SB1671 EngrossedLRB101 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 and by adding Section 1-113.15a
6as follows:
 
7    (40 ILCS 5/1-109.1)  (from Ch. 108 1/2, par. 1-109.1)
8    Sec. 1-109.1. Allocation and delegation of fiduciary
9duties.
10    (1) Subject to the provisions of Section 22A-113 of this
11Code and subsections (2) and (3) of this Section, the board of
12trustees of a retirement system or pension fund established
13under this Code may:
14        (a) Appoint one or more investment managers as
15    fiduciaries to manage (including the power to acquire and
16    dispose of) any assets of the retirement system or pension
17    fund; and
18        (b) Allocate duties among themselves and designate
19    others as fiduciaries to carry out specific fiduciary
20    activities other than the management of the assets of the
21    retirement system or pension fund.
22    (2) The board of trustees of a pension fund established
23under Article 5, 6, 8, 9, 10, 11, 12 or 17 of this Code may not

 

 

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1transfer its investment authority, nor transfer the assets of
2the fund to any other person or entity for the purpose of
3consolidating or merging its assets and management with any
4other pension fund or public investment authority, unless the
5board resolution authorizing such transfer is submitted for
6approval to the contributors and pensioners of the fund at
7elections held not less than 30 days after the adoption of such
8resolution by the board, and such resolution is approved by a
9majority of the votes cast on the question in both the
10contributors election and the pensioners election. The
11election procedures and qualifications governing the election
12of trustees shall govern the submission of resolutions for
13approval under this paragraph, insofar as they may be made
14applicable.
15    (3) Pursuant to subsections (h) and (i) of Section 6 of
16Article VII of the Illinois Constitution, the investment
17authority of boards of trustees of retirement systems and
18pension funds established under this Code is declared to be a
19subject of exclusive State jurisdiction, and the concurrent
20exercise by a home rule unit of any power affecting such
21investment authority is hereby specifically denied and
22preempted.
23    (4) For the purposes of this Code, "emerging investment
24manager" means a qualified investment adviser that manages an
25investment portfolio of at least $10,000,000 but less than
26$20,000,000,000 at the time of the initial contract with the

 

 

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1retirement system, pension fund, or investment board
2$10,000,000,000 and is a "minority-owned business",
3"women-owned business" or "business owned by a person with a
4disability" as those terms are defined in the Business
5Enterprise for Minorities, Women, and Persons with
6Disabilities Act.
7    It is hereby declared to be the public policy of the State
8of Illinois to encourage the trustees of public employee
9retirement systems, pension funds, and investment boards to use
10emerging investment managers in managing their system's
11assets, encompassing all asset classes, and increase the
12racial, ethnic, and gender diversity of its fiduciaries, to the
13greatest extent feasible within the bounds of financial and
14fiduciary prudence, and to take affirmative steps to remove any
15barriers to the full participation in investment opportunities
16afforded by those retirement systems, pension funds, and
17investment boards.
18    On or before January 1, 2010, a retirement system, pension
19fund, or investment board subject to this Code, except those
20whose investments are restricted by Section 1-113.2 of this
21Code, shall adopt a policy that sets forth goals for
22utilization of emerging investment managers. This policy shall
23include quantifiable goals for the management of assets in
24specific asset classes by emerging investment managers. The
25retirement system, pension fund, or investment board shall
26establish 3 separate goals for: (i) emerging investment

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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1minorities, women, and persons with disabilities as those terms
2are defined in the Business Enterprise for Minorities, Women,
3and Persons with Disabilities Act. It shall be the aspirational
4goal to utilize businesses owned by minorities, women, and
5persons with disabilities for not less than 20% of contracts
6awarded for "information technology services", "accounting
7services", "insurance brokers", "architectural and engineering
8services", and "legal services" as those terms are defined in
9the Act.
10(Source: P.A. 99-462, eff. 8-25-15; 100-391, eff. 8-25-17;
11100-902, eff. 8-17-18.)
 
12    (40 ILCS 5/1-113.14)
13    Sec. 1-113.14. Investment services for retirement systems,
14pension funds, and investment boards, except those funds
15established under Articles 3 and 4.
16    (a) For the purposes of this Section, "investment services"
17means services provided by an investment adviser or a
18consultant other than qualified fund-of-fund management
19services, as defined in Section 1-113.15, and qualified manager
20of emerging investment managers services, as defined in Section
211-113.15a.
22    (b) The selection and appointment of an investment adviser
23or consultant for investment services by the board of a
24retirement system, pension fund, or investment board subject to
25this Code, except those whose investments are restricted by

 

 

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1Section 1-113.2, shall be made and awarded in accordance with
2this Section. All contracts for investment services shall be
3awarded by the board using a competitive process that is
4substantially similar to the process required for the
5procurement of professional and artistic services under
6Article 35 of the Illinois Procurement Code. Each board of
7trustees shall adopt a policy in accordance with this
8subsection (b) within 60 days after the effective date of this
9amendatory Act of the 96th General Assembly. The policy shall
10be posted on its web site and filed with the Illinois
11Procurement Policy Board. Exceptions to this Section are
12allowed for (i) sole source procurements, (ii) emergency
13procurements, (iii) at the discretion of the pension fund,
14retirement system, or board of investment, contracts that are
15nonrenewable and one year or less in duration, so long as the
16contract has a value of less than $20,000, and (iv) in the
17discretion of the pension fund, retirement system, or
18investment board, contracts for follow-on funds with the same
19fund sponsor through closed-end funds, (v) contracts for
20investment services with an emerging investment manager, and
21(vi) contracts for investment services with an emerging
22investment manager provided through a qualified manager of
23emerging investment managers services, as defined in Section
241-113.15a. All exceptions granted under this Section must be
25published on the system's, fund's, or board's web site, shall
26name the person authorizing the procurement, and shall include

 

 

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1a brief explanation of the reason for the exception.
2    A person, other than a trustee or an employee of a
3retirement system, pension fund, or investment board, may not
4act as a consultant or investment adviser under this Section
5unless that person is registered as an investment adviser under
6the federal Investment Advisers Act of 1940 (15 U.S.C. 80b-1,
7et seq.) or a bank, as defined in the federal Investment
8Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.).
9    (c) Investment services provided by an investment adviser
10or a consultant appointed under this Section shall be rendered
11pursuant to a written contract between the investment adviser
12or consultant and the board.
13    The contract shall include all of the following:
14        (1) Acknowledgement in writing by the investment
15    adviser or consultant that he or she is a fiduciary with
16    respect to the pension fund or retirement system.
17        (2) The description of the board's investment policy
18    and notice that the policy is subject to change.
19        (3) (i) Full disclosure of direct and indirect fees,
20    commissions, penalties, and other compensation, including
21    reimbursement for expenses, that may be paid by or on
22    behalf of the consultant in connection with the provision
23    of services to the pension fund or retirement system and
24    (ii) a requirement that the consultant update the
25    disclosure promptly after a modification of those payments
26    or an additional payment.

 

 

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1        (4) A requirement that the investment adviser or
2    consultant, in conjunction with the board's staff, submit
3    periodic written reports, on at least a quarterly basis,
4    for the board's review at its regularly scheduled meetings.
5    All returns on investment shall be reported as net returns
6    after payment of all fees, commissions, and any other
7    compensation.
8        (5) Disclosure of the names and addresses of (i) the
9    consultant or investment adviser; (ii) any entity that is a
10    parent of, or owns a controlling interest in, the
11    consultant or investment adviser; (iii) any entity that is
12    a subsidiary of, or in which a controlling interest is
13    owned by, the consultant or investment adviser; (iv) any
14    persons who have an ownership or distributive income share
15    in the consultant or investment adviser that is in excess
16    of 7.5%; or (v) serves as an executive officer of the
17    consultant or investment adviser.
18        (6) A disclosure of the names and addresses of all
19    subcontractors, if applicable, and the expected amount of
20    money each will receive under the contract, including an
21    acknowledgment that the contractor must promptly make
22    notification, in writing, if at any time during the term of
23    the contract a contractor adds or changes any
24    subcontractors. For purposes of this subparagraph (6),
25    "subcontractor" does not include non-investment related
26    professionals or professionals offering services that are

 

 

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1    not directly related to the investment of assets, such as
2    legal counsel, actuary, proxy-voting services, services
3    used to track compliance with legal standards, and
4    investment fund of funds, and qualified managers of
5    emerging investment managers services where the board has
6    no direct contractual relationship with the investment
7    advisers or partnerships.
8        (7) A description of service to be performed.
9        (8) A description of the need for the service.
10        (9) A description of the plan for post-performance
11    review.
12        (10) A description of the qualifications necessary.
13        (11) The duration of the contract.
14        (12) The method for charging and measuring cost.
15    (d) Notwithstanding any other provision of law, a
16retirement system, pension fund, or investment board subject to
17this Code, except those whose investments are restricted by
18Section 1-113.2 of this Code, shall not enter into a contract
19with a consultant that exceeds 5 years in duration. No contract
20to provide consulting services may be renewed or extended. At
21the end of the term of a contract, however, the consultant is
22eligible to compete for a new contract as provided in this
23Section. No retirement system, pension fund, or investment
24board shall attempt to avoid or contravene the restrictions of
25this subsection (d) by any means.
26    (e) Within 60 days after the effective date of this

 

 

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1amendatory Act of the 96th General Assembly, each investment
2adviser or consultant currently providing services or subject
3to an existing contract for the provision of services must
4disclose to the board of trustees all direct and indirect fees,
5commissions, penalties, and other compensation paid by or on
6behalf of the investment adviser or consultant in connection
7with the provision of those services and shall update that
8disclosure promptly after a modification of those payments or
9an additional payment. The person shall update the disclosure
10promptly after a modification of those payments or an
11additional payment. The disclosures required by this
12subsection (e) shall be in writing and shall include the date
13and amount of each payment and the name and address of each
14recipient of a payment.
15    (f) The retirement system, pension fund, or board of
16investment shall develop uniform documents that shall be used
17for the solicitation, review, and acceptance of all investment
18services. The form shall include the terms contained in
19subsection (c) of this Section. All such uniform documents
20shall be posted on the retirement system's, pension fund's, or
21investment board's web site.
22    (g) A description of every contract for investment services
23shall be posted in a conspicuous manner on the web site of the
24retirement system, pension fund, or investment board. The
25description must include the name of the person or entity
26awarded a contract, the total amount applicable to the

 

 

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1contract, the total fees paid or to be paid, and a disclosure
2approved by the board describing the factors that contributed
3to the selection of an investment adviser or consultant.
4(Source: P.A. 98-433, eff. 8-16-13.)
 
5    (40 ILCS 5/1-113.15a new)
6    Sec. 1-113.15a. Qualified manager of emerging investment
7managers services.
8    (a) As used in this Section, "qualified manager of emerging
9investment managers services" means the services of an
10investment adviser acting in its capacity as an investment
11manager of a multimanager portfolio made up of emerging
12investment managers, as that term is defined in subsection (4)
13of Section 1-109.1.
14    (b) Based upon a written recommendation from an investment
15adviser providing qualified manager of emerging investment
16managers services for the selection or appointment of an
17emerging investment manager that has been providing investment
18services in the multimanager portfolio for at least 24 months,
19the board of a retirement system, pension fund, or investment
20board may select or appoint such emerging investment manager
21based upon such recommendation.
22    (c) A qualified manager of emerging investment managers
23services shall comply with the requirements regarding written
24contracts set forth in subsection (c) of Section 1-113.14.
 
25    Section 99. Effective date. This Act takes effect upon

 

 

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1becoming law.