HF 2736

as introduced - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am

A bill for an act
relating to retirement; modifying allocation requirements; changing reporting
mandates; modifying definitions; amending Minnesota Statutes 2004, section
356.219, subdivisions 3, 6; Minnesota Statutes 2005 Supplement, section
356A.06, subdivision 7; repealing Minnesota Statutes 2004, section 356A.06,
subdivisions 4, 5, 8b.

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

Section 1.

Minnesota Statutes 2004, section 356.219, subdivision 3, is amended to read:

Subd. 3.

Content of reports.

(a) The report required by subdivision 1 must include
a written statement of the investment policy in effect on June 30, 1997, if that statement
has not been previously submitted. Following that date, subsequent reports must include
investment policy changes and the effective date of each policy change rather than a
complete statement of investment policy, unless the state auditor requests submission of
a complete current statement. The report must also include the information required by
the following paragraphs, as applicable.

(b) If a public pension plan has a total market value of $10,000,000 or more as of
the beginning of the calendar year, the report required by subdivision 1 must include the
market value of the total portfolio and the market value of each investment account,
investment portfolio, or asset class included in the pension fund as of the beginning of
the calendar year and deleted text begin for each month, and the amount and date of each injection and
withdrawal to the total portfolio and to each investment account, investment portfolio,
or asset class deleted text end new text begin the end of the calendar year. In addition, the plan must submit a report on
a form prescribed by the state auditor that includes the time-weighted return, net of any
investment-related fees, on a total portfolio and asset class basis new text end . If a public pension plan
once files a report under this paragraph, it must continue reporting under this paragraph
for any subsequent year in which the public pension plan is not fully invested as specified
in subdivision 1, paragraph (b), even if asset values drop below $10,000,000 in market
value in that subsequent year.

(c) For public pension plans to which paragraph (b) applies, the report required by
subdivision 1 must also include a calculation of the total time-weighted rate of return
available from index-matching investments assuming the asset class performance targets
and target asset mix indicated in the written statement of investment policy. The provided
information must include a description of indices used in the analyses and an explanation
of why those indices are appropriate. This paragraph does not apply to any fully invested
plan, as defined by subdivision 1, paragraph (b). Reporting by the State Board of
Investment under this paragraph is limited to information on the Minnesota public pension
plans required to be invested by the State Board of Investment under section 11A.23.

(d) If a public pension plan has a total market value of less than $10,000,000 as of
the beginning of the calendar year and was never required to file under paragraph (b), the
report required by subdivision 1 must include the amount and date of each total portfolio
injection and withdrawal. In addition, the report must include the market value of the total
portfolio as of the beginning of the calendar year and for each quarter.

(e) Any public pension plan reporting under paragraph deleted text begin (b) or deleted text end (d) may include
computed time-weighted rates of return with the report, in addition to all other required
information, as applicable. If these returns are supplied, the individual who computed
the returns must certify that the returns are net of all costs and fees, including investment
management fees, and that the procedures used to compute the returns are consistent
with Bank Administration Institute studies of investment performance measurement and
Association for Investment Management and Research presentation standards.

(f) For public pension plans reporting under paragraph (d), the public pension plan
must retain supporting information specifying the date and amount of each injection and
withdrawal to each investment account and investment portfolio. The public pension plan
must also retain the market value of each investment account and investment portfolio at
the beginning of the calendar year and for each quarter. Information that is required to be
collected and retained for any given year or years under this paragraph must be submitted
to the Office of the State Auditor if the Office of the State Auditor requests in writing that
the information be submitted by a public pension plan or plans, or be submitted by the
State Board of Investment for any plan or plans for which the State Board of Investment is
the investment authority under this section. If the state auditor requests information under
this subdivision, and the public plan fails to comply, the pension plan is subject to penalties
under subdivision 5, unless penalties are waived by the state auditor under that subdivision.

Sec. 2.

Minnesota Statutes 2004, section 356.219, subdivision 6, is amended to read:

Subd. 6.

Investment disclosure report.

(a) The state auditor shall prepare an annual
report to the legislature on the investment performance of the various public pension plans
subject to this section. The content of the report is specified in paragraphs (b) to (e).

(b) For each public pension plan reporting under subdivision 3, paragraph (b), the
state auditor shall deleted text begin compute deleted text end new text begin compile new text end and report total portfolio and asset class time-weighted
rates of return, net of all investment-related costs and fees new text begin as provided by the pension plan new text end .

(c) For each public pension plan reporting under subdivision 3, paragraph (d), the
state auditor shall compute and report total portfolio time-weighted rates of return, net of
all costs and fees. If the state auditor has requested data for a plan under subdivision 3,
paragraph (f), the state auditor may also compute and report asset class time-weighted
rates of return, net of all costs and fees.

(d) The report by the state auditor must include the information submitted by the
pension plans under subdivision 3, paragraph (c), or a synopsis of that information.

(e) The report by the state auditor may also include a presentation of multiyear
performance, information collected under subdivision 4, and any other information or
analysis deemed appropriate by the state auditor.

Sec. 3.

Minnesota Statutes 2005 Supplement, section 356A.06, subdivision 7, is
amended to read:

Subd. 7.

Expanded list of authorized investment securities.

(a) Authority.
Except to the extent otherwise authorized by law or bylaws, a covered pension plan not
described by subdivision 6, paragraph (a), may invest its assets only in accordance with
this subdivision.

(b) Securities generally. The covered pension plan has the authority to purchase,
sell, lend, or exchange the securities specified in paragraphs (c) to (h), including puts and
call options and future contracts traded on a contract market regulated by a governmental
agency or by a financial institution regulated by a governmental agency. These securities
may be owned as units in commingled trusts that own the securities described in
paragraphs (c) to (h) new text begin including real estate trusts and insurance company commingled
accounts, including separate accounts new text end .

(c) Government obligations. The covered pension plan may invest funds in
governmental bonds, notes, bills, mortgages, and other evidences of indebtedness
provided the issue is backed by the full faith and credit of the issuer or the issue is rated
among the top four quality rating categories by a nationally recognized rating agency. The
obligations in which funds may be invested under this paragraph include guaranteed or
insured issues of (1) the United States, its agencies, its instrumentalities, or organizations
created and regulated by an act of Congress; (2) Canada and its provinces, provided
the principal and interest is payable in United States dollars; (3) the states and their
municipalities, political subdivisions, agencies, or instrumentalities; (4) the International
Bank for Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, or any other United States
government sponsored organization of which the United States is a member, provided the
principal and interest is payable in United States dollars.

(d) Corporate obligations. The covered pension plan may invest funds in bonds,
notes, debentures, transportation equipment obligations, or any other longer term
evidences of indebtedness issued or guaranteed by a corporation organized under the laws
of the United States or any state thereof, or the Dominion of Canada or any province
thereof if they conform to the following provisions:

(1) the principal and interest of obligations of corporations incorporated or organized
under the laws of the Dominion of Canada or any province thereof must be payable in
United States dollars; and

(2) obligations must be rated among the top four quality categories by a nationally
recognized rating agency.

(e) Other obligations. (1) The covered pension plan may invest funds in
bankers acceptances, certificates of deposit, deposit notes, commercial paper, mortgage
participation certificates and pools, asset backed securities, repurchase agreements and
reverse repurchase agreements, guaranteed investment contracts, savings accounts, and
guaranty fund certificates, surplus notes, or debentures of domestic mutual insurance
companies if they conform to the following provisions:

(i) bankers acceptances and deposit notes of United States banks are limited to those
issued by banks rated in the highest four quality categories by a nationally recognized
rating agency;

(ii) certificates of deposit are limited to those issued by (A) United States banks and
savings institutions that are rated in the highest four quality categories by a nationally
recognized rating agency or whose certificates of deposit are fully insured by federal
agencies; or (B) credit unions in amounts up to the limit of insurance coverage provided
by the National Credit Union Administration;

(iii) commercial paper is limited to those issued by United States corporations or
their Canadian subsidiaries and rated in the highest two quality categories by a nationally
recognized rating agency;

(iv) mortgage participation or pass through certificates evidencing interests in pools
of first mortgages or trust deeds on improved real estate located in the United States where
the loan to value ratio for each loan as calculated in accordance with section 61A.28,
subdivision 3, does not exceed 80 percent for fully amortizable residential properties and
in all other respects meets the requirements of section 61A.28, subdivision 3;

(v) collateral for repurchase agreements and reverse repurchase agreements is
limited to letters of credit and securities authorized in this section;

(vi) guaranteed investment contracts are limited to those issued by insurance
companies or banks rated in the top four quality categories by a nationally recognized
rating agency or to alternative guaranteed investment contracts where the underlying
assets comply with the requirements of this subdivision;

(vii) savings accounts are limited to those fully insured by federal agencies; and

(viii) asset backed securities must be rated in the top four quality categories by a
nationally recognized rating agency.

(2) Sections 16A.58, 16C.03, subdivision 4, and 16C.05 do not apply to certificates
of deposit and collateralization agreements executed by the covered pension plan under
clause (1), item (ii).

(3) In addition to investments authorized by clause (1), item (iv), the covered
pension plan may purchase from the Minnesota Housing Finance Agency all or any part of
a pool of residential mortgages, not in default, that has previously been financed by the
issuance of bonds or notes of the agency. The covered pension plan may also enter into
a commitment with the agency, at the time of any issue of bonds or notes, to purchase
at a specified future date, not exceeding 12 years from the date of the issue, the amount
of mortgage loans then outstanding and not in default that have been made or purchased
from the proceeds of the bonds or notes. The covered pension plan may charge reasonable
fees for any such commitment and may agree to purchase the mortgage loans at a price
sufficient to produce a yield to the covered pension plan comparable, in its judgment,
to the yield available on similar mortgage loans at the date of the bonds or notes. The
covered pension plan may also enter into agreements with the agency for the investment
of any portion of the funds of the agency. The agreement must cover the period of the
investment, withdrawal privileges, and any guaranteed rate of return.

(f) Corporate stocks. The covered pension plan may invest funds in stocks or
convertible issues of any corporation organized under the laws of the United States or the
states thereof, any corporation organized under the laws of the Dominion of Canada or its
provinces, or any corporation listed on an exchange regulated by an agency of the United
States or of the Canadian national government, if they conform to the following provisions:

(1) the aggregate value of corporate stock investments, as adjusted for realized
profits and losses, must not exceed 85 percent of the market or book value, whichever is
less, of a fund, less the aggregate value of investments according to paragraph (h);

(2) investments must not exceed five percent of the total outstanding shares of
any one corporation.

(g) Exchange traded funds. The covered pension plan may invest funds in
exchange traded funds, subject to the maximums, the requirements, and the limitations set
forth in paragraph (d), (e), (f), or (h), whichever applies.

(h) Other investments. (1) In addition to the investments authorized in paragraphs
(b) to (g), and subject to the provisions in clause (2), the covered pension plan may invest
funds in:

(i) venture capital investment businesses through participation in limited partnerships
and corporations;

(ii) real estate ownership interests or loans secured by mortgages or deeds of trust
through investment in limited partnerships deleted text begin , deleted text end new text begin or new text end bank sponsored collective funds deleted text begin , trusts, and
insurance company commingled accounts, including separate accounts deleted text end ;

deleted text begin (iii) regional and mutual funds through bank sponsored collective funds and
open-end investment companies registered under the Federal Investment Company Act
of 1940;
deleted text end

deleted text begin (iv) deleted text end new text begin (iii) new text end resource investments through limited partnerships, private placements,
and corporations; and

deleted text begin (v) deleted text end new text begin (iv) new text end international securities.

(2) The investments authorized in clause (1) must conform to the following
provisions:

(i) the aggregate value of all investments made according to clause (1) may not
exceed deleted text begin 35 deleted text end new text begin 45 new text end percent of the market value of the fund for which the covered pension
plan is investing;

(ii) there must be at least four unrelated owners of the investment other than the
covered pension plan for investments made under clause (1), item (i), (ii), (iii), or (iv);

(iii) covered pension plan participation in an investment vehicle is limited to 20
percent thereof for investments made under clause (1), item (i), (ii), (iii), or (iv); and

(iv) covered pension plan participation in a limited partnership does not include a
general partnership interest or other interest involving general liability. The covered
pension plan may not engage in any activity as a limited partner which creates general
liability.

Sec. 4. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2004, section 356A.06, subdivisions 4, 5, and 8b, new text end new text begin are repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end