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AN ACT relating to the fiduciary duties owed to the state-administered retirement 1
systems. 2
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 3
Section 1. KRS 21.450 is amended to read as follows: 4
(1) The benefits provided by KRS 21.350 to 21.510 to be paid shall be funded through 5
contract with a reputable life insurance company authorized to do business in this 6
state, or through investment and reinvestment of funds in securities which, at the 7
time of making the investment, are by law permitted for the investment of funds by 8
fiduciaries in this state, or through a combination of such methods. To the extent 9
that funding is provided through insurance contract, no contributions, payments or 10
premiums shall be subject to any tax on insurance premiums or annuity 11
considerations. The investment committee for the judicial retirement fund shall be 12
trustee of any and all funds contributed or appropriated to the retirement system, 13
and shall have sole authority to make insurance contracts or investments. 14
(2) (a) For the purposes of this subsection: 15
1. "Solely in the interest of the members and beneficiaries" shall be 16
determined using only pecuniary factors and shall not include any 17
purpose to further a nonpecuniary interest; 18
2. "Pecuniary factor" means a consideration having a direct and 19
material connection to the financial risk or financial return of an 20
investment; 21
3. A "material connection" is established if there is a substantial 22
likelihood that a reasonable investor would consider it important in 23
determining the financial risk or the financial return of an 24
investment; and 25
4. "Nonpecuniary interest" includes an environmental, social, political, 26
or ideological interest. 27 UNOFFICIAL COPY 23 RS BR 473
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(b) The board members,[ or] any investment manager, proxy adviser, consultant, 1
or other fiduciary shall discharge their duties with respect to the funds of the 2
retirement system solely in the interest of the members and beneficiaries and: 3
1.[(a)] For the exclusive purposes of providing benefits to members and 4
their beneficiaries and defraying reasonable expenses of administering 5
the plan; 6
2.[(b)] With the care, skill, prudence, and diligence under the 7
circumstances then prevailing that a prudent person[man] acting in a 8
like capacity and familiar with such matters would use in the conduct of 9
an enterprise of a like character and with like aims; and 10
3.[(c)] In accordance with the federal, state, and common laws, 11
regulations and other instruments governing the funds and fiduciaries. 12
(c) Evidence that a fiduciary has considered or acted on a nonpecuniary 13
interest shall include but is not limited to: 14
1. Statements, explanations, reports, or correspondence; 15
2. Communications with portfolio companies; 16
3. Statements of principles or policies, whether made individually or 17
jointly; 18
4. Votes of shares or proxies; or 19
5. Coalitions, initiatives, agreements, or commitments to which the 20
fiduciary is a participant, affiliate, or signatory. 21
(3) Any accrual of benefits provided under this or any other applicable statute shall be 22
no less than the benefit adjustment provided for in KRS 21.405(4) from the date of 23
the last establishment of that benefit. 24
(4) The board shall establish ethics policies and procedures by promulgation of 25
administrative regulations in accordance with the provisions of KRS Chapter 13A. 26
The ethics policies shall include but not be limited to annual financial and conflict 27 UNOFFICIAL COPY 23 RS BR 473
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of interest disclosure requirements which must be completed by all board members 1
and made available to the public upon request. 2
(5) An investment manager, proxy adviser, or consultant appointed by the board or 3
any other fiduciary provided by this subsection shall acknowledge in writing the 4
fiduciary duties owed to the system and its fund assets. 5
(6) No contract or agreement, whether made in writing or not, shall in any manner 6
waive, restrict, or limit a fiduciary's liability as to any of the duties imposed by 7
this section. Any agreement shall specify that it is made in the Commonwealth 8
and governed by the laws of the Commonwealth. 9
Section 2. KRS 21.540 is amended to read as follows: 10
(1) (a) Except as provided in KRS 21.550, 21.560, and subsections (3) and (7) of this 11
section, the board of trustees of the Judicial Form Retirement System shall be 12
charged with the administration of KRS 6.500 to 6.577 and 21.350 to 21.510. 13
(b) The Judicial Form Retirement System shall have all powers necessary to 14
administer KRS 6.500 to 6.577 and 21.350 to 21.510 including the power to 15
promulgate all reasonable administrative regulations, pass upon questions of 16
eligibility and disability, make employments for services, to contract for 17
fiduciary liability insurance, investment counseling, and actuarial, auditing, 18
and other professional services subject to the limitations of KRS Chapters 45, 19
45A, 56, and 57. 20
(c) 1. The administrative expenses shall be paid out of an administrative 21
account which shall be funded by transfers of the necessary money, in 22
appropriate ratio, from the funds provided for in KRS 21.550 and 23
21.560. 24
2. Authorization for all administrative expenses relating to the operations 25
of the Judicial Form Retirement System shall be contained in the 26
biennial budget unit request, branch budget recommendations, and the 27 UNOFFICIAL COPY 23 RS BR 473
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financial plan adopted by the General Assembly pursuant to KRS 1
Chapter 48. 2
3. The request from the Judicial Form Retirement System shall include any 3
specific administrative expenses requested by the board of trustees that 4
are not otherwise specified by this subsection. 5
(2) (a) A qualified domestic relations order issued by a court or administrative 6
agency shall be honored by the Judicial Form Retirement System if the order 7
is in compliance with the requirements established by the retirement system. 8
(b) Except in cases involving child support payments, the Judicial Form 9
Retirement System may charge reasonable and necessary fees and expenses to 10
the participant and the alternate payee of a qualified domestic relations order 11
for the administration of the qualified domestic relations order by the 12
retirement system. All fees and expenses shall be established by 13
administrative regulations promulgated by the board of trustees of the 14
retirement system. The qualified domestic relations order shall specify 15
whether the fees and expenses provided by this subsection shall be paid: 16
1. Solely by the participant; 17
2. Solely by the alternate payee; or 18
3. Equally shared by the participant and alternate payee. 19
(c) For purposes of this subsection, a "qualified domestic relations order" shall 20
mean any judgment, decree, or order, including approval of a property 21
settlement agreement, that: 22
1. Is issued by a court or administrative agency; and 23
2. Relates to the provision of child support, alimony payments, or marital 24
property rights to a spouse, former spouse, child, or other dependent of a 25
member. 26
(3) Notwithstanding any other evidence of legislative intent, it is hereby declared to be 27 UNOFFICIAL COPY 23 RS BR 473
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the controlling legislative intent that the provisions of KRS 21.345 to 21.580 and 1
6.500 to 6.577 shall conform with federal statutes or regulations and meet the 2
qualification requirements under 26 U.S.C. sec. 401(a), applicable federal 3
regulations, and other published guidance, and the board shall have the authority to 4
promulgate administrative regulations, with retroactive effect if required under 5
federal law, to conform the Legislators' Retirement Plan and the Judicial Retirement 6
Plan with federal statutes and regulations and to meet the qualification requirements 7
under 26 U.S.C. sec. 401(a). 8
(4) In order to improve public transparency regarding the administration of the 9
Legislators' Retirement Plan and the Judicial Retirement Plan, the board of trustees 10
of the Judicial Form Retirement System shall adopt a best-practices model by 11
posting the following information to the system's website[Web site] and shall make 12
it available to the public: 13
(a) Meeting notices and agendas for all meetings of the board. Notices and 14
agendas shall be posted to the system's website[Web site] at least seventy-two 15
(72) hours in advance of the board or committee meetings, except in the case 16
of special or emergency meetings as provided by KRS 61.823; 17
(b) A list of the members of the board of trustees and membership on each 18
committee established by the board, including any investment committees; 19
(c) A list of system staff and each staff's salary; 20
(d) A list of the fund's professional consultants and their respective fees and 21
commissions paid by the system; 22
(e) A list of the system's expenditures; 23
(f) The annual financial audit of the system, which shall include but not be 24
limited to a statement of plan net assets, a statement of changes in plan net 25
assets, an actuarial value of assets, a schedule of investments, a statement of 26
funded status and funding progress, and other supporting data; 27 UNOFFICIAL COPY 23 RS BR 473
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(g) All external audits; 1
(h) The annual actuarial valuation report of pension and retiree health benefits of 2
each retirement plan administered by the system, which shall include a 3
general statistical section and information on contributions, benefit payouts, 4
and retirement plan demographic data; 5
(i) All board minutes or other materials that require adoption or ratification by 6
the board of trustees or committees of the board. The items listed in this 7
paragraph shall be posted within seventy-two (72) hours of adoption or 8
ratification by the board or committees; 9
(j) All bylaws, policies, or procedures adopted or ratified by the board of trustees 10
or by committees of the board; 11
(k) The summary plan description for each plan administered by the system; 12
(l) A document or a link to documents containing an unofficial copy of the 13
statutes governing the plans administered by the Judicial Form Retirement 14
System; 15
(m) Investment information, including all investment holdings in aggregate, fees, 16
and commissions for each fund administered by the board, which shall be 17
updated on a quarterly basis for fiscal years beginning on or after July 1, 18
2017. The system shall request from all managers, partnerships, and any other 19
available sources all information regarding fees and commissions and shall, 20
based on the requested information received: 21
1. Disclose the dollar value of fees and commissions paid to each 22
individual manager or partnership; 23
2. Disclose the dollar value of any profit sharing, carried interest, or any 24
other partnership incentive arrangements, partnership agreements, or 25
any other partnership expenses received by or paid to each manager or 26
partnership; and 27 UNOFFICIAL COPY 23 RS BR 473
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3. As applicable, report each fee or commission by manager or partnership 1
consistent with standards established by the Institutional Limited 2
Partners Association (ILPA). 3
In addition to the requirements of this paragraph, the system shall also 4
disclose the name and address of all individual underlying managers or 5
partners in any fund of funds in which system assets are invested; 6
(n) An update of net investment returns, asset allocations, and the performance of 7
the funds against benchmarks adopted by the board for each fund, for each 8
asset class administered by the board, and for each manager over a historical 9
period. The update shall be posted on a quarterly basis for fiscal years 10
beginning on or after July 1, 2017; 11
(o) All contracts or offering documents for services, goods, or property purchased 12
or utilized by the system. Notwithstanding KRS 61.878, all contracts, 13
including investment contracts, shall be subject to review by the board, the 14
Auditor of Public Accounts, and the Government Contract Review Committee 15
established pursuant to KRS 45A.705. If any public record contains material 16
which is not excepted under KRS 61.878, the system shall separate the 17
excepted material by removal, segregation, or redaction, and make the 18
nonexcepted material available for examination;[ and] 19
(p) Information regarding the system's financial and actuarial condition that is 20
easily understood by the members, retired members, and the public; and 21
(q) All proxy vote reports as provided by subsection (9) of this section. 22
Nothing in this subsection shall require or compel the Judicial Form Retirement 23
System to disclose information specific to the account of an individual member of 24
the Legislators' Retirement Plan or the Judicial Retirement Plan. 25
(5) No trustee or employee of the board shall: 26
(a) Have any interest, direct or indirect, in the gains or profits of any investment 27 UNOFFICIAL COPY 23 RS BR 473
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or transaction made by the board, provided that the provisions of this 1
paragraph shall not prohibit a member or retiree of one (1) of the retirement 2
plans administered by the system from serving as a trustee; 3
(b) Directly or indirectly, for himself or herself or as an agent, use the assets of 4
the system, except to make current and necessary payments authorized by the 5
board; 6
(c) Become an endorser, surety, or obligor for moneys loaned by or borrowed 7
from the board; 8
(d) Have a contract or agreement with the retirement system, individually or 9
through a business owned by the trustee or the employee; 10
(e) Use his or her official position with the retirement system to obtain a financial 11
gain or benefit or advantage for himself or herself or a family member; 12
(f) Use confidential information acquired during his or her tenure with the 13
systems to further his or her own economic interests or that of another person; 14
or 15
(g) Hold outside employment with, or accept compensation from, any person or 16
business with which he or she has involvement as part of his or her official 17
position with the system. The provisions of this paragraph shall not prohibit: 18
1. A trustee from serving as a judge or member of the General Assembly; 19
or 20
2. A trustee from serving on the board if the compensation is de minimus 21
and incidental to the trustee's outside employment. If the compensation 22
is more than de minimus, the trustee shall disclose the amount of the 23
compensation to the other trustees and recuse himself or herself from 24
any matters involving hiring or retaining a person or a business from 25
whom more than de minimus amounts are received by the trustee. For 26
purposes of this section, "de minimus" means an insignificant amount 27 UNOFFICIAL COPY 23 RS BR 473
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that does not raise a reasonable question as to the trustee's objectivity. 1
(6) Notwithstanding any other provision of KRS 6.500 to 6.577 and 21.345 to 21.580 2
to the contrary, no funds of the Legislators' Retirement Plan or the Judicial 3
Retirement Plan, including fees and commissions paid to an investment manager, 4
private fund, or company issuing securities, who manages systems assets, shall be 5
used to pay fees and commissions to placement agents. For purposes of this 6
subsection, "placement agent" means a third-party individual, who is not an 7
employee, or firm, wholly or partially owned by the entity being hired, who solicits 8
investments on behalf of an investment manager, private fund, or company issuing 9
securities. 10
(7) All contracts for the investment or management of assets of the system shall not be 11
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 12
following process to develop and adopt an investment procurement policy with 13
which all prospective contracts for the investment or management of assets of the 14
system shall comply: 15
(a) On or before July 1, 2017, the board shall consult with the secretary of the 16
Finance and Administration Cabinet or his or her designee to develop an 17
investment procurement policy, which shall be written to meet best practices 18
in investment management procurement; 19
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 20
investment procurement policy to the secretary of the Finance and 21
Administration Cabinet or his or her designee for review and comment; 22
(c) Upon receipt of comments from the secretary of the Finance and 23
Administration Cabinet or his or her designee, the board shall choose to adopt 24
or not adopt any recommended changes; 25
(d) Upon adoption, the board shall tender the final investment procurement policy 26
to the secretary of the Finance and Administration Cabinet or his or her 27 UNOFFICIAL COPY 23 RS BR 473
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designee; 1
(e) No later than thirty (30) days after receipt of the investment procurement 2
policy, the secretary or his or her designee shall certify whether the board's 3
investment procurement policy meets or does not meet best practices for 4
investment management procurement; and 5
(f) Any amendments to the investment procurement policy shall adhere to the 6
requirements set forth by paragraphs (b) to (e) of this subsection. 7
(8) (a) 1. Upon request by any person, the Judicial Form Retirement System shall 8
release the following information from the accounts of any member or 9
retiree of the Legislators' Retirement Plan or the Judicial Retirement 10
Plan, if the member or retiree is a current or former officeholder in the 11
Kentucky General Assembly: 12
a. The first and last name of the member or retiree; 13
b. The plan or plans in which the member has an account or from 14
which the retiree is receiving a monthly retirement allowance; 15
c. The status of the member or retiree, including but not limited to 16
whether he or she is a contributing to the plans but has not retired, 17
or a retiree drawing a monthly retirement allowance; 18
d. If the individual is a retiree, the monthly retirement allowance that 19
he or she was receiving at the end of the most recently completed 20
fiscal year; and 21
e. If the individual is a member who has not yet retired, the estimated 22
monthly retirement allowance that he or she is eligible to receive 23
on the first date he or she would be eligible for an unreduced 24
retirement allowance, using his or her service credit, final 25
compensation, and accumulated account balance at the end of the 26
most recently completed fiscal year. 27 UNOFFICIAL COPY 23 RS BR 473
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2. No information shall be disclosed under this paragraph from an account 1
that is paying benefits to a beneficiary due to the death of a member or 2
retiree. 3
(b) The release of information under paragraph (a) of this subsection shall not 4
constitute a violation of the Open Records Act, KRS 61.870 to 61.884. 5
(9) (a) The board shall adopt written proxy voting guidelines which are consistent 6
with the fiduciary duties and other requirements of Section 1 of this Act. 7
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 8
voting service unless the proxy adviser or proxy voting service acknowledges 9
in writing its fiduciary duties under subsection (5) of Section 1 of this Act 10
and commits to follow the board-adopted proxy voting guidelines when 11
voting the system's shares in order to comply with the board's fiduciary 12
duties and other responsibilities under this section and Section 1 of this Act. 13
(c) All shares held directly or indirectly by or on behalf of the system shall be 14
voted according to the proxy voting guidelines adopted by the board and 15
subject to the fiduciary duties and other requirements of this section by: 16
1. The board or investment committee of the board who are fiduciaries 17
having the sole authority to make investments under Section 1 of this 18
Act; or 19
2. A proxy adviser or proxy voting service that acknowledges in writing 20
its fiduciary duties under subsection (5) of Section 1 of this Act and 21
commits to follow the proxy voting guidelines adopted by the board 22
when voting the system's shares in order to comply with the board's 23
fiduciary duties and other responsibilities under this section. 24
(d) All proxy votes shall be reported at least quarterly to the board. For each 25
vote, the report shall provide: 26
1. The vote caption; 27 UNOFFICIAL COPY 23 RS BR 473
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2. The date of the vote; 1
3. The company's name; 2
4. The vote cast for the system; 3
5. The recommendation of the company's management; and 4
6. If applicable, the recommendation of the proxy adviser or proxy voting 5
service. 6
Section 3. KRS 61.645 is amended to read as follows: 7
(1) The Kentucky Employees Retirement System and State Police Retirement System 8
shall be administered by the board of trustees of the Kentucky Retirement Systems 9
composed of nine (9) members, who shall be selected as follows: 10
(a) One (1) trustee, who shall be a member or retired from the State Police 11
Retirement System, elected by the members and retired members of the State 12
Police Retirement System; 13
(b) Two (2) trustees, who shall be members or retired from the Kentucky 14
Employees Retirement System, elected by the members and retired members 15
of the Kentucky Employees Retirement System; 16
(c) Six (6) trustees, appointed by the Governor of the Commonwealth, subject to 17
Senate confirmation in accordance with KRS 11.160 for each appointment or 18
reappointment. Of the six (6) trustees appointed by the Governor, three (3) 19
trustees shall have investment experience and three (3) trustees shall have 20
retirement experience; 21
(d) For purposes of paragraph (c) of this subsection, a trustee with "investment 22
experience" means an individual who does not have a conflict of interest, as 23
provided by KRS 61.655, and who has at least ten (10) years of experience in 24
one (1) of the following areas of expertise: 25
1. A portfolio manager acting in a fiduciary capacity; 26
2. A professional securities analyst or investment consultant; 27 UNOFFICIAL COPY 23 RS BR 473
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3. A current or retired employee or principal of a trust institution, 1
investment or finance organization, or endowment fund acting in an 2
investment-related capacity; 3
4. A chartered financial analyst in good standing as determined by the 4
CFA Institute; or 5
5. A university professor, teaching investment-related studies; and 6
(e) For purposes of paragraph (c) of this subsection, a trustee with "retirement 7
experience" means an individual who does not have a conflict of interest, as 8
provided by KRS 61.655, and who has at least ten (10) years of experience in 9
one (1) of the following areas of expertise: 10
1. Experience in retirement or pension plan management; 11
2. A certified public accountant with relevant experience in retirement or 12
pension plan accounting; 13
3. An actuary with relevant experience in retirement or pension plan 14
consulting; 15
4. An attorney licensed to practice law in the Commonwealth of Kentucky 16
with relevant experience in retirement or pension plans; or 17
5. A current or former university professor whose primary area of 18
emphasis is economics or finance. 19
(2) The board is hereby granted the powers and privileges of a corporation, including 20
but not limited to the following powers: 21
(a) To sue and be sued in its corporate name; 22
(b) To make bylaws not inconsistent with the law; 23
(c) To conduct the business and promote the purposes for which it was formed; 24
(d) Except as provided in KRS 61.650(6), to contract for investment counseling, 25
auditing, medical, and other professional or technical services as required to 26
carry out the obligations of the board subject to KRS Chapters 45, 45A, 56, 27 UNOFFICIAL COPY 23 RS BR 473
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and 57. Actuarial consulting services shall be provided by a firm hired by the 1
Kentucky Public Pensions Authority; 2
(e) To purchase fiduciary liability insurance; 3
(f) Except as provided in KRS 61.650(6), to acquire, hold, sell, dispose of, 4
pledge, lease, or mortgage, the goods or property necessary to exercise the 5
board's powers and perform the board's duties subject to KRS Chapters 45, 6
45A, and 56; and 7
(g) The board shall reimburse any trustee, officer, or employee for any legal 8
expense resulting from a civil action arising out of the performance of his or 9
her official duties. The hourly rate of reimbursement for any contract for legal 10
services under this paragraph shall not exceed the maximum hourly rate 11
provided in the Legal Services Duties and Maximum Rate Schedule 12
promulgated by the Government Contract Review Committee established 13
pursuant to KRS 45A.705, unless a higher rate is specifically approved by the 14
secretary of the Finance and Administration Cabinet or his or her designee. 15
(3) (a) Notwithstanding the provisions of subsection (1) of this section, each trustee 16
shall serve a term of four (4) years or until his or her successor is duly 17
qualified except as otherwise provided in this section. An elected trustee or a 18
trustee appointed by the Governor under subsection (1)(c) of this section, shall 19
not serve more than three (3) consecutive four (4) year terms. An elected 20
trustee or a trustee appointed by the Governor under subsection (1)(c) of this 21
section, who has served three (3) consecutive terms may be elected or 22
appointed again after an absence of four (4) years from the board. 23
(b) The term limits established by paragraph (a) of this subsection shall apply to 24
trustees serving on or after July 1, 2012, and all terms of office served prior to 25
July 1, 2012, shall be used to determine if the trustee has exceeded the term 26
limits provided by paragraph (a) of this subsection. 27 UNOFFICIAL COPY 23 RS BR 473
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(4) (a) The trustees selected by the membership of each of the various retirement 1
systems shall be elected by ballot. For each trustee to be elected, the board 2
may nominate, not less than six (6) months before a term of office of a trustee 3
is due to expire, three (3) constitutionally eligible individuals. 4
(b) Individuals may be nominated by the retirement system members which are to 5
elect the trustee by presenting to the executive director, not less than four (4) 6
months before a term of office of a trustee is due to expire, a petition, bearing 7
the name, last four (4) digits of the Social Security number, and signature of 8
no less than one-tenth (1/10) of the number voting in the last election by the 9
retirement system members. 10
(c) Within four (4) months of the nominations made in accordance with 11
paragraphs (a) and (b) of this subsection, the executive director shall cause to 12
be prepared an official ballot. The ballot shall include the name, address, and 13
position title of each individual nominated by the board and by petition. 14
Provisions shall also be made for write-in votes. 15
(d) Except as provided by paragraph (j) of this subsection, the ballots shall be 16
distributed to the eligible voters by mail to their last known residence address 17
on file with the Kentucky Public Pensions Authority. Ballots shall not be 18
distributed by mail to member addresses reported as invalid to the Kentucky 19
Public Pensions Authority. 20
(e) The ballots shall be addressed to the Kentucky Retirement Systems in care of 21
a predetermined box number at a United States Post Office or submitted 22
electronically as provided by paragraph (j) of this subsection. Access to this 23
post office box shall be limited to the board's contracted firm. The individual 24
receiving a plurality of votes shall be declared elected. 25
(f) The eligible voter shall cast his or her ballot by selecting the candidate of his 26
or her choice. He or she shall sign and mail the ballot or submit the electronic 27 UNOFFICIAL COPY 23 RS BR 473
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ballot at least thirty (30) days prior to the date the term to be filled is due to 1
expire. The latest mailing date, or date of submission in the case of electronic 2
ballots, shall be provided on the ballot. 3
(g) The board's contracted firm shall report in writing the outcome to the chair of 4
the board of trustees. Cost of an election shall be payable from the funds of 5
the system for which the trustee is elected. 6
(h) For purposes of this subsection, an eligible voter shall be a person who was a 7
member of the retirement system on December 31 of the year preceding the 8
election year. 9
(i) Each individual who submits a request to be nominated by the board under 10
paragraph (a) of this subsection and each individual who is nominated by the 11
membership under paragraph (b) of this subsection shall: 12
1. Complete an application developed by the retirement systems which 13
shall include but not be limited to a disclosure of any prior felonies and 14
any conflicts of interest that would hinder the individual's ability to 15
serve on the board; 16
2. Submit a resume detailing the individual's education and employment 17
history and a cover letter detailing the member's qualifications for 18
serving as trustee to the board; and 19
3. Authorize the systems to have a criminal background check performed. 20
The criminal background check shall be performed by the Department 21
of Kentucky State Police. 22
(j) In lieu of the ballots mailed to members and retired members as provided by 23
this subsection, the systems may by promulgation of administrative regulation 24
pursuant to KRS Chapter 13A conduct trustee elections using electronic 25
ballots, except that the systems shall mail a paper ballot upon request of any 26
eligible voter. 27 UNOFFICIAL COPY 23 RS BR 473
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(5) (a) Any vacancy which may occur in an appointed position during a term of 1
office shall be filled in the same manner which provides for the selection of 2
the particular trustee, and any vacancy which may occur in an elected position 3
during a term of office shall be filled by appointment by a majority vote of the 4
remaining elected trustees with a person selected from the system in which the 5
vacancy occurs; however, any vacancy shall be filled only for the duration of 6
the unexpired term. In the event of a vacancy of an elected trustee during a 7
term of office, Kentucky Retirement Systems shall notify members of the 8
system in which the vacancy occurs of the vacancy and the opportunity to be 9
considered for the vacant position. Any vacancy during a term of office shall 10
be filled within ninety (90) days of the position becoming vacant. 11
(b) Any appointments or reappointments to an appointed position on the board 12
shall be made no later than thirty (30) days prior to an appointed member's 13
term of office ending. 14
(6) (a) Membership on the board of trustees shall not be incompatible with any other 15
office unless a constitutional incompatibility exists. No trustee shall serve in 16
more than one (1) position as trustee on the board; and if a trustee holds more 17
than one (1) position as trustee on the board, he or she shall resign a position. 18
(b) A trustee shall be removed from office upon conviction of a felony or for a 19
finding of a violation of any provision of KRS 11A.020 or 11A.040 by a court 20
of competent jurisdiction. 21
(c) A current or former employee of Kentucky Retirement Systems, County 22
Employees Retirement System, or the Kentucky Public Pensions Authority 23
shall not be eligible to serve as a member of the board. 24
(7) Trustees who do not otherwise receive a salary from the State Treasury shall 25
receive a per diem of eighty dollars ($80) for each day they are in session or on 26
official duty, and they shall be reimbursed for their actual and necessary expenses 27 UNOFFICIAL COPY 23 RS BR 473
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in accordance with state administrative regulations and standards. 1
(8) (a) The board shall meet at least once in each quarter of the year and may meet in 2
special session upon the call of the chair or the chief executive officer. 3
(b) The board shall elect a chair and a vice chair. The chair shall not serve more 4
than four (4) consecutive years as chair or vice-chair of the board. The vice-5
chair shall not serve more than four (4) consecutive years as chair or vice-6
chair of the board. A trustee who has served four (4) consecutive years as 7
chair or vice-chair of the board may be elected chair or vice-chair of the board 8
after an absence of two (2) years from the positions. 9
(c) A majority of the trustees shall constitute a quorum and all actions taken by 10
the board shall be by affirmative vote of a majority of the trustees present. 11
(9) (a) The board of trustees shall appoint or contract for the services of a chief 12
executive officer and general counsel and fix the compensation and other 13
terms of employment for these positions without limitation of the provisions 14
of KRS Chapters 18A and 45A and KRS 64.640. The chief executive officer 15
shall serve as the legislative and executive adviser to the board. The general 16
counsel shall serve as legal adviser to the board. The chief executive officer 17
and general counsel shall work with the executive director of the Kentucky 18
Public Pensions Authority to carry out the provisions of KRS 16.505 to 19
16.652 and 61.510 to 61.705. The executive director of the Kentucky Public 20
Pensions Authority shall be the chief administrative officer of the board. 21
(b) Prior to April 1, 2021, the board of trustees shall authorize the executive 22
director to appoint the employees deemed necessary to transact the business 23
of the system. Effective April 1, 2021, the responsibility of appointing 24
employees and managing personnel needs shall be transferred to the Kentucky 25
Public Pensions Authority established by KRS 61.505. 26
(c) The board shall require the chief executive officer and may require the general 27 UNOFFICIAL COPY 23 RS BR 473
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counsel to execute bonds for the faithful performance of his or her duties 1
notwithstanding the limitations of KRS Chapter 62. 2
(d) The board shall have a system of accounting established by the Kentucky 3
Public Pensions Authority. 4
(e) The board shall do all things, take all actions, and promulgate all 5
administrative regulations, not inconsistent with the provisions of KRS 16.505 6
to 16.652 and 61.510 to 61.705, necessary or proper in order to carry out the 7
provisions of KRS 16.505 to 16.652 and 61.510 to 61.705. Notwithstanding 8
any other evidence of legislative intent, it is hereby declared to be the 9
controlling legislative intent that the provisions of KRS 16.505 to 16.652 and 10
61.510 to 61.705 conform with federal statute or regulation and meet the 11
qualification requirements under 26 U.S.C. sec. 401(a), applicable federal 12
regulations, and other published guidance. Provisions of KRS 16.505 to 13
16.652 and 61.510 to 61.705 which conflict with federal statute or regulation 14
or qualification under 26 U.S.C. sec. 401(a), applicable federal regulations, 15
and other published guidance shall not be available. The board shall have the 16
authority to promulgate administrative regulations to conform with federal 17
statute and regulation and to meet the qualification requirements under 26 18
U.S.C. sec. 401(a), including an administrative regulation to comply with 26 19
U.S.C. sec. 401(a)(9). 20
(f) Notwithstanding any other provision of statute to the contrary, including but 21
not limited to any provision of KRS Chapter 12, the Governor shall have no 22
authority to change any provision of KRS 16.505 to 16.652 and 61.510 to 23
61.705 by executive order or action, including but not limited to reorganizing, 24
replacing, amending, or abolishing the membership of the Kentucky 25
Retirement Systems board of trustees. 26
(10) Notwithstanding any statute to the contrary, employees shall not be considered 27 UNOFFICIAL COPY 23 RS BR 473
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legislative agents under KRS 6.611. 1
(11) The Attorney General, or an assistant designated by him or her, may attend each 2
meeting of the board and may receive the agenda, board minutes, and other 3
information distributed to trustees of the board upon request. The Attorney General 4
may act as legal adviser and attorney for the board, and the board may contract for 5
legal services, notwithstanding the limitations of KRS Chapter 12 or 13B. 6
(12) (a) The Kentucky Public Pensions Authority shall publish an annual financial 7
report showing all receipts, disbursements, assets, and liabilities for the 8
systems. The annual report shall include a copy of an audit conducted in 9
accordance with generally accepted auditing standards. Except as provided by 10
paragraph (b) of this subsection, the board may select the independent 11
certified public accountant hired by the Kentucky Public Pensions Authority 12
or the Auditor of Public Accounts to perform the audit. If the audit is 13
performed by an independent certified public accountant, the Auditor of 14
Public Accounts shall not be required to perform an audit pursuant to KRS 15
43.050(2)(a), but may perform an audit at his or her discretion. All 16
proceedings and records of the board shall be open for inspection by the 17
public. The Kentucky Public Pensions Authority shall make copies of the 18
audit required by this subsection available for examination by any member, 19
retiree, or beneficiary in the offices of the Kentucky Public Pensions 20
Authority and in other places as necessary to make the audit available to all 21
members, retirees, and beneficiaries. A copy of the annual audit shall be sent 22
to the Legislative Research Commission no later than ten (10) days after 23
receipt by the board. 24
(b) At least once every five (5) years, the Auditor of Public Accounts shall 25
perform the audit described by this subsection, and the system shall reimburse 26
the Auditor of Public Accounts for all costs of the audit. The Auditor of 27 UNOFFICIAL COPY 23 RS BR 473
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Public Accounts shall determine which fiscal year during the five (5) year 1
period the audit prescribed by this paragraph will be completed. 2
(13) All expenses incurred by or on behalf of the system and the board in the 3
administration of the system during a fiscal year shall be paid from the retirement 4
allowance account, including any administrative expenses for the Kentucky Public 5
Pensions Authority that are assigned to the Kentucky Retirement Systems by KRS 6
61.505. The board shall submit any administrative expenses that are specific to the 7
Kentucky Retirement Systems that are not otherwise covered by KRS 8
61.505(11)(a). 9
(14) Any person adversely affected by a decision of the board, except as provided under 10
subsection (16) of this section or KRS 61.665, involving KRS 16.505 to 16.652 and 11
61.510 to 61.705, may appeal the decision of the board to the Franklin Circuit Court 12
within sixty (60) days of the board action. 13
(15) (a) A trustee shall discharge his or her duties as a trustee, including his or her 14
duties as a member of a committee: 15
1. In good faith; 16
2. On an informed basis; and 17
3. In a manner he or she honestly believes to be in the best interest of the 18
Kentucky Retirement Systems. 19
(b) A trustee discharges his or her duties on an informed basis if, when he or she 20
makes an inquiry into the business and affairs of the Kentucky Retirement 21
Systems or into a particular action to be taken or decision to be made, he or 22
she exercises the care an ordinary prudent person in a like position would 23
exercise under similar circumstances. 24
(c) In discharging his or her duties, a trustee may rely on information, opinions, 25
reports, or statements, including financial statements and other financial data, 26
if prepared or presented by: 27 UNOFFICIAL COPY 23 RS BR 473
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1. One (1) or more officers or employees of the Kentucky Retirement 1
Systems whom the trustee honestly believes to be reliable and 2
competent in the matters presented; 3
2. Legal counsel, public accountants, actuaries, or other persons as to 4
matters the trustee honestly believes are within the person's professional 5
or expert competence; or 6
3. A committee of the board of trustees of which he or she is not a member 7
if the trustee honestly believes the committee merits confidence. 8
(d) A trustee shall not be considered as acting in good faith if he or she has 9
knowledge concerning the matter in question that makes reliance otherwise 10
permitted by paragraph (c) of this subsection unwarranted. 11
(e) Any action taken as a trustee, or any failure to take any action as a trustee, 12
shall not be the basis for monetary damages or injunctive relief unless: 13
1. The trustee has breached or failed to perform the duties of the trustee's 14
office in compliance with this section; and 15
2. In the case of an action for monetary damages, the breach or failure to 16
perform constitutes willful misconduct or wanton or reckless disregard 17
for human rights, safety, or property. 18
(f) A person bringing an action for monetary damages under this section shall 19
have the burden of proving by clear and convincing evidence the provisions of 20
paragraph (e)1. and 2. of this subsection, and the burden of proving that the 21
breach or failure to perform was the legal cause of damages suffered by the 22
Kentucky Retirement Systems. 23
(g) Nothing in this section shall eliminate or limit the liability of any trustee for 24
any act or omission occurring prior to July 15, 1988. 25
(h) In discharging his or her administrative duties under this section, a trustee 26
shall strive to administer the retirement system in an efficient and cost-27 UNOFFICIAL COPY 23 RS BR 473
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effective manner for the taxpayers of the Commonwealth of Kentucky and 1
shall take all actions available under the law to contain costs for the trusts, 2
including costs for participating employers, members, and retirees. 3
(16) When an order by the system substantially impairs the benefits or rights of a 4
member, retired member, or recipient, except action which relates to entitlement to 5
disability benefits, or when an employer disagrees with an order of the system as 6
provided by KRS 61.598, the affected member, retired member, recipient, or 7
employer may request a hearing to be held in accordance with KRS Chapter 13B. 8
The board may establish an appeals committee whose members shall be appointed 9
by the chair and who shall have authority to act upon the recommendations and 10
reports of the hearing officer on behalf of the board. The member, retired member, 11
recipient, or employer aggrieved by a final order of the board following the hearing 12
may appeal the decision to the Franklin Circuit Court, in accordance with KRS 13
Chapter 13B. The board may establish a joint administrative appeals committee 14
with the County Employees Retirement System and may also establish a joint 15
disability appeals committee with the County Employees Retirement System. 16
(17) The board shall give the Kentucky Education Support Personnel Association 17
twenty-four (24) hours notice of the board meetings, to the extent possible. 18
(18) The board shall establish a formal trustee education program for all trustees of the 19
board. The program shall include but not be limited to the following: 20
(a) A required orientation program for all new trustees elected or appointed to the 21
board. The orientation program shall include training on: 22
1. Benefits and benefits administration; 23
2. Investment concepts, policies, and current composition and 24
administration of retirement systems investments; 25
3. Laws, bylaws, and administrative regulations pertaining to the 26
retirement systems and to fiduciaries; and 27 UNOFFICIAL COPY 23 RS BR 473
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4. Actuarial and financial concepts pertaining to the retirement systems. 1
If a trustee fails to complete the orientation program within one (1) year from 2
the beginning of his or her first term on the board, the retirement systems shall 3
withhold payment of the per diem and travel expenses due to the board 4
member under this section and KRS 16.640 until the trustee has completed the 5
orientation program; 6
(b) Annual required training for board members on the administration, benefits, 7
financing, and investing of the retirement systems. If a trustee fails to 8
complete the annual required training during the calendar or fiscal year, the 9
retirement systems shall withhold payment of the per diem and travel 10
expenses due to the board member under this section and KRS 16.640 until 11
the board member has met the annual training requirements; and 12
(c) The retirement systems shall incorporate by reference in an administrative 13
regulation, pursuant to KRS 13A.2251, the trustee education program. 14
(19) In order to improve public transparency regarding the administration of the systems, 15
the board of trustees shall adopt a best practices model by posting the following 16
information to the Kentucky Public Pensions Authority's website[Web site] and 17
shall make available to the public: 18
(a) Meeting notices and agendas for all meetings of the board. Notices and 19
agendas shall be posted to the Kentucky Public Pensions Authority's 20
website[Web site] at least seventy-two (72) hours in advance of the board or 21
committee meetings, except in the case of special or emergency meetings as 22
provided by KRS 61.823; 23
(b) The [Comprehensive ]Annual Comprehensive Financial Report with the 24
information as follows: 25
1. A general overview and update on the retirement systems by the 26
executive director; 27 UNOFFICIAL COPY 23 RS BR 473
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2. A listing of the board of trustees; 1
3. A listing of key staff; 2
4. An organizational chart; 3
5. Financial information, including a statement of plan net assets, a 4
statement of changes in plan net assets, an actuarial value of assets, a 5
schedule of investments, a statement of funded status and funding 6
progress, and other supporting data; 7
6. Investment information, including a general overview, a list of the 8
retirement system's professional consultants, a total net of fees return on 9
retirement systems investments over a historical period, an investment 10
summary, contracted investment management expenses, transaction 11
commissions, and a schedule of investments; 12
7. The annual actuarial valuation report on the pension benefit and the 13
medical insurance benefit; and 14
8. A general statistical section, including information on contributions, 15
benefit payouts, and retirement systems' demographic data; 16
(c) All external audits; 17
(d) All board minutes or other materials that require adoption or ratification by 18
the board of trustees. The items listed in this paragraph shall be posted within 19
seventy-two (72) hours of adoption or ratification of the board; 20
(e) All bylaws, policies, or procedures adopted or ratified by the board of 21
trustees; 22
(f) The retirement systems' summary plan description; 23
(g) A document containing an unofficial copy of the statutes governing the 24
systems administered by Kentucky Retirement Systems; 25
(h) A listing of the members of the board of trustees and membership on each 26
committee established by the board, including any investment committees; 27 UNOFFICIAL COPY 23 RS BR 473
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(i) All investment holdings in aggregate, fees, and commissions for each fund 1
administered by the board, which shall be updated on a quarterly basis for 2
fiscal years beginning on or after July 1, 2017. The systems shall request from 3
all managers, partnerships, and any other available sources all information 4
regarding fees and commissions and shall, based on the requested information 5
received: 6
1. Disclose the dollar value of fees and commissions paid to each 7
individual manager or partnership; 8
2. Disclose the dollar value of any profit sharing, carried interest, or any 9
other partnership incentive arrangements, partnership agreements, or 10
any other partnership expenses received by or paid to each manager or 11
partnership; and 12
3. As applicable, report each fee or commission by manager or partnership 13
consistent with standards established by the Institutional Limited 14
Partners Association (ILPA). 15
In addition to the requirements of this paragraph, the systems shall also 16
disclose the name and address of all individual underlying managers or 17
partners in any fund of funds in which system assets are invested; 18
(j) An update of net of fees investment returns, asset allocations, and the 19
performance of the funds against benchmarks adopted by the board for each 20
fund, for each asset class administered by the board, and for each manager. 21
The update shall be posted on a quarterly basis for fiscal years beginning on 22
or after July 1, 2017; 23
(k) A searchable database of the systems' expenditures and a listing of each 24
individual employed by the systems along with the employee's salary or 25
wages. In lieu of posting the information required by this paragraph to the 26
Kentucky Public Pensions Authority's website[Web site], the systems may 27 UNOFFICIAL COPY 23 RS BR 473
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provide the information through a website[Web site] established by the 1
executive branch to inform the public about executive branch agency 2
expenditures and public employee salaries and wages; 3
(l) All contracts or offering documents for services, goods, or property purchased 4
or utilized by the systems;[ and] 5
(m) Information regarding the systems' financial and actuarial condition that is 6
easily understood by the members, retired members, and the public; and 7
(n) All proxy vote reports as provided by subsection (7) of Section 4 of this Act. 8
(20) Notwithstanding the requirements of subsection (19) of this section, the retirement 9
systems shall not be required to furnish information that is protected under KRS 10
61.661, exempt under KRS 61.878, or that, if disclosed, would compromise the 11
retirement systems' ability to competitively invest in real estate or other asset 12
classes, except that no provision of this section or KRS 61.878 shall exclude 13
disclosure and review of all contracts, including investment contracts, by the board, 14
the Auditor of Public Accounts, and the Government Contract Review Committee 15
established pursuant to KRS 45A.705 or the disclosure of investment fees and 16
commissions as provided by this section. If any public record contains material 17
which is not excepted under this section, the systems shall separate the excepted 18
material by removal, segregation, or redaction, and make the nonexcepted material 19
available for examination. 20
(21) Notwithstanding any other provision of KRS 16.505 to 16.652 and 61.510 to 61.705 21
to the contrary, no funds of the systems administered by Kentucky Retirement 22
Systems, including fees and commissions paid to an investment manager, private 23
fund, or company issuing securities, who manages systems assets, shall be used to 24
pay fees and commissions to placement agents. For purposes of this subsection, 25
"placement agent" means a third-party individual, who is not an employee, or firm, 26
wholly or partially owned by the entity being hired, who solicits investments on 27 UNOFFICIAL COPY 23 RS BR 473
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behalf of an investment manager, private fund, or company issuing securities. 1
Section 4. KRS 61.650 is amended to read as follows: 2
(1) (a) The board shall be the trustee of funds created by KRS 16.510, 61.515, and 3
61.701 pertaining to the accounts for the Kentucky Employees Retirement 4
System or State Police Retirement System, notwithstanding the provisions of 5
any other statute to the contrary, and shall have exclusive power to invest and 6
reinvest such assets in accordance with federal law. 7
(b) 1. The board shall establish an investment committee whose membership 8
shall be composed of the following: 9
a. The three (3) trustees of the Kentucky Retirement Systems board 10
appointed by the Governor pursuant to KRS 61.645 who have 11
investment experience; and 12
b. Additional trustees appointed by the board chair. 13
2. The investment committee shall have authority to implement the 14
investment policies adopted by the board and act on behalf of the board 15
on all investment-related matters and to acquire, sell, safeguard, 16
monitor, and manage the assets and securities of the several funds. 17
(c) 1. For the purposes of this paragraph: 18
a. "Solely in the interest of the members and beneficiaries" shall 19
be determined using only pecuniary factors and shall not include 20
any purpose to further a nonpecuniary interest; 21
b. "Pecuniary factor" means a consideration having a direct and 22
material connection to the financial risk or financial return of 23
an investment; 24
c. A "material connection" is established if there is a substantial 25
likelihood that a reasonable investor would consider it important 26
in determining the financial risk or the financial return of an 27 UNOFFICIAL COPY 23 RS BR 473
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investment; and 1
d. "Nonpecuniary interest" includes an environmental, social, 2
political, or ideological interest. 3
2. A trustee, officer, employee, employee of the Kentucky Public Pensions 4
Authority, investment manager, proxy adviser, or consultant, or other 5
fiduciary shall discharge duties with respect to the retirement system: 6
a[1]. Solely in the interest of the members and beneficiaries; 7
b[2]. For the exclusive purpose of providing benefits to members and 8
beneficiaries and paying reasonable expenses of administering the 9
system; 10
c[3]. With the care, skill, and caution under the circumstances then 11
prevailing that a prudent person acting in a like capacity and 12
familiar with those matters would use in the conduct of an activity 13
of like character and purpose; 14
d[4]. Impartially, taking into account any differing interests of members 15
and beneficiaries; 16
e[5]. Incurring any costs that are appropriate and reasonable; and 17
f[6]. In accordance with a good-faith interpretation of the federal, state, 18
and common law governing the [retirement ]system and 19
fiduciaries. 20
3. Evidence that a fiduciary has considered or acted on a nonpecuniary 21
interest shall include but is not limited to: 22
a. Statements, explanations, reports, or correspondence; 23
b. Communications with portfolio companies; 24
c. Statements of principles or policies, whether made individually 25
or jointly; 26
d. Votes of shares or proxies; or 27 UNOFFICIAL COPY 23 RS BR 473
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e. Coalitions, initiatives, agreements, or commitments to which the 1
fiduciary is a participant, affiliate, or signatory. 2
(d) In addition to the standards of conduct prescribed by paragraph (c) of this 3
subsection: 4
1. All internal investment staff of the Kentucky Public Pensions Authority, 5
and investment consultants shall adhere to the Code of Ethics and 6
Standards of Professional Conduct, and all board trustees shall adhere to 7
the Code of Conduct for Members of a Pension Scheme Governing 8
Body. All codes cited in this subparagraph are promulgated by the CFA 9
Institute; and 10
2. Investment managers shall comply with all applicable provisions of the 11
federal Investment Advisers Act of 1940, as amended, and the rules and 12
regulations promulgated thereunder, and shall comply with all other 13
applicable federal securities statutes and related rules and regulations 14
that apply to investment managers. 15
(e) An investment manager, proxy adviser, or consultant appointed by the 16
board or any other fiduciary provided by this subsection shall acknowledge 17
in writing the fiduciary duties owed to the system and its fund assets. 18
(f) No contract or agreement, whether made in writing or not, shall in any 19
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 20
imposed by this section. Any agreement shall specify that it is made in the 21
Commonwealth and governed by the laws of the Commonwealth. 22
(2) The board, through adopted written policies, shall maintain ownership and control 23
over its assets held in its unitized managed custodial account. 24
(3) The board, in keeping with its responsibility as trustee and wherever consistent with 25
its fiduciary responsibilities, shall give priority to the investment of funds in 26
obligation calculated to improve the industrial development and enhance the 27 UNOFFICIAL COPY 23 RS BR 473
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economic welfare of the Commonwealth. 1
(4) The contents of real estate appraisals, engineering or feasibility estimates, and 2
evaluations made by or for the system relative to the acquisition or disposition of 3
property, until such time as all of the property has been acquired or sold, shall be 4
excluded from the application of KRS 61.870 to 61.884 and shall be subject to 5
inspection only upon order of a court of competent jurisdiction. 6
(5) Based upon market value at the time of purchase, the board shall limit the amount 7
of assets managed by any one (1) active or passive investment manager to fifteen 8
percent (15%) of the assets in the pension and insurance funds. 9
(6) All contracts for the investment or management of assets of the systems shall not be 10
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 11
following process to develop and adopt an investment procurement policy with 12
which all prospective contracts for the investment or management of assets of the 13
systems shall comply: 14
(a) On or before July 1, 2017, the board shall consult with the secretary of the 15
Finance and Administration Cabinet or his or her designee to develop an 16
investment procurement policy, which shall be written to meet best practices 17
in investment management procurement; 18
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 19
investment procurement policy to the secretary of the Finance and 20
Administration Cabinet or his or her designee for review and comment; 21
(c) Upon receipt of comments from the secretary of the Finance and 22
Administration Cabinet or his or her designee, the board shall choose to adopt 23
or not adopt any recommended changes; 24
(d) Upon adoption, the board shall tender the final investment procurement policy 25
to the secretary of the Finance and Administration Cabinet or his or her 26
designee; 27 UNOFFICIAL COPY 23 RS BR 473
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(e) No later than thirty (30) days after receipt of the investment procurement 1
policy, the secretary or his or her designee shall certify whether the board's 2
investment procurement policy meets or does not meet best practices for 3
investment management procurement; and 4
(f) Any amendments to the investment procurement policy shall adhere to the 5
requirements set forth by paragraphs (b) to (e) of this subsection. 6
(7) (a) The board shall adopt written proxy voting guidelines which are consistent 7
with the fiduciary duties and other requirements of this section. 8
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 9
voting service unless the proxy adviser or proxy voting service acknowledges 10
in writing its fiduciary duties under subsection (1)(e) of this section and 11
commits to follow the board-adopted proxy voting guidelines when voting 12
the system's shares in order to comply with the board's fiduciary duties and 13
other responsibilities under this section. 14
(c) All shares held directly or indirectly by or on behalf of the system shall be 15
voted according to the proxy voting guidelines adopted by the board and 16
subject to the fiduciary duties and other requirements of this section by: 17
1. The board, the investment committee of the board, or an employee or 18
employees of the Authority who are fiduciaries under subsection (1) of 19
this section and are appointed or otherwise authorized by the board; or 20
2. A proxy adviser or proxy voting service that acknowledges in writing 21
its fiduciary duties under subsection (1)(e) of this section and commits 22
to follow the proxy voting guidelines adopted by the board when voting 23
the system's shares in order to comply with the board's fiduciary duties 24
and other responsibilities under this section. 25
(d) All proxy votes shall be reported at least quarterly to the board. For each 26
vote, the report shall provide: 27 UNOFFICIAL COPY 23 RS BR 473
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1. The vote caption; 1
2. The date of the vote; 2
3. The company's name; 3
4. The vote cast for the system; 4
5. The recommendation of the company's management; and 5
6. If applicable, the recommendation of the proxy adviser or proxy voting 6
service. 7
Section 5. KRS 78.782 is amended to read as follows: 8
(1) The County Employees Retirement System shall be administered by the board of 9
trustees composed of nine (9) members, who shall be selected as follows: 10
(a) Three (3) trustees, who shall be members or retired from the County 11
Employees Retirement System, elected by the members and retired members 12
of the County Employees Retirement System, of which: 13
1. Two (2) shall have a majority of his or her service credit earned in the 14
County Employees Retirement System in a nonhazardous position; and 15
2. One (1) shall have a majority of his or her service credit earned in the 16
County Employees Retirement System in a hazardous position; 17
(b) Six (6) trustees appointed by the Governor, subject to Senate confirmation in 18
accordance with KRS 11.160 for each appointment or reappointment. Of the 19
six (6) trustees appointed by the Governor: 20
1. One (1) trustee with retirement experience shall be appointed from a list 21
of three (3) applicants submitted by the Kentucky League of Cities; 22
2. One (1) trustee with investment experience shall be appointed from a list 23
of three (3) applicants submitted by the Kentucky League of Cities; 24
3. One (1) trustee with retirement experience shall be appointed from a list 25
of three (3) applicants submitted by the Kentucky Association of 26
Counties; 27 UNOFFICIAL COPY 23 RS BR 473
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4. One (1) trustee with investment experience shall be appointed from a list 1
of three (3) applicants submitted by the Kentucky Association of 2
Counties; 3
5. One (1) trustee with retirement experience shall be appointed from a list 4
of three (3) applicants submitted by the Kentucky School Boards 5
Association; and 6
6. One (1) trustee with investment experience shall be appointed from a list 7
of three (3) applicants submitted by the Kentucky School Boards 8
Association. 9
Notwithstanding the provisions of KRS 12.070(3), the Governor shall appoint 10
each individual trustee described by subparagraphs 1. to 6. of this paragraph 11
solely from each corresponding individual list required to be submitted by the 12
Kentucky League of Cities, the Kentucky Association of Counties, or the 13
Kentucky School Boards Association as provided by subparagraphs 1. to 6. of 14
this paragraph, and the Governor shall not be able to reject the list of 15
applicants submitted, request that another list be provided, or use a list 16
different from the one (1) individual list required to be submitted for each 17
specific appointment or reappointment; 18
(c) For purposes of paragraph (b) of this subsection, a trustee with "investment 19
experience" means an individual who does not have a conflict of interest, as 20
provided by KRS 61.655, and who has at least ten (10) years of experience in 21
one (1) of the following areas of expertise: 22
1. A portfolio manager acting in a fiduciary capacity; 23
2. A professional securities analyst or investment consultant; 24
3. A current or retired employee or principal of a trust institution, 25
investment or finance organization, or endowment fund acting in an 26
investment-related capacity; 27 UNOFFICIAL COPY 23 RS BR 473
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4. A chartered financial analyst in good standing as determined by the 1
CFA Institute; or 2
5. A university professor, teaching investment-related studies; and 3
(d) For purposes of paragraph (b) of this subsection, a trustee with "retirement 4
experience" means an individual who does not have a conflict of interest, as 5
provided by KRS 61.655, and who has at least ten (10) years of experience in 6
one (1) of the following areas of expertise: 7
1. Experience in retirement or pension plan management; 8
2. A certified public accountant with relevant experience in retirement or 9
pension plan accounting; 10
3. An actuary with relevant experience in retirement or pension plan 11
consulting; 12
4. An attorney licensed to practice law in the Commonwealth of Kentucky 13
with relevant experience in retirement or pension plans; or 14
5. A current or former university professor whose primary area of 15
emphasis is economics or finance. 16
(2) The board is hereby granted the powers and privileges of a corporation, including 17
but not limited to the following powers: 18
(a) To sue and be sued in its corporate name; 19
(b) To make bylaws not inconsistent with the law; 20
(c) To conduct the business and promote the purposes for which it was formed; 21
(d) Except as provided in KRS 78.790(6), to contract for investment counseling, 22
auditing, medical, and other professional or technical services as required to 23
carry out the obligations of the board subject to the provisions of KRS 24
Chapters 45, 45A, 56, and 57. Actuarial consulting services shall be provided 25
by a firm hired by the Kentucky Public Pensions Authority; 26
(e) To purchase fiduciary liability insurance; 27 UNOFFICIAL COPY 23 RS BR 473
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(f) Except as provided in KRS 78.790(6), to acquire, hold, sell, dispose of, 1
pledge, lease, or mortgage, the goods or property necessary to exercise the 2
board's powers and perform the board's duties subject to KRS Chapters 45, 3
45A, and 56; and 4
(g) The board shall reimburse any trustee, officer, or employee for any legal 5
expense resulting from a civil action arising out of the performance of his or 6
her official duties. The hourly rate of reimbursement for any contract for legal 7
services under this paragraph shall not exceed the maximum hourly rate 8
provided in the Legal Services Duties and Maximum Rate Schedule 9
promulgated by the Government Contract Review Committee established 10
pursuant to KRS 45A.705, unless a higher rate is specifically approved by the 11
secretary of the Finance and Administration Cabinet or his or her designee. 12
(3) Notwithstanding the provisions of subsection (1) of this section, each trustee shall 13
serve a term of four (4) years or until his or her successor is duly qualified except as 14
otherwise provided in this section. An elected or appointed trustee shall not serve 15
more than three (3) consecutive four (4) year terms. An elected or appointed trustee 16
who has served three (3) consecutive terms may be elected or appointed again after 17
an absence of four (4) years from the board. 18
(4) (a) The trustees selected by the membership of the system shall be elected by 19
ballot. For each trustee to be elected, the board may nominate, not less than 20
six (6) months before a term of office of a trustee is due to expire, three (3) 21
constitutionally eligible individuals. 22
(b) Individuals may be nominated by the system members by presenting to the 23
executive director, not less than four (4) months before a term of office of a 24
trustee is due to expire, a petition, bearing the name, last four (4) digits of the 25
Social Security number, and signature of no less than one-tenth (1/10) of the 26
number voting in the last election by the system members. 27 UNOFFICIAL COPY 23 RS BR 473
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(c) Within four (4) months of the nominations made in accordance with 1
paragraphs (a) and (b) of this subsection, the executive director shall cause to 2
be prepared an official ballot. The ballot shall carry the name, address, and 3
position title of each individual nominated by the board and by petition. 4
Provision shall also be made for write-in votes. 5
(d) Except as provided by paragraph (j) of this subsection, the ballots shall be 6
distributed to the eligible voters by mail to their last known residence address 7
on file with the Kentucky Public Pensions Authority. Ballots shall not be 8
distributed by mail to member addresses reported as invalid to the Kentucky 9
Public Pensions Authority. 10
(e) The ballots shall be addressed to the County Employees Retirement System in 11
care of a predetermined box number at a United States Post Office or 12
submitted electronically as provided by paragraph (j) of this subsection. 13
Access to this post office box shall be limited to the board's contracted firm. 14
The individual receiving a plurality of votes shall be declared elected. 15
(f) The eligible voter shall cast his or her ballot by selecting the candidate of his 16
or her choice. He or she shall sign and mail the ballot or submit the electronic 17
ballot at least thirty (30) days prior to the date the term to be filled is due to 18
expire. The latest mailing date, or date of submission in the case of electronic 19
ballots, shall be provided on the ballot. 20
(g) The board's contracted firm shall report in writing the outcome to the chair of 21
the board of trustees. Costs of an election shall be payable from the funds of 22
the system. 23
(h) For purposes of this subsection, an eligible voter shall be a person who was a 24
member of the system on December 31 of the year preceding the election 25
year. 26
(i) Each individual who submits a request to be nominated by the board under 27 UNOFFICIAL COPY 23 RS BR 473
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paragraph (a) of this subsection and each individual who is nominated by the 1
membership under paragraph (b) of this subsection shall: 2
1. Complete an application developed by the system which shall include 3
but not be limited to a disclosure of any prior felonies and any conflicts 4
of interest that would hinder the individual's ability to serve on the 5
board; 6
2. Submit a resume detailing the individual's education and employment 7
history and a cover letter detailing the member's qualifications for 8
serving as trustee to the board; and 9
3. Authorize the system to have a criminal background check performed. 10
The criminal background check shall be performed by the Department 11
of Kentucky State Police. 12
(j) In lieu of the ballots mailed to members and retired members as provided by 13
this subsection, the systems may by promulgation of administrative regulation 14
pursuant to KRS Chapter 13A conduct trustee elections using electronic 15
ballots, except that the systems shall mail a paper ballot upon request of any 16
eligible voter. 17
(5) (a) Any vacancy which may occur in an appointed position during a term of 18
office shall be filled in the same manner which provides for the selection of 19
the particular trustee, and any vacancy which may occur in an elected position 20
during a term of office shall be filled by appointment by a majority vote of the 21
remaining elected trustees; however, any vacancy shall be filled only for the 22
duration of the unexpired term. In the event of a vacancy of an elected trustee 23
during a term of office, the system shall notify members of the vacancy and 24
the opportunity to be considered for the vacant position. Any vacancy shall be 25
filled within ninety (90) days of the position becoming vacant. 26
(b) Any appointments or reappointments to an appointed position on the board 27 UNOFFICIAL COPY 23 RS BR 473
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shall be made at least thirty (30) days prior to an appointed member's term of 1
office ending. The Governor's Office shall, with each appointment or 2
reappointment, request lists to be submitted and base selections on those lists 3
solely under the procedures and requirements provided by subsection (1)(b) of 4
this section. 5
(6) (a) Membership on the board of trustees shall not be incompatible with any other 6
office unless a constitutional incompatibility exists. No trustee shall serve in 7
more than one (1) position as trustee on the board and, if a trustee holds more 8
than one (1) position as trustee on the board, he or she shall resign a position. 9
(b) A trustee shall be removed from office upon conviction of a felony or for a 10
finding of a violation of any provision of KRS 11A.020 or 11A.040 by a court 11
of competent jurisdiction. 12
(c) A current or former employee of the County Employees Retirement System, 13
Kentucky Retirement Systems, or the Kentucky Public Pensions Authority 14
shall not be eligible to serve as a member of the board. 15
(7) Trustees who do not otherwise receive a salary from the State Treasury shall 16
receive a per diem of eighty dollars ($80) for each day they are in session or on 17
official duty, and they shall be reimbursed for their actual and necessary expenses 18
in accordance with state administrative regulations and standards. 19
(8) (a) The board shall meet at least once in each quarter of the year and may meet in 20
special session upon the call of the chair or the chief executive officer. 21
(b) The board shall elect a chair and a vice chair. The chair shall not serve more 22
than four (4) consecutive years as chair or vice chair of the board. The vice 23
chair shall not serve more than four (4) consecutive years as chair or vice 24
chair of the board. A trustee who has served four (4) consecutive years as 25
chair or vice chair of the board may be elected chair or vice chair of the board 26
after an absence of two (2) years from the positions. 27 UNOFFICIAL COPY 23 RS BR 473
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(c) A majority of the trustees shall constitute a quorum, and all actions taken by 1
the board shall be by affirmative vote of a majority of the trustees present. 2
(9) (a) The board of trustees shall appoint or contract for the services of a chief 3
executive officer and general counsel and fix the compensation and other 4
terms of employment for these positions without limitation of the provisions 5
of KRS Chapters 18A and 45A and KRS 64.640. The chief executive officer 6
shall serve as the legislative and executive adviser to the board. The general 7
counsel shall serve as legal adviser to the board. The chief executive officer 8
and general counsel shall work with the executive director of the Kentucky 9
Public Pensions Authority to carry out the provisions of KRS 78.510 to 10
78.852. The executive director of the Kentucky Public Pensions Authority 11
shall be the chief administrative officer of the board. 12
(b) The board shall require the chief executive officer and may require the general 13
counsel to execute bonds for the faithful performance of his or her duties 14
notwithstanding the limitations of KRS Chapter 62. 15
(c) The board shall have a system of accounting established by the Kentucky 16
Public Pensions Authority. 17
(d) The board shall do all things, take all actions, and promulgate all 18
administrative regulations, not inconsistent with the provisions of KRS 78.510 19
to 78.852, necessary or proper in order to carry out the provisions of KRS 20
78.510 to 78.852. Notwithstanding any other evidence of legislative intent, it 21
is hereby declared to be the controlling legislative intent that the provisions of 22
KRS 78.510 to 78.852 conform with federal statute or regulation and meet the 23
qualification requirements under 26 U.S.C. sec. 401(a), applicable federal 24
regulations, and other published guidance. Provisions of KRS 78.510 to 25
78.852 which conflict with federal statute or regulation or qualification under 26
26 U.S.C. sec. 401(a), applicable federal regulations, and other published 27 UNOFFICIAL COPY 23 RS BR 473
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guidance shall not be available. The board shall have the authority to 1
promulgate administrative regulations to conform with federal statute and 2
regulation and to meet the qualification requirements under 26 U.S.C. sec. 3
401(a), including an administrative regulation to comply with 26 U.S.C. sec. 4
401(a)(9). 5
(e) Notwithstanding any other provision of statute to the contrary, including but 6
not limited to any provision of KRS Chapter 12, the Governor shall have no 7
authority to change any provision of KRS 78.510 to 78.852 by executive order 8
or action, including but not limited to reorganizing, replacing, amending, or 9
abolishing the membership of the County Employees Retirement System 10
board of trustees. 11
(10) The chief executive officer and general counsel of the board shall serve during its 12
will and pleasure. Notwithstanding any statute to the contrary, the chief executive 13
officer shall not be considered a legislative agent under KRS 6.611. 14
(11) The Attorney General, or an assistant designated by him or her, may attend each 15
meeting of the board and may receive the agenda, board minutes, and other 16
information distributed to trustees of the board upon request. The Attorney General 17
may act as legal adviser and attorney for the board, and the board may contract for 18
legal services, notwithstanding the limitations of KRS Chapter 12 or 13B. 19
(12) (a) The Kentucky Public Pensions Authority shall publish an annual financial 20
report showing all receipts, disbursements, assets, and liabilities for the 21
systems. The annual report shall include a copy of an audit conducted in 22
accordance with generally accepted auditing standards. Except as provided by 23
paragraph (b) of this subsection, the board may select the independent 24
certified public accountant hired by the Kentucky Public Pensions Authority 25
or the Auditor of Public Accounts to perform the audit. If the audit is 26
performed by an independent certified public accountant, the Auditor of 27 UNOFFICIAL COPY 23 RS BR 473
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Public Accounts shall not be required to perform an audit pursuant to KRS 1
43.050(2)(a), but may perform an audit at his or her discretion. All 2
proceedings and records of the board shall be open for inspection by the 3
public. The Kentucky Public Pensions Authority shall make copies of the 4
audit required by this subsection available for examination by any member, 5
retiree, or beneficiary in the offices of the County Employees Retirement 6
System and in other places as necessary to make the audit available to all 7
members, retirees, and beneficiaries. A copy of the annual audit shall be sent 8
electronically to the Legislative Research Commission no later than ten (10) 9
days after receipt by the board. 10
(b) At least once every five (5) years, the Auditor of Public Accounts shall 11
perform the audit described by this subsection, and the system shall reimburse 12
the Auditor of Public Accounts for all costs of the audit. The Auditor of 13
Public Accounts shall determine which fiscal year during the five (5) year 14
period the audit prescribed by this paragraph will be completed. 15
(13) All expenses incurred by or on behalf of the system and the board in the 16
administration of the system during a fiscal year shall be paid from the retirement 17
allowance account, including any administrative expenses for the Kentucky Public 18
Pensions Authority that are assigned to the County Employees Retirement System 19
by KRS 61.505. The board shall submit any administrative expenses that are 20
specific to the County Employees Retirement System that are not otherwise covered 21
by KRS 61.505(11)(a). 22
(14) Except as provided under subsection (16) of this section or KRS 61.665, any person 23
adversely affected by a decision of the board involving KRS 78.510 to 78.852 may 24
appeal the decision of the board to the Franklin Circuit Court within sixty (60) days 25
of the board action. 26
(15) (a) A trustee shall discharge his or her duties as a trustee, including his or her 27 UNOFFICIAL COPY 23 RS BR 473
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duties as a member of a committee: 1
1. In good faith; 2
2. On an informed basis; and 3
3. In a manner he or she honestly believes to be in the best interest of the 4
County Employees Retirement System. 5
(b) A trustee discharges his or her duties on an informed basis if, when he or she 6
makes an inquiry into the business and affairs of the system or into a 7
particular action to be taken or decision to be made, he or she exercises the 8
care an ordinary prudent person in a like position would exercise under 9
similar circumstances. 10
(c) In discharging his or her duties, a trustee may rely on information, opinions, 11
reports, or statements, including financial statements and other financial data, 12
if prepared or presented by: 13
1. One (1) or more officers or employees of the system or Authority whom 14
the trustee honestly believes to be reliable and competent in the matters 15
presented; 16
2. Legal counsel, public accountants, actuaries, or other persons as to 17
matters the trustee honestly believes are within the person's professional 18
or expert competence; or 19
3. A committee of the board of trustees of which he or she is not a member 20
if the trustee honestly believes the committee merits confidence. 21
(d) A trustee shall not be considered as acting in good faith if he or she has 22
knowledge concerning the matter in question that makes reliance otherwise 23
permitted by paragraph (c) of this subsection unwarranted. 24
(e) Any action taken as a trustee, or any failure to take any action as a trustee, 25
shall not be the basis for monetary damages or injunctive relief unless: 26
1. The trustee has breached or failed to perform the duties of the trustee's 27 UNOFFICIAL COPY 23 RS BR 473
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office in compliance with this section; and 1
2. In the case of an action for monetary damages, the breach or failure to 2
perform constitutes willful misconduct or wanton or reckless disregard 3
for human rights, safety, or property. 4
(f) A person bringing an action for monetary damages under this section shall 5
have the burden of proving by clear and convincing evidence the provisions of 6
paragraph (e)1. and 2. of this subsection, and the burden of proving that the 7
breach or failure to perform was the legal cause of damages suffered by the 8
system. 9
(g) In discharging his or her administrative duties under this section, a trustee 10
shall strive to administer the system in an efficient and cost-effective manner 11
for the taxpayers of the Commonwealth of Kentucky and shall take all actions 12
available under the law to contain costs for the trusts, including costs for 13
participating employers, members, and retirees. 14
(16) When an order by the system substantially impairs the benefits or rights of a 15
member, retired member, or recipient, except action which relates to entitlement to 16
disability benefits, or when an employer disagrees with an order of the system as 17
provided by KRS 61.598, the affected member, retired member, recipient, or 18
employer may request a hearing to be held in accordance with KRS Chapter 13B. 19
The board may establish an appeals committee whose members shall be appointed 20
by the chair and who shall have authority to act upon the recommendations and 21
reports of the hearing officer on behalf of the board. The member, retired member, 22
recipient, or employer aggrieved by a final order of the board following the hearing 23
may appeal the decision to the Franklin Circuit Court, in accordance with KRS 24
Chapter 13B. The board may establish a joint administrative appeals committee 25
with the Kentucky Retirement Systems and may also establish a joint disability 26
appeals committee with the Kentucky Retirement Systems. 27 UNOFFICIAL COPY 23 RS BR 473
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(17) The board shall establish a formal trustee education program for all trustees of the 1
board. The program shall include but not be limited to the following: 2
(a) A required orientation program for all new trustees elected or appointed to the 3
board. The orientation program shall include training on: 4
1. Benefits and benefits administration; 5
2. Investment concepts, policies, and current composition and 6
administration of system investments; 7
3. Laws, bylaws, and administrative regulations pertaining to the system 8
and to fiduciaries; and 9
4. Actuarial and financial concepts pertaining to the system. 10
If a trustee fails to complete the orientation program within one (1) year from 11
the beginning of his or her first term on the board, the system shall withhold 12
payment of the per diem and travel expenses due to the board member under 13
this section until the trustee has completed the orientation program; 14
(b) Annual required training for board members on the administration, benefits, 15
financing, and investing of the system. If a trustee fails to complete the annual 16
required training during the calendar or fiscal year, the retirement system shall 17
withhold payment of the per diem and travel expenses due to the board 18
member under this section until the board member has met the annual training 19
requirements; and 20
(c) The system shall incorporate by reference in an administrative regulation, 21
pursuant to KRS 13A.2251, the trustee education program. 22
(18) In order to improve public transparency regarding the administration of the system, 23
the board of trustees shall adopt a best practices model by posting the following 24
information to the Kentucky Public Pensions Authority's website[Web site] and 25
shall make available to the public: 26
(a) Meeting notices and agendas for all meetings of the board. Notices and 27 UNOFFICIAL COPY 23 RS BR 473
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agendas shall be posted to the Kentucky Public Pensions Authority's 1
website[Web site] at least seventy-two (72) hours in advance of the board or 2
committee meetings, except in the case of special or emergency meetings as 3
provided by KRS 61.823; 4
(b) The [Comprehensive ]Annual Comprehensive Financial Report with the 5
information as follows: 6
1. A general overview and update on the system by the executive director; 7
2. A listing of the board of trustees; 8
3. A listing of key staff; 9
4. An organizational chart; 10
5. Financial information, including a statement of plan net assets, a 11
statement of changes in plan net assets, an actuarial value of assets, a 12
schedule of investments, a statement of funded status and funding 13
progress, and other supporting data; 14
6. Investment information, including a general overview, a list of the 15
system's professional consultants, a total net of fees return on system 16
investments over a historical period, an investment summary, contracted 17
investment management expenses, transaction commissions, and a 18
schedule of investments; 19
7. The annual actuarial valuation report on the pension benefit and the 20
medical insurance benefit; and 21
8. A general statistical section, including information on contributions, 22
benefit payouts, and retirement system demographic data; 23
(c) All external audits; 24
(d) All board minutes or other materials that require adoption or ratification by 25
the board of trustees. The items listed in this paragraph shall be posted within 26
seventy-two (72) hours of adoption or ratification of the board; 27 UNOFFICIAL COPY 23 RS BR 473
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(e) All bylaws, policies, or procedures adopted or ratified by the board of 1
trustees; 2
(f) The system's summary plan description; 3
(g) A document containing an unofficial copy of the statutes governing the 4
system; 5
(h) A listing of the members of the board of trustees and membership on each 6
committee established by the board, including any investment committees; 7
(i) All investment holdings in aggregate, fees, and commissions for each fund 8
administered by the board, which shall be updated on a quarterly basis for 9
fiscal years beginning on or after July 1, 2021. The system shall request from 10
all managers, partnerships, and any other available sources all information 11
regarding fees and commissions and shall, based on the requested information 12
received: 13
1. Disclose the dollar value of fees and commissions paid to each 14
individual manager or partnership; 15
2. Disclose the dollar value of any profit sharing, carried interest, or any 16
other partnership incentive arrangements, partnership agreements, or 17
any other partnership expenses received by or paid to each manager or 18
partnership; and 19
3. As applicable, report each fee or commission by manager or partnership 20
consistent with standards established by the Institutional Limited 21
Partners Association (ILPA). 22
In addition to the requirements of this paragraph, the system shall also 23
disclose the name and address of all individual underlying managers or 24
partners in any fund of funds in which system assets are invested; 25
(j) An update of net of fees investment returns, asset allocations, and the 26
performance of the funds against benchmarks adopted by the board for each 27 UNOFFICIAL COPY 23 RS BR 473
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fund, for each asset class administered by the board, and for each manager. 1
The update shall be posted on a quarterly basis for fiscal years beginning on 2
or after July 1, 2021; 3
(k) A searchable database of the system's expenditures and a listing of each 4
individual employed by the system along with the employee's salary or wages. 5
In lieu of posting the information required by this paragraph to the Kentucky 6
Public Pensions Authority's website[Web site], the system may provide the 7
information through a website[Web site] established by the executive branch 8
to inform the public about public employee salaries and wages; 9
(l) All contracts or offering documents for services, goods, or property purchased 10
or utilized by the system for contracts or offering documents entered into on 11
or after July 1, 2021;[ and] 12
(m) Information regarding the system's financial and actuarial condition that is 13
easily understood by the members, retired members, and the public; and 14
(n) All proxy vote reports as provided by subsection (7) of Section 6 of this Act. 15
(19) Notwithstanding the requirements of subsection (18) of this section, the system 16
shall not be required to furnish information that is protected under KRS 61.661, 17
exempt under KRS 61.878, or that, if disclosed, would compromise the system's 18
ability to competitively invest in real estate or other asset classes, except that no 19
provision of this section or KRS 61.878 shall exclude disclosure and review of all 20
contracts, including investment contracts, by the board, the Auditor of Public 21
Accounts, and the Government Contract Review Committee established pursuant to 22
KRS 45A.705 or the disclosure of investment fees and commissions as provided by 23
this section. If any public record contains material which is not excepted under this 24
section, the system shall separate the excepted material by removal, segregation, or 25
redaction, and make the nonexcepted material available for examination. 26
(20) Notwithstanding any other provision of KRS 78.510 to 78.852 to the contrary, no 27 UNOFFICIAL COPY 23 RS BR 473
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funds of the County Employees Retirement System, including fees and 1
commissions paid to an investment manager, private fund, or company issuing 2
securities, who manages systems assets, shall be used to pay fees and commissions 3
to placement agents. For purposes of this subsection, "placement agent" means a 4
third-party individual, who is not an employee, or firm, wholly or partially owned 5
by the entity being hired, who solicits investments on behalf of an investment 6
manager, private fund, or company issuing securities. 7
Section 6. KRS 78.790 is amended to read as follows: 8
(1) (a) The board shall be the trustee of funds pertaining to the County Employees 9
Retirement System created by KRS 78.510 to 78.852, and KRS 61.701, and 10
shall have full and exclusive power to invest and reinvest such assets in 11
accordance with federal law. 12
(b) 1. The board shall establish an investment committee that shall include 13
members of the board with investment experience, elected members, or 14
other members as determined by the board chair, and may also include 15
nonvoting members who have investment expertise. 16
2. The investment committee shall have authority to implement the 17
investment policies adopted by the board and act on behalf of the board 18
on all investment-related matters. 19
(c) 1. For the purposes of this paragraph: 20
a. "Solely in the interest of the members and beneficiaries" shall 21
be determined using only pecuniary factors and shall not include 22
any purpose to further a nonpecuniary interest; 23
b. "Pecuniary factor" means a consideration having a direct and 24
material connection to the financial risk or financial return of 25
an investment; 26
c. A "material connection" is established if there is a substantial 27 UNOFFICIAL COPY 23 RS BR 473
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likelihood that a reasonable investor would consider it important 1
in determining the financial risk or the financial return of an 2
investment; and 3
d. "Nonpecuniary interest" includes an environmental, social, 4
political, or ideological interest. 5
2. A trustee, officer, employee, employee of the Kentucky Public Pensions 6
Authority, investment manager, proxy adviser, consultant, or other 7
fiduciary shall discharge duties with respect to the system: 8
a[1]. Solely in the interest of the members and beneficiaries; 9
b[2]. For the exclusive purpose of providing benefits to members and 10
beneficiaries and paying reasonable expenses of administering the 11
system; 12
c[3]. With the care, skill, and caution under the circumstances then 13
prevailing that a prudent person acting in a like capacity and 14
familiar with those matters would use in the conduct of an activity 15
of like character and purpose; 16
d[4]. Impartially, taking into account any differing interests of members 17
and beneficiaries; 18
e[5]. Incurring any costs that are appropriate and reasonable; and 19
f[6]. In accordance with a good-faith interpretation of the federal, state, 20
and common law governing the system and fiduciaries 21
3. Evidence that a fiduciary has considered or acted on a nonpecuniary 22
interest shall include but is not limited to: 23
a. Statements, explanations, reports, or correspondence; 24
b. Communications with portfolio companies; 25
c. Statements of principles or policies, whether made individually 26
or jointly; 27 UNOFFICIAL COPY 23 RS BR 473
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d. Votes of shares or proxies; or 1
e. Coalitions, initiatives, agreements, or commitments to which the 2
fiduciary is a participant, affiliate, or signatory. 3
(d) In addition to the standards of conduct prescribed by paragraph (c) of this 4
subsection: 5
1. All internal investment staff of the Kentucky Public Pensions Authority, 6
and investment consultants shall adhere to the Code of Ethics and 7
Standards of Professional Conduct, and all board trustees shall adhere to 8
the Code of Conduct for Members of a Pension Scheme Governing 9
Body. All codes cited in this subparagraph are promulgated by the CFA 10
Institute; and 11
2. Investment managers shall comply with all applicable provisions of the 12
federal Investment Advisers Act of 1940, as amended, and the rules and 13
regulations promulgated thereunder, and shall comply with all other 14
applicable federal securities statutes and related rules and regulations 15
that apply to investment managers. 16
(e) An investment manager, proxy adviser, or consultant appointed by the 17
board or any other fiduciary provided by this subsection shall acknowledge 18
in writing the fiduciary duties owed to the system and its fund assets. 19
(f) No contract or agreement, whether made in writing or not, shall in any 20
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 21
imposed by this section. Any agreement shall specify that it is made in the 22
Commonwealth and governed by the laws of the Commonwealth. 23
(2) The board, through adopted written policies, shall maintain ownership and control 24
over its assets held in its unitized managed custodial account. 25
(3) The board, in keeping with its responsibility as the trustee and wherever feasible, 26
shall give priority to the investment of funds in obligations calculated to improve 27 UNOFFICIAL COPY 23 RS BR 473
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the industrial development and enhance the economic welfare of the 1
Commonwealth. 2
(4) The contents of real estate appraisals, engineering or feasibility estimates, and 3
evaluations made by or for the system relative to the acquisition or disposition of 4
property, until such time as all of the property has been acquired or sold, shall be 5
excluded from the application of KRS 61.870 to 61.884 and shall be subject to 6
inspection only upon order of a court of competent jurisdiction. 7
(5) Based upon market value at the time of purchase, the board shall limit the amount 8
of assets managed by any one (1) active or passive investment manager to fifteen 9
percent (15%) of the assets in the pension and insurance funds. 10
(6) All contracts for the investment or management of assets of the system shall not be 11
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 12
following process to develop and adopt an investment procurement policy with 13
which all prospective contracts for the investment or management of assets of the 14
system shall comply: 15
(a) The board shall consult with the secretary of the Finance and Administration 16
Cabinet or his or her designee to develop an investment procurement policy, 17
which shall be written to meet best practices in investment management 18
procurement; 19
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 20
investment procurement policy to the secretary of the Finance and 21
Administration Cabinet or his or her designee for review and comment; 22
(c) Upon receipt of comments from the secretary of the Finance and 23
Administration Cabinet or his or her designee, the board shall choose to adopt 24
or not adopt any recommended changes; 25
(d) Upon adoption, the board shall tender the final investment procurement policy 26
to the secretary of the Finance and Administration Cabinet or his or her 27 UNOFFICIAL COPY 23 RS BR 473
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designee; 1
(e) No later than thirty (30) days after receipt of the investment procurement 2
policy, the secretary or his or her designee shall certify whether the board's 3
investment procurement policy meets or does not meet best practices for 4
investment management procurement; and 5
(f) Any amendments to the investment procurement policy shall adhere to the 6
requirements set forth by paragraphs (b) to (e) of this subsection. 7
(7) (a) The board shall adopt written proxy voting guidelines, which are consistent 8
with the fiduciary duties and other requirements of this section. 9
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 10
voting service, unless the proxy adviser or proxy voting service in writing 11
acknowledges its fiduciary duties under subsection (1)(e) of this section and 12
commits to follow the board-adopted proxy voting guidelines when voting 13
the system's shares in order to comply with the board's fiduciary duties and 14
other responsibilities under this section. 15
(c) All shares held directly or indirectly by or on behalf of the system shall be 16
voted according to the proxy voting guidelines adopted by the board and 17
subject to the fiduciary duties and other requirements of this section by: 18
1. An employee or employees of the Authority who are fiduciaries under 19
subsection (1) of this section and are appointed or otherwise 20
authorized by the board; or 21
2. A proxy adviser or proxy voting service that in writing acknowledges 22
its fiduciary duties under subsection (1)(e) of this section and commits 23
to follow the proxy voting guidelines adopted by the board when voting 24
the system's shares in order to comply with the board's fiduciary duties 25
and other responsibilities under this section. 26
(d) All proxy votes shall be reported at least quarterly to the board. For each 27 UNOFFICIAL COPY 23 RS BR 473
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vote, the report shall provide: 1
1. The vote caption; 2
2. The date of the vote; 3
3. The company's name; 4
4. The vote cast for the system; 5
5. The recommendation of the company's management; and 6
6. If applicable, the recommendation of the proxy adviser or proxy voting 7
service. 8
Section 7. KRS 161.250 is amended to read as follows: 9
(1) (a) The general administration and management of the retirement system, and the 10
responsibility for its proper operation and for making effective provisions of 11
KRS 161.155 and 161.220 to 161.714 are vested in a board of trustees to be 12
known as the "Board of Trustees of the Teachers' Retirement System of the 13
State of Kentucky." 14
(b) The board of trustees shall consist of the following: 15
1. The chief state school officer; 16
2. The State Treasurer; 17
3. Two (2) trustees, appointed by the Governor of the Commonwealth, 18
subject to Senate confirmation in accordance with KRS 11.160 for each 19
appointment or reappointment. These two (2) trustees shall have 20
investment experience. For purposes of this subparagraph, a trustee with 21
"investment experience" means an individual who does not have a 22
conflict of interest, as provided by KRS 161.460, and who has at least 23
ten (10) years of experience in one (1) of the following areas of 24
expertise: 25
a. A portfolio manager acting in a fiduciary capacity; 26
b. A professional securities analyst or investment consultant; 27 UNOFFICIAL COPY 23 RS BR 473
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c. A current or retired employee or principal of a trust institution, 1
investment or finance organization, or endowment fund acting in 2
an investment-related capacity; 3
d. A chartered financial analyst in good standing as determined by 4
the CFA Institute; or 5
e. A university professor, teaching investment-related studies; and 6
4. Seven (7) other trustees elected as provided in KRS 161.260. Four (4) of 7
the elective trustees shall be members of the retirement system, to be 8
known as teacher trustees, two (2) shall be persons who are not 9
members of the teaching profession, to be known as the lay trustees, and 10
one (1) shall be an annuitant of the retirement system to be known as the 11
retired teacher trustee. One (1) teacher trustee shall be elected annually 12
for a four-year term. The retired teacher trustee shall be elected every 13
four (4) years. The chief state school officer and the State Treasurer are 14
considered ex officio members of the board of trustees and may 15
designate in writing a person to represent them at board meetings. 16
(c) 1. Elective trustees shall not serve more than three (3) consecutive four (4) 17
year terms. An elective trustee who has served three (3) consecutive 18
terms may be elected again after an absence of four (4) years from the 19
board of trustees. 20
2. The term limits established by subparagraph 1. of this paragraph shall 21
apply to elective trustees serving on or after July 1, 2012, and all terms 22
of office served prior to July 1, 2012, shall be used to determine if the 23
elective trustee has exceeded the term limits provided by subparagraph 24
1. of this paragraph. 25
(d) 1. Each appointed trustee shall serve a term of four (4) years. An appointed 26
trustee shall not serve more than three (3) consecutive four (4) year 27 UNOFFICIAL COPY 23 RS BR 473
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terms. An appointed trustee who has served three (3) consecutive terms 1
may be appointed again after an absence of four (4) years from the 2
board of trustees. 3
2. Any vacancy that occurs in an appointed position shall be filled in the 4
same manner that provides for the selection of the trustee; however, any 5
vacancy shall be filled only for the duration of the unexpired term. 6
(2) A member, retired member, or designated beneficiary may appeal the retirement 7
system's decisions that materially affect the amount of service retirement allowance, 8
amount of service credit, eligibility for service retirement, or eligibility for 9
survivorship benefits to which that member, retired member, or designated 10
beneficiary claims to be entitled. All appeals must be in writing and filed with the 11
retirement system within thirty (30) days of the claimant's first notice of the 12
retirement system's decision. For purposes of this section, notice shall be complete 13
and effective upon the date of mailing of the retirement system's decision to the 14
claimant at the claimant's last known address. Failure by the claimant to file a 15
written appeal with the retirement system within the thirty (30) day period shall 16
result in the decision of the retirement system becoming permanent with the effect 17
of a final and unappealable order. Appeals may include a request for an 18
administrative hearing which shall be conducted in accordance with the provisions 19
of KRS Chapter 13B. The board of trustees may establish an appeals committee 20
whose members shall be appointed by the chairperson and who shall have the 21
authority to act upon the report and recommendation of the hearing officer by 22
issuing a final order on behalf of the full board of trustees. A member, retired 23
member, or designated beneficiary who has filed a timely, written appeal of a 24
decision of the retirement system may, following the administrative hearing and 25
issuance of the final order by the board of trustees, appeal the final order of the 26
board of trustees to the Franklin Circuit Court in accordance with the provisions of 27 UNOFFICIAL COPY 23 RS BR 473
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KRS Chapter 13B. 1
(3) The board of trustees shall establish a formal trustee education program for all 2
trustees of the board. The program shall include but not be limited to the following: 3
(a) A required orientation program for all new trustees to the board. The 4
orientation program shall include training on: 5
1. Benefits and benefits administration; 6
2. Investment concepts, policies, and current composition and 7
administration of retirement system investments; 8
3. Laws, bylaws, and administrative regulations pertaining to the 9
retirement system and to fiduciaries; and 10
4. Actuarial and financial concepts pertaining to the retirement system. 11
If a trustee fails to complete the orientation program within one (1) year from 12
the beginning of his or her first term on the board, the retirement system shall 13
withhold payment of the per diem and travel expenses due to the board 14
member under KRS 161.290 until the trustee has completed the orientation 15
program; 16
(b) Annual required training for trustees on the administration, benefits, 17
financing, and investing of the retirement system. If a trustee fails to complete 18
the annual required training during the calendar or fiscal year, the retirement 19
system shall withhold payment of the per diem and travel expenses due to the 20
board member under KRS 161.290 until the board member has met the annual 21
training requirements; and 22
(c) The retirement system shall incorporate by reference in an administrative 23
regulation, pursuant to KRS 13A.2251, the trustee education program. 24
(4) In order to improve public transparency regarding the administration of the system, 25
the board of trustees shall adopt a best practices model by posting the following 26
information to the retirement system's website[Web site] and shall make available 27 UNOFFICIAL COPY 23 RS BR 473
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to the public: 1
(a) Meeting notices and agendas for all meetings of the board. Notices and 2
agendas shall be posted to the retirement system's website[Web site] at least 3
seventy-two (72) hours in advance of the board or committee meetings, except 4
in the case of special or emergency meetings as provided by KRS 61.823; 5
(b) The [Comprehensive ]Annual Comprehensive Financial Report with the 6
information as follows: 7
1. A general overview and update on the retirement system by the 8
executive secretary; 9
2. A listing of the board of trustees; 10
3. A listing of key staff; 11
4. An organizational chart; 12
5. Financial information, including a statement of plan net assets, a 13
statement of changes in plan net assets, an actuarial value of assets, a 14
schedule of investments, a statement of funded status and funding 15
progress, and other supporting data; 16
6. Investment information, including a general overview, a list of the 17
retirement system's professional consultants, a total net return on 18
retirement system investments over a historical period, an investment 19
summary, contracted investment management expenses, transaction 20
commissions, and a schedule of investments; 21
7. The annual actuarial valuation report on the pension benefit and the 22
medical insurance benefit; and 23
8. A general statistical section, including information on contributions, 24
benefit payouts, and retirement system demographic data; 25
(c) All external audits; 26
(d) All board minutes or other materials that require adoption or ratification by 27 UNOFFICIAL COPY 23 RS BR 473
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the board of trustees. The items listed in this paragraph shall be posted within 1
seventy-two (72) hours of adoption or ratification of the board; 2
(e) All bylaws, policies, or procedures adopted or ratified by the board of 3
trustees; 4
(f) The retirement system's summary plan description; 5
(g) The retirement system's law book; 6
(h) A listing of the members of the board of trustees and membership on each 7
committee established by the board, including any investment committees; 8
(i) All investment holdings in aggregate, fees, and commissions for each fund 9
administered by the board, which shall be updated on a quarterly basis for 10
fiscal years beginning on or after July 1, 2017. The system shall request from 11
all managers, partnerships, and any other available sources all information 12
regarding fees and commissions and shall, based on the requested information 13
received: 14
1. Disclose the dollar value of fees or commissions paid to each individual 15
manager or partnership; 16
2. Disclose the dollar value of any profit sharing, carried interest, or any 17
other partnership incentive arrangements, partnership agreements, or 18
any other partnership expenses received by or paid to each manager or 19
partnership; and 20
3. As applicable, report each fee or commission by manager or partnership 21
consistent with standards established by the Institutional Limited 22
Partners Association (ILPA). 23
In addition to the requirements of this paragraph, the system shall also 24
disclose the name and address of all individual underlying managers or 25
partners in any fund of funds in which system assets are invested; 26
(j) An update of net of fees investment returns, asset allocations, and the 27 UNOFFICIAL COPY 23 RS BR 473
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performance of the funds against benchmarks adopted by the board for each 1
fund, for each asset class administered by the board, and for each manager. 2
The update shall be posted on a quarterly basis for fiscal years beginning on 3
or after July 1, 2017; 4
(k) All contracts or offering documents for services, goods, or property purchased 5
or utilized by the system;[ and] 6
(l) A searchable database of the system's expenditures and a listing of each 7
individual employed by the system along with the employee's salary or wages. 8
In lieu of posting the information required by this paragraph to the system's 9
website[Web site], the system may provide the information through a 10
website[Web site] established by the executive branch to inform the public 11
about executive branch agency expenditures and public employee salaries and 12
wages; and 13
(m) All proxy vote reports as provided by subsection (8) of Section 8 of this Act. 14
(5) Notwithstanding the requirements of subsection (4) of this section, the retirement 15
system shall not be required to furnish information that is protected under KRS 16
161.585, exempt under KRS 61.878, or that, if disclosed, would compromise the 17
retirement system's ability to competitively invest in real estate or other asset 18
classes, except that no provision of this section or KRS 61.878 shall exclude 19
disclosure and review of all contracts, including investment contracts, by the board, 20
the Auditor of Public Accounts, and the Government Contract Review Committee 21
established pursuant to KRS 45A.705 or the disclosure of investment fees and 22
commissions as provided by this section. If any public record contains material 23
which is not excepted under this section, the system shall separate the excepted 24
material by removal, segregation, or redaction, and make the nonexcepted material 25
available for examination. 26
(6) For any benefit improvements the General Assembly has authorized the board of 27 UNOFFICIAL COPY 23 RS BR 473
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trustees to establish under KRS 161.220 to 161.716 and that require formal 1
adoption by the board, the board shall establish the benefits by promulgation of 2
administrative regulations in accordance with KRS Chapter 13A. 3
Section 8. KRS 161.430 is amended to read as follows: 4
(1) (a) The board of trustees shall be the trustee of the funds of the retirement system 5
and shall have full power and responsibility for the purchase, sale, exchange, 6
transfer, or other disposition of the investments and moneys of the retirement 7
system. The board shall, by administrative regulation, establish investment 8
policies and procedures to carry out their responsibilities. 9
(b) 1. The board shall contract with experienced competent investment 10
managers to invest and manage assets of the system. The board may also 11
employ qualified investment staff to advise it on investment matters and 12
to invest and manage assets of the system not to exceed fifty percent 13
(50%) of the system's assets. The board may contract with one (1) or 14
more general investment consultants, as well as specialized investment 15
consultants, to advise it on investment matters. 16
2. All internal investment staff and investment consultants shall adhere to 17
the Code of Ethics and Standards of Professional Conduct, and all board 18
trustees shall adhere to the Code of Conduct for Members of a Pension 19
Scheme Governing Body, promulgated by the CFA Institute. Investment 20
managers shall comply with the federal Investment Advisers Act of 21
1940, as amended, and the rules and regulations promulgated thereunder 22
and shall comply with all other applicable federal securities statutes and 23
related rules and regulations that apply to investment managers. 24
3. No investment manager shall manage more than forty percent (40%) of 25
the funds of the retirement system. 26
(c) The board may appoint an investment committee to act for the board in all 27 UNOFFICIAL COPY 23 RS BR 473
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matters of investment, subject to the approval of the board of trustees. The 1
board of trustees, in keeping with their responsibilities as trustees and 2
wherever consistent with their fiduciary responsibilities, shall give priority to 3
the investment of funds in obligations calculated to improve the industrial 4
development and enhance the economic welfare of the Commonwealth. 5
Toward this end, the board shall develop procedures for informing the 6
business community of the potential for in-state investments by the retirement 7
fund, accepting and evaluating applications for the in-state investment of 8
funds, and working with members of the business community in executing in-9
state investments which are consistent with the board's fiduciary 10
responsibilities. The board shall include in the criteria it uses to evaluate in-11
state investments their potential for creating new employment opportunities 12
and adding to the total job pool in Kentucky. The board may cooperate with 13
the board of trustees of Kentucky Retirement Systems in developing its 14
program and procedures, and shall report to the Legislative Research 15
Commission annually on its progress in placing in-state investments. The first 16
report shall be submitted by October 1, 1991, and subsequent reports shall be 17
submitted by October 1 of each year thereafter. The report shall include the 18
number of applications for in-state investment received, the nature of the 19
investments proposed, the amount requested, the amount invested, and the 20
percentage of applications which resulted in investments. 21
(2) (a) For the purposes of this subsection: 22
1. "Solely in the interest of the members and beneficiaries" shall be 23
determined using only pecuniary factors and shall not include any 24
purpose to further a nonpecuniary interest; 25
2. "Pecuniary factor" means a consideration having a direct and 26
material connection to the financial risk or financial return of an 27 UNOFFICIAL COPY 23 RS BR 473
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investment; 1
3. A "material connection" is established if there is a substantial 2
likelihood that a reasonable investor would consider it important in 3
determining the financial risk or the financial return of an 4
investment; and 5
4. "Nonpecuniary interest" includes an environmental, social, political, 6
or ideological interest. 7
(b) The board members,[ and] investment managers, proxy advisers, consultants, 8
or other fiduciaries shall discharge their duties with respect to the assets of 9
the system solely in the interests of the active contributing members and 10
annuitants and: 11
1.[(a)] For the exclusive purpose of providing benefits to members and 12
annuitants and defraying reasonable expenses of administering the 13
system; 14
2.[(b)] With the care, skill, prudence, and diligence under the 15
circumstances then prevailing that a prudent person acting in a like 16
capacity and familiar with these matters would use in the conduct of an 17
enterprise of a like character and with like aims; 18
3.[(c)] By diversifying the investments of the plan so as to minimize the 19
risk of large losses, unless under the circumstances it is clearly prudent 20
not to do so; and 21
4.[(d)] In accordance with the federal, state, and common laws, 22
administrative regulations, and other instruments governing the system 23
and fiduciaries 24
(c) Evidence that a fiduciary has considered or acted on a nonpecuniary 25
interest shall include but is not limited to: 26
1. Statements, explanations, reports, or correspondence; 27 UNOFFICIAL COPY 23 RS BR 473
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2. Communications with portfolio companies; 1
3. Statements of principles or policies, whether made individually or 2
jointly; 3
4. Votes of shares or proxies; or 4
5. Coalitions, initiatives, agreements, or commitments to which the 5
fiduciary is a participant, affiliate, or signatory. 6
(3) (a) In choosing and contracting for professional investment management and 7
consulting services, the board shall do so prudently and in the interest of the 8
members and annuitants. Any contract that the board makes with an 9
investment manager shall set forth policies and guidelines of the board with 10
reference to standard rating services and specific criteria for determining the 11
quality of investments. Expenses directly related to investment management 12
and consulting services shall be financed from the guarantee fund in amounts 13
approved by the board. 14
(b) An investment manager or consultant appointed under this section shall 15
acknowledge in writing his or her fiduciary responsibilities to the fund. To be 16
eligible for appointment, an investment manager, consultant, or an affiliate, 17
shall be: 18
1. Registered under the Federal Investment Advisers Act of 1940; or 19
2. A bank as defined by that Act; or 20
3. An insurance company qualified to perform investment services under 21
the laws of more than one (1) state. 22
(c) No contract or agreement, whether made in writing or not, shall in any 23
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 24
imposed by this section. Any agreement shall specify that it is made in the 25
Commonwealth and governed by the laws of the Commonwealth. 26
(4) No investment or disbursement of funds shall be made unless authorized by the 27 UNOFFICIAL COPY 23 RS BR 473
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board of trustees, except that the board, in order to ensure timely market 1
transactions, shall establish investment guidelines and may permit its staff and 2
investment managers who are employed or under contract with the board pursuant 3
to this section to execute purchases and sales of investment instruments within 4
those guidelines without prior board approval. 5
(5) In discharging his or her administrative duties under this section, a trustee shall 6
strive to administer the retirement system in an efficient and cost-effective manner 7
for the taxpayers of the Commonwealth of Kentucky. 8
(6) Notwithstanding any other provision of KRS 161.220 to 161.716, no funds of the 9
Teachers' Retirement System, including fees and commissions paid to an 10
investment manager, private fund, or company issuing securities, who manages 11
systems assets, shall be used to pay fees and commissions to placement agents. For 12
purposes of this subsection, "placement agent" means a third-party individual, who 13
is not an employee, or firm, wholly or partially owned by the entity being hired, 14
who solicits investments on behalf of an investment manager, private fund, or 15
company issuing securities. 16
(7) All contracts for the investment or management of assets of the system shall not be 17
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 18
following process to develop and adopt an investment procurement policy with 19
which all prospective contracts for the investment or management of assets of the 20
system shall comply: 21
(a) On or before July 1, 2017, the board shall consult with the secretary of the 22
Finance and Administration Cabinet or his or her designee to develop an 23
investment procurement policy, which shall be written to meet best practices 24
in investment management procurement; 25
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 26
investment procurement policy to the secretary of the Finance and 27 UNOFFICIAL COPY 23 RS BR 473
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Administration Cabinet or his or her designee for review and comment; 1
(c) Upon receipt of comments from the secretary of the Finance and 2
Administration Cabinet or his or her designee, the board shall choose to adopt 3
or not adopt any recommended changes; 4
(d) Upon adoption, the board shall tender the final investment procurement policy 5
to the secretary of the Finance and Administration Cabinet or his or her 6
designee; 7
(e) No later than thirty (30) days after receipt of the investment procurement 8
policy, the secretary or his or her designee shall certify whether the board's 9
investment procurement policy meets or does not meet best practices for 10
investment management procurement; and 11
(f) Any amendments to the investment procurement policy shall adhere to the 12
requirements set forth by paragraphs (b) to (e) of this subsection. 13
(8) (a) The board shall adopt written proxy voting guidelines which are consistent 14
with the fiduciary duties and other requirements of this section. 15
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 16
voting service, unless the proxy adviser or proxy voting service 17
acknowledges in writing its fiduciary duties under subsection (3)(b) of this 18
section and commits to follow the board-adopted proxy voting guidelines 19
when voting the system's shares in order to comply with the board's 20
fiduciary duties and other responsibilities under this section. 21
(c) All shares held directly or indirectly by or on behalf of the system shall be 22
voted according to the proxy voting guidelines adopted by the board and 23
subject to the fiduciary duties and other requirements of this section by: 24
1. The board, the investment committee of the board, or an employee or 25
employees of the system who are fiduciaries under this section and are 26
appointed or otherwise authorized by the board; or 27 UNOFFICIAL COPY 23 RS BR 473
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2. A proxy adviser or proxy voting service that in writing acknowledges 1
its fiduciary duties under subsection (3)(b) of this section and commits 2
to follow the proxy voting guidelines adopted by the board when voting 3
the system's shares in order to comply with the board's fiduciary duties 4
and other responsibilities under this section. 5
(d) All proxy votes shall be reported at least quarterly to the board. For each 6
vote, the report shall provide: 7
1. The vote caption; 8
2. The date of the vote; 9
3. The company's name; 10
4. The vote cast for the system; 11
5. The recommendation of the company's management; and 12
6. If applicable, the recommendation of the proxy adviser or proxy voting 13
service. 14