2023 -- H 5811

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LC001937

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2023

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A N   A C T

RELATING TO PUBLIC FINANCE - DIVESTMENT OF STATE PENSION FUNDS FROM

MILITARY CONTRACTORS

     Introduced By: Representatives Stewart, Potter, Morales, Tanzi, Sanchez, and Henries

     Date Introduced: February 22, 2023

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 35 of the General Laws entitled "PUBLIC FINANCE" is hereby

amended by adding thereto the following chapter:

CHAPTER 10.4

DIVESTMENT OF STATE PENSION FUNDS FROM MILITARY CONTRACTORS

     35-10.4-1. Short title.

     This chapter shall be known and may be cited as the "Divestment of State Pension Funds

from Military Contractors Act".

     35-10.4-2. Definitions.

     As used in this chapter, the following words and terms shall have the following meanings

unless the context shall clearly indicate another or different meaning or intent:

     (1) "Commission" means the state investment commission that oversees the assets of the

employees' retirement system of Rhode Island pursuant to chapter 10 of title 35.

     (2) "Company" means a sole proprietorship, organization, 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 exist

for profit-making purposes.

     (3) "Direct holdings" means all securities of a company held directly by the public fund or

in an account or fund in which the public fund owns all shares or interests.

     (4) "Indirect holdings" means all securities of a company held in an account or fund, such

as a mutual fund or hedge fund managed by one or more person not employed by the public fund,

in which the public fund owns shares or interests together with other investors not subject to this

chapter.

     (5) "Military contractors" or "military weapon manufacturers" means arms producing

companies, defense contractors or military industries that primarily produce, maintain and store

weapons for the armed forces of nation states or non-state entities. Products include guns,

ammunition, missiles, military aircraft, military vehicles, and military ships.

     (6) "Pension fund" means the pooled investment fund consisting of the assets of the state

employees' and teachers' retirement systems, as well as the assets of local retirement systems under

the control of the state.

     35-10.4-3. Identification of military weapon manufacturers.

     Within six (6) months of enactment of this chapter, the commission shall identify all

military weapon manufacturers where the pension fund owns direct or indirect holdings and shall

file a list of any such holdings with the office of attorney general, the house of representatives and

the senate.

     35-10.4-4. Policy of the commission.

     It shall be the settled policy of the commission and the pension fund not to invest in any

military weapons manufacturers. Within fourteen (14) months of enactment, the commission shall

sell, redeem, divest or withdraw all publicly-traded and non-publicly traded securities of each

company identified pursuant to § 35-10.4-3. This section shall not apply to indirect holdings in

actively managed investment funds; provided, however, that the public fund shall submit letters to

the managers of any such investment funds that contain companies identified in § 35-10.4-3,

requesting that they remove such companies from the investment fund or create a similar actively

managed fund with indirect holdings devoid of such companies.

     35-10.4-5. Actions taken in compliance.

     With respect to actions taken in compliance with this chapter, the commission and the

pension fund shall be exempt from any conflicting statutory or common law obligation, including

any such obligations with respect to choice of asset managers, investment funds, or investments for

the public fund's securities portfolios and all good faith determinations regarding the identification

of military weapons manufacturers subject to divestment pursuant to this chapter.

     35-10.4-6. Exceptions.

     Pursuant to § 35-10.4-3, the commission may cease divesting from identified companies,

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reinvest in identified companies, and continue to invest in identified companies from which it has

not yet divested, upon clear and convincing evidence showing that the value for all assets under

management by the commission becomes equal to or less than ninety-eight and five tenths percent

(98.5%) one hundred fifty (150) basis points of the hypothetical value of all pension fund assets

under management by the commission provided no divestment for any company had occurred

under this chapter. Cessation of divestment, reinvestment or any subsequent ongoing investment

authorized by this section shall be strictly limited to the minimum steps necessary to avoid the

contingency set forth in this section. In advance of any cessation of divestment authorized by this

chapter, the commission shall provide an annual written report to the office of the attorney general,

the house of representatives, and the senate, setting forth the reasons and justifications, supported

by clear and convincing evidence, for its decisions to cease divestment, to reinvest or to remain

invested in companies identified in § 35-10.4-3.

     35-10.4-7. Indemnification.

     Present, future and former members of the state investment commission, jointly and

individually, as well as state officers, employees and investment managers under contract with the

commission shall be indemnified from the state general fund and held harmless by the state from

all claims, demands, suits, actions, damages, judgments, costs, charges and expenses, including

court costs and attorneys' fees, and against all liability, losses, and damages that these present,

future, or former board members, officers, employees, or contract investment managers may at any

time sustain by reason of any decision to restrict, reduce, or eliminate investments in military

contractors.

     35-10.4-8. Annual report.

     The commission shall file an annual report with the office of the attorney general, the house

of representatives, and the senate including:

     (1) All investments sold, redeemed, divested or withdrawn in compliance with this chapter

within the preceding year; and

     (2) All investments prohibited by this chapter from which the public fund has not yet

divested.

     35-10.4-9. Severability.

     If any clause, sentence, paragraph, section, or part of this chapter shall be adjudged by any

court of competent jurisdiction to be invalid, that judgment shall not affect, impair, or invalidate

the remainder of the chapter but shall be confined in its operation to the clause, sentence, paragraph,

section, or part directly involved in the controversy in which that judgment shall have been

rendered.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PUBLIC FINANCE - DIVESTMENT OF STATE PENSION FUNDS FROM

MILITARY CONTRACTORS

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     This act would require the state investment commission to identify and divest pension fund

investments in military weapon manufacturers whether held directly and indirectly with certain

exceptions and would also require the state investment commission to provide an annual written

report to the attorney general, the house, and the senate.

     This act would take effect upon passage.

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