BILL NUMBER: AB 1151 ENROLLED
BILL TEXT
PASSED THE SENATE AUGUST 31, 2011
PASSED THE ASSEMBLY SEPTEMBER 6, 2011
AMENDED IN SENATE JULY 12, 2011
AMENDED IN ASSEMBLY MAY 5, 2011
AMENDED IN ASSEMBLY APRIL 14, 2011
AMENDED IN ASSEMBLY MARCH 30, 2011
INTRODUCED BY Assembly Members Feuer and Blumenfield
(Coauthors: Assembly Members Ma and Portantino)
(Coauthor: Senator Leno)
FEBRUARY 18, 2011
An act to amend Section 7513.7 of the Government Code, relating to
investments.
LEGISLATIVE COUNSEL'S DIGEST
AB 1151, Feuer. Public retirement systems: investments: Iran.
The California Constitution provides that the Legislature may by
statute prohibit retirement board investments if it is in the public
interest to do so, and providing that the prohibition satisfies
specified fiduciary standards.
The California Public Divest from Iran Act prohibits the Public
Employees' Retirement System (PERS) and the State Teachers'
Retirement System (STRS) from investing public employee retirement
funds in a company with business operations in Iran that is invested
in or engaged in business operations with entities in the defense or
nuclear sectors of Iran, or the company is invested or engaged in
business operations with entities involved in the development of
petroleum or natural gas resources of Iran, and that company is
subject to sanctions under federal law, as specified, or the company
is engaged in business operations with an Iranian organization that
has been labeled as a terrorist organization by the United States
government. Existing law requires the Board of Administration of PERS
and the Teachers' Retirement Board of STRS to sell or transfer any
investments in a company with business operations in Iran, until Iran
is removed from the United States Department of State's list of
countries that have been determined to repeatedly provide support for
acts of international terrorism and the President of the United
States determines and certifies that Iran has ceased its efforts to
design, develop, manufacture, or acquire a nuclear explosive device
or related materials and technology, as specified. Existing law
requires the boards of PERS and STRS, on or before June 30, 2008, to
determine the companies that are subject to divestment and to notify
those companies and request that those companies take substantial
action to curtail or end business operations, as described above, in
Iran. Existing law provides that the board is not required to divest
if the board determines that the company has taken substantial action
in a 90-day period to curtail or end those operations. Existing law
excepts certain investments from these requirements, including those
in companies providing humanitarian relief and promoting health,
education, journalistic, religious, or welfare activities.
Existing law provides that nothing in those provisions requires
the Board of Administration of PERS or the Teachers' Retirement Board
of STRS to take action as described in those provisions unless the
board determines, in good faith and based on specified information,
that the action is consistent with the fiduciary responsibilities of
the board as described in a specified provision of the California
Constitution.
This bill would prohibit the boards from investing in a company
that has an investment of $20,000,000 or more in the energy sector of
Iran, as defined, including in a company that provides oil or
liquefied natural gas tankers, or products used to construct or
maintain pipelines used to transport oil or liquefied natural gas.
The bill would require the boards to review their investments
annually and would require that the boards' determinations that a
company is taking substantial actions to end or curtail its
operations, as described above, be supported by findings adopted by a
rollcall vote of the boards following a presentation and discussion
of the findings in open session, during a properly noticed public
hearing of the full board. The bill would require all proposed
findings to be made public 72 hours before they are considered by the
board, and that the board maintain a list of interested parties to
be notified of proposed findings 72 hours before the board's
consideration. The bill would require the findings and any public
comments regarding the adopted findings and determinations to be
included in a report to the Legislature. The bill would make the same
notice, rollcall vote, and public hearing requirements for adopted
findings and determinations of the boards regarding divestments that
are found to disadvantage the retirement funds. The bill would
eliminate the exception provided for investments in certain companies
providing humanitarian relief and promoting health, education,
journalistic, religious, or welfare activities. The bill would revise
the circumstances under which these provisions would cease to be
operative to conform with current federal law. The bill would make
findings regarding the California Public Divest from Iran Act and
would provide that its provisions are severable.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares that Section 7513.7
of the Government Code, known as the California Public Divest from
Iran Act, is consistent with the authority to divest granted to state
and local governments by, and is in accordance with, the provisions
of Public Law 111-195, enacted July 1, 2010.
SEC. 2. Section 7513.7 of the Government Code is amended 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 Iran.
(4) "Energy sector of Iran" means activities to develop petroleum
or natural gas resources or nuclear power in Iran.
(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 government of Iran and any agency or
instrumentality of Iran.
(7) "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.
(8) "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 which has business operations in Iran as identified by the
board through, as the board deems appropriate, publicly available
information including, but not limited to, information provided by
nonprofit and other organizations and government entities, that meets
either of the following criteria:
(1) The company (A) is invested in or engaged in business
operations with entities in the defense or nuclear sectors of Iran or
(B) has an investment of twenty million dollars ($20,000,000) or
more in the energy sector of Iran, including in a company that
provides oil or liquefied natural gas tankers, or products used to
construct or maintain pipelines used to transport oil or liquefied
natural gas, for the energy sector of Iran, and that company is
subject to sanctions under Public Law 104-172, as renewed and amended
in 2001 and 2006.
(2) The company has demonstrated complicity with an Iranian
organization that has been labeled as a terrorist organization by the
United States government.
(c) Annually, on or before June 30, the board shall review its
investment portfolio and determine which companies are subject to
divestment.
(d) After the determination described in subdivision (c), the
board shall determine, by the next applicable board meeting, if a
company meets the criteria described in subdivision (b). If the board
plans to invest or has investments in a company that meets the
criteria described in subdivision (b), that planned or existing
investment shall be subject to subdivisions (g) and (h).
(e) Investments of the board in a company that does not meet the
criteria described in subdivision (b) are not subject to subdivision
(h) if the company does not subsequently meet the criteria described
in subdivision (b). The board shall identify the reasons why that
company does not satisfy the criteria described in subdivision (b) in
the report to the Legislature described in subdivision (i).
(f) (1) Notwithstanding subdivisions (d) and (e), if the board's
investment in a company described in subdivision (b) 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, if the fund or account manager
creates a fund or account devoid of companies described in
subdivision (b), 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) 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),
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 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 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 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 subdivisions (e) and (f), the board, in
the board's capacity of shareholder or investor, shall notify any
company described in subdivision (d) that the company is subject to
subdivision (h) and permit that company to respond to the board. 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 based on credible information
available to the public that a company has taken substantial action
or has made sufficient progress toward 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. Any
determination made at each 90-day interval that a company has taken
substantial action shall be supported by findings adopted by a
rollcall vote of the board following a presentation and discussion of
the findings in open session, during a properly noticed public
hearing of the full board. All proposed findings of the board shall
be made public 72 hours before they are considered by the board, and
the board shall maintain a list of interested parties who shall be
notified of proposed findings 72 hours before the board's
consideration. The findings and any public comments regarding the
adopted findings and determinations made pursuant to this subdivision
shall be included in the report to the Legislature required by
subdivision (i). A company that fails to complete substantial action
within one year from the date of the initial notice by the board
shall be subject to subdivision (h).
(h) If a company described in subdivision (d) 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 that satisfy the criteria in subdivision (b), 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.
(3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b).
(4) If the board has not completely reduced its investments in a
company that satisfies the criteria in subdivision (b), when the
board anticipates that the board will reduce all investments in that
company or the findings adopted in support of a determination made
pursuant to subdivision (k) pertaining to 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 subdivisions (d) and (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).
(7) An annual calculation of any costs or investment losses or
other financial results incurred in compliance with the provisions of
this section.
(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 if the board determines, and adopts
findings, in good faith and based on credible information available
to the public, that the action described in this section would fail
to satisfy the fiduciary responsibilities of the board as described
in Section 17 of Article XVI of the California Constitution. Any
adopted findings shall demonstrate how divestment disadvantages the
fund and that any feasible investment alternatives would yield a
lower rate of return with commensurate degrees of risk, or create a
higher degree of risk with commensurate rates of return.
Notwithstanding any other law, any determination that an action would
fail to satisfy the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California Constitution
shall require a recorded rollcall vote of the full board, following
a presentation and discussion of findings in open session, during a
properly noticed public hearing of the full board. All proposed
findings of the board shall be made public 72 hours before they are
considered by the board, and the board shall maintain a list of
interested parties who shall be notified of proposed findings 72
hours before board consideration. The findings and any public
comments regarding the adopted findings and determinations made
pursuant to this subdivision shall be included in the report to the
Legislature required by subdivision (i).
(l) This section shall cease to be operative if the President of
the United States has made the certifications specified in paragraphs
(1) and (2) of subdivision (a) of Section 8551 of Title 22 of the
United States Code.
(m) This section shall be known and may be cited as the California
Public Divest from Iran Act.
(n) The provisions of this section are severable. If any provision
of this section or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.