SB3486 98TH GENERAL ASSEMBLY

LRB098 19985 EFG 55210 b

98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
SB3486

Introduced 2/14/2014, by Sen. Iris Y. Martinez

SYNOPSIS AS INTRODUCED:

40 ILCS 5/1-109.1	from Ch. 108 1/2, par. 1-109.1
40 ILCS 5/1-109.3
40 ILCS 5/1-109.4 new
40 ILCS 5/1-109.5 new

Amends the General Provisions Article of the Illinois Pension Code. Provides that each public retirement system, pension fund, and investment board shall set annual goals regarding the utilization of Illinois-based financial service businesses, including businesses that are minority owned or female owned; requires information to be collected and reported. Requires each public retirement system, pension fund, and investment board to adopt utilization goals for minority or female owned businesses and to independently verify the status of each contracted business on an annual basis; includes personal and staff penalties for failure to achieve those goals. Provides that every person appointed on or after January 1, 2015 by the board of trustees of a retirement system, pension fund, or investment board to be Executive Director, Chief Investment Officer, Chief Financial Officer, or an equivalent position within that system, fund, or board, or to fill a vacancy on the board of trustees, shall be subject to Senate confirmation and shall be appointed to serve for a term of no more than 4 years. Beginning January 1, 2015, requires every current or incoming trustee, Chief Financial Officer, Chief Investment Officer, and Executive Director of any public retirement system, pension fund, or investment board to receive 10 hours of minority and female investment inclusion training, with the oversight of the Senate Public Pensions and State Investments Committee.

FISCAL NOTE ACT MAY APPLY

PENSION IMPACT NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning public employee benefits.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Pension Code is amended by changing Sections 1-109.1 and 1-109.3 and by adding Sections 1-109.4 and 1-109.5 as follows:

(40 ILCS 5/1-109.1) (from Ch. 108 1/2, par. 1-109.1)

Sec. 1-109.1. Allocation and Delegation of Fiduciary Duties.

(1) Subject to the provisions of Section 22A-113 of this Code and subsections (2) and (3) of this Section, the board of trustees of a retirement system or pension fund established under this Code may:

(a) Appoint one or more investment managers as fiduciaries to manage (including the power to acquire and dispose of) any assets of the retirement system or pension fund; and

(b) Allocate duties among themselves and designate others as fiduciaries to carry out specific fiduciary activities other than the management of the assets of the retirement system or pension fund.

(2) The board of trustees of a pension fund established under Article 5, 6, 8, 9, 10, 11, 12 or 17 of this Code may not transfer its investment authority, nor transfer the assets of the fund to any other person or entity for the purpose of consolidating or merging its assets and management with any other pension fund or public investment authority, unless the board resolution authorizing such transfer is submitted for approval to the contributors and pensioners of the fund at elections held not less than 30 days after the adoption of such resolution by the board, and such resolution is approved by a majority of the votes cast on the question in both the contributors election and the pensioners election. The election procedures and qualifications governing the election of trustees shall govern the submission of resolutions for approval under this paragraph, insofar as they may be made applicable.

(3) Pursuant to subsections (h) and (i) of Section 6 of Article VII of the Illinois Constitution, the investment authority of boards of trustees of retirement systems and pension funds established under this Code is declared to be a subject of exclusive State jurisdiction, and the concurrent exercise by a home rule unit of any power affecting such investment authority is hereby specifically denied and preempted.

(4) For the purposes of this Code, "emerging investment manager" means a qualified investment adviser that manages an investment portfolio of at least $10,000,000 but less than $10,000,000,000 and is a "minority owned business", "female owned business" or "business owned by a person with a disability" as those terms are defined in the Business Enterprise for Minorities, Females, and Persons with Disabilities Act.

It is hereby declared to be the public policy of the State of Illinois to encourage the trustees of public employee retirement systems, pension funds, and investment boards to use emerging investment managers in managing their system's assets, encompassing all asset classes, and to increase the racial, ethnic, and gender diversity of its fiduciaries, to the greatest extent feasible within the bounds of financial and fiduciary prudence, and to take affirmative steps to remove any barriers to the full participation in investment opportunities afforded by those retirement systems, pension funds, and investment boards.

On or before January 1, 2010, a retirement system, pension fund, or investment board subject to this Code, except those whose investments are restricted by Section 1-113.2 of this Code, shall adopt a policy that sets forth goals for utilization of emerging investment managers. This policy shall include quantifiable goals for the management of assets in specific asset classes by emerging investment managers. The retirement system, pension fund, or investment board shall establish 3 separate goals for: (i) emerging investment managers that are minority owned businesses; (ii) emerging investment managers that are female owned businesses; and (iii) emerging investment managers that are businesses owned by a person with a disability. The goals established shall be based on the percentage of total dollar amount of investment service contracts let to minority owned businesses, female owned businesses, and businesses owned by a person with a disability, as those terms are defined in the Business Enterprise for Minorities, Females, and Persons with Disabilities Act. The retirement system, pension fund, or investment board shall annually review the goals established under this subsection.

If in any case an emerging investment manager meets the criteria established by a board for a specific search and meets the criteria established by a consultant for that search, then that emerging investment manager shall receive an invitation by the board of trustees, or an investment committee of the board of trustees, to present his or her firm for final consideration of a contract. In the case where multiple emerging investment managers meet the criteria of this Section, the staff may choose the most qualified firm or firms to present to the board.

The use of an emerging investment manager does not constitute a transfer of investment authority for the purposes of subsection (2) of this Section.

(5) Each retirement system, pension fund, or investment board subject to this Code, except those whose investments are restricted by Section 1-113.2 of this Code, shall establish a policy that sets forth goals for increasing the racial, ethnic, and gender diversity of its fiduciaries, including its consultants and senior staff. Each system, fund, and investment board shall annually review the goals established under this subsection.

(5.1) Each retirement system, pension fund, and investment board established under this Code shall set annual goals regarding the utilization of Illinois-based financial service businesses, including businesses that are minority owned and female owned. Each retirement system, pension fund, and investment board shall maintain information on and report to the Governor and the General Assembly on its utilization of in-state and out-of-state financial service businesses.

(6) On or before January 1, 2010, a retirement system, pension fund, or investment board subject to this Code, except those whose investments are restricted by Section 1-113.2 of this Code, shall adopt a policy that sets forth goals for utilization of businesses owned by minorities, females, and persons with disabilities for all contracts and services. The goals established shall be based on the percentage of total dollar amount of all contracts let to minority owned businesses, female owned businesses, and businesses owned by a person with a disability, as those terms are defined in the Business Enterprise for Minorities, Females, and Persons with Disabilities Act. The retirement system, pension fund, or investment board shall annually review the goals established under this subsection.

(7) On or before January 1, 2010, a retirement system, pension fund, or investment board subject to this Code, except those whose investments are restricted by Section 1-113.2 of this Code, shall adopt a policy that sets forth goals for increasing the utilization of minority broker-dealers. For the purposes of this Code, "minority broker-dealer" means a qualified broker-dealer who meets the definition of "minority owned business", "female owned business", or "business owned by a person with a disability", as those terms are defined in the Business Enterprise for Minorities, Females, and Persons with Disabilities Act. The retirement system, pension fund, or investment board shall annually review the goals established under this Section.

(8) Each retirement system, pension fund, and investment board subject to this Code, except those whose investments are restricted by Section 1-113.2 of this Code, shall submit a report to the Governor and the General Assembly by January 1 of each year that includes the following: (i) the policy adopted under subsection (4) of this Section, including the names and addresses of the emerging investment managers used, percentage of the assets under the investment control of emerging investment managers for the 3 separate goals, and the actions it has undertaken to increase the use of emerging investment managers, including encouraging other investment managers to use emerging investment managers as subcontractors when the opportunity arises; (ii) the policy adopted under subsection (5) of this Section; (iii) the policy adopted under subsection (6) of this Section; and (iv) the policy adopted under subsection (7) of this Section, including specific actions undertaken to increase the use of minority broker-dealers.

(Source: P.A. 96-6, eff. 4-3-09.)

(40 ILCS 5/1-109.3)

Sec. 1-109.3. Training requirement for pension trustees and managers.

(a) All elected and appointed trustees under Article 3 and 4 of this Code must participate in a mandatory trustee certification training seminar that consists of at least 32 hours of initial trustee certification at a training facility that is accredited and affiliated with a State of Illinois certified college or university. This training must include without limitation all of the following:

(1) Duties and liabilities of a fiduciary under Article 1 of the Illinois Pension Code.

(2) Adjudication of pension claims.

(3) Basic accounting and actuarial training.

(4) Trustee ethics.

(5) The Illinois Open Meetings Act.

(6) The Illinois Freedom of Information Act.

The training required under this subsection (a) must be completed within the first year that a trustee is elected or appointed under an Article 3 or 4 pension fund. The elected and appointed trustees of an Article 3 or 4 pension fund who are police officers (as defined in Section 3-106 of this Code) or firefighters (as defined in Section 4-106 of this Code) or are employed by the municipality shall be permitted time away from their duties to attend such training without reduction of accrued leave or benefit time. Active or appointed trustees serving on the effective date of this amendatory Act of the 96th General Assembly shall not be required to attend the training required under this subsection (a).

(b) In addition to the initial trustee certification training required under subsection (a), all elected and appointed trustees under Article 3 and 4 of this Code, including trustees serving on the effective date of this amendatory Act of the 96th General Assembly, shall also participate in a minimum of 16 hours of continuing trustee education each year after the first year that the trustee is elected or appointed.

(c) The training required under this Section shall be paid for by the pension fund.

(d) Any board member who does not timely complete the training required under this Section is not eligible to serve on the board of trustees of an Article 3 or 4 pension fund, unless the board member completes the missed training within 6 months after the date the member failed to complete the required training. In the event of a board member's failure to complete the required training, a successor shall be appointed or elected, as applicable, for the unexpired term. A successor who is elected under such circumstances must be elected at a special election called by the board and conducted in the same manner as a regular election under Article 3 or 4, as applicable.

(e) Beginning January 1, 2015, every current or incoming trustee, Chief Financial Officer, Chief Investment Officer, and Executive Director of any pension fund or retirement system established under any Article of this Code shall receive 10 hours of minority and female investment inclusion training, with the oversight of the Senate Public Pensions and State Investments Committee.

(Source: P.A. 96-429, eff. 8-13-09.)

(40 ILCS 5/1-109.4 new)

Sec. 1-109.4. Minority or female owned business utilization goals.

(a) As used in this Section:

"Minority or female owned business" means a business concern that is either (i) at least 51% owned, managed, and controlled without restriction by minorities or (ii) at least 51% owned, managed, and controlled without restriction by females. A business entity may be certified as both a minority owned business and a female owned business if it has at least 51% minority ownership and at least 51% female ownership. A business entity that has less than 51% minority ownership and less than 51% female ownership shall not be certified as a minority or female owned business, even if the combined minority and female ownership exceeds 51%.

"Minority or female owned business utilization goals" means the statewide goals of not less than 20% of the total dollar amount of contracts or the goals established by each individual retirement system, pension fund or investment board, whichever is greater. These minimum goals shall be applied across all asset classes in which the retirement system, pension fund, or investment board is invested.

(b) Each retirement system, pension fund, and investment board must adopt minority or female owned business utilization goals and shall independently verify the minority or women owned business certification status of each contracted business on an annual basis.

(c) Failure to meet the minority or female owned business utilization goals in a fiscal year shall result in the following consequences for a retirement system, pension fund, or investment board:

(1) the Chief Investment Officer, Chief Financial Officer, or Executive Director, whichever is relevant, and the staff operating under that position, shall not be eligible to receive more than 60% of their expected bonus for that fiscal year; and

(2) the Chief Investment Officer, Chief Financial Officer, or Executive Director, whichever is relevant, shall be placed on a watch list for that year; and

(3) if the Chief Investment Officer, Chief Financial Officer, or Executive Director consistently fails to meet minority or female owned business utilization goals, the Senate shall take that failure into consideration when determining whether or not to confirm that person in his or her position at the time of renewal or any subsequent appointment.

(40 ILCS 5/1-109.5 new)

Sec. 1-109.5. Senate confirmation required. Every person appointed on or after January 1, 2015 by the board of trustees of a retirement system, pension fund, or investment board established under any Article of this Code as Executive Director, Chief Investment Officer, Chief Financial Officer,or an equivalent position within that system, fund, or investment board, or to fill a vacancy on the board of trustees, shall be subject to Senate confirmation and shall be appointed to serve for a term of no more than 4 years.