Amendments are being made to update definitions set forth in Rule 19-4.0012, F.A.C. Rule 19-4.0031, F.A.C., is being amended to update the terms set forth, to update procedures to reflect current practices, and to revise a statutory provision. New ...

 

STATE BOARD OF ADMINISTRATION

RULE NOS.:RULE TITLES:

19-4.0012Definitions

19-4.0031General Policies and Review Procedures for Investments

19-4.0035Florida Retirement System Defined Benefit Plan Investment Policy Statement

PURPOSE AND EFFECT: Amendments are being made to update definitions set forth in Rule 19-4.0012, F.A.C. Rule 19-4.0031, F.A.C., is being amended to update the terms set forth, to update procedures to reflect current practices, and to revise a statutory provision. New proposed Rule 19-4.0035, F.A.C., will advise the public of the existence of the most recent version of the Investment Policy Statement for the Florida Retirement System (“FRS”) Defined Benefit Plan and also advise the public how to obtain copies of this statement.

SUMMARY: To update information and to set forth the most recent version of the Investment Policy Statement for the FRS Defined Benefit Plan. Other than the rules covered by this Notice, there are no other rules incorporating any of these proposed rules. The proposed amendments do not have an impact on any other rules. Legislative ratification of these rule amendments is not required.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: Upon review of the proposed changes to the rules as well as all incorporated materials, the State Board of Administration has determined that the rules do not meet the statutory threshold for ratification by the legislature. There will be no impact on economic growth, job creation or employment, private-sector investment, or business competitiveness, and no increase in regulatory costs.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 215.52 FS.

LAW IMPLEMENTED: 215.44, 215.45, 215.47, 215.475 FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW (IF NOT REQUESTED, THIS HEARING WILL NOT BE HELD):

DATE AND TIME: Thursday, April 17, 2014, 9:00 a.m. – 11:00 a.m.

PLACE: Hermitage Room, the Hermitage Centre, 1801 Hermitage Blvd., Tallahassee, Florida 32308

Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 5 days before the workshop/meeting by contacting: Tina Joanos, Agency Clerk, Office of the General Counsel, State Board of Administration, 1801 Hermitage Blvd., Tallahassee, Florida 32308, [phone], [e-mail]. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Ruth A. Smith, Assistant General Counsel, State Board of Administration, 1801 Hermitage Blvd., Tallahassee, Florida 32308, [phone], [e-mail]

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

19-4.0012 Definitions.

As used in this chapter, the following words will have the following meanings, unless some other meaning is plainly indicated:

(1) Normal Portfolio – That allocation of funds among asset classes that is viewed as neutral. When all asset classes are fairly priced relative to each other considering volatility and price, this would be the position of the portfolio.

(1)(2) Strategy – Strategy consists of determining the appropriate risk-return tradeoffs for the total fund in light of the investment objectives and individual asset classes. Strategic actions include setting the allocation of funds among asset classes as well as among subasset class categories.

(2) Fund – Fund shall mean the Florida Retirement System Defined Benefit Plan Trust.

(3) Tactics – Tactics consists of change in specific security holdings made regularly during the course of investment activity that do not materially change the expected risk or return of the total fund or of the asset class portfolio involved. Such tactical actions may include purchase or sale of specific securities, options and futures, substitutions or exchanges, transfers of funds to and from individual managers or portfolios, and the like, common to the professional management of a pension investment portfolio.

(4) Return – Return shall mean total return, including both current income and change in capital market value.

(5) Risk – Risk shall mean the potential underperformance versus the investment objective for loss measured in the best available and most appropriate manners for the Fund each asset class.

(6) Synthetic securities – Securities created through the combination of cash market instruments, such as U.S. Treasury Bills, with futures market positions which, when taken together, mimic the characteristics of a cash market security or group of securities.

Rulemaking Specific Authority 215.52 FS. Law Implemented 215.44, 215.47 FS. History–New 12-25-85, Formerly 19-4.012, Amended 12-14-86,_____________.

 

19-4.0031 General Policies and Review Procedures for Investments.

(1) The Fund shall be invested pursuant to the provisions set forth in the Florida Statutes, including but not limited to Sections 215.47 and 215.44, F.S. The Board shall approve an Total Fund Investment Policy Statement Plan which includes, among other items, the investment objectives of the Fund and evaluation criteria necessary to measure the investment performance of the Fund. Performance evaluation will focus on the Fund’s rate of return over a period of time sufficient to permit the inherent benefits of the individual asset classes to be reflected.

(2) The Executive Director shall present to the Investment Advisory Council a continuing review and study of its general portfolio strategy to meet the objectives of the Fund. A continuous review of the overall economic conditions shall be included.

(3) Changes in security holdings are the responsibility of the Executive Director, and must conform with standards of professional investment practice and prudence. Changes in security holdings shall be reported to the Trustees on a monthly basis.

(4) The Executive Director shall govern the day-to-day operation of the various aspects of portfolio management consistent with the Total Fund Investment Policy Statement Plan.

(5) The Executive Director shall from time to time, or when directed by the Investment Advisory Council or the Board, present recommendations to the Board concerning investment activity not otherwise authorized by Sections 215.44-215.53, F.S. Such new investment activity is authorized under authority in Section 215.47(6), F.S. The Executive Director shall monitor investment authority so granted, and ensure that the total of such investments does not exceed the statutory limit.

(6) For the purpose of implementing Section 215.47, F.S., any security, interest or investment vehicle or obligation issued by a private entity, trust or organization holding investments authorized by Section 215.47 will be considered an investment authorized by Section 215.47 provided that the predominant function of the entity, trust or organization is to hold and/or manage said underlying investments.

(7) The term “consistent with sound investment policy,” which is contained in Section 121.153(1)(c); the term “consistent with the investment policy set forth in Sections 215.44(2) and 215.47(10)(9),” which is contained in Section 121.153(2)(a); and terms of similar meaning, which exist or shall exist in the laws of Florida, relating to the responsibility of the Board to perform its investment functions in accordance with accepted fiduciary standards, or words of like import, shall mean that the Board, in addition to complying with the aforecited laws, in performing its investment duties in accordance with these laws shall comply with the fiduciary standards set forth in the Employee Retirement Income Security Act of 1974 at 29 U.S.C. s. 1104(a)(1)(A) through (C), to wit: A fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and

(a) For the exclusive purpose of:

1. Providing benefits to participants and their beneficiaries; and

2. Defraying reasonable expenses of administering the plan;

(b) With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

(c) By diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.

(8) For the purpose of implementing Section 215.44(2), F.S., and Section 215.47(10)(9), F.S. (1989), the Executive Director shall not violate or cause the violation of any exclusive U. S. federal laws, including but not limited to the federal securities laws, which pre-empt the laws of the State of Florida pertaining to the investment activities of the Board. Particular emphasis shall be given to ensure that a violation of Section 10 of the Securities Exchange Act of 1934, as well as Rule 10b-5 of the Securities and Exchange Commission (“SEC”), does not occur with respect to the release of material non-public or confidential insider information (“insider information”). Insider information is considered to include, but not be limited to, information relating to the investment activities of the Board (i) which if released by the provider of the information to the Board would cause the provider to violate any of the above-cited laws or (ii) information which if released by the Board to an individual would enable this individual to take advantage of uninformed investors. For the purposes of this subsection 19-4.0031(8), F.A.C., the term “material” has the same meaning as given in SEC Rule 12b-2 which is: “The term “material,” when used to qualify a requirement for the furnishing of information as to any subject, limits the information required to those matters to which there is a substantial likelihood that a reasonable investor would attach importance in determining whether to buy or sell the securities registered.” The Securities and Exchange Act of 1934, as well as SEC Rules 10b-5 and 12b-2, can be obtained by accessing the SEC website at sec.gov and clicking on the Laws & Regulations section.

Rulemaking Specific Authority 215.52 FS. Law Implemented 215.44, 215.45, 215.47 FS. History–New 2-10-82, Amended 12-25-85, Formerly 19-4.031, Amended 12-14-86, 12-10-87, 12-18-88, 6-1-89, 12-11-89, 2-13-90, 3-9-06,__________.

 

19-4.0035 Florida Retirement System Defined Benefit Plan Investment Policy Statement.

The Florida Retirement System Defined Benefit Plan Investment Policy Statement, as approved by the Trustees of the State Board of Administration on February 6, 2014, and effective March 1, 2014,  http://www.flrules.org/Gateway/reference.asp?No=Ref-03982, hereby is adopted and incorporated by reference. The Investment Policy Statement may be obtained by contacting: State Board of Administration, 1801 Hermitage Blvd., Suite 100, Tallahassee, Florida 32308, or by accessing the sbafla.com website.

Rulemaking Authority 212.52 FS. Law Implemented 215.475 FS. History–New___________.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Lamar Taylor, Deputy Executive Director

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Trustees of the State Board of Administration

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: March 4, 2014

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: February 19, 2013, Vol. 39/34