HB468 By Representatives Williams (P), Greer and Ball RFD State Government Rd 1 23-MAR-16

SYNOPSIS: This bill provides certain governance provisions that shall apply to the Boards of Control of the Teachers’ Retirement System and the Employees’ Retirement System.

A BILL TO BE ENTITLED AN ACT

Relating to retirement; to amend Sections 16-25-19, 16-25-20, 36-27-23, and 36-27-25, Code of Alabama 1975, to specify certain governance provisions that shall apply to the Boards of Control of the Teachers’ Retirement System and the Employees’ Retirement System.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:Section 1. Sections 16-25-19, 16-25-20, 36-27-23, and 36-27-25, Code of Alabama 1975, are hereby amended to read as follows:

§16-25-19.

"(a) The general administration and responsibility for the proper operation of the retirement system and for making effective the provisions of this chapter are hereby vested in a board of trustees which shall be known as the Board of Control and shall be organized immediately after a majority of the trustees provided for in this section shall have qualified and taken the oath of office.

"(b) The board shall consist of 15 trustees as follows:

"(1) The State Superintendent of Education, ex officio.

"(2) The State Treasurer, ex officio.

"(3) The state Director of Finance, ex officio.

"(4) Twelve elected members of the retirement system. Those 12 members shall consist of representatives elected from each of the following categories: two shall be retired members, one shall be a city or county superintendent, one shall be a principal, one shall be a member from an institution of postsecondary education that is part of the Alabama Community College System, two shall be members from a public four-year institution of higher education, three shall be teachers who are actively instructing students in grades K-12, and two shall be educational support personnel from a grade K-12 school. Each of the elected members shall be elected only by members from the same category of the retirement system. The 12 elected members shall be elected in a statewide election conducted by a third party entity that is not a participant of or affiliated with the Teachers' Retirement System. All such elections shall be conducted in accordance with accepted principles of fair election practices. The third party entity shall be responsible for the distribution and collection of ballots and tallying election results. Other aspects of the election shall be handled pursuant to such rules and regulations as the Board of Control may adopt to assure that members will be eligible to vote for the applicable elected position as follows:

"a. Teacher Place #1 for a term of three years beginning July 1, 1974.

"b. Teacher Place #2 for a term of three years beginning July 1, 1974.

"c. Teacher Place #3 for a term of two years beginning July 1, 1974.

"d. Educational Support Personnel Place #1 for a term of three years beginning July 1, 1986.

"e. Educational Support Personnel Place #2 for a term of two years beginning July 1, 1986.

"f. Retired Place #1 for a term of three years beginning July 1, 1974.

"g. Retired Place #2 for a term of three years beginning July 1, 1987.

"h. Superintendents' Place for a term of two years beginning July 1, 1976.

"i. Principals' Place for a term of three years beginning July 1, 1976.

"j. Postsecondary Place for a term of three years beginning July 1, 2016, to be filled by the member elected from an institution of postsecondary education that is part of the Alabama Community College System.

"k. Higher Education Place #1 for a term of three years beginning July 1, 2013, to be filled by a member elected from a public four-year institution of higher education.

"l. Higher Education Place #2 for a term of three years beginning July 1, 2015, to be filled by a member elected from a public four-year institution of higher education. This higher education position shall replace the Educational Support Personnel Place #2 at the conclusion of the incumbent's term June 30, 2015.

"Thereafter each member according to place number shall be elected for three-year terms, according to such rules and regulations as the Board of Control shall adopt to govern such elections. The terms of these officers shall begin after they have qualified and taken the oath of office.

"(c) The Board of Control of the Teachers' Retirement System shall provide for annual elections to fill the position of any trustee whose term has expired.

"(d) If a vacancy occurs in the office of a trustee, the vacancy shall be filled for the remainder of the unexpired term through appointment by the Governor.

"(e) The trustees shall serve without compensation for their services as trustees, but they shall be reimbursed from the expense fund for all necessary expenses that they may incur through service on the Board of Control.

"(f) Each trustee shall, within 10 days after his or her appointment or election, take an oath of office that, so far as it devolves upon the trustee, the trustee will diligently and honestly administer the affairs of the Board of Control and will not knowingly violate or willingly permit to be violated any of the provisions of law applicable to the retirement system. Such oath shall be subscribed to by the member making it, certified by the officer before whom it is taken and immediately filed in the office of the Secretary of State.

"(g) Each trustee shall be entitled to one vote in the Board of Control. Eight votes shall be necessary for a decision by the trustees at any meeting of the board. In case of a tied vote the decision shall fail.

"(h) Subject to the limitations of this chapter, the Board of Control shall from time to time establish rules and regulations for the administration of the funds created by this chapter and for the transaction of its business.

"(i) The Board of Control shall elect from its membership a chairman and by a majority vote of all the members shall elect a Secretary-Treasurer, who shall serve as chief executive officer of the retirement system. In addition thereto, the Board of Control may engage such actuarial and administrative officers and other special services as shall be deemed necessary to transact the business of the retirement system. The compensation and expenses of these actuarial and administrative officers and other special services shall be paid at such rates and in such amounts as the Board of Control shall approve. All other employees not in these categories of employment shall be employed under the provisions of the Merit System Act.

"(j) The Board of Control shall keep in convenient form such data as shall be necessary for actuarial valuation of the various funds of the retirement system and for checking the experience of the system.

"(k) The Board of Control shall keep a record of all its proceedings which shall be open to public inspection. It shall publish annually a report showing the fiscal transactions of the retirement system for the preceding school year, the amount of the accumulated cash and securities of the system and the last balance sheet showing the financial condition of the system by means of an actuarial valuation of the assets and liabilities of the retirement system.

"(l) The Attorney General of the state shall be the legal adviser of the Board of Control.

"(m) The Board of Control shall designate a medical board to be composed of three physicians not eligible to participate in the retirement system. If required, other physicians may be employed to report on special cases. The medical board shall arrange for and pass upon all medical examinations required under this chapter, shall investigate all essential statements and certificates by or on behalf of a member in connection with an application for disability retirement and shall report in writing to the Board of Control its conclusions and recommendations upon all matters referred to it.

"(n) The Board of Control shall designate an actuary who shall be the technical adviser of the Board of Control on matters regarding the operation of the funds created by the provisions of this chapter and who shall perform such other duties as are required in connection therewith.

"(o) Immediately after the establishment of the retirement system, the actuary shall make such investigation of the mortality, service and compensation experience of the members of the system as he shall recommend and the Board of Control shall authorize, and on the basis of such investigation he shall recommend for adoption by the Board of Control such tables and such rates as are required in subdivisions (1) and (2) of subsection (p) of this section. The Board of Control shall adopt tables and certify rates; and, as soon as practicable thereafter, the actuary shall make a valuation based on such tables and rates, of the assets and liabilities of the funds created by this chapter.

"(p) In the year 1943, and at least once in each five-year period thereafter, the actuary shall make an actuarial investigation into the mortality, service, and compensation experience of the members and beneficiaries of the retirement system and shall make a valuation of the assets and liabilities of the funds of the system; and, taking into account the results of such investigation and valuation, the Board of Control shall:

"(1) Adopt for the retirement system such mortality, service, and other tables as shall be deemed necessary; and

"(2) Certify the rates of contributions payable by the state under the provisions of this chapter.

"(q) On the basis of such tables as the Board of Control shall adopt, the actuary shall make an annual valuation of the assets and liabilities of the funds of the system created by this chapter.

"(r) Subsection (a) of Section 19-3B-802 of the Alabama Uniform Trust Code shall apply to the Board of Control and its actions.

§16-25-20.

"(a) (1) The Board of Control shall be the trustees of the several funds of the Teachers' Retirement System created by this chapter as provided in Section 16-25-21, and shall have full power to invest and reinvest the funds, through its Secretary-Treasurer, in the classes of bonds, mortgages, common and preferred stocks, shares of investment companies or mutual funds, or other investments as the Board of Control may approve, with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with the matters would use in the conduct of an enterprise of a like character and with like aims; and, subject to like terms, conditions, limitations, and restrictions, the Board of Control, through its Secretary-Treasurer, shall have full power to hold, purchase, sell, assign, transfer, and dispose of any investments in which the funds created herein shall have been invested, as well as the proceeds of the investments and any moneys belonging to the funds. Among circumstances which the Board of Control, through its Secretary-Treasurer, may consider in investing and managing the funds of the Teachers’ Retirement System are such of the following as are relevant to the fund or its beneficiaries, including rates of return, volatility, security, diversification, general economic conditions, the effects of inflation or deflation, the role each investment would play within the overall investment portfolio, the need for liquidity, the need for regularity of income and preservation or appreciation of capital, an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries, the size of the portfolio, and the purposes and duration of the fund.

"(2) The Secretary-Treasurer shall have the authority and it shall be his or her duty to carry out the investment policies fixed by the Board of Control, and pursuant thereto he or she shall examine all offers of investments made to the funds, shall initiate inquiries as to available investments therefor, shall review periodically the investment quality and desirability of retention of investments held, and shall make purchases and sales of investments as he or she shall deem to the best interests of the funds and as the investment committee hereinafter provided for, and as the consultant to the Secretary-Treasurer, if any, appointed by the Board of Control hereunder, to the extent of the purpose for which it is appointed, shall approve. The Teachers' Retirement System shall have full authority to employ its own legal counsel and to conduct and control any litigation in which it is involved through such counsel.

"(3) The Board of Control shall elect an investment committee which shall consist of three members of the board, one of whom shall be the Director of Finance. The investment committee shall act as agent for the board and shall consider all investment recommendations made by the Secretary-Treasurer and shall either approve or disapprove the same in accordance with policies set by the board. The investment committee may act through the affirmative vote of any two of its members. Approvals may be secured informally in advance but shall in any event be confirmed by written authorization to be attached to the invoice of the transaction.

"(4) The Board of Control may appoint and employ as consultant to the Secretary-Treasurer, in the purchase, sale, and review of investments of the funds, to the extent the board may designate, a bank having its principal office in the State of Alabama, having capital, surplus, and undivided profits of not less than three hundred million dollars ($300,000,000), and having an organized investment department. The bank so appointed shall not sell securities to the retirement system, other than United States government securities, or repurchase agreements for which no commission shall be charged.

"(5) The Secretary-Treasurer shall report to the Board of Control all purchases and sales of investments made by him or her pursuant hereto at least once semiannually.

"(b) The Board of Control shall allow annually regular interest on the mean amount for the preceding year in each of the funds, with the exception of the Expense Fund. The amounts so allowed shall be due and payable to the funds and shall be credited annually thereto by the Board of Control from interest and other earnings on the moneys of the retirement system. Any additional amount required to meet the interest on the funds of the retirement system shall be paid from the Pension Accumulation Fund, and any excess of earnings over the amount required shall be paid to the Pension Accumulation Fund. Regular interest shall mean the percent rate or rates to be compounded annually as shall be set by the Board of Control, the rate or rates to be limited to a minimum of three percent and a maximum of four and three-fourths percent.

"(c) Moneys accruing to the Annuity Savings Fund, the Annuity Reserve Fund, the Pension Accumulation Fund, and the Pension Reserve Funds shall be certified by the Secretary-Treasurer for deposit in the State Treasury to the credit of the Teachers' Retirement System. All moneys provided in accordance with this chapter for administrative expense shall be certified for deposit in the State Treasury to the credit of the Teachers' Retirement System Expense Fund. All payments from the funds shall be made by the State Treasurer on warrants drawn by the state Comptroller upon vouchers signed by two persons designated by the Board of Control. A duly attested copy of a resolution of the Board of Control designating the persons and bearing on its face specimen signatures of the persons shall be filed with the state Comptroller as his or her authority for drawing warrants upon the vouchers.

"(d) Except as otherwise herein provided, no member of the Board of Control and no employee of the board shall have any direct interest in the gains or profits of any investment made by the board, nor as such receive any pay or emolument for his or her services. No member or employee of the Board of Control shall, directly or indirectly, for himself or herself or as an agent, in any manner use the same, except to make the current and necessary payments as are authorized by the board; nor shall any member or employee of the Board of Control become an endorser or surety or in any manner an obligor for moneys loaned or borrowed from the board.

§36-27-23.

"(a) The general administration and responsibility for the proper operation of the retirement system and for making effective the provisions of this article are hereby vested in a board of trustees which shall be known as the Board of Control.

"(b) The board shall consist of 13 trustees as follows:

"(1) The Governor, ex officio, who shall be chairman.

"(2) The State Treasurer, ex officio.

"(3) The State Personnel Director, ex officio.

"(4) The Director of Finance, ex officio.

"(5) Three members of the retirement system, to be appointed by the Governor, no two of whom shall be from the same department of the state government nor from any department of which an ex officio trustee is the head. The state employees appointed pursuant to this section shall be Merit System employees with at least ten years of creditable state service and shall not be a department head or an assistant department head. The terms of office of the three members appointed by the Governor shall begin immediately after they have qualified and taken the oath of office.

"(6) Two members of the State Employees' Retirement System who shall be vested in the system and elected by a majority vote of the participating full-time state employees who are members of the system, through the use of a statewide ballot conducted by the Secretary-Treasurer under rules promulgated by the Board of Control. For their original terms, one shall serve for a two-year term and one shall serve for a three-year term. Thereafter, their successors each shall serve for a four-year term.

"At the expiration of terms of office of the respective original trustees elected under this subdivision and every four years thereafter, their successors shall be elected in the same manner as provided by this subdivision.

"(7) One member from the ranks of retired state employees and one member from the ranks of retired employees of a city, a county, or a public agency each of whom is an active beneficiary of the system shall be elected by a majority vote of the participating retired beneficiaries of the system. The retired state employee member shall serve for a four-year term beginning October 1, 1984, the member who is a retired employee of a city, a county or a public agency shall serve for a three-year term, beginning October 1, 1984, provided after the expiration date of the initial terms provided in this subdivision each term shall be for a period of three years.

"The retired members shall be elected in a statewide ballot conducted by the Secretary-Treasurer under rules promulgated by the Board of Control. The Board of Directors of the Alabama Retired State Employees' Association shall submit no more than two nominations for each retired member position. The Board of Control shall determine the procedure for selecting additional candidates. The ballots shall be conducted prior to October 1, 1984, and each applicable year thereafter in order that the trustees can take office by October 1, next following such election.

"(8) Two members of the retirement system who shall be employed by an employer participating pursuant to Section 36-27-6, who shall be elected by a majority vote of the full-time employees of employers participating pursuant to Section 36-27-6, and who are members of the system. For their original terms one shall serve a three-year term and one shall serve a four-year term. Thereafter, their successors each shall serve for a four-year term.

"The election shall be conducted by the Secretary-Treasurer through use of a statewide ballot in accordance with rules promulgated by the Board of Control, which shall include a nomination petition of not less than 50 eligible voters. The election provided herein shall be conducted prior to October 1, 1991, and each applicable year thereafter in order that the trustees can take office October 1, next following such election.

"(c) If a vacancy occurs in the office of a trustee, the vacancy shall be filled for the unexpired term in the same manner as the office was previously filled, except that of the trustees elected under subdivision (7) of subsection (b). In that event the vacancy for the unexpired term shall be filled by an appointment by the Board of Control of the Employees' Retirement System from a list of three retired employees furnished him by the Board of Directors of the Alabama Retired State Employees' Association.

"(d) The trustees shall serve without compensation for their services as trustees, but they shall be reimbursed from the Expense Fund for all necessary expenses that they may incur through service on the Board of Control.

"(e) Each trustee shall, within 10 days after his appointment, take an oath of office that, so far as it devolves upon him, he will diligently and honestly administer the affairs of the Board of Control and that he will not knowingly violate or willingly permit to be violated any of the provisions of law applicable to the retirement system. Such oath shall be subscribed to by the member making it, certified by the officer before whom it is taken and immediately filed in the office of the Secretary of State.

"(f) Each trustee shall be entitled to one vote in the Board of Control. Seven votes in favor of any decision shall be necessary for a decision by the trustees at any meeting of said board.

"(g) Subject to the limitations of this article, the Board of Control shall, from time to time, establish rules and regulations for the administration of the funds created by this article and for the transaction of its business.

"(h) The Board of Control, by a majority vote of all trustees, shall elect a Secretary-Treasurer who shall serve as the chief executive officer of the retirement system. The Board of Control shall engage such actuarial and other special services as shall be required to transact the business of the retirement system. The compensation of all persons engaged by the board, with the exception of clerical employees who shall be employed under the provisions of the Merit System Act, and all other expenses of the board necessary for the operation of the retirement system shall be paid at such rates and in such amounts as the board shall approve.

"(i) The Board of Control shall keep in convenient form such data as shall be necessary for actuarial valuation of the various funds of the retirement system and for checking the experience of the system.

"(j) The Board of Control shall keep a record of all its proceedings which shall be open to public inspection. It shall publish annually a report showing the fiscal transactions of the retirement system for the preceding year, the amount of the accumulated cash and securities of the system and the last balance sheet showing the financial condition of the system by means of an actuarial valuation of the assets and liabilities of the retirement system.

"(k) The Attorney General of the state shall be the legal adviser of the Board of Control.

"(l) The Board of Control shall designate a medical board to be composed of three physicians not eligible to participate in the retirement system. If required, other physicians may be employed to report on special cases. The medical board shall arrange for and pass upon all medical examinations required under the provisions of this chapter and shall investigate all essential statements and certificates by or on behalf of a member in connection with an application for disability retirement and shall report in writing to the Board of Control its conclusions and recommendations upon all matters referred to it.

"(m) The Board of Control shall designate an actuary who shall be the technical adviser of the Board of Control on matters regarding the operation of the funds created by the provisions of this article and shall perform such other duties as are required in connection therewith.

"(n) Immediately after the establishment of the retirement system the actuary shall make such investigation of the mortality, service and compensation experience of the members of the system as he shall recommend and the Board of Control shall authorize, and, on the basis of such investigation, he shall recommend for adoption by the Board of Control such tables and such rates as are required in subsection (o) of this section. The Board of Control shall adopt tables and certify rates and, as soon as practicable thereafter, the actuary shall make a valuation based on such tables and rates of the assets and liabilities of the funds created by this article.

"(o) In 1948, and at least once in each five-year period thereafter, the actuary shall make an actuarial investigation into mortality, service, and compensation experience of the members and beneficiaries of the retirement system and shall make a valuation of the assets and liabilities of the funds of the system and, taking into account the results of such investigation and valuation, the Board of Control shall adopt for the retirement system such mortality, service, and other tables as shall be deemed necessary and certify the rates of contribution payable by the state under the provisions of this article.

"(p) On the basis of such tables as the Board of Control shall adopt, the actuary shall make an annual valuation of the assets and liabilities of the funds of the system created by this article.

"(q) Subsection (a) of Section 19-3B-802 of the Alabama Uniform Trust Code shall apply to the Board of Control and its actions.

§36-27-25.

"(a) The Board of Control shall be the trustees of the several funds of the Employees' Retirement System created by this article as provided in Section 36-27-24 and shall have full power to invest and reinvest the funds, through its Secretary-Treasurer in the classes of bonds, mortgages, common and preferred stocks, shares of investment companies or mutual funds, or other investments as the Board of Control may approve, with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Subject to like terms, conditions, limitations and restrictions, the Board of Control, through its Secretary-Treasurer, shall have full power to hold, purchase, sell, assign, transfer, and dispose of any investments in which the funds created in Section 36-27-24 shall have been invested as well as the proceeds of the investments and any moneys belonging to the funds. Among circumstances which the Board of Control, through its Secretary-Treasurer, may consider in investing and managing the funds of the Employees’ Retirement System are such of the following as are relevant to the fund or its beneficiaries, including rates of return, volatility, security, diversification, general economic conditions, the effects of inflation or deflation, the role each investment would play within the overall investment portfolio, the need for liquidity, the need for regularity of income and preservation or appreciation of capital, an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries, the size of the portfolio, and the purposes and duration of the fund.

"(b) The Governor ex officio, shall be the Chair of the Board of Control. At the board meeting when the new positions created by Acts 1994, No. 94-616 are sworn into office, the Board of Control shall elect from its membership a vice-chair who shall have at least three years of service experience on the board. The vice-chair shall serve a term concurrent with that of the position of Investment Committee Place No. 1.

"(c) The Secretary-Treasurer shall have the authority and it shall be his or her duty to carry out the investment policies fixed by the Board of Control and, pursuant thereto, he or she shall examine all offers of investments made to the funds, shall initiate inquiries as to available investments therefor, shall review periodically the investment quality and desirability of retention of investments held and shall make purchases and sales of investments as he or she shall deem to the best interests of the funds and as the Investment Committee provided for in subsection (d) of this section and as the consultant to the Secretary-Treasurer, if any, appointed by the Board of Control under subsection (e) of this section, to the extent of the purpose for which it is appointed, shall approve. The Employees' Retirement System shall have full authority to employ its own legal counsel and to conduct and control any litigation in which it is involved through such counsel.

"(d) The Board of Control shall provide for an investment committee which shall consist of three members of the board, one of whom shall be the Director of Finance. At the first board meeting held after April 26, 1994, two members of the board, who individually have at least three years of service experience on the board, shall be elected to serve on the Investment Committee in positions designated as Places No. 1 and No. 2. The person elected to serve in Place No. 1 shall serve for an initial term of one year while the person elected to serve in Place No. 2 shall serve for an initial term of two years. Successor terms for both places on the committee shall be for two years and successor candidates for the elected places shall meet the aforementioned board service experience requirement. The Investment Committee shall act as agent for the board and shall consider all investment recommendations made by the Secretary-Treasurer and shall either approve or disapprove the same in accordance with policies set by the board. The Investment Committee may act through the affirmative vote of any two of its members. Approvals may be secured informally in advance but shall in any event be confirmed by written authorization to be attached to the invoice for the transaction.

"(e) The Board of Control may appoint and employ as consultant to the Secretary-Treasurer in the purchase, sale, and review of investments of the funds, to the extent as the board may designate, a bank having its principal office in the State of Alabama, having capital, surplus and undivided profits of not less than three hundred million dollars ($300,000,000) and having an organized investment department. The bank so appointed shall not sell securities to the retirement system other than U.S. government securities, or repurchase agreements for which no commission shall be charged.

"(f) The Secretary-Treasurer shall report to the Board of Control all purchases and sales of investments made by him or her pursuant to this section at least once semiannually.

"(g) The Board of Control shall allow annually regular interest on the mean amount for the preceding year in each of the funds, with the exception of the Expense Fund. The amounts so allowed shall be due and payable to the funds and shall be credited annually to the funds by the Board of Control from interest and other earnings on the moneys of the retirement system. Any additional amount required to meet the interest on the funds of the retirement system shall be paid from the Pension Accumulation Fund, and any excess of earnings over the amount required shall be paid to the Pension Accumulation Fund. Regular interest shall mean the percentage rate or rates to be compounded annually as shall be set by the Board of Control, the rate or rates to be limited to a minimum of three percent and a maximum of four and three-fourths percent.

"(h) Funds accruing to the Annuity Savings Fund, the Annuity Reserve Fund, the Pension Accumulation Fund, and the Pension Reserve Fund shall be certified by the Secretary-Treasurer for deposit in the State Treasury to the credit of the Employees' Retirement System. All moneys provided in accordance with this chapter for administrative expenses shall be certified for deposit in the State Treasury to the credit of the Employees' Retirement System Expense Fund. All payments from the funds shall be made by the State Treasurer on warrants drawn by the State Comptroller upon vouchers signed by two persons designated by the Board of Control. A duly attested copy of the resolution of the Board of Control designating the persons and bearing on its face specimen signatures of the persons shall be filed with the State Comptroller as his or her authority for drawing warrants upon the voucher.

"(i) Except as otherwise provided in this article, no member of the Board of Control and no employee of the board shall have any direct interest in the gains or profits of any investment made by the board nor as such receive any pay or emolument for his or her services. No member or employee of the Board of Control shall, directly or indirectly, for himself or herself or as an agent in any manner use the same, except to make the current and necessary payments authorized by the board, nor shall any member or employee of the Board of Control become an endorser or surety or in any manner an obligor for moneys loaned to or borrowed from the board."