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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
government investments; plans; fiduciaries; products
Purpose
Requires a fiduciary to take into account only pecuniary factors when evaluating an investment or discharging the fiduciary's duties with respect to a plan and outlines plan voting of ownership interests and proxy voting. Prescribes requirements and prohibitions relating to the State Treasurer's investments.
Background
The State Treasurer is responsible for the safekeeping of all securities for which the State Treasurer is the lawful custodian. Securities may be deposited for safekeeping with any bank eligible to be the state servicing bank or any trust company or trust department of any bank qualified to do business in Arizona. The State Treasurer must invest and reinvest trust and treasury monies in outlined obligations, bonds and other permitted investments.
The State Treasurer may enter into an agreement with investment managers to invest treasury monies. An agreement must require the investment manager to regularly account for, itemize and inventory all securities under management consistent with statutory requirements and report the findings to the State Treasurer at least monthly or on demand (A.R.S. Title 35, Chapter 2, Article 2). The State Board of Investment reviews investments of state treasury monies, serves as trustees of permanent funds and provides management of the assets of the funds consistent with outlined conditions (Ariz. Const. art. 10 ยง 7).
The state offers four retirement programs, including: 1) the Arizona State Retirement System for all employees and officers of Arizona and political subdivisions; 2) the Corrections Officer Retirement Plan for correctional officers; 3) the Elected Officials' Retirement plan for eligible elected officials; and 4) the Public Safety Personnel Retirement System for public safety employees (A.R.S. Title 38, Chapter 5).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Fiduciary Requirements
1. Requires a fiduciary to discharge the fiduciary's duties with respect to a plan solely in the interest of the participants and beneficiaries of the plan for the exclusive purpose of providing pecuniary benefits to the participants and beneficiaries, defraying reasonable expenses of administering the plan and earning a return on the investment.
2. Defines fiduciary as a person who does any of the following:
a) exercises any discretionary authority or control with respect to a plan or exercises any authority or control managing or disposing of the plan's assets;
b) renders investment advice for a fee or other compensation, directly or indirectly, with respect to any monies or other property of a plan or has the authority or responsibility to render investment advice; or
c) has any discretionary authority or responsibility in administering a plan.
3. Defines plan as any plan, fund or program established or maintained by the state or a political subdivision, including a university under the jurisdiction of the Arizona Board of Regents and a community college district, to do any of the following:
a) provide retirement income or other retirement benefits to employees or former employees;
b) defer income by employees for a period of time extending to the termination of covered employment or beyond; or
c) invest taxpayer monies for any purpose.
4. Requires a fiduciary to take into account only pecuniary factors when evaluating an investment or discharging the fiduciary's duties with respect to a plan.
5. Prohibits a fiduciary from taking into account any nonpecuniary or other factors when evaluating an investment.
6. Allows only the governmental entity that establishes or maintains a plan to vote the shares held by the plan.
7. Prohibits a governmental entity from granting any proxy voting authority to any person who is not a part of the governmental entity unless that person follows guidelines consistent with the governmental entity's obligation to act based only on pecuniary factors.
8. Requires the direct or indirect plan shares to be voted only in the pecuniary interest of the plan.
9. Prohibits the shares from being voted to further nonpecuniary, environmental, social, political, ideological or other benefits or goals.
10. Prohibits a plan from entrusting any plan assets to a fiduciary that has a practice of:
a) engaging with, or that commits to engage with, a company based on nonpecuniary factors; or
b) voting shares based on nonpecuniary factors.
11. Prohibits a fiduciary from adopting a practice of following the recommendations of a proxy advisory firm or other service provider unless the proxy advisory firm's or the service provider's proxy voting guidelines are consistent with the fiduciary's obligation to act based only on pecuniary factor.
State Treasurer
12. Requires the State Treasurer to post a current list of investment managers and state investments by name on the State Treasurer's publicly accessible website and to update any changes within a reasonable period of time.
13. Requires all state investments to be made in the sole interest of the beneficiary taxpayer.
14. Requires the State Treasurer's evaluation of an investment to be based on prescribed pecuniary factors.
15. Prohibits the State Treasurer from taking unnecessary investment risks or promoting nonpecuniary benefits or other nonpecuniary social goals.
Miscellaneous
16. Defines pecuniary factor as a factor that has a material effect on the financial risk or the financial return of an investment based on appropriate investment horizons consistent with a plan's investment objectives and funding policy.
17. Defines nonpecuniary factor as any factor that is intended to further or is branded, advertised or otherwise publicly described by the offer of fiduciary as furthering:
a) international, domestic or industry agreements relating to environmental or social goals;
b) corporate governance structures based on social characteristics; or
c) social or environmental goals.
18. Becomes effective on the general effective date.
Prepared by Senate Research
January 26, 2025
AN/SDR/slp