H. B. 2647
(By Delegate Browning and Kiss)
[Introduced February 22, 1995; referred to the
Committee on Government Organization then Finance.]
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; and 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thousand nine hundred thirty-one, as amended, be repealed; and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
seven nine members of the state board of
investments. The governor, or his designee, state treasurer and
state auditor shall be the members of the board. There shall be
four six members appointed by the governor:
Provided, That no
more than
three four such appointed members may belong to the
same political party.
(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 senate president and the speaker of the house. Those names submitted by the president and
speaker 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 the first day of July, one thousand nine hundred
ninety-five, two of the appointed members 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 and speaker shall serve
two years terms 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.
(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
out of appropriations by
the Legislature:
Provided further, That the board shall appoint
a staff to act for the board.
(b) The board shall meet quarterly 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 West
Virginia 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
, and 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) Engage in financial transactions whereby securities are
purchased by the board under an agreement providing for the
resale of such securities to the original seller at a stated
price;
(10) Engage in financial transactions whereby securities
held by the board are sold under an agreement providing for the
repurchase of such securities by the board at a stated price;
(
11 9) Consolidate
, and 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;
(
12 10) Enter into agreements with political subdivisions of
the state whereby moneys of such political subdivisions are
invested on their behalf by the board;
(
13 11) Charge and collect administrative fees from
political subdivisions for its services;
(
14 12) Exercise all powers generally granted to and exercised by the holders of investment securities with respect to
management thereof;
(
15 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; and
(
16 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 advisory services, management services, consulting services,
professional services, securities agreements, and banking
services shall not be subject to the provisions of article three
chapter five-a of this code: 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
earnings
assets of
each of the various funds managed by the board for all
necessary expenses of the board.
The charge shall be on a pro
rata basis of actual earnings of the various funds managed by 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
the restructuring
of the office of the
treasurer following said losses; 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 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. The authority for
this special revenue account expires on the thirtieth day of
June, one thousand nine hundred ninety-five.
§12-6-9. Permissible investments.
Notwithstanding the restrictions which may otherwise be
provided by law as to the investment of funds, the board may
invest funds made available to it in any of the following:
(a) Any direct obligation of, or obligation guaranteed as to
the payment of both principal and interest by, the United States
of America;
(b) Any evidence of indebtedness issued by any United States
government agency guaranteed as to the payment of both principal
and interest, directly or indirectly, by the United States of
America including, but not limited to, the following: Government
National Mortgage Association, Federal Land Banks, Federal Home
Loan Banks, Federal Intermediate Credit Banks, Banks for
Cooperatives, Tennessee Valley Authority, United States Postal
Service, Farmers Home Administration, Export-Import Bank, Federal
Financing Bank, Federal Home Loan Mortgage Corporation, Student
Loan Marketing Association and Federal Farm Credit Banks;
(c) Any evidence of indebtedness issued by the Federal
National Mortgage Association to the extent such indebtedness is
guaranteed by the Government National Mortgage Association;
(d) Any evidence of indebtedness that is secured by a first
lien deed of trust or mortgage upon real property situate within
this state, if the payment thereof is substantially insured or
guaranteed by the United States of America or any agency thereof;
(e) Direct and general obligations of this state;
(f) Any undivided interest in a trust, the corpus of which
is restricted to mortgages on real property and, unless all of
such property is situate within the state and insured, such trust
at the time of the acquisition of such undivided interest, is
rated in one of the three highest rating grades by an agency
which is nationally known in the field of rating pooled mortgage
trusts;
(g) Any bond, note, debenture, commercial paper or other
evidence of indebtedness of any private corporation or
association organized and operating in the United States:
Provided, That any such security is, at the time of its
acquisition, rated in one of the three highest rating grades by
an agency which is nationally known in the field of rating
corporate securities: Provided, however, That if any commercial
paper and/or any such security will mature within one year from
the date of its issuance, it shall, at the time of its
acquisition, be rated in one of the two highest rating grades by such an agency: Provided further, That any such security not
rated in one of the two highest rating grades by any such agency
and commercial paper or other evidence of indebtedness of any
private corporation or association shall be purchased only upon
the written recommendation from an investment adviser that has
over three hundred million dollars in other funds under its
management;
(h) Negotiable certificates of deposit issued by any bank,
trust company, national banking association or savings
institution organized and operating in the United States, which
mature in less than one year and are fully collateralized ;
(i) Interest earning deposits including certificates of
deposit, with any duly designated state depository, which
deposits are fully secured by a collaterally secured bond as
provided in section four, article one of this chapter; and
(j) Any corporate stock of any private corporation or
association organized and operating in the United States and
which is also listed on the Standard and Poor's List of 500.
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 fund shall be managed for the exclusive purpose of
providing benefits to participants and their beneficiaries;
(b) Defraying reasonable expenses of administrating the
plans; and
(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.
§12-6-10. Restrictions on investments.
Moneys on deposit in the consolidated fund and the
consolidated pension fund shall be invested as permitted by
section nine of this article subject to the restrictions and
conditions contained in this section:
(1) At no time shall more than seventy-five percent of the
portfolio of either fund be invested in securities described in
subdivision (g) of said section nine;
(2) At no time shall more than twenty percent of the
portfolio of either fund be invested in securities described in
said subdivision (g) which mature within one year from the date
of issuance thereof;
(3) At no time shall more than three percent of the
portfolio of either fund be invested in securities issued by a
single private corporation or association;
(4) At no time shall more than twenty percent of the
portfolio of the consolidated pension fund be invested in
securities described in subdivision (j) of section nine of this article; and
(5) At no time may any of the consolidated fund be invested
in
securities described in subdivision (j) of section nine of
this article stocks.
For the purpose of making the computations required by this
section, securities shall be valued in accordance with generally
accepted accounting principles.
§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.
The office of the state treasurer shall administer the
investment of each of such funds subject at all times to the
policy guidelines established by the board.
Any investment made under this article shall be made with
the exercise of that degree of judgment and care, under
circumstances then prevailing, which men of experience, prudence,
discretion and intelligence exercise in the management of their
own affairs, not for speculation but for investment, considering the probable safety of their capital as well as the probable
income to be derived.
§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,
by the state
treasurer's staff using generally accepted
government auditing
standards, of
all the investment
transactions 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
federal state audit,
of all investment transactions of the
board:
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
portfolio 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
and the method by which said interest has been calculated.
NOTE: The purpose of this bill is to increase the number of
members serving on the board of investments and cause the
executive secretary or executive director to appear quarterly
before the Legislative Joint Committee on Finance to report on
the board's investments and operations. Along with changing the
method of calculating the board's fees from a charge against
earnings to a charge against assets under management, this bill
would implement modern portfolio management by adopting ERISA's
prudent man investment rule. Additional restrictions for the
safeguarding of pension funds would be imposed along with
updating the auditing requirements and duties of the board.
Strike-throughs indicate language that would be stricken from the
present law, and underscoring indicates new language that would
be added.
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