101ST GENERAL ASSEMBLY
State of Illinois
2019 and 2020
SB1671

 

Introduced 2/15/2019, by Sen. Iris Y. Martinez

 

SYNOPSIS AS INTRODUCED:
 
40 ILCS 5/1-109.1  from Ch. 108 1/2, par. 1-109.1
40 ILCS 5/1-113.14

    Amends the General Provisions Article of the Illinois Pension Code. Provides that "emerging investment manager" means a qualified investment adviser that manages an investment portfolio of at least $10,000,000 but less than $10,000,000,000 at the time of the initial contract with the retirement system, pension fund, or investment board (rather than at least $10,000,000 but less than $10,000,000,000) and is a minority-owned business, women-owned business, or business owned by a person with a disability. In a provision requiring a competitive process for awarding investment contracts, adds an exclusion for contracts for investment services with an emerging investment manager. Effective immediately.


LRB101 07919 RPS 52974 b

FISCAL NOTE ACT MAY APPLY
PENSION IMPACT NOTE ACT MAY APPLY

 

 

A BILL FOR

 

SB1671LRB101 07919 RPS 52974 b

1    AN ACT concerning public employee benefits.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Pension Code is amended by changing
5Sections 1-109.1 and 1-113.14 as follows:
 
6    (40 ILCS 5/1-109.1)  (from Ch. 108 1/2, par. 1-109.1)
7    Sec. 1-109.1. Allocation and delegation of fiduciary
8duties.
9    (1) Subject to the provisions of Section 22A-113 of this
10Code and subsections (2) and (3) of this Section, the board of
11trustees of a retirement system or pension fund established
12under this Code may:
13        (a) Appoint one or more investment managers as
14    fiduciaries to manage (including the power to acquire and
15    dispose of) any assets of the retirement system or pension
16    fund; and
17        (b) Allocate duties among themselves and designate
18    others as fiduciaries to carry out specific fiduciary
19    activities other than the management of the assets of the
20    retirement system or pension fund.
21    (2) The board of trustees of a pension fund established
22under Article 5, 6, 8, 9, 10, 11, 12 or 17 of this Code may not
23transfer its investment authority, nor transfer the assets of

 

 

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1the fund to any other person or entity for the purpose of
2consolidating or merging its assets and management with any
3other pension fund or public investment authority, unless the
4board resolution authorizing such transfer is submitted for
5approval to the contributors and pensioners of the fund at
6elections held not less than 30 days after the adoption of such
7resolution by the board, and such resolution is approved by a
8majority of the votes cast on the question in both the
9contributors election and the pensioners election. The
10election procedures and qualifications governing the election
11of trustees shall govern the submission of resolutions for
12approval under this paragraph, insofar as they may be made
13applicable.
14    (3) Pursuant to subsections (h) and (i) of Section 6 of
15Article VII of the Illinois Constitution, the investment
16authority of boards of trustees of retirement systems and
17pension funds established under this Code is declared to be a
18subject of exclusive State jurisdiction, and the concurrent
19exercise by a home rule unit of any power affecting such
20investment authority is hereby specifically denied and
21preempted.
22    (4) For the purposes of this Code, "emerging investment
23manager" means a qualified investment adviser that manages an
24investment portfolio of at least $10,000,000 but less than
25$10,000,000,000 at the time of the initial contract with the
26retirement system, pension fund, or investment board and is a

 

 

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1"minority-owned business", "women-owned business" or "business
2owned by a person with a disability" as those terms are defined
3in the Business Enterprise for Minorities, Women, and Persons
4with Disabilities Act.
5    It is hereby declared to be the public policy of the State
6of Illinois to encourage the trustees of public employee
7retirement systems, pension funds, and investment boards to use
8emerging investment managers in managing their system's
9assets, encompassing all asset classes, and increase the
10racial, ethnic, and gender diversity of its fiduciaries, to the
11greatest extent feasible within the bounds of financial and
12fiduciary prudence, and to take affirmative steps to remove any
13barriers to the full participation in investment opportunities
14afforded by those retirement systems, pension funds, and
15investment boards.
16    On or before January 1, 2010, a retirement system, pension
17fund, or investment board subject to this Code, except those
18whose investments are restricted by Section 1-113.2 of this
19Code, shall adopt a policy that sets forth goals for
20utilization of emerging investment managers. This policy shall
21include quantifiable goals for the management of assets in
22specific asset classes by emerging investment managers. The
23retirement system, pension fund, or investment board shall
24establish 3 separate goals for: (i) emerging investment
25managers that are minority-owned businesses; (ii) emerging
26investment managers that are women-owned businesses; and (iii)

 

 

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1emerging investment managers that are businesses owned by a
2person with a disability. The goals established shall be based
3on the percentage of total dollar amount of investment service
4contracts let to minority-owned businesses, women-owned
5businesses, and businesses owned by a person with a disability,
6as those terms are defined in the Business Enterprise for
7Minorities, Women, and Persons with Disabilities Act. The
8retirement system, pension fund, or investment board shall
9annually review the goals established under this subsection.
10    If in any case an emerging investment manager meets the
11criteria established by a board for a specific search and meets
12the criteria established by a consultant for that search, then
13that emerging investment manager shall receive an invitation by
14the board of trustees, or an investment committee of the board
15of trustees, to present his or her firm for final consideration
16of a contract. In the case where multiple emerging investment
17managers meet the criteria of this Section, the staff may
18choose the most qualified firm or firms to present to the
19board.
20    The use of an emerging investment manager does not
21constitute a transfer of investment authority for the purposes
22of subsection (2) of this Section.
23    (5) Each retirement system, pension fund, or investment
24board subject to this Code, except those whose investments are
25restricted by Section 1-113.2 of this Code, shall establish a
26policy that sets forth goals for increasing the racial, ethnic,

 

 

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1and gender diversity of its fiduciaries, including its
2consultants and senior staff. Each retirement system, pension
3fund, or investment board shall make its best efforts to ensure
4that the racial and ethnic makeup of its senior administrative
5staff represents the racial and ethnic makeup of its
6membership. Each system, fund, and investment board shall
7annually review the goals established under this subsection.
8    (6) On or before January 1, 2010, a retirement system,
9pension fund, or investment board subject to this Code, except
10those whose investments are restricted by Section 1-113.2 of
11this Code, shall adopt a policy that sets forth goals for
12utilization of businesses owned by minorities, women, and
13persons with disabilities for all contracts and services. The
14goals established shall be based on the percentage of total
15dollar amount of all contracts let to minority-owned
16businesses, women-owned businesses, and businesses owned by a
17person with a disability, as those terms are defined in the
18Business Enterprise for Minorities, Women, and Persons with
19Disabilities Act. The retirement system, pension fund, or
20investment board shall annually review the goals established
21under this subsection.
22    (7) On or before January 1, 2010, a retirement system,
23pension fund, or investment board subject to this Code, except
24those whose investments are restricted by Section 1-113.2 of
25this Code, shall adopt a policy that sets forth goals for
26increasing the utilization of minority broker-dealers. For the

 

 

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1purposes of this Code, "minority broker-dealer" means a
2qualified broker-dealer who meets the definition of
3"minority-owned business", "women-owned business", or
4"business owned by a person with a disability", as those terms
5are defined in the Business Enterprise for Minorities, Women,
6and Persons with Disabilities Act. The retirement system,
7pension fund, or investment board shall annually review the
8goals established under this Section.
9    (8) Each retirement system, pension fund, and investment
10board subject to this Code, except those whose investments are
11restricted by Section 1-113.2 of this Code, shall submit a
12report to the Governor and the General Assembly by January 1 of
13each year that includes the following: (i) the policy adopted
14under subsection (4) of this Section, including the names and
15addresses of the emerging investment managers used, percentage
16of the assets under the investment control of emerging
17investment managers for the 3 separate goals, and the actions
18it has undertaken to increase the use of emerging investment
19managers, including encouraging other investment managers to
20use emerging investment managers as subcontractors when the
21opportunity arises; (ii) the policy adopted under subsection
22(5) of this Section; (iii) the policy adopted under subsection
23(6) of this Section; (iv) the policy adopted under subsection
24(7) of this Section, including specific actions undertaken to
25increase the use of minority broker-dealers; and (v) the policy
26adopted under subsection (9) of this Section.

 

 

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1    (9) On or before February 1, 2015, a retirement system,
2pension fund, or investment board subject to this Code, except
3those whose investments are restricted by Section 1-113.2 of
4this Code, shall adopt a policy that sets forth goals for
5increasing the utilization of minority investment managers.
6For the purposes of this Code, "minority investment manager"
7means a qualified investment manager that manages an investment
8portfolio and meets the definition of "minority-owned
9business", "women-owned business", or "business owned by a
10person with a disability", as those terms are defined in the
11Business Enterprise for Minorities, Women, and Persons with
12Disabilities Act.
13    It is hereby declared to be the public policy of the State
14of Illinois to encourage the trustees of public employee
15retirement systems, pension funds, and investment boards to use
16minority investment managers in managing their systems'
17assets, encompassing all asset classes, and to increase the
18racial, ethnic, and gender diversity of their fiduciaries, to
19the greatest extent feasible within the bounds of financial and
20fiduciary prudence, and to take affirmative steps to remove any
21barriers to the full participation in investment opportunities
22afforded by those retirement systems, pension funds, and
23investment boards.
24    The retirement system, pension fund, or investment board
25shall establish 3 separate goals for: (i) minority investment
26managers that are minority-owned businesses; (ii) minority

 

 

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1investment managers that are women-owned businesses; and (iii)
2minority investment managers that are businesses owned by a
3person with a disability. The retirement system, pension fund,
4or investment board shall annually review the goals established
5under this Section.
6    If in any case a minority investment manager meets the
7criteria established by a board for a specific search and meets
8the criteria established by a consultant for that search, then
9that minority investment manager shall receive an invitation by
10the board of trustees, or an investment committee of the board
11of trustees, to present his or her firm for final consideration
12of a contract. In the case where multiple minority investment
13managers meet the criteria of this Section, the staff may
14choose the most qualified firm or firms to present to the
15board.
16    The use of a minority investment manager does not
17constitute a transfer of investment authority for the purposes
18of subsection (2) of this Section.
19    (10) Beginning January 1, 2016, it shall be the
20aspirational goal for a retirement system, pension fund, or
21investment board subject to this Code to use emerging
22investment managers for not less than 20% of the total funds
23under management. Furthermore, it shall be the aspirational
24goal that not less than 20% of investment advisors be
25minorities, women, and persons with disabilities as those terms
26are defined in the Business Enterprise for Minorities, Women,

 

 

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1and Persons with Disabilities Act. It shall be the aspirational
2goal to utilize businesses owned by minorities, women, and
3persons with disabilities for not less than 20% of contracts
4awarded for "information technology services", "accounting
5services", "insurance brokers", "architectural and engineering
6services", and "legal services" as those terms are defined in
7the Act.
8(Source: P.A. 99-462, eff. 8-25-15; 100-391, eff. 8-25-17;
9100-902, eff. 8-17-18.)
 
10    (40 ILCS 5/1-113.14)
11    Sec. 1-113.14. Investment services for retirement systems,
12pension funds, and investment boards, except those funds
13established under Articles 3 and 4.
14    (a) For the purposes of this Section, "investment services"
15means services provided by an investment adviser or a
16consultant other than qualified fund-of-fund management
17services as defined in Section 1-113.15.
18    (b) The selection and appointment of an investment adviser
19or consultant for investment services by the board of a
20retirement system, pension fund, or investment board subject to
21this Code, except those whose investments are restricted by
22Section 1-113.2, shall be made and awarded in accordance with
23this Section. All contracts for investment services shall be
24awarded by the board using a competitive process that is
25substantially similar to the process required for the

 

 

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1procurement of professional and artistic services under
2Article 35 of the Illinois Procurement Code. Each board of
3trustees shall adopt a policy in accordance with this
4subsection (b) within 60 days after the effective date of this
5amendatory Act of the 96th General Assembly. The policy shall
6be posted on its web site and filed with the Illinois
7Procurement Policy Board. Exceptions to this Section are
8allowed for (i) sole source procurements, (ii) emergency
9procurements, (iii) at the discretion of the pension fund,
10retirement system, or board of investment, contracts that are
11nonrenewable and one year or less in duration, so long as the
12contract has a value of less than $20,000, and (iv) in the
13discretion of the pension fund, retirement system, or
14investment board, contracts for follow-on funds with the same
15fund sponsor through closed-end funds, and (v) contracts for
16investment services with an emerging investment manager. All
17exceptions granted under this Section must be published on the
18system's, fund's, or board's web site, shall name the person
19authorizing the procurement, and shall include a brief
20explanation of the reason for the exception.
21    A person, other than a trustee or an employee of a
22retirement system, pension fund, or investment board, may not
23act as a consultant or investment adviser under this Section
24unless that person is registered as an investment adviser under
25the federal Investment Advisers Act of 1940 (15 U.S.C. 80b-1,
26et seq.) or a bank, as defined in the federal Investment

 

 

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1Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.).
2    (c) Investment services provided by an investment adviser
3or a consultant appointed under this Section shall be rendered
4pursuant to a written contract between the investment adviser
5or consultant and the board.
6    The contract shall include all of the following:
7        (1) Acknowledgement in writing by the investment
8    adviser or consultant that he or she is a fiduciary with
9    respect to the pension fund or retirement system.
10        (2) The description of the board's investment policy
11    and notice that the policy is subject to change.
12        (3) (i) Full disclosure of direct and indirect fees,
13    commissions, penalties, and other compensation, including
14    reimbursement for expenses, that may be paid by or on
15    behalf of the consultant in connection with the provision
16    of services to the pension fund or retirement system and
17    (ii) a requirement that the consultant update the
18    disclosure promptly after a modification of those payments
19    or an additional payment.
20        (4) A requirement that the investment adviser or
21    consultant, in conjunction with the board's staff, submit
22    periodic written reports, on at least a quarterly basis,
23    for the board's review at its regularly scheduled meetings.
24    All returns on investment shall be reported as net returns
25    after payment of all fees, commissions, and any other
26    compensation.

 

 

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1        (5) Disclosure of the names and addresses of (i) the
2    consultant or investment adviser; (ii) any entity that is a
3    parent of, or owns a controlling interest in, the
4    consultant or investment adviser; (iii) any entity that is
5    a subsidiary of, or in which a controlling interest is
6    owned by, the consultant or investment adviser; (iv) any
7    persons who have an ownership or distributive income share
8    in the consultant or investment adviser that is in excess
9    of 7.5%; or (v) serves as an executive officer of the
10    consultant or investment adviser.
11        (6) A disclosure of the names and addresses of all
12    subcontractors, if applicable, and the expected amount of
13    money each will receive under the contract, including an
14    acknowledgment that the contractor must promptly make
15    notification, in writing, if at any time during the term of
16    the contract a contractor adds or changes any
17    subcontractors. For purposes of this subparagraph (6),
18    "subcontractor" does not include non-investment related
19    professionals or professionals offering services that are
20    not directly related to the investment of assets, such as
21    legal counsel, actuary, proxy-voting services, services
22    used to track compliance with legal standards, and
23    investment fund of funds where the board has no direct
24    contractual relationship with the investment advisers or
25    partnerships.
26        (7) A description of service to be performed.

 

 

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1        (8) A description of the need for the service.
2        (9) A description of the plan for post-performance
3    review.
4        (10) A description of the qualifications necessary.
5        (11) The duration of the contract.
6        (12) The method for charging and measuring cost.
7    (d) Notwithstanding any other provision of law, a
8retirement system, pension fund, or investment board subject to
9this Code, except those whose investments are restricted by
10Section 1-113.2 of this Code, shall not enter into a contract
11with a consultant that exceeds 5 years in duration. No contract
12to provide consulting services may be renewed or extended. At
13the end of the term of a contract, however, the consultant is
14eligible to compete for a new contract as provided in this
15Section. No retirement system, pension fund, or investment
16board shall attempt to avoid or contravene the restrictions of
17this subsection (d) by any means.
18    (e) Within 60 days after the effective date of this
19amendatory Act of the 96th General Assembly, each investment
20adviser or consultant currently providing services or subject
21to an existing contract for the provision of services must
22disclose to the board of trustees all direct and indirect fees,
23commissions, penalties, and other compensation paid by or on
24behalf of the investment adviser or consultant in connection
25with the provision of those services and shall update that
26disclosure promptly after a modification of those payments or

 

 

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1an additional payment. The person shall update the disclosure
2promptly after a modification of those payments or an
3additional payment. The disclosures required by this
4subsection (e) shall be in writing and shall include the date
5and amount of each payment and the name and address of each
6recipient of a payment.
7    (f) The retirement system, pension fund, or board of
8investment shall develop uniform documents that shall be used
9for the solicitation, review, and acceptance of all investment
10services. The form shall include the terms contained in
11subsection (c) of this Section. All such uniform documents
12shall be posted on the retirement system's, pension fund's, or
13investment board's web site.
14    (g) A description of every contract for investment services
15shall be posted in a conspicuous manner on the web site of the
16retirement system, pension fund, or investment board. The
17description must include the name of the person or entity
18awarded a contract, the total amount applicable to the
19contract, the total fees paid or to be paid, and a disclosure
20approved by the board describing the factors that contributed
21to the selection of an investment adviser or consultant.
22(Source: P.A. 98-433, eff. 8-16-13.)
 
23    Section 99. Effective date. This Act takes effect upon
24becoming law.