Bill Text: MI SB0797 | 2011-2012 | 96th Legislature | Engrossed
Bill Title: Retirement; investments; investment of assets of public employee retirement systems; clarify regarding professional education and training, including travel, for board members, specify procedures for removal of board members, and update definitions regarding global securities. Amends secs. 12b, 12c, 13, 14, 15, 17, 19, 19a, 20c, 20d, 20h, 20k & 20m of 1965 PA 314 (MCL 38.1132b et seq.) & adds secs. 13e, 13f & 21.
Spectrum: Moderate Partisan Bill (Republican 10-3)
Status: (Passed) 2012-12-11 - Assigned Pa 0347'12 [SB0797 Detail]
Download: Michigan-2011-SB0797-Engrossed.html
SB-0797, As Passed Senate, May 29, 2012
SUBSTITUTE FOR
SENATE BILL NO. 797
A bill to amend 1965 PA 314, entitled
"Public employee retirement system investment act,"
by amending sections 12b, 12c, 13, 14, 15, 17, 19, 19a, 20c, 20d,
20h, 20k, and 20m (MCL 38.1132b, 38.1132c, 38.1133, 38.1134,
38.1135, 38.1137, 38.1139, 38.1139a, 38.1140c, 38.1140d, 38.1140h,
38.1140k, and 38.1140m), sections 12b, 12c, 14, 17, and 20c as
amended by 2000 PA 307, section 13 as amended by 2009 PA 84,
section 15 as amended and section 20k as added by 1996 PA 485,
sections 19 and 20d as amended and section 19a as added by 2008 PA
425, section 20h as amended by 2002 PA 728, and section 20m as
amended by 2007 PA 22, and by adding sections 13e, 13f, and 21.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 12b. (1) "Defined contribution plan" means a defined
contribution plan as defined in section 414(i) in the internal
revenue code, 26 USC 414.
(2) "Derivative" means either of the following:
(a) A contract or convertible security that changes in value
in concert with a related or underlying security, future, or other
instrument or index; or obtains much of its value from price
movements in a related or underlying security, future, or other
instrument or index; or both.
(b) A contract or security, such as an option, forward, swap,
warrant, or a debt instrument with 1 or more options, forwards,
swaps, or warrants embedded in it or attached to it, the value of
which contract or security is determined in whole or in part by the
price of 1 or more underlying instruments or markets.
(3) "Equity interests" means limited partnership interests and
other interests in which the liability of the investor is limited
to the amount of the investment, but does not mean general
partnership interests or other interests involving general
liability of the investor.
(4)
"Foreign "Global
security" means any of the
following:
(a) A fixed income security issued by a government, a
governmental agency, or a public or private company that is traded
outside of the United States and may be issued in a currency other
than the United States dollar.
(b) An equity position in a company traded on an exchange
outside of the United States or a security that may be issued in a
currency other than the United States dollar or an unregistered
American depository receipt.
(c) An equity or fixed income derivative that derives its
value from an investment described in subdivision (a) or (b) or a
foreign
stock global security or bond index traded on an exchange
outside of the United States.
Sec. 12c. (1) "Investment fiduciary" means a person other than
a participant directing the investment of the assets of his or her
individual account in a defined contribution plan who does any of
the following:
(a) Exercises any discretionary authority or control in the
investment of a system's assets. Investment fiduciary under this
subdivision includes the state treasurer and his or her investment
personnel for the systems described in section 13(4).
(b) Renders investment advice for a system for a fee or other
direct or indirect compensation.
(2) "Invest" or "investment" means the utilization of money in
the expectation of future returns in the form of income or capital
gain. Investments initially purchased in accordance with this act
which
that subsequently do not qualify for purchase for any
reason
,
shall be considered to continue to
meet the requirements of this
act. Investment includes a guarantee by an investment fiduciary but
does not include, as a sole investment, a pledge of the system's
assets as collateral to guarantee the repayment of obligations made
by a third party to a borrower.
(3) "Investment grade" means graded in the top 4 major grades
as determined by 2 national rating services.
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.
(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 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.
(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 employees' retirement
system created under the public school employees retirement act of
1979,
1980 PA 300, MCL 38.1301 to 38.1408 38.1437.
(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 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 be made.
(6) Subject to this subsection, 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 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 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 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. Investment service provider does not include a retirement
system.
(8) (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.
(9) (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.
(10) (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.
(11) (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).
(12) (10)
An investment fiduciary shall not
invest in a debt
instrument
issued by a foreign country that has been identified
designated
by the United States state department
of state as
engaging
in or sponsoring terrorism.a
state sponsor of terror.
(11)
A system shall annually publish and make available to the
plan
participants and beneficiaries a list of all expenses paid by
soft
dollars.
Sec. 13e. (1) An investment fiduciary shall not make a payment
from the assets of a system to a service provider if the service
provider or a covered associate of the service provider has made a
contribution to an official of a governmental entity during the
immediately preceding 24-calendar-month period, which period does
not include any calendar month before the effective date of this
section. An investment fiduciary, a service provider, or a covered
associate of a service provider shall not do anything indirectly
that, if done directly, would violate this subsection. This
subsection does not apply under any of the following circumstances:
(a) The contribution was made by a service provider or covered
associate of the service provider to an official of a governmental
entity for whom the service provider or covered associate of the
service provider was entitled to vote at the time of the
contribution and the contributions by the service provider or
covered associate of the service provider to that official in the
aggregate do not exceed $350.00 per election.
(b) The contribution was made by a service provider or covered
associate of the service provider to an official of a governmental
entity for whom the service provider or covered associate of the
service provider was not entitled to vote at the time of the
contribution and the contributions by the service provider or
covered associate of the service provider to that official in the
aggregate do not exceed $150.00 per election.
(c) The contribution was made to an official of a governmental
entity by an individual more than 6 months before he or she became
a covered associate of the service provider.
(d) The contribution was made to an official of a governmental
entity by a covered associate of the service provider and all of
the following requirements are met:
(i) The service provider discovers the contribution that
violates this subsection on or before the expiration of 4 months
after the contribution was made.
(ii) The contribution that violates this subsection was for
$350.00 or less.
(iii) The covered associate of the service provider obtains the
return of the contribution that violates this subsection on or
before the expiration of 60 calendar days after the date of the
discovery of the contribution under subparagraph (i).
(2) As used in this section:
(a) "Contribution" means a payment made under any of the
following circumstances:
(i) For the purpose of influencing an election for federal,
state, or local office.
(ii) For a debt incurred in connection with an election for
federal, state, or local office.
(iii) For transition or inaugural expenses of a successful
candidate for federal, state, or local office.
(iv) To a legal defense fund established by or on behalf of an
official of a governmental entity.
(b) "Covered associate of the service provider" means any of
the following:
(i) A general partner, managing member, agent, or officer of
the service provider or any other individual with a similar status
or function for the service provider.
(ii) An employee of the service provider who solicits a
governmental entity on behalf of the service provider and any
individual employed by the service provider who directly or
indirectly supervises that employee.
(iii) A political action committee controlled by the service
provider or by any individual described in subparagraph (i) or (ii).
As used in this subparagraph, "political action committee" means a
political committee or an independent committee as those terms are
defined in the Michigan campaign finance act, 1976 PA 388, MCL
169.201 to 169.282.
(c) "Governmental entity" means this state or a political
subdivision of this state. Governmental entity includes a system
and an agency, authority, or instrumentality of this state or of a
political subdivision of this state.
(d) "Official of a governmental entity" means an individual
who, at the time of the contribution, was an incumbent, candidate,
or successful candidate for an elective office in a governmental
entity if the office meets any of the following requirements:
(i) Is directly or indirectly responsible for or can influence
the outcome of the hiring of a service provider by a system
sponsored by the governmental entity.
(ii) Has the authority to appoint an individual who is directly
or indirectly responsible for or can influence the outcome of the
hiring of a service provider by a system sponsored by the
governmental entity.
(e) "Payment" means a gift, subscription, loan, advance, or
deposit of money or anything of value.
(f) "Regulated investment adviser" means an investment adviser
or covered associate of an investment adviser that is regulated
under the investment advisers act of 1940, 15 USC 80b-1 to 80b-21.
(g) "Service provider" means a person retained to provide
services to a system and includes investment advisers, consultants,
custodians, accountants, auditors, attorneys, actuaries,
administrators, and physicians. Service provider includes an
investment service provider as defined in section 13(7). Service
provider does not include a regulated investment adviser.
Sec. 13f. (1) An investment fiduciary or a service provider
who is convicted of or who enters a nolo contendere plea accepted
by a court for a felony or misdemeanor arising out of his or her
service to a system is considered to have breached the public trust
and shall reimburse the system for all costs, including legal
defense fees, that were paid by the system. The system shall use
reasonable efforts to collect any fees and costs recoverable under
this subsection.
(2) As used in this section, "service provider" means that
term as defined in section 13e.
Sec.
14. (1) An investment fiduciary may shall not invest not
more than 70% of a system's assets in stock or the type of global
security described in section 12b(4)(b). An investment fiduciary
shall not invest in more than 5% of the outstanding stock of any 1
corporation, or invest more than 5% of a system's assets in the
stock of any 1 corporation, unless otherwise provided in this act.
(2)
Stock invested An investment
fiduciary may invest in stock
or
global securities under this section
shall meet subsection (1)
if it meets 1 of the following requirements:
(a)
Be Is registered on a national securities exchange
regulated under title I of the securities exchange act of 1934,
chapter
404, 48 Stat. 881, 15 U.S.C. 78a to 78l, 78m to 78o, 78o-3
to
78dd-1, 78ee to 78hh, and 78kk to 78ll 15
USC 78a to 78pp, or on
an industry-recognized exchange outside the United States.
(b)
Be Is on the national association of securities dealers
automated quotation system or a successor to this system or is on
an industry-recognized system outside the United States.
(c)
Be Is issued pursuant to rule 144a under the securities
act
of 1933, 17 C.F.R. CFR 230.144a.
(3) Notwithstanding subsection (2), an investment fiduciary
may designate an American depository receipt or the type of global
security described in section 12b(4)(b) that satisfies the
requirements of subsection (2) as an investment qualified under
this
section or as an investment in foreign global securities
qualified under section 20k.
Sec. 15. An investment fiduciary may invest in investment
companies registered under the investment company act of 1940,
title
I of chapter 686, 54 Stat. 789, 15 U.S.C.
USC 80a-1 to 80a-
64. The management company of the investment company shall have
been in operation for at least 5 years and shall have assets under
management of more than $500,000,000.00. An investment company may
be established as a limited partnership, corporation, limited
liability company, trust, or other organizational entity for which
the liability of an investor does not exceed the amount of the
investment under the laws of the United States or the applicable
laws of the state, district, territory, or foreign country under
which the investment company was established. An investment in an
investment company shall be considered an investment in the
underlying assets for all purposes under this act.
Sec. 17. (1) An investment fiduciary may invest in any of the
following:
(a) Obligations issued, assumed, or guaranteed by a solvent
entity created or existing under the laws of the United States or
of any state, district, or territory of the United States, which
are not in default as to principal or interest, including, but not
limited to, the following:
(i) Obligations secured by the mortgage of real property or the
pledge of adequate collateral if, during any 3, including 1 of the
last 2, of the 5 fiscal years immediately preceding the time of
investment, the net earnings of the issuing, assuming, or
guaranteeing entity available for fixed charges, as determined in
accordance with standard accounting practice, shall have been not
less than the total of its fixed charges for the year on an overall
basis, nor less than 1-1/2 times its fixed charges for the year on
a priority basis after excluding interest requirements on
obligations subordinate to the issue as to security.
(ii) Equipment trust certificates of railroad companies
organized under the laws of any state of the United States or of
Canada or any of its provinces, payable within 20 years from their
date of issue, in annual or semiannual installments, beginning not
later than the fifth year after the date of issue, which
certificates are a first lien on the specific equipment pledged as
security for the payment of the certificates, and which
certificates are either the direct obligations of the railroad
companies or are guaranteed by the railroad companies, or are
executed by trustees holding title to the equipment.
(iii) Obligations other than those described in subparagraphs
(i) and (ii) ,
if the net earnings of the issuing, assuming, or
guaranteeing
entity available for fixed charges during each of any
3,
including 1 of the last 2, of the 5 fiscal years immediately
preceding
the time of investment, shall have been not less than 1-
1/2
times the total of the entity's fixed charges for such year, or
if
the obligations are of investment grade.and in section 12c(3).
The aggregate investments made under this subparagraph shall not
exceed 15% of the system's total assets.
(b) Obligations secured by a security interest in real or
personal property and a lease obligation given by a solvent entity
whose obligations would be qualified investments under the
provisions of this act, if the investment does not exceed 100% of
the appraised value of the property subject to the lease, and if
all of the following requirements are met:
(i) The lease has an unexpired term equal to or exceeding the
remaining term of the investment.
(ii) The lease is noncancelable unless the lessee first pays
the sum of all unpaid rents due or to become due during the
remaining lease term.
(iii) The lease provides for net rental payments equal to or
exceeding the periodic payments on the investment.
(iv) The lease provides that the net rental payments are to be
made without abatement or offset during the full term of the lease.
(v) The lease and the lease payments are assigned to the
system, an agent of the system, or an independent trustee.
(c) Obligations issued, assumed, or guaranteed by the United
States, its agencies, or United States government-sponsored
enterprises.
(d) Obligations of a possession, territory, or public
instrumentality of the United States, or of any state, city,
county, township, village, school district, authority, or any other
governmental unit having the power to levy taxes, or in obligations
of other similar political units of the United States. These
investments shall be of investment grade. These investments shall
not be permitted if in the 3 preceding years the governmental unit
has failed to pay its debt or any part of its debt or the interest
on the debt. The aggregate investments made under this subdivision
shall not exceed 5% of the system's total assets.
(e) Banker's acceptances, commercial accounts, certificates of
deposit, or depository receipts issued by a bank, trust company,
savings and loan association, or a credit union.
(f) Commercial paper rated at the time of purchase within the
2 highest classifications established by not less than 2 national
rating services, and which matures within 270 days after the date
of issue.
(g) Repurchase agreements for the purchase of securities
issued by the United States government or its agencies and executed
by a bank or trust company or by members of the association of
primary dealers or other recognized dealers in United States
government securities.
(h) Reverse repurchase agreements for the sale of securities
issued by the United States government or its agencies and executed
with a bank or trust company or with members of the association of
primary dealers or other recognized dealers in United States
government securities.
(i) Any investment otherwise permitted by this section in
which the interest rate varies from time to time. Notwithstanding a
provision of any other act to the contrary, a loan shall not be
considered to be in violation of the usury statutes of this state
by virtue of the fact that the loan is made on a variable interest
rate basis.
(j) Obligations secured by any of the obligations described in
subdivision (a) or (c).
(k) Dollar denominated obligations issued in the United States
by foreign governments, supranationals, banks, or corporations.
These investments shall be of investment grade.
(2) Except as otherwise provided in this act and except for
obligations described in subsection (1)(c), an investment fiduciary
shall not do any of the following:
(a) Invest in more than 5% of the outstanding obligations of
any 1 issuer.
(b) Invest more than 5% of a system's assets in the
obligations of any 1 issuer.
Sec.
19. (1) An investment fiduciary may invest up to 5% 10%
of a system's assets in publicly or privately issued real estate
investment trusts or in real or personal property otherwise
qualified pursuant to section 15, 16, or 20c.
(2) In addition to investments authorized under subsection
(1), an investment fiduciary of a system having assets of more than
$100,000,000.00 may do any of the following:
(a) Invest in, buy, sell, hold, improve, lease, or acquire by
foreclosure or an agreement in lieu of foreclosure, real or
personal property or an interest in real or personal property.
(b) Develop, maintain, operate, or lease the real or personal
property referred to in subdivision (a).
(c) Form or invest in 1 or more limited partnerships,
corporations, limited liability companies, trusts, or other
organizational entities for which liability of an investor cannot
exceed the amount of the investment under the laws of the United
States or of any state, district, or territory of the United States
or foreign country. The limited partnership, corporation, limited
liability company, trust, or other organizational entity may invest
in, buy, sell, hold, develop, improve, lease, or operate real or
personal property, or originate a mortgage or invest in an annuity
separate account that invests in real or personal property to hold
title to, improve, lease, manage, develop, maintain, or operate
real or personal property whether currently held or acquired after
the
effective date of the amendatory act that added this
subdivision
December 27, 1996. An entity formed under this
subdivision has the right to exercise all powers granted to the
entity by the laws of the jurisdiction of formation, including, but
not limited to, the power to borrow money in order to provide
additional capital to benefit and increase the overall return on
the investment held by the entity.
(d) Invest in investments otherwise qualified pursuant to
subsection (1).
(3) Except as otherwise provided in this section, the
aggregate
investments made under subsection (2) shall not exceed 5%
10% of the assets of the system. The purchase price of an
investment made under this section shall not exceed the appraised
value of the real or personal property.
(4) If the investment fiduciary of a system is the state
treasurer, investments described in subsection (1) or (2) may
exceed
5% 10% of the assets of the system.
(5) An investment qualified under this section in which the
underlying asset is an interest in real or personal property
constitutes an investment under this section for the purpose of
meeting the asset limitations contained in this act. This
subsection applies even though the investment may be qualified
elsewhere in this act. Notwithstanding this subsection, an
investment fiduciary may designate a real estate investment trust
which satisfies the requirements of section 14(2) as an investment
qualified under this section or as an investment in stock under
section 14.
Sec. 19a. (1) If the investment fiduciary is the state
treasurer, investments in private equity shall not be more than 30%
of the system's total assets. If the investment fiduciary is not
the state treasurer and the system has assets of $1,000,000,000.00
or more, investments in private equity shall not be more than 10%
of the system's total assets. An investment fiduciary described in
this subsection may invest not more than an additional 5% of the
system's assets in Michigan private equity only.
(2) An investment fiduciary of a system that has assets of
$250,000,000.00 or more but less than $1,000,000,000.00 shall not
invest more than 5% of the system's assets in Michigan private
equity. An investment fiduciary may otherwise invest in private
equity under section 20d.
Sec. 20c. (1) A financial institution, a trust company, a
management company qualified under section 15, or any affiliate of
a person described in this section if that affiliate qualifies as
an
investment fiduciary under section 13(8)(a), 13(11), retained
to
act as an investment fiduciary may invest the assets of a system in
any collective investment fund, common trust fund, or pooled fund
that is established and maintained for investment of those assets
by
the financial institution, trust company, or management company
under federal or state statutes or rules or regulations or an
applicable foreign law. The investment fiduciary of the collective
investment fund, common trust fund, or pooled fund shall be a
financial institution, a trust company, a management company
qualified under section 13(11)(a), or an affiliate of 1 of these
entities if that affiliate qualifies as an investment fiduciary
under section 13(11)(a). The collective investment fund, common
trust fund, or pooled fund may be established as a limited
partnership, corporation, limited liability company, trust, or
other organizational entity for which liability of any investor
does not exceed the amount of the investment under the laws of the
United States or the laws of the state, district, territory, or
foreign country that applied to the organization of the collective
investment fund, common trust fund, or pooled fund. A pool in which
the state treasurer has administrative or investment authority and
the investment pools of the municipal employees retirement system
and retirement board created under the municipal employees
retirement act of 1984, 1984 PA 427, MCL 38.1501 to 38.1555, are
not pooled funds for purposes of this section. An investment in a
collective
investment fund, common trust fund, or pooled fund shall
be
is considered an investment in the underlying assets of
that
fund for all purposes under this act.
(2) As used in this section, "financial institution" means a
state or nationally chartered bank or a state or federally
chartered savings and loan association, savings bank, or credit
union whose deposits are insured by an agency of the United States
government
and which that maintains a principal office or branch
office located in this state under the laws of this state or the
United States.
Sec. 20d. (1) An investment fiduciary of a system having
assets
of less than $250,000,000.00 may invest not more than 5% 15%
of the system's assets in investments not otherwise qualified under
this act, except as qualified in section 19a, whether the
investments are similar or dissimilar to those specified in this
act.
(2) An investment fiduciary of a system having assets of
$250,000,000.00 or more but less than $1,000,000,000.00 may invest
not
more than 10% 20% of the system's assets in investments
described in subsection (1).
(3) An investment fiduciary of a system having assets of
$1,000,000,000.00
or more may invest not more than 15% 25% of the
system's assets in investments described in subsection (1).
(4) An investment fiduciary of a system who is the state
treasurer
may invest not more than 20% 30%
of the system's assets
in investments described in subsection (1).
(5) If an investment described in subsection (1) is
subsequently determined to be permitted under another section of
this act, then the investment shall no longer be included under
this section.
(6) This section shall not be used to exceed a percentage of
total assets limitation for an investment provided in any other
section of this act.
Sec. 20h. (1) In addition to the provisions of this act, a
system is subject to the applicable accounting, auditing, and
reporting requirements contained in the following acts and parts of
acts:
(a) 1919 PA 71, MCL 21.41 to 21.55.
(b) The uniform budgeting and accounting act, 1968 PA 2, MCL
141.121
141.421 to 141.440a.
(c) Section 91 of the executive organization act of 1965, 1965
PA 380, MCL 16.191.
(2) A system shall retain its financial records for a minimum
period of 6 years from the date of the creation of the record
unless state or federal law requires a longer retention period. As
used in this subsection, "financial records" includes, but is not
limited to, records pertaining to expenditures for professional
training and education, including travel expenditures, by or on
behalf of system board members that are paid by the system.
(3) Except as otherwise provided in this subsection,
information regarding the calculation of actual or estimated
retirement benefits for members of the system is exempt from
disclosure by the system or the political subdivision sponsoring
the system pursuant to section 13(1)(d) of the freedom of
information act, 1976 PA 442, MCL 15.243. Upon a majority vote of
the governing body of the political subdivision sponsoring the
system, the system shall provide the designated representative of
the political subdivision with a reasonable opportunity to inspect,
copy, or receive copies of all information regarding the
calculation of actual or estimated retirement benefits for members
of the system. The system may require that information provided by
the system under this subsection be provided only upon a promise of
confidentiality by the political subdivision sponsoring the system.
A system may make reasonable rules to ensure the confidentiality of
records exempt from disclosure under applicable state and federal
law. The system may charge a fee under this subsection in
accordance with section 4 of the freedom of information act, 1976
PA 442, MCL 15.234. All fees and expenses incurred by the political
subdivision sponsoring the system that are related to this
subsection shall be borne by the political subdivision and shall
not be deducted from or offset against the political subdivision's
required pension contributions to the system.
(4) (2)
Except as otherwise provided in this subsection, (4),
a system shall have an annual actuarial valuation with assets
valued
on a market-related basis. A system shall prepare and issue
a
summary annual report. The system shall make the summary annual
report
available to the plan participants and beneficiaries and the
citizens
of the political subdivision sponsoring the system. The
summary
annual report shall include all of the following
information:
(a)
The name of the system.
(b)
The names of the system's investment fiduciaries.
(c)
The system's assets and liabilities.
(d)
The system's funded ratio.
(e)
The system's investment performance.
(f)
The system's expenses.The
actuarial present value of total
projected benefits shall include all pension benefits to be
provided by the system to members or beneficiaries pursuant to the
terms of the system and any additional statutory or contractual
agreements to provide pension benefits through the system that are
in force at the actuarial valuation date, including, but not
limited to, service credits purchased by members, deferred
retirement option plans, early retirement programs, and
postretirement adjustment programs. A system that has assets of
less than $20,000,000.00 is only required to have an actuarial
valuation as required under this subsection done every other year.
(5) (3)
A system shall provide a
supplemental actuarial
analysis before adoption of pension benefit changes. System assets
shall not be used for any actuarial expenses related to the
supplemental actuarial analysis under this subsection. The
supplemental actuarial analysis shall be provided by the system's
actuary and shall include an analysis of the long-term costs
associated with any proposed pension benefit change. The
supplemental actuarial analysis shall be provided to the board of
the particular system and to the decision-making body that will
approve the proposed pension benefit change at least 7 days before
the proposed pension benefit change is adopted. For purposes of
this subsection, "proposed pension benefit change" means a proposal
to change the amount of pension benefits received by persons
entitled
to pension benefits under a the
system. Proposed pension
benefit change does not include a proposed change to a health care
plan or health benefits.
(4)
A system that has assets of less than $20,000,000.00 is
only
required to have the actuarial valuation required under
subsection
(2) done every other year.
(6) The system shall make the summary annual report created
under section 13 available to the plan participants and
beneficiaries and the citizens of the political subdivision
sponsoring the system. If the system has a website, the system
shall publish the summary annual report on the website. If the
system does not have a website, the political subdivision
sponsoring the system shall publish the summary annual report on a
website that the political subdivision has created or may create.
Sec. 20k. (1) Notwithstanding a percentage of total assets
limitation for an investment provided in any other section of this
act, an investment fiduciary who is the state treasurer or the
investment fiduciary of a system that has assets of
$2,000,000,000.00
or more may invest not more than 20%
30% of a
system's
assets in foreign global securities. An
investment
fiduciary of a system that has assets of less than
$2,000,000,000.00 and who is not the state treasurer may invest not
more than 20% of a system's assets in global securities. Except as
otherwise provided in this act, an investment fiduciary shall not
do any of the following:
(a)
Invest in more than 5% of the outstanding foreign global
securities of any 1 issuer.
(b)
Invest more than 5% of a system's assets in the foreign
global securities of any 1 issuer.
(2)
Investments in foreign global
securities under this
section shall be made only by investment fiduciaries described in
section
13(8) 13(11) who have demonstrated expertise in investments
of that type.
Sec. 20m. The governing board vested with the general
administration, management, and operation of a system or other
decision-making body that is responsible for implementation and
supervision of any system shall confirm in the annual actuarial
valuation required under section 20h and the summary annual report
required
under section 20h(2) 13 that each plan system under this
act provides for the payment of the required employer contribution
as provided in this section and shall confirm in the summary annual
report that the system has received the required employer
contribution for the year covered in the summary annual report. The
required employer contribution is the actuarially determined
contribution amount. An annual required employer contribution in a
plan
system under this act shall consist of a current service
cost
payment and a payment of at least the annual accrued amortized
interest on any unfunded actuarial liability and the payment of the
annual accrued amortized portion of the unfunded principal
liability. For fiscal years that begin before January 1, 2006, the
required employer contribution shall not be determined using an
amortization period greater than 40 years. Except as otherwise
provided in this section, for fiscal years that begin after
December 31, 2005, the required employer contribution shall not be
determined using an amortization period greater than 30 years. For
the
Tier 1 retirement plan under the state employees employees'
retirement system, created under the state employees' retirement
act, 1943 PA 240, MCL 38.1 to 38.69; the Michigan public school
employees
employees' retirement system , created under the public
school employees retirement act of 1979, 1980 PA 300, MCL 38.1301
to 38.1437; and the Michigan state police retirement system created
under the state police retirement act of 1986, 1986 PA 182, MCL
38.1601 to 38.1648, only, for the fiscal year beginning October 1,
2006, the contribution for the unfunded actuarial accrued liability
Senate Bill No. 797 as amended May 29, 2012
shall be equal to the product of the assumed real rate of
investment return times the unfunded actuarial accrued liability.
In a plan year, any current service cost payment may be offset by a
credit for amortization of accrued assets, if any, in excess of
actuarial accrued liability. A required employer contribution for a
plan
system administered under this act shall allocate the
actuarial present value of future plan benefits between the current
service costs to be paid in the future and the actuarial accrued
liability. The governing board vested with the general
administration, management, and operation of a system or other
decision-making body that is responsible for implementation and
supervision of a system shall act upon the recommendation of an
actuary and the board and the actuary shall take into account the
standards of practice of the actuarial standards board of the
American academy of actuaries in making the determination of the
required employer contribution.
Sec. 21. (1) Subject to this section, the governing board
vested with the general administration, management, and operation
of a system or other decision-making body that is responsible for
implementation and supervision of a system may remove a member of
the board or body as provided in subsection (2) by <<ANY>> of the
following:
(a) A unanimous vote of all of the members of the board or
body, other than the member who is the subject of the vote for
removal.
(b) An order of a circuit court with jurisdiction entered in
an appropriate action authorized by a majority vote of the members
Senate Bill No. 797 as amended May 29, 2012
of the board or body.
<<(c) The process for the removal of a member of the board
or body that is contained in the system's plan provisions if that
process is less restrictive than either process provided for in
subdivision (a) or (b).>>
(2) The governing board vested with the general
administration, management, and operation of a system or other
decision-making body that is responsible for implementation and
supervision of a system shall give notice and hold a hearing on the
removal of a member of that board or body for any of the following
reasons:
(a) For an elected member of the board or body, upon receipt
of a petition requesting the removal of the member, which petition
is signed by 2/3 of the individuals eligible to vote in the
election of the member of the board or body.
(b) The member is legally incapacitated from executing his or
her duties as a member of the board or body and neglects to perform
those duties.
(c) The member has committed a material breach of the system
provisions or system policies or procedures and the removal of the
member is in the interests of the system or the interest of its
participants or participants' beneficiaries.
(d) The member is convicted of a violation of law and the
removal of the member is in the interests of the system or the
interest of its participants or participants' beneficiaries.
(3) Upon the removal of a member of a board or body under this
section before expiration of the member's term, a new successor
member shall fill the vacancy as follows:
(a) For an elected member of the board or body, by election in
the same manner as the removed member for the remainder of that
term of office.
(b) For an appointed member of the board or body, by
appointment by the appointing authority of the removed member for
the remainder of that term of office.
(c) For an ex officio member serving by virtue of his or her
office, by appointment by the governing body of the political
subdivision sponsoring the system until the time that a new
individual is elected or appointed to the office from which the
removed member served as a member.
(4) An individual who is removed from office as a member of a
board or body under this section may appeal the removal to the
circuit court with jurisdiction if the removal is by the board or
body or, if the removal is by the circuit court, to the appropriate
court with jurisdiction. A successor member of a board or body may
be elected or appointed during the pendency of an appeal of a
removed member under this subsection until the appeal is withdrawn
or there is a final judgment in the matter.
(5) If, upon an appeal under subsection (4), the court finds
that the petition for removal of the member was filed in bad faith
and that removal is contrary to the interests of the system or the
interest of its participants or participants' beneficiaries, the
court may order that the individuals seeking the removal of the
member pay all or a portion of the costs of the proceedings,
including reasonable attorney fees.
