HB 1427

1
A bill to be entitled
2An act relating to the State Board of Administration;
3amending s. 215.44, F.S.; requiring that the board create
4an audit committee for specified purposes; providing for
5membership of the committee; providing requirements for
6members of the committee; prescribing terms for members;
7providing that members are state officers as defined by
8state law; providing duties and powers of the committee;
9requiring that the executive director of the board respond
10in writing and indicate whether action will be taken
11within a specified period after receipt of a
12recommendation from the committee; requiring that a copy
13of the executive director's response be provided to the
14board and the committee; requiring that the committee
15appoint a Chief of Internal Audit; providing powers and
16obligations of the chief; authorizing the board to
17prescribe additional powers and duties to the committee;
18amending s. 215.441, F.S.; requiring that the board
19appoint an executive director; providing requirements for
20appointment as executive director; providing duties of the
21executive director; authorizing the board to set
22additional requirements for appointment; requiring
23affirmation of such appointment by the Investment Advisory
24Council; providing that the executive director is a state
25officer for purposes of certain provisions of state law;
26amending s. 215.442, F.S.; requiring that the executive
27director's quarterly report to the board of trustees of
28the State Board of Administration and the Investment
29Advisory Council contain certain information; amending s.
30215.444, F.S.; increasing the number of members of the
31Investment Advisory Council; requiring that the council
32make certain recommendations; requiring that the council
33approve all new products considered for investment by the
34board; requiring that a specified number of members of the
35council represent specified interests; providing that
36members are state officers for purposes of certain
37provisions of state law; amending s. 215.47, F.S.;
38conforming cross-references; amending s. 215.475, F.S.;
39requiring that the Investment Advisory Council assist in
40the development of the Florida Retirement System Defined
41Benefit Plan Investment Policy Statement; authorizing the
42board's executive director to present recommended IPS
43changes to the Investment Advisory Council for approval;
44deleting provisions requiring the review of recommended
45changes to the statement by the council; creating s.
46215.4754, F.S.; requiring that the board adopt by rule
47standards of conduct for investment advisers and managers;
48providing circumstances under which a contract with an
49investment adviser or manager is voidable; prohibiting an
50Investment Advisory Council member or certain
51organizations or affiliates from contracting with or
52providing services for certain investments for a specified
53period; creating s. 215.4755, F.S.; requiring that an
54investment adviser or manager disclose certain information
55to the board; requiring that an investment adviser or
56manager annually file a statement with the board;
57requiring that the statement contain certain information
58and be filed on or before a specified deadline on a form
59prescribed by the board; requiring that the statement
60cover the preceding calendar year; requiring that an
61investment adviser or manager file a new or amended
62statement under certain circumstances; amending s.
63218.409, F.S.; requiring that the board create a
64participating investor council; providing purposes of the
65council; providing an effective date.
66
67Be It Enacted by the Legislature of the State of Florida:
68
69     Section 1.  Present subsections (3) through (9) of section
70215.44, Florida Statutes, are renumbered as subsections (4)
71through (10), respectively, and a new subsection (3) is added to
72that section to read:
73     215.44  Board of Administration; powers and duties in
74relation to investment of trust funds.--
75     (3)(a)  The board shall create an audit committee to assist
76the board in fulfilling its oversight responsibilities in the
77areas of financial reporting, internal controls and risk
78assessment, audit processes, and compliance with laws and rules.
79The audit committee shall be chaired by the Chief Financial
80Officer and shall consist of six members. The Governor and the
81Attorney General shall each appoint two members to the audit
82committee, and the Chief Financial Officer shall appoint one
83member. Each member must be independent and free from any
84relationship that would interfere with the exercise of his or
85her independent judgment as a member of the committee. Each
86member shall be appointed to a term of 4 years and shall serve
87at the pleasure of his or her appointing authority. Persons
88appointed to the audit committee must have relevant knowledge
89and expertise as determined by the board. Members of the
90committee are state officers for purposes of s. 112.3145.
91     (b)  The audit committee shall independently and
92objectively monitor on an ongoing basis the board's processes
93for financial reporting, internal controls and risk assessment,
94and compliance with laws, rules, and regulations. The audit
95committee shall direct the efforts of the board's independent
96external auditors and the board's internal audit staff. The
97committee shall report, at least quarterly, all findings and
98recommendations to the executive director and the board.
99     (c)  The audit committee may:
100     1.  Seek any information it requires from employees of the
101board, who shall provide such information upon request, and from
102third parties;
103     2.  Meet, as necessary, with the Investment Advisory
104Council, the investor council, board employees, or external
105auditors;
106     3.  Review the budget for the Office of Internal Audit; and
107     4.  Retain outside accountants, consultants, attorneys, or
108others approved by the board to assist in conducting an audit,
109review, or special investigation as directed by the board.
110     (d)  Upon receipt of any recommendation from the committee,
111the executive director shall, within 30 days after receipt,
112respond in writing and indicate whether action will be taken.
113The executive director shall specify the action that will be
114taken or the reasons for not taking action. A copy of the
115executive director's written response shall be provided to the
116committee and the board.
117     (e)  The committee shall appoint a Chief of Internal Audit,
118who shall have those powers and duties set by the committee and
119report to the committee.
120     (f)  The committee shall have additional powers and duties
121as set by the board.
122     Section 2.  Section 215.441, Florida Statutes, is amended
123to read:
124     215.441  Board of Administration; appointment of executive
125director.--
126     (1)  The State Board of Administration shall appoint an
127executive director to manage and invest funds as directed by the
128board. The executive director must have proven knowledge and
129expertise in overseeing institutional investment portfolios and
130must have extensive experience in any two or more of the
131following areas: domestic equity or fixed-income securities,
132international equity or fixed-income securities, cash
133management, alternative investments, managed futures, or real
134estate investment trusts. The board may set additional
135requirements for appointment.
136     (2)  The appointment of the executive director of the State
137Board of Administration shall be subject to the approval by a
138majority vote of the Board of Trustees of the State Board of
139Administration, and the Governor must vote on the prevailing
140side. Such appointment must be affirmed by the Investment
141Advisory Council and reaffirmed in the same manner by the board
142of trustees on an annual basis.
143     (3)  The executive director is a state officer for purposes
144of s. 112.3145.
145     Section 3.  Subsection (1) of section 215.442, Florida
146Statutes, is amended to read:
147     215.442  Executive director; reporting requirements; public
148meeting.--
149     (1)  Beginning October 2007 and quarterly thereafter, The
150executive director shall present to the Board of Trustees of the
151State Board of Administration and the Investment Advisory
152Council a quarterly report to include the following:
153     (a)  The name of each equity and alternative investment in
154which the State Board of Administration has invested for the
155quarter.
156     (b)  The industry category of each equity.
157     (c)  The type and value of assets that have been downgraded
158during the preceding quarter.
159     Section 4.  Section 215.444, Florida Statutes, is amended
160to read:
161     215.444  Investment Advisory Council.--
162     (1)  There is created a nine-member six-member Investment
163Advisory Council to review the investments made by the staff of
164the Board of Administration and to make recommendations to the
165board regarding investment policy, strategy, and procedures. The
166council shall recommend asset allocations for funds held by the
167board and shall approve all new product types considered for
168investment by the board.
169     (2)  The members of the council shall be appointed by the
170board and shall be subject to confirmation by the Senate. The
171members must include one member representing local governments,
172one member representing a state employees' union in the Regular
173Class, one member representing a teachers' union, one member
174representing a police union, one member representing a
175firefighters' union, and one beneficiary of the Florida
176Retirement System. These individuals shall possess special
177knowledge, experience, and familiarity with financial
178investments and portfolio management. Members shall be appointed
179for 4-year terms. A vacancy shall be filled for the remainder of
180the unexpired term. The council shall annually elect a chair and
181a vice chair from its membership. A member may not be elected to
182consecutive terms as chair or vice chair. Members of the council
183are state officers for purposes of s. 112.3145.
184     Section 5.  Subsection (15) of section 215.47, Florida
185Statutes, is amended to read:
186     215.47  Investments; authorized securities; loan of
187securities.--Subject to the limitations and conditions of the
188State Constitution or of the trust agreement relating to a trust
189fund, moneys available for investments under ss. 215.44-215.53
190may be invested as follows:
191     (15)  With no more, in the aggregate, than 10 percent of
192any fund in alternative investments, as defined in s.
193215.44(9)(c)1.a. s. 215.44(8)(c)1.a., through participation in
194the vehicles defined in s. 215.44(9)(c)1.b. s. 215.44(8)(c)1.b.,
195or in securities or investments that are not publicly traded and
196are not otherwise authorized by this section.
197     Section 6.  Section 215.475, Florida Statutes, is amended
198to read:
199     215.475  Investment policy statement.--
200     (1)  In making investments for the System Trust Fund
201pursuant to ss. 215.44-215.53, the board shall make no
202investment which is not in conformance with the Florida
203Retirement System Defined Benefit Plan Investment Policy
204Statement, hereinafter referred to as "the IPS," as developed by
205the executive director and the Investment Advisory Council and
206approved by the board. The IPS must include, among other items,
207the investment objectives of the System Trust Fund; permitted
208types of securities in which the board may invest; and
209evaluation criteria necessary to measure the investment
210performance of the fund. As required from time to time, the
211executive director of the board may present recommended changes
212in the IPS to the board and the Investment Advisory Council for
213approval.
214     (2)  Prior to any recommended changes in the IPS being
215presented to the board, the executive director of the board
216shall present such changes to the Investment Advisory Council
217for review. The council shall present the results of its review
218to the board prior to the board's final approval of the IPS or
219changes in the IPS.
220     Section 7.  Section 215.4754, Florida Statutes, is created
221to read:
222     215.4754  Ethics requirements for investment advisers and
223managers.--
224     (1)  The board shall adopt by rule standards of conduct
225applicable to investment advisers and managers retained pursuant
226to s. 215.44(2)(b).
227     (2)  A contract under which an investment adviser or
228manager renders financial services or advice to the board is
229voidable by the board if the investment adviser or manager
230violates a standard of conduct adopted under this section.
231     (3)  An Investment Advisory Council member or such member's
232business organization or affiliate may not directly or
233indirectly contract with or provide any services for the
234investment of state trust funds during the time of such member's
235service on the council or for 1 year thereafter.
236     Section 8.  Section 215.4755, Florida Statutes, is created
237to read:
238     215.4755  Disclosure requirements for investment advisers
239and managers.--
240     (1)  An investment adviser or manager retained pursuant to
241s. 215.44(2)(b) shall disclose in writing to the board:
242     (a)  Any relationship the investment adviser or manager has
243with any party to a transaction with the board, other than a
244relationship necessary to the investment or funds-management
245services that the investment adviser or manager performs for the
246board, if a prudent person could expect the relationship to
247diminish the investment adviser's or manager's independence of
248judgment in the performance of his or her responsibilities to
249the board. The investment adviser or manager shall disclose a
250relationship described in this paragraph without regard to
251whether the relationship is a direct, indirect, personal,
252private, commercial, or business relationship.
253     (b)  All direct or indirect pecuniary interests the
254investment adviser or manager has in any party to a transaction
255with the board, if the transaction is connected with any
256financial advice or service the investment adviser or manager
257provides to the board in connection with the management or
258investment of funds pursuant to s. 215.44(1).
259     (2)  An investment adviser or manager retained pursuant to
260s. 215.44(2)(b) shall annually file a statement with the board
261disclosing each relationship or pecuniary interest described by
262this section. If no such relationship or pecuniary interest
263existed during the disclosure period, the statement must
264affirmatively state that fact.
265     (a)  The annual statement shall be filed no later than
266January 1 on a form prescribed by the board. The statement shall
267cover the reporting period of the previous calendar year.
268     (b)  The investment adviser or manager shall promptly file
269a new or amended statement with the board whenever there is new
270information to report under this section.
271     Section 9.  Present subsections (9) and (10) of section
272218.409, Florida Statutes, are renumbered as subsections (10)
273and (11), respectively, and a new subsection (9) is added to
274that section to read:
275     218.409  Administration of the trust fund; creation of
276advisory council.--
277     (9)  The State Board of Administration shall create a
278participating investor council to advise the board regarding the
279investment practices, internal controls and risk assessment, and
280audit processes for funds invested by the board pursuant to this
281part.
282     Section 10.  This act shall take effect July 1, 2009.


CODING: Words stricken are deletions; words underlined are additions.