AN ACT Relating to the investment of public pension and retirement funds in countries with communist policies; amending RCW 43.33A.020, 43.33A.110, 43.33A.130, 43.33A.140, 43.84.061, and 43.84.150; adding new sections to chapter 43.33A RCW; creating new sections; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature intends to limit the investment of state funds in nations that practice limiting or denying civil, political, or human rights to any of its people because of race, color, creed, religion, nationality, or political ideology. Therefore, the limitation on investments of state funds in business entities that do business in the Union of Soviet Socialist Republics is intended to apply only so long as the Soviet Union continues its policy of limiting or denying civil, political, or human rights to its people because of their race, color, creed, religion, nationality, or political ideology.

NEW SECTION. Sec. 2. A new section is added to chapter 43.33A RCW to read as follows:

The board shall, by January 1, 1989, develop a list of those business entities that do business in the Soviet Union. This list should be compiled and updated by the board by using one or more listings maintained and promulgated by a recognized organization or organizations. Within the standard of judgment and care expressed in RCW 43.33A.140, the board and its fund managers shall not use the firms on this list as the first investment source. Within that standard of judgment and care, the board shall divest the securities of those business entities that do business in the Soviet Union. Periodically, the board shall report its experience to the legislature.

NEW SECTION. Sec. 3. A new section is added to chapter 43.33A RCW to read as follows:

The governor, or the governor's representative, shall, where possible, actively attempt to influence and promote the policy of freedom of civil, human, and political rights of persons regardless of race, color, creed, religion, nationality, or political ideology within those corporate and other business entities in which the state has invested through the purchase of securities through active participation at stockholder meetings of these entities where appropriate. In carrying out this mandate, the governor shall seek the support of or attempt to influence other public investment agencies to join in promoting and influencing such corporate and other business entities to express, within their policy, these various rights of persons.

Sec. 4. Section 2, chapter 3, Laws of 1981 as last amended by section 1, chapter 195, Laws of 1985 and RCW 43.33A.020 are each amended to read as follows:

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

(1) The governor, or a representative of the governor, is to be a member ex officio.

(2) One member ((~~who is~~)) shall be 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)~~)) (3) One member ((~~who is~~)) shall be 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)~~)) (4) One member ((~~who is~~)) shall be 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)~~)) (5) One member shall be the state treasurer or the assistant state treasurer if designated by the state treasurer.

((~~(5)~~)) (6) One member shall be a member of the state house of representatives. This member shall be appointed by the speaker of the house of representatives.

((~~(6)~~)) (7) One member shall be a member of the state senate. This member shall be appointed by the president of the senate.

((~~(7)~~)) (8) One member ((~~who is~~)) shall be 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)~~)) (9) One member shall be the director of the department of labor and industries.

((~~(9)~~)) (10) One member shall be the director of the department of retirement systems.

((~~(10)~~)) (11) There shall be 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.

Sec. 5. Section 11, chapter 3, Laws of 1981 as amended by section 4, chapter 219, Laws of 1981 and RCW 43.33A.110 are each amended to read as follows:

The state investment board may make appropriate rules and regulations for the performance of its duties. The board shall establish investment policies and procedures designed exclusively to maximize return at a prudent level of risk, except as limited by RCW 43.84.150. The board shall adopt rules to ensure that its members perform their functions in compliance with chapter 42.18 RCW. Rules adopted by the board shall be adopted pursuant to chapter 34.04 RCW.

Sec. 6. Section 13, chapter 3, Laws of 1981 and RCW 43.33A.130 are each amended to read as follows:

The state treasurer may cause any securities in which the state investment board deals to be registered in the name of a nominee without mention of any fiduciary relationship, except that adequate records shall be maintained to identify the actual owner of the security so registered. The securities so registered shall be held in the physical custody of the state treasurer, the federal reserve system, the designee of the state treasurer, or, at the election of the designee and upon approval of the state treasurer, the Depository Trust Company of New York City or its designees.

With respect to the securities, the nominee shall act only upon the order of the state treasurer who shall act only on the direction of the state investment board. All rights to the dividends, interest, and sale proceeds from the securities and all voting rights of the securities are vested in the actual owners of the securities, and not in the nominee. The voting rights of the securities shall be publicly exercised by the board taking into consideration the general policy or guidelines set forth by the governor to meet the goals set forth in sections 2 and 3 of this 1988 act. The actions of the board in voting such rights shall be promulgated in a timely manner.

Sec. 7. Section 14, chapter 3, Laws of 1981 and RCW 43.33A.140 are each amended to read as follows:

Except as limited by RCW 43.84.150, any investments made by the state investment board shall be made with the exercise of that degree of judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation but for investment, considering the probable safety of their capital as well as the probable income to be derived.

Sec. 8. Section 6, chapter 104, Laws of 1965 ex. sess. and RCW 43.84.061 are each amended to read as follows:

Any investments made hereunder shall be made with the exercise of that degree of judgment and care, under circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation but for investment, considering the probable safety of their capital as well as the probable income to be derived, except that investments shall not be made in securities of nongovernmental companies or financial institutions directly doing business in the Soviet Union.

Sec. 9. Section 2, chapter 17, Laws of 1975-'76 2nd ex. sess. as last amended by section 1, chapter 98, Laws of 1981 and RCW 43.84.150 are each amended to read as follows:

Except where otherwise specifically provided by law, the state investment board shall have full power to invest, reinvest, manage, contract, or sell or exchange investments acquired. Investments shall be made in accordance with this section, RCW 43.33A.140, section 2 of this 1988 act, and investment policy duly established and published by the state investment board. All funds shall be sufficiently diversified and no corporate fixed income issue or common stock holding may exceed three percent of the cost or six percent of the market value of the assets of any fund.

NEW SECTION. Sec. 10. By January 1989, the board shall inform the legislature on the structure of the list specified in section 2 of this act and the criteria upon which the list was developed.

NEW SECTION. Sec. 11. This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect immediately.