HB-5618, As Passed House, November 10, 2010
SUBSTITUTE FOR
HOUSE BILL NO. 5618
A bill to amend 1965 PA 314, entitled
"Public employee retirement system investment act,"
by amending section 13 (MCL 38.1133), as amended by 2009 PA 84, and
by adding section 13e.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 13. (1) The provisions of this act shall supersede 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 pursuant to 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.
(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 state police retirement system created under the state
police retirement act of 1986, 1986 PA 182, MCL 38.1601 to 38.1648.
(d) The public school employees retirement system created
under the public school employees retirement act of 1979, 1980 PA
300, MCL 38.1301 to 38.1408.
(5) 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 services necessary for the conduct of the affairs of the
system; and may 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 be made.
(6) The system shall be a separate and distinct trust fund and
the assets of the system shall 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.
(7) 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.
(8) 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.
(9) 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 either the
investment advisers act of 1940, 15 USC 80b-1 to 80b-21, the
uniform securities act, 1964 PA 265, MCL 451.501 to 451.818, 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).
House Bill No. 5618 (H-6) as amended November 10, 2010
(10) An investment fiduciary shall not invest in a debt
instrument issued by a foreign country that has been identified by
the United States state department as engaging in or sponsoring
terrorism.
(11) Subject to the provisions of this section but
notwithstanding anything that may be to the contrary in the
remainder of the act, [an investment fiduciary shall use best efforts to
invest] at least 5% of the investments [ ] in
Michigan businesses if the investment fiduciary is a fiduciary of
any of the following systems:
(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 state police retirement system created under the state
police retirement act of 1986, 1986 PA 182, MCL 38.1601 to 38.1648.
(d) The Tier 1 retirement plan created under the public school
employees retirement act of 1979, 1980 PA 300, MCL 38.1301 to
38.1437.
(e) The Tier 1 retirement plan created under the Michigan
legislative retirement system act, 1957 PA 261, MCL 38.1001 to
38.1080.
(12) The investment fiduciary shall select a firm or firms
that have a physical presence in Michigan to manage investments
required under subsection (11). In selecting a firm or firms that
have a physical presence in Michigan to manage [all or a portion of] the
investments, the
investment fiduciary shall [
] issue a request for
House Bill No. 5618 (H-6) as amended November 10, 2010
proposal and utilize competitive bidding.
(13) [to the extent feasible,] At least 1/2 of the [ ]
investments in Michigan
businesses under this act shall be in [specific investment in a Michigan
business] with a physical
presence in [a city] of promise. [
]
(14) The [fiduciary] shall use his or her best efforts to
assure that the [ ] percentage of investments identified in
subsection (11) is obtained not later than January 1, 2015. The
[fiduciary] shall report to the legislature on a [semiannual]
basis on the status and nature of the investments required under
subsection (11). The report shall include all of the following:
(a) The types of business chosen for investment.
(b) The status of investments.
(c) The names of applicants who were denied.
(d) The reasons for denial of the applications.
[(e) Issues related to investments under subsection (13).]
(15) (11)
A system shall annually publish and
make available
to the plan participants and beneficiaries a list of all expenses
paid by soft dollars.
(16) As used in this section, "Michigan business" means a
business with a stated commitment to begin operations, expand, or
continue in this state. The form of investment shall include, but
not be limited to, any form of investment authorized under this
act, venture capital firms located in this state, private equity,
mezzanine, and other investments, notwithstanding limitations that
may be imposed in other sections of this act.
Sec. 13e. A system that utilizes an investment fiduciary that
renders investment advice shall, to the extent feasible, establish
standards and procedures to ensure the consideration of qualified
fiduciaries that are emerging fund managers or emerging broker-
dealers. The standards and procedures utilized by each investment
fiduciary for review and evaluation of contract proposals shall
include a component that gives consideration to whether the
applicant is an emerging fund manager or emerging broker-dealer.
The system shall report on the methods and results of the required
standards and procedures ensuring the consideration of emerging
fund managers and emerging broker-dealers. The report may be
provided by inclusion of information on the methods and results of
the standards and procedures ensuring the consideration of emerging
fund managers and emerging broker-dealers in the annual financial
report required under the uniform budgeting and accounting act,
1968 PA 2, MCL 141.421 to 141.440a, or in the summary annual report
as provided under section 20h(2) or, if the system is a state
system, in the annual financial report required under section 4a of
1919 PA 71, MCL 21.44a. The report may include data disaggregated
by fund size or capitalization.