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Minnesota Legislature

Office of the Revisor of Statutes

Chapter 356A

Section 356A.06

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356A.06 INVESTMENTS; ADDITIONAL DUTIES.
    Subdivision 1. Title to assets. Assets of a covered pension plan may be held only by the
plan treasurer, the State Board of Investment, the depository agent of the plan, or of the State
Board of Investment. Legal title to plan assets must be vested in the plan, the State Board
of Investment, the governmental entity that sponsors the plan, the nominee of the plan, or the
depository agent. The holder of legal title shall function as a trustee for a person or entity with
a beneficial interest in the assets of the plan.
    Subd. 2. Diversification. The investment of plan assets must be diversified to minimize the
risk of substantial investment losses unless the circumstances at the time an investment is made
clearly indicate that diversification would not be prudent.
    Subd. 3. Absence of personal profit. No fiduciary may personally profit, directly or
indirectly, as a result of the investment or management of plan assets. This subdivision, however,
does not preclude the receipt by a fiduciary of reasonable compensation, including membership in
or the receipt of benefits from a pension plan, for the fiduciary's position with respect to the plan.
    Subd. 4. Economic interest statement. (a) Each member of the governing board of a
covered pension plan and the chief administrative officer of the plan shall file with the plan a
statement of economic interest.
(b) For a covered pension plan other than a plan specified in paragraph (c), the statement
must contain the information required by section 10A.09, subdivision 5, and any other information
that the fiduciary or the governing board of the plan determines is necessary to disclose a
reasonably foreseeable potential or actual conflict of interest.
(c) For a covered pension plan governed by sections 69.771 to 69.776 or a covered pension
plan governed by section 69.77 with assets under $8,000,000, the statement must contain the
following:
(1) the person's principal occupation and principal place of business;
(2) whether or not the person has an ownership of or interest of ten percent or greater in an
investment security brokerage business, a real estate sales business, an insurance agency, a bank,
a savings and loan, or another financial institution; and
(3) any relationship or financial arrangement that can reasonably be expected to give rise to
a conflict of interest.
(d) The statement must be filed annually with the chief administrative officer of the plan and
be available for public inspection during regular office hours at the office of the pension plan.
(e) A disclosure form meeting the requirements of the federal Investment Advisers Act of
1940, United States Code, title 15, sections 80b-1 to 80b-21 as amended, and filed with the State
Board of Investment or the pension plan meets the requirements of this subdivision.
(f) The chief administrative officer of each covered pension plan, by January 15, annually,
shall transmit a certified listing of all individuals who have filed statements of economic interest
with the plan under this subdivision during the preceding 12 months and the address of the office
referenced in paragraph (d) to the Campaign Finance and Public Disclosure Board.
    Subd. 5. Investment business recipient disclosure. The chief administrative officer of a
covered pension plan, with respect to investments made by the plan, and the executive director
of the State Board of Investment, with respect to investments of plan assets made by the board,
shall annually disclose in writing the recipients of investment business placed with or investment
commissions allocated among commercial banks, investment bankers, brokerage organizations,
or other investment managers. The disclosure document must be prepared within 60 days after
the close of the fiscal year of the plan and must be available for public inspection during regular
office hours at the office of the plan. The disclosure document must also be filed with the
executive director of the Legislative Commission on Pensions and Retirement within 90 days
after the close of the fiscal year of the plan. For the State Board of Investment and a first class city
teacher retirement fund association, a disclosure document included as part of a regular annual
report of the board or of the first class city teacher retirement fund association when filed with the
executive director of the Legislative Commission on Pensions and Retirement is considered to
have been filed on a timely basis.
    Subd. 6. Limited list of authorized investment securities. (a) Except to the extent
otherwise authorized by law, a covered pension plan may invest its assets only in investment
securities authorized by this subdivision if the plan does not:
    (1) have assets with a book value in excess of $1,000,000;
    (2) use the services of an investment advisor registered with the Securities and Exchange
Commission in accordance with the Investment Advisers Act of 1940, or registered as an
investment advisor in accordance with sections 80A.58, and 80A.59, for the investment of at least
60 percent of its assets, calculated on book value;
    (3) use the services of the State Board of Investment for the investment of at least 60 percent
of its assets, calculated on book value; or
    (4) use a combination of the services of an investment advisor meeting the requirements
of clause (2) and the services of the State Board of Investment for the investment of at least 75
percent of its assets, calculated on book value.
    (b) Investment securities authorized for a pension plan covered by this subdivision are:
    (1) certificates of deposit issued, to the extent of available insurance or collateralization,
by a financial institution that is a member of the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation, is insured by the National Credit Union
Administration, or is authorized to do business in this state and has deposited with the chief
administrative officer of the plan a sufficient amount of marketable securities as collateral in
accordance with section 118A.03;
    (2) savings accounts, to the extent of available insurance, with a financial institution that
is a member of the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation;
    (3) governmental obligations, including bonds, notes, bills, or other fixed obligations,
issued by the United States, an agency or instrumentality of the United States, an organization
established and regulated by an act of Congress or by a state, state agency or instrumentality,
municipality, or other governmental or political subdivision that:
    (i) for the obligation in question, issues an obligation that equals or exceeds the stated
investment yield of debt securities not exempt from federal income taxation and of comparable
quality;
    (ii) for an obligation that is a revenue bond, has been completely self-supporting for the last
five years; and
    (iii) for an obligation other than a revenue bond, has issued an obligation backed by the full
faith and credit of the applicable taxing jurisdiction and has not been in default on the payment
of principal or interest on the obligation in question or any other nonrevenue bond obligation
during the preceding ten years;
    (4) corporate obligations, including bonds, notes, debentures, or other regularly issued and
readily marketable evidences of indebtedness issued by a corporation organized under the laws
of any state that during the preceding five years has had on average annual net pretax earnings
at least 50 percent greater than the annual interest charges and principal payments on the total
issued debt of the corporation during that period and that, for the obligation in question, has
issued an obligation rated in one of the top three quality categories by Moody's Investors Service,
Incorporated, or Standard and Poor's Corporation; and
    (5) shares in an open-end investment company registered under the federal Investment
Company Act of 1940, if the portfolio investments of the company are limited to investments that
meet the requirements of clauses (1) to (4).
    Subd. 7. Expanded list of authorized investment securities. (a) Authority. Except to the
extent otherwise authorized by law, a covered pension plan not described by subdivision 6,
paragraph (a), shall 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 (i), 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 (i), including real estate
investment trusts and insurance company commingled accounts, including separate accounts.
(c) Government obligations. The covered pension plan may invest funds in governmental
bonds, notes, bills, mortgages, and other evidences of indebtedness if 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 investments under this paragraph, plus paragraphs (g) and (k), plus
equity investments under paragraphs (h), (i), and (j), as adjusted for realized gains and losses,
must not exceed 85 percent of the market or book value, whichever is less, of a fund; and
(2) investments must not exceed five percent of the total outstanding shares of any one
corporation.
(g) Developed market foreign stocks investments. In addition to investments authorized
under paragraph (f), the covered pension fund may invest in foreign stock sold on an exchange in
any developed market country that is included in the Europe, Australia, and Far East Index.
(h) Commingled or mutual investments. The covered pension plan may invest in index
funds or mutual funds, including index mutual funds, through bank-sponsored collective funds and
shares of open-end investment companies registered under the Federal Investment Company Act
of 1940, if the investments of the index or of the mutual fund comply with paragraphs (c) to (j).
(i) Real estate investment trust; related investments. The covered pension plan may invest
in real estate investment trusts secured by mortgages or deeds of trust and sold on an exchange, and
insurance company commingled accounts, including separate accounts, of a debt or equity nature.
(j) 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 paragraphs (c)
to (i), as applicable.
(k) Other investments. (1) In addition to the investments authorized in paragraphs (b) to (j),
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 or bank sponsored collective funds;
(iii) regional and mutual funds through bank sponsored collective funds and open-end
investment companies registered under the Federal Investment Company Act of 1940 which
do not qualify under paragraph (h);
(iv) resource investments through limited partnerships, private placements, and corporations;
and
(v) international debt securities and emerging market equity 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 20
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.
    Subd. 7a. Restrictions. Any agreement to lend securities must be concurrently collateralized
with cash or securities with a market value of not less than 100 percent of the market value of the
loaned securities at the time of the agreement. For a covered pension authorized to purchase put
and call options and futures contracts under subdivision 7, any agreement for put and call options
and futures contracts may only be entered into with a fully offsetting amount of cash or securities.
Only securities authorized by this section, excluding those under subdivision 7, paragraph (g),
clause (1), items (i) to (iv), may be accepted as collateral or offsetting securities.
    Subd. 8. Minimum liquidity requirements. A covered pension plan described by
subdivision 6, paragraph (a), in order to pay benefits as they come due, shall invest a portion of
its assets in authorized short-term debt obligations that can be immediately liquidated without
accrual of a substantial determinable penalty or loss and that have an average maturity of no more
than 90 days. The chief administrative officer of the plan shall determine the minimum liquidity
requirement of the plan and shall retain appropriate documentation of that determination for
three years from the date of determination.
    Subd. 8a. Collateralization requirement. (a) The governing board of a covered pension
plan shall designate a national bank, an insured state bank, an insured credit union, or an insured
thrift institution as the depository for the pension plan for assets not held by the pension plan's
custodian bank.
(b) Unless collateralized as provided under paragraph (c), a covered pension plan may not
deposit in a designated depository an amount in excess of the insurance held by the depository in
the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation,
or the National Credit Union Administration, whichever applies.
(c) For an amount greater than the insurance under paragraph (b), the depository must
provide collateral in compliance with section 118A.03 or with any comparable successor
enactment relating to the collateralization of municipal deposits.
    Subd. 8b. Disclosure of investment authority; receipt of statement. (a) For this
subdivision, the term "broker" means a broker, broker-dealer, investment advisor, investment
manager, or third party agent who transfers, purchases, sells, or obtains investment securities
for, or on behalf of, a covered pension plan.
(b) Before a covered pension plan may complete an investment transaction with or in accord
with the advice of a broker, the covered pension plan shall provide annually to the broker a written
statement of investment restrictions applicable under state law to the covered pension plan or
applicable under the pension plan governing board investment policy.
(c) A broker must acknowledge in writing annually the receipt of the statement of investment
restrictions and must agree to handle the covered pension plan's investments and assets in accord
with the provided investment restrictions. A covered pension plan may not enter into or continue
a business arrangement with a broker until the broker has provided this written acknowledgment
to the chief administrative officer of the covered pension plan.
    Subd. 9. Prohibited transactions. (a) No fiduciary of a covered pension plan may engage
in a prohibited transaction or allow the plan to engage in a transaction that the fiduciary knows
or should know is a prohibited transaction.
(b) A prohibited transaction is any of the following transactions, whether direct or indirect:
(1) the sale, exchange, or lease of real estate between the pension plan and a fiduciary of the
plan;
(2) the lending of money or other extension of credit between the plan and a fiduciary
of the plan;
(3) the furnishing to a plan by a fiduciary for compensation or remuneration, of goods,
services other than those performed in the capacity of fiduciary, or facilities;
(4) the furnishing to a fiduciary by a plan of goods, services, or facilities other than office
and related space, equipment and office supplies, and administrative services appropriate to the
recipient's fiduciary position;
(5) the transfer of plan assets to a plan fiduciary for use by or for the benefit of the fiduciary,
other than the payment of retirement plan benefits to which a fiduciary is entitled or the payment
to a fiduciary of a reasonable salary and of necessary and reasonable expenses incurred by the
fiduciary in the performance of the fiduciary's duties; and
(6) the sale, exchange, loan, or lease of any item of value between a plan and a fiduciary of
the plan other than for a fair market value and as a result of an arm's-length transaction.
    Subd. 10. Defined contribution plans; application. (a) To the extent that a plan governed
by chapter 352D, 353D, 354B, 354C, or 354D permits a participant or beneficiary to select
among investment products for the person's account and the participant or beneficiary exercises
that investment self-direction, no fiduciary is liable for any loss which may result from the
participant's or beneficiary's exercise of that investment self-direction.
(b) Subdivisions 1, 2, 6, 8, and 8a do not apply to plans governed by chapter 354B or 354C.
History: 1989 c 319 art 7 s 6; 1990 c 570 art 5 s 1; 1994 c 604 art 2 s 3; 1995 c 122 s 2;
1995 c 262 art 6 s 1,2; 1996 c 399 art 2 s 12; 1996 c 438 art 4 s 7; art 10 s 2; 1997 c 202 art 2 s
63; 1998 c 386 art 2 s 90; 2000 c 461 art 12 s 18; 1Sp2001 c 10 art 3 s 26; 2002 c 363 s 41;
1Sp2005 c 8 art 9 s 9; art 10 s 66; 2006 c 196 art 2 s 12; 2006 c 271 art 8 s 6
NOTE: The amendment to subdivision 6 by Laws 2006, chapter 196, article 2, section 12, is
effective August 1, 2007. Laws 2006, chapter 196, article 1, section 52.