5192-S AMS ZARE S2234.2

SSB 5192 - S AMD 50

By Senator Zarelli

ADOPTED 03/10/2003

Strike everything after the enacting clause and insert the following:

"NEW SECTION. Sec. 1. The outlook for the state's pension system is dramatically affected by the performance of the state investment board. The recent performance of all pension funds throughout the country has resulted in a greater emphasis on investment expertise and accountability for investment decisions.

The legislature has determined that particular roles and responsibilities are appropriate for various members of the investment board. In delineating these roles and responsibilities, a system of accountability for performance is an essential element.

The legislature also finds that an examination of Washington investment opportunities within the context of Washington's overall investment strategy for diversification and maximizing returns is an appropriate role of the state investment board and that additional resources may be necessary to fully consider those investments.

NEW SECTION. Sec. 2. (1) The state investment board shall maintain a portion of the board's investment portfolio in the technology investment account, an account that shall be accounted for separately and apart from other moneys invested by the board. Investments from the account may be made in technology businesses. These investments may be made directly by the board or through the board's investment advisors, including venture capital firms. The earnings on the technology investment account must be accounted for separately from other investments made by the board.

(2) Investments under this section must be made in a manner consistent with investment or management criteria established by the board. In making investments of moneys in the technology investment account, the primary investment objectives are to maximize return at a prudent level of risk, as required by RCW 43.33A.110, and to maintain a diversity of investment as required by RCW 43.33A.140. In choosing among equal investment opportunities that satisfy these investment objectives, the board shall give priority to those investments from the account that help attract or assist technology businesses in the state, including investments in technology businesses seeking to locate or expand in this state.

(3) The state investment board shall hire or designate from its current staff, at least one experienced full-time staff person to research, investigate, and recommend to the state investment board, if appropriate, and subject to the standards of investment and management under RCW 43.33A.110 and this section, investment opportunities in technology businesses that are located in, have a substantial employment base in, make a significant economic contribution to, or are seeking to locate or expand in, Washington state. The department of community, trade, and economic development is responsible for actively marketing the technology investment account to businesses seeking to locate or expand in Washington and shall work in conjunction with appropriate staff of the state investment board to coordinate information on technology businesses interested in locating or expanding in Washington.

(4) As used in this section "technology business" means a company that has as its principal function the providing of services including computer, information transfer, communication, distribution, processing, administrative, laboratory, experimental, developmental, technical, testing services, manufacture of goods or materials, the processing of goods or materials by physical or chemical change, computer-related activities, robotics, energy, biological or pharmaceutical industrial activity, or technology-oriented or emerging industrial activity.

Sec. 3. RCW 43.33A.020 and 2002 c 303 s 1 are each amended to read as follows:

There is hereby created the state investment board to consist of ((fifteen)) members to be appointed as provided in this ((section)) chapter.

(((1) One member who is an active member of the public employees' retirement system and has been an active member for at least five years. This member shall be appointed by the governor, subject to confirmation by the senate, from a list of nominations submitted by organizations representing active members of the system. The initial term of appointment shall be one year.

(2) One member who is an active member of the law enforcement officers' and fire fighters' retirement system and has been an active member for at least five years. This member shall be appointed by the governor, subject to confirmation by the senate, from a list of nominations submitted by organizations representing active members of the system. The initial term of appointment shall be two years.

(3) One member who is an active member of the teachers' retirement system and has been an active member for at least five years. This member shall be appointed by the superintendent of public instruction subject to confirmation by the senate. The initial term of appointment shall be three years.

(4) The state treasurer or the assistant state treasurer if designated by the state treasurer.

(5) A member of the state house of representatives. This member shall be appointed by the speaker of the house of representatives.

(6) A member of the state senate. This member shall be appointed by the president of the senate.

(7) One member who is a retired member of a state retirement system shall be appointed by the governor, subject to confirmation by the senate. The initial term of appointment shall be three years.

(8) The director of the department of labor and industries.

(9) The director of the department of retirement systems.

(10) One member who is an active member of the school employees' retirement system and has at least five years of service credit. This member shall be appointed by the superintendent of public instruction subject to confirmation by the senate. The initial term of appointment shall be three years.

(11) Five nonvoting members appointed by the state investment board who are considered experienced and qualified in the field of investments.

The legislative members shall serve terms of two years. The initial legislative members appointed to the board shall be appointed no sooner than January 10, 1983. The position of a legislative member on the board shall become vacant at the end of that member's term on the board or whenever the member ceases to be a member of the senate or house of representatives from which the member was appointed.

After the initial term of appointment, all other members of the state investment board, except ex officio members, shall serve terms of three years and shall hold office until successors are appointed. Members' terms, except for ex officio members, shall commence on January 1 of the year in which the appointments are made.

Members may be reappointed for additional terms. Appointments for vacancies shall be made for the unexpired terms in the same manner as the original appointments. Any member may be removed from the board for cause by the member's respective appointing authority.))

NEW SECTION. Sec. 4. There is hereby created an audit and accountability committee of the state investment board consisting of not more than five voting members of the investment board. The audit and accountability committee members are appointed by the state investment board chairperson.

At least one member of the audit and accountability committee must be a representative of one of the retirement system beneficiaries.

NEW SECTION. Sec. 5. The state treasurer or a designee is a member of the state investment board. In addition to serving as a fiduciary trustee, the state treasurer serves as a member of the audit and accountability committee. The state treasurer will use his or her expertise in financial markets to assist the accountability review process for the state investment board. The state treasurer will also assist in identifying in-state investment opportunities that meet or exceed out-of-state investment returns. The state treasurer will work with the chair of the state investment board and investment board staff to develop and implement an outreach program to Washington citizens. The purpose of the outreach program is to increase awareness of the performance of the pension fund and to encourage public review of the investment portfolio performance in aggregate. The state treasurer will report to the investment board at least twice a year the extent of those outreach efforts and any significant concerns or issues raised by the public regarding the state investment board.

NEW SECTION. Sec. 6. One member of the state investment board is an active member of the public employees' retirement system and has been an active member for at least five years. This member is appointed by the governor, subject to confirmation by the senate, from a list of nominations submitted by organizations representing active members of the system. In addition to serving as a fiduciary trustee, this member will use his or her position as a representative of pension fund beneficiaries to work with state investment board staff to participate in an outreach program specific to the public employees' retirement system beneficiaries. At a minimum, the outreach program will include making available a written annual report to public employees and an annual meeting for public employees detailing board performance and investment objectives. The public employees' board member will also assist in identifying issues relevant to public employees' for which the state investment board is held accountable, and will provide a quarterly report to the board on those issues.

NEW SECTION. Sec. 7. One member of the state investment board is an active member of the law enforcement officers' and fire fighters' retirement system and has been an active member for at least five years. This member is appointed by the governor, subject to confirmation by the senate, from a list of nominations submitted by organizations representing active members of the system. In addition to serving as a fiduciary trustee, this member will use his or her position as a representative of pension fund beneficiaries to work with state investment board staff to participate in an outreach program specific to the law enforcement officers' and fire fighters' retirement system beneficiaries. At a minimum, the outreach program will include making available a written annual report to law enforcement officers' and fire fighters' employees and an annual meeting for law enforcement officers' and fire fighters' employees detailing board performance and investment objectives. The law enforcement officers' and fire fighters' board member will also assist in identifying issues relevant to law enforcement officers' and fire fighters' for which the state investment board is held accountable, and will provide a quarterly report to the board on those issues.

NEW SECTION. Sec. 8. One member of the state investment board is an active member of the teachers' retirement system and has been an active member for at least five years. This member is appointed by the superintendent of public instruction subject to confirmation by the senate. In addition to serving as a fiduciary trustee, this member will use his or her position as a representative of pension fund beneficiaries to work with state investment board staff to participate in an outreach program specific to the teachers' retirement system beneficiaries. At a minimum, the outreach program will include making available a written annual report to teachers' retirement system employees and an annual meeting for teachers' retirement system employees detailing board performance and investment objectives. The teachers' board member will also assist in identifying issues relevant to teachers for which the state investment board is held accountable, and will provide a quarterly report to the board on those issues.

NEW SECTION. Sec. 9. One member of the state investment board is an active member of the school employees' retirement system and has at least five years of service credit. This member is appointed by the superintendent of public instruction subject to confirmation by the senate. In addition to serving as a fiduciary trustee, this member will use his or her position as a representative of pension fund beneficiaries to work with state investment board staff to participate in an outreach program specific to the school employees' retirement system beneficiaries. At a minimum, the outreach program will include making available a written annual report to school employees and an annual meeting for school employees detailing board performance and investment objectives. The school employees' board member will also assist in identifying issues relevant to school employees for which the state investment board is held accountable, and will provide a quarterly report to the board on those issues.

NEW SECTION. Sec. 10. One member of the state investment board is a retired member of a state retirement system and is appointed by the governor subject to confirmation by the senate. In addition to serving as a fiduciary trustee, this member will use his or her position as a representative of pension fund beneficiaries to work with state investment board staff to participate in an outreach program specific to retired beneficiaries. At a minimum, the outreach program will include making available a written annual report to retirees and an annual meeting for retirees detailing board performance and investment objectives. The retirees' board member will also assist in identifying issues relevant to retirees for which the state investment board is held accountable, and will provide a quarterly report to the board on those issues.

NEW SECTION. Sec. 11. The director of labor and industries is a member of the state investment board, representing an agency that is responsible for administering programs supported by state investment board earnings. In addition to serving as a fiduciary trustee, the director of labor and industries will work with state investment board staff to implement a process for reporting state investment board earnings and investment objectives to those businesses in Washington state that provide the funding for the programs administered by the department of labor and industries that are supported by state investment board earnings.

NEW SECTION. Sec. 12. The director of retirement systems is a member of the state investment board, representing an agency that is responsible for administering programs supported by state investment board earnings. In addition to serving as a fiduciary trustee, the director of retirement systems will implement a process of reporting state investment board earnings to the constituents of retirement systems.

NEW SECTION. Sec. 13. The performance of the state investment board has a profound effect on the state budget and the interests of the people of the state. Accordingly, the governor or the governor's designee is a member of the state investment board. In addition to serving as a fiduciary trustee, the governor will work with the state investment board staff to develop and implement an outreach program to Washington citizens. The intent of the outreach program is to increase awareness of the performance of the pension fund and to encourage public review of the investment board's performance.

NEW SECTION. Sec. 14. The performance of the state investment board has a profound effect on the state budget and the interests of the people of the state. Accordingly, one member of the state investment board is a member of the state house of representatives. This member is appointed by the speaker of the house of representatives. In addition to serving as a fiduciary trustee, this member is responsible for reporting to the relevant committees in the house of representatives on the status of the funds for which the state investment board is responsible and accountable.

NEW SECTION. Sec. 15. The performance of the state investment board has a profound effect on the state budget and the interests of the people of the state. Accordingly, one member of the state investment board is a member of the state senate. This member is appointed by the president of the senate. In addition to serving as a fiduciary trustee, this member is responsible for reporting to the relevant committees in the senate on the status of the funds for which the state investment board is responsible and accountable.

NEW SECTION. Sec. 16. The performance of the state investment board has a profound effect on local government fiscal systems and the interests of people in our communities. Accordingly, one member is appointed by the governor, subject to confirmation by the senate, from a list of nominations submitted by cities and counties participating in pension systems supported by the state investment board. In addition to serving as a fiduciary trustee, this member is responsible for reporting to the appropriate local government entities on the status of the funds for which the state investment board is responsible and accountable. The local government designee will work with the state investment board staff to develop and implement an outreach program to Washington citizens. The intent of the outreach program is to increase awareness of the performance of the pension fund and to encourage public review of the investment board's performance.

NEW SECTION. Sec. 17. Expertise in investment decisions is sought by the inclusion of five nonvoting members appointed by the state investment board after nomination by the audit and accountability committee, who are considered experienced and qualified in the field of investments. At least one of the nonvoting members must have experience in investing in companies, funds, or other investments that are located in, have a substantial employment base in, or make a significant economic contribution to, Washington state.

NEW SECTION. Sec. 18. (1) All members of the state investment board, except nonvoting members, legislative members, and ex officio members, serve terms of three years and hold office until successors are appointed. Members' terms, except for nonvoting members, commence on January 1st of the year in which the appointments are made.

(2) Members may be reappointed for additional terms. Appointments for vacancies are made for the unexpired terms in the same manner as the original appointments. Any voting member may be removed from the state investment board for cause by the member's respective appointing authority. The five nonvoting members serve for a term determined by the audit and accountability committee, which may not exceed two years. Nonvoting members may be removed from the board by the audit and accountability committee at any time with or without cause.

(3) The legislative members serve terms of two years. The position of a legislative member on the state investment board becomes vacant at the end of that member's term on the state investment board or whenever the member ceases to be a member of the senate or house of representatives from which the member was appointed.

Sec. 19. RCW 43.33A.040 and 2002 c 303 s 2 are each amended to read as follows:

(1) A quorum to conduct the business of the state investment board consists of ((at least six)) a majority of the voting members serving on the board. No action may be taken by the board without the affirmative vote of ((six members)) a majority of the voting members serving on the board.

(2) The state investment board shall meet at least quarterly at such times as it may fix. The board shall elect a chairperson and vice chairperson annually: PROVIDED, That the legislative members are not eligible to serve as chairperson.

NEW SECTION. Sec. 20. Sections 2 and 4 through 18 of this act are each added to chapter 43.33A RCW.

NEW SECTION. Sec. 21. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately."

SSB 5192 - S AMD 50

By Senator Zarelli

ADOPTED 03/10/2003

On page 1, line 1 of the title, after "investments;" strike the remainder of the title and insert "amending RCW 43.33A.020 and 43.33A.040; adding new sections to chapter 43.33A RCW; creating a new section; and declaring an emergency."

EFFECT: The striking amendment makes the following changes to the substitute: (1) Clarifies accounting requirements for the technology investment account; (2) deletes reporting requirements of the audit and accountability committee in recognition such reporting already occurs; (3) requires voting members to engage in outreach to increase awareness of the pension fund's performance; and (4) adds a local government representative to the board and accordingly adjusts the quorum requirements.

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