101ST GENERAL ASSEMBLY
State of Illinois
2019 and 2020
HB3634

 

Introduced , by Rep. William Davis

 

SYNOPSIS AS INTRODUCED:
 
40 ILCS 5/1-109.1  from Ch. 108 1/2, par. 1-109.1
40 ILCS 5/1-110  from Ch. 108 1/2, par. 1-110
40 ILCS 5/1-113.1
40 ILCS 5/1-113.2
40 ILCS 5/1-113.3
40 ILCS 5/1-113.4
40 ILCS 5/1-113.4a
40 ILCS 5/1-113.14
40 ILCS 5/1-113.16
40 ILCS 5/1-113.20
40 ILCS 5/1-150
40 ILCS 5/3-135  from Ch. 108 1/2, par. 3-135

    Amends the General Provisions and Downstate Police Articles of the Illinois Pension Code. Removes provisions specifying, based on the net assets of the downstate police pension fund, types of investments that a downstate police pension fund may make. Removes certain limitations on the percentage of a downstate police pension fund's net assets that may be invested in certain types of investments. Provides that the board of a downstate police pension fund shall invest funds with the care, skill, prudence, and diligence that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of like character with like aims. Makes conforming changes. Effective immediately.


LRB101 10778 RPS 55900 b

FISCAL NOTE ACT MAY APPLY
PENSION IMPACT NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB3634LRB101 10778 RPS 55900 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 1-109.1, 1-113.2, 1-113.3, 1-109.1, 1-110, 1-110.6,
61-113.1, 1-113.4, 1-113.4a, 1-113.14, 1-113.16, 1-113.20,
71-150, and 3-135 as follows:
 
8    (40 ILCS 5/1-109.1)  (from Ch. 108 1/2, par. 1-109.1)
9    Sec. 1-109.1. Allocation and delegation of fiduciary
10duties.
11    (1) Subject to the provisions of Section 22A-113 of this
12Code and subsections (2) and (3) of this Section, the board of
13trustees of a retirement system or pension fund established
14under this Code may:
15        (a) Appoint one or more investment managers as
16    fiduciaries to manage (including the power to acquire and
17    dispose of) any assets of the retirement system or pension
18    fund; and
19        (b) Allocate duties among themselves and designate
20    others as fiduciaries to carry out specific fiduciary
21    activities other than the management of the assets of the
22    retirement system or pension fund.
23    (2) The board of trustees of a pension fund established

 

 

HB3634- 2 -LRB101 10778 RPS 55900 b

1under Article 5, 6, 8, 9, 10, 11, 12 or 17 of this Code may not
2transfer its investment authority, nor transfer the assets of
3the fund to any other person or entity for the purpose of
4consolidating or merging its assets and management with any
5other pension fund or public investment authority, unless the
6board resolution authorizing such transfer is submitted for
7approval to the contributors and pensioners of the fund at
8elections held not less than 30 days after the adoption of such
9resolution by the board, and such resolution is approved by a
10majority of the votes cast on the question in both the
11contributors election and the pensioners election. The
12election procedures and qualifications governing the election
13of trustees shall govern the submission of resolutions for
14approval under this paragraph, insofar as they may be made
15applicable.
16    (3) Pursuant to subsections (h) and (i) of Section 6 of
17Article VII of the Illinois Constitution, the investment
18authority of boards of trustees of retirement systems and
19pension funds established under this Code is declared to be a
20subject of exclusive State jurisdiction, and the concurrent
21exercise by a home rule unit of any power affecting such
22investment authority is hereby specifically denied and
23preempted.
24    (4) For the purposes of this Code, "emerging investment
25manager" means a qualified investment adviser that manages an
26investment portfolio of at least $10,000,000 but less than

 

 

HB3634- 3 -LRB101 10778 RPS 55900 b

1$10,000,000,000 and is a "minority-owned business",
2"women-owned business" or "business owned by a person with a
3disability" as those terms are defined in the Business
4Enterprise for Minorities, Women, and Persons with
5Disabilities Act.
6    It is hereby declared to be the public policy of the State
7of Illinois to encourage the trustees of public employee
8retirement systems, pension funds, and investment boards to use
9emerging investment managers in managing their system's
10assets, encompassing all asset classes, and increase the
11racial, ethnic, and gender diversity of its fiduciaries, to the
12greatest extent feasible within the bounds of financial and
13fiduciary prudence, and to take affirmative steps to remove any
14barriers to the full participation in investment opportunities
15afforded by those retirement systems, pension funds, and
16investment boards.
17    A On or before January 1, 2010, a retirement system,
18pension fund, or investment board subject to this Code, except
19those under Article 3 or 4 whose investments are restricted by
20Section 1-113.2 of this Code, shall adopt a policy that sets
21forth goals for utilization of emerging investment managers.
22This policy shall include quantifiable goals for the management
23of assets in specific asset classes by emerging investment
24managers. The retirement system, pension fund, or investment
25board shall establish 3 separate goals for: (i) emerging
26investment managers that are minority-owned businesses; (ii)

 

 

HB3634- 4 -LRB101 10778 RPS 55900 b

1emerging investment managers that are women-owned businesses;
2and (iii) emerging investment managers that are businesses
3owned by a person with a disability. The goals established
4shall be based on the percentage of total dollar amount of
5investment service contracts let to minority-owned businesses,
6women-owned businesses, and businesses owned by a person with a
7disability, as those terms are defined in the Business
8Enterprise for Minorities, Women, and Persons with
9Disabilities Act. The retirement system, pension fund, or
10investment board shall annually review the goals established
11under this subsection.
12    If in any case an emerging investment manager meets the
13criteria established by a board for a specific search and meets
14the criteria established by a consultant for that search, then
15that emerging investment manager shall receive an invitation by
16the board of trustees, or an investment committee of the board
17of trustees, to present his or her firm for final consideration
18of a contract. In the case where multiple emerging investment
19managers meet the criteria of this Section, the staff may
20choose the most qualified firm or firms to present to the
21board.
22    The use of an emerging investment manager does not
23constitute a transfer of investment authority for the purposes
24of subsection (2) of this Section.
25    (5) Each retirement system, pension fund, or investment
26board subject to this Code, except those under Article 3 or 4

 

 

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1whose investments are restricted by Section 1-113.2 of this
2Code, shall establish a policy that sets forth goals for
3increasing the racial, ethnic, and gender diversity of its
4fiduciaries, including its consultants and senior staff. Each
5retirement system, pension fund, or investment board shall make
6its best efforts to ensure that the racial and ethnic makeup of
7its senior administrative staff represents the racial and
8ethnic makeup of its membership. Each system, fund, and
9investment board shall annually review the goals established
10under this subsection.
11    (6) A On or before January 1, 2010, a retirement system,
12pension fund, or investment board subject to this Code, except
13those under Article 3 or 4 whose investments are restricted by
14Section 1-113.2 of this Code, shall adopt a policy that sets
15forth goals for utilization of businesses owned by minorities,
16women, and persons with disabilities for all contracts and
17services. The goals established shall be based on the
18percentage of total dollar amount of all contracts let to
19minority-owned businesses, women-owned businesses, and
20businesses owned by a person with a disability, as those terms
21are defined in the Business Enterprise for Minorities, Women,
22and Persons with Disabilities Act. The retirement system,
23pension fund, or investment board shall annually review the
24goals established under this subsection.
25    (7) A On or before January 1, 2010, a retirement system,
26pension fund, or investment board subject to this Code, except

 

 

HB3634- 6 -LRB101 10778 RPS 55900 b

1those under Article 3 or 4 whose investments are restricted by
2Section 1-113.2 of this Code, shall adopt a policy that sets
3forth goals for increasing the utilization of minority
4broker-dealers. For the purposes of this Code, "minority
5broker-dealer" means a qualified broker-dealer who meets the
6definition of "minority-owned business", "women-owned
7business", or "business owned by a person with a disability",
8as those terms are defined in the Business Enterprise for
9Minorities, Women, and Persons with Disabilities Act. The
10retirement system, pension fund, or investment board shall
11annually review the goals established under this Section.
12    (8) Each retirement system, pension fund, and investment
13board subject to this Code, except those under Article 3 or 4
14whose investments are restricted by Section 1-113.2 of this
15Code, shall submit a report to the Governor and the General
16Assembly by January 1 of each year that includes the following:
17(i) the policy adopted under subsection (4) of this Section,
18including the names and addresses of the emerging investment
19managers used, percentage of the assets under the investment
20control of emerging investment managers for the 3 separate
21goals, and the actions it has undertaken to increase the use of
22emerging investment managers, including encouraging other
23investment managers to use emerging investment managers as
24subcontractors when the opportunity arises; (ii) the policy
25adopted under subsection (5) of this Section; (iii) the policy
26adopted under subsection (6) of this Section; (iv) the policy

 

 

HB3634- 7 -LRB101 10778 RPS 55900 b

1adopted under subsection (7) of this Section, including
2specific actions undertaken to increase the use of minority
3broker-dealers; and (v) the policy adopted under subsection (9)
4of this Section.
5    (9) A On or before February 1, 2015, a retirement system,
6pension fund, or investment board subject to this Code, except
7those under Article 3 or 4 whose investments are restricted by
8Section 1-113.2 of this Code, shall adopt a policy that sets
9forth goals for increasing the utilization of minority
10investment managers. For the purposes of this Code, "minority
11investment manager" means a qualified investment manager that
12manages an investment portfolio and meets the definition of
13"minority-owned business", "women-owned business", or
14"business owned by a person with a disability", as those terms
15are defined in the Business Enterprise for Minorities, Women,
16and Persons with Disabilities Act.
17    It is hereby declared to be the public policy of the State
18of Illinois to encourage the trustees of public employee
19retirement systems, pension funds, and investment boards to use
20minority investment managers in managing their systems'
21assets, encompassing all asset classes, and to increase the
22racial, ethnic, and gender diversity of their fiduciaries, to
23the greatest extent feasible within the bounds of financial and
24fiduciary prudence, and to take affirmative steps to remove any
25barriers to the full participation in investment opportunities
26afforded by those retirement systems, pension funds, and

 

 

HB3634- 8 -LRB101 10778 RPS 55900 b

1investment boards.
2    The retirement system, pension fund, or investment board
3shall establish 3 separate goals for: (i) minority investment
4managers that are minority-owned businesses; (ii) minority
5investment managers that are women-owned businesses; and (iii)
6minority investment managers that are businesses owned by a
7person with a disability. The retirement system, pension fund,
8or investment board shall annually review the goals established
9under this Section.
10    If in any case a minority investment manager meets the
11criteria established by a board for a specific search and meets
12the criteria established by a consultant for that search, then
13that minority investment manager shall receive an invitation by
14the board of trustees, or an investment committee of the board
15of trustees, to present his or her firm for final consideration
16of a contract. In the case where multiple minority investment
17managers meet the criteria of this Section, the staff may
18choose the most qualified firm or firms to present to the
19board.
20    The use of a minority investment manager does not
21constitute a transfer of investment authority for the purposes
22of subsection (2) of this Section.
23    (10) It Beginning January 1, 2016, it shall be the
24aspirational goal for a retirement system, pension fund, or
25investment board subject to this Code to use emerging
26investment managers for not less than 20% of the total funds

 

 

HB3634- 9 -LRB101 10778 RPS 55900 b

1under management. Furthermore, it shall be the aspirational
2goal that not less than 20% of investment advisors be
3minorities, women, and persons with disabilities as those terms
4are defined in the Business Enterprise for Minorities, Women,
5and Persons with Disabilities Act. It shall be the aspirational
6goal to utilize businesses owned by minorities, women, and
7persons with disabilities for not less than 20% of contracts
8awarded for "information technology services", "accounting
9services", "insurance brokers", "architectural and engineering
10services", and "legal services" as those terms are defined in
11the Act.
12(Source: P.A. 99-462, eff. 8-25-15; 100-391, eff. 8-25-17;
13100-902, eff. 8-17-18.)
 
14    (40 ILCS 5/1-110)  (from Ch. 108 1/2, par. 1-110)
15    Sec. 1-110. Prohibited Transactions.
16    (a) A fiduciary with respect to a retirement system,
17pension fund, or investment board shall not cause the
18retirement system or pension fund to engage in a transaction if
19he or she knows or should know that such transaction
20constitutes a direct or indirect:
21        (1) Sale or exchange, or leasing of any property from
22    the retirement system or pension fund to a party in
23    interest for less than adequate consideration, or from a
24    party in interest to a retirement system or pension fund
25    for more than adequate consideration.

 

 

HB3634- 10 -LRB101 10778 RPS 55900 b

1        (2) Lending of money or other extension of credit from
2    the retirement system or pension fund to a party in
3    interest without the receipt of adequate security and a
4    reasonable rate of interest, or from a party in interest to
5    a retirement system or pension fund with the provision of
6    excessive security or an unreasonably high rate of
7    interest.
8        (3) Furnishing of goods, services or facilities from
9    the retirement system or pension fund to a party in
10    interest for less than adequate consideration, or from a
11    party in interest to a retirement system or pension fund
12    for more than adequate consideration.
13        (4) Transfer to, or use by or for the benefit of, a
14    party in interest of any assets of a retirement system or
15    pension fund for less than adequate consideration.
16    (b) A fiduciary with respect to a retirement system or
17pension fund established under this Code shall not:
18        (1) Deal with the assets of the retirement system or
19    pension fund in his own interest or for his own account;
20        (2) In his individual or any other capacity act in any
21    transaction involving the retirement system or pension
22    fund on behalf of a party whose interests are adverse to
23    the interests of the retirement system or pension fund or
24    the interests of its participants or beneficiaries; or
25        (3) Receive any consideration for his own personal
26    account from any party dealing with the retirement system

 

 

HB3634- 11 -LRB101 10778 RPS 55900 b

1    or pension fund in connection with a transaction involving
2    the assets of the retirement system or pension fund.
3    (c) Nothing in this Section shall be construed to prohibit
4any trustee from:
5        (1) Receiving any benefit to which he may be entitled
6    as a participant or beneficiary in the retirement system or
7    pension fund.
8        (2) Receiving any reimbursement of expenses properly
9    and actually incurred in the performance of his duties with
10    the retirement system or pension fund.
11        (3) Serving as a trustee in addition to being an
12    officer, employee, agent or other representative of a party
13    in interest.
14    (d) A fiduciary of a pension fund established under Article
153 or 4 shall not knowingly cause or advise the pension fund to
16engage in an investment transaction when the fiduciary (i) has
17any direct interest in the income, gains, or profits of the
18investment adviser through which the investment transaction is
19made or (ii) has a business relationship with that investment
20adviser that would result in a pecuniary benefit to the
21fiduciary as a result of the investment transaction.
22    Violation of this subsection (d) is a Class 4 felony.
23    (e) A board member, employee, or consultant with respect to
24a retirement system, pension fund, or investment board subject
25to this Code, except those under Article 3 or 4 whose
26investments are restricted by Section 1-113.2, shall not

 

 

HB3634- 12 -LRB101 10778 RPS 55900 b

1knowingly cause or advise the retirement system, pension fund,
2or investment board to engage in an investment transaction with
3an investment adviser when the board member, employee,
4consultant, or their spouse (i) has any direct interest in the
5income, gains, or profits of the investment adviser through
6which the investment transaction is made or (ii) has a
7relationship with that investment adviser that would result in
8a pecuniary benefit to the board member, employee, or
9consultant or spouse of such board member, employee, or
10consultant as a result of the investment transaction. For
11purposes of this subsection (e), a consultant includes an
12employee or agent of a consulting firm who has greater than
137.5% ownership of the consulting firm.
14    Violation of this subsection (e) is a Class 4 felony.
15(Source: P.A. 95-950, eff. 8-29-08; 96-6, eff. 4-3-09.)
 
16    (40 ILCS 5/1-113.1)
17    Sec. 1-113.1. Investment authority of pension funds
18established under Article 3 or 4. The board of trustees of a
19police pension fund established under Article 3 of this Code or
20firefighter pension fund established under Article 4 of this
21Code shall draw pension funds from the treasurer of the
22municipality and, beginning January 1, 1998, invest any part
23thereof in the name of the board in the items listed in
24Sections 1-113.2 through 1-113.4 according to the limitations
25and requirements of this Article. These investments shall be

 

 

HB3634- 13 -LRB101 10778 RPS 55900 b

1made with the care, skill, prudence, and diligence that a
2prudent person acting in like capacity and familiar with such
3matters would use in the conduct of an enterprise of like
4character with like aims.
5    Interest and any other income from the investments shall be
6credited to the pension fund.
7    For the purposes of Sections 1-113.2 through 1-113.11, the
8"net assets" of a pension fund include both the cash and
9invested assets of the pension fund.
10(Source: P.A. 90-507, eff. 8-22-97.)
 
11    (40 ILCS 5/1-113.2)
12    Sec. 1-113.2. List of permitted investments for all Article
133 or 4 pension funds. Any pension fund established under
14Article 3 or 4 may invest in the following items:
15    (1) Interest bearing direct obligations of the United
16States of America.
17    (2) Interest bearing obligations to the extent that they
18are fully guaranteed or insured as to payment of principal and
19interest by the United States of America.
20    (3) Interest bearing bonds, notes, debentures, or other
21similar obligations of agencies of the United States of
22America. For the purposes of this Section, "agencies of the
23United States of America" includes: (i) the Federal National
24Mortgage Association and the Student Loan Marketing
25Association; (ii) federal land banks, federal intermediate

 

 

HB3634- 14 -LRB101 10778 RPS 55900 b

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

 

 

HB3634- 15 -LRB101 10778 RPS 55900 b

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

 

 

HB3634- 16 -LRB101 10778 RPS 55900 b

1    classifications, and (C) the obligations held by the mutual
2    fund do not exceed 10% of the corporation's outstanding
3    obligations.
4    (12) General accounts of life insurance companies
5authorized to transact business in Illinois.
6    (13) Any combination of the following, not to exceed 10% of
7the pension fund's net assets:
8        (i) separate accounts that are managed by life
9    insurance companies authorized to transact business in
10    Illinois and are comprised of diversified portfolios
11    consisting of common or preferred stocks, bonds, or money
12    market instruments;
13        (ii) separate accounts that are managed by insurance
14    companies authorized to transact business in Illinois, and
15    are comprised of real estate or loans upon real estate
16    secured by first or second mortgages; and
17        (iii) mutual funds that meet the following
18    requirements:
19            (A) the mutual fund is managed by an investment
20        company as defined and registered under the federal
21        Investment Company Act of 1940 and registered under the
22        Illinois Securities Law of 1953;
23            (B) the mutual fund has been in operation for at
24        least 5 years;
25            (C) the mutual fund has total net assets of $250
26        million or more; and

 

 

HB3634- 17 -LRB101 10778 RPS 55900 b

1            (D) the mutual fund is comprised of diversified
2        portfolios of common or preferred stocks, bonds, or
3        money market instruments.
4    (14) Corporate bonds managed through an investment advisor
5must meet all of the following requirements:
6        (1) The bonds must be rated as investment grade by one
7    of the 2 largest rating services at the time of purchase.
8        (2) If subsequently downgraded below investment grade,
9    the bonds must be liquidated from the portfolio within 90
10    days after being downgraded by the manager.
11(Source: P.A. 96-1495, eff. 1-1-11.)
 
12    (40 ILCS 5/1-113.3)
13    Sec. 1-113.3. List of additional permitted investments for
14pension funds with net assets of $2,500,000 or more.
15    (a) In addition to the items in Section 3-113.2, a pension
16fund established under Article 3 or 4 that has net assets of at
17least $2,500,000 may invest a portion of its net assets in the
18following items:
19        (1) Separate accounts that are managed by life
20    insurance companies authorized to transact business in
21    Illinois and are comprised of diversified portfolios
22    consisting of common or preferred stocks, bonds, or money
23    market instruments.
24        (2) Mutual funds that meet the following requirements:
25            (i) the mutual fund is managed by an investment

 

 

HB3634- 18 -LRB101 10778 RPS 55900 b

1        company as defined and registered under the federal
2        Investment Company Act of 1940 and registered under the
3        Illinois Securities Law of 1953;
4            (ii) the mutual fund has been in operation for at
5        least 5 years;
6            (iii) the mutual fund has total net assets of $250
7        million or more; and
8            (iv) the mutual fund is comprised of diversified
9        portfolios of common or preferred stocks, bonds, or
10        money market instruments.
11    (b) A pension fund's total investment in the items
12authorized under this Section shall not exceed 35% of the
13market value of the pension fund's net present assets stated in
14its most recent annual report on file with the Illinois
15Department of Insurance.
16(Source: P.A. 90-507, eff. 8-22-97.)
 
17    (40 ILCS 5/1-113.4)
18    Sec. 1-113.4. List of additional permitted investments for
19pension funds with net assets of $5,000,000 or more.
20    (a) In addition to the items in Sections 1-113.2 and
211-113.3, a pension fund established under Article 3 or 4 that
22has net assets of at least $5,000,000 and has appointed an
23investment adviser under Section 1-113.5 may, through that
24investment adviser, invest a portion of its assets in common
25and preferred stocks authorized for investments of trust funds

 

 

HB3634- 19 -LRB101 10778 RPS 55900 b

1under the laws of the State of Illinois. The stocks must meet
2all of the following requirements:
3        (1) The common stocks are listed on a national
4    securities exchange or board of trade (as defined in the
5    federal Securities Exchange Act of 1934 and set forth in
6    subdivision G of Section 3 of the Illinois Securities Law
7    of 1953) or quoted in the National Association of
8    Securities Dealers Automated Quotation System National
9    Market System (NASDAQ NMS).
10        (2) The securities are of a corporation created or
11    existing under the laws of the United States or any state,
12    district, or territory thereof and the corporation has been
13    in existence for at least 5 years.
14        (3) The corporation has not been in arrears on payment
15    of dividends on its preferred stock during the preceding 5
16    years.
17        (4) The market value of stock in any one corporation
18    does not exceed 5% of the cash and invested assets of the
19    pension fund, and the investments in the stock of any one
20    corporation do not exceed 5% of the total outstanding stock
21    of that corporation.
22        (5) The straight preferred stocks or convertible
23    preferred stocks are issued or guaranteed by a corporation
24    whose common stock qualifies for investment by the board.
25        (6) The issuer of the stocks has been subject to the
26    requirements of Section 12 of the federal Securities

 

 

HB3634- 20 -LRB101 10778 RPS 55900 b

1    Exchange Act of 1934 and has been current with the filing
2    requirements of Sections 13 and 14 of that Act during the
3    preceding 3 years.
4    (b) A pension fund's total investment in the items
5authorized under this Section and Section 1-113.3 shall not
6exceed 35% of the market value of the pension fund's net
7present assets stated in its most recent annual report on file
8with the Illinois Department of Insurance.
9    (c) A pension fund that invests funds under this Section
10shall electronically file with the Division any reports of its
11investment activities that the Division may require, at the
12times and in the format required by the Division.
13(Source: P.A. 100-201, eff. 8-18-17.)
 
14    (40 ILCS 5/1-113.4a)
15    Sec. 1-113.4a. List of additional permitted investments
16for Article 3 and 4 pension funds with net assets of
17$10,000,000 or more.
18    (a) In addition to the items in Sections 1-113.2 and
191-113.3, a pension fund established under Article 3 or 4 that
20has net assets of at least $10,000,000 and has appointed an
21investment adviser, as defined under Sections 1-101.4 and
221-113.5, may, through that investment adviser, invest an
23additional portion of its assets in common and preferred stocks
24and mutual funds.
25    (b) The stocks must meet all of the following requirements:

 

 

HB3634- 21 -LRB101 10778 RPS 55900 b

1        (1) The common stocks must be listed on a national
2    securities exchange or board of trade (as defined in the
3    Federal Securities Exchange Act of 1934 and set forth in
4    paragraph G of Section 3 of the Illinois Securities Law of
5    1953) or quoted in the National Association of Securities
6    Dealers Automated Quotation System National Market System.
7        (2) The securities must be of a corporation in
8    existence for at least 5 years.
9        (3) The market value of stock in any one corporation
10    may not exceed 5% of the cash and invested assets of the
11    pension fund, and the investments in the stock of any one
12    corporation may not exceed 5% of the total outstanding
13    stock of that corporation.
14        (4) The straight preferred stocks or convertible
15    preferred stocks must be issued or guaranteed by a
16    corporation whose common stock qualifies for investment by
17    the board.
18    (c) The mutual funds must meet the following requirements:
19        (1) The mutual fund must be managed by an investment
20    company registered under the Federal Investment Company
21    Act of 1940 and registered under the Illinois Securities
22    Law of 1953.
23        (2) The mutual fund must have been in operation for at
24    least 5 years.
25        (3) The mutual fund must have total net assets of
26    $250,000,000 or more.

 

 

HB3634- 22 -LRB101 10778 RPS 55900 b

1        (4) The mutual fund must be comprised of a diversified
2    portfolio of common or preferred stocks, bonds, or money
3    market instruments.
4    (d) A pension fund's total investment in the items
5authorized under this Section and Section 1-113.3 shall not
6exceed 50% effective July 1, 2011 and 55% effective July 1,
72012 of the market value of the pension fund's net present
8assets stated in its most recent annual report on file with the
9Department of Insurance.
10    (e) A pension fund that invests funds under this Section
11shall electronically file with the Division any reports of its
12investment activities that the Division may require, at the
13time and in the format required by the Division.
14(Source: P.A. 96-1495, eff. 1-1-11.)
 
15    (40 ILCS 5/1-113.14)
16    Sec. 1-113.14. Investment services for retirement systems,
17pension funds, and investment boards, except those funds
18established under Articles 3 and 4.
19    (a) For the purposes of this Section, "investment services"
20means services provided by an investment adviser or a
21consultant other than qualified fund-of-fund management
22services as defined in Section 1-113.15.
23    (b) The selection and appointment of an investment adviser
24or consultant for investment services by the board of a
25retirement system, pension fund, or investment board subject to

 

 

HB3634- 23 -LRB101 10778 RPS 55900 b

1this Code, except those under Article 3 or 4 whose investments
2are restricted by Section 1-113.2, shall be made and awarded in
3accordance with this Section. All contracts for investment
4services shall be awarded by the board using a competitive
5process that is substantially similar to the process required
6for the procurement of professional and artistic services under
7Article 35 of the Illinois Procurement Code. Each board of
8trustees shall adopt a policy in accordance with this
9subsection (b) within 60 days after the effective date of this
10amendatory Act of the 96th General Assembly. The policy shall
11be posted on its web site and filed with the Illinois
12Procurement Policy Board. Exceptions to this Section are
13allowed for (i) sole source procurements, (ii) emergency
14procurements, (iii) at the discretion of the pension fund,
15retirement system, or board of investment, contracts that are
16nonrenewable and one year or less in duration, so long as the
17contract has a value of less than $20,000, and (iv) in the
18discretion of the pension fund, retirement system, or
19investment board, contracts for follow-on funds with the same
20fund sponsor through closed-end funds. All exceptions granted
21under this Section must be published on the system's, fund's,
22or board's web site, shall name the person authorizing the
23procurement, and shall include a brief explanation of the
24reason for the exception.
25    A person, other than a trustee or an employee of a
26retirement system, pension fund, or investment board, may not

 

 

HB3634- 24 -LRB101 10778 RPS 55900 b

1act as a consultant or investment adviser under this Section
2unless that person is registered as an investment adviser under
3the federal Investment Advisers Act of 1940 (15 U.S.C. 80b-1,
4et seq.) or a bank, as defined in the federal Investment
5Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.).
6    (c) Investment services provided by an investment adviser
7or a consultant appointed under this Section shall be rendered
8pursuant to a written contract between the investment adviser
9or consultant and the board.
10    The contract shall include all of the following:
11        (1) Acknowledgement in writing by the investment
12    adviser or consultant that he or she is a fiduciary with
13    respect to the pension fund or retirement system.
14        (2) The description of the board's investment policy
15    and notice that the policy is subject to change.
16        (3) (i) Full disclosure of direct and indirect fees,
17    commissions, penalties, and other compensation, including
18    reimbursement for expenses, that may be paid by or on
19    behalf of the consultant in connection with the provision
20    of services to the pension fund or retirement system and
21    (ii) a requirement that the consultant update the
22    disclosure promptly after a modification of those payments
23    or an additional payment.
24        (4) A requirement that the investment adviser or
25    consultant, in conjunction with the board's staff, submit
26    periodic written reports, on at least a quarterly basis,

 

 

HB3634- 25 -LRB101 10778 RPS 55900 b

1    for the board's review at its regularly scheduled meetings.
2    All returns on investment shall be reported as net returns
3    after payment of all fees, commissions, and any other
4    compensation.
5        (5) Disclosure of the names and addresses of (i) the
6    consultant or investment adviser; (ii) any entity that is a
7    parent of, or owns a controlling interest in, the
8    consultant or investment adviser; (iii) any entity that is
9    a subsidiary of, or in which a controlling interest is
10    owned by, the consultant or investment adviser; (iv) any
11    persons who have an ownership or distributive income share
12    in the consultant or investment adviser that is in excess
13    of 7.5%; or (v) serves as an executive officer of the
14    consultant or investment adviser.
15        (6) A disclosure of the names and addresses of all
16    subcontractors, if applicable, and the expected amount of
17    money each will receive under the contract, including an
18    acknowledgment that the contractor must promptly make
19    notification, in writing, if at any time during the term of
20    the contract a contractor adds or changes any
21    subcontractors. For purposes of this subparagraph (6),
22    "subcontractor" does not include non-investment related
23    professionals or professionals offering services that are
24    not directly related to the investment of assets, such as
25    legal counsel, actuary, proxy-voting services, services
26    used to track compliance with legal standards, and

 

 

HB3634- 26 -LRB101 10778 RPS 55900 b

1    investment fund of funds where the board has no direct
2    contractual relationship with the investment advisers or
3    partnerships.
4        (7) A description of service to be performed.
5        (8) A description of the need for the service.
6        (9) A description of the plan for post-performance
7    review.
8        (10) A description of the qualifications necessary.
9        (11) The duration of the contract.
10        (12) The method for charging and measuring cost.
11    (d) Notwithstanding any other provision of law, a
12retirement system, pension fund, or investment board subject to
13this Code, except those under Article 3 or 4 whose investments
14are restricted by Section 1-113.2 of this Code, shall not enter
15into a contract with a consultant that exceeds 5 years in
16duration. No contract to provide consulting services may be
17renewed or extended. At the end of the term of a contract,
18however, the consultant is eligible to compete for a new
19contract as provided in this Section. No retirement system,
20pension fund, or investment board shall attempt to avoid or
21contravene the restrictions of this subsection (d) by any
22means.
23    (e) Within 60 days after the effective date of this
24amendatory Act of the 96th General Assembly, each investment
25adviser or consultant currently providing services or subject
26to an existing contract for the provision of services must

 

 

HB3634- 27 -LRB101 10778 RPS 55900 b

1disclose to the board of trustees all direct and indirect fees,
2commissions, penalties, and other compensation paid by or on
3behalf of the investment adviser or consultant in connection
4with the provision of those services and shall update that
5disclosure promptly after a modification of those payments or
6an additional payment. The person shall update the disclosure
7promptly after a modification of those payments or an
8additional payment. The disclosures required by this
9subsection (e) shall be in writing and shall include the date
10and amount of each payment and the name and address of each
11recipient of a payment.
12    (f) The retirement system, pension fund, or board of
13investment shall develop uniform documents that shall be used
14for the solicitation, review, and acceptance of all investment
15services. The form shall include the terms contained in
16subsection (c) of this Section. All such uniform documents
17shall be posted on the retirement system's, pension fund's, or
18investment board's web site.
19    (g) A description of every contract for investment services
20shall be posted in a conspicuous manner on the web site of the
21retirement system, pension fund, or investment board. The
22description must include the name of the person or entity
23awarded a contract, the total amount applicable to the
24contract, the total fees paid or to be paid, and a disclosure
25approved by the board describing the factors that contributed
26to the selection of an investment adviser or consultant.

 

 

HB3634- 28 -LRB101 10778 RPS 55900 b

1(Source: P.A. 98-433, eff. 8-16-13.)
 
2    (40 ILCS 5/1-113.16)
3    Sec. 1-113.16. Investment transparency.
4    (a) The purpose of this Section is to provide for
5transparency in the investment of retirement or pension funds
6and require the reporting of full and complete information
7regarding the investments by pension funds, retirement
8systems, and investment boards.
9    (b) A retirement system, pension fund, or investment board
10subject to this Code and any committees established by such
11system, fund, or board must comply with the Open Meetings Act.
12    (c) Any retirement system, pension fund, or investment
13board subject to this Code that establishes a committee shall
14ensure that the majority of the members on such committee are
15board members. If any member of a committee is not a member of
16the board for the system, fund, or board, then that committee
17member shall be a fiduciary.
18    (d) A retirement system, pension fund, or investment board
19subject to this Code, except those under Article 3 or 4 whose
20investments are restricted by Section 1-113.2, shall maintain
21an official web site and make available in a clear and
22conspicuous manner, and update at least quarterly, all of the
23following information concerning the investment of funds:
24        (1) The total amount of funds held by the pension fund,
25    retirement system, or investment board.

 

 

HB3634- 29 -LRB101 10778 RPS 55900 b

1        (2) The asset allocation for the investments made by
2    the pension fund, retirement system, or investment board.
3        (3) Current and historic return information.
4        (4) A detailed listing of the investment advisers for
5    all asset classes.
6        (5) Performance of investments compared against
7    established benchmarks.
8        (6) A detailed list of all consultants doing business
9    with the retirement system, pension fund, or investment
10    board.
11        (7) A detailed list of all contractors, other than
12    investment advisers and consultants, doing business with
13    the retirement system, pension fund, or investment board.
14        (8) Any requests for investment services.
15        (9) The names and email addresses of all board members,
16    directors, and senior staff.
17        (10) The report required under Section 1-109.1 of this
18    Code, if applicable.
19        (11) The description of each contract required under
20    subsection (g) of Section 1-113.14 of this Code, if
21    applicable.
22    (e) A pension fund under Article 3 or 4 whose investments
23are restricted by Section 1-113.2 of this Code shall make the
24information required in subsection (d) of this Section
25available on its web site or in a location that allows the
26information to be available for inspection by the public.

 

 

HB3634- 30 -LRB101 10778 RPS 55900 b

1    (f) Nothing in this Section requires the pension fund,
2retirement system, or investment board to make information
3available on the Internet that is exempt from inspection and
4copying under the Freedom of Information Act.
5(Source: P.A. 96-6, eff. 4-3-09.)
 
6    (40 ILCS 5/1-113.20)
7    Sec. 1-113.20. Investment strategies; explicit and
8implicit costs. Every pension fund, retirement system, and
9investment board created under this Code, except those under
10Article 3 or 4 whose investments are restricted by Section
111-113.2 of this Code, shall instruct the fund's, system's, or
12board's investment advisors to utilize investment strategies
13designed to ensure that all securities transactions are
14executed in such a manner that the total explicit and implicit
15costs and total proceeds in every transaction are the most
16favorable under the circumstances.
17(Source: P.A. 96-753, eff. 8-25-09.)
 
18    (40 ILCS 5/1-150)
19    Sec. 1-150. Approval of travel or educational mission. The
20expenses for travel or educational missions of a board member
21of a retirement system, pension fund, or investment board
22created under this Code, except those under Article 3 or 4
23whose investments are restricted by Section 1-113.2 of this
24Code, must be approved by a majority of the board prior to the

 

 

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1travel or educational mission.
2(Source: P.A. 96-6, eff. 4-3-09.)
 
3    (40 ILCS 5/3-135)  (from Ch. 108 1/2, par. 3-135)
4    Sec. 3-135. To invest funds. The board shall invest funds
5with the care, skill, prudence, and diligence that a prudent
6person acting in like capacity and familiar with such matters
7would use in the conduct of an enterprise of like character
8with like aims Beginning January 1, 1998, the board shall
9invest funds in accordance with Sections 1-113.1 through
101-113.10 of this Code.
11(Source: P.A. 90-507, eff. 8-22-97.)
 
12    Section 99. Effective date. This Act takes effect upon
13becoming law.