100TH GENERAL ASSEMBLY
State of Illinois
2017 and 2018
HB5571

 

Introduced , by Rep. Mark Batinick

 

SYNOPSIS AS INTRODUCED:
 
40 ILCS 5/1-113.2
40 ILCS 5/1-113.4
40 ILCS 5/1-113.4a
40 ILCS 5/1-113.5
40 ILCS 5/1-113.3 rep.

    Amends the General Provisions Article of the Illinois Pension Code. Authorizes downstate police and downstate firefighter pension funds to invest in commingled accounts of the Illinois Metropolitan Investment Funds. Provides that a pension fund's total investment in certain life insurance accounts managed by insurance companies and mutual funds managed through an investment adviser, in combination with certain other investments, shall not exceed 65% of the pension fund's net present assets. Requires contracts between an investment adviser and the board of trustees of a downstate police or downstate firefighter pension fund to include a requirement that the investment adviser make annual reports to the board concerning net returns. Repeals a provision specifying additional permitted investments for pension funds with net assets of $2,500,000 or more. Makes conforming and other changes.


LRB100 20679 RPS 36132 b

FISCAL NOTE ACT MAY APPLY
PENSION IMPACT NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB5571LRB100 20679 RPS 36132 b

1    AN ACT concerning public employee benefits.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Pension Code is amended by changing
5Sections 1-113.2, 1-113.4, 1-113.4a, and 1-113.5 as follows:
 
6    (40 ILCS 5/1-113.2)
7    Sec. 1-113.2. List of permitted investments for all Article
83 or 4 pension funds. Any pension fund established under
9Article 3 or 4 may invest in the following items:
10        (1) Interest bearing direct obligations of the United
11    States of America.
12        (2) Interest bearing obligations to the extent that
13    they are fully guaranteed or insured as to payment of
14    principal and interest by the United States of America.
15        (3) Interest bearing bonds, notes, debentures, or
16    other similar obligations of agencies of the United States
17    of America. For the purposes of this Section, "agencies of
18    the United States of America" includes: (i) the Federal
19    National Mortgage Association and the Student Loan
20    Marketing Association; (ii) federal land banks, federal
21    intermediate credit banks, federal farm credit banks, and
22    any other entity authorized to issue direct debt
23    obligations of the United States of America under the Farm

 

 

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1    Credit Act of 1971 or amendments to that Act; (iii) federal
2    home loan banks and the Federal Home Loan Mortgage
3    Corporation; and (iv) any agency created by Act of Congress
4    that is authorized to issue direct debt obligations of the
5    United States of America.
6        (4) Interest bearing savings accounts or certificates
7    of deposit, issued by State or federally chartered banks or
8    savings and loan associations, to the extent that the
9    deposits are insured by agencies or instrumentalities of
10    the federal government.
11        (5) (Blank). Interest bearing savings accounts or
12    certificates of deposit, issued by State of Illinois
13    chartered banks or savings and loan associations, to the
14    extent that the deposits are insured by agencies or
15    instrumentalities of the federal government.
16        (6) Investments in credit unions, to the extent that
17    the investments are insured by agencies or
18    instrumentalities of the federal government.
19        (7) Interest bearing bonds of the State of Illinois.
20        (8) Pooled interest bearing accounts managed by the
21    Illinois Public Treasurer's Investment Pool in accordance
22    with the Deposit of State Moneys Act, interest bearing
23    funds or pooled or commingled accounts of the Illinois
24    Metropolitan Investment Funds, and interest bearing funds
25    or pooled accounts managed, operated, and administered by
26    banks, subsidiaries of banks, or subsidiaries of bank

 

 

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1    holding companies in accordance with the laws of the State
2    of Illinois.
3        (9) Interest bearing bonds or tax anticipation
4    warrants of any county, township, or municipal corporation
5    of the State of Illinois.
6        (10) Direct obligations of the State of Israel, subject
7    to the conditions and limitations of item (5.1) of Section
8    1-113.
9        (11) Money market mutual funds managed by investment
10    companies that are registered under the federal Investment
11    Company Act of 1940 and the Illinois Securities Law of 1953
12    and are diversified, open-ended management investment
13    companies; provided that the portfolio of the money market
14    mutual fund is limited to the following:
15            (i) bonds, notes, certificates of indebtedness,
16        treasury bills, or other securities that are
17        guaranteed by the full faith and credit of the United
18        States of America as to principal and interest;
19            (ii) bonds, notes, debentures, or other similar
20        obligations of the United States of America or its
21        agencies; and
22            (iii) short term obligations of corporations
23        organized in the United States with assets exceeding
24        $400,000,000, provided that (A) the obligations mature
25        no later than 180 days from the date of purchase, (B)
26        at the time of purchase, the obligations are rated by

 

 

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1        at least 2 standard national rating services at one of
2        their 3 highest classifications, and (C) the
3        obligations held by the mutual fund do not exceed 10%
4        of the corporation's outstanding obligations.
5        (12) General accounts of life insurance companies
6    authorized to transact business in Illinois.
7        (13) Any combination of the following, not to exceed
8    10% of the pension fund's net assets:
9            (i) separate accounts that are managed by life
10        insurance companies authorized to transact business in
11        Illinois and are comprised of diversified portfolios
12        consisting of common or preferred stocks, bonds, or
13        money market instruments; and
14            (ii) separate accounts that are managed by
15        insurance companies authorized to transact business in
16        Illinois, and are comprised of real estate or loans
17        upon real estate secured by first or second mortgages.
18        ; and
19            (iii) mutual funds that meet the following
20        requirements:
21        (13.5) Mutual funds that are managed through an
22    investment adviser, as defined under Section 1-101.4 and
23    appointed under Section 1-113.5, and that meet all of the
24    following requirements:
25            (i) (A) the mutual fund is managed by an investment
26        company as defined and registered under the federal

 

 

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1        Investment Company Act of 1940 and registered under the
2        Illinois Securities Law of 1953;
3            (ii) (B) the mutual fund has been in operation for
4        at least 5 years;
5            (iii) (C) the mutual fund has total net assets of
6        $250 million or more; and
7            (iv) (D) the mutual fund is comprised of
8        diversified portfolios of common or preferred stocks,
9        bonds, or money market instruments.
10        (14) Corporate bonds that are managed through an
11    investment advisor, as defined under Section 1-101.4 and
12    appointed under Section 1-113.5, and must meet all of the
13    following requirements:
14            (1) The bonds must be rated as investment grade by
15        one of the 2 largest rating services at the time of
16        purchase.
17            (2) If subsequently downgraded below investment
18        grade, the bonds must be liquidated from the portfolio
19        within 90 days after being downgraded by the manager.
20    A pension fund's total investment in the items authorized
21under paragraph (13) and paragraph (13.5) shall not exceed 65%
22of the market value of the pension fund's net present assets
23stated in its most recent annual report on file with the
24Department of Insurance.
25(Source: P.A. 96-1495, eff. 1-1-11.)
 

 

 

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1    (40 ILCS 5/1-113.4)
2    Sec. 1-113.4. List of additional permitted investments for
3pension funds with net assets of $5,000,000 or more.
4    (a) In addition to the items in Section Sections 1-113.2
5and 1-113.3, a pension fund established under Article 3 or 4
6that has net assets of at least $5,000,000 and has appointed an
7investment adviser under Section 1-113.5 may, through that
8investment adviser, invest a portion of its assets in common
9and preferred stocks authorized for investments of trust funds
10under the laws of the State of Illinois. The stocks must meet
11all of the following requirements:
12        (1) The common stocks are listed on a national
13    securities exchange or board of trade (as defined in the
14    federal Securities Exchange Act of 1934 and set forth in
15    subdivision G of Section 3 of the Illinois Securities Law
16    of 1953) or quoted in the National Association of
17    Securities Dealers Automated Quotation System National
18    Market System (NASDAQ NMS).
19        (2) The securities are of a corporation created or
20    existing under the laws of the United States or any state,
21    district, or territory thereof and the corporation has been
22    in existence for at least 5 years.
23        (3) The corporation has not been in arrears on payment
24    of dividends on its preferred stock during the preceding 5
25    years.
26        (4) The market value of stock in any one corporation

 

 

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1    does not exceed 5% of the cash and invested assets of the
2    pension fund, and the investments in the stock of any one
3    corporation do not exceed 5% of the total outstanding stock
4    of that corporation.
5        (5) The straight preferred stocks or convertible
6    preferred stocks are issued or guaranteed by a corporation
7    whose common stock qualifies for investment by the board.
8        (6) The issuer of the stocks has been subject to the
9    requirements of Section 12 of the federal Securities
10    Exchange Act of 1934 and has been current with the filing
11    requirements of Sections 13 and 14 of that Act during the
12    preceding 3 years.
13    (b) A pension fund's total investment in the items
14authorized under this Section and paragraphs (13) and (13.5) of
15Section 1-113.2 Section 1-113.3 shall not exceed 65% 35% of the
16market value of the pension fund's net present assets stated in
17its most recent annual report on file with the Illinois
18Department of Insurance.
19    (c) A pension fund that invests funds under this Section
20shall electronically file with the Division any reports of its
21investment activities that the Division may require, at the
22times and in the format required by the Division.
23(Source: P.A. 100-201, eff. 8-18-17.)
 
24    (40 ILCS 5/1-113.4a)
25    Sec. 1-113.4a. List of additional permitted investments

 

 

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1for Article 3 and 4 pension funds with net assets of
2$10,000,000 or more.
3    (a) In addition to the items in Section Sections 1-113.2
4and 1-113.3, a pension fund established under Article 3 or 4
5that has net assets of at least $10,000,000 and has appointed
6an investment adviser, as defined under Sections 1-101.4 and
71-113.5, may, through that investment adviser, invest an
8additional portion of its assets in common and preferred stocks
9and mutual funds.
10    (b) The stocks must meet all of the following requirements:
11        (1) The common stocks must be listed on a national
12    securities exchange or board of trade (as defined in the
13    Federal Securities Exchange Act of 1934 and set forth in
14    paragraph G of Section 3 of the Illinois Securities Law of
15    1953) or quoted in the National Association of Securities
16    Dealers Automated Quotation System National Market System.
17        (2) The securities must be of a corporation in
18    existence for at least 5 years.
19        (3) The market value of stock in any one corporation
20    may not exceed 5% of the cash and invested assets of the
21    pension fund, and the investments in the stock of any one
22    corporation may not exceed 5% of the total outstanding
23    stock of that corporation.
24        (4) The straight preferred stocks or convertible
25    preferred stocks must be issued or guaranteed by a
26    corporation whose common stock qualifies for investment by

 

 

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1    the board.
2    (c) The mutual funds must meet the following requirements:
3        (1) The mutual fund must be managed by an investment
4    company registered under the Federal Investment Company
5    Act of 1940 and registered under the Illinois Securities
6    Law of 1953.
7        (2) The mutual fund must have been in operation for at
8    least 5 years.
9        (3) The mutual fund must have total net assets of
10    $250,000,000 or more.
11        (4) The mutual fund must be comprised of a diversified
12    portfolio of common or preferred stocks, bonds, or money
13    market instruments.
14    (d) A pension fund's total investment in the items
15authorized under this Section and Section 1-113.3 shall not
16exceed 50% effective July 1, 2011 and 55% effective July 1,
172012 of the market value of the pension fund's net present
18assets stated in its most recent annual report on file with the
19Department of Insurance.
20    (d-5) A pension fund's total investment in the items
21authorized under this Section and paragraphs (13) and (13.5) of
22Section 1-113.2 shall not exceed 65% of the market value of the
23pension fund's net present assets stated in its most recent
24annual report on file with the Department of Insurance. The
25changes to this Section made by this amendatory Act of the
26100th General Assembly apply on and after the effective date of

 

 

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1this amendatory Act of the 100th General Assembly.
2    (e) A pension fund that invests funds under this Section
3shall electronically file with the Division any reports of its
4investment activities that the Division may require, at the
5time and in the format required by the Division.
6(Source: P.A. 96-1495, eff. 1-1-11.)
 
7    (40 ILCS 5/1-113.5)
8    Sec. 1-113.5. Investment advisers and investment services
9for all Article 3 or 4 pension funds.
10    (a) The board of trustees of a pension fund may appoint
11investment advisers as defined in Section 1-101.4. The board of
12any pension fund investing in common or preferred stock under
13Section 1-113.4 shall appoint an investment adviser before
14making such investments.
15    The investment adviser shall be a fiduciary, as defined in
16Section 1-101.2, with respect to the pension fund and shall be
17one of the following:
18        (1) an investment adviser registered under the federal
19    Investment Advisers Act of 1940 and the Illinois Securities
20    Law of 1953;
21        (2) a bank or trust company authorized to conduct a
22    trust business in Illinois;
23        (3) a life insurance company authorized to transact
24    business in Illinois; or
25        (4) an investment company as defined and registered

 

 

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1    under the federal Investment Company Act of 1940 and
2    registered under the Illinois Securities Law of 1953.
3    (a-5) Notwithstanding any other provision of law, a person
4or entity that provides consulting services (referred to as a
5"consultant" in this Section) to a pension fund with respect to
6the selection of fiduciaries may not be awarded a contract to
7provide those consulting services that is more than 5 years in
8duration. No contract to provide such consulting services may
9be renewed or extended. At the end of the term of a contract,
10however, the contractor is eligible to compete for a new
11contract. No person shall attempt to avoid or contravene the
12restrictions of this subsection by any means. All offers from
13responsive offerors shall be accompanied by disclosure of the
14names and addresses of the following:
15        (1) The offeror.
16        (2) Any entity that is a parent of, or owns a
17    controlling interest in, the offeror.
18        (3) Any entity that is a subsidiary of, or in which a
19    controlling interest is owned by, the offeror.
20    Beginning on July 1, 2008, a person, other than a trustee
21or an employee of a pension fund or retirement system, may not
22act as a consultant under this Section unless that person is at
23least one of the following: (i) registered as an investment
24adviser under the federal Investment Advisers Act of 1940 (15
25U.S.C. 80b-1, et seq.); (ii) registered as an investment
26adviser under the Illinois Securities Law of 1953; (iii) a

 

 

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1bank, as defined in the Investment Advisers Act of 1940; or
2(iv) an insurance company authorized to transact business in
3this State.
4    (b) All investment advice and services provided by an
5investment adviser or a consultant appointed under this Section
6shall be rendered pursuant to a written contract between the
7investment adviser and the board, and in accordance with the
8board's investment policy.
9    The contract shall include all of the following:
10        (1) acknowledgement in writing by the investment
11    adviser that he or she is a fiduciary with respect to the
12    pension fund;
13        (2) the board's investment policy;
14        (3) full disclosure of direct and indirect fees,
15    commissions, penalties, and any other compensation that
16    may be received by the investment adviser, including
17    reimbursement for expenses; and
18        (4) a requirement that the investment adviser submit
19    periodic written reports, on at least a quarterly basis and
20    on an annual basis as of the pension fund's year end, for
21    the board's review at its regularly scheduled meetings.
22    Quarterly and annual All returns on investment shall be
23    reported to the board as net returns after payment of all
24    fees, commissions, and any other compensation.
25    (b-5) Each contract described in subsection (b) shall also
26include (i) full disclosure of direct and indirect fees,

 

 

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1commissions, penalties, and other compensation, including
2reimbursement for expenses, that may be paid by or on behalf of
3the investment adviser or consultant in connection with the
4provision of services to the pension fund and (ii) a
5requirement that the investment adviser or consultant update
6the disclosure promptly after a modification of those payments
7or an additional payment.
8    Within 30 days after the effective date of this amendatory
9Act of the 95th General Assembly, each investment adviser and
10consultant providing services on the effective date or subject
11to an existing contract for the provision of services must
12disclose to the board of trustees all direct and indirect fees,
13commissions, penalties, and other compensation paid by or on
14behalf of the investment adviser or consultant in connection
15with the provision of those services and shall update that
16disclosure promptly after a modification of those payments or
17an additional payment.
18    A person required to make a disclosure under subsection (d)
19is also required to disclose direct and indirect fees,
20commissions, penalties, or other compensation that shall or may
21be paid by or on behalf of the person in connection with the
22rendering of those services. The person shall update the
23disclosure promptly after a modification of those payments or
24an additional payment.
25    The disclosures required by this subsection shall be in
26writing and shall include the date and amount of each payment

 

 

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1and the name and address of each recipient of a payment.
2    (c) Within 30 days after appointing an investment adviser
3or consultant, the board shall submit a copy of the contract to
4the Division of Insurance of the Department of Financial and
5Professional Regulation.
6    (d) Investment services provided by a person other than an
7investment adviser appointed under this Section, including but
8not limited to services provided by the kinds of persons listed
9in items (1) through (4) of subsection (a), shall be rendered
10only after full written disclosure of direct and indirect fees,
11commissions, penalties, and any other compensation that shall
12or may be received by the person rendering those services.
13    (e) The board of trustees of each pension fund shall retain
14records of investment transactions in accordance with the rules
15of the Department of Financial and Professional Regulation.
16(Source: P.A. 95-950, eff. 8-29-08; 96-6, eff. 4-3-09.)
 
17    (40 ILCS 5/1-113.3 rep.)
18    Section 10. The Illinois Pension Code is amended by
19repealing Section 1-113.3.