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Introduced Version House Bill 2771 History

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Key: Green = existing Code. Red = new code to be enacted
H. B. 2771


(By Delegates Spencer, Craig, Browning,
Stemple, Stephens, Duke and Canterbury)

[Introduced January 31, 2007; referred to the
Committee on Government Organization then Finance.]



A BILL to amend and reenact §12-6-2, §12-6-4, §12-6-5, §12-6-9c and §12-6-12 of the Code of West Virginia, 1931, as amended; and to amend said code by adding thereto a new section, designated §12-6-18, all relating to investment of moneys by the West Virginia Investment Management Board; modifying the definition of the term "securities" so that the prudent investor standard set forth in the West Virginia Uniform Prudent Investor Act, is made the exclusive standard and source of restriction and limitation on investments managed by the West Virginia Investment Management Board; modifying the type and amount of bonds or insurance coverage required to be obtained and maintained by the Investment Management Board; authorizing the establishment and maintenance of a self-insurance account in connection with the procurement and maintenance of insurance coverage by the Investment Management Board; clarifying that the statutorily enumerated investment powers of the board are illustrative rather than restrictive; modifying provisions relating to authority of the board to make certain investments in investment companies or investment trusts registered under the Investment Company Act of 1940; eliminating restrictions and limitations on permissible investments by the West Virginia Investment Management Board in favor of the requirements, restrictions and limitations imposed under the Uniform Prudent Investor Act; providing an exemption from disclosure, under the Freedom of Information Act in respect to information concerning which disclosure is prohibited, restricted or limited by standard confidentiality agreements, policies or procedures of firms, companies or organizations through which the West Virginia Investment Management Board invests, to the extent of such prohibitions, restrictions or limitations; and specifying that the provisions of the article are to be liberally construed to effect the public purposes of the article.

Be it enacted by the Legislature of West Virginia:
That §12-6-2, §12-6-4, §12-6-5, §12-6-9c and §12-6-12 of the Code of West Virginia, 1931, as amended, be amended and reenacted; and that said code be amended by adding thereto a new section, designated §12-6-18, all to read as follows:
ARTICLE 6. WEST VIRGINIA INVESTMENT MANAGEMENT BOARD.
§12-6-2. Definitions.
As used in this article, unless a different meaning clearly appears from the context:
(1) "Beneficiaries" means those individuals entitled to benefits from the participant plans;
(2) "Board" means the governing body for the West Virginia Investment Management Board and any reference elsewhere in this code to board of investments or West Virginia trust fund means the board as defined in this subdivision;
(3) "Consolidated fund" means the investment fund managed by the board and established pursuant to subsection (a), section eight of this article;
(4) "401(a) plan" means a plan which is described in section 401(a) [26 USCS §401] of the Internal Revenue Code of 1986, as amended, and with respect to which the board has been designated to hold assets of the plan in trust pursuant to the provisions of section nine-a of this article;
(5) "Local government funds" means the moneys of a political subdivision, including policemen's pension and relief funds, firemen's pension and relief funds and volunteer fire departments, transferred to the board for deposit;
(6) "Participant plan" means any plan or fund subject now or hereafter to subsection (a), section nine-a, article six of this chapter;
(7) "Political subdivision" means and includes a county, municipality or any agency, authority, board, county board of education, commission or instrumentality of a county or municipality and regional councils created pursuant to the provisions of section five, article twenty-five, chapter eight of this code;
(8) "Trustee" means any member serving on the West Virginia Investment Management Board: Provided, That in section nine-a of this article in which the terms of the trusts are set forth, "trustee" means the West Virginia Investment Management Board;
(9) "Securities" means bonds, notes, debentures or other evidences of indebtedness and other lawful investment instruments any and all forms and types of investments, financial instruments, or financial transactions which may be deemed prudent for investment by the board under the provisions of section eleven of this article; and
(10) "State funds" means all moneys of the state which may be lawfully invested except the "school fund" established by section four, article XII of the State Constitution.
§12-6-4. Management and control of fund; officers; staff; fiduciary or surety bonds for trustees; liability of trustees.

(a) The management and control of the board shall be vested solely in the trustees in accordance with the provisions of this article.
(b) The Governor shall be the chairman of the board and the trustees shall elect a vice chairman who may not be a Constitutional officer or his or her designee to serve for a term of two years. Effective with any vacancy in the vice chairmanship, the board shall elect a vice chairman to a new two-year term. The vice chairman shall preside at all meetings in the absence of the chairman. Annually, the trustees shall elect a secretary, who need not be a member of the board, to keep a record of the proceedings of the board.
(c) The trustees shall appoint a chief executive officer of the board and shall fix his or her duties and compensation. The chief executive officer shall have five years' experience in investment management with public or private funds within the ten years next preceding the date of appointment. The chief executive officer additionally shall have academic degrees, professional designations and other investment management or investment oversight or institutional investment experience in a combination the trustees consider necessary to carry out the responsibilities of the chief executive officer position as defined by the trustees.
(d) The trustees shall retain an internal auditor to report directly to the trustees and shall fix his or her compensation. The internal auditor shall be a certified public accountant with at least three years experience as an auditor. The internal auditor shall develop an internal audit plan, with board approval, for the testing of procedures and the security of transactions.
(e) The board shall procure and maintain in effect commercially customary property, liability, crime and other insurance to cover risks of loss from its operations. The types and amounts of such insurance coverages shall be determined by the board from time to time, in its reasonable discretion, with reference to the types and amounts of insurance coverages purchased or maintained by other public institutions performing functions similar to those performed by the board. Each trustee shall give a separate fiduciary or surety bond from a surety company qualified to do business within this state in a penalty amount of one million dollars for the faithful performance of his or her duties as a trustee. The board shall purchase a blanket bond for the faithful performance of its duties in the amount of fifty million dollars or in an amount equivalent to one percent of the assets under management, whichever is greater. The amount of the blanket bond is in addition to the one million dollar individual bond required of each trustee by the provisions of this section. The board may require that appropriate types and amounts of insurance be procured and maintained by, or a fiduciary or surety 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 the fiduciary or surety bond shall be fixed by the board. The premiums payable on any such insurance or all fiduciary or surety bonds that the board may require from time to time shall be an expense of the board. In connection with the duties of the board under this subsection, the board may establish, fund and maintain a self-insurance account. The amount of moneys, if any, which are deposited and maintained in the self-insurance account from time to time shall be determined by the board in consultation with one or more qualified insurance or actuarial consultants, and all moneys in any such self-insurance account may be used only for the purpose of providing self-insurance, establishing reserves in connection with insurance deductibles, self-insured retentions or self-insurance, or helping to defray the costs of insurance procured under this subsection, and for no other purpose.
(f) The trustees and employees of the board are not liable personally, either jointly or severally, for any debt or obligation created by the board: Provided, That the trustees and employees of the board are liable for acts of misfeasance or gross negligence.
(g) The board is exempt from the provisions of sections seven and eleven, article three, chapter twelve of this code and article three, chapter five-a of said code: Provided, That the trustees and employees of the board are subject to purchasing policies and procedures which shall be promulgated by the board. The purchasing policies and procedures may be promulgated as emergency rules pursuant to section fifteen, article three, chapter twenty-nine-a of this code.
(h) Any employee of the West Virginia Trust Fund who previously was an employee of another state agency may return to the Public Employees Retirement System pursuant to section eighteen, article ten, chapter five of this code and may elect to either: (1) Transfer to the Public Employees Retirement System his or her employee contributions, with accrued interest and, if vested, his or her employer contributions, with accrued interest and retain as credited state service all time served as an employee of the West Virginia Trust Fund; or (2) retain all employee contributions with accrued interest and, if vested, his or her employer contributions with interest and forfeit all service credit for the time served as an employee of the West Virginia Trust Fund.
§12-6-5. Powers of the board.
The board may exercise all powers necessary or appropriate to carry out and effectuate its corporate purposes, including, but not limited to, the following: The board may
(1) Adopt and use a common seal and alter it 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) Notwithstanding any other provision of law, retain and employ legal, accounting, financial and investment advisors and consultants;
(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 and in any other lawful investments;
(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 the 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 the securities by the board at a stated price;
(11) Consolidate and manage moneys, securities and other assets of the 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) Enter into agreements with political subdivisions of the state whereby moneys of the political subdivisions are invested on their behalf by the board;
(13) Charge and collect administrative fees from political subdivisions for its services;
(14) Exercise all powers generally granted to and exercised by the holders of investment securities with respect to management of the investment securities;
(15) Contract with one or more banking institutions in or outside the state for the custody, safekeeping and management of securities held by the board;
(16) Make and, from time to time, amend and repeal bylaws, rules and procedures not inconsistent with the provisions of this article;
(17) Hire its own employees, consultants, managers and advisors as it considers necessary and fix their compensation and prescribe their duties;
(18) Develop, implement and maintain its own banking accounts and investments;
(19) Do all things necessary to implement and operate the board and carry out the intent of this article;
(20) Upon request of the State Treasurer, transmit funds for deposit in the State Treasury to meet the daily obligations of state government;
(21) Establish one or more investment funds for the purpose of investing the funds for which it is trustee, custodian or otherwise authorized to invest pursuant to this article. Interests in each fund shall be designated as units and the board shall adopt industry standard accounting procedures to determine each fund's unit value. The securities in each investment fund are the property of the board and each fund shall be considered an investment pool or fund and may not be considered a trust nor may the securities of the various investment funds be considered held in trust. However, units in an investment fund established by or sold by the board and the proceeds from the sale or redemption of any unit may be held by the board in its role as trustee of the participant plans; and
(22) Notwithstanding any other provision of the code to the contrary, conduct investment transactions, including purchases, sales, redemptions and income collections, which shall not be treated by the State Auditor as recordable transactions on the state's accounting system.
§12-6-9c. Authorization of additional investments.
Notwithstanding the restrictions which may otherwise be provided by law with respect to the investment of funds, the board, all administrators, custodians or trustees of pension funds other than the board, each political subdivision of this state and each county board of education is authorized to invest funds in the securities of or any other interest in any investment company or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. §80a, the portfolio of which is limited: (i) To obligations issued by or guaranteed as to the payment of both principal and interest by the United States of America or its agencies or instrumentalities; and (ii) to repurchase agreements fully collateralized by obligations of the United States government or its agencies or instrumentalities: Provided, That the investment company or investment trust takes delivery of the collateral either directly or through an authorized custodian: Provided, however, That the investment company or investment trust is rated within one of the top two rating categories of any nationally recognized rating service such as Moody's or Standard & Poor's.
§12-6-12. Annual review of investment objectives; certain investment information exempt from disclosure.

(a) The board shall hold in equity investments no more than sixty percent of the assets managed by the board and no more than sixty percent of the assets of any individual participant plan or the consolidated fund.
(b) The board shall hold in international securities no more than twenty percent of the assets managed by the board and no more than twenty percent of the assets of any individual participant plan or the consolidated fund.
(c) The board may not at the time of purchase hold more than five percent of the assets managed by the board in the equity securities of any single company or association: Provided, That if a company or association has a market weighting of greater than five percent in the Standard & Poor's 500 index of companies, the board may hold securities of that equity equal to its market weighting.
(d) The board shall at all times limit its asset allocation and types of securities to the following:
(1) The board may not hold more than twenty percent of the aggregate participant plan assets in commercial paper. Any commercial paper at the time of its acquisition shall be in one of the two highest rating categories by an agency nationally known for rating commercial paper;
(2) At no time shall the board hold more than seventy five percent of the assets managed by the board in corporate debt. Any corporate debt security at the time of its acquisition shall be rated in one of the six highest rating categories by a nationally recognized rating agency; and
(3) No security may be purchased by the board unless the type of security is on a list approved by the board. The board may modify the securities list at any time and shall give notice of that action pursuant to subsection (g), section three of this article and shall review the list at its annual meeting.
(e) Notwithstanding the investment limitations set forth in this section, it is recognized that the assets managed by the board, or the assets of the consolidated fund or participant plans, whether considered in the aggregate or individually, may temporarily exceed the investment limitations in this section due to market appreciation, depreciation and rebalancing limitations. Accordingly, the limitations on investments set forth in this section shall not be considered to have been violated if the board rebalances the assets it manages or the assets of the consolidated fund or participant plans, whichever is applicable, to comply with the limitations set forth in this section at least once every six months based upon the latest available market information and any other reliable market data that the board considers advisable to take into consideration.
(f) (a) The board, at the annual meeting provided for in subsection (h), section three of this article, shall review, establish and modify, if necessary, the investment objectives of the individual participant plans as incorporated in the investment policy statements of the respective trusts so as to provide for the financial security of the trust funds giving consideration to the following:
(1) Preservation of capital;
(2) Diversification;
(3) Risk tolerance;
(4) Rate of return;
(5) Stability;
(6) Turnover;
(7) Liquidity; and
(8) Reasonable cost of fees.
(b) If the standard confidentiality agreements, policies or procedures of any firm, company or organization through which the board invests in securities prohibit, restrict or limit the disclosure of information pertaining to such securities, such information shall be exempt from disclosure, under the provisions of chapter twenty-nine-b of this code or otherwise, to the extent of such prohibitions, restrictions or limitations.
§12-6-18. Liberal construction; determinations and interpretations by board.

This article, being necessary for and to secure the public health, safety, convenience and welfare of the citizens of this state, shall be liberally construed to effect the public purposes of this article. The powers granted to the board in this article, including without limitation those granted in section five of this article, are intended to be broad and shall be construed broadly so as to vest in the board the power and authority necessary or appropriate to carry out and effectuate its corporate purposes in the financial markets of the world, as the same may evolve from time to time. The powers specifically enumerated in section five of this article are representative and not restrictive, and in all instances such powers are to be broadly construed so as to permit the board to take all reasonable, necessary or appropriate actions and to engage in all commercially customary investment transactions and activities consistent with or necessary or appropriate to achieve its corporate purposes, at all times in a fashion consistent with the prudent investor standard. The determinations and interpretations made by the board with respect to this article, including, but not limited to, the determinations and interpretations made by the board with respect to the characterization of the type or functional nature of any particular investment made pursuant to this article, shall be given great weight and, unless clearly erroneous, are conclusive.


NOTE: The purpose of this bill is to permit the West Virginia Investment Management Board to invest in a more diverse universe of investments, thereby enhancing the safety of the assets under management while enabling the board to better achieve its return objectives as markets evolve from time to time. The bill specifies that all such investments are to be invested in accordance with the "prudent investor rule," and removes other statutory restrictions and limitations on investments managed by the board that conflict with the full application of the prudent investor rule.

In addition, the bill modifies the bonding requirements imposed on the board, to require more appropriate types and amounts of bonding and insurance coverage with respect to the operations, risks and exposures of the board while providing that the enumerated investment powers of the board are illustrative rather than restrictive. The bill also modifies provisions relating to authority of the board to make certain investments in investment companies or investment trusts registered under the investment company act of 1940 while providing that certain information pertaining to investments subject to standard confidentiality agreements, policies or procedures of firms, companies or organizations through which the board invests is exempt from disclosure, under the Freedom of Information Act. Finally, the bill provides that the investment powers of the board are to be liberally construed.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.

§12-6-18 is new, therefore strike-throughs and underscoring has been omitted.
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