COMMITTEE SUBSTITUTE

FOR

Senate Bill No. 566

(By Senators Plymale, Kimble, Jackson and Walker)

____________

[Originating in the Committee on Finance

reported March 2, 1995.]

____________


A BILL to repeal sections nine-a, nine-b, nine-c, nine-d and nine-f, article six, chapter twelve of the code of West Virginia, one thousand nine hundred thirty-one, as amended; and to amend and reenact sections three, four, five, six, nine, ten, twelve and fifteen of said article, all relating to the board of investments; expanding the membership of the board, additional qualifications and term of office; expanding the powers of the board; charging for services; expanding the permissible investments; limiting restrictions on investments of the board; stating investment policy; and providing for audits and auditing responsibilities.

Be it enacted by the Legislature of West Virginia:
That sections nine-a, nine-b, nine-c, nine-d and nine-f, article six, chapter twelve of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be repealed; and that sections three, four, five, six, nine, ten, twelve and fifteen of said article, be amended and reenacted, all to read as follows:
ARTICLE 6. WEST VIRGINIA STATE BOARD OF INVESTMENTS.
§12-6-3. State board of investments continued; body corporate;
members; appointment of certain members; qualifications and term of office.

(a) The state board of investments is hereby continued as a body corporate of the state authorized to exercise all of the powers and functions granted to it pursuant to this article. There shall be eleven members of the state board of investments. The governor, or his designee, state treasurer, state auditor and the executive secretary of the consolidated public retirement board shall be the members of the board. There shall be six members appointed by the governor: Provided, That no more than four such appointed members may belong to the same political party. There shall be two nonvoting ex officio members appointed from the Senate and House of Delegates, with the selection of such ex officio members being made by the president of the Senate and the speaker of the House of Delegates, respectively.
(b) Four of the members appointed by the governor shall be appointed from a list of twelve persons submitted jointly by the governor, the state treasurer and the state auditor. No more than two names submitted by the governor may be appointed as members to the board. Of the members appointed by the governor, two shall be members of the financial community, one shall be a certified public accountant, and one shall be an attorney with experience in finance and investment matters. Additionally, two members appointed by the governor shall be appointed from a list of six persons submitted jointly by the president of the Senate and the speaker of the House of Delegates. Those names submitted by the president of the Senate and speaker of the House of Delegates shall be experienced in the investment of institutional funds and shall serve two year terms. All appointments shall be made by the governor with the advice and consent of the Senate.
(c) Appointed members shall serve for a term of six years and may be reappointed at the expiration of their terms. Beginning on the first day of July, one thousand nine hundred ninety-five, of the appointed members, two shall be appointed for a two year term; two for a four year term; and two for a six year term. Thereafter, all members shall serve full six year terms: Provided, That those members appointed by the governor from the list jointly submitted by the president of the Senate and speaker of the House of Delegates shall only serve two years and may only be reappointed for two year terms. In the event of a vacancy among appointed members, an appointment shall be made to fill the unexpired term. Ex officio members shall serve one year terms.
(d) Appointed members of the board shall serve without compensation, but shall be entitled to their reasonable and necessary expenses actually incurred in discharging their duties under this article.
§12-6-4. Officers; executive secretary; term; organization;
board

staff; surety bonds for members and employees.

(a) The governor shall be the chairman and the custodian of all funds, securities and assets held by the board. The board shall elect an executive secretary to serve for a term of six years, such election to be held at the board's first meeting after the first effective date of this article. Effective with any vacancy in the position of executive secretary, the board shall appoint an executive secretary to serve at the will and pleasure of the board, which executive secretary may not be a member of the board: Provided, That the executive secretary shall have at least a bachelor's degree in either business administration or accounting in an accredited program and/or have at least five years' experience in investment management or securities markets, said experience to have occurred within the ten years next preceding the date of appointment of the secretary: Provided, however, That the executive secretary may be paid a salary as determined by the board: Provided further, That the board shall appoint a staff to act for the board.
(b) The board shall meet monthly and may include in its bylaws procedures for the calling and holding of additional meetings. Additionally, the executive secretary or executive director or their designee shall appear quarterly before the joint committee on government and finance to provide a report on the status and operations of the board.
(c) Each member of the board shall give a separate and additional fidelity bond from a surety company qualified to do business within this state in a penalty amount of two hundred fifty thousand dollars for the faithful performance of his duties as a member of the board. In addition, the board will purchase a blanket bond for the faithful performance of its duties in the amount of five million dollars excess of the two hundred fifty thousand dollar individual bond required of each member by the provisions of this section. The board may require a fidelity bond from a surety company qualified to do business in this state for any person who has charge of, or access to, any securities, funds or other moneys held by the board and the amount of such fidelity bond shall be fixed by the board. The premiums payable on all fidelity bonds shall be an expense of the board.
§12-6-5. Powers of the board.
The board may exercise all powers necessary or appropriate to carry out and effectuate its corporate purposes. The board may:
(1) Adopt and use a common seal and alter the same at pleasure;
(2) Sue and be sued;
(3) Enter into contracts and execute and deliver instruments;
(4) Acquire (by purchase, gift or otherwise), hold, use and dispose of real and personal property, deeds, mortgages and other instruments;
(5) Promulgate and enforce bylaws and rules for the management and conduct of its affairs;
(6) Retain, employ and contract with legal, accounting, financial and investment advisors, investment managers and consultants; and may delegate its power to act to those under contract, when it deems fit;
(7) Acquire (by purchase, gift or otherwise), hold, exchange, pledge, lend and sell or otherwise dispose of securities and invest funds in interest earning deposits;
(8) Maintain accounts with banks, securities dealers and financial institutions both within and outside this state;
(9) Manage, and invest moneys, securities and other assets of the pension funds and other funds and accounts of the state and the moneys of political subdivisions which may be made available to it under the provisions of this article: Provided, That the beneficial owners of the pension trust funds will own securities directly and not shares of ownership;
(10) Enter into agreements with political subdivisions of the state whereby moneys of such political subdivisions are invested on their behalf by the board;
(11) Charge and collect administrative fees from political subdivisions for its services;
(12) Exercise all powers generally granted to and exercised by the holders of investment securities with respect to management thereof;
(13) Contract with one or more banking institutions in or outside the state for the custody, safekeeping and management of securities held by the board;
(14) Develop and implement a centralized receipts processing center.
The board may exercise these powers to carry out and effectuate its corporate purpose: Provided, That the contracting for the following are exempt from the provisions of article three, chapter five-a of this code: Advisory services, management services, consulting services, professional services, securities agreements and banking services: Provided, however, That all contracts and agreements for services shall be competitively bid pursuant to written board policy.
§12-6-6. Costs and expenses; fees for services; special revenue
account; costs of determining third parties' liability; recoupment of investment losses.

(a) The board shall make a charge against the assets of each of the various funds managed by the board for all necessary expenses of the board. The charge shall be deposited to the credit of the general revenue fund.
(b) There is hereby created in the state treasury a special revenue account to be known as the "loss expenses account". The purpose of this account is to provide funds to the board of investments to pay costs, fees and expenses incurred, or to be incurred, for the following: (1) Investigation and pursuit of claims against third parties for the investment losses incurred during the period beginning the first day of August, one thousand nine hundred eighty-four, and ending on the thirty-first day of January, one thousand nine hundred eighty-nine; (2) consulting services regarding restructuring; and (3) implementation of the recommendations made as a result of the consultations regarding restructuring. That special revenue account shall be funded by depositing income derived by the board from securities lending and recoveries from third parties. The board is authorized to deposit into the special revenue account, and to expend in accordance with the provisions of this section, those funds received from such recoveries and not more than two million dollars annually from income derived by the board from securities lending. Funds in the loss expense account in excess of reasonably estimated costs, fees and expenses for any fiscal year and any funds remaining in such special revenue account at the end of each fiscal year after expenditures, for the purposes specified above, may be transferred by the board to its "liquidity investment pool",to be used, in such manner as the board determines, to eliminate the present imbalance in the state accounts caused by the investment losses described above in this subsection: Provided, That amounts collected, which are found from time to time to exceed the funds needed for the purposes set forth in this section may be transferred to other accounts or funds and redesignated for other purposes by appropriation of the Legislature.
§12-6-9. Permissible investments.
Any investments made under this article shall be made with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims: Provided, That with regard to the consolidated pension fund, the following provisions shall also apply:
(a) The pension trust funds shall be managed for the exclusive purpose of providing benefits to participants of the retirement systems and their beneficiaries;
(b) Defraying reasonable expenses of administrating the plans;
(c) By diversifying the investments of the plans so as to minimize the risk of large losses unless under the circumstances it is clearly prudent not to do so; and
(d) The maximum percentage of the assets invested in common stock will be forty percent.
§12-6-10. Restrictions on investments.
At no time may any of the consolidated fund be invested in stocks.
§12-6-12. Investment policy; duties of board.
The board shall establish policy guidelines for the investment of moneys on deposit in each of the funds managed by the board based on the needs of the participants in the various funds: Provided, That the board shall review such investments at least every three months and may require the purchase or sale of any investments. In order to effectuate its investment policies, the board may require from each participant a schedule, on an annual or more frequent basis, of anticipated deposits and withdrawals.
§12-6-15. Audits.
There shall be a continuous postaudit conducted by the legislative auditor of the investment transactions of the board, and a copy thereof for the preceding calendar year shall be furnished to each member of the Legislature on or before the first day of February of each year. The board shall further cause to be conducted a quarterly internal audit, using generally accepted auditing standards, of the investment activity of the board and an annual external audit, of the financial statements of the funds and accounts established pursuant to section eight of this article. Such external audit shall be conducted by a nationally recognized accounting firm in conjunction with the annual state audit: Provided, That the board shall on a monthly basis provide to each political subdivision, state agency and any other entity investing moneys in the consolidated fund or consolidated pension fund an itemized account reflecting the value of the investments of each said political subdivision, state agency and any other entity in the consolidated fund or consolidated pension fund. The board shall further provide a monthly statement reflecting the interest earned by each said political subdivision, state agency or other investing entity.