Current Status Bill Number:
4619Type of Legislation: General Bill GBIntroducing Body: HouseIntroduced Date: 19980211Primary Sponsor: WilkinsAll Sponsors: Wilkins, D. Smith, Lanford, Haskins, Harrell, Campsen, Whipper, Kirsh, Mason, Meacham, Young-Brickell, Miller, Wilder, Koon, Littlejohn, Bauer, Easterday, Sandifer, Seithel, Hamilton, T. Brown, Hinson, Delleney, Dantzler, Woodrum, Jordan, Moody-Lawrence, McGee, McKay, Quinn, Simrill, Altman, Felder, Sharpe, Edge, Clyburn, Klauber, Inabinett, Battle, Hawkins, Lloyd, Harrison, Riser, Scott, Knotts, Robinson, BowersDrafted Document Number: jic\5211htc.98Residing Body: HouseCurrent Committee: Ways and Means Committee 30 HWMSubject: Retirement Systems Investment Safeguards Act, equity securities, Retirement Systems and Pensions
Body Date Action Description Com Leg Involved ______ ________ _______________________________________ _______ ____________ House 19980326 Recommitted to Committee 30 HWM House 19980326 Co-Sponsor added (Rule 5.2) by Rep. Bowers House 19980325 Debate adjourned until Thursday, 19980326 House 19980325 Co-Sponsor added (Rule 5.2) by Rep. Robinson House 19980324 Co-Sponsor added (Rule 5.2) by Rep. Knotts House 19980319 Committee report: Favorable with 30 HWM amendment House 19980211 Introduced, read first time, 30 HWM referred to CommitteeView additional legislative information at the LPITS web site.
March 19, 1998
Introduced by Reps. Wilkins, D. Smith, Lanford, Haskins, Harrell, Campsen, Whipper, Kirsh, Mason, Meacham, Young-Brickell, Miller, Wilder, Koon, Littlejohn, Bauer, Easterday, Sandifer, Seithel, Hamilton, T. Brown, Hinson, Delleney, Dantzler, Woodrum, Jordan, Moody-Lawrence, McGee, McKay, Quinn, Simrill, Altman, Felder, Sharpe, Edge, Clyburn, Klauber, Inabinett, Battle, Hawkins, Lloyd, Harrison, Riser and Scott
S. Printed 3/19/98--H.
Read the first time February 11, 1998.
To whom was referred a Bill (H. 4619), to amend Title 9, Code of Laws of South Carolina, 1976, relating to the various state retirement systems, etc., respectfully
That they have duly and carefully considered the same, and recommend that the same do pass with amendment:
Amend the bill, as and if amended, Section 9-14-80, as contained in SECTION 2, beginning on page 6, by striking items (6) and (7) and inserting:
/(6) procedures and policies for selecting, monitoring, compensating, and terminating investment consultants, equity investment managers, and other necessary professional service providers. Preference must be given to brokerage firms domiciled in this State for conducting brokerage transactions if these brokerage firms are able to meet the test of equal service and best execution in the purchase and sale of authorized investments; and
(7) methods for managing the costs of the investment activities, including a provision that annual costs for equity investing must not exceed one percent of the amount invested in equity securities./
Renumber items to conform.
Amend title to conform.
HENRY E. BROWN, JR., for Committee.
ESTIMATED FISCAL IMPACT ON GENERAL FUND EXPENDITURES IS:
Section 9-14-110 of the bill states that the costs of administering and operating the investment programs for the retirement systems, including the expenses of the panel, must be paid from the investment earnings of the several retirement systems. Therefore, there will not be any additional cost to the General Fund of the State if this bill is passed.
At this time the Budget and Control Board has not completed the details to establish the operating procedures for carrying out its responsibilities as trustees of the several retirement systems as identified in the bill. Costs would include the investment management fees and annual operating funds for the State Retirement Systems Investment Panel.
The State Treasurer's Office reports that costs for providing staff to the panel and preparing the various reports are included in the costs related to investment fees as noted below.
Section 9-14-90 of the bill states that no more than forty percent of the market value of the assets of a retirement system may be invested in equity securities. According to the Treasurer's Office the following could be expected for each ten percent of the trust funds invested in equities:
10% of System's assets, approximately
$15 billion, invested in equities1.5 Billion
Additional earnings from equity investments*$37.5 Million
Costs related to investment fees
($1.5 Billion X .15%) $2.25 Million
Estimated new earnings to SCRS from equities$35.25 Million
*The additional earnings represent an additional return of 2.5% as based on the comparison of the rate of return on equity investments to fixed-income investments.
Frank A. Rainwater
Office of State Budget
TO AMEND TITLE 9, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE VARIOUS STATE RETIREMENT SYSTEMS, BY ADDING CHAPTER 14, THE STATE RETIREMENT SYSTEMS INVESTMENT SAFEGUARDS ACT, SO AS TO AUTHORIZE THE INVESTMENT AND REINVESTMENT OF FUNDS OF THE VARIOUS STATE RETIREMENT SYSTEMS IN EQUITY SECURITIES OF AMERICAN CORPORATIONS THAT ARE REGISTERED ON A NATIONAL SECURITIES EXCHANGE OR QUOTED THROUGH THE NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATIC QUOTATIONS SYSTEMS, TO LIMIT TOTAL EQUITY INVESTMENTS TO NO MORE THAN FORTY PERCENT OF THE MARKET VALUE OF THE ASSETS OF A RETIREMENT SYSTEM, TO ESTABLISH THE STATE RETIREMENT SYSTEMS INVESTMENT PANEL AND PROVIDE FOR ITS MEMBERSHIP, POWERS, AND DUTIES, INCLUDING THE DELEGATION OF ITS FUNCTIONS OR THOSE OF THE STATE BUDGET AND CONTROL BOARD, TO PROVIDE FOR THE DEVELOPMENT AND IMPLEMENTATION OF AN ANNUAL INVESTMENT PLAN AND THE DUTIES OF THE STATE BUDGET AND CONTROL BOARD AND THE STATE RETIREMENT SYSTEMS INVESTMENT PANEL IN DEVELOPING AND IMPLEMENTING THE PLAN, TO PROVIDE REPORTING AND DISCLOSURE REQUIREMENTS, TO PRESCRIBE THE DUTIES AND RESPONSIBILITIES OF FIDUCIARIES WITH RESPECT TO THE RETIREMENT SYSTEM, INCLUDING MATTERS RELATING TO CONFLICTS OF INTEREST, EDUCATION REQUIREMENTS, AND INSURANCE AND PROVIDE FOR CIRCUMSTANCES IN WHICH THE FREEDOM OF INFORMATION ACT DOES NOT APPLY WITH RESPECT TO DELIBERATIONS ON THE ANNUAL INVESTMENT PLAN; TO AMEND SECTION 9-1-1310, RELATING TO THE STATE BUDGET AND CONTROL BOARD AS TRUSTEE OF THE STATE RETIREMENT SYSTEM AND AUTHORIZED INVESTMENTS, SO AS SPECIFICALLY TO AUTHORIZE THE FUNDS OF THE RETIREMENT SYSTEM TO BE INVESTED IN EQUITY SECURITIES, AND TO PROVIDE FOR THE SEVERABILITY OF THIS ACT IF ANY PART IS HELD INVALID.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The General Assembly finds that the implementation of the amendment to Article X, Section 16 of the Constitution of this State authorizing the investment and reinvestment of the funds of various state-operated retirement systems in equity securities requires the enactment of implementing legislation. By the enactment of Chapter 14, Title 9 of the 1976 Code, the "State Retirement Systems Investment Safeguards Act", the provisions of the amendment and related changes are carried into effect with respect to state-operated retirement systems for which the State Budget and Control Board serves as the trustee.
SECTION 2. Title 9 of the 1976 Code is amended by adding:
Section 9-14-10. This chapter may be cited as the State Retirement Systems Investment Safeguards Act.
Section 9-14-20. This chapter applies to the investment and reinvestment of funds of the South Carolina Retirement System, Retirement System for Judges and Solicitors, Retirement System for Members of the General Assembly, Police Officers Retirement System, and any other retirement system established by the laws of this State for which the State Budget and Control Board serves as the trustee.
Section 9-14-30. As used in this article or chapter, unless a different meaning is plainly required by the context:
(1) 'Assets' means all funds, investments, and similar property of a retirement system.
(2) 'Beneficiary' means a person, other than a participant, who is designated by a participant or by a retirement program to receive a benefit under the program.
(3) 'Board' means the State Budget and Control Board.
(4) 'Business with which he is associated' means a corporation, partnership, proprietorship, firm, enterprise, franchise, association, or organization of which the board or panel member or a related person is a director, officer, owner, employee, agent, or holder of stock.
(5) 'Fiduciary' means a person who:
(a) exercises any authority to invest or manage assets of a retirement system;
(b) provides investment advice for a fee or other direct or indirect compensation with respect to assets of a system or has any authority or responsibility to do so;
(c) is a panel member; or
(d) is a board member or trustee.
(6) 'Participant' means an individual who is or has been an employee enrolled in a retirement program and who is or may become eligible to receive or is currently receiving a benefit under the program. The term does not include an individual who is no longer an employee of an employer as defined by the laws governing the retirement system and who has withdrawn his contributions from the retirement system.
(7) 'Panel' means the State Retirement Systems Investment Panel.
(8) 'Related person' of an individual means:
(a) the individual's spouse or a parent or sibling of the spouse;
(b) the individual's child, sibling, or parent, or the spouse of the individual's child, sibling, or parent;
(c) another individual residing in the same household as the individual;
(d) a trust or estate in which an individual described in (a), (b), or (c) has an interest;
(e) a trust or estate for which the individual has fiduciary responsibilities; or
(f) an incompetent, ward, or minor for whom the individual has fiduciary responsibilities.
(9) 'Retirement program' means a program of rights and obligations which a retirement system establishes or maintains and which, by its express terms or as a result of surrounding circumstances:
(a) provides retirement benefits to qualifying employees and beneficiaries; or
(b) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.
(10) 'Retirement systems' means the South Carolina Retirement System, Retirement System for Judges and Solicitors, Retirement System for Members of the General Assembly, Police Officers Retirement System, and any other retirement system established by the laws of this State for which the State Budget and Control Board serves as the trustee, individually or collectively as is appropriate in the context in which the term is used.
(11) 'Trustee' means the State Budget and Control Board.
Section 9-14-40. (A) The assets of the retirement systems not invested as authorized by Section 11-9-660 may be invested and reinvested in equity securities of any corporation within the United States that is registered on a national securities exchange as provided in the Securities Exchange Act of 1934, or any successor act, or quoted through the National Association of Securities Dealers Automatic Quotations System, or a similar source.
(B) The investment and reinvestment of all assets of the retirement systems must be consistent with the annual investment plan provided for in this chapter.
Section 9-14-50. There is created the State Retirement Systems Investment Panel, consisting of five members, one each appointed by the Governor, State Treasurer, Comptroller General, the chairman of the Ways and Means Committee of the House of Representatives, and the chairman of the Senate Finance Committee. The member appointed by the Governor shall serve as chairman. All members appointed to the panel must possess substantial financial investment experience. No person may be appointed or continue to serve who is an elected or appointed officer or employee of the State or any of its political subdivisions, including school districts. Members shall serve for terms of two years and until their successors are appointed and qualify, but no member may serve beyond the term of the member of the board who appointed him. Vacancies must be filled for the unexpired term in the manner of the original appointment. Members shall serve without compensation, but may receive the mileage, subsistence, and per diem authorized by law for members of state boards, commissions, and committees.
Section 9-14-60. (A) The panel shall meet no later than May first of each year to adopt the proposed annual investment plan for the retirement systems for the next fiscal year. The annual investment plan must be developed by the panel in consultation with the State Treasurer. No later than June first of each year, the panel shall submit the proposed plan to the board. The plan submitted to the board by the panel is considered approved unless the board by a majority vote of its members disapproves or amends the plan before July first. Amendments may be made to the plan by the panel during the fiscal year with the approval of the board.
(B) The panel shall meet at least once during each fiscal year quarter for the purposes of reviewing the performance of investments, assessing compliance with the annual investment plan, and determining whether to recommend amendments to the plan to the board. The panel shall meet at such other times as are set by the panel or the chairman or requested by the board.
(C) The panel or board may discuss, deliberate on, and make decisions on a portion of the annual investment plan or other related financial or investment matters in executive session if disclosure thereof would jeopardize the ability to implement that portion of the plan or achieve investment objectives.
(D) A record of the board, panel, or retirement systems that discloses discussions, deliberations, or decisions on portions of the annual investment plan or other related financial or investment matters is not a public record under Section 30-4-20 to the extent and so long as its disclosure would jeopardize the ability to implement that portion of the plan or achieve investment objectives.
(E) In addition to the other duties contained elsewhere in this chapter, the panel may:
(1) adopt, promulgate, amend, and repeal bylaws, subject to the approval of the board, not inconsistent with this chapter, for the administration of its affairs; and
(2) establish advisory committees to assist and advise the panel.
Section 9-14-70. (A) The board or panel may delegate functions that a prudent trustee or fiduciary acting in a like capacity and familiar with those matters could properly delegate under the circumstances. The board or panel shall exercise reasonable care, skill, and caution in:
(1) selecting an agent;
(2) establishing the scope and terms of the delegation, consistent with the purpose and terms of the annual investment plan; and
(3) periodically reviewing the agent's performance and compliance with the terms of the delegation.
(B) In performing a delegated function, an agent owes a duty to the retirement systems and to its participants and beneficiaries to comply with the terms of the delegation and, if a fiduciary, to comply with the duties imposed by Section 9-14-120.
(C) If the board or panel complies with subsection (A), it is not liable to the retirement systems or to its participants or beneficiaries for the decisions or actions of the agent to whom the function was delegated.
(D) By accepting the delegation of a function from the board or panel, an agent submits to the jurisdiction of the courts of this State.
(E) The board may limit the authority of the panel to delegate functions under this section.
Section 9-14-80. (A) The board shall provide the panel with a statement of actuarial assumptions and general investment objectives. The board shall review the statement annually for the purpose of affirming or changing it and advise the panel of its actions.
(B) The annual investment plan must be consistent with actions taken by the board pursuant to subsection (A) and must include, but is not limited to, the following components:
(1) general operational and investment policies;
(2) investment objectives and performance standards;
(3) investment strategies, which may include indexed or enhanced indexed strategies as the preferred or exclusive strategies for equity investing, and an explanation of the reasons for the selection of each strategy;
(4) industry sector, market sector, issuer, and other allocations of assets that provide diversification in accordance with prudent investment standards, including desired rates of return and acceptable levels of risks for each asset class;
(5) policies and procedures providing flexibility in responding to market contingencies;
(6) procedures and policies for selecting, monitoring, compensating, and terminating investment consultants, equity investment managers, and other necessary professional service providers, including provisions that allocate at least thirty percent of the dollar volume of equity transactions to persons or firms which are registered or licensed to engage in such investment activities in this State and which have an office in this State; and
(7) methods for managing the costs of the investment activities.
(C) In developing the annual investment plan, the panel shall consider among other circumstances:
(1) general economic conditions;
(2) the possible effect of inflation or deflation;
(3) the role that each investment program or activity plays within the overall portfolio of the retirement system;
(4) needs for liquidity, regularity of income, and preservation or appreciation of capital; and
(5) the adequacy of funding for the plan based on reasonable actuarial factors.
(D) In developing the annual investment plan, the panel shall:
(1) diversify the investments of the retirement systems, unless the panel reasonably determines that, because of special circumstances, it is clearly not prudent to do so; and
(2) make a reasonable effort to verify facts relevant to the investment of assets of the retirement systems.
Section 9-14-90. No more than forty percent of the market value of the assets of a retirement system may be invested in equity securities, and any increase during any fiscal year in the proportion of the market value of the assets of a retirement system invested in equity securities may not exceed twenty percent of the market value of the assets of that system. The panel, with the approval of the board, shall develop the methods used to determine compliance with the allocations set forth in this section.
Section 9-14-100. (A) The State Treasurer's Office shall provide staff for the panel and provide investment reports at least quarterly during the fiscal year to the board, panel, the Speaker of the House of Representatives, the President Pro Tempore of the Senate, and other appropriate officials and entities.
(B) In addition to the quarterly reports provided in (A), the State Treasurer shall provide an annual report to the board, panel, the Speaker of the House of Representatives, the President Pro Tempore of the Senate, and other appropriate officials and entities of the investment status of the retirement systems. The report must contain:
(1) a description of any material interest held by any member of the board or panel with respect to the investment and management of assets of the system, or by a related person, in any material transaction with the system within the last three years or proposed to be effected;
(2) a schedule of the rates of return, net of total investment expense, on assets of the system overall and on assets aggregated by category over the most recent one-year, three-year, five-year, and ten-year periods, to the extent available, and the rates of return on appropriate benchmarks for assets of the system overall and for each category over each period;
(3) a schedule of the sum of total investment expense and total general administrative expense for the fiscal year expressed as a percentage of the fair value of assets of the system on the last day of the fiscal year, and an equivalent percentage for the preceding five fiscal years; and
(4) a schedule of all assets held for investment purposes on the last day of the fiscal year aggregated and identified by issuer, borrower, or similar party to the transaction stating, if relevant, the asset's maturity date, rate of interest, par or maturity value, number of shares, cost, and fair value and identifying any asset that is in default or classified as uncollectible.
Section 9-14-110. The costs of administering and operating the investment programs for the retirement systems, including the expenses of the panel, must be paid from the investment earnings of those systems.
Section 9-14-120. (A) A fiduciary shall discharge investment duties with respect to a retirement system:
(1) solely in the interests of the retirement systems, participants, and beneficiaries;
(2) for the exclusive purpose of providing benefits to participants and beneficiaries and paying reasonable expenses of administering the system;
(3) with the care, skill, and caution under the circumstances then existing which a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an activity of like character and purpose;
(4) impartially taking into account any differing interests of participants and beneficiaries;
(5) incurring only costs that are appropriate and reasonable; and
(6) in accordance with a good-faith interpretation of the laws governing the retirement systems.
(B) Compliance by a fiduciary with the provisions of this chapter must be determined in the light of facts and circumstances existing at the time of the fiduciary's decision or action and not by hindsight.
(C) The investment decisions of the panel, board, or a fiduciary with investment responsibility for an entire retirement system portfolio must be evaluated not in isolation but in the context of a retirement system portfolio as a whole and as a part of an overall investment strategy having risks and return objectives reasonably suited to the retirement program.
Section 9-14-130. (A) A board or panel member, any business with which he is associated, or any related person may not directly or indirectly engage in any transactions involving any of the retirement systems, their funds, or investments other than those that a board or panel member is authorized to enter into by virtue of his official capacity on behalf of the retirement systems.
(B) Each panel member shall attend an educational program on fiduciary responsibilities to be conducted annually by the designee of the board.
(C) The provisions of this section are cumulative to, and not in lieu of, any other provisions of law applicable to the panel and its members in the performance of official duties including, but not limited to, Chapter 13 of Title 8.
Section 9-14-140. (A) A fiduciary or any other person who breaches a duty imposed by this chapter, including Section 9-14-130(A), is liable to the retirement systems for any losses resulting from the breach and any profits resulting from the breach or made by the fiduciary through use of assets of the system by the fiduciary. The fiduciary is subject to other equitable or remedial relief as the court considers appropriate, including removal.
(B) An agreement that exonerates a fiduciary from responsibility or liability for a breach of duty under this chapter is void.
(C) The retirement systems may insure the fiduciary, or itself, against liability or losses occurring because of a breach of duty under this chapter.
(D) A fiduciary may insure against personal liability or losses occurring because of a breach of duty under this chapter if the insurance is purchased or provided by the individual fiduciary; provided, however, that a fiduciary who obtains insurance pursuant to this chapter must disclose all terms, conditions, and other information relating to the insurance policy to the retirement systems."
SECTION 3. Section 9-1-1310 of the 1976 Code is amended to read:
"Section 9-1-1310. The Board shall be is the trustee of the funds of the system, and may invest and reinvest such the funds, subject to all the terms, conditions, limitations, and restrictions imposed by Article 7, of Chapter 9 of Title 11, upon the investment of sinking funds of the State, and, subject to like terms, conditions, limitations, and restrictions, may hold, purchase, sell, assign, transfer, and dispose of any of the securities and investments in which any of the funds created herein shall in this chapter have been invested, as well as plus the proceeds of such those investments and any moneys monies belonging to such these funds. Additionally, and without regard to the limitations imposed pursuant to Article 7, Chapter 9, of Title 11, the board may invest and reinvest the funds of the system in equity securities of a corporation within the United States that is registered on a national securities exchange as provided in the Securities Exchange Act, 1934, or a successor act, or quoted through the National Association of Securities Dealers Automatic Quotations System, or a similar service."
SECTION 4. If any provision of this act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this act which can be given effect without the invalid provision or application, and to this end the provisions of this act are severable.
SECTION 5. Notwithstanding the provisions of Chapter 14, Title 9 of the 1976 Code, as added by this act, during the first fiscal year in which the provisions of Chapter 14 are implemented, the State Budget and Control Board shall establish the dates for development, review, and approval of the annual investment plan.
SECTION 6. This act takes effect upon approval by the Governor.