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AB-761 Public retirement systems: investments.(2013-2014)

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AB761:v98#DOCUMENT

Amended  IN  Assembly  March 19, 2013

CALIFORNIA LEGISLATURE— 2013–2014 REGULAR SESSION

Assembly Bill
No. 761


Introduced by Assembly Member Dickinson

February 21, 2013


An act to add Section 7513.4 to the Government Code, relating to public retirement systems.


LEGISLATIVE COUNSEL'S DIGEST


AB 761, as amended, Dickinson. Public retirement systems: investments.
The California Constitution provides that the Legislature may by statute prohibit retirement board investments if it is in the public interest to do so, and providing that the prohibition satisfies specified fiduciary standards.
Existing law prohibits the boards of the Public Employees’ Retirement System and the State Teachers’ Retirement System from investing public employee retirement funds in a company with active business operations in Sudan and Iran, as specified.
This bill would additionally prohibit the Public Employees’ Retirement System and the California State Teachers’ Retirement System from investing public employee retirement funds in a company with business operations that are described as the manufacture, sale, marketing, or distribution manufacture of firearms or ammunition, as specified. The bill would require the Board of Administration of the Public Employees’ Retirement System and the Teachers’ Retirement Board of the State Teachers’ Retirement System to sell or transfer any investments in a company with these business operations.
This bill would require these boards to report to the Legislature any investments in a company with these business operations and the sale or transfer of those investments, subject to the fiduciary duty of these boards, by January 1, 2015, and every year thereafter.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) According to the Office of the Attorney General, approximately 2,900 persons were hospitalized in 2011 due to injuries from a firearm, and approximately 2,800 persons were killed by firearms either by homicide, suicide, or accident.
(b) Statistics compiled by the Federal Bureau of Investigation (FBI) demonstrate that firearms are overwhelmingly the most common weapon used in California homicides.
(c) According to the FBI, while California ranks 30th in gun deaths per capita, California had the highest number of total gun deaths out of any state last year, accounting for 68 percent of all gun murders in the United States.
(d) Approximately 600,000 guns are sold by dealers every year in California, a sharp increase over time compared to 200,000 per year in 2002.
(e) Comprehensive surveys of gun violence from 2011 have shown that firearms play a major role in violent crime in California.
(f) Notwithstanding the fact that California has made significant strides to reduce gun violence, guns continue to be a major threat to public health and safety.
(g) Numerous gun violence prevention groups, including The Brady Campaign to End Gun Violence and The Law Center to Prevent Gun Violence have praised California’s record of developing innovative solutions to gun violence which serve as models for other states and for the federal government.
(h) The Legislature therefore finds that the divestment of public employee retirement funds from companies that manufacture, sell, market, or distribute manufacture guns and ammunition for a recipient other than the United States military is in the public interest of the state, for the preservation of the public peace, health, or safety.

SEC. 2.

 Section 7513.4 is added to the Government Code, to read:

7513.4.
 (a) As used in this section, the following definitions shall apply:
(1) “Board” means the Board of Administration of the Public Employees’ Retirement System or the Teachers’ Retirement Board of the State Teachers’ Retirement System, as applicable.
(2) “Business operations” means manufacturing, selling, marketing, or distributing manufacturing firearms or ammunition for a recipient other than the United States military.
(3) “Company” means a sole proprietorship, organization, association, corporation, partnership, venture, or other entity, its subsidiary or affiliate that exists for profitmaking purposes or to otherwise secure economic advantage.
(4) “Invest” or “investment” means the purchase, ownership, or control of stock of a company, association, or corporation or corporate bonds issued by a company which manufactures, sells, markets, or distributes firearms or ammunition.
(5) “Public employee retirement funds” means the Public Employees’ Retirement Fund described in Section 20062, and the Teachers’ Retirement Fund described in Section 22167 of the Education Code.
(6) “Substantial action” means selling assets, equipment, or real and personal property of a company that manufactures, sells, markets, or distributes firearms or ammunition.
(b) The board shall not invest public employee retirement funds in a company that has business operations as described in paragraph (2) of subdivision (a) as identified by the board through any source of public information, as the board deems appropriate, including, but not limited to, information provided by nonprofit and other organizations and government entities.
(c) Annually, on or before June 30, the board shall review its investment portfolio and determine which companies are subject to divestment.
(d) (1) If the board’s investment in a company described in subdivision (b) is limited to an investment via an externally and actively managed commingled fund, the board shall contact that fund manager in writing and request that the fund manager remove that company from the fund as described in subdivision (f). On or before June 30, if the fund or account manager creates a fund or account devoid of companies described in subdivision (b), the transfer of board investments from the prior fund or account to the fund or account devoid of companies with business operations as described in paragraph (2) of subdivision (a) shall be deemed to satisfy subdivision (f).
(2) If the board’s investment in a company described in subdivision (b) is limited to an alternative fund or account, the alternative fund or account manager creates an actively managed commingled fund that excludes companies described in subdivision (b), and the new fund or account is deemed to be financially equivalent to the existing fund or account, the transfer of board investments from the existing fund or account to the new fund or account shall be deemed to satisfy subdivision (f). If the board determines that the new fund or account is not financially equivalent to the existing fund, the board shall include the reasons for that determination in the report described in subdivision (g).
(3) The board shall make a good faith effort to identify any private equity investments that involve companies described in subdivision (b). If the board determines that a private equity investment clearly involves a company described in subdivision (b), the board shall consider, at its discretion, if those private equity investments shall be subject to subdivision (f). If the board determines that a private equity investment clearly involves a company described in subdivision (b), and the board does not take action as described in subdivision (f), the board shall include the reasons for its decision in the report described in subdivision (g).
(e) The board, in the board’s capacity of shareholder or investor, shall notify any company described in subdivision (d) that the company is subject to subdivision (f) and permit that company to respond to the board. The board shall request that the company take substantial action no later than 90 days from the date the board notified the company pursuant to this subdivision. If the board determines based on credible information available to the public that a company has taken substantial action or has made sufficient progress toward substantial action before the expiration of that 90-day period, that company shall not be subject to an action described in subdivision (f). The board shall, at intervals not to exceed 90 days, continue to monitor and review the progress of the company until that company has taken substantial action. Any determination made at each 90-day interval that a company has taken substantial action shall be supported by findings adopted by a roll-call vote of the board following a presentation and discussion of the findings in open session, during a properly noticed public hearing of the full board. All proposed findings of the board shall be made public 72 hours before they are considered by the board, and the board shall maintain a list of interested parties who shall be notified of the proposed findings 72 hours before the board’s consideration. The findings and any public comments regarding the adopted findings and determinations made pursuant to this subdivision shall be included in the report to the Legislature required by subdivision (g). A company that fails to complete substantial action within one year from the date of the initial notice by the board shall be subject to the actions described in subdivision (f).
(f) If a company described in subdivision (d) fails to complete substantial action by the time described in subdivision (e), the board shall take the following actions:
(1) The board shall not make additional or new investments or renew existing investments in that company.
(2) The board shall liquidate the investments of the board in that company no later than 18 months after this subdivision applies to that company. The board shall liquidate those investments in a manner consistent with the board’s fiduciary responsibilities as described in Section 17 of Article XVI of the California Constitution.
(g) On or before January 1, 2015, and every year thereafter, the board shall file a report with the Legislature. The report shall describe the following:
(1) A list of investments the board has in companies with business operations that satisfy the criteria in subdivision (b), including, but not limited to, the issuer, by name, of the stock, bonds, securities, and other evidence of indebtedness.
(2) A detailed summary of the business operations of each company identified in paragraph (1).
(3) Whether the board has reduced its investments in a company with business operations that satisfy the criteria in subdivision (b).
(4) If the board has not completely reduced its investments in a company with business operations that satisfy the criteria in subdivision (b), a timeline for when the board anticipates that the board will reduce all investments in that company or adopt the findings in support of a determination made pursuant to subdivision (h) pertaining to why a sale or transfer of investments is inconsistent with the fiduciary responsibilities of the board as described in Section 17 of Article XVI of the California Constitution.
(5) A detailed summary of investments that were transferred to funds or accounts devoid of companies with business operations as described in subdivision (b).
(6) An annual calculation of any costs or investment losses or other financial results incurred in compliance with this section.
(h) Nothing in this section shall require the board to take action as described in this section if the board determines, and adopts findings, in good faith and based on credible information available to the public, that the action described in this section would fail to satisfy the fiduciary responsibilities of the board as described in Section 17 of Article XVI of the California Constitution. Any adopted findings shall demonstrate how divestment disadvantages the fund and that any feasible investment alternatives would yield a lower rate of return with commensurate degrees of risk, or create a higher degree of risk with commensurate rates of return. Notwithstanding any other law, any determination that an action would fail to satisfy the fiduciary responsibilities of the board as described in Section 17 of Article XVI of the California Constitution shall require a recorded roll-call vote of the full board, following a presentation and discussion of the findings in open session, during a properly noticed public hearing of the full board. All proposed findings of the board shall be made public 72 hours before they are considered by the board, and the board shall maintain a list of interested parties who shall be notified of the proposed findings 72 hours before board consideration. The findings and any public comments regarding the adopted findings and determinations made pursuant to this subdivision shall be included in the report to the Legislature required by subdivision (g).
(i) The report shall be submitted in compliance with Section 9795.