HB-6481, As Passed House, December 6, 2018

HOUSE BILL No. 6481

November 7, 2018, Introduced by Rep. VerHeulen and referred to the Committee on Financial Liability Reform.

A bill to amend 1965 PA 314, entitled

"Public employee retirement system investment act,"

by amending sections 13, 13c, 13d, and 20m (MCL 38.1133, 38.1133c,

38.1133d, and 38.1140m), section 13 as amended by 2017 PA 203,

section 13c as added by 2008 PA 233, section 13d as added by 2008

PA 232, and section 20m as amended by 2014 PA 185.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 13. (1) This act supersedes any investment authority

previously granted to a system under any other law of this state.

(2) The assets of a system may be invested, reinvested, held

in nominee form, and managed by an investment fiduciary subject to

the terms, conditions, and limitations provided in this act. An

investment fiduciary of a defined contribution plan may arrange for

1 or more investment options to be directed by the participants of

the defined contribution plan. The limitations on the percentage of

total assets for investments provided in this act do not apply to a

defined contribution plan in which a participant directs the

investment of the assets in his or her individual account, and that

participant is not considered an investment fiduciary under this

act.

(3) An investment fiduciary shall discharge his or her duties

solely in the interest of the participants and the beneficiaries,

and shall do all of the following:

(a) Act with the same care, skill, prudence, and diligence

under the circumstances then prevailing that a prudent person

acting in a similar capacity and familiar with those matters would

use in the conduct of a similar enterprise with similar aims.

(b) Act with due regard for the management, reputation, and

stability of the issuer and the character of the particular

investments being considered.

benefits to participants and participants' beneficiaries, and of

defraying reasonable expenses of investing the assets of the

system.

(d) Give appropriate consideration to those facts and

circumstances that the investment fiduciary knows or should know

are relevant to the particular investment or investment course of

action involved, including the role the investment or investment

course of action plays in that portion of the system's investments

for which the investment fiduciary has responsibility; and act

accordingly. For purposes of this subsection, "appropriate

consideration" includes, but is not limited to, a determination by

the investment fiduciary that a particular investment or investment

course of action is reasonably designed, as part of the investments

of the system, to further the purposes of the system, taking into

consideration the risk of loss and the opportunity for gain or

other return associated with the investment or investment course of

action; and consideration of the following factors as they relate

to the investment or investment course of action:

(i) The diversification of the investments of the system.

(ii) The liquidity and current return of the investments of

the system relative to the anticipated cash flow requirements of

the system.

(iii) The projected return of the investments of the system

relative to the funding objectives of the system.

(e) Give appropriate consideration to investments that would

enhance the general welfare of this state and its citizens if those

investments offer the safety and rate of return comparable to other

investments permitted under this act and available to the

investment fiduciary at the time the investment decision is made.

(f) Prepare and maintain written objectives, policies, and

strategies with clearly defined accountability and responsibility

for implementing and executing the system's investments.

(g) Monitor the investment of the system's assets with regard

to the limitations on those investments under this act. Upon

discovery that an investment causes the system to exceed a

limitation prescribed in this act, the investment fiduciary shall

reallocate assets in a prudent manner to comply with the prescribed

limitation.

(h) Prepare and maintain written policies regarding ethics and

professional training and education, including travel, which

policies contain clearly defined accountability and reporting

requirements for the system's investment fiduciaries.

(i) Publish a summary annual report that includes all of the

following:

(i) The name of the system.

(ii) The names of the system's investment fiduciaries.

(iii) The names of the system's service providers.

(iv) The system's assets and liabilities and changes in net

plan assets on a plan-year basis.

(v) The system's funded ratio based on the ratio of valuation

assets to actuarial accrued liabilities on a plan-year basis.

(vi) Except as otherwise provided in this subparagraph, the

system's investment performance net of fees on a rolling calendar-

year basis for the previous 1-, 3-, 5-, 7-, and 10-year periods.

For a system for which the state treasurer is the investment

fiduciary, the summary annual report must include the system's

investment performance net of fees on a rolling calendar-year and

fiscal-year basis for the previous 1-, 3-, 5-, 7-, and 10-year

periods.

(vii) The system's administrative and investment expenditures

pursuant to standards of the Governmental Accounting Standards

Board, including, but not limited to, a list of all expenditures

made with soft dollars and all expenditures for professional

training and education, including travel expenditures, by or on

behalf of system board members that are paid by the system, if any.

(viii) The system's itemized budget containing all projected

expenditures, including, but not limited to, expenditures for

professional training and education, including travel expenditures,

by or on behalf of system board members that are paid by the

system.

(ix) The following information as provided in the system's

most recent annual actuarial valuation report:

(A) The number of active members.

(B) The number of retirees and beneficiaries.

(D) The total annual retirement allowances being paid.

(E) The valuation payroll.

(F) The employer's computed normal cost of benefits expressed

as a percentage of valuation payroll.

(G) The employer's total contribution rate expressed as a

percentage of valuation payroll.

(H) The weighted average of member contributions, if any.

(I) The actuarial assumed rate of investment return.

(J) The actuarial assumed rate of long-term wage inflation.

(K) The smoothing method utilized to determine the funding

value of assets.

(L) The amortization method and period utilized for funding

the system's unfunded actuarial accrued liabilities, if any.

(M) The system's actuarial cost method.

(N) Whether system membership is open or closed to specific

groups of employees.

(O) The actuarial assumed rate of health care inflation.

(x) In addition to the expenditures reported under

subparagraph (vii), for a large sponsored system a travel report

listing all travel outside this state in the immediately preceding

fiscal year that was funded in whole or in part with public funds.

The report must include the total expenses for all out-of-state

travel funded during the immediately preceding fiscal year and all

of the following information for each travel occurrence:

(A) The name of each person receiving reimbursement for travel

outside this state or whose travel costs were paid by the large

sponsored system and funded in whole or in part with public funds.

(B) The destination.

(D) A brief statement of the reason for the travel.

(E) An itemization of the transportation and related costs,

including, but not limited to, the amount for food, lodging, and

vehicle rental and listing the names of hotels, restaurants,

vehicle rental agencies, and vehicle models.

(xi) For a state unit, an executive summary of both of the

following:

(A) The state unit's unfunded actuarial accrued liabilities

for retiree health and pension.

(B) The information described in subparagraph (v).

(j) An investment fiduciary of a large sponsored system shall

submit a summary annual report described in subdivision (i) to the

financial review commission created under the Michigan financial

review commission act, 2014 PA 181, MCL 141.1631 to 141.1643.

(k) For a state unit, submit the executive summary required

under subdivision (i)(xi) to the senate and house of

representatives appropriations committees and the senate and house

fiscal agencies not less than 30 days after publication.

(l) For a system other than a state unit, submit the summary

annual report published under subdivision (i) to the department of

treasury not less than 30 days after publication.

(4) An investment fiduciary who is an investment fiduciary of

any of the following shall comply with the divestment from terror

act, 2008 PA 234, MCL 129.291 to 129.301, in making investments

under this act:

(a) The Tier 1 retirement plan available under the state

employees' retirement act, 1943 PA 240, MCL 38.1 to 38.69.

(b) The Tier 1 retirement plan available under the judges

retirement act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670.

the state police retirement act of 1986, 1986 PA 182, MCL 38.1601

to ~~38.1648.~~38.1675.

(d) The Michigan public school employees' retirement system

created under the public school employees retirement act of 1979,

1980 PA 300, MCL 38.1301 to 38.1437.

(5) Subject to section 13g, an investment fiduciary may use a

portion of the system's income to defray the costs of investing,

managing, and protecting the assets of the system; may retain

investment and all other goods and services necessary for the

conduct of the affairs of the system, including investment

advisors, consultants, custodians, accountants, auditors,

attorneys, actuaries, investment personnel, administrators, and

physicians; and may enter into contracts for and pay reasonable

compensation for those services. Subject to an annual appropriation

by the legislature, a deduction from the income of a state-

administered system resulting from the payment of those costs must

be made.

(6) Subject to this subsection and subsection (13), an

investment fiduciary may use a portion of the system's income to

defray the costs of professional training and education, including

travel costs, of system board members, which professional training

and education, including travel, are directly related to the

administration, management, and operation of the system. The

governing board vested with the general administration, management,

and operation of the system or other decision-making body that is

responsible for implementation and supervision of the system shall

adopt an annual budget for professional training and education,

including travel, authorized under this subsection. The budget

adopted under this subsection must reflect the number of board

members, the size of the system, and the educational objectives of

the system. The system's total aggregate cost for professional

training and education, including travel costs, authorized under

this subsection for a fiscal year must not exceed $150,000.00 or an

amount that is equal to the total number of system board members

multiplied by $12,000.00, whichever is less. The system's total

cost for professional training and education, including travel

costs, authorized under this subsection for an individual system

board member in a fiscal year must not exceed $30,000.00. Beginning

January 1, 2013, the department of treasury shall adjust the dollar

amounts in this subsection by an amount determined by the state

treasurer at the end of the immediately preceding calendar year to

reflect the cumulative annual percentage change in the ~~consumer~~

~~price index.~~ Consumer Price Index. As used in this subsection,

~~"consumer price index"~~ "Consumer Price Index" means the most

comprehensive index of consumer prices available for this state

from the Bureau of Labor Statistics of the United States Department

of Labor.

(7) Before any investment services are provided, an investment

service provider shall provide the investment fiduciary of the

system with a complete written disclosure of all fees or other

compensation associated with its relationship with the system.

After investment services are provided to the investment fiduciary

of the system, an investment service provider shall provide on an

annual basis written disclosure of all fees including, but not

limited to, commissions, 12b-1 and related fees, compensation paid

or to be paid to third parties, and any other compensation paid by

the system to the investment fiduciary of the system. As used in

this subsection, "investment service provider" means any

individual, third-party agent or consultant, or other entity that

receives direct or indirect compensation for consulting, investment

management, brokerage, or custody services related to the system's

assets. For purposes of this section only, investment service

provider does not include a retirement system.

(8) The system must be a separate and distinct trust fund and

the assets of the system must be for the exclusive benefit of the

participants and their beneficiaries and of defraying reasonable

expenses of investing the assets of the system. With respect to a

system, an investment fiduciary shall not cause the system to

engage in a transaction if he or she knows or should know that the

transaction is any of the following, either directly or indirectly:

(a) A sale or exchange or a leasing of any property from the

system to a party in interest for less than the fair market value,

or from a party in interest to the system for more than the fair

market value.

(b) A lending of money or other extension of credit from the

system to a party in interest without the receipt of adequate

security and a reasonable rate of interest, or from a party in

interest to the system with the provision of excessive security or

at an unreasonably high rate of interest.

political subdivision sponsoring the system of any assets of the

system for less than adequate consideration.

(d) The furnishing of goods, services, or facilities from the

system to a party in interest for less than adequate consideration,

or from a party in interest to the system for more than adequate

consideration.

(9) With respect to a system subject to this act, an

investment fiduciary shall not do any of the following:

(a) Deal with the assets of the system in his or her own

interest or for his or her own account.

(b) In his or her individual or any other capacity act in any

transaction involving the system on behalf of a party whose

interests are adverse to the interests of the system or the

interest of its participants or participants' beneficiaries.

account from any party dealing with the system in connection with a

transaction involving the assets of the system.

(10) This section does not prohibit an investment fiduciary

from doing any of the following:

(a) Receiving any benefit to which he or she may be entitled

as a participant or participant's beneficiary of the system.

(b) Receiving any reimbursement of expenses properly and

actually incurred in the performance of his or her duties for the

system.

officer, employee, agent, or other representative of the political

subdivision sponsoring the system.

(d) Receiving agreed upon compensation for services from the

system.

(11) Except for an employee of a system, this state, or the

political subdivision sponsoring a system, when acting in the

capacity as an investment fiduciary, an investment fiduciary who is

qualified under section 12c(1)(b) shall meet 1 of the following

requirements:

(a) Be a registered investment adviser under the investment

advisers act of 1940, 15 USC 80b-1 to 80b-21, or the uniform

securities act (2002), 2008 PA 551, MCL 451.2101 to 451.2703.

(b) Be a bank as defined under the investment advisers act of

1940, 15 USC 80b-1 to 80b-21.

(12) An investment fiduciary shall not invest in a debt

instrument issued by a foreign country that has been designated by

the United States Department of State as a state sponsor of terror.

(13) A large sponsored system shall not pay the expenses for a

person to travel outside this state from funds under its control

unless 1 or more of the following conditions apply to the travel:

(a) It is required by legal mandate or court order or for law

enforcement purposes.

(b) It is necessary to protect the health or safety of

citizens of, or visitors to, this state or to assist other states

in similar circumstances.

increase revenues, including protecting existing federal funds or

securing additional federal funds.

(d) It is necessary to secure specialized training for the

person that is substantially related to performing the duties of

the position and is not available within this state.

(14) Subject to section 13g, an investment fiduciary of a

large sponsored system that invests or has invested in a hazardous

waste deep disposal well facility regulated under part 111 or 121

of the natural resources and environmental protection act, 1994 PA

451, MCL 324.11101 to 324.11153 and 324.12101 to 324.12117, is

subject to all of the following:

(a) The investment fiduciary shall not make an additional

investment in the hazardous waste deep disposal well facility

unless the investment is solely to prepare the property on which

the hazardous waste deep disposal well facility is located for sale

for purposes other than operation as a hazardous waste deep

disposal well facility or similar hazardous facility.

(b) The investment fiduciary shall sell, redeem, divest, or

withdraw all investments in the hazardous waste deep disposal well

facility within 180 days after any of the following circumstances

occur:

(i) The operator of the hazardous waste deep disposal well

facility files for bankruptcy.

(ii) The sale, transfer, purchase, or acquisition of a

controlling interest in the operator of the hazardous waste deep

disposal well facility.

(iii) An Environmental Protection Agency action for a

violation at the hazardous waste deep disposal well facility.

(iv) An Environmental Protection Agency revocation of the

operator's license.

(v) An Environmental Protection Agency or department of

environmental quality order to terminate operations at the

hazardous waste deep disposal well facility.

(15) For a state unit, a representative of the office of

retirement services in the department of technology, management,

and budget shall appear before the senate and house of

representatives appropriations committees on request of the

committee chair to testify about the system's summary annual report

required under subsection (3).

(16) The department of treasury shall post on its website an

executive summary of each summary annual report submitted to the

department of treasury under subsection (3)(l). The executive

summary must include the applicable system's unfunded actuarial

accrued liability for pension. The department of treasury shall

submit each executive summary required under this subsection to the

senate and the house of representatives appropriations committees

and the senate and house fiscal agencies not less than 30 days

after posting.

(17) As used in this section, "state unit" means a system

established under the state employees' retirement act, 1943 PA 240,

MCL 38.1 to 38.69, the public school employees retirement act of

1979, 1980 PA 300, MCL 38.1301 to 38.1437, the judges retirement

act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670, and the state

police retirement act of 1986, 1986 PA 182, MCL 38.1601 to

~~38.1648.~~38.1675.

Sec. 13c. (1) As used in this section:

(a) "Active business operations" means all business operations

that are not inactive business operations.

(b) "Business operations" means engaging in commerce in any

form in Sudan, including by acquiring, developing, maintaining,

owning, selling, possessing, leasing, or operating equipment,

facilities, personnel, products, services, personal property, real

property, or any other apparatus of business or commerce.

association, corporation, partnership, joint venture, limited

partnership, limited liability partnership, limited liability

company, or other entity or business association, including all

wholly owned subsidiaries, majority-owned subsidiaries, parent

companies, or affiliates of such entities or business associations,

that exists for profit-making purposes.

(d) "Complicit" means taking actions during any preceding 20-

month period which have directly supported or promoted the

genocidal campaign in Darfur, including, but not limited to,

preventing Darfur's victimized population from communicating with

each other, encouraging Sudanese citizens to speak out against an

internationally approved security force for Darfur, actively

working to deny, cover up, or alter the record on human rights

abuses in Darfur, or other similar actions.

(e) "Direct holdings" in a company means all securities of

that company held directly by the fiduciary or in an account or

fund in which the fiduciary owns all shares or interests.

(f) "Fiduciary" means the Michigan legislative retirement

system board of trustees for the Tier 1 plan for the Michigan

legislative retirement system created by the Michigan legislative

retirement system act, 1957 PA 261, MCL 38.1001 to 38.1080, and the

treasurer of this state for the retirement systems created under

all of the following acts:

(i) The state police retirement act of 1986, 1986 PA 182, MCL

38.1601 to ~~38.1648.~~38.1675.

(ii) The Tier 1 retirement plan available under the judge's

retirement act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670.

(iii) The Tier 1 retirement plan available under the state

employees retirement act, 1943 PA 240, MCL 38.1 to 38.69.

(iv) The public school employees retirement act of 1979, 1980

PA 300, MCL 38.1301 to ~~38.1408.~~38.1437.

(g) "Government of Sudan" means the government in Khartoum,

Sudan, which is led by the national congress party or any successor

government formed on or after October 13, 2006 and does not include

the regional government of southern Sudan.

(h) "Inactive business operations" means the mere continued

holding or renewal of rights to property previously operated for

the purpose of generating revenues but not presently deployed for

such purpose.

(i) "Indirect holdings" in a company means all securities of

that company held in an account or fund, such as a mutual fund or

other commingled fund, managed by 1 or more persons not employed by

the fiduciary, in which the fiduciary owns shares or interests

together with other investors not subject to the provisions of this

act.

(j) "Marginalized populations of Sudan" includes, but is not

limited to, all of the following:

(i) The portion of the population in the Darfur region that

has been genocidally victimized.

(ii) The portion of the population of southern Sudan

victimized by Sudan's north-south civil war.

(iii) The Beja, Rashidiya, and other similarly underserved

groups of eastern Sudan.

(iv) The Nubian and other similarly underserved groups in

Sudan's Abyei, Southern Blue Nile, and Nuba Mountain regions.

(v) The Amri, Hamadab, Manasir, and other similarly

underserved groups of northern Sudan.

(k) "Military equipment" means weapons, arms, military

supplies, and equipment that readily may be used for military

purposes, including, but not limited to, radar systems or military-

grade transport vehicles; or supplies or services sold or provided

directly or indirectly to any force actively participating in armed

conflict in Sudan.

(l) "Mineral extraction activities" includes exploring,

extracting, processing, transporting, or wholesale selling or

trading of elemental minerals or associated metal alloys or oxides,

including gold, copper, chromium, chromite, diamonds, iron, iron

ore, silver, tungsten, uranium, and zinc, as well as facilitating

such activities, including by providing supplies or services in

support of such activities.

(m) "Oil-related activities" includes, but is not limited to,

owning rights to oil blocks; exporting, extracting, producing,

refining, processing, exploring for, transporting, selling, or

trading of oil; constructing, maintaining, or operating a pipeline,

refinery, or other oil-field infrastructure; and facilitating such

activities, including by providing supplies or services in support

of such activities, provided that the mere retail sale of gasoline

and related consumer products shall not be considered oil-related

activities.

(n) "Power production activities" means any business operation

that involves a project commissioned by the national electricity

corporation of Sudan or other similar government of Sudan entity

whose purpose is to facilitate power generation and delivery,

including, but not limited to, establishing power-generating plants

or hydroelectric dams, selling or installing components for the

project, providing service contracts related to the installation or

maintenance of the project, as well as facilitating such

activities, including by providing supplies or services in support

of such activities.

(o) "Scrutinized company" means any company, except a social

development company and a company described in subsection (10) that

is not complicit in the Darfur genocide, that meets the criteria in

subparagraph (i), (ii), or (iii):

(i) The company has business operations that involve contracts

with or provision of supplies or services to 1 or more of the

following:

(A) The government of Sudan.

(B) Companies in which the government of Sudan has any direct

or indirect equity share.

(D) Companies involved in government of Sudan-commissioned

consortia or projects and that have 1 or more of the following:

(I) More than 10% of the company's revenues or assets linked

to Sudan involve oil-related activities or mineral extraction

activities, less than 75% of the company's revenues or assets

linked to Sudan involve contracts with or provision of oil-related

or mineral extracting products or services to the regional

government of southern Sudan or a project or consortium created

exclusively by that regional government, and the company has failed

to take substantial action.

(II) More than 10% of the company's revenues or assets linked

to Sudan involve power production activities, less than 75% of the

company's power production activities include projects whose intent

is to provide power or electricity to the marginalized populations

of Sudan, and the company has failed to take substantial action.

(ii) The company is complicit in the Darfur genocide.

(iii) The company supplies military equipment within Sudan,

unless the fiduciary finds that the military equipment will not be

used to facilitate offensive military actions in Sudan or the

fiduciary finds that the company implements rigorous and verifiable

safeguards to prevent use of that equipment by forces actively

participating in armed conflict.

(p) "Social development company" means a company whose primary

purpose in Sudan is to provide humanitarian goods or services,

including medicine or medical equipment, agricultural supplies or

infrastructure, educational opportunities, journalism-related

activities, information or information materials, spiritual-related

activities, services of a purely clerical or reporting nature,

food, clothing, or general consumer goods that are unrelated to

oil-related activities, mineral extraction activities, or power

production activities.

(q) "Substantial action" means adopting, publicizing, and

implementing a formal plan to cease scrutinized business operations

within 1 year and to refrain from any new business operations,

undertaking significant humanitarian efforts in conjunction with an

international organization, the government of Sudan, the regional

government of southern Sudan, or a nonprofit entity and evaluated

and certified by an independent third party to be substantial in

relationship to the company's Sudan business operations and of

benefit to 1 or more marginalized populations of Sudan, or through

engagement with the government of Sudan, materially improving

conditions for the genocidally victimized population in Darfur.

(2) Within 90 days after the effective date of the amendatory

act that added this section, the fiduciary shall make its best

efforts to identify all scrutinized companies in which the

fiduciary has direct or indirect holdings or could possibly have

such holdings in the future. The efforts shall include 1 or more of

the following:

(a) Reviewing and relying, as appropriate in the fiduciary's

judgment, on publicly available information regarding companies

with business operations in Sudan, including information provided

by nonprofit organizations, research firms, international

organizations, and government entities.

(b) Contacting asset managers contracted by the fiduciary that

invest in companies with business operations in Sudan.

divested from or engaged with companies that have business

operations in Sudan.

(3) At the end of the 90-day period or by the first meeting of

the fiduciary following the 90-day period described in subsection

(2), the fiduciary shall assemble all scrutinized companies

identified into a scrutinized companies list.

(4) The fiduciary shall update the scrutinized companies list

on a quarterly basis based on evolving information from, among

other sources, those sources listed in subsection (2). The

fiduciary shall make the scrutinized companies list freely

available to the fiduciaries of other public retirement systems

located in this state if making the list available does not violate

any agreements with third parties or reveal proprietary information

of a third party.

(5) The fiduciary shall adhere to the following procedure for

companies on the scrutinized companies list:

(a) The fiduciary shall immediately determine the companies on

the scrutinized companies list in which the fiduciary oversees

pursuant to its responsibilities as defined in subsection (1)(f).

(b) For each company identified in subdivision (a) with only

inactive business operations, the fiduciary shall send a written

notice informing the company of this section and encourage the

company to continue to refrain from initiating active business

operations in Sudan until it is able to avoid scrutinized business

operations and further encourage the company to engage in

substantial humanitarian operations in the country. The fiduciary

shall continue the correspondence on a semiannual basis.

active business operations, the fiduciary shall send a written

notice informing the company of its scrutinized company status and

that it may become subject to divestment by the fiduciary. The

notice shall offer the company the opportunity to clarify its

Sudan-related activities and shall encourage the company, within 90

days, to either cease its scrutinized business operations or

convert such operations to inactive business operations in order to

avoid qualifying for divestment by the fiduciary.

(d) If, within 90 days following the fiduciary's first

engagement with a company pursuant to subdivision (c), that company

ceases scrutinized business operations, the company shall be

removed from the scrutinized companies list and this section shall

cease to apply to it unless it resumes scrutinized business

operations. If, within 90 days following the fiduciary's first

engagement, the company converts its scrutinized active business

operations to inactive business operations, the company shall be

subject to this section.

(e) If, after 90 days following the fiduciary's first

engagement with a company pursuant to subdivision (c), the company

continues to have scrutinized active business operations, and only

while the company continues to have scrutinized active business

operations, the fiduciary shall sell, redeem, divest, or withdraw

all publicly traded securities of the company, according to the

following schedule:

(i) At least 50% of the assets shall be removed from the

fiduciary's assets under management within 9 months after the

company's most recent appearance on the scrutinized companies list.

(ii) 100% of the assets shall be removed from the fiduciary's

assets under management within 15 months after the company's most

recent appearance on the scrutinized companies list.

(f) Except as provided in subdivisions (g) and (h), at no time

shall the fiduciary acquire securities of companies on the

scrutinized companies list that have active business operations.

(g) No company which the United States government

affirmatively declares to be excluded from its present or any

future federal sanctions regime relating to Sudan shall be subject

to divestment or investment prohibition pursuant to subdivisions

(e) and (f).

(h) Subdivisions (e) and (f) shall not apply to indirect

holdings in actively managed investment funds. For purposes of this

section, actively managed investment funds include private equity

funds and publicly traded funds. Before the fiduciary invests in a

new private equity fund that is not in the fiduciary's portfolio as

of ~~the effective date of the amendatory act that added this~~

~~section,~~ July 17, 2018, the fiduciary shall perform due diligence

to prevent investment in any private equity fund where the offering

memorandum or prospectus identifies the purpose of the private

equity fund as investing in scrutinized companies with active

business operations in Sudan. The fiduciary is not required to

identify holdings in private equity funds or submit engagement

letters to those funds. If the manager of a publicly traded,

actively managed fund that is in the fiduciary's portfolio on ~~the~~

~~effective date of the amendatory act that added this section~~ July

17, 2018 creates a similar publicly traded, actively managed fund

with indirect holdings devoid of identified scrutinized companies

with scrutinized active business operations as defined in this

section, the fiduciary shall replace all applicable investments

with investments in the similar fund in an expedited time frame

consistent with prudent investment standards.

(6) The fiduciary shall file a publicly available report to

the legislature that includes the scrutinized companies list within

30 days after the list is created. Annually thereafter, the

fiduciary shall file a publicly available report to the legislature

and send a copy of that report to the United States presidential

special envoy to Sudan that includes all of the following:

(a) A summary of correspondence with companies engaged by the

fiduciary under this section.

(b) All investments sold, redeemed, divested, or withdrawn in

compliance with this section.

(d) Any progress made under subsection (5)(h).

(7) This section is effective until the first occurrence of

any of the following:

(a) The United States ~~congress~~ Congress or the ~~president~~

President of the United States declares that the Darfur genocide

has been halted for at least 12 months.

(b) The United States revokes all sanctions imposed against

the government of Sudan.

States declares that the government of Sudan has honored its

commitments to cease attacks on civilians, demobilize and

demilitarize the Janjaweed and associated militias, grant free and

unfettered access for deliveries of humanitarian assistance, and

allow for the safe and voluntary return of refugees and internally

displaced persons.

(d) The ~~congress~~ Congress or ~~president~~ President of the United

States, through legislation or executive order, declares that

mandatory divestment of the type provided for in this act

interferes with the conduct of United States foreign policy.

(8) With respect to actions taken in compliance with this

section, including all good faith determinations regarding

companies as required by this section, the fiduciary shall be

exempt from any conflicting statutory or common law obligations,

including any obligations in respect to choice of asset managers,

investment funds, or investments for the fiduciary's securities

portfolios.

(9) The fiduciary, members of an investment advisory

committee, and any person with decision-making authority with

regard to investments of the fiduciary shall not be held liable for

any action undertaken for the purpose of complying with or

executing the mandates required under this section.

(10) Scrutinized company does not include a company that the

federal government has affirmatively excluded from federal

sanctions for business the scrutinized company conducts relating to

Sudan, or that has consistently obtained applicable licenses or

approvals to conduct transactions with Sudan. If the fiduciary

becomes aware at any time that a company that has not been

affirmatively excluded from federal sanctions for business it

conducts relating to Sudan and has not received from the United

States government applicable licenses or approvals to conduct

transactions with Sudan, that company is immediately subject to

subsection (5).

(11) If any provision, section, subsection, sentence, clause,

phrase, or word of this legislation or its application to any

person or circumstance is found to be invalid, illegal,

unenforceable, or unconstitutional, the same is hereby declared to

be severable and the balance of this legislation shall remain

effective and functional notwithstanding such invalidity,

illegality, unenforceability, or unconstitutionality.

Sec. 13d. (1) As used in this section:

(a) "Active business operations" means all business operations

that are not inactive business operations.

(b) "Business operations" means engaging in commerce in any

form in Iran, including by acquiring, developing, maintaining,

owning, selling, possessing, leasing, or operating equipment,

facilities, personnel, products, services, personal property, real

property, or any other apparatus of business or commerce.

association, corporation, partnership, joint venture, limited

partnership, limited liability partnership, limited liability

company, or other entity or business association, including all

wholly owned subsidiaries, majority-owned subsidiaries, parent

companies, or affiliates of such entities or business associations,

that exists for profit-making purposes.

(d) "Direct holdings" in a company means all securities of

that company held directly by the fiduciary or in an account or

fund in which the fiduciary owns all shares or interests.

(e) "Fiduciary" means the Michigan legislative retirement

system board of trustees for the Tier 1 plan for the Michigan

legislative retirement system created by the Michigan legislative

retirement system act, 1957 PA 261, MCL 38.1001 to 38.1080, and the

treasurer of this state for the retirement systems created under

all of the following acts:

(i) The state police retirement act of 1986, 1986 PA 182, MCL

38.1601 to ~~38.1648.~~38.1675.

(ii) The Tier 1 retirement plan available under the judge's

retirement act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670.

(iii) The Tier 1 retirement plan available under the state

employees retirement act, 1943 PA 240, MCL 38.1 to 38.69.

(iv) The public school employees retirement act of 1979, 1980

PA 300, MCL 38.1301 to ~~38.1408.~~38.1437.

(f) "Government of Iran" means the government of Iran, its

instrumentalities, and companies owned or controlled by the

government of Iran.

(g) "Inactive business operations" means the mere continued

holding or renewal of rights to property previously operated for

the purpose of generating revenues but not presently deployed for

such purpose.

(h) "Indirect holdings" in a company means all securities of

that company held in an account or fund, such as a mutual fund or

other commingled fund, managed by 1 or more persons not employed by

the fiduciary, in which the fiduciary owns shares or interests

together with other investors not subject to the provisions of this

act.

(i) "Iran" means the Islamic republic of Iran.

(j) "Military equipment" means weapons, arms, military

supplies, and equipment that readily may be used for military

purposes, including, but not limited to, radar systems or military-

grade transport vehicles.

(k) "Mineral extraction activities" includes exploring,

extracting, processing, transporting, or wholesale selling or

trading of elemental minerals or associated metal alloys or oxides,

including gold, copper, chromium, chromite, diamonds, iron, iron

ore, silver, tungsten, uranium, and zinc, as well as facilitating

such activities, including by providing supplies or services in

support of such activities.

(l) "Oil-related activities" includes, but is not limited to,

owning rights to oil blocks; exporting, extracting, producing,

refining, processing, exploring for, transporting, selling, or

trading of oil; constructing, maintaining, or operating a pipeline,

refinery, or other oil-field infrastructure; and facilitating such

activities, including by providing supplies or services in support

of such activities, provided that the mere retail sale of gasoline

and related consumer products shall not be considered oil-related

activities.

(m) "Petroleum resources" means petroleum or natural gas.

(n) "Power production activities" means any business operation

that involves a project commissioned by the government of Iran

whose purpose is to facilitate power generation and delivery,

including, but not limited to, establishing power-generating plants

or hydroelectric dams, selling or installing components for the

project, providing service contracts related to the installation or

maintenance of the project, as well as facilitating such

activities, including by providing supplies or services in support

of such activities.

(o) "Scrutinized company" means any company not described in

subsection (10) that has business operations that involve contracts

with or provision of supplies or services to the government of

Iran; companies in which the government of Iran has any direct or

indirect equity share, consortiums, or projects commissioned by the

government of Iran; or companies involved in consortiums and

projects commissioned by the government of Iran and 1 or more of

the following:

(i) More than 10% of the company's total revenues or assets

are linked to Iran, and involve oil-related activities or mineral-

extraction activities, and the company has failed to take

substantial action.

(ii) The company has, with actual knowledge, on or after

August 5, 1996, made an investment of $20,000,000.00 or more, or

any combination of investments of at least $10,000,000.00 each,

which in the aggregate equals or exceeds $20,000,000.00 in any 12-

month period, and which directly or significantly contributes to

the enhancement of Iran's ability to develop petroleum resources.

(p) "Substantial action" means adopting, publicizing, and

implementing a formal plan to cease scrutinized business operations

within 1 year and to refrain from any new business operations.

(2) Within 90 days after the effective date of the amendatory

act that added this section, the fiduciary shall make its best

efforts to identify all scrutinized companies in which the

fiduciary has direct or indirect holdings or could possibly have

such holdings in the future. The efforts may include 1 or more of

the following:

(a) Reviewing and relying, as appropriate in the fiduciary's

judgment, on publicly available information regarding companies

with business operations in Iran, including information provided by

nonprofit organizations, research firms, international

organizations, and government entities.

(b) Contacting asset managers contracted by the fiduciary that

invest in companies with business operations in Iran.

divested from or engaged with companies that have business

operations in Iran.

(d) Reviewing the laws of the United States regarding the

levels of business activity that would cause application of

sanctions against companies conducting business or investing in

countries that are designated state sponsors of terror.

(3) At the end of the 90-day period or by the first meeting of

the fiduciary following the 90-day period described in subsection

(2), the fiduciary shall assemble all scrutinized companies

identified into a scrutinized companies list.

(4) The fiduciary shall update the scrutinized companies list

on a quarterly basis based on evolving information from, among

other sources, those sources listed in subsection (2). The

fiduciary shall make the scrutinized companies list freely

available to the fiduciaries of other public retirement systems

located in this state if making the list available does not violate

any agreements with third parties or reveal proprietary information

of a third party.

(5) The fiduciary shall adhere to the following procedure for

companies on the scrutinized companies list:

(a) The fiduciary shall immediately determine the companies on

the scrutinized companies list in which the fiduciary oversees

pursuant to its responsibilities as described in subsection (1)(e).

(b) For each company identified in subdivision (a) with only

inactive business operations, not later than 60 days after the

identification of the company, the fiduciary shall send a written

notice informing the company of this section and encourage the

company to continue to refrain from initiating active business

operations in Iran until it is able to avoid scrutinized business

operations. The fiduciary shall continue the correspondence on a

semiannual basis.

active business operations, not later than 60 days after the

company is newly identified, the fiduciary shall send a written

notice informing the company of its scrutinized company status and

that it may become subject to divestment by the fiduciary. The

notice shall offer the company the opportunity to clarify its Iran-

related activities and shall encourage the company, within 90 days,

to either cease its scrutinized business operations through

substantial action or convert such operations to inactive business

operations in order to avoid qualifying for divestment by the

fiduciary.

(d) If, within 90 days following the fiduciary's first

engagement with a company pursuant to subdivision (c), that company

announces a plan of substantial action, the company shall be

removed from the scrutinized companies list and this section shall

cease to apply to it unless it fails to implement its plan of

substantial action within the designated time frame. If, within 90

days following the fiduciary's first engagement, the company

converts its active business operations to inactive business

operations, the company shall be subject to this section.

(e) If, after 90 days following the fiduciary's first

engagement with a company pursuant to subdivision (c), the company

continues to have active business operations, and only while the

company continues to have active business operations, the fiduciary

shall sell, redeem, divest, or withdraw all publicly traded

securities of the company, according to the following schedule:

(i) At least 50% of the assets shall be removed from the

fiduciary's assets under management within 9 months after the

company's most recent appearance on the scrutinized companies list.

(ii) 100% of the assets shall be removed from the fiduciary's

assets under management within 15 months after the company's most

recent appearance on the scrutinized companies list.

(f) Except as provided in subdivisions (g) and (h), at no time

shall the fiduciary acquire securities of companies on the

scrutinized companies list that have active business operations.

(g) No company which the United States government

affirmatively declares to be excluded from its present or any

future federal sanctions regime relating to Iran shall be subject

to divestment or investment prohibition pursuant to subdivisions

(e) and (f).

(h) Subdivisions (e) and (f) shall not apply to indirect

holdings in actively managed investment funds. For purposes of this

section, actively managed investment funds include private equity

funds and publicly traded funds. Before the fiduciary invests in a

new private equity fund or publicly traded fund that is not in the

fiduciary's portfolio as of ~~the effective date of the amendatory~~

~~act that added this section,~~ July 17, 2008, the fiduciary shall

perform due diligence to prevent investment in any private equity

fund or publicly traded fund where the offering memorandum or

prospectus identifies a purpose of the private equity fund or

publicly traded fund as investing in scrutinized companies with

active business operations in Iran. The fiduciary is not required

to identify holdings in private equity funds or submit engagement

letters to those funds. If the manager of a publicly traded,

actively managed fund that is in the fiduciary's portfolio on ~~the~~

~~effective date of the amendatory act that added this section~~ July

17, 2008 creates a similar publicly traded, actively managed fund

with indirect holdings devoid of identified scrutinized companies

with scrutinized active business operations as defined in this

section, the fiduciary shall replace all applicable investments

with investments in the similar fund in an expedited time frame

consistent with prudent investment standards.

(6) The fiduciary shall file a publicly available report to

the legislature that includes the scrutinized companies list within

30 days after the list is created. Annually thereafter, the

fiduciary shall file a publicly available report to the legislature

that includes all of the following:

(a) A summary of correspondence with companies engaged by the

fiduciary under this section.

(b) All investments sold, redeemed, divested, or withdrawn in

compliance with this section.

(d) Any progress made under subsection (5)(h).

(7) This section is no longer effective upon the occurrence of

1 or more of the following:

(a) The ~~congress~~ Congress or ~~president~~ President of the United

States affirmatively and unambiguously states, through legislation,

executive order, or written certification from the ~~president~~

President to ~~congress,~~ Congress, that the government of Iran has

ceased to acquire weapons of mass destruction and support

international terrorism.

(b) The United States revokes all sanctions imposed against

the government of Iran.

States affirmatively and unambiguously states, through legislation,

executive order, or written certification from the ~~president~~

President to ~~congress,~~ Congress, that mandatory divestment of the

type provided for in this section interferes with the conduct of

United States foreign policy.

(8) With respect to actions taken in compliance with this

section, including all good faith determinations regarding

companies as required by this section, the fiduciary shall be

exempt from any conflicting statutory or common law obligations,

including any obligations in respect to choice of asset managers,

investment funds, or investments for the fiduciary's securities

portfolios.

(9) The fiduciary, members of an investment advisory

committee, and any person with decision-making authority with

regard to investments of the fiduciary shall not be held liable for

any action undertaken for the purpose of complying with or

executing the mandates required under this section.

(10) Scrutinized company does not include a company that the

federal government has affirmatively excluded from federal

sanctions for business the scrutinized company conducts relating to

Iran, or that has consistently obtained applicable licenses or

approvals to conduct transactions with Iran. If the fiduciary

becomes aware at any time that a company that has not been

affirmatively excluded from federal sanctions for business it

conducts relating to Iran and has not received from the United

States government applicable licenses or approvals to conduct

transactions with Iran, that company is immediately subject to

subsection (5).

(11) If any provision, section, subsection, sentence, clause,

phrase, or word of this legislation or its application to any

person or circumstance is found to be invalid, illegal,

unenforceable, or unconstitutional, the same is hereby declared to

be severable and the balance of this legislation shall remain

effective and functional notwithstanding such invalidity,

illegality, unenforceability, or unconstitutionality.

Sec. 20m. (1) The governing board vested with the general

administration, management, and operation of a system or other

decision-making body that is responsible for implementation and

supervision of any system shall confirm in the annual actuarial

valuation required under section 20h and the summary annual report

required under section 13 that each system under this act provides

for the payment of the required employer contribution as provided

in this section and shall confirm in the summary annual report that

the system has received the required employer contribution for the

year covered in the summary annual report. The required employer

contribution is the actuarially determined contribution amount. An

annual required employer contribution in a system under this act

shall consist of a current service cost payment and a payment of at

least the annual accrued amortized interest on any unfunded

actuarial liability and the payment of the annual accrued amortized

portion of the unfunded principal liability. For fiscal years that

begin before January 1, 2006, the required employer contribution

shall not be determined using an amortization period greater than

40 years. Except as otherwise provided in this section, for fiscal

years that begin after December 31, 2005, the required employer

contribution shall not be determined using an amortization period

greater than 30 years. For the Tier 1 retirement plan under the

state employees' retirement system, created under the state

employees' retirement act, 1943 PA 240, MCL 38.1 to 38.69; the

Michigan public school employees' retirement created under the

public school employees retirement act of 1979, 1980 PA 300, MCL

38.1301 to 38.1437; and the Michigan state police retirement system

created under the state police retirement act of 1986, 1986 PA 182,

MCL 38.1601 to ~~38.1648,~~ 38.1675, only, for the fiscal year

beginning October 1, 2006, the contribution for the unfunded

actuarial accrued liability shall be equal to the product of the

assumed real rate of investment return times the unfunded actuarial

accrued liability. In a plan year, any current service cost payment

may be offset by a credit for amortization of accrued assets, if

any, in excess of actuarial accrued liability. A required employer

contribution for a system administered under this act shall

allocate the actuarial present value of future plan benefits

between the current service costs to be paid in the future and the

actuarial accrued liability. The governing board vested with the

general administration, management, and operation of a system or

other decision-making body that is responsible for implementation

and supervision of a system shall act upon the recommendation of an

actuary and the board and the actuary shall take into account the

standards of practice of the actuarial standards board of the

American academy of actuaries in making the determination of the

required employer contribution.

(2) Subsection (1) applies to a large sponsored system except

as otherwise provided in a plan for adjustment. As used in this

subsection, "plan for adjustment" means that term as defined in

section 13g.

Enacting section 1. This amendatory act does not take effect

unless Senate Bill No.____ or House Bill No. 6475 (request no.

05259'18) of the 99th Legislature is enacted into law.