Minnesota Session Laws - 1983, Regular Session

  

                         Laws of Minnesota 1983 

                        CHAPTER 324--H.F.No. 564
           An act relating to the state board of investment; 
          modifying the procedures for purchase and sale of 
          securities; clarifying the membership of the 
          investment advisory council; abolishing certain 
          restrictions on stock investments; modifying 
          procedures for the mortality adjustments for the 
          post-retirement investment fund; authorizing 
          additional investment alternatives; amending Minnesota 
          Statutes 1982, sections 11A.07, subdivision 4; 11A.08, 
          subdivision 1, as amended; 11A.17, subdivision 4; 
          11A.18, subdivisions 5, 9, and 11; 11A.24, 
          subdivisions 1, 5, and 6. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  Minnesota Statutes 1982, section 11A.07, 
subdivision 4, is amended to read: 
    Subd. 4.  [DUTIES AND POWERS.] The director, at the 
direction of the state board, shall: 
    (1) Plan, direct, coordinate and execute administrative and 
investment functions in conformity with the policies and 
directives of the state board. 
    (2) Employ such professional and clerical staff as is 
necessary within the complement limits established by the 
legislature.  Employees whose primary responsibility is to 
invest or manage moneys or employees who hold positions 
designated as unclassified pursuant to section 43A.08, 
subdivision 1a shall be in the unclassified service of the 
state.  Other employees shall be in the classified service.  
    (3) Report to the state board on all operations under his 
control and supervision. 
    (4) Maintain accurate and complete records of securities 
transactions and official activities. 
    (5) Purchase and sell Establish a policy relating to the 
purchase and sale of all securities on the basis of competitive 
offerings or bids received from at least two firms known to 
specialize in the securities being traded and likely to position 
these securities in relevant quantities.  Competitive bidding 
shall not be required when the securities to be traded are: 
listed or traded on a major United States exchange, bound by 
underwriting restrictions or classified as private placements 
and offered only to a limited number of institutional investors. 
The policy is subject to board approval.  
    (6) Cause all securities acquired to be kept in the custody 
of the state treasurer or such other depositories as the state 
board deems appropriate. 
    (7) Prepare and file with the director of the legislative 
reference library on or before November 15 December 31 of each 
year, a report summarizing the activities of the state board, 
the council and the director during the preceding fiscal year.  
The report shall be prepared so as to provide the legislature 
and the people of the state with a clear, comprehensive summary 
of the portfolio composition, the transactions, the total annual 
rate of return and the yield to the state treasury and to each 
of the funds whose assets are invested by the state board, and 
the recipients of business placed or commissions allocated among 
the various commercial banks, investment bankers and brokerage 
organizations.  This report shall contain financial statements 
for funds managed by the board prepared in accordance with 
generally accepted accounting principles. 
     (8) Require state officials from any department or agency 
to produce and provide access to any financial documents the 
state board deems necessary in the conduct of their investment 
activities. 
     (9) Receive and expend legislative appropriations. 
     (10) Undertake any other activities necessary to implement 
the duties and powers set forth in this subdivision. 
    Sec. 2.  Minnesota Statutes 1982, section 11A.08, 
subdivision 1, as amended by Laws 1982, Third Special Session 
chapter 1, article 2, section 3, is amended to read: 
    Subdivision 1.  [MEMBERSHIP.] There is created an 
investment advisory council consisting of ten 17 members who are
.  Ten of these members shall be experienced in general 
investment matters and who.  They shall be appointed by the 
state board;.  The other seven members shall be:  the 
commissioner of finance; the executive directors director of 
each of the following: the Minnesota state retirement system,;  
the executive director of the public employees retirement 
association,; the executive director of the teachers retirement 
association; a retiree currently receiving benefits from the 
post retirement investment fund; and two public employees who 
are active members of funds whose assets are invested by the 
state board.  The retiree and the public employees shall be 
appointed by the governor for four year terms. 
    Sec. 3.  Minnesota Statutes 1982, section 11A.17, 
subdivision 4, is amended to read: 
    Subd. 4.  [INVESTMENT.] The assets of the supplemental 
investment fund shall be invested by the state board subject to 
the provisions of section 11A.24; provided, however, that the 
fixed-return account and the bond account shall be invested 
entirely in debt obligations and the growth share account shall 
be invested as follows:  
    (a) Up to 100 percent of the book value may be invested 
entirely in corporate stocks;  
    (b) Up to six percent of the book value may be invested in 
the stock of any one corporation;  
    (c) Up to ten percent of the book value may be invested in 
corporate stocks which do not conform with the dividend standard 
provided for in section 11A.24. 
    Sec. 4.  Minnesota Statutes 1982, section 11A.18, 
subdivision 5, is amended to read: 
    Subd. 5.  [DEFERRED YIELD ADJUSTMENT ACCOUNT.] There is 
hereby established a deferred yield adjustment account which 
shall be increased by the sale or disposition of any debt 
securities at less than book value and shall be decreased by the 
sale or disposition of debt securities at more than book value.  
At the end of each fiscal year, a portion of the balance of this 
account shall be offset against the investment income for that 
year.  The annual portion of the balance to be offset shall be 
proportional to the reciprocal of the average remaining life of 
the bonds sold, unless the amounts are offset by gains on the 
future sales of these securities.  The amount of this account 
shall be included in the recognized value of assets other than 
corporate stocks and all other equity investments.  In any 
fiscal year in which the gains on the sales of debt securities 
exceed the discounts realized on the sales of such securities, 
the excess shall be used to reduce the balance of the account.  
If the realized capital gains are sufficient to reduce the 
balance of the account to zero, any excess gains shall be 
available for the calculation of post-retirement adjustments 
made according to subdivision 9.  
    Sec. 5.  Minnesota Statutes 1982, section 11A.18, 
subdivision 9, is amended to read: 
    Subd. 9.  [CALCULATION OF POST-RETIREMENT ADJUSTMENT.] 
Annually, following June 30, the state board shall determine 
whether a post-retirement adjustment shall be payable and shall 
determine the amount of any post-retirement adjustment which 
shall be payable. 
    (1) The state board shall determine whether a 
post-retirement adjustment shall be payable using the following 
procedure: 
    (a) The state board shall determine the amount of 
dividends, interest, accruals and realized equity capital gains 
or losses applicable to the most recent fiscal year ending June 
30; 
    (b) The participating public pension funds or plans shall 
determine the amount of reserves required for every annuitant 
and benefit recipient as of the current June 30.  Every 
annuitant or benefit recipient who has been receiving an annuity 
or benefit for at least one year as of the current June 30 shall 
be eligible to receive a post-retirement adjustment.  Each fund 
shall report separately the amount of the reserves for those 
annuitants and benefit recipients who are eligible to receive a 
post-retirement benefit adjustment and those annuitants and 
benefit recipients who are not eligible to receive a 
post-retirement adjustment.  The amount of the required reserves 
shall be certified to the board as soon as is practical 
following the current June 30; 
    (c) The state board shall determine the amount of 
investment income required to equal five percent of the required 
reserves as of the preceding June 30 adjusted by five percent of 
each transfer in or transfer out multiplied by the fraction of a 
year from the date of transfer to the current June 30.  This 
amount of required investment income shall be subtracted from 
the actual amount of investment income determined pursuant 
according to clause (1)(a), to determine the amount of excess 
investment income.  If this amount is positive, then a 
post-retirement adjustment may be paid. 
    (2) The state board shall determine the amount of any 
post-retirement adjustment which is payable using the following 
procedure: 
    (a) The state board shall determine the amount of excess 
investment income by the method indicated in clause (1); 
    (b) The participating public pension funds and plans shall 
certify to the state board the total required reserves as of the 
first of January next following the end of the fiscal year for 
the annuitants and benefit recipients eligible to receive the 
post-retirement adjustment as determined by clause (1)(b).  The 
required reserves shall be determined on the assumption that all 
annuitants and benefit recipients eligible to receive the 
post-retirement adjustment will be alive on the January 1 in 
question; 
    (c) If the state board determines that the book value of 
the assets of the fund is less than an amount equal to 100 
percent of the current June 30 required reserves, with the book 
value and required reserves to be determined after the 
adjustments provided for in subdivision 11, then the board shall 
allocate five percent of the excess investment income as an 
asset of the fund.  The excess investment income allocated as an 
asset of the fund shall not exceed the difference between book 
value and required reserves.  The remaining amount shall be 
termed available for distribution.  The book value of assets on 
any given date shall be the net assets at cost less the excess 
investment income determined pursuant to clause (1)(c); 
    (d) The resulting total amount available for distribution 
shall be increased by 2 1/2 percent, and the result shall be 
stated as a percentage of the total required reserves pursuant 
to clause (2)(b), and if the percentage is equal to or greater 
than one percent, the amount shall be certified to each 
participating public pension fund or plan as the amount of the 
post-retirement adjustment.  If the percentage is less than one 
percent, the amount shall be credited to a separate reserve 
established for this purpose.  The reserve shall be invested in 
the same manner as all other assets of the fund and shall be 
credited with any investment income as specified in clause 
(1)(a).  Amounts credited to the reserve shall be utilized in 
determining a post-retirement adjustment in the subsequent year. 
The amount certified shall be carried to five decimal places and 
stated as a percentage. 
    Sec. 6.  Minnesota Statutes 1982, section 11A.18, 
subdivision 11, is amended to read: 
    Subd. 11.  [ADJUSTMENT FOR MORTALITY GAINS AND LOSSES.] As 
of June 30 annually, the actuary of each participating public 
pension fund or plan shall calculate the amount of required 
reserves representing any mortality gains and any mortality 
losses incurred by the fund or plan during the fiscal year.  The 
actuary shall report separately the amount of the reserves for 
annuitants and benefit recipients who are eligible for a 
post-retirement benefit adjustment and the amount of reserves 
for annuitants and benefit recipients who are not eligible for a 
post-retirement benefit adjustment.  If the net amount of 
required reserves represents a mortality gain, the participating 
public pension fund or plan shall certify that amount to the 
state board, which shall sell sufficient securities or transfer 
sufficient available cash to equal the amount of money 
certified.  If the amount of required reserves represents a 
mortality loss, the participating public pension fund or plan 
shall transfer to the state board an amount equal to the amount 
of the net mortality loss.  The amount of the transfers shall be 
determined before any post-retirement benefit adjustments have 
been made.  All transfers resulting from mortality adjustments 
shall be completed annually by December 31 for the preceding 
June 30.  Interest shall be charged or credited on any transfers 
after December 31 based upon the average short-term rate earned 
by the post-retirement investment fund.  All book values of the 
assets of the fund for the purposes of subdivision 9 shall be 
determined only after all adjustments for mortality gains and 
losses for the fiscal year have been made.  
    Sec. 7.  Minnesota Statutes 1982, section 11A.24, 
subdivision 1, is amended to read: 
    Subdivision 1.  [SECURITIES GENERALLY.] The state board 
shall have the authority to purchase, sell, lend or exchange the 
following securities for funds or accounts specifically made 
subject to this section including the writing of covered puts 
and call options.  
    Sec. 8.  Minnesota Statutes 1982, section 11A.24, 
subdivision 5, is amended to read: 
    Subd. 5.  [CORPORATE STOCKS.] The state board may invest 
funds in stocks or convertible issues of any corporation 
organized under the laws of the United States or the states 
thereof, the Dominion of Canada or its provinces, or any 
corporation listed on the New York Stock Exchange or the 
American Stock Exchange, if they conform to the following 
provisions: 
    (a) The aggregate value of corporate stock investments, as 
adjusted for realized profits and losses, shall not exceed 75 
percent of the market or book value, whichever is less, of a 
fund, less the aggregate value of investments pursuant according 
to subdivision 6; 
    (b) Investments in any one corporation shall not exceed 
five percent of the market value of a fund;  
    (c) Investments shall not exceed five percent of the total 
outstanding shares of any one corporation;  
    (d) Cash dividends on corporate stock investments shall 
have been earned and paid for the preceding five years;  
    (e) Investments which do not conform to the dividend 
standard contained in clause (d) may be held but the total 
amount of these securities shall not exceed five percent of the 
market value of a fund.  
    Sec. 9.  Minnesota Statutes 1982, section 11A.24, 
subdivision 6, is amended to read: 
    Subd. 6.  [OTHER INVESTMENTS.] (a) In addition to the 
investments authorized in subdivisions 1 to 5, and subject to 
the provisions in clauses clause (b) and (c), the state board 
may invest funds in:  
    (1) Venture capital investment businesses through 
participation in limited partnerships and corporations;  
    (2) Real estate ownership interests or loans secured by 
mortgages or deeds of trust through investment in limited 
partnerships, bank sponsored collective funds, trusts, and 
insurance company commingled accounts, including separate 
accounts;  
    (3) Regional and mutual funds through bank sponsored 
collective funds and open-end investment companies registered 
under the Federal Investment Company Act of 1940; and 
    (4) Resource investments through limited partnerships, 
private placements and corporations.  
    (b) The investments authorized in clause (a) may only be 
made if they conform to the following provisions:  
    (1) The aggregate value of all investments made pursuant 
according to clause (a) shall not exceed 20 percent of the 
market value of the fund for which the state board is investing; 
     (2) There shall be at least four unrelated owners of the 
investment other than the state board;  
     (3) State board participation in an investment vehicle 
shall be limited to 20 percent thereof; and 
     (4) State board participation in a limited partnership does 
not include a general partnership interest or other interest 
involving general liability.  The state board shall not engage 
in any activity as a limited partner which creates general 
liability.  
     Sec. 10.  [EFFECTIVE DATE.] 
     This act is effective the day after final enactment. 
    Approved June 14, 1983