SF 496

Introduction - 84th Legislature (2005 - 2006)

Posted on 12/15/2009 12:00 a.m.

A bill for an act
relating to retirement; local retirement plans;
requiring the investment of plan assets by the State
Board of Investment; amending Minnesota Statutes 2004,
sections 69.77, subdivision 9; 354A.021, subdivision
3; 354A.08; 422A.01, subdivision 13; 422A.05,
subdivisions 1, 2a, 2c, 6; 422A.06, subdivisions 1, 4,
5, 8; 422A.12, subdivision 2; 423B.04, subdivisions 2,
4; 423C.02, subdivision 1; 423C.04, subdivision 1.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2004, section 69.77,
subdivision 9, is amended to read:

Subd. 9.

Local police and paid fire relief association
investment authority.

(a) new text begin The funds of the retirement plans
enumerated in clauses (2), (3), (4), and (5) of subdivision 1a
must be invested by the State Board of Investment under section
11A.14.
new text end

new text begin (b) new text end The funds of deleted text begin the association deleted text end new text begin retirement plans not
referenced in paragraph (a) new text end must be invested in securities that
are authorized investments under section 356A.06, subdivision 6
or 7, whichever applies. Up to 75 percent of the market value
of the assets of the fund may be invested in open-end investment
companies registered under the federal Investment Company Act of
1940, if the portfolio investments of the investment companies
comply with the type of securities authorized for investment
under section 356A.06, subdivision 7. Securities held by the
association before June 2, 1989, that do not meet the
requirements of this subdivision may be retained after that date
if they were proper investments for the association on that date.

deleted text begin (b) deleted text end new text begin (c) new text end The governing board of deleted text begin the deleted text end new text begin an new text end association new text begin not
referenced in paragraph (a) new text end may select and appoint investment
agencies to act for and in its behalf or may certify special
fund assets for investment by the State Board of Investment
under section 11A.17. The governing board of the association
may certify general fund assets of the relief association for
investment by the State Board of Investment in fixed income
pools or in a separately managed account at the discretion of
the State Board of Investment as provided in section 11A.14.
The governing board of the association may select and appoint a
qualified private firm to measure management performance and
return on investment, and the firm shall use the formula or
formulas developed by the state board under section 11A.04,
clause (11).

Sec. 2.

Minnesota Statutes 2004, section 354A.021,
subdivision 3, is amended to read:

Subd. 3.

Fund.

new text begin (a) new text end Within each teachers retirement fund
association there deleted text begin shall be deleted text end new text begin is new text end created a special retirement fund,
which deleted text begin shall deleted text end new text begin must new text end include all of the assets of the teachers
retirement fund association other than assets of a tax sheltered
annuity program and fund authorized deleted text begin pursuant to deleted text end new text begin under
new text end subdivision 5 which were acquired for the specific purpose of
being credited to that fund. The special retirement fund deleted text begin shall
deleted text end new text begin must new text end be credited with all employee and employer contributions,
all interest and all other income authorized by law. Within the
special retirement fund there may be established separate
special retirement fund accounts for the purpose of providing
convenience in the funding of and accounting for retirement
annuities and any authorized ancillary benefits.

new text begin (b) The special retirement fund of a teachers retirement
fund association must be invested by the State Board of
Investment under section 11A.14. The chief administrative
officer of the teacher retirement fund association shall, from
time to time, certify to the executive director of the State
Board of Investment any portions of the fund that are not
required for immediate use. The State Board of Investment shall
invest and reinvest the amounts so transferred or certified in
securities that are duly authorized legal investments under
section 356A.06, subdivision 7.
new text end

Sec. 3.

Minnesota Statutes 2004, section 354A.08, is
amended to read:

354A.08 AUTHORIZED deleted text begin INVESTMENTS deleted text end new text begin RECEIPTS new text end .

A teachers retirement fund association may receive deleted text begin , hold,
and dispose of deleted text end real estate or personal property deleted text begin acquired by it,
whether the acquisition was by purchase, or any other lawful
means, as provided in this chapter or in the association's
articles of incorporation. In addition to other authorized real
estate investments, an association may also invest funds in
Minnesota situs nonfarm real estate ownership interests or loans
secured by mortgages or deeds of trust deleted text end .

Sec. 4.

Minnesota Statutes 2004, section 422A.01,
subdivision 13, is amended to read:

Subd. 13.

Postretirement investment fund annuity.

"Postretirement investment fund annuity" means all retirement
and disability payments made by the fund deleted text begin under the terms of
sections 422A.01 to 422A.25 as adjusted from time to time. This
does not include payments, if any, from sources other than deleted text end new text begin from
its new text end participation in the Minnesota postretirement investment
fund.

Sec. 5.

Minnesota Statutes 2004, section 422A.05,
subdivision 1, is amended to read:

Subdivision 1.

Power over deleted text begin funds deleted text end new text begin plan new text end .

new text begin (a) new text end The members of
the retirement board deleted text begin shall be deleted text end new text begin are new text end the trustees deleted text begin and custodians deleted text end of
the deleted text begin several funds deleted text end new text begin retirement plan new text end created by sections 422A.01 to
422A.25 deleted text begin and shall have deleted text end new text begin .
new text end

new text begin (b) The State Board of Investment has new text end exclusive control and
management of these funds, and power to invest deleted text begin them deleted text end new text begin the funds
created under this chapter new text end and to hold, purchase, sell, assign,
transfer, or dispose of any of the securities and investments in
which any of the funds created by sections 422A.01 to
422A.25 deleted text begin shall deleted text end have been invested as well as the proceeds of the
investments, and of the money belonging to these funds. The
power to manage and invest the assets of the funds must be
exercised by the deleted text begin retirement deleted text end new text begin State new text end Board new text begin of Investment new text end solely
deleted text begin through professional investment or property management firms
that are independent of the retirement fund. No financial or
property assets of the funds may be managed, serviced, or
invested internally or in-house at the retirement fund, except
that any investment held by a fund on February 1, 1993, that is
not readily tradable on an established securities exchange may
continue to be managed directly by the retirement board until
the investment is converted to cash. The retirement board's
functions under this section consist primarily of establishing
and effectuating investment policy and structure, managing the
investment process, monitoring and measuring the performance of
the external independent professional investment or property
management firms, retaining or terminating agreements with these
firms, apportioning the assets of the funds to be managed among
these firms, and making financial decisions on issues if
approvals have been specifically reserved by and to the board deleted text end .

Sec. 6.

Minnesota Statutes 2004, section 422A.05,
subdivision 2a, is amended to read:

Subd. 2a.

Fiduciary duty.

deleted text begin (a) deleted text end In the discharge of their
respective duties, the members of the board, the executive
director, the board staff, and any person charged with the
responsibility of servicing assets of the funds pursuant to the
standards set forth in this chapter shall act in good faith and
shall exercise that degree of judgment and care, under
circumstances then prevailing, which persons of prudence,
discretion, and intelligence exercise in the management of their
own affairs deleted text begin , not for speculation, but for investment,
considering the probable safety of their capital as well as the
probable income to be derived therefrom deleted text end . In addition, the
members of the board and the chief administrative officer shall
act in a manner consistent with chapter 356A.

deleted text begin (b) Individuals authorized by the board to manage or invest
the assets of the funds must act in a manner consistent with
chapter 356A. In addition, these individuals must act in good
faith and exercise that degree of judgment, skill, diligence,
and care, under the circumstances then prevailing, that persons
of prudence, discretion, and intelligence acting in a like
capacity and familiar with the activity would exercise.
deleted text end

Sec. 7.

Minnesota Statutes 2004, section 422A.05,
subdivision 2c, is amended to read:

Subd. 2c.

Minneapolis employees retirement fund
investment authority.

(a) deleted text begin For investments made on or after July
1, 1991, deleted text end The new text begin State new text end Board new text begin of Investment new text end shall invest funds only
in investments authorized by section 356A.06, subdivision 7.

deleted text begin (b) However, in addition to real estate investments
authorized under paragraph (a), the board may also make loans to
purchasers of Minnesota situs nonfarm residential real estate
that is owned by the Minneapolis Employees Retirement Fund. The
loans must be secured by mortgages or deeds of trust.
deleted text end

deleted text begin (c) For investments made before July 1, 1991, the board
may, but is not required to, comply with paragraph (a).
However, with respect to these investments, the board shall act
in accordance with subdivision 2a and chapter 356A.
deleted text end

new text begin (b) The executive director of the retirement plan shall,
from time to time, certify to the executive director of the
State Board of Investment any portions of the fund that are not
required for immediate use.
new text end

new text begin (c) Assets from the fund must be transferred to the
Minnesota postretirement investment fund as provided in section
11A.18.
new text end

Sec. 8.

Minnesota Statutes 2004, section 422A.05,
subdivision 6, is amended to read:

Subd. 6.

Special funds.

new text begin (a) new text end The board may, in carrying
out the provisions of sections 422A.01 to 422A.25, establish
special funds supplementing individual contributions by the
employees and to receive deleted text begin , invest, deleted text end and disburse for such purpose
all moneys in the form of donations, gifts, legacies, bequests,
or otherwise which may be contributed by private individuals or
corporations or organizations for the benefit of the city
employees generally, or any special employee or class of
employees of the city.

new text begin (b) Special funds under this subdivision must be invested
by the State Board of Investment.
new text end

Sec. 9.

Minnesota Statutes 2004, section 422A.06,
subdivision 1, is amended to read:

Subdivision 1.

Creation; divisions of fund.

new text begin (a) new text end For the
purposes of this chapter, there is established the Minneapolis
Employees Retirement Fund.

new text begin (b) new text end That retirement fund is subdivided into (1) a deposit
accumulation fund, (2) a survivor benefit fund, (3) a disability
benefit fund, and (4) a deleted text begin retirement benefit deleted text end new text begin participation in the
Minnesota postretirement investment new text end fund.

new text begin (c) new text end The expense of the administration of the retirement
fund must be paid from the deposit accumulation fund deleted text begin , less the
amount as the retirement board may charge against income of the
retirement benefit fund from investments as the cost of handling
the investments of the retirement benefit fund deleted text end .

Sec. 10.

Minnesota Statutes 2004, section 422A.06,
subdivision 4, is amended to read:

Subd. 4.

deleted text begin no deleted text end participation in the minnesota postretirement
investment fund.

The Minneapolis Employees Retirement
Fund deleted text begin shall not deleted text end new text begin must new text end participate in the Minnesota postretirement
investment fund.

Sec. 11.

Minnesota Statutes 2004, section 422A.06,
subdivision 5, is amended to read:

Subd. 5.

Transfer of reserves to deleted text begin retirement deleted text end new text begin the
disability new text end benefit fund; adjustments of annuities and benefits.

(a) Assets equal to the required reserves for deleted text begin retirement
annuities deleted text end new text begin disability benefits new text end as determined in accordance with
the appropriate mortality table adopted by the board of trustees
based on the experience of the fund as recommended by
the deleted text begin commission-retained deleted text end actuary new text begin retained under section 356.214
new text end and using the postretirement interest assumption specified in
section 356.215, subdivision 8, deleted text begin shall deleted text end new text begin must new text end be transferred to the
disability benefit fund as provided in subdivision 7, deleted text begin or the
retirement benefit fund, deleted text end except for any amounts payable from the
survivor benefit fund, as of date of retirement.

(b) Annuity payments deleted text begin shall deleted text end new text begin must new text end be adjusted in accordance
with this chapter, except that no minimum retirement payments
described in this chapter deleted text begin shall deleted text end new text begin must new text end include any amounts payable
from the survivors' benefit fund or disability benefit fund and
supplemented benefits specifically financed by statute.

(c) Increases in annuity payments deleted text begin pursuant to deleted text end new text begin under new text end this
section deleted text begin shall deleted text end new text begin must new text end be made automatically unless written notice
on a form prescribed by the board is filed with the retirement
board requesting that the increase not be made.

(d) Any additional annuity which began to accrue on July 1,
1973, or which began to accrue on January 1, 1974, deleted text begin pursuant to
deleted text end new text begin under new text end Laws 1973, chapter 770, section 1, deleted text begin shall deleted text end new text begin must new text end be
considered as part of the base amount to be used in determining
any postretirement adjustments payable deleted text begin pursuant to deleted text end new text begin under new text end the
provisions of subdivision 8.

Sec. 12.

Minnesota Statutes 2004, section 422A.06,
subdivision 8, is amended to read:

Subd. 8.

deleted text begin retirement benefit fund deleted text end new text begin minnesota postretirement
investment fund adjustments new text end .

(a) The new text begin required reserves for
new text end retirement deleted text begin benefit fund shall consist of amounts held for
payment of retirement allowances for members retired pursuant to
this chapter.
deleted text end

deleted text begin (b) Assets equal to the required reserves for retirement
allowances pursuant to this chapter determined in accordance
with the appropriate mortality table adopted by the board of
trustees based on the experience of the fund as recommended by
the commission-retained actuary shall be transferred from the
deposit accumulation fund to the retirement benefit fund as of
the last business day of the month in which the retirement
allowance begins. The income from investments of these assets
shall be allocated to this fund. There shall be paid from this
fund the retirement annuities authorized by law. A required
reserve calculation for the retirement benefit fund must be made
by the actuary retained by the Legislative Commission on
Pensions and Retirement and must be certified to the retirement
board by the commission-retained actuary.
deleted text end

deleted text begin (c) The retirement benefit fund shall be governed by the
applicable laws governing the accounting and audit procedures,
investment, actuarial requirements, calculation and payment of
postretirement benefit adjustments, discharge of any deficiency
in the assets of the fund when compared to the actuarially
determined required reserves, and other applicable operations
and procedures regarding the deleted text end new text begin allowances must be invested in the
Minnesota postretirement investment fund.
new text end

new text begin (b) Retirement annuities under this chapter must be
adjusted as part of the new text end Minnesota postretirement investment fund
deleted text begin in effect on June 30, 1997, established deleted text end under deleted text begin Minnesota Statutes
1996, deleted text end section 11A.18 deleted text begin , and any legal or administrative
interpretations of those laws of the State Board of Investment,
the legal advisor to the Board of Investment and the executive
director of the State Board of Investment in effect on June 30,
1997. If a deferred yield adjustment account is established for
the Minnesota postretirement investment fund before June 30,
1997, under Minnesota Statutes 1996, section 11A.18, subdivision
5, the retirement board shall also establish and maintain a
deferred yield adjustment account within this fund deleted text end .

deleted text begin (d) deleted text end new text begin (c) new text end Annually, following the calculation of any
postretirement adjustment payable from the retirement benefit
fund, the board of trustees shall submit a report to the
executive director of the Legislative Commission on Pensions and
Retirement and to the commissioner of finance indicating the
amount of any postretirement adjustment and the underlying
calculations on which that postretirement adjustment amount is
based deleted text begin , including the amount of dividends, the amount of
interest, and the amount of net realized capital gains or losses
utilized in the calculations deleted text end .

deleted text begin (e) deleted text end new text begin (d) new text end With respect to a former contributing member who
began receiving a retirement annuity or disability benefit under
section 422A.151, paragraph (a), clause (2), after June 30,
1997, or with respect to a survivor of a former contributing
member who began receiving a survivor benefit under section
422A.151, paragraph (a), clause (2), after June 30, 1997, the
reserves attributable to the one percent lower amount of the
cost-of-living adjustment payable to those annuity or benefit
recipients annually must be transferred back to the deposit
accumulation fund to the credit of the Metropolitan Airports
Commission. The calculation of this annual reduced
cost-of-living adjustment reserve transfer must be reviewed by
the actuary retained deleted text begin by the Legislative Commission on Pensions
and Retirement deleted text end new text begin under section 356.214 new text end .

Sec. 13.

Minnesota Statutes 2004, section 422A.12,
subdivision 2, is amended to read:

Subd. 2.

deleted text begin credits deleted text end new text begin contribution deposit new text end .

At the close of
each fiscal year new text begin , new text end there deleted text begin shall deleted text end new text begin must new text end be credited within the
deposit accumulation fund to accounts representing contributions
by the municipality and to accounts representing the accumulated
amount of each contributing employee in proportion to the
average quarterly balance in each such account during said
fiscal year the amount of income from investments earned on the
accumulated funds deleted text begin in possession of the board deleted text end new text begin under section
11A.14 new text end , after having deducted from the total of such income deleted text begin (1)
deleted text end the amounts otherwise required as interest for various
allowances or purposes specified in sections 422A.01 to 422A.25
deleted text begin and (2) an amount to be set aside to liquidate actual or to
amortize prospective losses on investments in the accumulation
account deleted text end . The net balance of the investment earnings to be so
distributed deleted text begin shall deleted text end new text begin must new text end be distributed at the greatest multiple
of one-tenth of one percent up to and including a maximum of the
interest assumption rate provided for in section 422A.06,
subdivision 5 of all such accounts. Any undistributed excess
earnings or losses determined to be earnings or losses
attributable to the employers' contributions deleted text begin shall deleted text end new text begin must new text end be
distributed or charged to the employers' reserve accounts in
proportion to the employers' average quarterly balances. Any
undistributed excess earnings or losses determined to be
earnings or losses attributable to the employees' contributions
deleted text begin shall deleted text end new text begin must new text end be distributed or charged to the employers' reserve
accounts in proportion to the number of covered employees
employed by each employer. If income from investments is
insufficient to enable the crediting of the maximum interest
amount to the employee and employer accounts, the maximum
interest deleted text begin will deleted text end new text begin must new text end first be credited to the employee accounts.
If income is insufficient to cover the amounts credited to the
employee accounts, the insufficiency attributable to each
employer group of employees' accounts deleted text begin will deleted text end new text begin must new text end be made up by a
charge against the reserve account of that employer. deleted text begin The amount
that shall be set aside annually to liquidate losses on
investments shall be such amount as the board may deem necessary
for such purpose but not in excess of one mill on the dollar of
the gross amount received as income on the cash and investments
in the fund.
deleted text end

Sec. 14.

Minnesota Statutes 2004, section 423B.04,
subdivision 2, is amended to read:

Subd. 2.

Pension fund.

new text begin (a) new text end This association shall
create, maintain, and administer a police officer's pension fund
for the benefit of its members, and their survivors and
beneficiaries. The sources of revenue of the fund are governed
by section 423B.06. The authorized disbursements from the fund
are governed by section 423B.07.

new text begin (b) The pension fund must be invested by the State Board of
Investment under section 11A.14. The chief administrative
officer of the plan shall, from time to time, certify to the
executive director of the State Board of Investment any portions
of the fund that are not required for immediate use.
new text end

new text begin (c) The State Board of Investment shall invest and reinvest
the amounts certified in securities that are duly authorized
legal investments under section 356A.06, subdivision 7.
new text end

Sec. 15.

Minnesota Statutes 2004, section 423B.04,
subdivision 4, is amended to read:

Subd. 4.

Management of relief association and fund.

new text begin Subject to the authority of the State Board of Investment, new text end the
board created in section 423B.05 shall manage and control the
fund.

Sec. 16.

Minnesota Statutes 2004, section 423C.02,
subdivision 1, is amended to read:

Subdivision 1.

Creation.

The active and retired members
of the fire department and their surviving spouses shall
maintain the association. The association shall be duly
incorporated under chapter 317A. The corporation shall have
perpetual corporate existence. new text begin Subject to the authority of the
State Board of Investment, new text end the association shall create,
maintain, and administer those funds and accounts as set forth
in section 423C.04 for the benefit of its members, surviving
spouses, and dependents. The sources of revenue for each fund
and account are governed by section 423C.04. The authorized
disbursements from each fund and account are governed by
sections 423C.04, 423C.05, and 423C.06.

Sec. 17.

Minnesota Statutes 2004, section 423C.04,
subdivision 1, is amended to read:

Subdivision 1.

Duties.

new text begin (a) new text end The association shall create,
maintain, and administer the funds and accounts in this
section. new text begin Subject to the authority of the State Board of
Investment, new text end the association shall have full and permanent charge
and the responsibility for the proper management and control of
all funds that may come into its possession under this section.
The sources of revenue and authorized disbursements of each fund
and account are governed by this section.

new text begin (b) The special fund must be invested by the State Board of
Investment under section 11A.14. The chief administrative
officer of the plan shall, from time to time, certify to the
executive director of the State Board of Investment any portions
of the special fund that are not required for immediate use.
new text end

new text begin (c) The State Board of Investment shall invest and reinvest
the amounts certified in securities that are duly authorized
legal investments under section 356A.06, subdivision 7.
new text end

Sec. 18. new text begin TRANSITIONAL PROVISION.
new text end

new text begin (a) Title to the investment securities representing the
assets of the following retirement funds transfers to the State
Board of Investment on the effective date of this section:
new text end

new text begin (1) the retirement fund of the Duluth Teachers Retirement
Fund Association other than any tax-sheltered annuity accounts;
new text end

new text begin (2) the retirement fund of the Minneapolis Teachers
Retirement Fund Association;
new text end

new text begin (3) the retirement fund of the St. Paul Teachers Retirement
Fund Association;
new text end

new text begin (4) the retirement funds of the Minneapolis Employees
Retirement Fund;
new text end

new text begin (5) the special fund of the Fairmont Police Relief
Association;
new text end

new text begin (6) the special fund of the Minneapolis Firefighters Relief
Association;
new text end

new text begin (7) the special fund of the Minneapolis Police Relief
Association; and
new text end

new text begin (8) the special fund of the Virginia Fire Department Relief
Association.
new text end

new text begin (b) The State Board of Investment may retain any
transferred investment securities under sections 1 to 17 after
legal title is transferred even if the security is not an
authorized investment for the State Board of Investment or is
not in accord with the investment policies of the State Board of
Investment for as long as the executive director determines it
is necessary to avoid an unreasonable large investment loss from
a sale. If the applicable employer so desires, the employer may
have legal title to the investment transferred to it upon
payment of the greater of the security's book value, current
market value, or current actuarial value.
new text end

new text begin (c) The State Board of Investment is the successor in
interest to the retirement plans enumerated in paragraph (a)
with respect to any securities transferred under this section
except a claim against the retirement plan or a person in a
fiduciary capacity based on an act that was not done in good
faith and that constituted a fiduciary breach. The State Board
of Investment may assert any defense that any retirement plan
was entitled to assert.
new text end

new text begin (d) The retirement plans enumerated in paragraph (a) shall
transfer all applicable documentation related to the transferred
investment securities to the executive director of the State
Board of Investment as soon as is practicable following the date
of the security title transfer.
new text end

Sec. 19. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 18 are effective on June 30, 2005.
new text end