Florida Senate - 2010 CS for CS for SB 2186
By the Committees on Community Affairs; and Governmental
Oversight and Accountability; and Senator Ring
578-03537-10 20102186c2
1 A bill to be entitled
2 An act relating to the State Board of Administration;
3 amending s. 121.4501, F.S.; requiring that certain
4 investment products and approved providers conform
5 with the Public Employee Optional Retirement Program
6 Investment Policy Statement as approved by the
7 executive director of the board and approved by the
8 Investment Advisory Council; requiring that such
9 statement be presented to the council for approval;
10 amending s. 215.44, F.S.; requiring that the board
11 establish and maintain the salaries of its officers
12 and employees in a manner consistent with its
13 fiduciary duties; requiring that the council initiate
14 an investigation at specified intervals for specified
15 purposes; requiring that the council present the
16 results of such study to the board; authorizing the
17 board to delegate certain authority and duties to the
18 executive director; requiring that the board create an
19 audit committee for specified purposes; providing for
20 membership on the committee and term limits of
21 committee members; providing purposes and duties of
22 the committee; requiring that the board produce
23 certain financial statements on an annual basis and
24 report the information contained in such statements to
25 the Legislature; requiring that such statements be
26 audited by an independent third-party firm working
27 under the direction of the audit committee; requiring
28 that the board meet at specified intervals and receive
29 reports containing certain information from specified
30 entities; amending s. 215.441, F.S.; requiring that
31 the board appoint an executive director; providing
32 duties of the executive director; providing
33 requirements for appointment as executive director;
34 removing a requirement that the Governor vote in favor
35 of the selection of the executive director; providing
36 for the determination of the executive director’s
37 compensation; providing for the creation, operation,
38 and membership of a search committee for the purpose
39 of selecting the executive director; amending s.
40 215.442, F.S.; requiring that the executive director
41 present certain information quarterly to the
42 Investment Advisory Council; creating s. 215.443,
43 F.S.; creating the Agency for Professional Fund
44 Management; providing for the makeup of the agency;
45 amending s. 215.444, F.S.; requiring that the council
46 meet with the board’s staff at specified intervals and
47 provide a quarterly report to the board’s trustees;
48 clarifying the function of council members; expanding
49 prerequisites for membership on the council to include
50 knowledge of and experience with institutional
51 investments and fiduciary responsibilities; providing
52 that a council member is an officer, employee, or
53 agent of the state for specified purposes; requiring
54 that appointees to the council undergo specified
55 training; requiring that council members make
56 recommendations consistent with fiduciary
57 responsibilities applicable to the board; specifying
58 duties of the council; authorizing the council to
59 create subcommittees and direct the executive director
60 to enter into certain contracts; amending s. 215.475,
61 F.S.; conforming provisions to changes made by the
62 act; creating s. 215.4754, F.S.; providing intent;
63 requiring that the contract for an investment adviser
64 or manager include a standard of conduct; providing
65 for termination of the contract of an adviser or
66 manager who violates the standard of conduct;
67 prohibiting a member of the Investment Advisory
68 Council from contracting with or providing services
69 for the investment of certain funds during his or her
70 service on the board and for a specified period
71 thereafter; creating s. 215.4755, F.S.; requiring that
72 an investment advisor or manager annually certify to
73 the board certain activities regarding investment
74 decisions and standards of behavior; requiring that
75 certain disclosures be made at the request of the
76 board regarding pecuniary interests of an investment
77 adviser or manager; amending s. 215.52, F.S.;
78 authorizing the board to implement certain policies,
79 restrictions, or guidelines; providing an effective
80 date.
81
82 Be It Enacted by the Legislature of the State of Florida:
83
84 Section 1. Subsection (14) of section 121.4501, Florida
85 Statutes, is amended to read:
86 121.4501 Public Employee Optional Retirement Program.—
87 (14) INVESTMENT POLICY STATEMENT.—
88 (a) Investment products and approved providers selected for
89 the Public Employee Optional Retirement Program shall conform
90 with the Public Employee Optional Retirement Program Investment
91 Policy Statement, herein referred to as the “statement,” as
92 developed by the executive director of the state board and
93 approved by the Investment Advisory Council and Trustees of the
94 State Board of Administration. The statement must include, among
95 other items, the investment objectives of the Public Employee
96 Optional Retirement Program, manager selection and monitoring
97 guidelines, and performance measurement criteria. As required
98 from time to time, the executive director of the state board may
99 present recommended changes in the statement to the board for
100 approval.
101 (b) Before Prior to presenting the statement, or any
102 recommended changes thereto, to the state board, the executive
103 director of the board shall present such statement or changes to
104 the Investment Advisory Council for review and approval. The
105 council shall present the results of its review to the board
106 prior to the board’s final approval of the statement or changes
107 in the statement.
108 Section 2. Subsections (1) and (2) of section 215.44,
109 Florida Statutes, are amended to read:
110 215.44 Board of Administration; powers and duties in
111 relation to investment of trust funds.—
112 (1) Except when otherwise specifically provided by the
113 State Constitution and subject to any limitations of the trust
114 agreement relating to a trust fund, the Board of Administration,
115 hereinafter sometimes referred to as “trustees” or “board,”
116 composed of the Governor as chair, the Chief Financial Officer,
117 and the Attorney General, shall invest all the funds in the
118 System Trust Fund, as defined in s. 121.021(36), and all other
119 funds specifically required by law to be invested by the board
120 pursuant to ss. 215.44-215.53 to the fullest extent that is
121 consistent with the cash requirements, trust agreement, and
122 investment objectives of the fund. Notwithstanding any other law
123 to the contrary, the State Board of Administration may invest
124 any funds of any state agency or any unit of local government
125 pursuant to the terms of a trust agreement with the head of the
126 state agency or the governing body of the unit of local
127 government, which trust agreement shall govern the investment of
128 such funds, provided that the board shall approve the
129 undertaking of such investment before execution of the trust
130 agreement by the State Board of Administration. The funds and
131 the earnings therefrom are exempt from the service charge
132 imposed by s. 215.20. As used in this subsection, the term
133 “state agency” has the same meaning as that provided in s.
134 216.001, and the terms “governing body” and “unit of local
135 government” have the same meaning as that provided in s.
136 218.403.
137 (2)(a) The board shall have the power to make purchases,
138 sales, exchanges, investments, and reinvestments for and on
139 behalf of the funds referred to in subsection (1), and it shall
140 be the duty of the board to see that moneys invested under the
141 provisions of ss. 215.44-215.53 are at all times handled in the
142 best interests of the state.
143 (b) Pursuant to s. 110.205, the State Board of
144 Administration shall establish and maintain the salaries and
145 benefits of its officers and employees in a manner consistent
146 with the board’s fiduciary responsibility to recruit and retain
147 highly qualified and effective key personnel. Not less than
148 every 5 years, the Investment Advisory Council shall cause a
149 total compensation study to be conducted by a private consulting
150 firm having expertise in institutional investments salary and
151 benefit administration. The study shall be designed to determine
152 competitive salary ranges, other compensation, and benefits for
153 positions within the board based on comparable public-sector
154 peer investment entities. The Investment Advisory Council shall
155 present the total compensation study along with its
156 recommendations to the board, and such recommendations are
157 subject to review and ratification or reversal by the board. The
158 board may delegate to the executive director the authority and
159 duty to set staff salaries within the ranges approved by the
160 board.
161 (c)(b) In exercising investment authority pursuant to s.
162 215.47, the board may retain investment advisers or managers, or
163 both, external to in-house staff, to assist the board in
164 carrying out the power specified in paragraph (a).
165 (d) The board shall create an audit committee to assist the
166 board in fulfilling its oversight responsibilities. The
167 committee shall consist of three members appointed by the board.
168 Members shall be appointed for 4-year terms. A vacancy shall be
169 filled for the remainder of the unexpired term. The committee
170 shall annually elect a chair and vice chair from its membership.
171 A member may not be elected to consecutive terms as chair or
172 vice chair. Persons appointed to the audit committee must have
173 relevant knowledge and expertise as determined by the board. The
174 audit committee shall serve as an independent and objective
175 party to monitor processes for financial reporting, internal
176 controls and risk assessment, audit processes, and compliance
177 with laws, rules, and regulations. The audit committee shall
178 direct the efforts of the board’s independent external auditors
179 and the board’s internal audit staff. The committee shall
180 periodically, but no less than quarterly, report to the
181 executive director of the state board and the board. The board
182 shall produce a set of financial statements for the Florida
183 Retirement System programs on an annual basis, which shall be
184 reported to the Legislature and audited by a commercial
185 independent third-party audit firm under the direction of the
186 audit committee.
187 (e) The board shall meet at least quarterly and shall
188 receive reports from the audit committee, investment advisory
189 committee, inspector general, general counsel, executive
190 director, and such other persons or entities as the board may
191 require about the financial status, operations, and investment
192 activities of the board.
193 Section 3. Section 215.441, Florida Statutes, is amended to
194 read:
195 215.441 Board of Administration; appointment of executive
196 director.—
197 (1) The board shall appoint an executive director to manage
198 and invest funds as directed by the board. The executive
199 director shall, at a minimum, possess substantial experience,
200 proven knowledge, and expertise in the oversight of
201 institutional investment portfolios and must meet any other
202 requirements determined by the board to be necessary to the
203 overall management and investment of funds.
204 (2) The appointment of the executive director of the State
205 Board of Administration shall be subject to the approval by a
206 majority vote of the Board of Trustees of the State Board of
207 Administration, and the Governor must vote on the prevailing
208 side. Such appointment must be reaffirmed in the same manner by
209 the board of trustees on an annual basis.
210 (3) The compensation for the executive director shall be
211 determined by the board, consistent with the requirements of s.
212 215.44(2)(b).
213 (4) Before the appointment of the executive director, the
214 board shall appoint a search committee to develop minimum
215 position requirements, review applications, and make
216 recommendations to the board with regard to qualified applicants
217 for the position. At a minimum, the search committee shall
218 consist of at least three members of the Investment Advisory
219 Council.
220 Section 4. Subsection (1) of section 215.442, Florida
221 Statutes, is amended to read:
222 215.442 Executive director; reporting requirements; public
223 meeting.—
224 (1) Beginning October 2007 and quarterly thereafter, the
225 executive director shall present to the Board of Trustees and
226 the Investment Advisory Council of the State Board of
227 Administration a quarterly report to include the following:
228 (a) The name of each equity in which the State Board of
229 Administration has invested for the quarter.
230 (b) The industry category of each equity.
231 Section 5. Section 215.443, Florida Statutes, is created to
232 read:
233 215.443 Agency for Professional Fund Management.—
234 (1) Effective January 1, 2011, there is created within the
235 State Board of Administration the Agency for Professional Fund
236 Management which shall provide active oversight of the
237 investment portfolios under the authority of the board.
238 (2) The agency shall consist of five members appointed by
239 the board and subject to confirmation by the Senate. The members
240 shall annually elect a chair from among their membership.
241 Members shall meet at least every other month; however, an
242 emergency meeting may be convened at the call of the chair. The
243 members shall receive no compensation for their services but are
244 entitled to receive reimbursement for expenses pursuant to s.
245 112.061. Members shall serve 4-year terms and may be suspended
246 or removed for cause by the board.
247 (3) Members of the agency shall be considered fiduciaries
248 in the discharge of their duties and shall be required to file
249 financial disclosure as required of state officers pursuant to
250 s. 112.3145.
251 (4) Members of the agency must be distinguished by the
252 attainment of the highest professional and experiential
253 requirements consistent with the investment responsibilities
254 they bear. Each must have a minimum of 5 years of progressively
255 responsible experience in the direct management, analysis,
256 supervision, or investment of financial assets as an officer or
257 a named fiduciary with a public or private organization that has
258 at least $1 billion in investable assets. Members who possess
259 licenses or certification from professional organizations or
260 other federal or state regulatory bodies must maintain those
261 licenses in good standing, free from sanction, limitation, or
262 compromise by the issuing authority, through the duration of
263 their service.
264 (5) The members shall have active oversight of the
265 investment decisions made on behalf of the participants in each
266 of the portfolios managed by the board and decisions made by the
267 executive director or staff on the allocation of funds within
268 the permitted statutory ranges.
269 (6) Decisions made by the agency may be altered only by
270 unanimous vote of all three members of the board in a public
271 meeting.
272 Section 6. Section 215.444, Florida Statutes, is amended to
273 read:
274 215.444 Investment Advisory Council.—
275 (1) There is created a six-member Investment Advisory
276 Council to review the investments made by the staff of the Board
277 of Administration and to make recommendations to the board
278 regarding investment policy, strategy, and procedures. The
279 council shall meet with staff of the board no less than
280 quarterly and shall provide a quarterly report directly to the
281 trustees at a meeting of the board.
282 (2) The members of the council shall be appointed by the
283 board as a resource to the trustees and shall be subject to
284 confirmation by the Senate. These individuals shall possess
285 special knowledge, experience, and familiarity with financial
286 investments and portfolio management, institutional investments,
287 and fiduciary responsibilities. Members shall be appointed for
288 4-year terms. A vacancy shall be filled for the remainder of the
289 unexpired term. The council shall annually elect a chair and a
290 vice chair from its membership. A member may not be elected to
291 consecutive terms as chair or vice chair.
292 (3) In carrying out the provisions of this section, a
293 member of the council is an officer, employee, or agent of the
294 state for purposes of the state’s waiver of sovereign immunity
295 contained in s. 768.28. Appointees to the council must undergo
296 regular fiduciary training as required by the board, and must
297 complete an annual conflict disclosure statement. In carrying
298 out their duties, council members must make recommendations
299 consistent with the fiduciary standards applicable to the board.
300 (4) The duties of the council shall include approval of the
301 investment policy statements of the board, participation in the
302 selection process regarding an executive director, engaging
303 periodic compensation studies and providing recommendations
304 thereon, meeting quarterly to review the investment performance
305 of funds, and any other duties as determined by the board. The
306 council may create subcommittees as necessary to carry out its
307 duties and responsibilities and may direct the executive
308 director to enter into contracts with independent compensation
309 consultants.
310 Section 7. Subsection (1) of section 215.475, Florida
311 Statutes, is amended to read:
312 215.475 Investment policy statement.—
313 (1) In making investments for the System Trust Fund
314 pursuant to ss. 215.44-215.53, the board shall make no
315 investment which is not in conformance with the Florida
316 Retirement System Defined Benefit Plan Investment Policy
317 Statement, hereinafter referred to as “the IPS,” as developed by
318 the executive director and approved by the Investment Advisory
319 Council and the board. The IPS must include, among other items,
320 the investment objectives of the System Trust Fund; permitted
321 types of securities in which the board may invest; and
322 evaluation criteria necessary to measure the investment
323 performance of the fund. As required from time to time, the
324 executive director of the board may present recommended changes
325 in the IPS to the Investment Advisory Council and the board for
326 approval.
327 Section 8. Section 215.4754, Florida Statutes, is created
328 to read:
329 215.4754 Ethics requirements for investment advisers and
330 managers and members of the Investment Advisory Council.—The
331 intent of this section is to promote independence and the
332 avoidance of conflicts and improper influence by certain
333 investment advisers and managers without creating unnecessary
334 barriers to the board performing its investment duties
335 consistent with its fiduciary standards, investment performance,
336 and business relationships.
337 (1) A contract under which an investment adviser or manager
338 has been retained to exercise investment authority on behalf of
339 the board for direct holdings, as defined in s. 215.473(1)(e),
340 shall require that the investment adviser or manager abide by a
341 standard of conduct pursuant to s. 215.4755, and any such
342 contract may be terminated by the board if the investment
343 adviser or manager violates such standard of conduct.
344 (2) An Investment Advisory Council member or any business
345 organization or any affiliate thereof which is owned by or
346 employs such member may not directly or indirectly contract with
347 or provide any services for the investment of trust funds
348 invested by the board during the time of such member’s service
349 on the council or for 2 years thereafter.
350 Section 9. Section 215.4755, Florida Statutes, is created
351 to read:
352 215.4755 Certification and disclosure requirements for
353 investment advisers and managers.—
354 (1) An investment adviser or manager who has discretionary
355 investment authority for direct holdings, as defined in s.
356 215.473(1)(e), and who is retained as provided in s.
357 215.44(2)(c) shall agree pursuant to contract to annually
358 certify in writing to the board that:
359 (a) All investment decisions made on behalf of the trust
360 funds and the board are made in the best interests of the trust
361 funds and the board, and not made in a manner to the advantage
362 of such investment adviser or manager, other persons, or clients
363 to the detriment of the trust funds and the board.
364 (b) Appropriate policies, procedures, or other safeguards
365 have been adopted and implemented to ensure that relationships
366 with any affiliated persons or entities do not adversely
367 influence the investment decisions made on behalf of the trust
368 funds and the board.
369 (c) A written code of ethics, conduct, or other set of
370 standards, which governs the professional behavior and
371 expectations of owners, general partners, directors or managers,
372 officers, and employees of the investment adviser or manager,
373 has been adopted and implemented and is effectively monitored
374 and enforced. The investment advisers’ and managers’ code of
375 ethics shall require that:
376 1. Officers and employees involved in the investment
377 process shall refrain from personal business activity that could
378 conflict with the proper execution and management of the
379 investment program over which the investment adviser or manager
380 has discretionary investment authority or that could impair
381 their ability to make impartial decisions with respect to such
382 investment program; and
383 2. Officers and employees shall refrain from undertaking
384 personal investment transactions with the same individual with
385 whom business is conducted on behalf of the board.
386 (d) The investment adviser or manager has proactively and
387 promptly disclosed to the board, notwithstanding subsection (2),
388 any known circumstances or situations that a prudent person
389 could expect to create an actual, potential, or perceived
390 conflict of interest, including specifically:
391 1. Any material interests in or with financial institutions
392 with which officers and employees conduct business on behalf of
393 the trust funds and the board; and
394 2. Any personal financial or investment positions of the
395 investment advisor or manager which could be related to the
396 performance of an investment program over which the investment
397 adviser or manager has discretionary investment authority on
398 behalf of the board.
399 (2) At the board’s request, an investment adviser or
400 manager who has discretionary investment authority over direct
401 holdings, as defined in s. 215.473(1)(e), and who is retained as
402 provided in s. 215.44(2)(c) shall disclose in writing to the
403 board:
404 (a) Any nonconfidential, nonproprietary information or
405 reports to substantiate the certifications required under
406 subsection (1).
407 (b) All direct or indirect pecuniary interests that the
408 investment adviser or manager has in or with any party to a
409 transaction with the board, if the transaction is related to any
410 discretionary investment authority that the investment adviser
411 or manager exercises on behalf of the board.
412 (3) An investment adviser or manager certification required
413 under subsection (1) shall be provided annually, no later than
414 January 31, for the reporting period of the previous calendar
415 year on a form prescribed by the board.
416 Section 10. Section 215.52, Florida Statutes, is amended to
417 read:
418 215.52 Rules and regulations.—The board shall have the
419 power and authority to make reasonable rules, policies, and
420 regulations necessary or appropriate to carry out the provisions
421 of ss. 215.44-215.53. To ensure full transparency and
422 accountability in fulfillment of its fiduciary duties, the board
423 may implement any policies, restrictions, or guidelines
424 necessary to the application of relevant provisions, including,
425 but not limited to, policy in the areas of compliance, ethics,
426 training, audit procedures, service providers, vendors, and
427 third parties who do business with the board.
428 Section 11. This act shall take effect July 1, 2010.