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AN ACT relating to state financial practices. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 42.500 is amended to read as follows: 3
(1) There shall be a State Investment Commission composed of: 4
(a) The State Treasurer who shall be chairman; 5
(b) The secretary of the Finance and Administration Cabinet; 6
(c) The state controller; and 7
(d) Two (2) persons appointed by the Governor. 8
(2) The individuals appointed by the Governor shall be selected as follows: 9
(a) One (1) to be selected from a list of five (5) submitted to the Governor by the 10
Kentucky Bankers Association;[,] and 11
(b) One (1) to be selected from a list of five (5) submitted to the Governor by the 12
Independent Community Bankers Association. 13
(3) (a) The State Investment Commission shall meet at least quarterly to review 14
investment performance and conduct other business. 15
(b) This subsection[provision] shall not prohibit the commission from meeting 16
more frequently as the need arises. 17
(4) (a) The State Treasurer and secretary of the Finance and Administration Cabinet 18
shall each have the authority to designate, by an instrument in writing over his 19
or her signature and filed with the secretary of the commission as a public 20
record of the commission, an alternate with full authority to: 21
1.[(a)] Attend in the member's absence, for any reason, any properly 22
convened meeting of the commission; and 23
2.[(b)] Participate in the consideration of, and vote upon, business and 24
transactions of the commission. 25
(b) Each alternate designated under this subsection shall be a person on the staff 26
of the appointing member or in the employ of the appointing member's state 27 UNOFFICIAL COPY 25 RS BR 1321
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agency or department. 1
(5) Any designation of an alternate under subsection (4) of this section may, at the 2
appointing member's direction: 3
(a) Be limited upon the face of the appointing instrument to be effective for only 4
a specific meeting or specified business; 5
(b) Be shown on the face of the appointing instrument to be a continuing 6
designation, for a period of no more than four (4) years, whenever the 7
appointing member is unable to attend; or 8
(c) Be revoked at any time by the appointing member in an instrument in writing, 9
over his or her signature, filed with the secretary of the commission as a 10
public record of the commission. 11
(6) (a) Any person transacting business with, or materially affected by, the business 12
of the commission may accept and rely upon a joint certificate of the secretary 13
of the commission and any member of the commission concerning the 14
designation of any alternate, the time and scope of the designation, and, if it is 15
of a continuing nature, whether and when the designation has been revoked. 16
(b) The joint certificate shall be made and delivered to the person requesting it 17
within a reasonable time after it has been requested in writing, with acceptable 18
identification of the business or transaction to which it refers and the 19
requesting person's interest in the business or transaction. 20
(7) (a) Any three (3) persons who are members of the commission or alternates 21
authorized under subsections (4) and (5) of this section shall constitute a 22
quorum and may, by majority vote, transact any business of the commission. 23
(b) Any three (3) members of the commission may call a meeting. 24
(8) The provisions of KRS 61.070 shall not apply to members of the commission. 25
(9) Subject to subsection (11) of this section, the commission shall have authority and 26
may, if in its opinion the cash in the State Treasury is in excess of the amount 27 UNOFFICIAL COPY 25 RS BR 1321
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required to meet current expenditures, invest any and all of the excess cash in: 1
(a) Obligations and contracts for future delivery of obligations backed by the full 2
faith and credit of the United States or a United States government agency, 3
including but not limited to: 4
1. United States Treasury; 5
2. Export-Import Bank of the United States; 6
3. [Farmers Home Administration; 7
4. ]Government National Mortgage Corporation; and 8
4.[5.] Merchant Marine bonds; 9
(b) Obligations of any corporation of the United States government or 10
government-sponsored enterprise, including but not limited to: 11
1. Federal Home Loan Mortgage Corporation; 12
2. Federal Farm credit banks and [: 13
a. ]Bank for cooperatives;[ 14
b. Federal Intermediate Credit Banks; and 15
c. Federal Land Banks;] 16
3. Federal Home Loan Banks; 17
4. Federal National Mortgage Association; and 18
5. Tennessee Valley Authority obligations; 19
(c) Collateralized or uncollateralized certificates of deposit, issued by banks rated 20
in one (1) of the three (3) highest categories by a nationally recognized 21
statistical rating organization or other interest-bearing accounts in depository 22
institutions chartered by this state or by the United States, except for shares in 23
mutual savings banks; 24
(d) Bankers acceptances for banks rated in the highest short-term category by a 25
nationally recognized statistical rating organization; 26
(e) Commercial paper rated in the highest short-term category by a nationally 27 UNOFFICIAL COPY 25 RS BR 1321
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recognized statistical rating organization; 1
(f) Securities issued by a state or local government, or any instrumentality or 2
agency thereof, in the United States, and rated in one (1) of the three (3) 3
highest long-term categories by a nationally recognized statistical rating 4
organization; 5
(g) United States denominated corporate, Yankee, and Eurodollar securities, 6
excluding corporate stocks, issued by foreign and domestic issuers, including 7
sovereign and supranational governments, rated in one (1) of the three (3) 8
highest long-term categories by a nationally recognized statistical rating 9
organization; 10
(h) Asset-backed securities rated in the highest category by a nationally 11
recognized statistical rating organization; 12
(i) Shares of mutual funds, each of which shall have the following 13
characteristics: 14
1. The mutual fund shall be an open-end diversified investment company 15
registered under the federal Investment Company Act of 1940, as 16
amended; 17
2. The management company of the investment company shall have been 18
in operation for at least five (5) years; 19
3. The mutual fund shall be rated in the highest category by a nationally 20
recognized statistical rating organization; and 21
4. All of the securities in the mutual fund shall be eligible investments 22
pursuant to this section;[ and] 23
(j) State and local delinquent property tax claims which upon purchase shall 24
become certificates of delinquency secured by interests in real property not to 25
exceed twenty-five million dollars ($25,000,000) in the aggregate. For any 26
certificates of delinquency that have been exonerated pursuant to KRS 27 UNOFFICIAL COPY 25 RS BR 1321
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132.220(5), the Department of Revenue shall offset the loss suffered by the 1
Finance and Administration Cabinet against subsequent local distributions to 2
the affected taxing districts as shown on the certificate of delinquency;[.] 3
(k) Digital assets, other than stablecoins, that: 4
1. Have a market capitalization of over seven hundred fifty billion 5
dollars ($750,000,000,000) averaged over the previous calendar year; 6
and 7
2. Are held: 8
a. Directly by the commission or the commission's designee 9
through the use of a secure custody solution; 10
b. On behalf of the state by a qualified custodian; or 11
c. In the form of an exchange traded product issued by an 12
investment company registered under the federal Investment 13
Company Act of 1940, as amended; 14
(l) Stablecoins that have received appropriate regulatory approval or 15
authorization from the competent authorities of the United States or any 16
state of the United States; and 17
(m) Bullion that is held: 18
1. In the form of an exchange traded product; or 19
2. In physical form by: 20
a. A qualified custodian; 21
b. The state; or 22
c. The state in conjunction with another state in accordance with 23
an administrative regulation promulgated by the commission 24
under Section 2 of this Act. 25
(10) As used in this section: 26
(a) "Bullion": 27 UNOFFICIAL COPY 25 RS BR 1321
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1. Means bars, ingots, or coins, which are: 1
a. Made of gold, silver, platinum, palladium, or a combination of 2
these metals; 3
b. Valued based on the content of the metal and not its form; and 4
c. Used, or have been used, as a medium of exchange, security, or 5
commodity by any state, the United States government, or a 6
foreign nation; and 7
2. Does not include medallions or coins that are incorporated into a 8
pendant or other jewelry; 9
(b) "Central bank digital currency": 10
1. Means a digital currency, digital medium of exchange, or digital 11
monetary unit of account that is: 12
a. Issued and made directly available to the public; or 13
b. Processed or validated; 14
by the United States Federal Reserve System, a federal agency, or a 15
foreign government; and 16
2. Does not include a digital asset that is: 17
a. Backed by legal tender or government treasuries; and 18
b. Issued by a qualified entity; 19
(c) 1. "Digital asset": 20
a. Except as provided in subdivision b. of this subparagraph, means 21
virtual currency, cryptocurrencies, natively electronic assets, or 22
other digital-only assets that confer economic, proprietary, or 23
access rights or powers; and 24
b. Does not include central bank digital currency. 25
2. As used in this paragraph, "natively electronic asset" includes a 26
stablecoin and a nonfungible token; 27 UNOFFICIAL COPY 25 RS BR 1321
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(d) "Exchange traded product" means any financial instrument that: 1
1. Is approved or registered: 2
a. By the Securities and Exchange Commission or Commodity 3
Futures Trading Commission; or 4
b. Under KRS Chapter 292; 5
2. Is traded on a United States-regulated exchange; and 6
3. Derives its value from an underlying pool of assets including but not 7
limited to stocks, bonds, commodities, and indexes; 8
(e) "Qualified custodian" means any: 9
1. Federal or state-chartered bank, trust company, or special purpose 10
depository institution; or 11
2. State-regulated company that provides custody of digital assets for an 12
exchange traded product; 13
(f) "Qualified entity" means an entity that is not: 14
1. The United States Federal Reserve System; 15
2. A federal agency; 16
3. A foreign government; or 17
4. An instrumentality or agent of an entity referenced in subparagraph 18
1., 2., or 3. of this paragraph; 19
(g) 1. "Secure custody solution" means a technological product or blended 20
technological product and service: 21
a. That secures digital assets with cryptographic private keys that 22
are: 23
i. Exclusively known and accessible by the commission or the 24
commission's designee; 25
ii. Exclusively contained within an encrypted environment 26
and accessible only via end-to-end encrypted channels; 27 UNOFFICIAL COPY 25 RS BR 1321
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iii. Never contained or accessible by or controllable via a 1
smartphone; and 2
iv. Stored on hardware that is maintained in at least two (2) 3
geographically diversified specially designated secure data 4
centers; and 5
b. Where the provider of the product, or blended product and 6
service, complies with or ensures compliance with the following 7
protocols for the product or blended product and service: 8
i. Enforces a multiparty governance structure for authorizing 9
transactions; 10
ii. Enforces user access controls; 11
iii. Logs all user-initiated actions; 12
iv. Has implemented a disaster recovery protocol that ensures 13
access to assets in the event the provider becomes 14
unavailable; 15
v. Undergoes regular code audits and penetration testing 16
from audit firms; and 17
vi. Remedies any vulnerabilities identified in an audit or test 18
referenced in subpart v. of this subdivision promptly. 19
2. As used in this paragraph, "private key" means a unique element of 20
cryptographic data that is: 21
a. Used for signing transactions on a blockchain; and 22
b. Known to the owner of the unique element; and 23
(h) "Stablecoin" means a natively electronic asset that is: 24
1. Issued by a qualified entity that is backed by United States dollars or 25
high-quality liquid assets; and 26
2. Redeemable on demand by the holder at par for a fixed monetary 27 UNOFFICIAL COPY 25 RS BR 1321
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value in equivalent United States dollars[The State Investment 1
Commission shall promulgate administrative regulations for the 2
investment and reinvestment of state funds in shares of mutual funds, 3
and the regulations shall specify: 4
(a) The long and short term goals of any investment; 5
(b) The specification of moneys to be invested; 6
(c) The amount of funds which may be invested per instrument; 7
(d) The qualifications of instruments; and 8
(e) The acceptable maturity of investments]. 9
(11) (a) The total amount of excess cash invested under subsection (9)(k), (l), and 10
(m) of this section shall not, at the time of the investment is made, exceed 11
ten percent (10%) of the total amount of excess cash invested under 12
subsection (9) of this section. 13
(b) Notwithstanding any other provision of this section or any other law, the 14
commission shall not invest any excess cash or other funds in central bank 15
digital currency. 16
(12) Any investment in obligations and securities pursuant to[ subsection (9) of] this 17
section may be[shall satisfy this section if these obligations are] subject to 18
repurchase agreements, provided that delivery of these obligations is taken either 19
directly or through an authorized custodian. 20
(13)[(12)] (a) Income earned from investments made pursuant to this section shall 21
accrue to the credit of the investment income account of the general fund, 22
except that interest from investments of excess cash in the road fund shall be 23
credited to the surplus account of the road fund and interest from investments 24
of excess cash in the game and fish fund shall be credited to the game and fish 25
fund, interest earned from investments of imprest cash funds and funds in the 26
trust and revolving fund for each state public university shall be credited to 27 UNOFFICIAL COPY 25 RS BR 1321
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the appropriate institutional account, and interest earned from the investment 1
of funds accumulated solely by means of contributions and gifts shall not be 2
diverted to any purpose other than that stipulated by the donor, when the 3
donor shall have designated the use to which the interest shall be placed. 4
(b) Except as otherwise provided by law, or by the obligations and covenants 5
contained in resolutions and trust indentures adopted or entered into for state 6
bond issues, interest earned from the investment of moneys appropriated to 7
the capital construction accounts, trust and agency accounts, and trust and 8
agency revolving accounts shall accrue to the capital construction investment 9
income account. 10
(c) 1. If there is a revenue shortfall, as defined in KRS 48.010, of five percent 11
(5%) or less, the secretary of the Finance and Administration Cabinet, 12
upon the recommendation of the state budget director, may direct the 13
transfer of excess unappropriated capital construction investment 14
income to the general fund investment income account. 15
2. The amount of the transfer shall not exceed the amount of the shortfall 16
in general fund revenues. 17
(d) 1. If the capital construction investment income is less than that amount 18
appropriated by the General Assembly, the secretary of the Finance and 19
Administration Cabinet may, upon recommendation of the state budget 20
director, direct the transfer of excess unappropriated general fund 21
investment income to the capital construction investment income 22
account. 23
2. The transfer of general fund investment income revenues to the capital 24
construction investment income account shall be made only when the 25
actual general fund revenues are in excess of the enacted estimates 26
under KRS 48.120 and shall be limited to the amount of the excess 27 UNOFFICIAL COPY 25 RS BR 1321
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general fund revenues. 1
3. The amount of the transfer shall not exceed the amount of the shortfall 2
in the capital construction fund revenues. 3
(14)[(13)] The authority granted by this section to the[ State Investment] commission 4
shall not extend to any funds that are specifically provided by law to be invested by 5
some other officer or agency of the state government. 6
(15)[(14)] The authority granted by this section to the[ State Investment] commission 7
shall only be exercised pursuant to the administrative regulations mandated by KRS 8
42.525. 9
(16)[(15)] Each member of the[ State Investment] commission shall post bond for his or 10
her acts or omissions as a member thereof identical in amount and kind to that 11
posted by the State Treasurer. 12
Section 2. KRS 42.525 is amended to read as follows: 13
(1) The State Investment Commission shall promulgate administrative regulations for 14
the investment and reinvestment of state funds and the acquisition, retention, 15
management, and disposition of investments. 16
(2) The administrative regulations required under subsection (1) of this section shall: 17
(a) Specify: 18
1.[(a)] The long and short term goals of any investment; 19
2.[(b)] The specification of moneys to be invested; 20
3.[(c)] The amount of funds which may be invested per instrument; 21
4.[(d)] The qualifications of instruments; 22
5.[(e)] The acceptable maturity of investments; 23
6.[(f)] The investment procedure with respect to in-state and out-of-state 24
depositories provided that funds available for investment shall be 25
offered first to qualified Kentucky depositories consistent with the 26
investment guidelines; and 27 UNOFFICIAL COPY 25 RS BR 1321
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7.[(g)] The distribution method of funds among types of institutions; and 1
(b) Set forth the requirements provided in paragraph (a)1. to 5. of this 2
subsection for the investment and reinvestment of state funds in shares of 3
mutual funds. 4
(3) The commission may promulgate any other administrative regulations to carry 5
out and effectuate subsections (9)(k), (l), and (m), (10), and (11) of Section 1 of 6
this Act. 7
SECTION 3. A NEW SECTION OF KRS CHAPTER 42 IS CREATED TO 8
READ AS FOLLOWS: 9
(1) As used in this section, "exchange traded product" has the same meaning as in 10
of Section 1 of this Act. 11
(2) Notwithstanding any other law: 12
(a) Any state retirement fund may invest, or be invested, in exchange traded 13
products; and 14
(b) Any deferred compensation plan offered by the state or any state agency 15
may offer participants of the plan the option to invest in exchange traded 16
products. 17
Section 4. KRS 45.345 is amended to read as follows: 18
(1) As used in this section, the following terms have the same meaning as in Section 19
1 of this Act: 20
(a) "Bullion"; 21
(b) "Central bank digital currency"; 22
(c) "Digital asset"; and 23
(d) "Exchange traded product." 24
(2) In addition to any payment method authorized by law[,] and notwithstanding any 25
statute to the contrary, except as otherwise provided in this section and Section 5 26
of this Act, any state agency may accept the following methods of payment to 27 UNOFFICIAL COPY 25 RS BR 1321
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secure funds for deposit into the State Treasury: 1
(a) Credit card; 2
(b) Debit card; 3
(c) Electronic check; 4
(d) Automated clearinghouse (ACH) debit;[ or] 5
(e) Digital assets; 6
(f) Bullion, when in the form of an exchange traded product; or 7
(g) Any other electronic payment method not prohibited under subsection (4) of 8
this section, upon the prior written approval of both the Finance and 9
Administration Cabinet and the Office of the State Treasurer. 10
(3)[(2)] Any fees charged to a state agency by the provider of the payment services 11
listed in subsection (1) of this section shall be deemed to represent collection 12
expenses and may be considered normal operating expenses of the agency, or the 13
agency may collect convenience fees from users to supplement agency costs of 14
delivering services. 15
(4) A state agency shall not, either directly or through any of the methods listed in 16
subsection (2)(a), (b), (c), or (d) of this section or through another method, accept 17
central bank digital currency as payment to secure funds for deposit into the State 18
Treasury or for any other purpose. 19
SECTION 5. A NEW SECTION OF KRS CHAPTER 131 IS CREATED TO 20
READ AS FOLLOWS: 21
(1) As used in this section, the following terms have the same meaning as in Section 22
1 of this Act: 23
(a) "Bullion"; 24
(b) "Central bank digital currency"; 25
(c) "Digital asset"; and 26
(d) "Exchange traded product." 27 UNOFFICIAL COPY 25 RS BR 1321
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(2) (a) Except as otherwise provided in paragraph (b) of this subsection, in 1
addition to any payment method authorized by law, the department may 2
accept any method of payment authorized under Section 4 of this Act to 3
secure funds for payment of any tax bill issued by the department. 4
(b) The department shall accept all of the following as a method of payment to 5
secure funds for payment of any tax bill issued by the department: 6
1. Digital assets; and 7
2. Bullion, when in the form of an exchange traded product. 8
(3) This section shall not apply to sheriffs, county clerks, or any other local 9
government entity that collects payments on behalf of the department. 10
(4) When accepting payments in accordance with this section, the department may 11
collect convenience fees in accordance with subsection (3) of Section 4 of this 12
Act. 13
Section 6. KRS 41.070 is amended to read as follows: 14
(1) As used in this section, the following terms have the same meaning as in Section 15
1 of this Act: 16
(a) "Central bank digital currency"; 17
(b) "Digital asset"; and 18
(c) "Stablecoin." 19
(2) Unless otherwise expressly provided by law, no receipts from any source of state 20
money or money for which the state is responsible shall be held, used, or deposited 21
in any personal or special bank account, temporarily or otherwise, by any agent or 22
employee of any budget unit, to meet expenditures or for any other purpose. 23
(3)[(2)] (a) All receipts of any character of any budget unit, all revenue collected for 24
the state, and all public money and dues to the state shall be deposited in state 25
depositories in the most prompt and cost-efficient manner available. 26
(b) However, in the case of state departments or agencies located outside 27 UNOFFICIAL COPY 25 RS BR 1321
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Frankfort, and all state institutions, the Finance and Administration Cabinet 1
may permit temporary deposits to be made to the accounts maintained by the 2
agency, department, or institution in a state depository for a period not to 3
exceed thirty (30) days, and may require that the money be forwarded to the 4
State Treasury at the time and in the manner and form prescribed by the 5
cabinet. 6
(c) [Nothing in ]This section shall not be construed as authorizing any 7
representative of any agency, department, or institution to enforce or cash, 8
even for the purpose of a deposit, any check or other instrument of value 9
payable to the Commonwealth or any agency thereof. 10
(4)[(3)] Each agency depositing its receipts directly with the State Treasurer shall do 11
so in the manner approved by the State Treasurer as agent in charge of public fund 12
deposits. 13
(5)[(4)] (a) The Department of Revenue may deposit receipts to the credit of the 14
State Treasury directly with a state depository utilized by the Commonwealth 15
for its primary banking services. 16
(b) 1. The State Treasurer, with the approval of the Finance and 17
Administration Cabinet, may authorize other agencies to deposit receipts 18
directly with a state depository to the credit of the State Treasury if the 19
Treasurer prescribes the manner in which the deposit is to be made, and 20
the forms and reports to be filed with the Treasury Department. 21
2. The Finance and Administration Cabinet shall prescribe the forms and 22
reports to be filed with it when this type of deposit is made. 23
(6)[(5)] Each department, agency, or other budget unit which receives funds to be 24
deposited into the State Treasury shall maintain records to report adequately each 25
amount received, from whom received, and date received. Agency records shall be 26
easily reconcilable with the information forwarded to the State Treasurer. 27 UNOFFICIAL COPY 25 RS BR 1321
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(7) (a) When a department, agency, or other budget unit deposits a receipt of the 1
following with a state depository, the State Treasurer, or to the credit of the 2
State Treasury, the State Treasurer shall transfer the digital assets, 3
including stablecoins, to the budget reserve trust fund account established 4
in Section 7 of this Act, which shall reimburse the fund to which the digital 5
assets, including stablecoins, were designated with United States currency: 6
1. Digital assets, other than stablecoins, having a market capitalization 7
of over seven hundred fifty billion dollars ($750,000,000,000) 8
averaged over the previous calendar year; or 9
2. Stablecoins. 10
(b) When a department, agency, or other budget unit deposits a receipt of 11
digital assets other than those referenced in paragraph (a)1. and 2. of this 12
subsection with a state depository, the State Treasurer, or to the credit of the 13
State Treasury, the State Treasurer shall: 14
1. Immediately convert the digital assets to United States currency; and 15
2. Transfer the United States currency to the fund to which the digital 16
assets were designated. 17
(8) The State Treasurer shall not, under this section or any other law: 18
(a) Accept or authorize receipts or deposits of central bank digital currency; or 19
(b) Convert digital assets or any other receipts or deposits to central bank 20
digital currency. 21
Section 7. KRS 48.705 is amended to read as follows: 22
(1) A budget reserve trust fund account is hereby created in the general fund, pursuant 23
to KRS 45.305. The budget reserve trust fund account shall be funded through 24
direct appropriations, and surplus amounts as provided in subsection (2) of this 25
section. Moneys in the account shall remain unallotted unless required by the 26
provisions of this section. 27 UNOFFICIAL COPY 25 RS BR 1321
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(2) (a) Each fiscal year, except as provided in subsection (3) of this section, within 1
thirty (30) days of the end of the fiscal year, the secretary of the Finance and 2
Administration Cabinet shall cause to be deposited to the budget reserve trust 3
fund account the lesser of the following amounts: 4
1. Fifty percent (50%) of the general fund surplus; or 5
2. The amount necessary from the general fund surplus to make the 6
balance of the budget reserve trust fund account equal to five percent 7
(5%) of the actual general fund receipts collected during the fiscal year 8
just ended, as determined by the Finance and Administration Cabinet. 9
(b) Any amounts to be deposited to the budget reserve trust fund account from the 10
general fund surplus shall be determined after the surplus has been reduced by 11
the amount necessary to implement the provisions of any surplus expenditure 12
plan authorized by KRS 48.140 and enacted as a part of a branch budget bill. 13
(3) If, at the close of any fiscal year, the budget reserve trust fund account has a balance 14
equal to or greater than five percent (5%) of the actual general fund receipts 15
collected during the fiscal year just ended, as determined by the Finance and 16
Administration Cabinet, the deposits required under subsection (2) of this section 17
shall be suspended for that year. 18
(4) Moneys in the budget reserve trust fund account may be appropriated by the 19
General Assembly in a regular or special session. 20
(5) Before authorizing any allotments from the budget reserve trust fund account, the 21
secretary of the Finance and Administration Cabinet shall notify in writing the 22
Interim Joint Committee on Appropriations and Revenue. The notice shall include 23
the amount and purpose for the proposed allotment. 24
(6) Within thirty (30) days of the close of each fiscal year, the secretary of the Finance 25
and Administration Cabinet shall report to the Interim Joint Committee on 26
Appropriations and Revenue the general fund receipts collected for the fiscal year 27 UNOFFICIAL COPY 25 RS BR 1321
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just ended, the balance of the budget reserve trust fund account, and any amounts 1
deposited to the budget reserve trust fund account pursuant to the provisions of 2
subsection (2) of this section. 3
(7) All sums appropriated or deposited to the budget reserve trust fund account shall 4
not lapse at the close of the fiscal year but shall carry forward into the next fiscal 5
year. 6
(8) Notwithstanding any other provision of this section or any other law, the budget 7
reserve trust fund account shall make reimbursements in accordance with 8
subsection (7)(a) of Section 6 of this Act. 9
Section 8. KRS 16.642 is amended to read as follows: 10
(1) The board shall be the trustee of funds created by KRS 16.505 to 16.652 and KRS 11
61.701 and shall have full power to invest and reinvest such assets in accordance 12
with federal law. 13
(2) The board, through adopted written policies, shall maintain ownership and control 14
over its assets held in its unitized managed custodial account. 15
(3) The board, in keeping with its responsibility as trustee and wherever feasible, shall 16
give priority to the investment of funds in obligations calculated to improve the 17
industrial development and enhance the economic welfare of the Commonwealth. 18
(4) The investment committee established pursuant to KRS 61.650 shall serve as the 19
investment committee of the funds established by KRS 16.505 to 16.652. 20
(5) (a) Based upon market value at the time of purchase, the board shall limit the 21
amount of assets managed by any one (1) active or passive investment 22
manager to fifteen percent (15%) of the assets in the pension and insurance 23
funds. 24
(b) The board may invest fund assets in exchange traded products as defined in 25
Section 1 of this Act. 26
Section 9. KRS 18A.255 is amended to read as follows: 27 UNOFFICIAL COPY 25 RS BR 1321
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(1) (a) Notwithstanding any other provision of KRS 18A.230 to 18A.275, funds held 1
for the State of Kentucky public employees deferred compensation trust fund 2
pursuant to agreement between the state and participating employees may be 3
invested in such investments as are deemed appropriate by the trustees, 4
including but not limited to: 5
1. Annuity contracts; and 6
2. Exchange traded products as defined in Section 1 of this Act. 7
(b) Agreements may be made in writing or by electronic record, signature, or 8
contract as determined by the authority in accordance with the provisions of 9
KRS 369.101 to 369.120 and shall not be denied legal effect or enforceability 10
if made electronically to the extent permitted by the authority. 11
(2) (a) Funds deposited to the credit of the trust fund from payroll deductions made 12
pursuant to KRS 18A.250 shall be temporarily invested as provided in KRS 13
42.500 until such funds are invested pursuant to the deferred compensation 14
agreements between the state and participating employees and actually 15
credited to accounts for plan participants. 16
(b) Notwithstanding KRS 42.500, interest earned from such temporary 17
investments shall be used to defray the expenses of administering the deferred 18
compensation system. 19
(3) (a) Neither the authority nor the board shall be liable for any losses or claims due 20
to a participant's actions in connection with the investment advice or financial 21
planning provided to the participant by operation of KRS 18A.245(7)(f) or 22
otherwise. 23
(b) The authority and board shall have no duty or obligation to monitor, review, 24
or assess the specific investment advice or financial planning provided to a 25
participant. 26
Section 10. KRS 21.550 is amended to read as follows: 27 UNOFFICIAL COPY 25 RS BR 1321
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(1) (a) Those members of the board of trustees of the Judicial Form Retirement 1
System who are appointed by the Supreme Court, together with the members 2
appointed by the Governor, shall constitute an investment committee for the 3
Judicial Retirement Plan, and as such shall have full and sole authority over 4
the judicial retirement fund and the investment thereof, including the 5
prescribing of funding standards, the adoption of actuarial methods and 6
assumptions, and the making of employments or contracts for required 7
personal services, including administrative, actuarial, and investment 8
counseling services. 9
(b) The committee shall be considered trustee of the judicial retirement fund and 10
shall have the sole authority to make investment transactions or obtain 11
insurance contracts for funding purposes. 12
(c) The fund shall be invested in securities which, at the time of making the 13
investment, are by law permitted for the investment of funds by fiduciaries in 14
this state.[, or ] 15
(d) Funding may be accomplished in part by contract with a reputable life 16
insurance company authorized to do business in this state. 17
(e) To the extent that funding is provided through insurance contract, no 18
contributions, payments, or premiums shall be subject to any tax on insurance 19
premiums or annuity considerations. 20
(f) The committee may invest fund assets in exchange traded products as 21
defined in Section 1 of this Act. 22
(2) (a) The investment committee for the judicial retirement fund shall appoint one 23
(1) or more custodians of the securities acquired under authority of this 24
section, each of whom shall be responsible for the safekeeping of the 25
securities in his or her custody. 26
(b) All registered securities shall be registered in the name "Kentucky Judicial 27 UNOFFICIAL COPY 25 RS BR 1321
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Retirement Fund" (securities heretofore registered in the name "Kentucky 1
Judicial Retirement System" may continue in that name), or in nominee name 2
as provided comparably in KRS 286.3-225, and every change in registration, 3
by reason of sale or assignment of such securities, shall be accomplished by 4
the signatures of the chairman of the investment committee or a member of 5
that committee appointed by the chairman, and by the secretary-treasurer of 6
the fund. 7
Section 11. KRS 61.650 is amended to read as follows: 8
(1) (a) The board shall be the trustee of funds created by KRS 16.510, 61.515, and 9
61.701 pertaining to the accounts for the Kentucky Employees Retirement 10
System or State Police Retirement System, notwithstanding the provisions of 11
any other statute to the contrary, and shall have exclusive power to invest and 12
reinvest such assets in accordance with federal law. 13
(b) 1. The board shall establish an investment committee whose membership 14
shall be composed of the following: 15
a. The three (3) trustees of the Kentucky Retirement Systems board 16
appointed by the Governor pursuant to KRS 61.645 who have 17
investment experience; and 18
b. Additional trustees appointed by the board chair. 19
2. The investment committee shall have authority to implement the 20
investment policies adopted by the board and act on behalf of the board 21
on all investment-related matters and to acquire, sell, safeguard, 22
monitor, and manage the assets and securities of the several funds. 23
(c) 1. For the purposes of this paragraph: 24
a. "Solely in the interest of the members and beneficiaries" shall be 25
determined using only pecuniary factors and shall not include any 26
purpose to further a nonpecuniary interest; 27 UNOFFICIAL COPY 25 RS BR 1321
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b. "Pecuniary factor" means a consideration having a direct and 1
material connection to the financial risk or financial return of an 2
investment; 3
c. A "material connection" is established if there is a substantial 4
likelihood that a reasonable investor would consider it important in 5
determining the financial risk or the financial return of an 6
investment; 7
d. "Nonpecuniary interest" includes but is not limited to an 8
environmental, social, political, or ideological interest which does 9
not have a direct and material connection to the financial risk or 10
financial return of an investment; and 11
e. "Investment manager" shall have the same definition attributed to 12
"investment adviser" under the federal Investment Advisers Act of 13
1940, 15 U.S.C. sec. 80b-2. 14
2. A trustee, officer, employee, employee of the Kentucky Public Pensions 15
Authority, investment manager, or other fiduciary, or proxy adviser shall 16
discharge duties with respect to the retirement system: 17
a. Solely in the interest of the members and beneficiaries; 18
b. For the exclusive purpose of providing benefits to members and 19
beneficiaries and paying reasonable expenses of administering the 20
system; 21
c. With the care, skill, and caution under the circumstances then 22
prevailing that a prudent person acting in a like capacity and 23
familiar with those matters would use in the conduct of an activity 24
of like character and purpose; 25
d. Impartially, taking into account any differing interests of members 26
and beneficiaries; 27 UNOFFICIAL COPY 25 RS BR 1321
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e. Incurring any costs that are appropriate and reasonable; and 1
f. In accordance with a good-faith interpretation of the federal, state, 2
and common law governing the system and fiduciaries. 3
3. Evidence that a fiduciary has considered or acted on a nonpecuniary 4
interest shall include but is not limited to: 5
a. Statements, explanations, reports, or correspondence; 6
b. Communications with portfolio companies; 7
c. Statements of principles or policies, whether made individually or 8
jointly; 9
d. Votes of shares or proxies; or 10
e. Coalitions, initiatives, agreements, or commitments to which the 11
fiduciary is a participant, affiliate, or signatory. 12
(d) In addition to the standards of conduct prescribed by paragraph (c) of this 13
subsection: 14
1. All internal investment staff of the Kentucky Public Pensions Authority, 15
and investment consultants shall adhere to the Code of Ethics and 16
Standards of Professional Conduct, and all board trustees shall adhere to 17
the Code of Conduct for Members of a Pension Scheme Governing 18
Body. All codes cited in this subparagraph are promulgated by the CFA 19
Institute; 20
2. Investment managers shall comply with all applicable provisions of the 21
federal Investment Advisers Act of 1940, as amended, and the rules and 22
regulations promulgated thereunder, and shall comply with all other 23
applicable federal securities statutes and related rules and regulations 24
that apply to investment managers; and 25
3. Proxy advisers and proxy voting services shall comply with all 26
applicable provisions of the Investment Advisers Act of 1940, as 27 UNOFFICIAL COPY 25 RS BR 1321
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amended, and the rules and regulations promulgated thereunder, and 1
shall comply with all other federal statutes and related rules and 2
regulations that apply to proxy advisers and proxy voting services. 3
(e) No contract or agreement, whether made in writing or not, shall in any 4
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 5
imposed by this section. Any agreement shall specify that it is made in the 6
Commonwealth and governed by the laws of the Commonwealth. 7
(2) The board, through adopted written policies, shall maintain ownership and control 8
over its assets held in its unitized managed custodial account. 9
(3) The board, in keeping with its responsibility as trustee and wherever consistent with 10
its fiduciary responsibilities, shall give priority to the investment of funds in 11
obligation calculated to improve the industrial development and enhance the 12
economic welfare of the Commonwealth. 13
(4) The contents of real estate appraisals, engineering or feasibility estimates, and 14
evaluations made by or for the system relative to the acquisition or disposition of 15
property, until such time as all of the property has been acquired or sold, shall be 16
excluded from the application of KRS 61.870 to 61.884 and shall be subject to 17
inspection only upon order of a court of competent jurisdiction. 18
(5) (a) Based upon market value at the time of purchase, the board shall limit the 19
amount of assets managed by any one (1) active or passive investment 20
manager to fifteen percent (15%) of the assets in the pension and insurance 21
funds. 22
(b) The board may invest fund assets in exchange traded products as defined in 23
Section 1 of this Act. 24
(6) All contracts for the investment or management of assets of the systems shall not be 25
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 26
following process to develop and adopt an investment procurement policy with 27 UNOFFICIAL COPY 25 RS BR 1321
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which all prospective contracts for the investment or management of assets of the 1
systems shall comply: 2
(a) On or before July 1, 2017, the board shall consult with the secretary of the 3
Finance and Administration Cabinet or his or her designee to develop an 4
investment procurement policy, which shall be written to meet best practices 5
in investment management procurement; 6
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 7
investment procurement policy to the secretary of the Finance and 8
Administration Cabinet or his or her designee for review and comment; 9
(c) Upon receipt of comments from the secretary of the Finance and 10
Administration Cabinet or his or her designee, the board shall choose to adopt 11
or not adopt any recommended changes; 12
(d) Upon adoption, the board shall tender the final investment procurement policy 13
to the secretary of the Finance and Administration Cabinet or his or her 14
designee; 15
(e) No later than thirty (30) days after receipt of the investment procurement 16
policy, the secretary or his or her designee shall certify whether the board's 17
investment procurement policy meets or does not meet best practices for 18
investment management procurement; and 19
(f) Any amendments to the investment procurement policy shall adhere to the 20
requirements set forth by paragraphs (b) to (e) of this subsection. 21
(7) (a) The board shall adopt written proxy voting guidelines which are consistent 22
with the fiduciary duties and other requirements of this section. 23
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 24
voting service and shall not allow such proxy adviser or proxy voting service 25
to vote on behalf of the system, unless the proxy adviser or proxy voting 26
service acknowledges in writing and accepts under contract its duties under 27 UNOFFICIAL COPY 25 RS BR 1321
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this section and commits to follow the board-adopted proxy voting guidelines 1
when voting the system's shares in order to comply with the board's fiduciary 2
duties and other responsibilities under this section. 3
(c) All shares held by or on behalf of the system, and which the system is entitled 4
to vote under state, federal, or common laws, shall be voted according to the 5
proxy voting guidelines adopted by the board and subject to the fiduciary 6
duties and other requirements of this section by: 7
1. The board, the investment committee of the board, or an employee or 8
employees of the Authority who are fiduciaries under subsection (1) of 9
this section and are appointed or otherwise authorized by the board; or 10
2. A proxy adviser or proxy voting service that acknowledges in writing 11
and accepts under contract its duties under this section and commits to 12
follow the board-adopted proxy voting guidelines when voting the 13
system's shares in order to comply with the board's fiduciary duties and 14
other responsibilities under this section. 15
(d) All proxy votes shall be reported at least quarterly to the board. For each vote, 16
the report shall provide: 17
1. The vote caption; 18
2. The date of the vote; 19
3. The company's name; 20
4. The vote cast for the system; 21
5. The recommendation of the company's management; and 22
6. If applicable, the recommendation of the proxy adviser or proxy voting 23
service. 24
Section 12. KRS 78.790 is amended to read as follows: 25
(1) (a) The board shall be the trustee of funds pertaining to the County Employees 26
Retirement System created by KRS 78.510 to 78.852, and KRS 61.701, and 27 UNOFFICIAL COPY 25 RS BR 1321
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shall have full and exclusive power to invest and reinvest such assets in 1
accordance with federal law. 2
(b) 1. The board shall establish an investment committee that shall include 3
members of the board with investment experience, elected members, or 4
other members as determined by the board chair, and may also include 5
nonvoting members who have investment expertise. 6
2. The investment committee shall have authority to implement the 7
investment policies adopted by the board and act on behalf of the board 8
on all investment-related matters. 9
(c) 1. For the purposes of this paragraph: 10
a. "Solely in the interest of the members and beneficiaries" shall be 11
determined using only pecuniary factors and shall not include any 12
purpose to further a nonpecuniary interest; 13
b. "Pecuniary factor" means a consideration having a direct and 14
material connection to the financial risk or financial return of an 15
investment; 16
c. A "material connection" is established if there is a substantial 17
likelihood that a reasonable investor would consider it important in 18
determining the financial risk or the financial return of an 19
investment; 20
d. "Nonpecuniary interest" includes but is not limited to an 21
environmental, social, political, or ideological interest which does 22
not have a direct and material connection to the financial risk or 23
financial return of an investment; and 24
e. "Investment manager" shall have the same definition attributed to 25
"investment adviser" under the federal Investment Advisers Act of 26
1940, 15 U.S.C. sec. 80b-2. 27 UNOFFICIAL COPY 25 RS BR 1321
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2. A trustee, officer, employee, employee of the Kentucky Public Pensions 1
Authority, investment manager, or other fiduciary, or proxy adviser shall 2
discharge duties with respect to the system: 3
a. Solely in the interest of the members and beneficiaries; 4
b. For the exclusive purpose of providing benefits to members and 5
beneficiaries and paying reasonable expenses of administering the 6
system; 7
c. With the care, skill, and caution under the circumstances then 8
prevailing that a prudent person acting in a like capacity and 9
familiar with those matters would use in the conduct of an activity 10
of like character and purpose; 11
d. Impartially, taking into account any differing interests of members 12
and beneficiaries; 13
e. Incurring any costs that are appropriate and reasonable; and 14
f. In accordance with a good-faith interpretation of the federal, state, 15
and common law governing the system and fiduciaries. 16
3. Evidence that a fiduciary has considered or acted on a nonpecuniary 17
interest shall include but is not limited to: 18
a. Statements, explanations, reports, or correspondence; 19
b. Communications with portfolio companies; 20
c. Statements of principles or policies, whether made individually or 21
jointly; 22
d. Votes of shares or proxies; or 23
e. Coalitions, initiatives, agreements, or commitments to which the 24
fiduciary is a participant, affiliate, or signatory. 25
(d) In addition to the standards of conduct prescribed by paragraph (c) of this 26
subsection: 27 UNOFFICIAL COPY 25 RS BR 1321
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1. All internal investment staff of the Kentucky Public Pensions Authority, 1
and investment consultants shall adhere to the Code of Ethics and 2
Standards of Professional Conduct, and all board trustees shall adhere to 3
the Code of Conduct for Members of a Pension Scheme Governing 4
Body. All codes cited in this subparagraph are promulgated by the CFA 5
Institute; 6
2. Investment managers shall comply with all applicable provisions of the 7
federal Investment Advisers Act of 1940, as amended, and the rules and 8
regulations promulgated thereunder, and shall comply with all other 9
applicable federal securities statutes and related rules and regulations 10
that apply to investment managers; and 11
3. Proxy advisers and proxy voting services shall comply with all 12
applicable provisions of the Investment Advisers Act of 1940, as 13
amended, and the rules and regulations promulgated thereunder, and 14
shall comply with all other federal statutes and related rules and 15
regulations that apply to proxy advisers and proxy voting services. 16
(e) No contract or agreement, whether made in writing or not, shall in any 17
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 18
imposed by this section. Any agreement shall specify that it is made in the 19
Commonwealth and governed by the laws of the Commonwealth. 20
(2) The board, through adopted written policies, shall maintain ownership and control 21
over its assets held in its unitized managed custodial account. 22
(3) The board, in keeping with its responsibility as the trustee and wherever feasible, 23
shall give priority to the investment of funds in obligations calculated to improve 24
the industrial development and enhance the economic welfare of the 25
Commonwealth. 26
(4) The contents of real estate appraisals, engineering or feasibility estimates, and 27 UNOFFICIAL COPY 25 RS BR 1321
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evaluations made by or for the system relative to the acquisition or disposition of 1
property, until such time as all of the property has been acquired or sold, shall be 2
excluded from the application of KRS 61.870 to 61.884 and shall be subject to 3
inspection only upon order of a court of competent jurisdiction. 4
(5) (a) Based upon market value at the time of purchase, the board shall limit the 5
amount of assets managed by any one (1) active or passive investment 6
manager to fifteen percent (15%) of the assets in the pension and insurance 7
funds. 8
(b) The board may invest fund assets in exchange traded products as defined in 9
Section 1 of this Act. 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 25 RS BR 1321
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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 and shall not allow such proxy adviser or proxy voting service 11
to vote on behalf of the system, unless the proxy adviser or proxy voting 12
service acknowledges in writing and accepts under contract its duties under 13
this section and commits to follow the board-adopted proxy voting guidelines 14
when voting the system's shares in order to comply with the board's fiduciary 15
duties and other responsibilities under this section. 16
(c) All shares held by or on behalf of the system, and which the system is entitled 17
to vote under state, federal, or common laws, shall be voted according to the 18
proxy voting guidelines adopted by the board and subject to the fiduciary 19
duties and other requirements of this section by: 20
1. The board, the investment committee of the board, or an employee or 21
employees of the Authority who are fiduciaries under subsection (1) of 22
this section and are appointed or otherwise authorized by the board; or 23
2. A proxy adviser or proxy voting service that acknowledges in writing 24
and accepts under contract its duties under this section and commits to 25
follow the board-adopted proxy voting guidelines when voting the 26
system's shares in order to comply with the board's fiduciary duties and 27 UNOFFICIAL COPY 25 RS BR 1321
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other responsibilities under this section. 1
(d) All proxy votes shall be reported at least quarterly to the board. For each vote, 2
the report shall provide: 3
1. The vote caption; 4
2. The date of the vote; 5
3. The company's name; 6
4. The vote cast for the system; 7
5. The recommendation of the company's management; and 8
6. If applicable, the recommendation of the proxy adviser or proxy voting 9
service. 10
Section 13. KRS 161.430 is amended to read as follows: 11
(1) (a) The board of trustees shall be the trustee of the funds of the retirement system 12
and shall have full power and responsibility for the purchase, sale, exchange, 13
transfer, or other disposition of the investments and moneys of the retirement 14
system. The board shall, by administrative regulation, establish investment 15
policies and procedures to carry out their responsibilities. 16
(b) 1. The board shall contract with experienced competent investment 17
managers to invest and manage assets of the system. The board may also 18
employ qualified investment staff to advise it on investment matters and 19
to invest and manage assets of the system not to exceed fifty percent 20
(50%) of the system's assets. The board may contract with one (1) or 21
more general investment consultants, as well as specialized investment 22
consultants, to advise it on investment matters. 23
2. All internal investment staff and investment consultants shall adhere to 24
the Code of Ethics and Standards of Professional Conduct, and all board 25
trustees shall adhere to the Code of Conduct for Members of a Pension 26
Scheme Governing Body, promulgated by the CFA Institute. Investment 27 UNOFFICIAL COPY 25 RS BR 1321
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managers shall comply with the federal Investment Advisers Act of 1
1940, as amended, and the rules and regulations promulgated thereunder 2
and shall comply with all other applicable federal securities statutes and 3
related rules and regulations that apply to investment managers. 4
3. No investment manager shall manage more than forty percent (40%) of 5
the funds of the retirement system. 6
4. The board may invest assets of the system in exchange traded products 7
as defined in Section 1 of this Act. 8
(c) The board may appoint an investment committee to act for the board in all 9
matters of investment, subject to the approval of the board of trustees. The 10
board of trustees, in keeping with their responsibilities as trustees and 11
wherever consistent with their fiduciary responsibilities, shall give priority to 12
the investment of funds in obligations calculated to improve the industrial 13
development and enhance the economic welfare of the Commonwealth. 14
Toward this end, the board shall develop procedures for informing the 15
business community of the potential for in-state investments by the retirement 16
fund, accepting and evaluating applications for the in-state investment of 17
funds, and working with members of the business community in executing in-18
state investments which are consistent with the board's fiduciary 19
responsibilities. The board shall include in the criteria it uses to evaluate in-20
state investments their potential for creating new employment opportunities 21
and adding to the total job pool in Kentucky. The board may cooperate with 22
the board of trustees of Kentucky Retirement Systems in developing its 23
program and procedures, and shall report to the Legislative Research 24
Commission annually on its progress in placing in-state investments. The first 25
report shall be submitted by October 1, 1991, and subsequent reports shall be 26
submitted by October 1 of each year thereafter. The report shall include the 27 UNOFFICIAL COPY 25 RS BR 1321
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number of applications for in-state investment received, the nature of the 1
investments proposed, the amount requested, the amount invested, and the 2
percentage of applications which resulted in investments. 3
(2) (a) For the purposes of this subsection: 4
1. "Solely in the interest of the members and beneficiaries" shall be 5
determined using only pecuniary factors and shall not include any 6
purpose to further a nonpecuniary interest; 7
2. "Pecuniary factor" means a consideration having a direct and material 8
connection to the financial risk or financial return of an investment; 9
3. A "material connection" is established if there is a substantial likelihood 10
that a reasonable investor would consider it important in determining the 11
financial risk or the financial return of an investment; 12
4. "Nonpecuniary interest" includes but is not limited to an environmental, 13
social, political, or ideological interest which does not have a direct and 14
material connection to the financial risk or financial return of an 15
investment; and 16
5. "Investment manager" and "investment consultant" shall have the same 17
definition attributed to "investment adviser" under the federal 18
Investment Advisers Act of 1940, 15 U.S.C. sec. 80b-2. 19
(b) The board members, investment managers, investment consultants, or other 20
fiduciaries, and proxy advisers shall discharge their duties with respect to the 21
assets of the system solely in the interests of the active contributing members 22
and annuitants and: 23
1. For the exclusive purpose of providing benefits to members and 24
annuitants and defraying reasonable expenses of administering the 25
system; 26
2. With the care, skill, prudence, and diligence under the circumstances 27 UNOFFICIAL COPY 25 RS BR 1321
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then prevailing that a prudent person acting in a like capacity and 1
familiar with these matters would use in the conduct of an enterprise of 2
a like character and with like aims; 3
3. By diversifying the investments of the plan so as to minimize the risk of 4
large losses, unless under the circumstances it is clearly prudent not to 5
do so; and 6
4. In accordance with the federal, state, and common laws, administrative 7
regulations, and other instruments governing the system and fiduciaries. 8
(c) Evidence that a fiduciary has considered or acted on a nonpecuniary interest 9
shall include but is not limited to: 10
1. Statements, explanations, reports, or correspondence; 11
2. Communications with portfolio companies; 12
3. Statements of principles or policies, whether made individually or 13
jointly; 14
4. Votes of shares or proxies; or 15
5. Coalitions, initiatives, agreements, or commitments to which the 16
fiduciary is a participant, affiliate, or signatory. 17
(3) (a) In choosing and contracting for professional investment management and 18
consulting services, the board shall do so prudently and in the interest of the 19
members and annuitants. Any contract that the board makes with an 20
investment manager shall set forth policies and guidelines of the board with 21
reference to standard rating services and specific criteria for determining the 22
quality of investments. Expenses directly related to investment management 23
and consulting services shall be financed from the guarantee fund in amounts 24
approved by the board. 25
(b) An investment manager or consultant appointed under this section shall 26
acknowledge in writing his or her fiduciary responsibilities to the fund. To be 27 UNOFFICIAL COPY 25 RS BR 1321
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eligible for appointment, an investment manager, consultant, or an affiliate, 1
shall be: 2
1. Registered under the Federal Investment Advisers Act of 1940; or 3
2. A bank as defined by that Act; or 4
3. An insurance company qualified to perform investment services under 5
the laws of more than one (1) state. 6
(c) Proxy advisers and proxy voting services shall comply with all applicable 7
provisions of the Investment Advisers Act of 1940, as amended, and the rules 8
and regulations promulgated thereunder, and shall comply with all other 9
federal statutes and related rules and regulations that apply to proxy advisers 10
and proxy voting services. 11
(d) No contract or agreement, whether made in writing or not, shall in any 12
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 13
imposed by this section. Any agreement shall specify that it is made in the 14
Commonwealth and governed by the laws of the Commonwealth. 15
(4) No investment or disbursement of funds shall be made unless authorized by the 16
board of trustees, except that the board, in order to ensure timely market 17
transactions, shall establish investment guidelines and may permit its staff and 18
investment managers who are employed or under contract with the board pursuant 19
to this section to execute purchases and sales of investment instruments within 20
those guidelines without prior board approval. 21
(5) In discharging his or her administrative duties under this section, a trustee shall 22
strive to administer the retirement system in an efficient and cost-effective manner 23
for the taxpayers of the Commonwealth of Kentucky. 24
(6) Notwithstanding any other provision of KRS 161.220 to 161.716, no funds of the 25
Teachers' Retirement System, including fees and commissions paid to an 26
investment manager, private fund, or company issuing securities, who manages 27 UNOFFICIAL COPY 25 RS BR 1321
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systems assets, shall be used to pay fees and commissions to placement agents. For 1
purposes of this subsection, "placement agent" means a third-party individual, who 2
is not an employee, or firm, wholly or partially owned by the entity being hired, 3
who solicits investments on behalf of an investment manager, private fund, or 4
company issuing securities. 5
(7) All contracts for the investment or management of assets of the system shall not be 6
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 7
following process to develop and adopt an investment procurement policy with 8
which all prospective contracts for the investment or management of assets of the 9
system shall comply: 10
(a) On or before July 1, 2017, the board shall consult with the secretary of the 11
Finance and Administration Cabinet or his or her designee to develop an 12
investment procurement policy, which shall be written to meet best practices 13
in investment management procurement; 14
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 15
investment procurement policy to the secretary of the Finance and 16
Administration Cabinet or his or her designee for review and comment; 17
(c) Upon receipt of comments from the secretary of the Finance and 18
Administration Cabinet or his or her designee, the board shall choose to adopt 19
or not adopt any recommended changes; 20
(d) Upon adoption, the board shall tender the final investment procurement policy 21
to the secretary of the Finance and Administration Cabinet or his or her 22
designee; 23
(e) No later than thirty (30) days after receipt of the investment procurement 24
policy, the secretary or his or her designee shall certify whether the board's 25
investment procurement policy meets or does not meet best practices for 26
investment management procurement; and 27 UNOFFICIAL COPY 25 RS BR 1321
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(f) Any amendments to the investment procurement policy shall adhere to the 1
requirements set forth by paragraphs (b) to (e) of this subsection. 2
(8) (a) The board shall adopt written proxy voting guidelines which are consistent 3
with the fiduciary duties and other requirements of this section. 4
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 5
voting service and shall not allow such proxy adviser or proxy voting service 6
to vote on behalf of the system, unless the proxy adviser or proxy voting 7
service acknowledges in writing and accepts under contract its duties under 8
this section and commits to follow the board-adopted proxy voting guidelines 9
when voting the system's shares in order to comply with the board's fiduciary 10
duties and other responsibilities under this section. 11
(c) All shares held by or on behalf of the system, and which the system is entitled 12
to vote under state, federal, or common laws, shall be voted according to the 13
proxy voting guidelines adopted by the board and subject to the fiduciary 14
duties and other requirements of this section by: 15
1. The board, the investment committee of the board, or an employee or 16
employees of the system who are fiduciaries under this section and are 17
appointed or otherwise authorized by the board; or 18
2. A proxy adviser or proxy voting service that acknowledges in writing 19
and accepts under contract its duties under this section and commits to 20
follow the board-adopted proxy voting guidelines when voting the 21
system's shares in order to comply with the board's fiduciary duties and 22
other responsibilities under this section. 23
(d) All proxy votes shall be reported at least quarterly to the board. For each vote, 24
the report shall provide: 25
1. The vote caption; 26
2. The date of the vote; 27 UNOFFICIAL COPY 25 RS BR 1321
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3. The company's name; 1
4. The vote cast for the system; 2
5. The recommendation of the company's management; and 3
6. If applicable, the recommendation of the proxy adviser or proxy voting 4
service. 5
Section 14. This Act may be cited as the Inflation Protection Act of 2025. 6