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SB-459 Public employee retirement systems: prohibited investments: retailers and wholesalers of banned weapons.(2017-2018)

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Date Published: 06/12/2018 09:00 PM
SB459:v94#DOCUMENT

Amended  IN  Assembly  June 12, 2018
Amended  IN  Assembly  May 08, 2018
Amended  IN  Senate  January 23, 2018
Amended  IN  Senate  January 03, 2018
Amended  IN  Senate  April 17, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill
No. 459

Introduced by Senator Portantino
(Principal coauthors: Assembly Members Gipson and Reyes)

February 16, 2017

An act to amend Section 16642 of, and to add Section 7513.73 to, the Government Code, relating to public employee retirement systems.


LEGISLATIVE COUNSEL'S DIGEST


SB 459, as amended, Portantino. Public employee retirement systems: prohibited investments: retailers and wholesalers of banned weapons.
The California Constitution grants the retirement board of a public employee retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the retirement fund and system. The California Constitution qualifies this grant of powers by reserving to the Legislature the authority to prohibit investments if it is in the public interest and the prohibition satisfies standards of fiduciary care and loyalty required of a retirement board. Existing law prohibits the boards board of administration of the Public Employees’ Retirement System (PERS) and State Teachers’ Retirement System (STRS) from making investments in certain countries and in thermal coal companies, as specified, subject to the boards’ board’s plenary authority and fiduciary responsibility for investment of moneys and administration of their respective systems. the system. Existing law requires the state to indemnify and hold harmless the present, former, and future board members, officers, and employees of these retirement systems PERS for investment decisions regarding specified business operations.
This bill would require the boards board of administration of PERS and STRS, PERS, by July 1, 2019, to adopt an investment policy regarding companies that are retailers or wholesalers of banned weapons, based on a limited timeframe of engagement seeking the voluntary removal of banned weapons from the stock of items sold by these companies. The bill would require the boards, board, if unsuccessful in persuading the governing board of a company to cease in the sale of banned weapons, to adopt a divestment action and divest from that company by no later than July 1, 2021. The bill would also require the boards, board, if a company reinitiates the sale of banned weapons after voluntarily choosing to cease sales, to initiate action to divest within 60 days of that decision. The bill would not require a the board to take any above-described action unless it determines that the action is consistent with its fiduciary responsibilities. The bill would specify that board members and other officers and employees would be indemnified and held harmless in connection with actions taken pursuant to the bill’s requirements.
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 the following:
(a) On February 14, 2018, 17 people were killed and 17 injured in a mass shooting in Parkland, Florida; on November 5, 2017, 27 people were killed and 20 injured in a mass shooting in Sutherland Springs, Texas; on October 1, 2017, 59 people were killed and 422 injured by gunfire in a mass shooting in Las Vegas, Nevada; on June 12, 2016, 50 people were killed and 53 injured in a mass shooting in Orlando, Florida; on December 2, 2015, 16 people were killed and 24 injured in a mass shooting in San Bernardino, California; on December 14, 2012, 28 people were killed and two injured in a mass shooting in Sandy Hook, Connecticut; and on April 20, 1999, 15 people were killed and 21 injured by gunfire in a mass shooting in Columbine, Colorado.
(b) In 2017, there were 346 mass shootings in the United States. As of April 2, 2018, there were 57 mass shootings in the United States for the calendar year, and counting. According to FBI Federal Bureau of Investigation data from 2013, seven 7 out of ten 10 mass shootings occur at schools and businesses. In many mass shootings, the weapon of choice is a military-style assault rifle, such as the AR-15. California citizens and elected representatives have already banned the sale or possession of these unlawful firearms and deemed them a public health threat.
(c) Yet, California’s two largest pension funds, CalPERS and CalSTRS, continue CalPERS, the agency that manages the largest public pension fund in California, continues to invest taxpayer and member dollars into these unlawful products that, if any Californian was caught possessing, would earn them jail time.
(d) The CalSTRS Investment Policy and Management Plan allows the fund to divest when such an investment violates a stated risk factor over a sustained period of time so that it is an economic risk, where a potential for material loss of revenue exists, or where it weakens the trust of a significant portion of its members. One such risk factor is when a company makes a product that is detrimental to human health so that it draws product liability lawsuits, government regulations, United Nations sanctions, and avoidance by other institutional investors. The CalPERS Investment Policy allows the fund to divest from a targeted company or refrain from investing in a targeted company when it is imprudent and inconsistent with its fiduciary duties and recognizes that the prudence of an investment may depend on its purpose.
(e) A pension fund’s fiduciary duty allows it to take into account harmful external factors when determining the overall return of an investment in a divestment analysis. External factors could include such things as reputational injury that could cause the stock value of a company to fall, costly litigation, as well as increased regulation and new laws that could restrict sales.
(f) In 2013, the CalPERS and CalSTRS boards board divested of manufacturers of guns illegal in the State of California in response to the Sandy Hook shooting. As a result, CalPERS sold approximately $5 million of Smith and Wesson Holding Group Corporation and Sturm, Ruger and Co. stock and CalSTRS sold approximately $3 million of the same stocks. In 2015, CalSTRS announced an agreement with Cerberus to monetize its investment in Remington Outdoor, finalizing the divestment of banned gun manufacturer holdings in a private equity fund. stock.
(g) Investing in the gun industry is a losing proposition, both morally and financially. Three iconic American gun manufacturers are battling slumping sales and are bordering on insolvency. American Outdoor Brands, parent company of Smith and Wesson, Wesson Holding Corporation, cut about 25 percent of its manufacturing workforce in 2017 and year-over-year sales were down 33 percent in its fiscal third quarter, while Sturm, Ruger and Co. saw its sales decrease by 22 percent and its net income decrease by 40 percent in 2017. Remington Arms Company declared bankruptcy on March 25, 2018.
(h) Several of the nation’s largest institutional investors and banks, including Citigroup, Bank of America, and BlackRock, have already announced new gun policies, including a moratorium on lending or investing that promotes the proliferation of assault weapons for civilian use.
(i) Major American companies, from Dick’s Sporting Goods and Walmart to United Airlines and L.L. Bean, are severing their ties with the NRA National Rifle Association and changing their gun sales policies.
(j) Successful engagement by the state’s pension funds with retail or wholesale firms that sell weapons currently banned in California relies on the real and imminent threat of impactful consequences for not responding to the request to no longer sell such weapons.

SEC. 2.

 Section 7513.73 is added to the Government Code, to read:

7513.73.
 (a) As used in this section:
(1) “Banned weapons” means any weapon banned by the state, as identified on the lists of these weapons maintained by the Department of Justice.
(2) “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. System.
(3) “Company” means a sole proprietorship, organization, association, corporation, partnership, venture, or other entity, or its subsidiary or affiliate, that exists for profit-making profitmaking purposes or to otherwise secure economic advantage.
(4) “Investment” means the purchase, ownership, or control of publicly issued stock, corporate bonds, or other debt instruments issued by a company.
(5) “Proxy voting” means a ballot cast by one person on behalf of a shareholder of a corporation who would rather cast a proxy vote than attend a shareholder meeting. Shareholders receive a proxy ballot in the mail along with a proxy statement describing the issues to be voted on, such as electing directors to the board, approving a merger or acquisition, and approving a stock compensation plan.

(6)“Public employee retirement funds” means the Public Employees’ Retirement Fund described in Section 20062 of this code and the Teachers’ Retirement Fund described in Section 22167 of the Education Code.

(7)

(6) “System” means the Public Employees’ Retirement System or the State Teachers’ Retirement System, as applicable. System.
(b) On or before July 1, 2019, the board shall adopt an investment policy for companies that are retailers or wholesalers of banned weapons. The investment policy shall be based on all of the following:
(1)  A limited timeframe of engagement seeking the voluntary removal of these weapons from the stock of items sold by these companies.
(2) If the engagement proves unsuccessful within the limited timeframe defined in the investment policy, the board shall approve proxy voting against any company that fails to remove those weapons from its stock of items sold.
(3) Should proxy voting prove unsuccessful in persuading the governing board of the company to cease in the sale of banned weapons, the board shall adopt a divestment action and shall divest from that company by no later than July 1, 2021.
(c) A decision by a company in which the system has invested to reinitiate the sale of banned weapons after voluntarily choosing to cease those sales shall cause the board to initiate an action to divest within 60 days of that decision.
(d) The board shall not be required to take any action described within this section unless the board determines in good faith that the action described is consistent with its fiduciary responsibilities, as described in Section 17 of Article XVI of the California Constitution.

SEC. 3.

 Section 16642 of the Government Code is amended to read:

16642.
 Present, future, and former board members of the Public Employees’ Retirement System or the State Teachers’ Retirement System, jointly and individually, state officers and employees, research firms described in subdivision (d) of Section 7513.6, and investment managers under contract with the Public Employees’ Retirement System or the State Teachers’ Retirement System shall be indemnified from the General Fund and held harmless by the State of California from all claims, demands, suits, actions, damages, judgments, costs, charges charges, and expenses, including court costs and attorney’s fees, and against all liability, losses, and damages of any nature whatsoever that these present, future, or former board members, officers, employees, research firms as described in subdivision (d) of Section 7513.6, or contract investment managers shall or may at any time sustain by reason of any decision to restrict, reduce, or eliminate investments pursuant to Sections 7513.6, 7513.7, 7513.73, and 7513.75.