2017 -- H 5877

========

LC001751

========

     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2017

____________

A N   A C T

RELATING TO PUBLIC OFFICERS AND EMPLOYEES

     Introduced By: Representatives Nunes, Hearn, Phillips, Costantino, and Casey

     Date Introduced: March 08, 2017

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 36 of the General Laws entitled "PUBLIC OFFICERS AND

EMPLOYEES" is hereby amended by adding thereto the following chapter:

CHAPTER 10.2.1

RHODE ISLAND PENSION PRUDENT INVESTOR ACT

     36-10.2.1-1. Short title.

     This chapter shall be known and may be cited as the "Rhode Island pension prudent

investor act."

     30-10.2.1-2. Purpose.

     The purpose of the Rhode Island pension prudent investor act is, together with chapter

10.2 of title 36 (Rhode Island protection pension act), to promote security, stability and

accountability in the state retirement, whereby a trustee, director or retirement system employee

must comply with certain prudent investor guidelines including risk and return objectives,

diversification, loyalty, investment costs, compliance and delegation of management functions.

     36-10.2.1-3. Prudent investor rule.

     (a) Except as otherwise provided in subsection (b) of this section, a trustee, director or

retirement system employee of any state or municipal retirement system who invests and

manages, or delegates the approval of the investment or management of retirement system assets

owes a duty to the beneficiaries of the system to comply with the prudent investor rule set forth in

this chapter.

     (b) A trustee, director or retirement system employee is not liable to a beneficiary or state

taxpayer to the extent that the trustee, director or retirement system employee acted in reasonable

reliance on the statutory provisions and rules of the retirement system. A trustee, director or

retirement system employee who exercises reasonable care, skill and caution in performance of

their actions as a trustee, director or retirement system employee is not liable to a beneficiary for

the actual investment return results or retirement system operational results.

     36-10.2.1-4. Standard of care-Portfolio strategy-risk and return objectives.

     (a) A trustee, director or retirement system employee shall invest, manage and approve

the investment and management of retirement system assets as a prudent investor would, by

considering the purposes, terms, distribution requirements, and other circumstances of the

retirement system. In satisfying this standard, the trustee, director or retirement system employee

shall exercise reasonable care, skill, and caution.

     (b) A trustee, director or retirement system employee's investment and management

decisions or approval of investment and management decisions respecting individual assets of the

retirement system must be evaluated not in isolation but in the context of the retirement system's

portfolio as a whole and as part of an overall investment strategy having risk and return objectives

reasonably suited to the statutes and rules governing the system. Investment and management

decisions shall be made on an impartial basis.

     (c) Among circumstances that a trustee, director or retirement system employee shall

consider in investing and managing retirement system assets or the delegation of approval of

investing and managing retirement system assets are any of the following that are relevant to the

retirement system or its beneficiaries:

     (1) General economic conditions;

     (2) The possible effect of inflation or deflation;

     (3) The expected tax consequences of investment decisions or strategies;

     (4) The role that each investment or course of action plays within the overall retirement

system portfolio, which may include financial assets, interests in closely held enterprises, tangible

and intangible personal property and real property;

     (5) The expected total return from income and the appreciation of capital;

     (6) Other resources of the retirement system on behalf of beneficiaries;

     (7) Needs for liquidity, regularity of income, and preservation or appreciation of capital;

and

     (8) An asset's special relationship or special value, if any, to the purposes of the

retirement system, if any, to the retirement system, or to the beneficiaries.

LC001751 - Page 2 of 5

     (d) A trustee, director or retirement system employee who delegates approval of investing

and managing retirement system assets shall make a reasonable effort to verify facts relevant to

the investment and management of retirement system assets.

     (e) A trustee, director or retirement system employee or a trustee, director or retirement

system employee who delegates approval of investing and managing retirement system assets,

may invest in any kind of property or type of investment consistent with the standards of this

chapter.

     (f) A trustee, director or retirement system employee or a trustee, director or retirement

system employee who delegates approval of investing and managing retirement system assets,

shall not make a determination to invest or increase the investment of retirement system assets

based on ideological or non-financial related criteria for or against specific industries. A trustee,

director or retirement system employee or a trustee, director or retirement system employee who

delegates approval of investing and managing retirement system assets, shall not make a

determination to employ or terminate employment of an investment manager or consultant based

on ideological or non-financial related criteria. Prior to a determination by a trustee, director or

retirement system employee to avoid investment of or reduce the investment of retirement system

assets in a specific industry, or to employ or terminate employment of an investment manager or

consultant, external expertise from an independent third-party must be consulted. The results and

recommendations of the consulted independent third-party expert shall be made available for

public review.

     36-10.2.1-5. Diversification.

     A trustee, director or retirement system employee or a trustee, director or retirement

system employee who delegates approval of investing and managing retirement system assets,

shall diversify the investments of the retirement system assets unless it is reasonably determined

that, because of special circumstances, the purposes of the retirement system are better served

without diversifying.

     36-10.2.1-6. Loyalty.

     A trustee, director or retirement system employee or a trustee, director or retirement

system employee who delegates approval of investing and managing retirement system assets,

shall invest and manage the retirement assets solely in the interest of the beneficiaries.

     36-10.2.1-7. Investment costs.

     In investing and managing retirement assets, a trustee, director or retirement system

employee or a trustee, director or retirement system employee who delegates approval of

investing and managing retirement system assets, may only incur costs that are appropriate and

LC001751 - Page 3 of 5

reasonable in relation to the assets of the retirement system.

     36-10.2.1-8. Reviewing compliance.

     Compliance with the prudent investor rule is determined in light of the facts and

circumstances existing at the time of a trustee, director or retirement system employee or a

trustee, director or retirement system employee who delegates approval of investing and

managing retirement system assets decision or action and not by hindsight.

     36-10.2.1-9. Delegation of investment and management functions.

     (a) A trustee, director or retirement system employee may delegate investment and

management functions. The trustee, director or retirement system employee shall exercise

reasonable care, skill, and caution in:

     (1) Selecting an agent;

     (2) Establishing the scope and terms of the delegation, consistent with the purposes and

terms of the retirement system; and

     (3) Periodically reviewing the agent's actions in order to monitor the agent's performance

and compliance with the terms of the delegation.

     (b) In performing a delegated function, an agent owes a duty to the retirement system to

exercise reasonable care to comply with the terms of the delegation.

     (c) A trustee, director or retirement system employee who complies with the

requirements of subsection (a) of this section is not liable to the beneficiaries or to the retirement

system for the decisions or actions of the agent to whom the function was delegated.

     (d) By accepting the delegation of a retirement system function from a trustee, director or

retirement system employee of a retirement system that is subject to the law of this state, an agent

submits to the jurisdiction of the courts of this state.

     36-10.2.1-10. Severability.

     If any provision of this chapter or its application to any person or circumstance is held

invalid, the invalidity shall not affect other provisions or applications of this chapter which can be

given effect without the invalid provision or application, and to this end the provisions of this

chapter are severable.

     SECTION 2. This act shall take effect upon passage.

========

LC001751

========

LC001751 - Page 4 of 5

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PUBLIC OFFICERS AND EMPLOYEES

***

     This act would establish a prudent investor rule for trustees, directors and retirement

system employees of state and municipal retirement systems who invest and manage or delegate

the approval of investment or management of retirement system assets.

     This act would take effect upon passage.

========

LC001751

========

LC001751 - Page 5 of 5