, MCL 129.291 to 129.301, in making investments
under this act:
(a) The Tier 1 retirement plan available under the state
employees' retirement act, 1943 PA 240, MCL 38.1 to 38.69.
(b) The Tier 1 retirement plan available under the judges
retirement act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670.
(c) The Michigan state police retirement system created under
the state police retirement act of 1986, 1986 PA 182, MCL 38.1601
to 38.1648.
(d) The Michigan public school employees' retirement system
created under the public school employees retirement act of 1979,
1980 PA 300, MCL 38.1301 to 38.1437.
(5) Subject to section 13g, an investment fiduciary may use a
portion of the income of the system to defray the costs of
investing, managing, and protecting the assets of the system; may
retain investment and all other goods and services necessary for
the conduct of the affairs of the system, including investment
advisors, consultants, custodians, accountants, auditors,
attorneys, actuaries, investment personnel, administrators, and
physicians; and may enter into contracts for and pay reasonable
compensation for those services. Subject to an annual appropriation
by the legislature, a deduction from the income of a state-
administered
system resulting from the payment of those costs shall
must be made.
(6) Subject to this subsection and subsection (13), an
investment fiduciary may use a portion of the income of the system
to defray the costs of professional training and education,
including travel costs, of system board members, which professional
training and education, including travel, are directly related to
the administration, management, and operation of the system. The
governing board vested with the general administration, management,
and operation of the system or other decision-making body that is
responsible for implementation and supervision of the system shall
adopt an annual budget for professional training and education,
including travel, authorized under this subsection. The budget
adopted
under this subsection shall must
reflect the number of
board members, the size of the system, and the educational
objectives of the system. The system's total aggregate cost for
professional training and education, including travel costs,
authorized
under this subsection for a fiscal year shall must not
exceed $150,000.00 or an amount that is equal to the total number
of system board members multiplied by $12,000.00, whichever is
less. The system's total cost for professional training and
education, including travel costs, authorized under this subsection
for
an individual system board member in a fiscal year shall must
not exceed $30,000.00. Beginning January 1, 2013, the department of
treasury shall adjust the dollar amounts in this subsection by an
amount determined by the state treasurer at the end of the
immediately preceding calendar year to reflect the cumulative
annual percentage change in the consumer price index. As used in
this subsection, "consumer price index" means the most
comprehensive index of consumer prices available for this state
from the bureau of labor statistics of the United States department
of labor.
(7) Before any investment services are provided, an investment
service provider shall provide the investment fiduciary of the
system with a complete written disclosure of all fees or other
compensation associated with its relationship with the system.
After investment services are provided to the investment fiduciary
of the system, an investment service provider shall provide on an
annual basis written disclosure of all fees including, but not
limited to, commissions, 12b-1 and related fees, compensation paid
or to be paid to third parties, and any other compensation paid by
the system to the investment fiduciary of the system. As used in
this subsection, "investment service provider" means any
individual, third-party agent or consultant, or other entity that
receives direct or indirect compensation for consulting, investment
management, brokerage, or custody services related to the system's
assets. For purposes of this section only, investment service
provider does not include a retirement system.
(8)
The system shall must be a separate and distinct trust
fund
and the assets of the system shall must be for the exclusive
benefit of the participants and their beneficiaries and of
defraying reasonable expenses of investing the assets of the
system. With respect to a system, an investment fiduciary shall not
cause the system to engage in a transaction if he or she knows or
should know that the transaction is any of the following, either
directly or indirectly:
(a) A sale or exchange or a leasing of any property from the
system to a party in interest for less than the fair market value,
or from a party in interest to the system for more than the fair
market value.
(b) A lending of money or other extension of credit from the
system to a party in interest without the receipt of adequate
security and a reasonable rate of interest, or from a party in
interest to the system with the provision of excessive security or
at an unreasonably high rate of interest.
(c) A transfer to, or use by or for the benefit of, the
political subdivision sponsoring the system of any assets of the
system for less than adequate consideration.
(d) The furnishing of goods, services, or facilities from the
system to a party in interest for less than adequate consideration,
or from a party in interest to the system for more than adequate
consideration.
(9) With respect to a system subject to this act, an
investment fiduciary shall not do any of the following:
(a) Deal with the assets of the system in his or her own
interest or for his or her own account.
(b) In his or her individual or any other capacity act in any
transaction involving the system on behalf of a party whose
interests are adverse to the interests of the system or the
interest of its participants or participants' beneficiaries.
(c) Receive any consideration for his or her own personal
account from any party dealing with the system in connection with a
transaction involving the assets of the system.
(10) This section does not prohibit an investment fiduciary
from doing any of the following:
(a) Receiving any benefit to which he or she may be entitled
as a participant or participant's beneficiary of the system.
(b) Receiving any reimbursement of expenses properly and
actually incurred in the performance of his or her duties for the
system.
(c) Serving as an investment fiduciary in addition to being an
officer, employee, agent, or other representative of the political
subdivision sponsoring the system.
(d) Receiving agreed upon compensation for services from the
system.
(11) Except for an employee of a system, this state, or the
political subdivision sponsoring a system, when acting in the
capacity as an investment fiduciary, an investment fiduciary who is
qualified under section 12c(1)(b) shall meet 1 of the following
requirements:
(a) Be a registered investment adviser under the investment
advisers act of 1940, 15 USC 80b-1 to 80b-21, or the uniform
securities act (2002), 2008 PA 551, MCL 451.2101 to 451.2703.
(b) Be a bank as defined under the investment advisers act of
1940, 15 USC 80b-1 to 80b-21.
(c) Be an insurance company qualified under section 16(3).
(12) An investment fiduciary shall not invest in a debt
instrument issued by a foreign country that has been designated by
the United States department of state as a state sponsor of terror.
(13) A large sponsored system shall not pay the expenses for a
person to travel outside this state from funds under its control
unless 1 or more of the following conditions apply to the travel:
(a) It is required by legal mandate or court order or for law
enforcement purposes.
(b) It is necessary to protect the health or safety of
citizens of, or visitors to, this state or to assist other states
in similar circumstances.
(c) It is necessary to produce budgetary savings or to
increase revenues, including protecting existing federal funds or
securing additional federal funds.
(d) It is necessary to secure specialized training for that
person that is substantially related to performing the duties of
the position and is not available within this state.
(14) Subject to section 13g, an investment fiduciary of a
large sponsored system that invests or has invested in a hazardous
waste deep disposal well facility regulated under part 111 or 121
Senate Bill No. 1105 as amended November 13, 2014
of the natural resources and environmental protection act, 1994 PA
451, MCL 324.11101 to 324.11153 and 324.12101 to 324.12117, is
subject to all of the following:
(a) The investment fiduciary shall not make <<AN>> additional
<<investment>> in the hazardous waste deep disposal well facility
<<unless the investment is solely to prepare the property on which
the hazardous waste deep disposal well facility is located for sale
for purposes other than operation as a hazardous waste deep disposal
well facility or similar hazardous facility>>.
(b) The investment fiduciary shall sell, redeem, divest, or
withdraw all investments in the hazardous waste deep disposal well
facility <<within 180 days after>> any of the following circumstances
occur:
(i) The operator of the hazardous waste deep disposal well
facility files for bankruptcy.
(ii) The sale, transfer, purchase, or acquisition of a
controlling interest in the operator of the hazardous waste deep
disposal well facility.
(iii) An environmental protection agency action for a violation
at the hazardous waste deep disposal well facility.
(iv) An environmental protection agency revocation of the
operator's license.
(v) An environmental protection agency or department of
environmental quality order to terminate operations at the
hazardous waste deep disposal well facility.
