SB1166sam001 95TH GENERAL ASSEMBLY

Sen. Kwame Raoul

Filed: 3/12/2007

09500SB1166sam001 LRB095 10225 AMC 33384 a

AMENDMENT TO SENATE BILL 1166

AMENDMENT NO. ______. Amend Senate Bill 1166 by replacing everything after the enacting clause with the following:

"Section 1. Findings. In 1997, the General Assembly granted pension funds created under Articles 3 (Downstate Police) and 4 (Downstate Firefighter) of the Illinois Pension Code certain limited authority to invest in publicly traded equities, including mutual and similar funds that compile publicly traded equities. Investment in equities beyond the limits allowed by law results in undue financial risk, diminishes the viability and stability of these pension funds, and adversely affects the interests and expectations of local police officers, firefighters, and their families. According to reports produced by the pension funds created under Articles 3 and 4 of the Illinois Pension Code, a number of these pension funds are invested in equities beyond the limits established by law.

Section 5. The Illinois Pension Code is amended by changing Sections 1-113.2, 1-113.3, 1-113.4, 3-132, 4-123, and 22A-113 as follows:

(40 ILCS 5/1-113.2)

Sec. 1-113.2. List of permitted investments for all Article 3 or 4 pension funds.

(a) Any pension fund established under Article 3 or 4 may invest in the following items:

(1) Interest bearing direct obligations of the United States of America.

(2) Interest bearing obligations to the extent that they are fully guaranteed or insured as to payment of principal and interest by the United States of America.

(3) Interest bearing bonds, notes, debentures, or other similar obligations of agencies of the United States of America. For the purposes of this Section, "agencies of the United States of America" includes: (i) the Federal National Mortgage Association and the Student Loan Marketing Association; (ii) federal land banks, federal intermediate credit banks, federal farm credit banks, and any other entity authorized to issue direct debt obligations of the United States of America under the Farm Credit Act of 1971 or amendments to that Act; (iii) federal home loan banks and the Federal Home Loan Mortgage Corporation; and (iv) any agency created by Act of Congress that is authorized to issue direct debt obligations of the United States of America.

(4) Interest bearing savings accounts or certificates of deposit, issued by federally chartered banks or savings and loan associations, to the extent that the deposits are insured by agencies or instrumentalities of the federal government.

(5) Interest bearing savings accounts or certificates of deposit, issued by State of Illinois chartered banks or savings and loan associations, to the extent that the deposits are insured by agencies or instrumentalities of the federal government.

(6) Investments in credit unions, to the extent that the investments are insured by agencies or instrumentalities of the federal government.

(7) Interest bearing bonds of the State of Illinois.

(8) Pooled interest bearing accounts managed by the Illinois Public Treasurer's Investment Pool in accordance with the Deposit of State Moneys Act and interest bearing funds or pooled accounts managed, operated, and administered by banks, subsidiaries of banks, or subsidiaries of bank holding companies in accordance with the laws of the State of Illinois.

(9) Interest bearing bonds or tax anticipation warrants of any county, township, or municipal corporation of the State of Illinois.

(10) Direct obligations of the State of Israel, subject to the conditions and limitations of item (5.1) of Section 1-113.

(11) Money market mutual funds managed by investment companies that are registered under the federal Investment Company Act of 1940 and the Illinois Securities Law of 1953 and are diversified, open-ended management investment companies; provided that the portfolio of the money market mutual fund is limited to the following:

(i) bonds, notes, certificates of indebtedness, treasury bills, or other securities that are guaranteed by the full faith and credit of the United States of America as to principal and interest;

(ii) bonds, notes, debentures, or other similar obligations of the United States of America or its agencies; and

(iii) short term obligations of corporations organized in the United States with assets exceeding $400,000,000, provided that (A) the obligations mature no later than 180 days from the date of purchase, (B) at the time of purchase, the obligations are rated by at least 2 standard national rating services at one of their 3 highest classifications, and (C) the obligations held by the mutual fund do not exceed 10% of the corporation's outstanding obligations.

(12) General accounts of life insurance companies authorized to transact business in Illinois.

(13) Any combination of the following, not to exceed 10% of the pension fund's net assets:

(i) separate accounts that are managed by life insurance companies authorized to transact business in Illinois and are comprised of diversified portfolios consisting of common or preferred stocks, bonds, or money market instruments;

(ii) separate accounts that are managed by insurance companies authorized to transact business in Illinois, and are comprised of real estate or loans upon real estate secured by first or second mortgages; and

(iii) mutual funds that meet the following requirements:

(A) the mutual fund is managed by an investment company as defined and registered under the federal Investment Company Act of 1940 and registered under the Illinois Securities Law of 1953;

(B) the mutual fund has been in operation for at least 5 years;

(C) the mutual fund has total net assets of $250 million or more; and

(D) the mutual fund is comprised of diversified portfolios of common or preferred stocks, bonds, or money market instruments.

(b) If (i) a pension fund's investment in accounts or funds described in item (13) of subsection (a) exceeds 15% of the market value of the pension fund's assets according to the most recent annual report filed with the Public Pension Division within the Department of Financial and Professional Regulation or (ii) a pension fund fails to file an annual report with the Public Pension Division within 3 months after the due date of the annual report, then the Public Pension Division shall immediately notify the State Board of Investment established under Article 22A of this Code, the Auditor General, and the General Assembly, whereupon, by operation of law, all authority and responsibility for managing the pension fund's assets shall immediately lie with the State Board of Investment, who shall have sole authority and responsibility for managing those assets, as otherwise required by this Code, until 3 consecutive annual reports filed with the Public Pension Division demonstrate that all investments and practices comply with the law. To effectuate the transfer of authority and responsibility provided for in this subsection (b), the State Board of Investment may, at the expense of the pension fund, take any action that it deems necessary or appropriate and may further obtain injunctive relief of a writ of mandamus.

(Source: P.A. 90-507, eff. 8-22-97; 91-887, eff. 7-6-00.)

(40 ILCS 5/1-113.3)

Sec. 1-113.3. List of additional permitted investments for pension funds with net assets of $2,500,000 or more.

(a) In addition to the items in Section 3-113.2, a pension fund established under Article 3 or 4 that has net assets of at least $2,500,000 may invest a portion of its net assets in the following items:

(1) Separate accounts that are managed by life insurance companies authorized to transact business in Illinois and are comprised of diversified portfolios consisting of common or preferred stocks, bonds, or money market instruments.

(2) Mutual funds that meet the following requirements:

(i) the mutual fund is managed by an investment company as defined and registered under the federal Investment Company Act of 1940 and registered under the Illinois Securities Law of 1953;

(ii) the mutual fund has been in operation for at least 5 years;

(iii) the mutual fund has total net assets of $250 million or more; and

(iv) the mutual fund is comprised of diversified portfolios of common or preferred stocks, bonds, or money market instruments.

(b) A pension fund's total investment in the items authorized under this Section shall not exceed 35% of the market value of the pension fund's net present assets stated in its most recent annual report on file with the Public Pension Division within the Department of Financial and Professional Regulation Illinois Department of Insurance.

(c) If (i) a pension fund's investment in accounts or funds described in subsection (a) exceeds 40% of the market value of the pension fund's assets according to the most recent annual report filed with the Public Pension Division within the Department of Financial and Professional Regulation or (ii) a pension fund fails to file an annual report with the Public Pension Division within 3 months after the due date of the annual report, then the Public Pension Division shall immediately notify the State Board of Investment established under Article 22A of this Code, the Auditor General, and the General Assembly, whereupon, by operation of law, all authority and responsibility for managing the pension fund's assets shall immediately lie with the State Board of Investment, who shall have sole authority and responsibility for managing those assets, as otherwise required by this Code, until 3 consecutive annual reports filed with the Public Pension Division demonstrate that all investments and practices comply with the law. To effectuate the transfer of authority and responsibility provided for in this subsection (c), the State Board of Investment may, at the expense of the pension fund, take any action that it deems necessary or appropriate and may further obtain injunctive relief of a writ of mandamus.

(Source: P.A. 90-507, eff. 8-22-97.)

(40 ILCS 5/1-113.4)

Sec. 1-113.4. List of additional permitted investments for pension funds with net assets of $5,000,000 or more.

(a) In addition to the items in Sections 1-113.2 and 1-113.3, a pension fund established under Article 3 or 4 that has net assets of at least $5,000,000 and has appointed an investment adviser under Section 1-113.5 may, through that investment adviser, invest a portion of its assets in common and preferred stocks authorized for investments of trust funds under the laws of the State of Illinois. The stocks must meet all of the following requirements:

(1) The common stocks are listed on a national securities exchange or board of trade (as defined in the federal Securities Exchange Act of 1934 and set forth in Section 3.G of the Illinois Securities Law of 1953) or quoted in the National Association of Securities Dealers Automated Quotation System National Market System (NASDAQ NMS).

(2) The securities are of a corporation created or existing under the laws of the United States or any state, district, or territory thereof and the corporation has been in existence for at least 5 years.

(3) The corporation has not been in arrears on payment of dividends on its preferred stock during the preceding 5 years.

(4) The market value of stock in any one corporation does not exceed 5% of the cash and invested assets of the pension fund, and the investments in the stock of any one corporation do not exceed 5% of the total outstanding stock of that corporation.

(5) The straight preferred stocks or convertible preferred stocks are issued or guaranteed by a corporation whose common stock qualifies for investment by the board.

(6) The issuer of the stocks has been subject to the requirements of Section 12 of the federal Securities Exchange Act of 1934 and has been current with the filing requirements of Sections 13 and 14 of that Act during the preceding 3 years.

(b) A pension fund's total investment in the items authorized under this Section and Section 1-113.3 shall not exceed 35% of the market value of the pension fund's net present assets stated in its most recent annual report on file with the Public Pension Division within the Department of Financial and Professional Regulation Illinois Department of Insurance.

(c) A pension fund that invests funds under this Section shall electronically file with the Division any reports of its investment activities that the Division may require, at the times and in the format required by the Division.

(d) If (i) a pension fund's investment in accounts or funds described in subsection (a) exceeds 40% of the market value of the pension fund's assets according to the most recent annual report filed with the Public Pension Division within the Department of Financial and Professional Regulation or (ii) a pension fund fails to file an annual report with the Public Pension Division within 3 months after the due date of the annual report, then the Public Pension Division shall immediately notify the State Board of Investment established under Article 22A of this Code, the Auditor General, and the General Assembly, whereupon, by operation of law, all authority and responsibility for managing the pension fund's assets shall immediately lie with the State Board of Investment, who shall have sole authority and responsibility for managing those assets, as otherwise required by this Code, until 3 consecutive annual reports filed with the Public Pension Division demonstrate that all investments and practices comply with the law. To effectuate the transfer of authority and responsibility provided for in this subsection (d), the State Board of Investment may, at the expense of the pension fund, take any action that it deems necessary or appropriate and may further obtain injunctive relief of a writ of mandamus.

(Source: P.A. 90-507, eff. 8-22-97.)

(40 ILCS 5/3-132) (from Ch. 108 1/2, par. 3-132)

Sec. 3-132. To control and manage the Pension Fund. In accordance with the applicable provisions of Articles 1 and 1A and this Article, to control and manage, exclusively, the following:

(1) the pension fund,

(2) investment expenditures and income, including interest dividends, capital gains and other distributions on the investments, and

(3) all money donated, paid, assessed, or provided by law for the pensioning of disabled and retired police officers, their surviving spouses, minor children, and dependent parents.

All money received or collected shall be credited by the treasurer of the municipality to the account of the pension fund and held by the treasurer of the municipality subject to the order and control of the board. The treasurer of the municipality shall maintain a record of all money received, transferred, and held for the account of the board.

(Source: P.A. 90-507, eff. 8-22-97.)

(40 ILCS 5/4-123) (from Ch. 108 1/2, par. 4-123)

Sec. 4-123. To control and manage the Pension Fund. In accordance with the applicable provisions of Articles 1 and 1A and this Article, to control and manage, exclusively, the following:

(1) the pension fund,

(2) investment expenditures and income, including interest dividends, capital gains, and other distributions on the investments, and

(3) all money donated, paid, assessed, or provided by law for the pensioning of disabled and retired firefighters, their surviving spouses, minor children, and dependent parents.

All money received or collected shall be credited by the treasurer of the municipality to the account of the pension fund and held by the treasurer of the municipality subject to the order and control of the board. The treasurer of the municipality shall maintain a record of all money received, transferred, and held for the account of the board.

(Source: P.A. 90-507, eff. 8-22-97.)

(40 ILCS 5/22A-113) (from Ch. 108 1/2, par. 22A-113)

Sec. 22A-113. Transfer of securities and investment functions. (a) As soon as possible or practicable following the enactment of this Article and prior to July 1, 1970, the trustees of the State Employees' Retirement System, the General Assembly Retirement System and the Judges Retirement System, shall transfer to this board for management and investment all of their securities or for which commitments have been made, and all funds, assets or moneys representing permanent or temporary investments, or cash reserves maintained for the purpose of obtaining income thereon.

(b) The board of trustees or retirement board of any pension fund or retirement system electing to come under the authority of the Illinois State Board of Investment for the management of its investments and the performance of investment functions previously performed by such board of that pension fund or retirement system shall effect a transfer of securities and other assets thereof not later than the first day of the 4th month next following the date of such election after completion of an audit by a certified public accountant of such securities and other assets as authorized by the Illinois State Board of Investment and approved by the Auditor General of the State, the expense of which shall be assumed by the pension fund or retirement system. Upon such transfer, the authority of The Illinois State Board of Investment in the case of such pension fund or retirement system is effective. These transfers shall be receipted for in detail by the Chairman and director of the board.

(c) The board of trustees or retirement board of any pension fund or retirement system authorized under the Illinois Pension Code to participate in any commingled investment fund or funds established and managed by the Illinois State Board of Investment under this Article may invest in such commingled investment fund or funds upon written notice to the Illinois State Board of Investment. The board of trustees of the Illinois Bank Examiners' Education Foundation is authorized to participate in any commingled investment fund or funds established and managed by the Illinois State Board of Investment upon providing written notice to the Illinois State Board of Investment. Any participation in a commingled fund and the management thereof shall be in accordance with the governing law and the rules, policies and directives of the Illinois State Board of Investment.

(d) When the State Board of Investment receives authority and responsibility for managing the assets of a pension fund as provided in Sections 1-113.2, 1-113.3, and 1-113.4 of this Code, the State Board of Investment shall immediately, through an audit conducted by a certified public accountant at the expense of the pension fund, provide the Board of Trustees of the pension fund and the Public Pension Division within the Department of Financial and Professional Regulation with a receipt that identifies and ascertains all assets over which the State Board of Investment shall exercise authority and responsibility.

(Source: P.A. 84-1127.)

Section 99. Effective date. This Act takes effect upon becoming law.".