PRINTER'S NO. 3841
No. 2736 Session of 1990
INTRODUCED BY MAINE, PIEVSKY AND GALLEN, JUNE 27, 1990
REFERRED TO COMMITTEE ON APPROPRIATIONS, JUNE 27, 1990
AN ACT
1 Amending Titles 24 (Education) and 71 (State Government) of the
2 Pennsylvania Consolidated Statutes, adding and revising
3 provisions relating to authorized investments of the Public
4 School Employees' Retirement Board and the State Employees'
5 Retirement Board, respectively, and excepting such boards
6 from terms, conditions, limitations and restrictions imposed
7 on other administrative boards of State government in making
8 investments.
9 The General Assembly of the Commonwealth of Pennsylvania
10 hereby enacts as follows:
11 Section 1. Section 8521 of Title 24 of the Pennsylvania
12 Consolidated Statutes is amended to read:
13 § 8521. Management of fund and accounts.
14 (a) Control and management of fund.--The members of the
15 board shall be the trustees of the fund and shall have exclusive
16 control and management of the said fund and full power to invest
17 the same, subject, however, to the exercise of that degree of
18 judgment and care under the circumstances then prevailing which
19 persons of prudence, discretion and intelligence who are
20 familiar with such matters exercise in the management of their
1 own affairs not in regard to speculation, but in regard to the
2 permanent disposition of the fund, considering the probable
3 income to be derived therefrom as well as the probable safety of
4 their capital, and further subject to all the terms, conditions,
5 limitations, and restrictions imposed by [this part] section
6 8521.1 (relating to authorized investments of fund) or other
7 applicable law upon the making of investments. Subject to like
8 terms, conditions, limitations, and restrictions, said trustees
9 shall have the power to hold, purchase, sell, lend, assign,
10 transfer, or dispose of any of the securities and investments in
11 which any of the moneys in the fund shall have been invested as
12 well as of the proceeds of said investments and of any moneys
13 belonging to said fund.
14 (b) Crediting of interest.--The board annually shall allow
15 statutory interest to the credit of the members' savings account
16 on the mean amount of the accumulated deductions of all members
17 for whom interest is payable for the preceding year and
18 valuation interest on the mean amount of the annuity reserve
19 account for the preceding year to the credit of that account.
20 The board annually shall allow valuation interest calculated on
21 the mean amount for the preceding year of the balance in the
22 State accumulation account excluding any earnings of the fund
23 credited to the account during that year. In the event the total
24 earnings for the year do not exceed 5 1/2% of the mean amount
25 for the preceding year of the total assets of the fund less
26 earnings credited to the fund during that year plus the
27 administrative expenses of the board, the difference required to
28 be appropriated from the General Fund shall be credited to the
29 State accumulation account.
30 (c) Custodian of fund.--The State Treasurer shall be the
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1 custodian of the fund.
2 (d) Payments from fund.--All payments from the fund shall be
3 made by the State Treasurer in accordance with requisitions
4 signed by the secretary of the board, or his designee, and
5 ratified by resolution of the board.
6 (e) Fiduciary status of board.--The members of the board,
7 employees of the board, and agents thereof shall stand in a
8 fiduciary relationship to the members of the system regarding
9 the investments and disbursements of any of the moneys of the
10 fund and shall not profit either directly or indirectly with
11 respect thereto.
12 (f) Name for transacting business.--By the name of "The
13 Public School Employees' Retirement System" or "The Public
14 School Employes' Retirement System" all of the business of the
15 system shall be transacted, its fund invested, all requisitions
16 for money drawn and payments made, and all of its cash and
17 securities and other property shall be held, except that, any
18 other law to the contrary notwithstanding, the board may
19 establish a nominee registration procedure for the purpose of
20 registering securities in order to facilitate the purchase,
21 sale, or other disposition of securities pursuant to the
22 provisions of this part.
23 (g) Deposits in banks and trust companies.--For the purpose
24 of meeting disbursements for annuities and other payments in
25 excess of the receipts, there shall be kept available by the
26 State Treasurer an amount, not exceeding 10% of the total amount
27 in the fund, on deposit in any bank, savings bank or savings and
28 loan association in this Commonwealth organized under the laws
29 thereof or under the laws of the United States or with any trust
30 company or companies incorporated by any law of this
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1 Commonwealth, provided any of such banks, trust companies,
2 savings banks or savings and loan associations shall furnish
3 adequate security for said deposit. The sum deposited in any one
4 bank or trust company shall not exceed 25% of the paid-up
5 capital and surplus of said bank or trust company or, in the
6 case of savings banks or savings and loan associations, shall
7 not exceed 25% of the unappropriated surplus.
8 [(h) Investment in corporate stocks.--Preferred and common
9 stock of any corporation organized under the laws of the United
10 States or of any commonwealth or state thereof or of the
11 District of Columbia and preferred and common stock as defined
12 in subsection (i) of any corporation as defined in subsection
13 (j) whose shares are traded in United States dollars on the New
14 York Stock Exchange and American Stock Exchange shall be an
15 authorized investment of the fund, provided that they fulfill
16 certain guidelines in paragraph (1), regardless of any other
17 provision of law provided that:
18 (1) in the case of any stock other than stock of a bank
19 or insurance company, the stock is listed or traded (or if
20 unlisted or not entitled to trading privileges shall be
21 eligible for listing and application for such listing shall
22 have been made) on the New York Stock Exchange or American
23 Stock Exchange. No investment in the stock of corporations
24 not organized under the laws of the United States or of any
25 commonwealth or state thereof or of the District of Columbia
26 shall be made which would cause the book value of such
27 investment to exceed 5% of the book value of the total assets
28 of the fund. Shares of banks and insurance companies shall be
29 eligible for purchase whether or not traded on the New York
30 Stock Exchange. The shares of unlisted nonfinancial companies
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1 shall be eligible for purchase provided such corporations
2 produce revenue of $200,000,000 or more in their most recent
3 fiscal year-end and have paid cash dividends for the past
4 five or more consecutive years;
5 (2) no investment in common stock be made which at that
6 time would cause the book value of the investments in common
7 stock to exceed 50% of the total assets of the fund;
8 (3) the amount invested in the common stock of any one
9 company shall not exceed at cost 2% of the book value of the
10 assets of the fund at the time of purchase and shall not
11 exceed 5% of the issued and outstanding common stock of that
12 company; and
13 (4) the percentage limitations of paragraph (3) shall
14 not apply to the reinvestment of funds realized from the sale
15 or transfer of common stocks and no sale or other liquidation
16 of any investment shall be required solely because of any
17 change in market values whereby the percentages of stocks set
18 forth in this subsection are exceeded.
19 (i) Common stock defined.--"Common stock" as used in
20 subsection (h) shall include the stock certificates,
21 certificates of beneficial interests, or trust participation
22 certificates issued by any corporation or unincorporated
23 association included under the definition of "corporation" in
24 subsection (j).
25 (j) Corporation defined.--"Corporation" as used in
26 subsection (h) shall include a voluntary association, a joint-
27 stock association or company, a business trust, a Massachusetts
28 trust, a common-law trust, and any other organization organized
29 and existing for any lawful purpose and which like a
30 corporation, continues to exist, notwithstanding changes in the
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1 personnel of its members or participants and conducts its
2 affairs through a committee, a board, or some other group acting
3 in a representative capacity.
4 (k) Investment in real estate and mortgages.--Real estate,
5 whether direct or through pooled funds, including but not
6 limited to real estate which shall not require managerial
7 responsibility by the board; and bonds, notes and deeds of
8 trust, of individuals or corporations secured by mortgages on
9 real estate located in any state, district or territory of the
10 United States, shall be an authorized investment of the board
11 regardless of any other provision of law. All instruments,
12 transfers of interest, and all records pertaining to real
13 estate, mortgages or bonds invested in by the board, shall be
14 open to public inspection.
15 (l) Additional board power on investments.--Regardless of
16 any limitations, conditions or restrictions imposed on the
17 making of investments by this part or other law, the board may,
18 at its discretion, invest a maximum of 10% of the book value of
19 the assets of the fund in any investments not otherwise
20 specifically authorized, provided that such investments are made
21 with the exercise of that degree of judgment and care under the
22 circumstances then prevailing which persons of prudence,
23 discretion and intelligence who are familiar with such matters
24 exercise in the management of their own affairs not in regard to
25 speculation, but in regard to the permanent disposition of the
26 fund, considering the probable income to be derived therefrom as
27 well as the probable safety of their capital.
28 (m) Obligations of United States to be authorized
29 investments.--Regardless of any other provision of law,
30 obligations of the United States Government and its agencies
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1 shall be authorized investments of the fund.
2 (n) Limited partnerships and separate accounts.--The board
3 may invest in any investments authorized in this section by
4 becoming a limited partner in partnerships that will hold such
5 investments or by participating in separate accounts of any
6 insurance company authorized to do business in this
7 Commonwealth, in either case the liability of the fund shall be
8 limited to the amount of the investment.
9 (o) Venture capital.--The provisions of subsection (l)
10 notwithstanding, venture capital investments made through
11 limited partnerships and through separate accounts shall be
12 limited to not more than 1% of the book value of the total
13 assets of the fund. A venture capital investment shall be made
14 only if such investment will enhance the general welfare of this
15 Commonwealth and its citizens through economic development and
16 meets the standard of prudence set forth in subsection (l). An
17 investment shall be deemed a venture capital investment if it
18 results in the acquisition of equity interests or a combination
19 of debt and equity interests in a business which is expected to
20 grow substantially in the future and in which the expected
21 return on investment is to come predominantly from an increase
22 in value of the equity interest and that are not held through or
23 secured by stock that is an authorized investment under the
24 authority of subsection (h) and are not interests in or secured
25 by real estate.]
26 Section 2. Title 24 is amended by adding a section to read:
27 § 8521.1. Authorized investments of fund.
28 (a) Classes of investment.--Regardless of any other
29 provision of law governing the investments of funds under the
30 control of an administrative board of the State government, the
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1 following classes of investment shall be authorized investments
2 of the fund, provided the book value of each class, as
3 determined for financial statement purposes, shall not exceed
4 the percentage as specified in this section of the fund's total
5 assets as of June 30 next preceding the date of investment:
6 (1) United States, state and municipal obligation.--
7 Bonds, notes or obligations issued, assumed or guaranteed by
8 the United States or by any state thereof, or by any county,
9 city, town, village, municipality or district therein, or by
10 any political subdivision thereof, or by a public
11 instrumentality of one or more of the foregoing, if, by
12 statutory or other legal requirements applicable thereto,
13 such obligations are payable, as to both principal and
14 interest from taxes levied, or required to be levied, upon
15 all taxable property or all taxable income within the
16 jurisdiction of such governmental unit, or from adequate
17 special revenues pledged or otherwise appropriated or by law
18 required to be provided for the purpose of such payment; but
19 not including any obligation payable solely out of special
20 assessments on properties benefited by local improvements,
21 unless adequate security is evidenced by the ratio of
22 assessment to the value of the property or the obligation is
23 additionally secured by an adequate guaranty fund required by
24 law.
25 (2) Other governmental and agency obligations or
26 stock.--Bonds, notes, obligations and in stock where stated,
27 issued, assumed or guaranteed by the following agencies of
28 the United States, or in which such government is a
29 participant, whether or not such obligations are guaranteed
30 by such government:
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1 (i) Farm Loan Bank.
2 (ii) Commodity Credit Corporation.
3 (iii) Federal intermediate credit banks.
4 (iv) Federal land banks.
5 (v) Central Bank of Cooperatives.
6 (vi) Federal home loan banks and stock thereof.
7 (vii) Federal National Mortgage Association and
8 stock thereof.
9 (viii) International Bank for Reconstruction and
10 Development.
11 (ix) Inter-American Development Bank.
12 (x) European Development Bank.
13 (xi) Asian Development Bank.
14 (xii) African Development Bank.
15 (xiii) Any other similar agency of, or participated
16 in by the Federal Government, and of similar financial
17 quality.
18 (3) Business obligations.--
19 (i) Bonds, notes or obligations issued, assumed,
20 guaranteed or accepted by any corporation, joint-stock
21 association, business trust, business partnership or
22 business joint venture incorporated or existing under the
23 laws of the United States or of any state, district or
24 territory thereof.
25 (ii) Preferred stock of any such business entity.
26 (iii) Interest-bearing deposits or certificates of
27 deposit as authorized by section 8521(g) (relating to
28 deposits in banks and trust companies).
29 (4) Trustees', receivers' or equipment trust
30 obligations.--
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1 (i) Certificates, notes or obligations issued by
2 trustees or receivers of any corporation or business
3 trust created or existing under the laws of the United
4 States or of any state, district or territory thereof
5 which, or the assets of which, are being administered
6 under the direction of any court having jurisdiction, if
7 such obligations are adequately secured as to principal
8 and interest.
9 (ii) Equipment trust obligations or certificates,
10 which are adequately secured, or other adequately secured
11 instruments, evidencing an interest in transportation
12 equipment, wholly or in part within the United States,
13 and a right to receive determined portions of rental,
14 purchase or other fixed obligatory payments for the use
15 or purchase of such transportation equipment.
16 (5) Other debt obligations.--
17 (i) Obligations which are not issued, assumed,
18 guaranteed or accepted by any person described under
19 paragraphs (1) through (4) but which are secured by
20 mortgages or deeds of trust constituting first liens on
21 improved real estate located within the United States or
22 any territory or possession thereof and further secured
23 by the perfected assignment of a right to receive rentals
24 or other payments or revenues for the use of real
25 property which are due and payable under leases to, or
26 which are guaranteed by, a person described in any of
27 paragraphs (1) through (4) and which are sufficient to
28 repay the investment.
29 (ii) Other obligations adequately secured by real
30 property or any interests therein, and obligations or
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1 participations therein adequately secured by liens on
2 real property or interests therein, located within the
3 United States or any territory or possession thereof,
4 including, without limitation, any obligations which are
5 mortgage-backed or mortgage-related securities as defined
6 and described in section 106 of the Secondary Mortgage
7 Market Enhancement Act of 1984 (Public Law 98-440, 15
8 U.S.C. § 77r-1).
9 (6) Equity interests.--
10 (i) Investment in common stocks, limited partnership
11 interests, trust certificates (except equipment trust
12 certificates described in paragraph (4)(ii)) or other
13 equity interests (other than preferred stocks) of
14 corporations, joint-stock associations, business trusts,
15 business partnerships and business joint ventures
16 incorporated, organized or existing under the laws of the
17 United States or of any state, district, territory or
18 possession thereof, including, without limitation, any
19 put, call, straddle, option or privilege on any such
20 securities, any group or index of such securities
21 (including any interest therein or based on the value
22 thereof), or, in general, any equity interest or
23 instrument evidencing the same which is commonly known as
24 or included within the definition of a security set forth
25 in section 2(1) of the Securities Act of 1933 (48 Stat.
26 74, 15 U.S.C. § 77b(1)). No investment shall be made
27 under the authority of this subparagraph in equity
28 interests in any unincorporated business or enterprise
29 other than a joint-stock association, a business trust or
30 a limited partnership in which the board's liability is
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1 limited to the amount of its investment.
2 (ii) No investment shall be made in stocks,
3 interests or other securities described in subparagraph
4 (i) if such investment would at that time cause the book
5 value of that class of investments to exceed 60% of the
6 total assets of the fund.
7 (iii) The amount invested in the common stocks or
8 similar equity interests or securities of any one
9 corporation or other business entity described in
10 subparagraph (i) or in paragraph (9) shall not exceed at
11 cost 2% of the book value of the total assets of the fund
12 at the time of purchase.
13 (iv) The fund shall not, at any time, be the legal
14 or beneficial owner of 5% or more of the issued and
15 outstanding shares of the voting securities of any one
16 corporation or other business entity described in
17 subparagraph (i) or in paragraph (9), provided that this
18 limitation shall not apply to the voting securities of
19 any such corporation or business entity which the fund
20 acquired in connection with a venture capital investment
21 made pursuant to the provisions of paragraph (8), either
22 initially or as a result of exercising a right or option
23 conferred on it by the terms of the investment.
24 (v) Investments in equity interests of business
25 entities described in subparagraph (i) which are engaged
26 primarily in holding real estate or interests therein
27 shall not be treated as investments made under the
28 authority of subparagraph (i) for the purpose of any
29 percentage limitation contained in the succeeding
30 subparagraphs of this paragraph.
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1 (7) Real estate or interests therein.--In addition to
2 interests in real property securing obligations authorized in
3 paragraph (5), real estate, or interests therein, located in
4 any state, district or territory of the United States and
5 subject either to a lease or leases for residential,
6 business, commercial or industrial use, which lease or leases
7 shall not require the board to exercise responsibility for
8 property management, or to a plan of development therefor. To
9 insure the safety of investments made pursuant to this
10 paragraph, the board shall adopt guidelines and procedures
11 which shall be in accordance with generally accepted
12 standards and principles applicable to real estate investment
13 by pension funds of comparable size. All instruments,
14 transfers of interest and records pertaining to real estate
15 or interests therein invested in by the board shall be open
16 to public inspection.
17 (8) Venture capital.--Venture capital investments shall
18 be limited to not more than ....% of the book value of the
19 fund. An investment shall be deemed a venture capital
20 investment if it results in the acquisition of equity
21 interests in a business which is expected to grow
22 substantially in the future and in which the expected return
23 on investment is to come predominantly from an increase in
24 value of the equity interests and that are not held through
25 or secured by any equity interest which is an authorized
26 investment under the authority of paragraph (6) and are not
27 in interests in or secured by real estate. A venture capital
28 investment may be made only if, in the judgment of the board,
29 such investment is reasonably likely to enhance the general
30 welfare of this Commonwealth and its citizens and meets the
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1 standard of prudence set forth in section 8521(a) (relating
2 to control and management of fund). In determining whether
3 the investment meets the standard of prudence, the board may
4 consider, together with the expected return on and the risk
5 characteristics of the particular investment, the actual and
6 expected future returns and the risk characteristics of the
7 total venture capital investments held by the board at the
8 time and the degree to which proposed new investment would
9 promote further diversification within the venture capital
10 asset class.
11 (9) Foreign investment.--Bonds, notes, obligations,
12 stock, other securities of any business or governmental unit
13 or other investments in or of any foreign country which are
14 of the same kinds, classes and investment grades as those
15 which are authorized investments of the board under
16 paragraphs (1) through (7), inclusive. Investments under this
17 paragraph shall not exceed 15% of the fund's total assets.
18 Investments made under this paragraph which, but for
19 geographical restrictions, would constitute equity interests
20 as described in paragraph (6), shall be deemed to have been
21 made under paragraph (6) solely for the purposes of the 60%
22 limitation set forth in paragraph (6)(ii).
23 (b) Additional board power concerning investments.--
24 Regardless of any limitations, conditions or restrictions
25 imposed on the making of investments by subsection (a), or by
26 any other provision of law governing the investments of an
27 administrative board of the State government, the board may, at
28 its discretion, invest a maximum of 10% of the book value of the
29 assets of the fund in any investments not specifically
30 authorized under subsection (a), provided that such investments
19900H2736B3841 - 14 -
1 meet the standard of prudence set forth in section 8521(a).
2 (c) Percentage limitations on investments.--No sale or other
3 liquidation of any investment shall be required solely because
4 of any change in market values whereby any percentage limitation
5 set forth in subsection (a) or (b) is exceeded.
6 (d) Vehicles for authorized investments.--The board may make
7 any authorized investments by becoming a limited partner in
8 partnerships that will hold such investments; or by acquiring
9 shares or units of participation or otherwise participating
10 beneficially in bank collective trusts or in the separate
11 accounts of any insurance company authorized to do business in
12 this Commonwealth; or by acquiring stocks or shares or units of
13 participation or otherwise participating beneficially in the
14 fund of any corporation or trust organized or existing under the
15 laws of the United States or of any state, district or territory
16 thereof, which fund is maintained for and consists of assets of
17 employees' benefit trusts including governmental plans as
18 defined in section 414(d) of the Internal Revenue Code of 1986
19 (Public Law 99-514, 26 U.S.C. § 414(d)) which meet the
20 requirements for qualification under section 401 of the Internal
21 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 401);
22 provided that, in any such case, the liability of the Public
23 School Employees' Retirement Fund shall be limited to the amount
24 of its investment. For the purpose of applying any percentage
25 limitation set forth in subsection (a) or (b), the class of an
26 investment or investments made through any vehicle described in
27 this subsection shall be determined by the underlying assets
28 without regard to the legal form of the holding vehicle.
29 (e) Lending of securities, repurchase agreements and reverse
30 repurchase agreements.--Lending of securities, repurchase
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1 agreements and reverse repurchase agreements transactions are
2 authorized on the following conditions:
3 (1) The agreement for each transaction or the master
4 agreement for a series of transactions shall be reduced to
5 writing.
6 (2) Securities acquired by the fund and owned subject to
7 reacquisition pursuant to an outstanding repurchase agreement
8 may not be sold pursuant to a reverse repurchase agreement
9 nor lent pursuant to a lending of securities agreement.
10 Consideration or collateral received from a reverse
11 repurchase agreement or lending of securities agreement may
12 be used to acquire securities which are equivalent or similar
13 to the securities transferred pursuant to such repurchase
14 agreement or lending of securities agreement. Such acquired
15 securities may not be sold pursuant to a reverse repurchase
16 agreement nor lent pursuant to a lending of securities
17 agreement.
18 (3) The fund is limited to no more than 2% of its total
19 assets being subject to lending of securities, repurchase or
20 reverse repurchase agreements transactions outstanding with
21 any one business entity under this subsection.
22 (4) The fund may engage in lending its securities or
23 repurchase or reverse repurchase agreements up to 40% of its
24 total assets, provided that such transactions are fully
25 collateralized.
26 (5) The board may promulgate policy guidelines and
27 procedures for investments and transactions under this
28 subsection, including, without limitation, provisions which
29 impose financial solvency standards, valuation standards and
30 reporting requirements.
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1 (f) Legislative declaration concerning certain authorized
2 investments.--The General Assembly finds and declares that
3 authorized investments of the fund made by or in behalf of the
4 board pursuant to this section, whereby the board becomes a
5 joint owner or stockholder in any company, corporation or
6 association, are outside the scope of the original intent of,
7 and therefore do not violate the prohibition set forth in,
8 section 8 of Article 8 of the Constitution of Pennsylvania.
9 (g) Definitions.--As used in this section, the following
10 words and phrases shall have the meanings given to them in this
11 subsection:
12 "Lending of securities." An investment, other than a
13 repurchase agreement, whereby an agreement is entered into which
14 transfers ownership rights and possession of securities to the
15 borrower of such securities with the agreement providing for a
16 return of ownership rights and possession of the securities to
17 the lender at a specified date or upon demand.
18 "Repurchase agreement." A bilateral agreement, whereby the
19 fund purchases securities with a related agreement that the
20 seller will purchase or repurchase at a specified price the
21 equivalent or similar securities within a specified period of
22 time or on demand.
23 "Reverse repurchase agreement." A bilateral agreement,
24 whereby the fund:
25 (1) sells securities with a related agreement to
26 purchase or repurchase at a specified price the equivalent or
27 similar securities within a specified period of time or upon
28 demand; or
29 (2) borrows funds and transfers securities to the lender
30 with a related agreement that equivalent or similar
19900H2736B3841 - 17 -
1 securities will be returned to the fund upon repayment of the
2 loan within a specified period of time or on demand.
3 Section 3. Section 5931 of Title 71 is amended to read:
4 § 5931. Management of fund and accounts.
5 (a) Control and management of fund.--The members of the
6 board shall be the trustees of the fund and shall have exclusive
7 control and management of the said fund and full power to invest
8 the same, subject, however, to the exercise of that degree of
9 judgment, skill and care under the circumstances then prevailing
10 which persons of prudence, discretion and intelligence, who are
11 familiar with such matters, exercise in the management of their
12 own affairs not in regard to speculation, but in regard to the
13 permanent disposition of the funds, considering the probable
14 income to be derived therefrom as well as the probable safety of
15 their capital, and further subject to all the terms, conditions,
16 limitations and restrictions imposed by [this part or other]
17 section 5931.1 (relating to authorized investments of fund) or
18 other applicable law upon the making of investments. The board
19 shall when possible and consistent with the terms, conditions,
20 limitations, responsibilities and restrictions imposed by this
21 subsection, section 5931.1 or other applicable law, invest in
22 any project or business which promotes employment of
23 Pennsylvania residents. Subject to like terms, conditions,
24 limitations and restrictions, said trustees shall have the power
25 to hold, purchase, sell, lend, assign, transfer or dispose of
26 any of the securities and investments in which any of the moneys
27 in the fund shall have been invested as well as of the proceeds
28 of said investments and of any moneys belonging to said fund.
29 (b) Crediting of interest.--The board, annually, shall allow
30 the required interest on the mean amount for the preceding year
19900H2736B3841 - 18 -
1 to the credit of each of the accounts. The amount so allowed
2 shall be credited thereto by the board and transferred from the
3 interest reserve account.
4 (c) Custodian of fund.--The State Treasurer shall be the
5 custodian of the fund.
6 (d) Payments from fund.--All payments from the fund shall be
7 made by the State Treasurer in accordance with requisitions
8 signed by the secretary of the board, or his designee, and
9 ratified by resolution of the board.
10 (e) Fiduciary status of board.--The members of the board,
11 employees of the board and agents thereof shall stand in a
12 fiduciary relationship to the members of the system regarding
13 the investments and disbursements of any of the moneys of the
14 fund and shall not profit either directly or indirectly with
15 respect thereto.
16 (f) Name for transacting business.--By the name of "The
17 State Employees' Retirement System" or "The State Employes'
18 Retirement System" all of the business of the system shall be
19 transacted, its fund invested, all requisitions for money drawn
20 and payments made, and all of its cash and securities and other
21 property shall be held, except that, any other law to the
22 contrary notwithstanding, the board may establish a nominee
23 registration procedure for the purpose of registering securities
24 in order to facilitate the purchase, sale or other disposition
25 of securities pursuant to the provisions of this law.
26 (g) Deposits in banks and trust companies.--For the purpose
27 of meeting disbursements for annuities and other payments in
28 excess of the receipts, there shall be kept available by the
29 State Treasurer an amount, not exceeding 10% of the total amount
30 in the fund, on deposit in any bank or banks in this
19900H2736B3841 - 19 -
1 Commonwealth organized under the laws thereof or under the laws
2 of the United States or with any trust company or companies
3 incorporated by any law of this Commonwealth, provided any of
4 such banks or trust companies shall furnish adequate security
5 for said deposit, and provided that the sum so deposited in any
6 one bank or trust company shall not exceed 25% of the paid-up
7 capital and surplus of said bank or trust company.
8 [(h) Investment in corporate stocks.--Preferred and common
9 stock as defined in subsection (i) of any corporation as defined
10 in subsection (j) organized under the laws of the United States
11 or of any commonwealth or state thereof or of the District of
12 Columbia and preferred and common stock as defined in subsection
13 (i) of any corporation as defined in subsection (j) whose shares
14 are traded in United States dollars on the New York Stock
15 Exchange shall be authorized investments of the fund, regardless
16 of any other provision of law provided that:
17 (1) no investment in common stock be made which at that
18 time would cause the book value of the investments in common
19 stock to exceed 50% of the total assets of the fund;
20 (2) the amount invested in the common stock of any one
21 company not exceed at cost 2% of the book value of the assets
22 of the fund at the time of purchase and shall not exceed 5%
23 of the issued and outstanding common stock of that company;
24 (3) no investment in the stock of corporations not
25 organized under the laws of the United States or of any
26 commonwealth or state thereof or of the District of Columbia
27 shall be made which would cause the book value of such
28 investment to exceed 5% of the book value of the total assets
29 of the fund; and
30 (4) no sale or other liquidation of any investment be
19900H2736B3841 - 20 -
1 required solely because of any change in market values
2 whereby the percentages of stocks hereinabove set forth are
3 exceeded.
4 (i) Common stock defined.--"Common stock" as used in
5 subsection (h) shall include the stock certificates,
6 certificates of beneficial interests or trust participation
7 certificates issued by any corporation or unincorporated
8 association included under the definition of "corporation" in
9 the following paragraph.
10 (j) Corporation defined.--"Corporation" as used in
11 subsection (h) shall include a voluntary association, a joint-
12 stock association or company, a business trust, a Massachusetts
13 trust, a common-law trust and any other organization organized
14 and existing for any lawful purpose and which like a
15 corporation, continues to exist, notwithstanding changes in the
16 personnel of its members or participants and conducts its
17 affairs through a committee, a board or some other group acting
18 in a representative capacity.
19 (k) Investment in real estate and mortgages.--Real estate
20 subject to a lease to one or more financially responsible
21 tenants which lease shall not require managerial responsibility
22 by the board; and bonds, notes and deeds of trust, of
23 individuals or corporations secured by mortgages on real estate
24 located in any state, district or territory of the United
25 States, shall be an authorized investment of the board
26 regardless of any other provision of law. The board shall
27 promulgate regulations to implement the foregoing to insure the
28 safety of investments made pursuant to this subsection which
29 regulations shall be in accordance with generally accepted
30 standards and investment principles for pension funds of
19900H2736B3841 - 21 -
1 comparable size. All instruments, transfers of interest, and all
2 records pertaining to real estate, mortgages or bonds invested
3 in by the board, shall be open to public inspection. Reports as
4 requested by the board, shall be submitted on all real estate
5 and mortgage investments by mortgage advisors and
6 correspondents.
7 (l) Investment in institutional real estate.--Institutional
8 real estate funds shall be an authorized investment of the fund
9 provided that no investment shall be made which, at the time of
10 purchase, would cause the book value of such investments to
11 exceed 15% of the book value of the total assets of the fund.
12 (m) Additional board power on investments.--Regardless of
13 any limitations, conditions or restrictions imposed on the
14 making of investments by this part or other law, the board may,
15 at its discretion, invest a maximum of 10% of the book value of
16 the assets of the fund in any investments not otherwise
17 specifically authorized, provided that such investments are made
18 with the exercise of that degree of judgment, skill and care
19 under the circumstances then prevailing which persons of
20 prudence, discretion and intelligence, who are familiar with
21 such matters, exercise in the management of their own affairs
22 not in regard to speculation, but in regard to the permanent
23 disposition of the funds, considering the probable income to be
24 derived therefrom as well as the probable safety of their
25 capital.
26 (n) Obligations of United States to be authorized
27 investments.--Regardless of any other provision of law,
28 obligations of the United States Government and its agencies
29 shall be authorized investments of the fund.
30 (o) Limited partnerships and separate accounts.--The board
19900H2736B3841 - 22 -
1 may invest in any investments authorized by this section by
2 becoming a limited partner in partnerships that will hold such
3 investments or by participating in separate accounts of any
4 insurance company authorized to do business in this
5 Commonwealth, in either case the liability of the fund shall be
6 limited to the amount of the investment.
7 (p) Venture capital.--The provisions of subsection (m)
8 notwithstanding, venture capital investments made through
9 limited partnerships and through separate accounts shall be
10 limited to not more than 1% of the book value of the total
11 assets of the fund. A venture capital investment shall be made
12 only if such investment will enhance the general welfare of this
13 Commonwealth and its citizens through economic development and
14 meets the standard of prudence set forth in subsection (m). An
15 investment shall be deemed a venture capital investment if it
16 results in the acquisition of equity interests or a combination
17 of debt and equity interests in a business which is expected to
18 grow substantially in the future and in which the expected
19 return on investment is to come predominantly from an increase
20 in value of the equity interest and that are not held through or
21 secured by stock that is an authorized investment under the
22 authority of subsection (h) and are not interests in or secured
23 by real estate.]
24 Section 4. Title 71 is amended by adding a section to read:
25 § 5931.1. Authorized investments of fund.
26 (a) Classes of investment.--Regardless of any other
27 provision of law governing the investments of funds under the
28 control of an administrative board of the State government, the
29 following classes of investment shall be authorized investments
30 of the fund, provided the book value of each class, as
19900H2736B3841 - 23 -
1 determined for financial statement purposes, shall not exceed
2 the percentage as specified in this section of the fund's total
3 assets as of December 31 next preceding the date of investment:
4 (1) United States, state and municipal obligations.--
5 Bonds, notes or obligations issued, assumed or guaranteed by
6 the United States or by any state thereof, or by any county,
7 city, town, village, municipality or district therein, or by
8 any political subdivision thereof, or by a public
9 instrumentality of one or more of the foregoing, if, by
10 statutory or other legal requirements applicable thereto,
11 such obligations are payable, as to both principal and
12 interest from taxes levied, or required to be levied, upon
13 all taxable property or all taxable income within the
14 jurisdiction of such governmental unit, or from adequate
15 special revenues pledged or otherwise appropriated or by law
16 required to be provided for the purpose of such payment; but
17 not including any obligation payable solely out of special
18 assessments on properties benefited by local improvements,
19 unless adequate security is evidenced by the ratio of
20 assessment to the value of the property or the obligation is
21 additionally secured by an adequate guaranty fund required by
22 law.
23 (2) Other governmental and agency obligations or
24 stock.--Bonds, notes, obligations and in stock where stated,
25 issued, assumed or guaranteed by the following agencies of
26 the United States, or in which such government is a
27 participant, whether or not such obligations are guaranteed
28 by such government:
29 (i) Farm Loan Bank.
30 (ii) Commodity Credit Corporation.
19900H2736B3841 - 24 -
1 (iii) Federal intermediate credit banks.
2 (iv) Federal land banks.
3 (v) Central Bank of Cooperatives.
4 (vi) Federal home loan banks and stock thereof.
5 (vii) Federal National Mortgage Association and
6 stock thereof.
7 (viii) International Bank for Reconstruction and
8 Development.
9 (ix) Inter-American Development Bank.
10 (x) European Development Bank.
11 (xi) Asian Development Bank.
12 (xii) African Development Bank.
13 (xiii) Any other similar agency of, or participated
14 in by the Federal Government, and of similar financial
15 quality.
16 (3) Business obligations.--
17 (i) Bonds, notes or obligations issued, assumed,
18 guaranteed or accepted by any corporation, joint-stock
19 association, business trust, business partnership or
20 business joint venture incorporated or existing under the
21 laws of the United States or of any state, district or
22 territory thereof.
23 (ii) Preferred stock of any such business entity.
24 (iii) Interest-bearing deposits or certificates of
25 deposit as authorized by section 5931(g) (relating to
26 management of funds and accounts).
27 (4) Trustees', receivers' or equipment trust
28 obligations.--
29 (i) Certificates, notes or obligations issued by
30 trustees or receivers of any corporation or business
19900H2736B3841 - 25 -
1 trust created or existing under the laws of the United
2 States or of any state, district or territory thereof
3 which, or the assets of which, are being administered
4 under the direction of any court having jurisdiction, if
5 such obligations are adequately secured as to principal
6 and interest.
7 (ii) Equipment trust obligations or certificates,
8 which are adequately secured, or other adequately secured
9 instruments, evidencing an interest in transportation
10 equipment, wholly or in part within the United States,
11 and a right to receive determined portions of rental,
12 purchase or other fixed obligatory payments for the use
13 or purchase of such transportation equipment.
14 (5) Other debt obligations.--
15 (i) Obligations which are not issued, assumed,
16 guaranteed or accepted by any person described under
17 paragraphs (1) through (4) but which are secured by
18 mortgages or deeds of trust constituting first liens on
19 improved real estate located within the United States or
20 any territory or possession thereof and further secured
21 by the perfected assignment of a right to receive rentals
22 or other payments or revenues for the use of real
23 property which are due and payable under leases to, or
24 which are guaranteed by, a person described in any of
25 paragraphs (1) through (4) and which are sufficient to
26 repay the investment.
27 (ii) Other obligations adequately secured by real
28 property or any interests therein, and obligations or
29 participations therein adequately secured by liens on
30 real property or interests therein, located within the
19900H2736B3841 - 26 -
1 United States or any territory or possession thereof,
2 including, without limitation, any obligations which are
3 mortgage-backed or mortgage-related securities as defined
4 and described in section 106 of the Secondary Mortgage
5 Market Enhancement Act of 1984 (Public Law 98-440, 15
6 U.S.C. § 77r-1).
7 (6) Equity interests.--
8 (i) Investment in common stocks, limited partnership
9 interests, trust certificates (except equipment trust
10 certificates described in paragraph (4)(ii)) or other
11 equity interests (other than preferred stocks) of
12 corporations, joint-stock associations, business trusts,
13 business partnerships and business joint ventures
14 incorporated, organized or existing under the laws of the
15 United States or of any state, district, territory or
16 possession thereof, including, without limitation, any
17 put, call, straddle, option or privilege on any such
18 securities, any group or index of such securities
19 (including any interest therein or based on the value
20 thereof), or, in general, any equity interest or
21 instrument evidencing the same which is commonly known as
22 or included within the definition of a security set forth
23 in section 2(1) of the Securities Act of 1933 (48 Stat.
24 74, 15 U.S.C. § 77b(1)). No investment shall be made
25 under the authority of this subparagraph in equity
26 interests in any unincorporated business or enterprise
27 other than a joint-stock association, a business trust or
28 a limited partnership in which the board's liability is
29 limited to the amount of its investment.
30 (ii) No investment shall be made in stocks,
19900H2736B3841 - 27 -
1 interests or other securities described in subparagraph
2 (i) if such investment would at that time cause the book
3 value of that class of investments to exceed 60% of the
4 total assets of the fund.
5 (iii) The amount invested in the common stocks or
6 similar equity interests or securities of any one
7 corporation or other business entity described in
8 subparagraph (i) or in paragraph (9) shall not exceed at
9 cost 2% of the book value of the total assets of the fund
10 at the time of purchase.
11 (iv) The fund shall not, at any time, be the legal
12 or beneficial owner of 5% or more of the issued and
13 outstanding shares of the voting securities of any one
14 corporation or other business entity described in
15 subparagraph (i) or in paragraph (9), provided that this
16 limitation shall not apply to the voting securities of
17 any such corporation or business entity which the fund
18 acquired in connection with a venture capital investment
19 made pursuant to the provisions of paragraph (8), either
20 initially or as a result of exercising a right or option
21 conferred on it by the terms of the investment.
22 (v) Investments in equity interests of business
23 entities described in subparagraph (i) which are engaged
24 primarily in holding real estate or interests therein
25 shall not be treated as investments made under the
26 authority of subparagraph (i) for the purpose of any
27 percentage limitation contained in the succeeding
28 subparagraphs of this paragraph.
29 (7) Real estate or interests therein.--In addition to
30 interests in real property securing obligations authorized in
19900H2736B3841 - 28 -
1 paragraph (5), real estate, or interests therein, located in
2 any state, district or territory of the United States and
3 subject either to a lease or leases for residential,
4 business, commercial or industrial use, which lease or leases
5 shall not require the board to exercise responsibility for
6 property management, or to a plan of development therefor. To
7 insure the safety of investments made pursuant to this
8 paragraph, the board shall adopt guidelines and procedures
9 which shall be in accordance with generally accepted
10 standards and principles applicable to real estate investment
11 by pension funds of comparable size. All instruments,
12 transfers of interest and all records pertaining to real
13 estate or interests therein invested in by the board shall be
14 open to public inspection.
15 (8) Venture capital.--Venture capital investments shall
16 be limited to not more than ....% of the book value of the
17 fund. An investment shall be deemed a venture capital
18 investment if it results in the acquisition of equity
19 interests in a business which is expected to grow
20 substantially in the future and in which the expected return
21 on investment is to come predominantly from an increase in
22 value of the equity interests and that are not held through
23 or secured by any equity interest which is an authorized
24 investment under the authority of paragraph (6) and are not
25 in interests in or secured by real estate. A venture capital
26 investment may be made only if, in the judgment of the board,
27 such investment is reasonably likely to enhance the general
28 welfare of this Commonwealth and its citizens and meets the
29 standard of prudence set forth in section 5931(a). In
30 determining whether the investment meets the standard of
19900H2736B3841 - 29 -
1 prudence, the board may consider, together with the expected
2 return on and the risk characteristics of the particular
3 investment, the actual and expected future returns and the
4 risk characteristics of the total venture capital investments
5 held by the board at the time and the degree to which
6 proposed new investment would promote further diversification
7 within the venture capital asset class.
8 (9) Foreign investment.--Bonds, notes, obligations,
9 stock, other securities of any business or governmental unit
10 or other investments in or of any foreign country which are
11 of the same kinds, classes and investment grades as those
12 which are authorized investments of the board under
13 paragraphs (1) through (7), inclusive. Investments under this
14 paragraph shall not exceed 15% of the fund's total assets.
15 Investments made under this paragraph which, but for
16 geographical restrictions, would constitute equity interests
17 as described in paragraph (6), shall be deemed to have been
18 made under paragraph (6) solely for the purposes of the 60%
19 limitation set forth in paragraph (6)(ii).
20 (b) Additional board power concerning investments.--
21 Regardless of any limitations, conditions or restrictions
22 imposed on the making of investments by subsection (a), or by
23 any other provision of law governing the investments of an
24 administrative board of the State government, the board may, at
25 its discretion, invest a maximum of 10% of the book value of the
26 assets of the fund in any investments not specifically
27 authorized under subsection (a), provided that such investments
28 meet the standard of prudence set forth in section 5931(a).
29 (c) Percentage limitations on investments.--No sale or other
30 liquidation of any investment shall be required solely because
19900H2736B3841 - 30 -
1 of any change in market values whereby any percentage limitation
2 set forth in subsection (a) or (b) is exceeded.
3 (d) Vehicles for authorized investments.--The board may make
4 any authorized investments by becoming a limited partner in
5 partnerships that will hold such investments; or by acquiring
6 shares or units of participation or otherwise participating
7 beneficially in bank collective trusts or in the separate
8 accounts of any insurance company authorized to do business in
9 this Commonwealth; or by acquiring stocks or shares or units of
10 participation or otherwise participating beneficially in the
11 fund of any corporation or trust organized or existing under the
12 laws of the United States or of any state, district or territory
13 thereof, which fund is maintained for and consists of assets of
14 employees' benefit trusts including governmental plans as
15 defined in section 414(d) of the Internal Revenue Code of 1986
16 (Public Law 99-514, 26 U.S.C. § 414(d)) which meet the
17 requirements for qualification under section 401 of the Internal
18 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 401),
19 provided that, in any such case, the liability of the Public
20 School Employees' Retirement Fund shall be limited to the amount
21 of its investment. For the purpose of applying any percentage
22 limitation set forth in subsection (a) or (b), the class of an
23 investment or investments made through any vehicle described in
24 this subsection shall be determined by the underlying assets
25 without regard to the legal form of the holding vehicle.
26 (e) Lending of securities, repurchase agreements and reverse
27 repurchase agreements.--Lending of securities, repurchase
28 agreements and reverse repurchase agreements transactions are
29 authorized on the following conditions:
30 (1) The agreement for each transaction or the master
19900H2736B3841 - 31 -
1 agreement for a series of transactions shall be reduced to
2 writing.
3 (2) Securities acquired by the fund and owned subject to
4 reacquisition pursuant to an outstanding repurchase agreement
5 may not be sold pursuant to a reverse repurchase agreement
6 nor lent pursuant to a lending of securities agreement.
7 Consideration or collateral received from a reverse
8 repurchase agreement or lending of securities agreement may
9 be used to acquire securities which are equivalent or similar
10 to the securities transferred pursuant to such repurchase
11 agreement or lending of securities agreement. Such acquired
12 securities may not be sold pursuant to a reverse repurchase
13 agreement nor lent pursuant to a lending of securities
14 agreement.
15 (3) The fund is limited to no more than 2% of its total
16 assets being subject to lending of securities, repurchase or
17 reverse repurchase agreements transactions outstanding with
18 any one business entity under this subsection.
19 (4) The fund may engage in lending its securities or
20 repurchase or reverse repurchase agreements up to 40% of its
21 total assets, provided that such transactions are fully
22 collateralized.
23 (5) The board may promulgate policy guidelines and
24 procedures for investments and transactions under this
25 subsection, including, without limitation, provisions which
26 impose financial solvency standards, valuation standards and
27 reporting requirements.
28 (f) Legislative declaration concerning certain authorized
29 investments.--The General Assembly finds and declares that
30 authorized investments of the fund made by or in behalf of the
19900H2736B3841 - 32 -
1 board pursuant to this section, whereby the board becomes a
2 joint owner or stockholder in any company, corporation or
3 association, are outside the scope of the original intent of,
4 and therefore do not violate the prohibition set forth in,
5 section 8 of Article 8 of the Constitution of Pennsylvania.
6 (g) Definitions.--As used in this section, the following
7 words and phrases shall have the meanings given to them in this
8 subsection:
9 "Lending of securities." An investment, other than a
10 repurchase agreement, whereby an agreement is entered into which
11 transfers ownership rights and possession of securities to the
12 borrower of such securities with the agreement providing for a
13 return of ownership rights and possession of the securities to
14 the lender at a specified date or upon demand.
15 "Repurchase agreement." A bilateral agreement, whereby the
16 fund purchases securities with a related agreement that the
17 seller will purchase or repurchase at a specified price the
18 equivalent or similar securities within a specified period of
19 time or on demand.
20 "Reverse repurchase agreement." A bilateral agreement,
21 whereby the fund:
22 (1) sells securities with a related agreement to
23 purchase or repurchase at a specified price the equivalent or
24 similar securities within a specified period of time or upon
25 demand; or
26 (2) borrows funds and transfers securities to the lender
27 with a related agreement that equivalent or similar
28 securities will be returned to the fund upon repayment of the
29 loan within a specified period of time or on demand.
30 Section 5. The provisions of section 7 of the act of July 9,
19900H2736B3841 - 33 -
1 1981 (P.L.208, No.66), known as the Public Employee Retirement
2 Study Commission Act, shall not apply to this act.
3 Section 6. This act shall take effect as follows:
4 (1) Except as provided in paragraph (2):
5 (i) sections 1 (24 Pa.C.S. § 8521) and 2 (24 Pa.C.S.
6 § 8521.1) of this act shall take effect July 1, 1990;
7 (ii) sections 3 (71 Pa.C.S. § 5931) and 4 (71
8 Pa.C.S. § 5931.1) of this act shall take effect January
9 1, 1991; and
10 (iii) the remainder of this act shall take effect
11 immediately.
12 (2) Notwithstanding paragraph (1), any and all
13 authorized investments of the Public School Employees'
14 Retirement Board and of the State Employees' Retirement
15 Board, respectively, which, on the applicable effective date,
16 are owned or held through a vehicle as described in 24
17 Pa.C.S. § 8521.1(d) or 71 Pa.C.S. § 5931.1(d), as applicable,
18 shall be deemed to have been lawfully made through such
19 vehicle at inception.
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