Full Text of SB3638 100th General Assembly
SB3638 100TH GENERAL ASSEMBLY |
| | 100TH GENERAL ASSEMBLY
State of Illinois
2017 and 2018 SB3638 Introduced 11/7/2018, by Sen. Iris Y. Martinez SYNOPSIS AS INTRODUCED: |
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40 ILCS 5/1-109.1 | from Ch. 108 1/2, par. 1-109.1 |
40 ILCS 5/1-113.14 | |
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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.
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| | FISCAL NOTE ACT MAY APPLY | | PENSION IMPACT NOTE ACT MAY APPLY |
| | A BILL FOR |
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| | | SB3638 | | LRB100 23895 RPS 42964 b |
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| 1 | | AN ACT concerning public employee benefits.
| 2 | | Be it enacted by the People of the State of Illinois,
| 3 | | represented in the General Assembly:
| 4 | | Section 5. The Illinois Pension Code is amended by changing | 5 | | Sections 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 | 8 | | duties.
| 9 | | (1) Subject to the provisions of Section 22A-113 of this | 10 | | Code and
subsections (2) and (3) of this Section, the board of | 11 | | trustees of a
retirement system or pension fund established | 12 | | under 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 | 22 | | under Article 5, 6,
8, 9, 10, 11, 12 or 17 of this Code may not | 23 | | transfer its investment authority,
nor transfer the assets of |
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| 1 | | the fund to any other person or entity for the
purpose of | 2 | | consolidating or merging its assets and management with any | 3 | | other
pension fund or public investment authority, unless the | 4 | | board resolution
authorizing such transfer is submitted for | 5 | | approval to the contributors and
pensioners of the fund at | 6 | | elections held not less than 30 days after the
adoption of such | 7 | | resolution by the board, and such resolution is approved by a
| 8 | | majority of the votes cast on the question in both the | 9 | | contributors election
and the pensioners election. The | 10 | | election procedures and qualifications
governing the election | 11 | | of trustees shall govern the submission of resolutions
for | 12 | | approval under this paragraph, insofar as they may be made | 13 | | applicable.
| 14 | | (3) Pursuant to subsections (h) and (i) of Section 6 of | 15 | | Article VII of
the Illinois Constitution, the investment | 16 | | authority of boards of trustees
of retirement systems and | 17 | | pension funds established under this Code is declared
to be a | 18 | | subject of exclusive State jurisdiction, and the concurrent | 19 | | exercise
by a home rule unit of any power affecting such | 20 | | investment authority is
hereby specifically denied and | 21 | | preempted.
| 22 | | (4) For the purposes of this Code, "emerging investment | 23 | | manager" means a
qualified investment adviser that manages an | 24 | | investment portfolio of at
least $10,000,000 but less than | 25 | | $10,000,000,000 at the time of the initial contract with the | 26 | | retirement system, pension fund, or investment board and is a
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| 1 | | "minority-owned business", "women-owned business" or "business | 2 | | owned by a person with a disability" as those terms are
defined | 3 | | in the Business Enterprise for Minorities, Women, and Persons | 4 | | with Disabilities Act.
| 5 | | It is hereby declared to be the public policy of the State | 6 | | of Illinois to
encourage the trustees of public employee | 7 | | retirement systems, pension funds, and investment boards
to use | 8 | | emerging investment managers in managing their system's | 9 | | assets, encompassing all asset classes, and increase the | 10 | | racial, ethnic, and gender diversity of its fiduciaries, to the
| 11 | | greatest extent feasible within the bounds of financial and | 12 | | fiduciary
prudence, and to take affirmative steps to remove any | 13 | | barriers to the full
participation in investment opportunities
| 14 | | afforded by those retirement systems, pension funds, and | 15 | | investment boards.
| 16 | | On or before January 1, 2010, a retirement system, pension | 17 | | fund, or investment board subject to this Code, except those | 18 | | whose investments are restricted by Section 1-113.2 of this | 19 | | Code, shall adopt a policy that sets forth goals for | 20 | | utilization of emerging investment managers. This policy shall | 21 | | include quantifiable goals for the management of assets in | 22 | | specific asset classes by emerging investment managers. The | 23 | | retirement system, pension fund, or investment board shall | 24 | | establish 3 separate goals for: (i) emerging investment | 25 | | managers that are minority-owned businesses; (ii) emerging | 26 | | investment managers that are women-owned businesses; and (iii) |
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| 1 | | emerging investment managers that are businesses owned by a | 2 | | person with a disability. The goals established shall be based | 3 | | on the percentage of total dollar amount of investment service | 4 | | contracts let to minority-owned businesses, women-owned | 5 | | businesses, and businesses owned by a person with a disability, | 6 | | as those terms are defined in the Business Enterprise for | 7 | | Minorities, Women, and Persons with Disabilities Act. The | 8 | | retirement system, pension fund, or investment board shall | 9 | | annually review the goals established under this subsection. | 10 | | If in any case an emerging investment manager meets the | 11 | | criteria established by a board for a specific search and meets | 12 | | the criteria established by a consultant for that search, then | 13 | | that emerging investment manager shall receive an invitation by | 14 | | the board of trustees, or an investment committee of the board | 15 | | of trustees, to present his or her firm for final consideration | 16 | | of a contract. In the case where multiple emerging investment | 17 | | managers meet the criteria of this Section, the staff may | 18 | | choose the most qualified firm or firms to present to the | 19 | | board.
| 20 | | The use of an emerging investment manager does not | 21 | | constitute a transfer
of investment authority for the purposes | 22 | | of subsection (2) of this Section.
| 23 | | (5) Each retirement system, pension fund, or investment | 24 | | board subject to this Code, except those whose investments are | 25 | | restricted by Section 1-113.2 of this Code, shall establish a | 26 | | policy that sets forth goals for increasing the racial, ethnic, |
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| 1 | | and gender diversity of its fiduciaries, including its | 2 | | consultants and senior staff. Each retirement system, pension | 3 | | fund, or
investment board shall make its best efforts to ensure | 4 | | that
the racial and ethnic makeup of its senior administrative
| 5 | | staff represents the racial and ethnic makeup of its
| 6 | | membership. Each system, fund, and investment board shall | 7 | | annually review the goals established under this subsection. | 8 | | (6) On or before January 1, 2010, a retirement system, | 9 | | pension fund, or investment board subject to this Code, except | 10 | | those whose investments are restricted by Section 1-113.2 of | 11 | | this Code, shall adopt a policy that sets forth goals for | 12 | | utilization of businesses owned by minorities, women, and | 13 | | persons with disabilities for all contracts and services. The | 14 | | goals established shall be based on the percentage of total | 15 | | dollar amount of all contracts let to minority-owned | 16 | | businesses, women-owned businesses, and businesses owned by a | 17 | | person with a disability, as those terms are defined in the | 18 | | Business Enterprise for Minorities, Women, and Persons with | 19 | | Disabilities Act. The retirement system, pension fund, or | 20 | | investment board shall annually review the goals established | 21 | | under this subsection. | 22 | | (7) On or before January 1, 2010, a retirement system, | 23 | | pension fund, or investment board subject to this Code, except | 24 | | those whose investments are restricted by Section 1-113.2 of | 25 | | this Code, shall adopt a policy that sets forth goals for | 26 | | increasing the utilization of minority broker-dealers. For the |
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| 1 | | purposes of this Code, "minority broker-dealer" means a | 2 | | qualified 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 | 5 | | are defined in the Business Enterprise for Minorities, Women, | 6 | | and Persons with Disabilities Act. The retirement system, | 7 | | pension fund, or investment board shall annually review the | 8 | | goals established under this Section. | 9 | | (8) Each retirement system, pension fund, and investment | 10 | | board subject to this Code, except those whose investments are | 11 | | restricted by Section 1-113.2 of this Code, shall submit a | 12 | | report to the Governor and the General Assembly by January 1 of | 13 | | each year that includes the following: (i) the policy adopted | 14 | | under subsection (4) of this Section, including the names and | 15 | | addresses of the emerging investment managers used, percentage | 16 | | of the assets under the investment control of emerging | 17 | | investment managers for the 3 separate goals, and the actions | 18 | | it has undertaken to increase the use of emerging investment | 19 | | managers, including encouraging other investment managers to | 20 | | use emerging investment managers as subcontractors when the | 21 | | opportunity 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 | 25 | | increase the use of minority broker-dealers; and (v) the policy | 26 | | adopted under subsection (9) of this Section. |
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| 1 | | (9) On or before February 1, 2015, a retirement system, | 2 | | pension fund, or investment board subject to this Code, except | 3 | | those whose investments are restricted by Section 1-113.2 of | 4 | | this Code, shall adopt a policy that sets forth goals for | 5 | | increasing the utilization of minority investment managers. | 6 | | For the purposes of this Code, "minority investment manager" | 7 | | means a qualified investment manager that manages an investment | 8 | | portfolio and meets the definition of "minority-owned | 9 | | business", "women-owned business", or "business owned by a | 10 | | person with a disability", as those terms are defined in the | 11 | | Business Enterprise for Minorities, Women, and Persons with | 12 | | Disabilities Act. | 13 | | It is hereby declared to be the public policy of the State | 14 | | of Illinois to
encourage the trustees of public employee | 15 | | retirement systems, pension funds, and investment boards
to use | 16 | | minority investment managers in managing their systems' | 17 | | assets, encompassing all asset classes, and to increase the | 18 | | racial, ethnic, and gender diversity of their fiduciaries, to | 19 | | the
greatest extent feasible within the bounds of financial and | 20 | | fiduciary
prudence, and to take affirmative steps to remove any | 21 | | barriers to the full
participation in investment opportunities
| 22 | | afforded by those retirement systems, pension funds, and | 23 | | investment boards. | 24 | | The retirement system, pension fund, or investment board | 25 | | shall establish 3 separate goals for: (i) minority investment | 26 | | managers that are minority-owned businesses; (ii) minority |
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| 1 | | investment managers that are women-owned businesses; and (iii) | 2 | | minority investment managers that are businesses owned by a | 3 | | person with a disability. The retirement system, pension fund, | 4 | | or investment board shall annually review the goals established | 5 | | under this Section. | 6 | | If in any case a minority investment manager meets the | 7 | | criteria established by a board for a specific search and meets | 8 | | the criteria established by a consultant for that search, then | 9 | | that minority investment manager shall receive an invitation by | 10 | | the board of trustees, or an investment committee of the board | 11 | | of trustees, to present his or her firm for final consideration | 12 | | of a contract. In the case where multiple minority investment | 13 | | managers meet the criteria of this Section, the staff may | 14 | | choose the most qualified firm or firms to present to the | 15 | | board. | 16 | | The use of a minority investment manager does not | 17 | | constitute a transfer
of investment authority for the purposes | 18 | | of subsection (2) of this Section. | 19 | | (10) Beginning January 1, 2016, it shall be the | 20 | | aspirational goal for a retirement system, pension fund, or | 21 | | investment board subject to this Code to use emerging | 22 | | investment managers for not less than 20% of the total funds | 23 | | under management. Furthermore, it shall be the aspirational | 24 | | goal that not less than 20% of investment advisors be | 25 | | minorities, women, and persons with disabilities as those terms | 26 | | are defined in the Business Enterprise for Minorities, Women, |
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| 1 | | and Persons with Disabilities Act. It shall be the aspirational | 2 | | goal to utilize businesses owned by minorities, women, and | 3 | | persons with disabilities for not less than 20% of contracts | 4 | | awarded for "information technology services", "accounting | 5 | | services", "insurance brokers", "architectural and engineering | 6 | | services", and "legal services" as those terms are defined in | 7 | | the Act. | 8 | | (Source: P.A. 99-462, eff. 8-25-15; 100-391, eff. 8-25-17; | 9 | | 100-902, eff. 8-17-18.)
| 10 | | (40 ILCS 5/1-113.14)
| 11 | | Sec. 1-113.14. Investment services for retirement systems, | 12 | | pension funds, and investment boards, except those funds | 13 | | established under Articles 3 and 4. | 14 | | (a) For the purposes of this Section, "investment services" | 15 | | means services provided by an investment adviser or a | 16 | | consultant other than qualified fund-of-fund management | 17 | | services as defined in Section 1-113.15. | 18 | | (b) The selection and appointment of an investment adviser | 19 | | or consultant for investment services by the board of a | 20 | | retirement system, pension fund, or investment board subject to | 21 | | this Code, except those whose investments are restricted by | 22 | | Section 1-113.2, shall be made and awarded in accordance with | 23 | | this Section. All contracts for investment services shall be | 24 | | awarded by the board using a competitive process that is | 25 | | substantially similar to the process required for the |
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| 1 | | procurement of professional and artistic services under | 2 | | Article 35 of the Illinois Procurement Code. Each board of | 3 | | trustees shall adopt a policy in accordance with this | 4 | | subsection (b) within 60 days after the effective date of this | 5 | | amendatory Act of the 96th General Assembly. The policy shall | 6 | | be posted on its web site and filed with the Illinois | 7 | | Procurement Policy Board. Exceptions to this Section are | 8 | | allowed for (i) sole source procurements, (ii) emergency | 9 | | procurements, (iii) at the discretion of the pension fund, | 10 | | retirement system, or board of investment, contracts that are | 11 | | nonrenewable and one year or less in duration, so long as the | 12 | | contract has a value of less than $20,000, and (iv) in the | 13 | | discretion of the pension fund, retirement system, or | 14 | | investment board, contracts for follow-on funds with the same | 15 | | fund sponsor through closed-end funds , and (v) contracts for | 16 | | investment services with an emerging investment manager .
All | 17 | | exceptions granted under this Section must be published on the | 18 | | system's, fund's, or board's web site, shall name the person | 19 | | authorizing the procurement, and shall include a brief | 20 | | explanation of the reason for the exception. | 21 | | A person, other than a trustee or an employee of a | 22 | | retirement system, pension fund, or investment board, may not | 23 | | act as a consultant or investment adviser under this Section | 24 | | unless that person is registered as an investment adviser under | 25 | | the federal Investment Advisers Act of 1940 (15 U.S.C. 80b-1, | 26 | | et seq.) or a bank, as defined in the federal Investment |
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| 1 | | Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.). | 2 | | (c) Investment services provided by an investment adviser | 3 | | or a consultant appointed under this Section shall be rendered | 4 | | pursuant to a written contract between the investment adviser | 5 | | or 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 | 8 | | retirement system, pension fund, or investment board subject to | 9 | | this Code, except those whose investments are restricted by | 10 | | Section 1-113.2 of this Code, shall not enter into a contract | 11 | | with a consultant that exceeds 5 years in duration. No contract | 12 | | to provide consulting services may be renewed or extended. At | 13 | | the end of the term of a contract, however, the consultant is | 14 | | eligible to compete for a new contract as provided in this | 15 | | Section. No retirement system, pension fund, or investment | 16 | | board shall attempt to avoid or contravene the restrictions of | 17 | | this subsection (d) by any means. | 18 | | (e) Within 60 days after the effective date of this | 19 | | amendatory Act of the 96th General Assembly, each investment | 20 | | adviser or consultant currently providing services or subject | 21 | | to an existing contract for the provision of services must | 22 | | disclose to the board of trustees all direct and indirect fees, | 23 | | commissions, penalties, and other compensation paid by or on | 24 | | behalf of the investment adviser or consultant in connection | 25 | | with the provision of those services and shall update that | 26 | | disclosure promptly after a modification of those payments or |
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| 1 | | an additional payment. The person shall update the disclosure | 2 | | promptly after a modification of those payments or an | 3 | | additional payment. The disclosures required by this | 4 | | subsection (e) shall be in writing and shall include the date | 5 | | and amount of each payment and the name and address of each | 6 | | recipient of a payment. | 7 | | (f) The retirement system, pension fund, or board of | 8 | | investment shall develop uniform documents that shall be used | 9 | | for the solicitation, review, and acceptance of all investment | 10 | | services. The form shall include the terms contained in | 11 | | subsection (c) of this Section. All such uniform documents | 12 | | shall be posted on the retirement system's, pension fund's, or | 13 | | investment board's web site. | 14 | | (g) A description of every contract for investment services | 15 | | shall be posted in a conspicuous manner on the web site of the | 16 | | retirement system, pension fund, or investment board. The | 17 | | description must include the name of the person or entity | 18 | | awarded a contract, the total amount applicable to the | 19 | | contract, the total fees paid or to be paid, and a disclosure | 20 | | approved by the board describing the factors that contributed | 21 | | to 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 | 24 | | becoming law.
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