COMMITTEE SUBSTITUTE
FOR
Senate Bill No. 566
(By Senators Plymale, Kimble, Jackson and Walker)
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[Originating in the Committee on Finance
reported March 2, 1995.]
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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article six, chapter twelve of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be repealed; and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.