January 21, 2019
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       Florida Senate - 2010                      CS for CS for SB 2186
       
       
       
       By the Committees on Community Affairs; and Governmental
       Oversight and Accountability; and Senator Ring
       
       
       
       578-03537-10                                          20102186c2
    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; requiring
   28         that the board meet at specified intervals and receive
   29         reports containing certain information from specified
   30         entities; amending s. 215.441, F.S.; requiring that
   31         the board appoint an executive director; providing
   32         duties of the executive director; providing
   33         requirements for appointment as executive director;
   34         removing a requirement that the Governor vote in favor
   35         of the selection of the executive director; providing
   36         for the determination of the executive director’s
   37         compensation; providing for the creation, operation,
   38         and membership of a search committee for the purpose
   39         of selecting the executive director; amending s.
   40         215.442, F.S.; requiring that the executive director
   41         present certain information quarterly to the
   42         Investment Advisory Council; creating s. 215.443,
   43         F.S.; creating the Agency for Professional Fund
   44         Management; providing for the makeup of the agency;
   45         amending s. 215.444, F.S.; requiring that the council
   46         meet with the board’s staff at specified intervals and
   47         provide a quarterly report to the board’s trustees;
   48         clarifying the function of council members; expanding
   49         prerequisites for membership on the council to include
   50         knowledge of and experience with institutional
   51         investments and fiduciary responsibilities; providing
   52         that a council member is an officer, employee, or
   53         agent of the state for specified purposes; requiring
   54         that appointees to the council undergo specified
   55         training; requiring that council members make
   56         recommendations consistent with fiduciary
   57         responsibilities applicable to the board; specifying
   58         duties of the council; authorizing the council to
   59         create subcommittees and direct the executive director
   60         to enter into certain contracts; amending s. 215.475,
   61         F.S.; conforming provisions to changes made by the
   62         act; creating s. 215.4754, F.S.; providing intent;
   63         requiring that the contract for an investment adviser
   64         or manager include a standard of conduct; providing
   65         for termination of the contract of an adviser or
   66         manager who violates the standard of conduct;
   67         prohibiting a member of the Investment Advisory
   68         Council from contracting with or providing services
   69         for the investment of certain funds during his or her
   70         service on the board and for a specified period
   71         thereafter; creating s. 215.4755, F.S.; requiring that
   72         an investment advisor or manager annually certify to
   73         the board certain activities regarding investment
   74         decisions and standards of behavior; requiring that
   75         certain disclosures be made at the request of the
   76         board regarding pecuniary interests of an investment
   77         adviser or manager; amending s. 215.52, F.S.;
   78         authorizing the board to implement certain policies,
   79         restrictions, or guidelines; providing an effective
   80         date.
   81  
   82  Be It Enacted by the Legislature of the State of Florida:
   83  
   84         Section 1. Subsection (14) of section 121.4501, Florida
   85  Statutes, is amended to read:
   86         121.4501 Public Employee Optional Retirement Program.—
   87         (14) INVESTMENT POLICY STATEMENT.—
   88         (a) Investment products and approved providers selected for
   89  the Public Employee Optional Retirement Program shall conform
   90  with the Public Employee Optional Retirement Program Investment
   91  Policy Statement, herein referred to as the “statement,” as
   92  developed by the executive director of the state board and
   93  approved by the Investment Advisory Council and Trustees of the
   94  State Board of Administration. The statement must include, among
   95  other items, the investment objectives of the Public Employee
   96  Optional Retirement Program, manager selection and monitoring
   97  guidelines, and performance measurement criteria. As required
   98  from time to time, the executive director of the state board may
   99  present recommended changes in the statement to the board for
  100  approval.
  101         (b) Before Prior to presenting the statement, or any
  102  recommended changes thereto, to the state board, the executive
  103  director of the board shall present such statement or changes to
  104  the Investment Advisory Council for review and approval. The
  105  council shall present the results of its review to the board
  106  prior to the board’s final approval of the statement or changes
  107  in the statement.
  108         Section 2. Subsections (1) and (2) of section 215.44,
  109  Florida Statutes, are amended to read:
  110         215.44 Board of Administration; powers and duties in
  111  relation to investment of trust funds.—
  112         (1) Except when otherwise specifically provided by the
  113  State Constitution and subject to any limitations of the trust
  114  agreement relating to a trust fund, the Board of Administration,
  115  hereinafter sometimes referred to as “trustees” or “board,”
  116  composed of the Governor as chair, the Chief Financial Officer,
  117  and the Attorney General, shall invest all the funds in the
  118  System Trust Fund, as defined in s. 121.021(36), and all other
  119  funds specifically required by law to be invested by the board
  120  pursuant to ss. 215.44-215.53 to the fullest extent that is
  121  consistent with the cash requirements, trust agreement, and
  122  investment objectives of the fund. Notwithstanding any other law
  123  to the contrary, the State Board of Administration may invest
  124  any funds of any state agency or any unit of local government
  125  pursuant to the terms of a trust agreement with the head of the
  126  state agency or the governing body of the unit of local
  127  government, which trust agreement shall govern the investment of
  128  such funds, provided that the board shall approve the
  129  undertaking of such investment before execution of the trust
  130  agreement by the State Board of Administration. The funds and
  131  the earnings therefrom are exempt from the service charge
  132  imposed by s. 215.20. As used in this subsection, the term
  133  “state agency” has the same meaning as that provided in s.
  134  216.001, and the terms “governing body” and “unit of local
  135  government” have the same meaning as that provided in s.
  136  218.403.
  137         (2)(a) The board shall have the power to make purchases,
  138  sales, exchanges, investments, and reinvestments for and on
  139  behalf of the funds referred to in subsection (1), and it shall
  140  be the duty of the board to see that moneys invested under the
  141  provisions of ss. 215.44-215.53 are at all times handled in the
  142  best interests of the state.
  143         (b) Pursuant to s. 110.205, the State Board of
  144  Administration shall establish and maintain the salaries and
  145  benefits of its officers and employees in a manner consistent
  146  with the board’s fiduciary responsibility to recruit and retain
  147  highly qualified and effective key personnel. Not less than
  148  every 5 years, the Investment Advisory Council shall cause a
  149  total compensation study to be conducted by a private consulting
  150  firm having expertise in institutional investments salary and
  151  benefit administration. The study shall be designed to determine
  152  competitive salary ranges, other compensation, and benefits for
  153  positions within the board based on comparable public-sector
  154  peer investment entities. The Investment Advisory Council shall
  155  present the total compensation study along with its
  156  recommendations to the board, and such recommendations are
  157  subject to review and ratification or reversal by the board. The
  158  board may delegate to the executive director the authority and
  159  duty to set staff salaries within the ranges approved by the
  160  board.
  161         (c)(b) In exercising investment authority pursuant to s.
  162  215.47, the board may retain investment advisers or managers, or
  163  both, external to in-house staff, to assist the board in
  164  carrying out the power specified in paragraph (a).
  165         (d) The board shall create an audit committee to assist the
  166  board in fulfilling its oversight responsibilities. The
  167  committee shall consist of three members appointed by the board.
  168  Members shall be appointed for 4-year terms. A vacancy shall be
  169  filled for the remainder of the unexpired term. The committee
  170  shall annually elect a chair and vice chair from its membership.
  171  A member may not be elected to consecutive terms as chair or
  172  vice chair. Persons appointed to the audit committee must have
  173  relevant knowledge and expertise as determined by the board. The
  174  audit committee shall serve as an independent and objective
  175  party to monitor processes for financial reporting, internal
  176  controls and risk assessment, audit processes, and compliance
  177  with laws, rules, and regulations. The audit committee shall
  178  direct the efforts of the board’s independent external auditors
  179  and the board’s internal audit staff. The committee shall
  180  periodically, but no less than quarterly, report to the
  181  executive director of the state board and the board. The board
  182  shall produce a set of financial statements for the Florida
  183  Retirement System programs on an annual basis, which shall be
  184  reported to the Legislature and audited by a commercial
  185  independent third-party audit firm under the direction of the
  186  audit committee.
  187         (e) The board shall meet at least quarterly and shall
  188  receive reports from the audit committee, investment advisory
  189  committee, inspector general, general counsel, executive
  190  director, and such other persons or entities as the board may
  191  require about the financial status, operations, and investment
  192  activities of the board.
  193         Section 3. Section 215.441, Florida Statutes, is amended to
  194  read:
  195         215.441 Board of Administration; appointment of executive
  196  director.—
  197         (1) The board shall appoint an executive director to manage
  198  and invest funds as directed by the board. The executive
  199  director shall, at a minimum, possess substantial experience,
  200  proven knowledge, and expertise in the oversight of
  201  institutional investment portfolios and must meet any other
  202  requirements determined by the board to be necessary to the
  203  overall management and investment of funds.
  204         (2) The appointment of the executive director of the State
  205  Board of Administration shall be subject to the approval by a
  206  majority vote of the Board of Trustees of the State Board of
  207  Administration, and the Governor must vote on the prevailing
  208  side. Such appointment must be reaffirmed in the same manner by
  209  the board of trustees on an annual basis.
  210         (3) The compensation for the executive director shall be
  211  determined by the board, consistent with the requirements of s.
  212  215.44(2)(b).
  213         (4) Before the appointment of the executive director, the
  214  board shall appoint a search committee to develop minimum
  215  position requirements, review applications, and make
  216  recommendations to the board with regard to qualified applicants
  217  for the position. At a minimum, the search committee shall
  218  consist of at least three members of the Investment Advisory
  219  Council.
  220         Section 4. Subsection (1) of section 215.442, Florida
  221  Statutes, is amended to read:
  222         215.442 Executive director; reporting requirements; public
  223  meeting.—
  224         (1) Beginning October 2007 and quarterly thereafter, the
  225  executive director shall present to the Board of Trustees and
  226  the Investment Advisory Council of the State Board of
  227  Administration a quarterly report to include the following:
  228         (a) The name of each equity in which the State Board of
  229  Administration has invested for the quarter.
  230         (b) The industry category of each equity.
  231         Section 5. Section 215.443, Florida Statutes, is created to
  232  read:
  233         215.443Agency for Professional Fund Management.—
  234         (1)Effective January 1, 2011, there is created within the
  235  State Board of Administration the Agency for Professional Fund
  236  Management which shall provide active oversight of the
  237  investment portfolios under the authority of the board.
  238         (2)The agency shall consist of five members appointed by
  239  the board and subject to confirmation by the Senate. The members
  240  shall annually elect a chair from among their membership.
  241  Members shall meet at least every other month; however, an
  242  emergency meeting may be convened at the call of the chair. The
  243  members shall receive no compensation for their services but are
  244  entitled to receive reimbursement for expenses pursuant to s.
  245  112.061. Members shall serve 4-year terms and may be suspended
  246  or removed for cause by the board.
  247         (3)Members of the agency shall be considered fiduciaries
  248  in the discharge of their duties and shall be required to file
  249  financial disclosure as required of state officers pursuant to
  250  s. 112.3145.
  251         (4)Members of the agency must be distinguished by the
  252  attainment of the highest professional and experiential
  253  requirements consistent with the investment responsibilities
  254  they bear. Each must have a minimum of 5 years of progressively
  255  responsible experience in the direct management, analysis,
  256  supervision, or investment of financial assets as an officer or
  257  a named fiduciary with a public or private organization that has
  258  at least $1 billion in investable assets. Members who possess
  259  licenses or certification from professional organizations or
  260  other federal or state regulatory bodies must maintain those
  261  licenses in good standing, free from sanction, limitation, or
  262  compromise by the issuing authority, through the duration of
  263  their service.
  264         (5)The members shall have active oversight of the
  265  investment decisions made on behalf of the participants in each
  266  of the portfolios managed by the board and decisions made by the
  267  executive director or staff on the allocation of funds within
  268  the permitted statutory ranges.
  269         (6)Decisions made by the agency may be altered only by
  270  unanimous vote of all three members of the board in a public
  271  meeting.
  272         Section 6. Section 215.444, Florida Statutes, is amended to
  273  read:
  274         215.444 Investment Advisory Council.—
  275         (1) There is created a six-member Investment Advisory
  276  Council to review the investments made by the staff of the Board
  277  of Administration and to make recommendations to the board
  278  regarding investment policy, strategy, and procedures. The
  279  council shall meet with staff of the board no less than
  280  quarterly and shall provide a quarterly report directly to the
  281  trustees at a meeting of the board.
  282         (2) The members of the council shall be appointed by the
  283  board as a resource to the trustees and shall be subject to
  284  confirmation by the Senate. These individuals shall possess
  285  special knowledge, experience, and familiarity with financial
  286  investments and portfolio management, institutional investments,
  287  and fiduciary responsibilities. Members shall be appointed for
  288  4-year terms. A vacancy shall be filled for the remainder of the
  289  unexpired term. The council shall annually elect a chair and a
  290  vice chair from its membership. A member may not be elected to
  291  consecutive terms as chair or vice chair.
  292         (3) In carrying out the provisions of this section, a
  293  member of the council is an officer, employee, or agent of the
  294  state for purposes of the state’s waiver of sovereign immunity
  295  contained in s. 768.28. Appointees to the council must undergo
  296  regular fiduciary training as required by the board, and must
  297  complete an annual conflict disclosure statement. In carrying
  298  out their duties, council members must make recommendations
  299  consistent with the fiduciary standards applicable to the board.
  300         (4) The duties of the council shall include approval of the
  301  investment policy statements of the board, participation in the
  302  selection process regarding an executive director, engaging
  303  periodic compensation studies and providing recommendations
  304  thereon, meeting quarterly to review the investment performance
  305  of funds, and any other duties as determined by the board. The
  306  council may create subcommittees as necessary to carry out its
  307  duties and responsibilities and may direct the executive
  308  director to enter into contracts with independent compensation
  309  consultants.
  310         Section 7. Subsection (1) of section 215.475, Florida
  311  Statutes, is amended to read:
  312         215.475 Investment policy statement.—
  313         (1) In making investments for the System Trust Fund
  314  pursuant to ss. 215.44-215.53, the board shall make no
  315  investment which is not in conformance with the Florida
  316  Retirement System Defined Benefit Plan Investment Policy
  317  Statement, hereinafter referred to as “the IPS,” as developed by
  318  the executive director and approved by the Investment Advisory
  319  Council and the board. The IPS must include, among other items,
  320  the investment objectives of the System Trust Fund; permitted
  321  types of securities in which the board may invest; and
  322  evaluation criteria necessary to measure the investment
  323  performance of the fund. As required from time to time, the
  324  executive director of the board may present recommended changes
  325  in the IPS to the Investment Advisory Council and the board for
  326  approval.
  327         Section 8. Section 215.4754, Florida Statutes, is created
  328  to read:
  329         215.4754Ethics requirements for investment advisers and
  330  managers and members of the Investment Advisory Council.—The
  331  intent of this section is to promote independence and the
  332  avoidance of conflicts and improper influence by certain
  333  investment advisers and managers without creating unnecessary
  334  barriers to the board performing its investment duties
  335  consistent with its fiduciary standards, investment performance,
  336  and business relationships.
  337         (1)A contract under which an investment adviser or manager
  338  has been retained to exercise investment authority on behalf of
  339  the board for direct holdings, as defined in s. 215.473(1)(e),
  340  shall require that the investment adviser or manager abide by a
  341  standard of conduct pursuant to s. 215.4755, and any such
  342  contract may be terminated by the board if the investment
  343  adviser or manager violates such standard of conduct.
  344         (2)An Investment Advisory Council member or any business
  345  organization or any affiliate thereof which is owned by or
  346  employs such member may not directly or indirectly contract with
  347  or provide any services for the investment of trust funds
  348  invested by the board during the time of such member’s service
  349  on the council or for 2 years thereafter.
  350         Section 9. Section 215.4755, Florida Statutes, is created
  351  to read:
  352         215.4755Certification and disclosure requirements for
  353  investment advisers and managers.—
  354         (1)An investment adviser or manager who has discretionary
  355  investment authority for direct holdings, as defined in s.
  356  215.473(1)(e), and who is retained as provided in s.
  357  215.44(2)(c) shall agree pursuant to contract to annually
  358  certify in writing to the board that:
  359         (a)All investment decisions made on behalf of the trust
  360  funds and the board are made in the best interests of the trust
  361  funds and the board, and not made in a manner to the advantage
  362  of such investment adviser or manager, other persons, or clients
  363  to the detriment of the trust funds and the board.
  364         (b)Appropriate policies, procedures, or other safeguards
  365  have been adopted and implemented to ensure that relationships
  366  with any affiliated persons or entities do not adversely
  367  influence the investment decisions made on behalf of the trust
  368  funds and the board.
  369         (c)A written code of ethics, conduct, or other set of
  370  standards, which governs the professional behavior and
  371  expectations of owners, general partners, directors or managers,
  372  officers, and employees of the investment adviser or manager,
  373  has been adopted and implemented and is effectively monitored
  374  and enforced. The investment advisers’ and managers’ code of
  375  ethics shall require that:
  376         1. Officers and employees involved in the investment
  377  process shall refrain from personal business activity that could
  378  conflict with the proper execution and management of the
  379  investment program over which the investment adviser or manager
  380  has discretionary investment authority or that could impair
  381  their ability to make impartial decisions with respect to such
  382  investment program; and
  383         2. Officers and employees shall refrain from undertaking
  384  personal investment transactions with the same individual with
  385  whom business is conducted on behalf of the board.
  386         (d)The investment adviser or manager has proactively and
  387  promptly disclosed to the board, notwithstanding subsection (2),
  388  any known circumstances or situations that a prudent person
  389  could expect to create an actual, potential, or perceived
  390  conflict of interest, including specifically:
  391         1. Any material interests in or with financial institutions
  392  with which officers and employees conduct business on behalf of
  393  the trust funds and the board; and
  394         2. Any personal financial or investment positions of the
  395  investment advisor or manager which could be related to the
  396  performance of an investment program over which the investment
  397  adviser or manager has discretionary investment authority on
  398  behalf of the board.
  399         (2)At the board’s request, an investment adviser or
  400  manager who has discretionary investment authority over direct
  401  holdings, as defined in s. 215.473(1)(e), and who is retained as
  402  provided in s. 215.44(2)(c) shall disclose in writing to the
  403  board:
  404         (a)Any nonconfidential, nonproprietary information or
  405  reports to substantiate the certifications required under
  406  subsection (1).
  407         (b)All direct or indirect pecuniary interests that the
  408  investment adviser or manager has in or with any party to a
  409  transaction with the board, if the transaction is related to any
  410  discretionary investment authority that the investment adviser
  411  or manager exercises on behalf of the board.
  412         (3)An investment adviser or manager certification required
  413  under subsection (1) shall be provided annually, no later than
  414  January 31, for the reporting period of the previous calendar
  415  year on a form prescribed by the board.
  416         Section 10. Section 215.52, Florida Statutes, is amended to
  417  read:
  418         215.52 Rules and regulations.—The board shall have the
  419  power and authority to make reasonable rules, policies, and
  420  regulations necessary or appropriate to carry out the provisions
  421  of ss. 215.44-215.53. To ensure full transparency and
  422  accountability in fulfillment of its fiduciary duties, the board
  423  may implement any policies, restrictions, or guidelines
  424  necessary to the application of relevant provisions, including,
  425  but not limited to, policy in the areas of compliance, ethics,
  426  training, audit procedures, service providers, vendors, and
  427  third parties who do business with the board.
  428         Section 11. This act shall take effect July 1, 2010.

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