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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
ď˘Section 1. KRS 61.650 is amended to read as follows: 4
(1) (a) The board shall be the trustee of funds created by KRS 16.510, 61.515, and 5
61.701 pertaining to the accounts for the Kentucky Employees Retirement 6
System or State Police Retirement System, notwithstanding the provisions of 7
any other statute to the contrary, and shall have exclusive power to invest and 8
reinvest such assets in accordance with federal law. 9
(b) 1. The board shall establish an investment committee whose membership 10
shall be composed of the following: 11
a. The three (3) trustees of the Kentucky Retirement Systems board 12
appointed by the Governor pursuant to KRS 61.645 who have 13
investment experience; and 14
b. Additional trustees appointed by the board chair. 15
2. The investment committee shall have authority to implement the 16
investment policies adopted by the board and act on behalf of the board 17
on all investment-related matters and to acquire, sell, safeguard, 18
monitor, and manage the assets and securities of the several funds. 19
(c) 1. For the purposes of this paragraph: 20
a. "Solely in the interest of the members and beneficiaries" shall be 21
determined using only pecuniary factors and shall not include any 22
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 an 25
investment; 26
c. A "material connection" is established if there is a substantial 27 UNOFFICIAL COPY 24 RS BR 2324
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likelihood that a reasonable investor would consider it important in 1
determining the financial risk or the financial return of an 2
investment; 3
d. "Nonpecuniary interest" includes but is not limited to an 4
environmental, social, political, or ideological interest which does 5
not have a direct and material connection to the financial risk or 6
financial return of an investment; and 7
e. "Investment manager" shall have the same definition attributed to 8
"investment adviser" under the federal Investment Advisers Act of 9
1940, 15 U.S.C. sec. 80b-2. 10
2. A trustee, officer, employee, employee of the Kentucky Public Pensions 11
Authority, investment manager, or other fiduciary, or proxy adviser shall 12
discharge duties with respect to the retirement system: 13
a. Solely in the interest of the members and beneficiaries; 14
b. For the exclusive purpose of providing benefits to members and 15
beneficiaries and paying reasonable expenses of administering the 16
system; 17
c. With the care, skill, and caution under the circumstances then 18
prevailing that a prudent person acting in a like capacity and 19
familiar with those matters would use in the conduct of an activity 20
of like character and purpose; 21
d. Impartially, taking into account any differing interests of members 22
and beneficiaries; 23
e. Incurring any costs that are appropriate and reasonable; and 24
f. In accordance with a good-faith interpretation of the federal, state, 25
and common law governing the system and fiduciaries. 26
3. Evidence that a fiduciary has considered or acted on a nonpecuniary 27 UNOFFICIAL COPY 24 RS BR 2324
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interest shall include but is not limited to: 1
a. Statements, explanations, reports, or correspondence; 2
b. Communications with portfolio companies; 3
c. Statements of principles or policies, whether made individually or 4
jointly; 5
d. Votes of shares or proxies; or 6
e. Coalitions, initiatives, agreements, or commitments to which the 7
fiduciary is a participant, affiliate, or signatory. 8
(d) In addition to the standards of conduct prescribed by paragraph (c) of this 9
subsection: 10
1. All internal investment staff of the Kentucky Public Pensions Authority, 11
and investment consultants shall adhere to the Code of Ethics and 12
Standards of Professional Conduct, and all board trustees shall adhere to 13
the Code of Conduct for Members of a Pension Scheme Governing 14
Body. All codes cited in this subparagraph are promulgated by the CFA 15
Institute; 16
2. Investment managers shall comply with all applicable provisions of the 17
federal Investment Advisers Act of 1940, as amended, and the rules and 18
regulations promulgated thereunder, and shall comply with all other 19
applicable federal securities statutes and related rules and regulations 20
that apply to investment managers; and 21
3. Proxy advisers and proxy voting services shall comply with all 22
applicable provisions of the Investment Advisers Act of 1940, as 23
amended, and the rules and regulations promulgated thereunder, and 24
shall comply with all other federal statutes and related rules and 25
regulations that apply to proxy advisers and proxy voting services. 26
(e) No contract or agreement, whether made in writing or not, shall in any 27 UNOFFICIAL COPY 24 RS BR 2324
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manner waive, restrict, or limit a fiduciary's liability as to any of the duties 1
imposed by this section. Any agreement shall specify that it is made in the 2
Commonwealth of Kentucky and governed by the laws of the Commonwealth 3
of Kentucky. 4
(2) The board, through adopted written policies, shall maintain ownership and control 5
over its assets held in its unitized managed custodial account. 6
(3) The board, in keeping with its responsibility as trustee and wherever consistent with 7
its fiduciary responsibilities, shall give priority to the investment of funds in 8
obligation calculated to improve the industrial development and enhance the 9
economic welfare of the Commonwealth. 10
(4) The contents of real estate appraisals, engineering or feasibility estimates, and 11
evaluations made by or for the system relative to the acquisition or disposition of 12
property, until such time as all of the property has been acquired or sold, shall be 13
excluded from the application of KRS 61.870 to 61.884 and shall be subject to 14
inspection only upon order of a court of competent jurisdiction. 15
(5) Based upon market value at the time of purchase, the board shall limit the amount 16
of assets managed by any one (1) active or passive investment manager to fifteen 17
percent (15%) of the assets in the pension and insurance funds. 18
(6) All contracts for the investment or management of assets of the systems shall not be 19
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 20
following process to develop and adopt an investment procurement policy with 21
which all prospective contracts for the investment or management of assets of the 22
systems shall comply: 23
(a) On or before July 1, 2017, the board shall consult with the secretary of the 24
Finance and Administration Cabinet or his or her designee to develop an 25
investment procurement policy, which shall be written to meet best practices 26
in investment management procurement; 27 UNOFFICIAL COPY 24 RS BR 2324
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(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 1
investment procurement policy to the secretary of the Finance and 2
Administration Cabinet or his or her designee for review and comment; 3
(c) Upon receipt of comments from the secretary of the Finance and 4
Administration Cabinet or his or her designee, the board shall choose to adopt 5
or not adopt any recommended changes; 6
(d) Upon adoption, the board shall tender the final investment procurement policy 7
to the secretary of the Finance and Administration Cabinet or his or her 8
designee; 9
(e) No later than thirty (30) days after receipt of the investment procurement 10
policy, the secretary or his or her designee shall certify whether the board's 11
investment procurement policy meets or does not meet best practices for 12
investment management procurement; and 13
(f) Any amendments to the investment procurement policy shall adhere to the 14
requirements set forth by paragraphs (b) to (e) of this subsection. 15
(7) (a) The board shall adopt written proxy voting guidelines which are consistent 16
with the fiduciary duties and other requirements of this section. 17
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 18
voting service and shall not allow such proxy adviser or proxy voting service 19
to vote on behalf of the system, unless the proxy adviser or proxy voting 20
service acknowledges in writing and accepts under contract its duties under 21
this section and commits to follow the board-adopted proxy voting guidelines 22
when voting the system's shares in order to comply with the board's fiduciary 23
duties and other responsibilities under this section. 24
(c) All shares held by or on behalf of the system, and which the system is entitled 25
to vote under state, federal, or common laws, shall be voted according to the 26
proxy voting guidelines adopted by the board and subject to the fiduciary 27 UNOFFICIAL COPY 24 RS BR 2324
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duties and other requirements of this section by: 1
1. The board, the investment committee of the board, or an employee or 2
employees of the Authority who are fiduciaries under subsection (1) of 3
this section and are appointed or otherwise authorized by the board; or 4
2. A proxy adviser or proxy voting service that acknowledges in writing 5
and accepts under contract its duties under this section and commits to 6
follow the board-adopted proxy voting guidelines when voting the 7
system's shares in order to comply with the board's fiduciary duties and 8
other responsibilities under this section. 9
(d) All proxy votes shall be reported at least quarterly to the board. For each vote, 10
the report shall provide: 11
1. The vote caption; 12
2. The date of the vote; 13
3. The company's name; 14
4. The vote cast for the system; 15
5. The recommendation of the company's management; and 16
6. If applicable, the recommendation of the proxy adviser or proxy voting 17
service. 18