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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 material 19
connection to the financial risk or financial return of an investment; 20
3. A "material connection" is established if there is a substantial likelihood 21
that a reasonable investor would consider it important in determining the 22
financial risk or the financial return of an investment; 23
4. "Nonpecuniary interest" includes but is not limited to an environmental, 24
social, political, or ideological interest which does not have a direct and 25
material connection to the financial risk or financial return of an 26
investment;[ and] 27 UNOFFICIAL COPY 25 RS SB 183/GA
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5. "Investment manager" shall have the same definition attributed to 1
"investment adviser" under the federal Investment Advisers Act of 1940, 2
15 U.S.C. sec. 80b-2; 3
6. "Shareholder-sponsored proposal" means a proposal by a shareholder 4
included in the proxy statement of an issuer of securities pursuant to 5
17 C.F.R. sec. 240.14a-8; 6
7. "Economic analysis" means a written analysis of the economic impact 7
of a shareholder-sponsored proposal, which shall include, at a 8
minimum: 9
a. The subject matter of the shareholder-sponsored proposal; 10
b. Whether the board of directors of the issuer of securities opposes 11
the shareholder-sponsored proposal and the stated reasons for 12
the opposition; 13
c. Whether the shareholder-sponsored proposal is consistent with 14
the investment policy of the retirement system; 15
d. The economic benefits and costs of implementing the 16
shareholder-sponsored proposal, as written, in the long and 17
short term; 18
e. The quantifiable impact of the shareholder-sponsored proposal, 19
as written, on the investment returns of the funds of the 20
retirement system; and 21
f. An explanation of the modeling, procedures, and processes used 22
to complete the economic analysis; and 23
8. a. "Proxy adviser" means any person who is engaged in the 24
business of providing advice, research, analysis, ratings, or 25
recommendations specifically with respect to proxy voting and 26
who has entered into an agreement or contracted with the board 27 UNOFFICIAL COPY 25 RS SB 183/GA
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of trustees of the retirement system to receive compensation for 1
those purposes. 2
b. "Proxy adviser" does not include an investment manager as 3
defined in this paragraph. 4
(b) The board members, any investment manager or other fiduciary, or proxy 5
adviser shall discharge their duties with respect to the funds of the retirement 6
system solely in the interest of the members and beneficiaries and: 7
1. For the exclusive purposes of providing benefits to members and their 8
beneficiaries and defraying reasonable expenses of administering the 9
plan; 10
2. With the care, skill, prudence, and diligence under the circumstances 11
then prevailing that a prudent person acting in a like capacity and 12
familiar with such matters would use in the conduct of an enterprise of a 13
like character and with like aims; and 14
3. In accordance with the federal, state, and common laws, regulations and 15
other instruments governing the funds and fiduciaries. 16
(c) Evidence that a fiduciary has considered or acted on a nonpecuniary interest 17
shall include but is not limited to: 18
1. Statements, explanations, reports, or correspondence; 19
2. Communications with portfolio companies; 20
3. Statements of principles or policies, whether made individually or 21
jointly; 22
4. Votes of shares or proxies; or 23
5. Coalitions, initiatives, agreements, or commitments to which the 24
fiduciary is a participant, affiliate, or signatory. 25
(d) When exercising or recommending a vote on a shareholder-sponsored 26
proposal, a proxy adviser that has entered into an agreement or contracted 27 UNOFFICIAL COPY 25 RS SB 183/GA
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with the board of trustees of the retirement system acts solely in the interest 1
of the members and beneficiaries under this subsection if: 2
1. The proxy adviser's vote or recommendation is consistent with the 3
recommendation of the board of directors of the issuer of the shares, 4
provided: 5
a. The board of directors of the issuer of the shares is composed of 6
a majority of independent directors; and 7
b. The recommendation of the board of directors is not for the 8
purpose of furthering a nonpecuniary interest; or 9
2. The proxy adviser's vote or recommendation is inconsistent with the 10
recommendation of the board of directors of the issuer of the shares, 11
provided the proxy adviser conducts and documents an economic 12
analysis demonstrating that the vote or recommendation is solely in 13
the interest of the members and beneficiaries. 14
(3) Any accrual of benefits provided under this or any other applicable statute shall be 15
no less than the benefit adjustment provided for in KRS 21.405(4) from the date of 16
the last establishment of that benefit. 17
(4) The board shall establish ethics policies and procedures by promulgation of 18
administrative regulations in accordance with the provisions of KRS Chapter 13A. 19
The ethics policies shall include but not be limited to annual financial and conflict 20
of interest disclosure requirements which must be completed by all board members 21
and made available to the public upon request. 22
(5) In addition to the standards of conduct prescribed by subsection (2) of this section: 23
(a) Investment managers shall comply with all applicable provisions of the 24
Investment Advisers Act of 1940, as amended, and the rules and regulations 25
promulgated thereunder, and shall comply with all other applicable federal 26
securities statutes and related rules and regulations that apply to investment 27 UNOFFICIAL COPY 25 RS SB 183/GA
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managers; and 1
(b) Proxy advisers and proxy voting services shall comply with all applicable 2
provisions of the Investment Advisers Act of 1940, as amended, and the rules 3
and regulations promulgated thereunder, and shall comply with all other 4
federal statutes and related rules and regulations that apply to proxy advisers 5
and proxy voting services. 6
(6) No contract or agreement, whether made in writing or not, shall in any manner 7
waive, restrict, or limit a fiduciary's liability as to any of the duties imposed by this 8
section. Any agreement shall specify that it is made in the Commonwealth of 9
Kentucky and governed by the laws of the Commonwealth of Kentucky. 10
Section 2. KRS 61.650 is amended to read as follows: 11
(1) (a) The board shall be the trustee of funds created by KRS 16.510, 61.515, and 12
61.701 pertaining to the accounts for the Kentucky Employees Retirement 13
System or State Police Retirement System, notwithstanding the provisions of 14
any other statute to the contrary, and shall have exclusive power to invest and 15
reinvest such assets in accordance with federal law. 16
(b) 1. The board shall establish an investment committee whose membership 17
shall be composed of the following: 18
a. The three (3) trustees of the Kentucky Retirement Systems board 19
appointed by the Governor pursuant to KRS 61.645 who have 20
investment experience; and 21
b. Additional trustees appointed by the board chair. 22
2. The investment committee shall have authority to implement the 23
investment policies adopted by the board and act on behalf of the board 24
on all investment-related matters and to acquire, sell, safeguard, 25
monitor, and manage the assets and securities of the several funds. 26
(c) 1. For the purposes of this paragraph: 27 UNOFFICIAL COPY 25 RS SB 183/GA
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a. "Solely in the interest of the members and beneficiaries" shall be 1
determined using only pecuniary factors and shall not include any 2
purpose to further a nonpecuniary interest; 3
b. "Pecuniary factor" means a consideration having a direct and 4
material connection to the financial risk or financial return of an 5
investment; 6
c. A "material connection" is established if there is a substantial 7
likelihood that a reasonable investor would consider it important in 8
determining the financial risk or the financial return of an 9
investment; 10
d. "Nonpecuniary interest" includes but is not limited to an 11
environmental, social, political, or ideological interest which does 12
not have a direct and material connection to the financial risk or 13
financial return of an investment;[ and] 14
e. "Investment manager" shall have the same definition attributed to 15
"investment adviser" under the federal Investment Advisers Act of 16
1940, 15 U.S.C. sec. 80b-2; 17
f. "Shareholder-sponsored proposal" means a proposal by a 18
shareholder included in the proxy statement of an issuer of 19
securities pursuant to 17 C.F.R. sec. 240.14a-8; 20
g. "Economic analysis" means a written analysis of the economic 21
impact of a shareholder-sponsored proposal, which shall 22
include, at a minimum: 23
i. The subject matter of the shareholder-sponsored proposal; 24
ii. Whether the board of directors of the issuer of securities 25
opposes the shareholder-sponsored proposal and the stated 26
reasons for the opposition; 27 UNOFFICIAL COPY 25 RS SB 183/GA
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iii. Whether the shareholder-sponsored proposal is consistent 1
with the investment policy of the retirement systems; 2
iv. The economic benefits and costs of implementing the 3
shareholder-sponsored proposal, as written, in the long and 4
short term; 5
v. The quantifiable impact of the shareholder-sponsored 6
proposal, as written, on the investment returns of the funds 7
of the retirement systems; and 8
vi. An explanation of the modeling, procedures, and processes 9
used to complete the economic analysis; and 10
h. i. "Proxy adviser" means any person who is engaged in the 11
business of providing advice, research, analysis, ratings, or 12
recommendations specifically with respect to proxy voting 13
and who has entered into an agreement or contracted with 14
the board of trustees of the retirement system to receive 15
compensation for those purposes. 16
ii "Proxy adviser" does not include an investment manager 17
as defined in this subparagraph. 18
2. A trustee, officer, employee, employee of the Kentucky Public Pensions 19
Authority, investment manager, or other fiduciary, or proxy adviser shall 20
discharge duties with respect to the retirement system: 21
a. Solely in the interest of the members and beneficiaries; 22
b. For the exclusive purpose of providing benefits to members and 23
beneficiaries and paying reasonable expenses of administering the 24
system; 25
c. With the care, skill, and caution under the circumstances then 26
prevailing that a prudent person acting in a like capacity and 27 UNOFFICIAL COPY 25 RS SB 183/GA
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familiar with those matters would use in the conduct of an activity 1
of like character and purpose; 2
d. Impartially, taking into account any differing interests of members 3
and beneficiaries; 4
e. Incurring any costs that are appropriate and reasonable; and 5
f. In accordance with a good-faith interpretation of the federal, state, 6
and common law governing the system and fiduciaries. 7
3. Evidence that a fiduciary has considered or acted on a nonpecuniary 8
interest shall include but is not limited to: 9
a. Statements, explanations, reports, or correspondence; 10
b. Communications with portfolio companies; 11
c. Statements of principles or policies, whether made individually or 12
jointly; 13
d. Votes of shares or proxies; or 14
e. Coalitions, initiatives, agreements, or commitments to which the 15
fiduciary is a participant, affiliate, or signatory. 16
4. When exercising or recommending a vote on a shareholder-sponsored 17
proposal, a proxy adviser that has entered into an agreement or 18
contracted with the board of trustees of the retirement system acts 19
solely in the interest of the members and beneficiaries under this 20
subsection if: 21
a. The proxy adviser's vote or recommendation is consistent with 22
the recommendation of the board of directors of the issuer of the 23
shares, provided: 24
i. The board of directors of the issuer of the shares is 25
composed of a majority of independent directors; and 26
ii. The recommendation of the board of directors is not for the 27 UNOFFICIAL COPY 25 RS SB 183/GA
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purpose of furthering a nonpecuniary interest; or 1
b. The proxy adviser's vote or recommendation is inconsistent with 2
the recommendation of the board of directors of the issuer of the 3
shares, provided the proxy adviser conducts and documents an 4
economic analysis demonstrating that the vote or 5
recommendation is solely in the interest of the members and 6
beneficiaries. 7
(d) In addition to the standards of conduct prescribed by paragraph (c) of this 8
subsection: 9
1. All internal investment staff of the Kentucky Public Pensions Authority, 10
and investment consultants shall adhere to the Code of Ethics and 11
Standards of Professional Conduct, and all board trustees shall adhere to 12
the Code of Conduct for Members of a Pension Scheme Governing 13
Body. All codes cited in this subparagraph are promulgated by the CFA 14
Institute; 15
2. Investment managers shall comply with all applicable provisions of the 16
federal Investment Advisers Act of 1940, as amended, and the rules and 17
regulations promulgated thereunder, and shall comply with all other 18
applicable federal securities statutes and related rules and regulations 19
that apply to investment managers; and 20
3. Proxy advisers and proxy voting services shall comply with all 21
applicable provisions of the Investment Advisers Act of 1940, as 22
amended, and the rules and regulations promulgated thereunder, and 23
shall comply with all other federal statutes and related rules and 24
regulations that apply to proxy advisers and proxy voting services. 25
(e) No contract or agreement, whether made in writing or not, shall in any 26
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 27 UNOFFICIAL COPY 25 RS SB 183/GA
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imposed by this section. Any agreement shall specify that it is made in the 1
Commonwealth of Kentucky and governed by the laws of the Commonwealth 2
of Kentucky. 3
(2) The board, through adopted written policies, shall maintain ownership and control 4
over its assets held in its unitized managed custodial account. 5
(3) The board, in keeping with its responsibility as trustee and wherever consistent with 6
its fiduciary responsibilities, shall give priority to the investment of funds in 7
obligation calculated to improve the industrial development and enhance the 8
economic welfare of the Commonwealth. 9
(4) The contents of real estate appraisals, engineering or feasibility estimates, and 10
evaluations made by or for the system relative to the acquisition or disposition of 11
property, until such time as all of the property has been acquired or sold, shall be 12
excluded from the application of KRS 61.870 to 61.884 and shall be subject to 13
inspection only upon order of a court of competent jurisdiction. 14
(5) Based upon market value at the time of purchase, the board shall limit the amount 15
of assets managed by any one (1) active or passive investment manager to fifteen 16
percent (15%) of the assets in the pension and insurance funds. 17
(6) All contracts for the investment or management of assets of the systems shall not be 18
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 19
following process to develop and adopt an investment procurement policy with 20
which all prospective contracts for the investment or management of assets of the 21
systems shall comply: 22
(a) On or before July 1, 2017, the board shall consult with the secretary of the 23
Finance and Administration Cabinet or his or her designee to develop an 24
investment procurement policy, which shall be written to meet best practices 25
in investment management procurement; 26
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 27 UNOFFICIAL COPY 25 RS SB 183/GA
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investment procurement policy to the secretary of the Finance and 1
Administration Cabinet or his or her designee for review and comment; 2
(c) Upon receipt of comments from the secretary of the Finance and 3
Administration Cabinet or his or her designee, the board shall choose to adopt 4
or not adopt any recommended changes; 5
(d) Upon adoption, the board shall tender the final investment procurement policy 6
to the secretary of the Finance and Administration Cabinet or his or her 7
designee; 8
(e) No later than thirty (30) days after receipt of the investment procurement 9
policy, the secretary or his or her designee shall certify whether the board's 10
investment procurement policy meets or does not meet best practices for 11
investment management procurement; and 12
(f) Any amendments to the investment procurement policy shall adhere to the 13
requirements set forth by paragraphs (b) to (e) of this subsection. 14
(7) (a) The board shall adopt written proxy voting guidelines which are consistent 15
with the fiduciary duties and other requirements of this section. 16
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 17
voting service and shall not allow such proxy adviser or proxy voting service 18
to vote on behalf of the system, unless the proxy adviser or proxy voting 19
service acknowledges in writing and accepts under contract its duties under 20
this section and commits to follow the board-adopted proxy voting guidelines 21
when voting the system's shares in order to comply with the board's fiduciary 22
duties and other responsibilities under this section. 23
(c) All shares held by or on behalf of the system, and which the system is entitled 24
to vote under state, federal, or common laws, shall be voted according to the 25
proxy voting guidelines adopted by the board and subject to the fiduciary 26
duties and other requirements of this section by: 27 UNOFFICIAL COPY 25 RS SB 183/GA
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1. The board, the investment committee of the board, or an employee or 1
employees of the Authority who are fiduciaries under subsection (1) of 2
this section and are appointed or otherwise authorized by the board; or 3
2. A proxy adviser or proxy voting service that acknowledges in writing 4
and accepts under contract its duties under this section and commits to 5
follow the board-adopted proxy voting guidelines when voting the 6
system's shares in order to comply with the board's fiduciary duties and 7
other responsibilities under this section. 8
(d) All proxy votes shall be reported at least quarterly to the board. For each vote, 9
the report shall provide: 10
1. The vote caption; 11
2. The date of the vote; 12
3. The company's name; 13
4. The vote cast for the system; 14
5. The recommendation of the company's management; and 15
6. If applicable, the recommendation of the proxy adviser or proxy voting 16
service. 17
Section 3. KRS 78.790 is amended to read as follows: 18
(1) (a) The board shall be the trustee of funds pertaining to the County Employees 19
Retirement System created by KRS 78.510 to 78.852, and KRS 61.701, and 20
shall have full and exclusive power to invest and reinvest such assets in 21
accordance with federal law. 22
(b) 1. The board shall establish an investment committee that shall include 23
members of the board with investment experience, elected members, or 24
other members as determined by the board chair, and may also include 25
nonvoting members who have investment expertise. 26
2. The investment committee shall have authority to implement the 27 UNOFFICIAL COPY 25 RS SB 183/GA
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investment policies adopted by the board and act on behalf of the board 1
on all investment-related matters. 2
(c) 1. For the purposes of this paragraph: 3
a. "Solely in the interest of the members and beneficiaries" shall be 4
determined using only pecuniary factors and shall not include any 5
purpose to further a nonpecuniary interest; 6
b. "Pecuniary factor" means a consideration having a direct and 7
material connection to the financial risk or financial return of an 8
investment; 9
c. A "material connection" is established if there is a substantial 10
likelihood that a reasonable investor would consider it important in 11
determining the financial risk or the financial return of an 12
investment; 13
d. "Nonpecuniary interest" includes but is not limited to an 14
environmental, social, political, or ideological interest which does 15
not have a direct and material connection to the financial risk or 16
financial return of an investment;[ and] 17
e. "Investment manager" shall have the same definition attributed to 18
"investment adviser" under the federal Investment Advisers Act of 19
1940, 15 U.S.C. sec. 80b-2; 20
f. "Shareholder-sponsored proposal" means a proposal by a 21
shareholder included in the proxy statement of an issuer of 22
securities pursuant to 17 C.F.R. sec. 240.14a-8; 23
g. "Economic analysis" means a written analysis of the economic 24
impact of a shareholder-sponsored proposal, which shall 25
include, at a minimum: 26
i. The subject matter of the shareholder-sponsored proposal; 27 UNOFFICIAL COPY 25 RS SB 183/GA
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ii. Whether the board of directors of the issuer of securities 1
opposes the shareholder-sponsored proposal and the stated 2
reasons for the opposition; 3
iii. Whether the shareholder-sponsored proposal is consistent 4
with the investment policy of the retirement system; 5
iv. The economic benefits and costs of implementing the 6
shareholder-sponsored proposal, as written, in the long and 7
short term; 8
v. The quantifiable impact of the shareholder-sponsored 9
proposal, as written, on the investment returns of the funds 10
of the retirement system; and 11
vi. An explanation of the modeling, procedures, and processes 12
used to complete the economic analysis; and 13
h. i "Proxy adviser" means any person who is engaged in the 14
business of providing advice, research, analysis, ratings, or 15
recommendations specifically with respect to proxy voting 16
and who has entered into an agreement or contracted with 17
the board of trustees of the retirement system to receive 18
compensation for those purposes. 19
ii. "Proxy adviser" does not include an investment manager 20
as defined in this subparagraph. 21
2. A trustee, officer, employee, employee of the Kentucky Public Pensions 22
Authority, investment manager, or other fiduciary, or proxy adviser shall 23
discharge duties with respect to the system: 24
a. Solely in the interest of the members and beneficiaries; 25
b. For the exclusive purpose of providing benefits to members and 26
beneficiaries and paying reasonable expenses of administering the 27 UNOFFICIAL COPY 25 RS SB 183/GA
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system; 1
c. With the care, skill, and caution under the circumstances then 2
prevailing that a prudent person acting in a like capacity and 3
familiar with those matters would use in the conduct of an activity 4
of like character and purpose; 5
d. Impartially, taking into account any differing interests of members 6
and beneficiaries; 7
e. Incurring any costs that are appropriate and reasonable; and 8
f. In accordance with a good-faith interpretation of the federal, state, 9
and common law governing the system and fiduciaries. 10
3. Evidence that a fiduciary has considered or acted on a nonpecuniary 11
interest shall include but is not limited to: 12
a. Statements, explanations, reports, or correspondence; 13
b. Communications with portfolio companies; 14
c. Statements of principles or policies, whether made individually or 15
jointly; 16
d. Votes of shares or proxies; or 17
e. Coalitions, initiatives, agreements, or commitments to which the 18
fiduciary is a participant, affiliate, or signatory. 19
4. When exercising or recommending a vote on a shareholder-sponsored 20
proposal, a proxy adviser that has entered into an agreement or 21
contracted with the board of trustees of the retirement system acts 22
solely in the interest of the members and beneficiaries under this 23
subsection if: 24
a. The proxy adviser's vote or recommendation is consistent with 25
the recommendation of the board of directors of the issuer of the 26
shares, provided: 27 UNOFFICIAL COPY 25 RS SB 183/GA
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i. The board of directors of the issuer of the shares is 1
composed of a majority of independent directors; and 2
ii. The recommendation of the board of directors is not for the 3
purpose of furthering a nonpecuniary interest; or 4
b. The proxy adviser's vote or recommendation is inconsistent with 5
the recommendation of the board of directors of the issuer of the 6
shares, provided the proxy adviser conducts and documents an 7
economic analysis demonstrating that the vote or 8
recommendation is solely in the interest of the members and 9
beneficiaries. 10
(d) In addition to the standards of conduct prescribed by paragraph (c) of this 11
subsection: 12
1. All internal investment staff of the Kentucky Public Pensions Authority, 13
and investment consultants shall adhere to the Code of Ethics and 14
Standards of Professional Conduct, and all board trustees shall adhere to 15
the Code of Conduct for Members of a Pension Scheme Governing 16
Body. All codes cited in this subparagraph are promulgated by the CFA 17
Institute; 18
2. Investment managers shall comply with all applicable provisions of the 19
federal Investment Advisers Act of 1940, as amended, and the rules and 20
regulations promulgated thereunder, and shall comply with all other 21
applicable federal securities statutes and related rules and regulations 22
that apply to investment managers; and 23
3. Proxy advisers and proxy voting services shall comply with all 24
applicable provisions of the Investment Advisers Act of 1940, as 25
amended, and the rules and regulations promulgated thereunder, and 26
shall comply with all other federal statutes and related rules and 27 UNOFFICIAL COPY 25 RS SB 183/GA
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regulations that apply to proxy advisers and proxy voting services. 1
(e) No contract or agreement, whether made in writing or not, shall in any 2
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 3
imposed by this section. Any agreement shall specify that it is made in the 4
Commonwealth and governed by the laws of the Commonwealth. 5
(2) The board, through adopted written policies, shall maintain ownership and control 6
over its assets held in its unitized managed custodial account. 7
(3) The board, in keeping with its responsibility as the trustee and wherever feasible, 8
shall give priority to the investment of funds in obligations calculated to improve 9
the industrial development and enhance the economic welfare of the 10
Commonwealth. 11
(4) The contents of real estate appraisals, engineering or feasibility estimates, and 12
evaluations made by or for the system relative to the acquisition or disposition of 13
property, until such time as all of the property has been acquired or sold, shall be 14
excluded from the application of KRS 61.870 to 61.884 and shall be subject to 15
inspection only upon order of a court of competent jurisdiction. 16
(5) Based upon market value at the time of purchase, the board shall limit the amount 17
of assets managed by any one (1) active or passive investment manager to fifteen 18
percent (15%) of the assets in the pension and insurance funds. 19
(6) All contracts for the investment or management of assets of the system shall not be 20
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 21
following process to develop and adopt an investment procurement policy with 22
which all prospective contracts for the investment or management of assets of the 23
system shall comply: 24
(a) The board shall consult with the secretary of the Finance and Administration 25
Cabinet or his or her designee to develop an investment procurement policy, 26
which shall be written to meet best practices in investment management 27 UNOFFICIAL COPY 25 RS SB 183/GA
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procurement; 1
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 2
investment procurement policy to the secretary of the Finance and 3
Administration Cabinet or his or her designee for review and comment; 4
(c) Upon receipt of comments from the secretary of the Finance and 5
Administration Cabinet or his or her designee, the board shall choose to adopt 6
or not adopt any recommended changes; 7
(d) Upon adoption, the board shall tender the final investment procurement policy 8
to the secretary of the Finance and Administration Cabinet or his or her 9
designee; 10
(e) No later than thirty (30) days after receipt of the investment procurement 11
policy, the secretary or his or her designee shall certify whether the board's 12
investment procurement policy meets or does not meet best practices for 13
investment management procurement; and 14
(f) Any amendments to the investment procurement policy shall adhere to the 15
requirements set forth by paragraphs (b) to (e) of this subsection. 16
(7) (a) The board shall adopt written proxy voting guidelines, which are consistent 17
with the fiduciary duties and other requirements of this section. 18
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 19
voting service and shall not allow such proxy adviser or proxy voting service 20
to vote on behalf of the system, unless the proxy adviser or proxy voting 21
service acknowledges in writing and accepts under contract its duties under 22
this section and commits to follow the board-adopted proxy voting guidelines 23
when voting the system's shares in order to comply with the board's fiduciary 24
duties and other responsibilities under this section. 25
(c) All shares held by or on behalf of the system, and which the system is entitled 26
to vote under state, federal, or common laws, shall be voted according to the 27 UNOFFICIAL COPY 25 RS SB 183/GA
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proxy voting guidelines adopted by the board and subject to the fiduciary 1
duties and other requirements of this section by: 2
1. The board, the investment committee of the board, or an employee or 3
employees of the Authority who are fiduciaries under subsection (1) of 4
this section and are appointed or otherwise authorized by the board; or 5
2. A proxy adviser or proxy voting service that acknowledges in writing 6
and accepts under contract its duties under this section and commits to 7
follow the board-adopted proxy voting guidelines when voting the 8
system's shares in order to comply with the board's fiduciary duties and 9
other responsibilities under this section. 10
(d) All proxy votes shall be reported at least quarterly to the board. For each vote, 11
the report shall provide: 12
1. The vote caption; 13
2. The date of the vote; 14
3. The company's name; 15
4. The vote cast for the system; 16
5. The recommendation of the company's management; and 17
6. If applicable, the recommendation of the proxy adviser or proxy voting 18
service. 19
Section 4. KRS 161.430 is amended to read as follows: 20
(1) (a) The board of trustees shall be the trustee of the funds of the retirement system 21
and shall have full power and responsibility for the purchase, sale, exchange, 22
transfer, or other disposition of the investments and moneys of the retirement 23
system. The board shall, by administrative regulation, establish investment 24
policies and procedures to carry out their responsibilities. 25
(b) 1. The board shall contract with experienced competent investment 26
managers to invest and manage assets of the system. The board may also 27 UNOFFICIAL COPY 25 RS SB 183/GA
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employ qualified investment staff to advise it on investment matters and 1
to invest and manage assets of the system not to exceed fifty percent 2
(50%) of the system's assets. The board may contract with one (1) or 3
more general investment consultants, as well as specialized investment 4
consultants, to advise it on investment matters. 5
2. All internal investment staff and investment consultants shall adhere to 6
the Code of Ethics and Standards of Professional Conduct, and all board 7
trustees shall adhere to the Code of Conduct for Members of a Pension 8
Scheme Governing Body, promulgated by the CFA Institute. Investment 9
managers shall comply with the federal Investment Advisers Act of 10
1940, as amended, and the rules and regulations promulgated thereunder 11
and shall comply with all other applicable federal securities statutes and 12
related rules and regulations that apply to investment managers. 13
3. No investment manager shall manage more than forty percent (40%) of 14
the funds of the retirement system. 15
(c) The board may appoint an investment committee to act for the board in all 16
matters of investment, subject to the approval of the board of trustees. The 17
board of trustees, in keeping with their responsibilities as trustees and 18
wherever consistent with their fiduciary responsibilities, shall give priority to 19
the investment of funds in obligations calculated to improve the industrial 20
development and enhance the economic welfare of the Commonwealth. 21
Toward this end, the board shall develop procedures for informing the 22
business community of the potential for in-state investments by the retirement 23
fund, accepting and evaluating applications for the in-state investment of 24
funds, and working with members of the business community in executing in-25
state investments which are consistent with the board's fiduciary 26
responsibilities. The board shall include in the criteria it uses to evaluate in-27 UNOFFICIAL COPY 25 RS SB 183/GA
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state investments their potential for creating new employment opportunities 1
and adding to the total job pool in Kentucky. The board may cooperate with 2
the board of trustees of Kentucky Retirement Systems in developing its 3
program and procedures, and shall report to the Legislative Research 4
Commission annually on its progress in placing in-state investments. The first 5
report shall be submitted by October 1, 1991, and subsequent reports shall be 6
submitted by October 1 of each year thereafter. The report shall include the 7
number of applications for in-state investment received, the nature of the 8
investments proposed, the amount requested, the amount invested, and the 9
percentage of applications which resulted in investments. 10
(2) (a) For the purposes of this subsection: 11
1. "Solely in the interest of the members and annuitants[beneficiaries]" 12
shall be determined using only pecuniary factors and shall not include 13
any purpose to further a nonpecuniary interest; 14
2. "Pecuniary factor" means a consideration having a direct and material 15
connection to the financial risk or financial return of an investment; 16
3. A "material connection" is established if there is a substantial likelihood 17
that a reasonable investor would consider it important in determining the 18
financial risk or the financial return of an investment; 19
4. "Nonpecuniary interest" includes but is not limited to an environmental, 20
social, political, or ideological interest which does not have a direct and 21
material connection to the financial risk or financial return of an 22
investment;[ and] 23
5. "Investment manager" and "investment consultant" shall have the same 24
definition attributed to "investment adviser" under the federal 25
Investment Advisers Act of 1940, 15 U.S.C. sec. 80b-2; 26
6. Shareholder-sponsored proposal" means a proposal by a shareholder 27 UNOFFICIAL COPY 25 RS SB 183/GA
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included in the proxy statement of an issuer of securities pursuant to 1
17 C.F.R. sec. 240.14a-8; 2
7. "Economic analysis" means a written analysis of the economic impact 3
of a shareholder-sponsored proposal, which shall include, at a 4
minimum: 5
a. The subject matter of the shareholder-sponsored proposal; 6
b. Whether the board of directors of the issuer of securities opposes 7
the shareholder-sponsored proposal and the stated reasons for 8
the opposition; 9
c. Whether the shareholder-sponsored proposal is consistent with 10
the investment policy of the retirement system; 11
d. The economic benefits and costs of implementing the 12
shareholder-sponsored proposal, as written, in the long and 13
short term; 14
e. The quantifiable impact of the shareholder-sponsored proposal, 15
as written, on the investment returns of the funds of the 16
retirement system; and 17
f. An explanation of the modeling, procedures, and processes used 18
to complete the economic analysis; and 19
8. a. "Proxy adviser" means any person who is engaged in the 20
business of providing advice, research, analysis, ratings, or 21
recommendations specifically with respect to proxy voting and 22
who has entered into an agreement or contracted with the board 23
of trustees of the retirement system to receive compensation for 24
those purposes. 25
b. "Proxy adviser" does not include an investment manager or 26
investment consultant as defined in this paragraph. 27 UNOFFICIAL COPY 25 RS SB 183/GA
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(b) The board members, investment managers, investment consultants, or other 1
fiduciaries, and proxy advisers shall discharge their duties with respect to the 2
assets of the system solely in the interests of the active contributing members 3
and annuitants and: 4
1. For the exclusive purpose of providing benefits to members and 5
annuitants and defraying reasonable expenses of administering the 6
system; 7
2. With the care, skill, prudence, and diligence under the circumstances 8
then prevailing that a prudent person acting in a like capacity and 9
familiar with these matters would use in the conduct of an enterprise of 10
a like character and with like aims; 11
3. By diversifying the investments of the plan so as to minimize the risk of 12
large losses, unless under the circumstances it is clearly prudent not to 13
do so; and 14
4. In accordance with the federal, state, and common laws, administrative 15
regulations, and other instruments governing the system and fiduciaries. 16
(c) Evidence that a fiduciary has considered or acted on a nonpecuniary interest 17
shall include but is not limited to: 18
1. Statements, explanations, reports, or correspondence; 19
2. Communications with portfolio companies; 20
3. Statements of principles or policies, whether made individually or 21
jointly; 22
4. Votes of shares or proxies; or 23
5. Coalitions, initiatives, agreements, or commitments to which the 24
fiduciary is a participant, affiliate, or signatory. 25
(d) When exercising or recommending a vote on a shareholder-sponsored 26
proposal, a proxy adviser that has entered into an agreement or contracted 27 UNOFFICIAL COPY 25 RS SB 183/GA
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with the board of trustees of the retirement system acts solely in the interest 1
of the members and annuitants under this subsection if: 2
1. The proxy adviser's vote or recommendation is consistent with the 3
recommendation of the board of directors of the issuer of the shares, 4
provided: 5
a. The board of directors of the issuer of the shares is composed of 6
a majority of independent directors; and 7
b. The recommendation of the board of directors is not for the 8
purpose of furthering a nonpecuniary interest; or 9
2. The proxy adviser's vote or recommendation is inconsistent with the 10
recommendation of the board of directors of the issuer of the shares, 11
provided the proxy adviser conducts and documents an economic 12
analysis demonstrating that the vote or recommendation is solely in 13
the interest of the members and annuitants. 14
(3) (a) In choosing and contracting for professional investment management and 15
consulting services, the board shall do so prudently and in the interest of the 16
members and annuitants. Any contract that the board makes with an 17
investment manager shall set forth policies and guidelines of the board with 18
reference to standard rating services and specific criteria for determining the 19
quality of investments. Expenses directly related to investment management 20
and consulting services shall be financed from the guarantee fund in amounts 21
approved by the board. 22
(b) An investment manager or consultant appointed under this section shall 23
acknowledge in writing his or her fiduciary responsibilities to the fund. To be 24
eligible for appointment, an investment manager, consultant, or an affiliate, 25
shall be: 26
1. Registered under the Federal Investment Advisers Act of 1940; or 27 UNOFFICIAL COPY 25 RS SB 183/GA
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2. A bank as defined by that Act; or 1
3. An insurance company qualified to perform investment services under 2
the laws of more than one (1) state. 3
(c) Proxy advisers and proxy voting services shall comply with all applicable 4
provisions of the Investment Advisers Act of 1940, as amended, and the rules 5
and regulations promulgated thereunder, and shall comply with all other 6
federal statutes and related rules and regulations that apply to proxy advisers 7
and proxy voting services. 8
(d) No contract or agreement, whether made in writing or not, shall in any 9
manner waive, restrict, or limit a fiduciary's liability as to any of the duties 10
imposed by this section. Any agreement shall specify that it is made in the 11
Commonwealth of Kentucky and governed by the laws of the Commonwealth 12
of Kentucky. 13
(4) No investment or disbursement of funds shall be made unless authorized by the 14
board of trustees, except that the board, in order to ensure timely market 15
transactions, shall establish investment guidelines and may permit its staff and 16
investment managers who are employed or under contract with the board pursuant 17
to this section to execute purchases and sales of investment instruments within 18
those guidelines without prior board approval. 19
(5) In discharging his or her administrative duties under this section, a trustee shall 20
strive to administer the retirement system in an efficient and cost-effective manner 21
for the taxpayers of the Commonwealth of Kentucky. 22
(6) Notwithstanding any other provision of KRS 161.220 to 161.716, no funds of the 23
Teachers' Retirement System, including fees and commissions paid to an 24
investment manager, private fund, or company issuing securities, who manages 25
systems assets, shall be used to pay fees and commissions to placement agents. For 26
purposes of this subsection, "placement agent" means a third-party individual, who 27 UNOFFICIAL COPY 25 RS SB 183/GA
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is not an employee, or firm, wholly or partially owned by the entity being hired, 1
who solicits investments on behalf of an investment manager, private fund, or 2
company issuing securities. 3
(7) All contracts for the investment or management of assets of the system shall not be 4
subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the 5
following process to develop and adopt an investment procurement policy with 6
which all prospective contracts for the investment or management of assets of the 7
system shall comply: 8
(a) On or before July 1, 2017, the board shall consult with the secretary of the 9
Finance and Administration Cabinet or his or her designee to develop an 10
investment procurement policy, which shall be written to meet best practices 11
in investment management procurement; 12
(b) Thirty (30) days prior to adoption, the board shall tender the preliminary 13
investment procurement policy to the secretary of the Finance and 14
Administration Cabinet or his or her designee for review and comment; 15
(c) Upon receipt of comments from the secretary of the Finance and 16
Administration Cabinet or his or her designee, the board shall choose to adopt 17
or not adopt any recommended changes; 18
(d) Upon adoption, the board shall tender the final investment procurement policy 19
to the secretary of the Finance and Administration Cabinet or his or her 20
designee; 21
(e) No later than thirty (30) days after receipt of the investment procurement 22
policy, the secretary or his or her designee shall certify whether the board's 23
investment procurement policy meets or does not meet best practices for 24
investment management procurement; and 25
(f) Any amendments to the investment procurement policy shall adhere to the 26
requirements set forth by paragraphs (b) to (e) of this subsection. 27 UNOFFICIAL COPY 25 RS SB 183/GA
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(8) (a) The board shall adopt written proxy voting guidelines which are consistent 1
with the fiduciary duties and other requirements of this section. 2
(b) The board shall not adopt the recommendations of a proxy adviser or proxy 3
voting service and shall not allow such proxy adviser or proxy voting service 4
to vote on behalf of the system, unless the proxy adviser or proxy voting 5
service acknowledges in writing and accepts under contract its duties under 6
this section and commits to follow the board-adopted proxy voting guidelines 7
when voting the system's shares in order to comply with the board's fiduciary 8
duties and other responsibilities under this section. 9
(c) All shares held by or on behalf of the system, and which the system is entitled 10
to vote under state, federal, or common laws, shall be voted according to the 11
proxy voting guidelines adopted by the board and subject to the fiduciary 12
duties and other requirements of this section by: 13
1. The board, the investment committee of the board, or an employee or 14
employees of the system who are fiduciaries under this section and are 15
appointed or otherwise authorized by the board; or 16
2. A proxy adviser or proxy voting service that acknowledges in writing 17
and accepts under contract its duties under this section and commits to 18
follow the board-adopted proxy voting guidelines when voting the 19
system's shares in order to comply with the board's fiduciary duties and 20
other responsibilities under this section. 21
(d) All proxy votes shall be reported at least quarterly to the board. For each vote, 22
the report shall provide: 23
1. The vote caption; 24
2. The date of the vote; 25
3. The company's name; 26
4. The vote cast for the system; 27 UNOFFICIAL COPY 25 RS SB 183/GA
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5. The recommendation of the company's management; and 1
6. If applicable, the recommendation of the proxy adviser or proxy voting 2
service. 3