HB 303: "An Act relating to the duties of the Alaska Retirement Management Board; relating to the duties of the Board of Trustees of the Alaska Permanent Fund Corporation; and providing for an effective date."
00 HOUSE BILL NO. 303 01 "An Act relating to the duties of the Alaska Retirement Management Board; relating to 02 the duties of the Board of Trustees of the Alaska Permanent Fund Corporation; and 03 providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 37.10.220(a) is amended to read: 06 (a) The board shall 07 (1) hold regular and special meetings at the call of the chair or of at 08 least five members; meetings are open to the public, and the board shall keep a full 09 record of all its proceedings; 10 (2) after reviewing recommendations from the Department of 11 Revenue, adopt investment policies for each of the funds entrusted to the board; 12 (3) determine the appropriate investment objectives for the defined 13 benefit plans established under the teachers' retirement system under AS 14.25 and the 14 public employees' retirement system under AS 39.35;
01 (4) assist in prescribing the policies for the proper operation of the 02 systems and take other actions necessary to carry out the intent and purpose of the 03 systems in accordance with AS 37.10.210 - 37.10.390; 04 (5) provide a range of investment options and establish the rules by 05 which participants can direct their investments among those options with respect to 06 accounts established under 07 (A) AS 14.25.340 - 14.25.350 (teachers' retirement system 08 defined contribution individual accounts); 09 (B) AS 39.30.150 - 39.30.180 (State of Alaska Supplementary 10 Annuity Plan); 11 (C) AS 39.35.730 - 39.35.750 (public employees' retirement 12 system defined contribution individual accounts); and 13 (D) AS 39.45.010 - 39.45.060 (public employees' deferred 14 compensation program); 15 (6) establish the rate of interest that shall be annually credited to each 16 member's individual contribution account in accordance with AS 14.25.145 and 17 AS 39.35.100 and the rate of interest that shall be annually credited to each member's 18 account in the health reimbursement arrangement plan under AS 39.30.300 - 19 39.30.495; the rate of interest shall be adopted on the basis of the probable effective 20 rate of interest on a long-term basis, and the rate may be changed from time to time; 21 (7) adopt a contribution surcharge as necessary under AS 39.35.160(c); 22 (8) coordinate with the retirement system administrator to have an 23 annual actuarial valuation of each retirement system prepared to determine system 24 assets, accrued liabilities, and funding ratios and to certify to the appropriate 25 budgetary authority of each employer in the system 26 (A) an appropriate contribution rate for normal costs; and 27 (B) an appropriate contribution rate for liquidating any past 28 service liability; in this subparagraph, the appropriate contribution rate for 29 liquidating the past service liability of the defined benefit retirement plan under 30 AS 14.25.009 - 14.25.220 or the past service liability of the defined benefit 31 retirement plan under AS 39.35.095 - 39.35.680 must be determined by a level
01 percent of pay method based on amortization of the past service liability for a 02 closed term of 25 years; 03 (9) review actuarial assumptions prepared and certified by a member 04 of the American Academy of Actuaries and conduct experience analyses of the 05 retirement systems not less than once every four years, except for health cost 06 assumptions, which shall be reviewed annually; the results of all actuarial assumptions 07 prepared under this paragraph shall be reviewed and certified by a second member of 08 the American Academy of Actuaries before presentation to the board; 09 (10) contract for an independent audit of the state's actuary not less 10 than once every four years; 11 (11) contract for an independent audit of the state's performance 12 consultant not less than once every four years; 13 (12) obtain an external performance review to evaluate the investment 14 policies of each fund entrusted to the board and report the results of the review to the 15 appropriate fund fiduciary; 16 (13) by the first day of each regular legislative session, report to the 17 governor, the legislature, and the individual employers participating in the state's 18 retirement systems on the financial condition of the systems in regard to 19 (A) the valuation of trust fund assets and liabilities; 20 (B) current investment policies adopted by the board; 21 (C) a summary of assets held in trust listed by the categories of 22 investment; 23 (D) the income and expenditures for the previous fiscal year; 24 (E) the return projections for the next calendar year; 25 (F) one-year, three-year, five-year, and 10-year investment 26 performance for each of the funds entrusted to the board; and 27 (G) other statistical data necessary for a proper understanding 28 of the financial status of the systems; 29 (14) submit quarterly updates of the investment performance reports to 30 the Legislative Budget and Audit Committee; 31 (15) develop an annual operating budget; [AND]
01 (16) administer pension forfeitures required under AS 37.10.310 using 02 the procedures of AS 44.62 (Administrative Procedure Act); 03 (17) broadcast each board meeting live and make a recording of 04 the broadcast publicly available on the board's Internet website within seven 05 days after the meeting and for at least 10 years after the date of the meeting; 06 (18) publish on the board's Internet website the report provided 07 by a firm or service provider authorized to vote shares under AS 37.10.225(d), 08 and, before a proxy vote, the expected vote of shares. 09 * Sec. 2. AS 37.10 is amended by adding a new section to read: 10 Sec. 37.10.225. Defined benefit pension plans. (a) In exercising its duties 11 with respect to a defined benefit retirement plan, the board shall 12 (1) act solely in the pecuniary interest of plan members and 13 beneficiaries, provide pecuniary benefits to members and beneficiaries, and defray 14 reasonable administrative expenses; 15 (2) apply the care, skill, prudence, and diligence under the 16 circumstances then prevailing that a prudent person in a like position who is familiar 17 with those matters would exercise in the conduct of an enterprise of like character and 18 with like aims; 19 (3) maintain diversification among investments to minimize risk of 20 large losses unless, under the circumstances, it is clearly prudent not to do so; 21 (4) vote all shares held directly or indirectly by or on behalf of the plan 22 solely in the pecuniary interest of members. 23 (b) In exercising its duties with respect to a defined benefit retirement plan, 24 the board may not 25 (1) rely on nonpecuniary factors when 26 (A) evaluating an investment; or 27 (B) evaluating or exercising a right appurtenant to an 28 investment; 29 (2) promote a nonpecuniary benefit or goal; 30 (3) rely on an environmental, social, corporate governance, or other 31 similar consideration as a pecuniary factor, unless
01 (A) the consideration presents economic risk or opportunity 02 that a qualified investment professional would consider material under 03 generally accepted investment theories; 04 (B) the board relies on a prudent assessment of risk and return 05 when weighing the consideration; 06 (C) the board examines the level of diversification, degree of 07 liquidity, and the potential risk and return of the consideration compared with 08 available alternative investments that would play a similar role in the plan 09 portfolio, including an evaluation of whether the plan can achieve greater 10 returns through investments that rank poorly on the consideration; 11 (4) vote shares held directly or indirectly by or on behalf of the plan to 12 further nonpecuniary environmental, social, political, ideological, or other benefits or 13 goals. 14 (c) Each trustee shall agree in writing to act based only on pecuniary factors 15 when exercising duties related to a defined benefit retirement plan, including when 16 voting shares or proxies. 17 (d) The board may follow the recommendations of or delegate authority to 18 vote shares held directly or indirectly or on behalf of the plan to a proxy advisory firm 19 or similar service provider only if the firm or service provider agrees in writing to 20 follow proxy voting guidelines consistent with the board's obligation to vote shares 21 held directly or indirectly by or on behalf of the plan solely in the pecuniary interest of 22 members. A firm or service provider authorized to vote shares under this subsection 23 shall report an expected vote to the board not later than 14 days before voting shares, 24 tabulate total votes annually, and provide an annual vote report to the board. The 25 report must include a vote caption, the plan's vote, the recommendation of company 26 management, and the firm or service provider's recommendation if any. 27 (e) In this section, 28 (1) "material," when used to qualify a risk or return, means a risk or 29 return in which there is a substantial likelihood that a reasonable investor would attach 30 importance when evaluating the potential financial risks or returns of an existing or 31 prospective investment or when exercising or declining to exercise any right
01 appurtenant to securities; "material" does not include 02 (A) furthering nonpecuniary, environmental, social, political, 03 ideological, or other goals or objectives; 04 (B) a portion of a risk or return that primarily relates to events 05 that involve a high degree of uncertainty regarding their occurrence and are 06 systemic, general, or not investment-specific in nature; 07 (2) "nonpecuniary" includes an action taken or factor considered by the 08 board with a purpose to further environmental, social, political, or ideological goals; 09 (3) "pecuniary" means materially affecting the financial risk or 10 financial return of an investment based on appropriate investment horizons consistent 11 with plan investment objectives and funding policy. 12 * Sec. 3. AS 37.10 is amended by adding a new section to read: 13 Sec. 37.10.320. Investment relationship report. (a) The board shall, not later 14 than November 1 of each year, submit a report to the Department of Revenue 15 describing investment relationships maintained by each retirement system. 16 (b) The report must include 17 (1) for each limited partnership that the system is affiliated with, 18 (A) the name of the limited partnership; 19 (B) the date the system first affiliated with the limited 20 partnership; 21 (C) the amount of capital the system committed and 22 contributed to the limited partnership and the amount that the limited 23 partnership distributed; 24 (D) costs or fees the system paid or owed the limited 25 partnership during the previous fiscal year; 26 (E) the annualized rate of return on capital invested in the 27 limited partnership; 28 (F) an evaluation of the partnership performance against a 29 passive benchmark. 30 (2) for each investment manager and consulting firm that the system 31 contracts with for investment management services,
01 (A) the net value of the assets managed under the contract; 02 (B) the nature of services provided; 03 (C) gross fiscal year performance; 04 (D) net fiscal year performance; 05 (E) management fees, performance fees, carried interest fees, 06 or any other fees charged to the system. 07 * Sec. 4. AS 37.13.050 is amended by adding a new subsection to read: 08 (d) A member shall agree in writing to comply with the requirement under 09 AS 37.13.120 to act based only on pecuniary factors when engaging with an 10 investment adviser representative as defined in AS 45.56.900 and when voting shares 11 or proxies. 12 * Sec. 5. AS 37.13 is amended by adding a new section to read: 13 Sec. 37.13.075. Meetings. In addition to the requirements of AS 44.62.310 - 14 44.62.319 (Open Meetings Act), the board shall keep a full record of all of its 15 proceedings, and on the board's Internet website broadcast live audio and video of 16 each meeting of the board, archive meeting audio and video for not less than 10 years, 17 and upload a link to archived video and audio not later than seven days after a 18 meeting. 19 * Sec. 6. AS 37.13.120(a) is amended to read: 20 (a) The board shall adopt regulations specifically designating the types of 21 income-producing investments eligible for investment of fund assets. The board shall 22 act solely in the pecuniary interest of the fund, provide pecuniary benefits to the 23 fund, and defray reasonable administrative expenses. When adopting regulations 24 authorized by this section or managing and investing fund assets, the corporation 25 shall apply the care, skill, prudence, and diligence under the circumstances then 26 prevailing that a prudent person in a like position who is familiar with those 27 matters would exercise in the conduct of an enterprise of like character and with 28 like aims [PRUDENT-INVESTOR RULE SHALL BE APPLIED BY THE 29 CORPORATION. THE PRUDENT-INVESTOR RULE AS APPLIED TO 30 INVESTMENT ACTIVITY OF THE FUND MEANS THAT THE CORPORATION 31 SHALL EXERCISE THE JUDGMENT AND CARE UNDER THE
01 CIRCUMSTANCES THEN PREVAILING THAT AN INSTITUTIONAL 02 INVESTOR OF ORDINARY PRUDENCE, DISCRETION, AND INTELLIGENCE 03 EXERCISES IN THE DESIGNATION AND MANAGEMENT OF LARGE 04 INVESTMENTS ENTRUSTED TO IT, NOT IN REGARD TO SPECULATION, 05 BUT IN REGARD TO THE PERMANENT DISPOSITION OF FUNDS, 06 CONSIDERING PRESERVATION OF THE PURCHASING POWER OF THE 07 FUND OVER TIME WHILE MAXIMIZING THE EXPECTED TOTAL RETURN 08 FROM BOTH INCOME AND THE APPRECIATION OF CAPITAL]. 09 * Sec. 7. AS 37.13.120(c) is amended to read: 10 (c) The board shall maintain [A REASONABLE] diversification among 11 investments to minimize risk of large losses unless, under the circumstances, it is 12 clearly prudent not to do so. The board shall invest the assets of the fund in in-state 13 investments to the extent that in-state investments are available and if the in-state 14 investments 15 (1) have a risk level and expected return comparable to alternate 16 investment opportunities; and 17 (2) are eligible for investment of fund assets under (a) of this section. 18 * Sec. 8. AS 37.13.120 is amended by adding new subsections to read: 19 (f) The board shall vote all shares held directly or indirectly by or on behalf of 20 the fund solely in the pecuniary interest of the fund. 21 (g) The board may not 22 (1) rely on nonpecuniary factors when 23 (A) evaluating an investment; or 24 (B) evaluating or exercising a right appurtenant to an 25 investment; 26 (2) promote nonpecuniary benefits or goals; 27 (3) rely on an environmental, social, corporate governance, or other 28 similar consideration as a pecuniary factor, unless 29 (A) the consideration presents economic risk or opportunity 30 that a qualified investment professional would consider material under 31 generally accepted investment theories;
01 (B) the board relies on a prudent assessment of risk and return 02 when weighing the consideration; 03 (C) the board examines the level of diversification, degree of 04 liquidity, and the potential risk and return of the consideration compared with 05 available alternative investments that would play a similar role in the fund 06 portfolio, including an evaluation of whether the fund can achieve greater 07 returns through investments that rank poorly on the consideration; 08 (4) vote shares held directly or indirectly by or on behalf of the fund to 09 further nonpecuniary environmental, social, political, ideological, or other benefits or 10 goals; 11 (5) follow the recommendations of or delegate authority to vote shares 12 held directly or indirectly or on behalf of the fund a proxy advisory firm or similar 13 service provider unless the firm or service provider agrees in writing to follow proxy 14 voting guidelines consistent with the board's obligation to vote shares held directly or 15 indirectly by or on behalf of the fund solely in the pecuniary interest of the fund. 16 (h) The board may follow the recommendations of or delegate authority to 17 vote shares held directly or indirectly or on behalf of the fund to a proxy advisory firm 18 or similar service provider only if the firm or service provider agrees in writing to 19 follow proxy voting guidelines consistent with the board's obligation to vote shares 20 held directly or indirectly by or on behalf of the fund solely in the pecuniary interest of 21 the fund. A firm or service provider authorized to vote shares under this subsection 22 shall report an expected vote to the board not later than 14 days before voting shares, 23 tabulate total votes annually, and provide an annual vote report to the board. The 24 report must include a vote caption, the fund's vote, the recommendation of company 25 management, and the firm or service provider's recommendation if any. The board 26 shall publish, on the board's Internet website, the reports provided under this 27 subsection and, before a proxy vote, the expected vote of shares. 28 (i) In this section, 29 (1) "material," when used to qualify a risk or return, means a risk or 30 return in which there is a substantial likelihood that a reasonable investor would attach 31 importance when evaluating the potential financial risks or returns of an existing or
01 prospective investment or when exercising or declining to exercise any right 02 appurtenant to securities; "material" does not include 03 (A) furthering nonpecuniary, environmental, social, political, 04 ideological, or other goals or objectives; 05 (B) a portion of a risk or return that primarily relates to events 06 that involve a high degree of uncertainty regarding their occurrence and are 07 systemic, general, or not investment-specific in nature; 08 (2) "nonpecuniary" includes an action taken or factor considered by the 09 board with a purpose to further environmental, social, political, or ideological goals; 10 (3) "pecuniary" means materially affecting the financial risk or 11 financial return of an investment based on appropriate investment horizons consistent 12 with fund investment objectives and funding policy. 13 * Sec. 9. AS 37.13.170 is amended by adding new subsections to read: 14 (b) The board shall, not later than November 1 of each year, submit a report to 15 the Department of Revenue describing investment relationships maintained by the 16 fund. 17 (c) The report under (b) of this section must include 18 (1) for each limited partnership that the fund is affiliated with, 19 (A) the name of the limited partnership; 20 (B) the date the fund first affiliated with the limited 21 partnership; 22 (C) the amount of capital the fund committed and contributed 23 to the limited partnership and the amount that the limited partnership 24 distributed; 25 (D) costs or fees the fund paid or owed the limited partnership 26 during the previous fiscal year; 27 (E) the annualized rate of return on capital investments in the 28 limited partnership; 29 (F) an evaluation of the partnership performance against 30 comparable passive benchmark; 31 (2) for each investment manager and consulting firm that the fund
01 contracts with for investment management services, 02 (A) the net value of the assets managed under the contract; 03 (B) the nature of services provided; 04 (C) gross fiscal year performance; 05 (D) net fiscal year performance; 06 (E) management fees, performance fees, carried interest fees, 07 or any other fees charged to the fund. 08 * Sec. 10. This Act takes effect immediately under AS 01.10.070(c).