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.