SB 300

SENATE BILL NO. 300
A bill to amend 1965 PA 314, entitled
"Public employee retirement system investment
act,"
by amending section 13 (MCL 38.1133), as amended by
2018 PA 676.
the people of the state of michigan enact:
Sec. 13. (1) This act 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 the
participant's individual account, and that participant is not considered
an investment fiduciary under this act.
(3) An investment
fiduciary shall discharge his or her the investment fiduciary's duties solely in the pecuniary 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 pecuniary benefits
to participants and participants' beneficiaries, and of defraying reasonable
expenses of investing the assets of the system.
(d) Give Subject to sections
14 and 20k, consider only pecuniary factors in the evaluation of an investment.
The investment fiduciary shall 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 As used
in this subdivision:
(i)
"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:
(A) (i) The diversification of the investments of the system.
(B) (ii) The liquidity and current return of the investments of the
system relative to the anticipated cash flow requirements of the system.
(C) (iii) The projected return of the investments of the system
relative to the funding objectives of the system.
(ii) "Pecuniary factor" means a
factor that the investment fiduciary has determined would have a material
effect on the risk or return of an investment based on appropriate investment
horizons consistent with the funding objective of the system. For purposes of
this subparagraph, "material effect" does not include an effect that
furthers social, political, or ideological objectives.
(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 to comply with the prescribed limitation.
(h) Prepare and
maintain written policies regarding ethics and professional training and
education, including travel, which policies that 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 on 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 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.
(O) The actuarial
assumed rate of health care inflation.
(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.money.
(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.
(xi) For a state unit, an executive summary
of both of the following:
(A) The state
unit's unfunded actuarial accrued liabilities for retiree health and pension.
(B) The information
described in subparagraph (v).
(xii) A tabulation of all proxy votes. For
each proxy vote, the system shall include a vote caption, the system's vote,
the recommendation of company management, and, if applicable, the proxy
advisor's recommendation.
(xiii) A tabulation of all limited
partnerships. For each limited partnership, the system shall include the name
of the fund, when the investment was made, the amount of capital contributed,
any cost or fees associated with the limited partnership, and a measure of the
annualized return on capital invested.
(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.
(k) For a state
unit, submit the executive summary required under subdivision (i)(xi) to the senate and house of
representatives appropriations committees and the senate and house fiscal
agencies not less than 30 days after publication.
(l) For a system other than a state unit,
submit the summary annual report published under subdivision (i) to the
department of treasury not less than 30 days after publication.
(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 38.1675.38.1674.
(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 system's income
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 must be
made.
(6) Subject to this
subsection and subsection (13), an investment fiduciary may use a portion of
the system's income to defray the costs of professional training and education,
including travel costs, of system board members , which if the 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 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 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 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 must
be a separate and distinct trust fund and the assets of the system 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 the investment fiduciary's own interest or for his or her the investment
fiduciary's own account.
(b) In his or her the investment
fiduciary's 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 the investment fiduciary's own personal account from
any party dealing with the system in connection with a transaction involving
the assets of the system.
(d) Adopt a practice of following a recommendation of a proxy advisor or
other service provider unless the proxy advisor or other service provider has a
practice of, and in writing commits to, following proxy voting guidelines that
match the investment advisor's obligation to act solely on pecuniary factors,
as that term is defined in subsection (3).
(10) This section
does not prohibit an investment fiduciary from doing any of the following:
(a) Receiving any
benefit to which he or she the investment fiduciary 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 the 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 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 not later than 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.
(15) For a state
unit, a representative of the office of retirement services in the department
of technology, management, and budget shall appear before the senate and house
of representatives appropriations committees on request of the committee chair
to testify about the system's summary annual report required under subsection
(3).
(16) The department
of treasury shall post on its website an executive summary of each summary
annual report submitted to the department of treasury under subsection (3)(l). The executive summary must include the applicable
system's unfunded actuarial accrued liability for pension. The department of
treasury shall submit each executive summary required under this subsection to
the senate and the house of representatives appropriations committees and the
senate and house fiscal agencies not less than 30 days after posting.
(17) For purposes of subsection (3), an investment fiduciary is
considered to have taken an action, or considered a factor, with a purpose to
further social, political, or ideological objectives based on evidence
indicating the purpose, including, but not limited to, any fiduciary commitment
to further social, political, or ideological objectives through portfolio
company engagement or board or shareholder votes. As used in this subsection, "fiduciary
commitment" means evidence of an investment fiduciary's purpose in
managing assets as an investment fiduciary, including, but not limited to, any
of the following in an investment fiduciary's capacity as a fiduciary:
(a) Advertising, statements, explanations, reports, letters to clients,
communications with portfolio companies, statements of principles, or
commitments.
(b) Participation in, affiliation with, or status as a signatory to any
coalition, initiative, joint statement of principles, or agreement.
(18) The governing body of the governmental unit sponsoring the system
shall not grant proxy voting authority to a person that is not part of the
governing unit unless the person has a practice of, and in writing commits to,
following guidelines that match the governmental unit's obligation to act
solely on pecuniary factors, as that term is defined in subsection (3).
(19) A proxy vote must be posted on a system's website not less than 1
calendar month before the vote is submitted.
(20) Except as otherwise provided by law, all meetings of fiduciaries must
be open to the public. Each meeting must be publicly broadcast in audio and
video at the time it is conducted and archived on the website of the system for
future public access and use.
(21) (17) As
used in this section, "state unit" means a system established under the state
employees' retirement act, 1943 PA 240, MCL 38.1 to 38.69, the public school
employees retirement act of 1979, 1980 PA 300, MCL 38.1301 to 38.1437, the
judges retirement act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670, and the
state police retirement act of 1986, 1986 PA 182, MCL 38.1601 to 38.1675.38.1674.