July 18, 2019
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       Florida Senate - 2010                             CS for SB 2186
       
       
       
       By the Committee on Governmental Oversight and Accountability;
       and Senator Ring
       
       
       
       585-02808A-10                                         20102186c1
    1                        A bill to be entitled                      
    2         An act relating to the State Board of Administration;
    3         amending s. 121.4501, F.S.; requiring that certain
    4         investment products and approved providers conform
    5         with the Public Employee Optional Retirement Program
    6         Investment Policy Statement as approved by the
    7         executive director of the board and approved by the
    8         Investment Advisory Council; requiring that such
    9         statement be presented to the council for approval;
   10         amending s. 215.44, F.S.; requiring that the board
   11         establish and maintain the salaries of its officers
   12         and employees in a manner consistent with its
   13         fiduciary duties; requiring that the council initiate
   14         an investigation at specified intervals for specified
   15         purposes; requiring that the council present the
   16         results of such study to the board; authorizing the
   17         board to delegate certain authority and duties to the
   18         executive director; requiring that the board create an
   19         audit committee for specified purposes; providing for
   20         membership on the committee and term limits of
   21         committee members; providing purposes and duties of
   22         the committee; requiring that the board produce
   23         certain financial statements on an annual basis and
   24         report the information contained in such statements to
   25         the Legislature; requiring that such statements be
   26         audited by an independent third-party firm working
   27         under the direction of the audit committee; amending
   28         s. 215.441, F.S.; requiring that the board appoint an
   29         executive director; providing duties of the executive
   30         director; providing requirements for appointment as
   31         executive director; removing a requirement that the
   32         Governor vote in favor of the selection of the
   33         executive director; providing for the determination of
   34         the executive director’s compensation; providing for
   35         the creation, operation, and membership of a search
   36         committee for the purpose of selecting the executive
   37         director; amending s. 215.442, F.S.; requiring that
   38         the executive director present certain information
   39         quarterly to the Investment Advisory Council; amending
   40         s. 215.444, F.S.; requiring that the council meet with
   41         the board’s staff at specified intervals and provide a
   42         quarterly report to the board’s trustees; clarifying
   43         the function of council members; expanding
   44         prerequisites for membership on the council to include
   45         knowledge of and experience with institutional
   46         investments and fiduciary responsibilities; providing
   47         that a council member is an officer, employee, or
   48         agent of the state for specified purposes; requiring
   49         that appointees to the council undergo specified
   50         training; requiring that council members make
   51         recommendations consistent with fiduciary
   52         responsibilities applicable to the board; specifying
   53         duties of the council; authorizing the council to
   54         create subcommittees and direct the executive director
   55         to enter into certain contracts; amending s. 215.475,
   56         F.S.; conforming provisions to changes made by the
   57         act; creating s. 215.4754, F.S.; providing intent;
   58         requiring that the contract for an investment adviser
   59         or manager include a standard of conduct; providing
   60         for termination of the contract of an adviser or
   61         manager who violates the standard of conduct;
   62         prohibiting a member of the Investment Advisory
   63         Council from contracting with or providing services
   64         for the investment of certain funds during his or her
   65         service on the board and for a specified period
   66         thereafter; creating s. 215.4755, F.S.; requiring that
   67         an investment advisor or manager annually certify to
   68         the board certain activities regarding investment
   69         decisions and standards of behavior; requiring that
   70         certain disclosures be made at the request of the
   71         board regarding pecuniary interests of an investment
   72         adviser or manager; amending s. 215.52, F.S.;
   73         authorizing the board to implement certain policies,
   74         restrictions, or guidelines; providing an effective
   75         date.
   76  
   77  Be It Enacted by the Legislature of the State of Florida:
   78  
   79         Section 1. Subsection (14) of section 121.4501, Florida
   80  Statutes, is amended to read:
   81         121.4501 Public Employee Optional Retirement Program.—
   82         (14) INVESTMENT POLICY STATEMENT.—
   83         (a) Investment products and approved providers selected for
   84  the Public Employee Optional Retirement Program shall conform
   85  with the Public Employee Optional Retirement Program Investment
   86  Policy Statement, herein referred to as the “statement,” as
   87  developed by the executive director and approved by the
   88  Investment Advisory Council and Trustees of the State Board of
   89  Administration. The statement must include, among other items,
   90  the investment objectives of the Public Employee Optional
   91  Retirement Program, manager selection and monitoring guidelines,
   92  and performance measurement criteria. As required from time to
   93  time, the executive director of the state board may present
   94  recommended changes in the statement to the board for approval.
   95         (b) Before Prior to presenting the statement, or any
   96  recommended changes thereto, to the state board, the executive
   97  director of the board shall present such statement or changes to
   98  the Investment Advisory Council for review and approval. The
   99  council shall present the results of its review to the board
  100  prior to the board’s final approval of the statement or changes
  101  in the statement.
  102         Section 2. Subsections (1) and (2) of section 215.44,
  103  Florida Statutes, are amended to read:
  104         215.44 Board of Administration; powers and duties in
  105  relation to investment of trust funds.—
  106         (1) Except when otherwise specifically provided by the
  107  State Constitution and subject to any limitations of the trust
  108  agreement relating to a trust fund, the Board of Administration,
  109  hereinafter sometimes referred to as “trustees” or “board,”
  110  composed of the Governor as chair, the Chief Financial Officer,
  111  and the Attorney General, shall invest all the funds in the
  112  System Trust Fund, as defined in s. 121.021(36), and all other
  113  funds specifically required by law to be invested by the board
  114  pursuant to ss. 215.44-215.53 to the fullest extent that is
  115  consistent with the cash requirements, trust agreement, and
  116  investment objectives of the fund. Notwithstanding any other law
  117  to the contrary, the State Board of Administration may invest
  118  any funds of any state agency or any unit of local government
  119  pursuant to the terms of a trust agreement with the head of the
  120  state agency or the governing body of the unit of local
  121  government, which trust agreement shall govern the investment of
  122  such funds, provided that the board shall approve the
  123  undertaking of such investment before execution of the trust
  124  agreement by the State Board of Administration. The funds and
  125  the earnings therefrom are exempt from the service charge
  126  imposed by s. 215.20. As used in this subsection, the term
  127  “state agency” has the same meaning as that provided in s.
  128  216.001, and the terms “governing body” and “unit of local
  129  government” have the same meaning as that provided in s.
  130  218.403.
  131         (2)(a) The board shall have the power to make purchases,
  132  sales, exchanges, investments, and reinvestments for and on
  133  behalf of the funds referred to in subsection (1), and it shall
  134  be the duty of the board to see that moneys invested under the
  135  provisions of ss. 215.44-215.53 are at all times handled in the
  136  best interests of the state.
  137         (b) Pursuant to s. 110.205, the State Board of
  138  Administration shall establish and maintain the salaries and
  139  benefits of its officers and employees in a manner consistent
  140  with the board’s fiduciary responsibility to recruit and retain
  141  highly qualified and effective key personnel. Not less than
  142  every 5 years, the Investment Advisory Council shall cause a
  143  total compensation study to be conducted by a private consulting
  144  firm having expertise in institutional investments salary and
  145  benefit administration. The study shall be designed to determine
  146  competitive salary ranges, other compensation, and benefits for
  147  positions within the board based on comparable public-sector
  148  peer investment entities. The Investment Advisory Council shall
  149  present the total compensation study along with its
  150  recommendations to the board, and such recommendations are
  151  subject to review and ratification or reversal by the board. The
  152  board may delegate to the executive director the authority and
  153  duty to set staff salaries within the ranges approved by the
  154  board.
  155         (c)(b) In exercising investment authority pursuant to s.
  156  215.47, the board may retain investment advisers or managers, or
  157  both, external to in-house staff, to assist the board in
  158  carrying out the power specified in paragraph (a).
  159         (d) The board shall create an audit committee to assist the
  160  board in fulfilling its oversight responsibilities. The
  161  committee shall consist of three members appointed by the board.
  162  Members shall be appointed for 4-year terms. A vacancy shall be
  163  filled for the remainder of the unexpired term. The committee
  164  shall annually elect a chair and vice chair from its membership.
  165  A member may not be elected to consecutive terms as chair or
  166  vice chair. Persons appointed to the audit committee must have
  167  relevant knowledge and expertise as determined by the board. The
  168  audit committee shall serve as an independent and objective
  169  party to monitor processes for financial reporting, internal
  170  controls and risk assessment, audit processes, and compliance
  171  with laws, rules, and regulations. The audit committee shall
  172  direct the efforts of the board’s independent external auditors
  173  and the board’s internal audit staff. The committee shall
  174  periodically, but no less than quarterly, report to the
  175  executive director and the board. The board shall produce a set
  176  of financial statements for the Florida Retirement System
  177  programs on an annual basis, which shall be reported to the
  178  Legislature and audited by a commercial independent third-party
  179  audit firm under the direction of the audit committee.
  180         Section 3. Section 215.441, Florida Statutes, is amended to
  181  read:
  182         215.441 Board of Administration; appointment of executive
  183  director.—
  184         (1) The board shall appoint an executive director to manage
  185  and invest funds as directed by the board. The executive
  186  director shall, at a minimum, possess substantial experience,
  187  proven knowledge, and expertise in the oversight of
  188  institutional investment portfolios and must meet any other
  189  requirements determined by the board to be necessary to the
  190  overall management and investment of funds.
  191         (2) The appointment of the executive director of the State
  192  Board of Administration shall be subject to the approval by a
  193  majority vote of the Board of Trustees of the State Board of
  194  Administration, and the Governor must vote on the prevailing
  195  side. Such appointment must be reaffirmed in the same manner by
  196  the board of trustees on an annual basis.
  197         (3) The compensation for the executive director shall be
  198  determined by the board, consistent with the requirements of s.
  199  215.44(2)(b).
  200         (4) Before the appointment of the executive director, the
  201  board shall appoint a search committee to develop minimum
  202  position requirements, review applications, and make
  203  recommendations to the board with regard to qualified applicants
  204  for the position. At a minimum, the search committee shall
  205  consist of at least three members of the Investment Advisory
  206  Council.
  207         Section 4. Subsection (1) of section 215.442, Florida
  208  Statutes, is amended to read:
  209         215.442 Executive director; reporting requirements; public
  210  meeting.—
  211         (1) Beginning October 2007 and quarterly thereafter, the
  212  executive director shall present to the Board of Trustees and
  213  the Investment Advisory Council of the State Board of
  214  Administration a quarterly report to include the following:
  215         (a) The name of each equity in which the State Board of
  216  Administration has invested for the quarter.
  217         (b) The industry category of each equity.
  218         Section 5. Section 215.444, Florida Statutes, is amended to
  219  read:
  220         215.444 Investment Advisory Council.—
  221         (1) There is created a six-member Investment Advisory
  222  Council to review the investments made by the staff of the Board
  223  of Administration and to make recommendations to the board
  224  regarding investment policy, strategy, and procedures. The
  225  council shall meet with staff of the board no less than
  226  quarterly and shall provide a quarterly report directly to the
  227  trustees at a meeting of the board.
  228         (2) The members of the council shall be appointed by the
  229  board as a resource to the trustees and shall be subject to
  230  confirmation by the Senate. These individuals shall possess
  231  special knowledge, experience, and familiarity with financial
  232  investments and portfolio management, institutional investments,
  233  and fiduciary responsibilities. Members shall be appointed for
  234  4-year terms. A vacancy shall be filled for the remainder of the
  235  unexpired term. The council shall annually elect a chair and a
  236  vice chair from its membership. A member may not be elected to
  237  consecutive terms as chair or vice chair.
  238         (3) In carrying out the provisions of this section, a
  239  member of the council is an officer, employee, or agent of the
  240  state for purposes of the state’s waiver of sovereign immunity
  241  contained in s. 768.28. Appointees to the council must undergo
  242  regular fiduciary training as required by the board, and must
  243  complete an annual conflict disclosure statement. In carrying
  244  out their duties, council members must make recommendations
  245  consistent with the fiduciary standards applicable to the board.
  246         (4) The duties of the council shall include approval of the
  247  investment policy statements of the board, participation in the
  248  selection process regarding an executive director, engaging
  249  periodic compensation studies and providing recommendations
  250  thereon, meeting quarterly to review the investment performance
  251  of funds, and any other duties as determined by the board. The
  252  council may create subcommittees as necessary to carry out its
  253  duties and responsibilities and may direct the executive
  254  director to enter into contracts with independent compensation
  255  consultants.
  256         Section 6. Subsection (1) of section 215.475, Florida
  257  Statutes, is amended to read:
  258         215.475 Investment policy statement.—
  259         (1) In making investments for the System Trust Fund
  260  pursuant to ss. 215.44-215.53, the board shall make no
  261  investment which is not in conformance with the Florida
  262  Retirement System Defined Benefit Plan Investment Policy
  263  Statement, hereinafter referred to as “the IPS,” as developed by
  264  the executive director and approved by the Investment Advisory
  265  Council and the board. The IPS must include, among other items,
  266  the investment objectives of the System Trust Fund; permitted
  267  types of securities in which the board may invest; and
  268  evaluation criteria necessary to measure the investment
  269  performance of the fund. As required from time to time, the
  270  executive director of the board may present recommended changes
  271  in the IPS to the Investment Advisory Council and the board for
  272  approval.
  273         Section 7. Section 215.4754, Florida Statutes, is created
  274  to read:
  275         215.4754Ethics requirements for investment advisers and
  276  managers and members of the Investment Advisory Council.—The
  277  intent of this section is to promote independence and the
  278  avoidance of conflicts and improper influence by certain
  279  investment advisers and managers without creating unnecessary
  280  barriers to the board performing its investment duties
  281  consistent with its fiduciary standards, investment performance,
  282  and business relationships.
  283         (1)A contract under which an investment adviser or manager
  284  has been retained to exercise investment authority on behalf of
  285  the board for direct holdings, as defined in s. 215.473(1)(e),
  286  shall require that the investment adviser or manager abide by a
  287  standard of conduct, and any such contract may be terminated by
  288  the board if the investment adviser or manager violates such
  289  standard of conduct.
  290         (2)An Investment Advisory Council member or any business
  291  organization or any affiliate thereof which is owned by or
  292  employs such member may not directly or indirectly contract with
  293  or provide any services for the investment of trust funds
  294  invested by the board during the time of such member’s service
  295  on the council or for 2 years thereafter.
  296         Section 8. Section 215.4755, Florida Statutes, is created
  297  to read:
  298         215.4755Certification and disclosure requirements for
  299  investment advisers and managers.—
  300         (1)An investment adviser or manager who has discretionary
  301  investment authority for direct holdings, as defined in s.
  302  215.473(1)(e), and who is retained as provided in s.
  303  215.44(2)(c) shall agree pursuant to contract to annually
  304  certify in writing to the board that:
  305         (a)All investment decisions made on behalf of the trust
  306  funds and the board are made in the best interests of the trust
  307  funds and the board, and not made in a manner to the advantage
  308  of such investment adviser or manager, other persons, or clients
  309  to the detriment of the trust funds and the board.
  310         (b)Appropriate policies, procedures, or other safeguards
  311  have been adopted and implemented to ensure that relationships
  312  with any affiliated persons or entities do not adversely
  313  influence the investment decisions made on behalf of the trust
  314  funds and the board.
  315         (c)A written code of ethics, conduct, or other set of
  316  standards, which governs the professional behavior and
  317  expectations of owners, general partners, directors or managers,
  318  officers, and employees of the investment adviser or manager,
  319  has been adopted and implemented and is effectively monitored
  320  and enforced. The investment advisers’ and managers’ code of
  321  ethics shall require that:
  322         1. Officers and employees involved in the investment
  323  process shall refrain from personal business activity that could
  324  conflict with the proper execution and management of the
  325  investment program over which the investment adviser or manager
  326  has discretionary investment authority or that could impair
  327  their ability to make impartial decisions with respect to such
  328  investment program; and
  329         2. Officers and employees shall refrain from undertaking
  330  personal investment transactions with the same individual with
  331  whom business is conducted on behalf of the board.
  332         (d)The investment adviser or manager has proactively and
  333  promptly disclosed to the board, notwithstanding subsection (2),
  334  any known circumstances or situations that a prudent person
  335  could expect to create an actual, potential, or perceived
  336  conflict of interest, including specifically:
  337         1. Any material interests in or with financial institutions
  338  with which officers and employees conduct business on behalf of
  339  the trust funds and the board; and
  340         2. Any personal financial or investment positions of the
  341  investment advisor or manager which could be related to the
  342  performance of an investment program over which the investment
  343  adviser or manager has discretionary investment authority on
  344  behalf of the board.
  345         (2)At the board’s request, an investment adviser or
  346  manager who has discretionary investment authority over direct
  347  holdings, as defined in s. 215.473(1)(e), and who is retained as
  348  provided in s. 215.44(2)(c) shall disclose in writing to the
  349  board:
  350         (a)Any nonconfidential, nonproprietary information or
  351  reports to substantiate the certifications required under
  352  subsection (1).
  353         (b)All direct or indirect pecuniary interests that the
  354  investment adviser or manager has in or with any party to a
  355  transaction with the board, if the transaction is related to any
  356  discretionary investment authority that the investment adviser
  357  or manager exercises on behalf of the board.
  358         (3)An investment adviser or manager certification required
  359  under subsection (1) shall be provided annually, no later than
  360  January 31, for the reporting period of the previous calendar
  361  year on a form prescribed by the board.
  362         Section 9. Section 215.52, Florida Statutes, is amended to
  363  read:
  364         215.52 Rules and regulations.—The board shall have the
  365  power and authority to make reasonable rules, policies, and
  366  regulations necessary or appropriate to carry out the provisions
  367  of ss. 215.44-215.53. To ensure full transparency and
  368  accountability in fulfillment of its fiduciary duties, the board
  369  may implement any policies, restrictions, or guidelines
  370  necessary to the application of relevant provisions, including,
  371  but not limited to, policy in the areas of compliance, ethics,
  372  training, audit procedures, service providers, vendors, and
  373  third parties who do business with the board.
  374         Section 10. This act shall take effect July 1, 2010.

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