California Legislature—2015–16 Regular Session

Assembly Bill No. 2650

Introduced by Assembly Member Nazarian

February 19, 2016

An act to amend Section 7513.6 of the Government Code, relating to public employee retirement systems.

LEGISLATIVE COUNSEL’S DIGEST

AB 2650, as introduced, Nazarian. Public employee retirement systems: prohibited investments.

The California Constitution grants the retirement board of a public employee retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the retirement fund and system. The California Constitution qualifies this grant of powers by reserving to the Legislature the authority to prohibit investments if it is in the public interest and the prohibition satisfies standards of fiduciary care and loyalty required of a retirement board. Existing law prohibits specified investments in certain countries, including Sudan.

This bill would make technical, nonsubstantive changes to provisions prohibiting investment in the Sudan.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 7513.6 of the Government Code is
amended to read:

7513.6.  

(a) As used in this begin delete section, the following definitions
shall apply: end delete begin insert section: end insert

(1) “Active business operations” means a company engaged in
business operations that provide revenue to the government of
Sudan or a company engaged in oil-related activities.

(2) “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.

(3) “Business operations” means maintaining, selling, or leasing
equipment, facilities, personnel, or any other apparatus of business
or commerce in Sudan, including the ownership or possession of
real or personal property located in Sudan.

(4) “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 Sudan, that is established or organized under the
laws of or has its principal place of business in the Republic of the
Sudan.

(5) “Government of Sudan” means the government of Sudan
or its instrumentalities.

(6) “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 Sudan,
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.

(7) “Military equipment” means weapons, arms, or military
defense supplies.

(8) “Oil-related activities” means, but is not limited to, the export
of oil, extracting or producing oil, exploration for oil, or the
construction or maintenance of a pipeline, refinery, or other oil
field infrastructure.

(9) “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.

(10) “Research firm” means a reputable, neutral third-party
research firm.

(11) “Substantial action” means a boycott of the government
of Sudan, curtailing business in Sudan until that time described in
subdivision (m), selling company assets, equipment, or real and
personal property located in Sudan, or undertaking significant
humanitarian efforts in the eastern, southern, or western regions
of Sudan.

(12) “Sudan” means the Republic of the Sudan, a territory under
the administration or control of the Sudan, including but not limited
to, the Darfur region, or an individual, company, or public agency
located in Khartoum, northern Sudan, or the Nile River Valley
that supports the Republic of the Sudan.

(b) The board shall not invest public employee retirement funds
in a company with business operations in Sudan that meets all of
the following criteria:

(1) The company is engaged in active business operations in
Sudan. If that company is not engaged in oil-related activities, that
company also lacks significant business operations in the eastern,
southern, and western regions of Sudan.

(2) Either of the following apply:

(A) The company is engaged in oil-related activities or energy
or power-related operations, or contracts with another company
with business operations in the oil, energy, and power sectors of
Sudan, and the company failed to take substantial action related
to the government of Sudan because of the Darfur genocide.

(B) The company has demonstrated complicity in the Darfur
genocide.

(c) Notwithstanding subdivision (b), the board shall not invest
public employee retirement funds in a company that supplies
military equipment within the borders of Sudan. If a company
provides equipment within the borders of Sudan 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 Sudan. Those research firms shall, in the aggregate, obtain data
on a majority of companies with business operations in Sudan. On
or before March 30, 2007, 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 Sudan.

(2) In addition to the reports described in paragraph (1), the
board shall take all of the following actions no later than March
30, 2007:

(A) Review publicly available information regarding companies
with business operations in Sudan.

(B) Contact other institutional investors that invest in companies
with business operations in Sudan.

(C) Send written notice to a company with business operations
in Sudan 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) or does not have
active business operations in Sudan are not subject to subdivision
(h), provided that the company does not subsequently meet the
criteria described in subdivision (b) or (c) or engage in active
business operations. The board shall identify the reasons why that
company does not satisfy the criteria described in subdivision (b)
or (c) or does not engage in active business operations 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, 2007, 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 Sudan
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 Sudan. 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 Sudan, 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 Sudan 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 Sudan. 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 Sudan 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, 2008, 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 Sudan, 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 Sudan 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 Sudan as described in subdivision (f).

(j) If the board voluntarily sells or transfers all of its investments
in a company with business operations in Sudan, 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 Sudan.

(2) Investments in a company that promotes health, education,
journalistic, or religious activities in or welfare in the western,
eastern, or southern regions of Sudan.

(3) Investments in a United States company that is authorized
by the federal government to have business operations in Sudan.

(m) This section shall remain in effect only until one of the
following occurs, and as of the date of that action, is repealed:

(1) The government of Sudan halts the genocide in Darfur for
12 months as determined by both the Department of State and the
Congress of the United States.

(2) The United States revokes its current sanctions against
Sudan.