BILL NUMBER: AB 221 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 12, 2007
AMENDED IN ASSEMBLY MARCH 5, 2007
INTRODUCED BY Assembly Member Anderson
( Coauthors: Assembly Members
Benoit, Cook, DeVore, Gaines,
Garrick, Jeffries, Ma,
Sharon Runner, Solorio, and Tran )
JANUARY 29, 2007
An act to amend Section 16642 of, and to add and repeal Section
7513.7 of, the Government Code, relating to investments.
LEGISLATIVE COUNSEL'S DIGEST
AB 221, as amended, Anderson. Public retirement systems:
investments: Iran.
The California Constitution provides that the Legislature may by
statute prohibit retirement board investments where
if it is in the public interest to do so, and
providing that the prohibition satisfies specified fiduciary
standards.
Existing law prohibits the Public Employees' Retirement System and
the California State Teachers' Retirement System
from investing public employee retirement funds in a company with
active business operations in Sudan, as specified. Existing law also
requires these retirement systems to sell or transfer any investments
in a company with business operations in Sudan. Existing law
requires these retirement systems to submit an annual report to the
Legislature regarding any investments in a company with business
operations in Sudan and the sale or transfer of those investments.
Existing law requires the state to indemnify, from the General Fund,
and hold harmless the present, former, and future board members,
officers, and employees of, and investment managers under contract
with , these retirement systems by reason of any decision
to restrict, reduce, or eliminate investments in Sudan, as specified.
This bill would create the California Public Investments
Protection Act and additionally prohibit the Public Employees'
Retirement System and the California State
Teachers' Retirement System from investing public employee retirement
funds in a company with business operations in Iran, as specified.
The bill would require the Board of Administration of the Public
Employees' Retirement System and the Teachers' Retirement Board of
the State Teachers' Retirement System to sell or transfer any
investments in a company with business operations in Iran, until
sanctions have been revoked against Iran. The bill would also require
the Board of Administration and the Teachers' Retirement Board to
notify the Secretary of State when these sanctions have been revoked
against Iran, and these provisions would be repealed following the
notice provided by these boards, as specified. The bill would make
related legislative findings and declarations.
This bill would require these boards to report to the Legislature
any investments in a company with business operations in Iran and the
sale or transfer of those investments, subject to the fiduciary duty
of these boards, by January 1, 2009, and every year thereafter.
This bill would indemnify from the General Fund and hold harmless
the present, former, and future board members, officers, and
employees of, and investment managers under contract with
those these retirement systems.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares as follows:
(a) The Securities and Exchange Commission has determined that
business activities in foreign states sponsoring terrorism and that
are subject to sanctions by the United States may materially harm the
share value of foreign companies. Shares in those
these foreign companies may be held in the portfolio of
public retirement systems in this state.
(b) Publicly traded companies in the United States are not allowed
to do business in or with foreign states that the United States
Department of State has identified as sponsoring terrorism.
(c) Public retirement systems in this state currently invest on
behalf of the citizens of California in publicly traded foreign
companies that may be at risk due to business ties with foreign
states that sponsor terrorism.
(d) The Legislature finds that investments in publicly traded
foreign companies that have business operations in or with foreign
states that the United States Department of State has identified as
sponsoring terrorism risks the pensions of the dedicated public
employees of this state.
(e) Excluding companies with business activities to foreign states
that sponsor terrorism from public portfolios will help protect the
public retirement systems in this state from investment losses
related to these business activities and may improve the investment
performance of the public retirement systems.
(f) The Legislature finds that it is unconscionable for
this state to invest in foreign companies with business activities
benefiting foreign states that commit egregious violations of human
rights and sponsor terrorism.
SEC. 2. Section 7513.7 is added to the Government Code, to read:
7513.7. (a) As used in this section, the following definitions
shall apply:
(1) "Board" means the Board of Administration of the Public
Employees' Retirement System or the Teachers' Retirement Board of the
State Teachers' Retirement System, as applicable.
(2) "Business operations" means maintaining, selling, or leasing
equipment, facilities, personnel, or any other apparatus of business
or commerce in Iran, including the ownership or possession of real or
personal property located in Iran.
(3) "Company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, its
subsidiary or affiliate that exists for profitmaking purposes or to
otherwise secure economic advantage. "Company" also means a company
owned or controlled, either directly or indirectly, by the government
of Iran, that is established or organized under the laws of or has
its principal place of business in the Islamic Republic of Iran.
(4) "Government of Iran" means the government of Iran or its
instrumentalities.
(5) "Invest" or "investment" means the purchase, ownership, or
control of stock of a company, association, or corporation, the
capital stock of a mutual water company or corporation, bonds issued
by the government or a political subdivision of Iran, corporate bonds
or other debt instruments issued by a company, or the commitment of
funds or other assets to a company, including a loan or extension of
credit to that company.
(6) "Iran" means the Islamic Republic of Iran, a territory under
the administration or control of Iran, or an individual, company, or
public agency located in Iran that supports the Islamic Republic of
Iran.
(7) "Military equipment" means weapons, arms, or military defense
supplies.
(8) "Public employee retirement funds" means the Public Employees'
Retirement Fund described in Section 20062 of this code, and the
Teachers' Retirement Fund described in Section 22167 of the Education
Code.
(9) "Research firm" means a reputable, neutral third-party
research firm.
(10) "Substantial action" means a boycott of the government of
Iran, curtailing business in Iran until that time described in
subdivision (m), or selling company assets, equipment, or real and
personal property located in Iran.
(b) The board shall not invest public employee retirement funds in
a company with business operations in Iran.
(c) Notwithstanding subdivision (b), the board shall not invest
public employee retirement funds in a company that supplies military
equipment within the borders of Iran. If a company provides equipment
within the borders of Iran that may be readily used for military
purposes, including, but not limited to, radar systems and
military-grade transport vehicles, there shall also be a strong
presumption against investing in that company unless that company
implements safeguards to prevent the use of that equipment for
military purposes.
(d) (1) The board shall, without regard to the provisions
regarding competitive bidding, contract with a research firm or firms
to determine those companies that have business operations in Iran.
Those research firms shall, in the aggregate, obtain data on a
majority of companies with business operations in Iran. On or before
March 30, 2008, those research firms shall report any findings to the
board and those research firms shall submit further findings to the
board if there is a change of circumstances in Iran.
(2) In addition to the reports described in paragraph (1), the
board shall take all of the following actions no later than March 30,
2008:
(A) Review publicly available information regarding companies with
business operations in Iran.
(B) Contact other institutional investors that invest in companies
with business operations in Iran.
(C) Send written notice to a company with business operations in
Iran that the company may be subject to this section.
(e) (1) The board shall determine, by the next applicable board
meeting and based on the information and reports described in
subdivision (d), if a company meets the criteria described in
subdivision (b) or (c). If the board plans to invest or has
investments in a company that meets the criteria described in
subdivision (b) or (c), that planned or existing investment shall be
subject to subdivisions (g) and (h).
(2) Investments of the board in a company that does not meet the
criteria described in subdivision (b) or (c) are not subject to
subdivision (h) if the company does not subsequently meet the
criteria described in subdivision (b) or (c). The board shall
identify the reasons why that company does not satisfy the criteria
described in subdivision (b) or (c) in the report to the Legislature
described in subdivision (i).
(f) (1) Notwithstanding subdivision (e), if the board's investment
in a company described in subdivision (b) or (c) is limited to
investment via an externally and actively managed commingled fund,
the board shall contact that fund manager in writing and request that
the fund manager remove that company from the fund as described in
subdivision (h). On or before June 30, 2008, if the fund or account
manager creates a fund or account devoid of companies described in
subdivision (b) or (c), the transfer of board investments from the
prior fund or account to the fund or account devoid of companies with
business operations in Iran shall be deemed to satisfy subdivision
(h).
(2) If the board's investment in a company described in
subdivision (b) or (c) is limited to an alternative fund or account,
the alternative fund or account manager creates an actively managed
commingled fund that excludes companies described in subdivision (b)
or (c), and the new fund or account is deemed to be financially
equivalent to the existing fund or account, the transfer of board
investments from the existing fund or account to the new fund or
account shall be deemed to satisfy subdivision (h). If the board
determines that the new fund or account is not financially equivalent
to the existing fund, the board shall include the reasons for that
determination in the report described in subdivision (i).
(3) The board shall make a good faith effort to identify any
private equity investments that involve companies described in
subdivision (b) or (c), or are linked to the government of Iran. If
the board determines that a private equity investment clearly
involves a company described in subdivision (b) or (c), or is linked
to the government of Iran, the board shall consider, at its
discretion, if those private equity investments shall be subject to
subdivision (h). If the board determines that a private equity
investment clearly involves a company described in subdivision (b) or
(c), or is linked to the government of Iran and the board does not
take action as described in subdivision (h), the board shall include
the reasons for its decision in the report described in subdivision
(i).
(g) Except as described in subdivision (f) or paragraph (2) of
subdivision (e), the board, in the board's capacity of shareholder or
investor, shall notify any company described in paragraph (1) of
subdivision (e) that the company is subject to subdivision (h) and
permit that company to respond to the information and reports
described in subdivision (d). The board shall request that the
company take substantial action no later than 90 days from the date
the board notified the company under this subdivision. If the board
determines that a company has taken substantial action or has made
sufficient progress towards substantial action before the expiration
of that 90-day period, that company shall not be subject to
subdivision (h). The board shall, at intervals not to exceed 90 days,
continue to monitor and review the progress of the company until
that company has taken substantial action in Iran. A company that
fails to complete substantial action or continue to make sufficient
progress towards substantial action by the next time interval shall
be subject to subdivision (h).
(h) If a company described in paragraph (1) of subdivision (e)
fails to complete substantial action by the time described in
subdivision (g), the board shall take the following actions:
(1) The board shall not make additional or new investments or
renew existing investments in that company.
(2) The board shall liquidate the investments of the board in that
company no later than 18 months after this subdivision applies to
that company. The board shall liquidate those investments in a manner
to address the need for companies to take substantial action in Iran
and consistent with the board's fiduciary responsibilities as
described in Section 17 of Article XVI of the California
Constitution.
(i) On or before January 1, 2009, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe the following:
(1) A list of investments the board has in companies with business
operations in Iran, including, but not limited to, the issuer, by
name, of the stock, bonds, securities, and other evidence of
indebtedness.
(2) A detailed summary of the business operations a company
described in paragraph (1) has in Iran and whether that company
satisfies all of the criteria in subdivision (b) or (c).
(3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b) or (c).
(4) If the board has not completely reduced its investments in a
company that satisfies the criteria in subdivision (b) or (c), when
the board anticipates that the board will reduce all investments in
that company or the reasons why a sale or transfer of investments is
inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.
(5) Any information described in subdivision (e).
(6) A detailed summary of investments that were transferred to
funds or accounts devoid of companies with business operations in
Iran as described in subdivision (f).
(j) If the board voluntarily sells or transfers all of its
investments in a company with business operations in Iran, this
section shall not apply except that the board shall file a report
with the Legislature related to that company as described in
subdivision (i).
(k) Nothing in this section shall require the board to take action
as described in this section unless the board determines, in good
faith, that the action described in this section is consistent with
the fiduciary responsibilities of the board as described in Section
17 of Article XVI of the California Constitution.
(l) Subdivision (h) shall not apply to any of the following:
(1) Investments in a company that is primarily engaged in
supplying goods or services intended to relieve human suffering in
Iran.
(2) Investments in a company that promotes health, education, or
journalistic, religious, or welfare activities in Iran.
(3) Investments in a United States company that is authorized by
the federal government to have business operations in Iran.
(m) This section shall be operative only until the United States
revokes its current sanctions against Iran. When the United States
revokes its current sanctions against Iran, the board shall notify
the Secretary of State of this fact, and this section shall be
repealed on January 1 subsequent to the date that the Secretary of
State receives the notice described in this subdivision.
(n) This section shall be known and may be cited as the California
Public Investments Protection Act.
SEC. 3. Section 16642 of the Government Code is amended to read:
16642. Present, future, and former board members of the Public
Employees' Retirement System or the State Teachers' Retirement
System, jointly and individually, state officers and employees,
research firms described in subdivision (d) of Section 7513.6 or
subdivision (d) of Section 7513.7, and investment managers under
contract with the Public Employees' Retirement System or the State
Teachers' Retirement System shall be indemnified from the General
Fund and held harmless by the State of California from all claims,
demands, suits, actions, damages, judgments, costs, charges and
expenses, including court costs and attorney's fees, and against all
liability, losses, and damages of any nature whatsoever that these
present, future, or former board members, officers, employees,
research firms, or contract investment managers shall or may at any
time sustain by reason of any decision to restrict, reduce, or
eliminate investments pursuant to Sections 7513.6 and 7513.7.