Amended in Senate March 28, 2016

Senate BillNo. 1353


Introduced by Senator Pan

February 19, 2016


An act to amendbegin delete Section 22601end deletebegin insert Sections 7513.6 and 7513.75end insert of thebegin delete Educationend deletebegin insert Governmentend insert Code, relating tobegin delete teachers’end delete retirement.

LEGISLATIVE COUNSEL’S DIGEST

SB 1353, as amended, Pan. begin deleteState teachers’ retirement. end deletebegin insertPublic employee retirement systems: prohibited investments.end insert

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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 the boards of administration of the Public Employees’ Retirement System and the State Teachers’ Retirement System from investing, as specified, in Sudan and in thermal coal companies, subject to the boards’ plenary authority and fiduciary responsibility for investment of moneys and administration of the systems. Existing law requires the boards to provide reports to the Legislature in regard to their actions in connection with these provisions.

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This bill would provide, in connection with the prohibitions described above, that a board determination that an action fails to satisfy constitutional fiduciary responsibilities requires a recorded rollcall vote of the full board, following a presentation and discussion of findings in an open session during a properly noticed public hearing, as specified. The bill would also require that proposed findings be made public 72 hours before board consideration and that the findings and any public comments regarding adopted findings and determinations be included in the required reports to the Legislature.

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Existing law, the Teachers’ Retirement Law, establishes the State Teachers’ Retirement System (STRS) and creates the Defined Benefit Program of the State Teachers’ Retirement Plan, which provides a defined benefit to members of the program, based on final compensation, credited service, and age at retirement, subject to certain variations. Existing law prohibits a person serving as an exchange teacher or sojourn teacher from out of state from being members of the plan.

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The bill would make nonsubstantive changes in the provisions described above relating to an exchange teacher or sojourn teacher.

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Vote: majority. Appropriation: no. Fiscal committee: begin deleteno end deletebegin insertyesend insert. State-mandated local program: no.

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

P2    1begin insert

begin insertSECTION 1.end insert  

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begin insertSection 7513.6 of the end insertbegin insertGovernment Codeend insertbegin insert is
2amended to read:end insert

3

7513.6.  

(a) As used in this section, the following definitions
4shall apply:

5(1) “Active business operations” means a company engaged in
6business operations that provide revenue to the government of
7Sudan or a company engaged in oil-related activities.

8(2) “Board” means the Board of Administration of the Public
9Employees’ Retirement System or the Teachers’ Retirement Board
10of the State Teachers’ Retirement System, as applicable.

11(3) “Business operations” means maintaining, selling, or leasing
12equipment, facilities, personnel, or any other apparatus of business
13or commerce in Sudan, including the ownership or possession of
14real or personal property located in Sudan.

15(4) “Company” means a sole proprietorship, organization,
16association, corporation, partnership, venture, or other entity, its
17subsidiary or affiliate that exists for profitmaking purposes or to
18otherwise secure economic advantage. “Company” also means a
19company owned or controlled, either directly or indirectly, by the
20government of Sudan, that is established or organized under the
P3    1laws of or has its principal place of business in the Republic of the
2Sudan.

3(5) “Government of Sudan” means the government of Sudan
4or its instrumentalities.

5(6) “Invest” or “investment” means the purchase, ownership,
6or control of stock of a company, association, or corporation, the
7capital stock of a mutual water company or corporation, bonds
8issued by the government or a political subdivision of Sudan,
9corporate bonds or other debt instruments issued by a company,
10or the commitment of funds or other assets to a company, including
11a loan or extension of credit to that company.

12(7) “Military equipment” means weapons, arms, or military
13defense supplies.

14(8) “Oil-related activities” means, but is not limited to, the export
15of oil, extracting or producing oil, exploration for oil, or the
16construction or maintenance of a pipeline, refinery, or other oil
17field infrastructure.

18(9) “Public employee retirement funds” means the Public
19Employees’ Retirement Fund described in Section 20062 of this
20code, and the Teachers’ Retirement Fund described in Section
2122167 of the Education Code.

22(10) “Research firm” means a reputable, neutral third-party
23research firm.

24(11) “Substantial action” means a boycott of the government
25of Sudan, curtailing business in Sudan until that time described in
26subdivision (m), selling company assets, equipment, or real and
27personal property located in Sudan, or undertaking significant
28humanitarian efforts in the eastern, southern, or western regions
29of Sudan.

30(12) “Sudan” means the Republic of the Sudan, a territory under
31the administration or control of the Sudan, including but not limited
32to, the Darfur region, or an individual, company, or public agency
33located in Khartoum, northern Sudan, or the Nile River Valley
34that supports the Republic of the Sudan.

35(b) The board shall not invest public employee retirement funds
36in a company with business operations in Sudan that meets all of
37the following criteria:

38(1) The company is engaged in active business operations in
39Sudan. If that company is not engaged in oil-related activities, that
P4    1company also lacks significant business operations in the eastern,
2southern, and western regions of Sudan.

3(2) Either of the following apply:

4(A) The company is engaged in oil-related activities or energy
5or power-related operations, or contracts with another company
6with business operations in the oil, energy, and power sectors of
7Sudan, and the company failed to take substantial action related
8to the government of Sudan because of the Darfur genocide.

9(B) The company has demonstrated complicity in the Darfur
10genocide.

11(c) Notwithstanding subdivision (b), the board shall not invest
12public employee retirement funds in a company that supplies
13military equipment within the borders of Sudan. If a company
14provides equipment within the borders of Sudan that may be readily
15used for military purposes, including, but not limited to, radar
16systems and military-grade transport vehicles, there shall also be
17a strong presumption against investing in that company unless that
18company implements safeguards to prevent the use of that
19equipment for military purposes.

20(d) (1) The board shall, without regard to the provisions
21regarding competitive bidding, contract with a research firm or
22firms to determine those companies that have business operations
23in Sudan. Those research firms shall, in the aggregate, obtain data
24on a majority of companies with business operations in Sudan. On
25or before March 30, 2007, those research firms shall report any
26findings to the board and those research firms shall submit further
27findings to the board if there is a change of circumstances in Sudan.

28(2) In addition to the reports described in paragraph (1), the
29board shall take all of the following actions no later than March
3030, 2007:

31(A) Review publicly available information regarding companies
32with business operations in Sudan.

33(B) Contact other institutional investors that invest in companies
34with business operations in Sudan.

35(C) Send written notice to a company with business operations
36in Sudan that the company may be subject to this section.

37(e) (1) The board shall determine, by the next applicable board
38meeting and based on the information and reports described in
39 subdivision (d), if a company meets the criteria described in
40subdivision (b) or (c). If the board plans to invest or has
P5    1investments in a company that meets the criteria described in
2subdivision (b) or (c), that planned or existing investment shall be
3subject to subdivisions (g) and (h).

4(2) Investments of the board in a company that does not meet
5the criteria described in subdivision (b) or (c) or does not have
6active business operations in Sudan are not subject to subdivision
7(h), provided that the company does not subsequently meet the
8criteria described in subdivision (b) or (c) or engage in active
9business operations. The board shall identify the reasons why that
10company does not satisfy the criteria described in subdivision (b)
11or (c) or does not engage in active business operations in the report
12to the Legislature described in subdivision (i).

13(f) (1) Notwithstanding subdivision (e), if the board’s
14investment in a company described in subdivision (b) or (c) is
15limited to investment via an externally and actively managed
16commingled fund, the board shall contact that fund manager in
17writing and request that the fund manager remove that company
18from the fund as described in subdivision (h). On or before June
1930, 2007, if the fund or account manager creates a fund or account
20devoid of companies described in subdivision (b) or (c), the transfer
21of board investments from the prior fund or account to the fund
22or account devoid of companies with business operations in Sudan
23shall be deemed to satisfy subdivision (h).

24(2) If the board’s investment in a company described in
25subdivision (b) or (c) is limited to an alternative fund or account,
26the alternative fund or account manager creates an actively
27managed commingled fund that excludes companies described in
28subdivision (b) or (c), and the new fund or account is deemed to
29be financially equivalent to the existing fund or account, the
30transfer of board investments from the existing fund or account to
31the new fund or account shall be deemed to satisfy subdivision
32(h). If the board determines that the new fund or account is not
33financially equivalent to the existing fund, the board shall include
34the reasons for that determination in the report described in
35subdivision (i).

36(3) The board shall make a good faith effort to identify any
37private equity investments that involve companies described in
38subdivision (b) or (c) or are linked to the government of Sudan. If
39the board determines that a private equity investment clearly
40involves a company described in subdivision (b) or (c) or is linked
P6    1to the government of Sudan, the board shall consider, at its
2discretion, if those private equity investments shall be subject to
3subdivision (h). If the board determines that a private equity
4investment clearly involves a company described in subdivision
5(b) or (c) or is linked to the government of Sudan and the board
6does not take action as described in subdivision (h), the board shall
7include the reasons for its decision in the report described in
8subdivision (i).

9(g) Except as described in subdivision (f) or paragraph (2) of
10subdivision (e), the board, in the board’s capacity of shareholder
11or investor, shall notify any company described in paragraph (1)
12of subdivision (e) that the company is subject to subdivision (h)
13and permit that company to respond to the information and reports
14described in subdivision (d). The board shall request that the
15company take substantial action no later than 90 days from the
16date the board notified the company under this subdivision. If the
17board determines that a company has taken substantial action or
18has made sufficient progress towards substantial action before the
19expiration of that 90-day period, that company shall not be subject
20to subdivision (h). The board shall, at intervals not to exceed 90
21days, continue to monitor and review the progress of the company
22until that company has taken substantial action in Sudan. A
23company that fails to complete substantial action or continue to
24make sufficient progress towards substantial action by the next
25time interval shall be subject to subdivision (h).

26(h) If a company described in paragraph (1) of subdivision (e)
27fails to complete substantial action by the time described in
28subdivision (g), the board shall take the following actions:

29(1) The board shall not make additional or new investments or
30renew existing investments in that company.

31(2) The board shall liquidate the investments of the board in
32that company no later than 18 months after this subdivision applies
33to that company. The board shall liquidate those investments in a
34manner to address the need for companies to take substantial action
35in Sudan and consistent with the board’s fiduciary responsibilities
36as described in Section 17 of Article XVI of the California
37Constitution.

38(i) On or before January 1, 2008, and every year thereafter, the
39board shall file a report with the Legislature. The report shall
40describe the following:

P7    1(1) A list of investments the board has in companies with
2business operations in Sudan, including, but not limited to, the
3issuer, by name, of the stock, bonds, securities, and other evidence
4of indebtedness.

5(2) A detailed summary of the business operations a company
6described in paragraph (1) has in Sudan and whether that company
7satisfies all of the criteria in subdivision (b) or (c).

8(3) Whether the board has reduced its investments in a company
9that satisfies the criteria in subdivision (b) or (c).

10(4) If the board has not completely reduced its investments in
11a company that satisfies the criteria in subdivision (b) or (c), when
12the board anticipates that the board will reduce all investments in
13that company or the reasons why a sale or transfer of investments
14is inconsistent with the fiduciary responsibilities of the board as
15described in Section 17 of Article XVI of the California
16Constitution.

17(5) Any information described in subdivision (e).

18(6) A detailed summary of investments that were transferred to
19funds or accounts devoid of companies with business operations
20in Sudan as described in subdivision (f).

21(j) If the board voluntarily sells or transfers all of its investments
22in a company with business operations in Sudan, this section shall
23not apply except that the board shall file a report with the
24Legislature related to that company as described in subdivision
25(i).

26(k) begin insert(1)end insertbegin insertend insert Nothing in this section shall require the board to take
27action as described in this section unless the board determines, in
28good faith, that the action described in this section is consistent
29with the fiduciary responsibilities of the board as described in
30Section 17 of Article XVI of the California Constitution.

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31
(2) A determination that an action described in this section
32would fail to satisfy the fiduciary responsibilities of the board as
33described in Section 17 of Article XVI of the California Constitution
34shall require a recorded rollcall vote of the full board, following
35a presentation and discussion of findings in open session, during
36a properly noticed public hearing of the full board. All proposed
37findings of the board shall be made public 72 hours before they
38are considered by the board. The findings and any public comments
39regarding the adopted findings and determinations made pursuant
P8    1to this paragraph shall be included in the report to the Legislature
2required by subdivision (i).

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3(l) Subdivision (h) shall not apply to any of the following:

4(1) Investments in a company that is primarily engaged in
5supplying goods or services intended to relieve human suffering
6in Sudan.

7(2) Investments in a company that promotes health, education,
8journalistic, or religious activities in or welfare in the western,
9eastern, or southern regions of Sudan.

10(3) Investments in a United States company that is authorized
11by the federal government to have business operations in Sudan.

12(m) This section shall remain in effect only until one of the
13following occurs, and as of the date of that action, is repealed:

14(1) The government of Sudan halts the genocide in Darfur for
1512 months as determined by both the Department of State and the
16Congress of the United States.

17(2) The United States revokes its current sanctions against
18Sudan.

19begin insert

begin insertSEC. 2.end insert  

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begin insertSection 7513.75 of the end insertbegin insertGovernment Codeend insertbegin insert is amended
20to read:end insert

21

7513.75.  

(a) The Legislature finds and declares all of the
22following:

23(1) The combustion of coal resources is the single largest
24contributor to global climate change in the United States.

25(2) Climate change affects all parts of the California economy
26and environment, and the Legislature has adopted numerous laws
27to mitigate greenhouse gas emissions and to adapt to a changing
28climate.

29(3) The purpose of this section is to require the Public
30Employees’ Retirement System and the State Teachers’ Retirement
31System, consistent with, and not in violation of, their fiduciary
32responsibilities, to divest their holding of thermal coal power as
33one part of the state’s broader efforts to decarbonize the California
34economy and to transition to clean, pollution free energy resources.

35(b) As used in this section, the following definitions apply:

36(1) “Board” means the Board of Administration of the Public
37Employees’ Retirement System or the Teachers’ Retirement Board
38of the State Teachers’ Retirement System, as applicable.

39(2) “Company” means a sole proprietorship, organization,
40association, corporation, partnership, venture, or other entity, or
P9    1its subsidiary or affiliate, that exists for profit-making purposes or
2to otherwise secure economic advantage.

3(3) “Investment” means the purchase, ownership, or control of
4publicly issued stock, corporate bonds, or other debt instruments
5issued by a company.

6(4) “Public employee retirement funds” means the Public
7Employees’ Retirement Fund described in Section 20062 of this
8code, and the Teachers’ Retirement Fund described in Section
922167 of the Education Code.

10(5) “Thermal coal” means coal used to generate electricity, such
11as that which is burned to create steam to run turbines. Thermal
12coal does not mean metallurgical coal or coking coal used to
13produce steel.

14(6) “Thermal coal company” means a publicly traded company
15that generates 50 percent or more of its revenue from the mining
16of thermal coal, as determined by the board.

17(c) The board shall not make additional or new investments or
18renew existing investments of public employee retirement funds
19in a thermal coal company.

20(d) The board shall liquidate investments in a thermal coal
21company on or before July 1, 2017. In making a determination to
22liquidate investments, the board shall constructively engage with
23a thermal coal company to establish whether the company is
24transitioning its business model to adapt to clean energy generation,
25such as through a decrease in its reliance on thermal coal as a
26revenue source.

27(e) On or before January 1, 2018, the board shall file a report
28with the Legislature, in compliance with Section 9795, and the
29Governor, which shall include the following:

30(1) A list of thermal coal companies of which the board has
31liquidated its investments pursuant to subdivision (d).

32(2) A list of companies with which the board engaged pursuant
33to subdivision (d) that the board established were transitioning to
34clean energy generation, with supporting documentation to
35substantiate the board’s determination.

36(3) A list of thermal coal companies of which the board has not
37liquidated its investments as a result of a determination made
38pursuant to subdivision (f) that a sale or transfer of investments is
39inconsistent with the fiduciary responsibilities of the board as
40described in Section 17 of Article XVI of the California
P10   1Constitution and the board’s findings adopted in support of that
2determination.

3(f) begin insert(1)end insertbegin insertend insert Nothing in this section shall require a board to take
4action as described in this section unless the board determines in
5good faith that the action described in this section is consistent
6with the fiduciary responsibilities of the board described in Section
717 of Article XVI of the California Constitution.

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8
(2) A determination that an action described in this section
9would fail to satisfy the fiduciary responsibilities of the board as
10described in Section 17 of Article XVI of the California Constitution
11shall require a recorded rollcall vote of the full board, following
12a presentation and discussion of findings in open session, during
13a properly noticed public hearing of the full board. All proposed
14findings of the board shall be made public 72 hours before they
15are considered by the board. The findings and any public comments
16regarding the adopted findings and determinations made pursuant
17to this paragraph shall be included in the report to the Legislature
18 required by subdivision (e).

end insert
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19

SECTION 1.  

Section 22601 of the Education Code is amended
20to read:

21

22601.  

A person serving as an exchange teacher or sojourn
22teacher from outside of this state is excluded from membership in
23the plan.

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