REPORT TITLE:
Employees' Retirement System
DESCRIPTION:
Allows the board of trustees of the employees' retirement system
to invest in real estate through limited liability companies and
similar entities. (SB1282 HD2)
1282
THE SENATE S.B. NO. S.D. 2
TWENTIETH LEGISLATURE, 1999 H.D. 2
STATE OF HAWAII
________________________________________________________________
________________________________________________________________
A BILL FOR AN ACT
RELATING TO INVESTMENTS OF THE EMPLOYEES' RETIREMENT SYSTEM.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
1 SECTION 1. Section 88-119, Hawaii Revised Statutes, is
2 amended to read as follows:
3 "ยง88-119 Investments. Investments may be made in:
4 (1) Real estate loans and mortgages. Obligations (as
5 defined in section 431:6-101) of any of the following
6 classes:
7 (A) Obligations secured by mortgages of nonprofit
8 corporations desiring to build multirental units
9 (ten units or more) subject to control of the
10 government for occupancy by families displaced as
11 a result of government action;
12 (B) Obligations secured by mortgages insured by the
13 Federal Housing Administration;
14 (C) Obligations for the repayment of home loans made
15 under the Servicemen's Readjustment Act of 1944 or
16 under Title II of the National Housing Act;
17 (D) Other obligations secured by first mortgages on
18 unencumbered improved real estate owned in fee
19 simple; provided that the amount of the obligation
20 [shall not] at the time investment is made therein
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1 shall not exceed eighty per cent of the value of
2 the real estate and improvements mortgaged to
3 secure it, and except that the amount of the
4 obligation at the time investment is made therein
5 may exceed eighty per cent but no more than ninety
6 per cent of the value of the real estate and
7 improvements mortgaged to secure it; provided
8 further that the obligation is insured or
9 guaranteed against default or loss under a
10 mortgage insurance policy issued by a casualty
11 insurance company licensed to do business in the
12 State. The coverage provided by the insurer
13 [should] shall be sufficient to reduce the
14 system's exposure to not more than eighty per cent
15 of the value of the real estate and improvements
16 mortgaged to secure it. [Such] The insurance
17 coverage shall remain in force until the principal
18 amount of the obligation is reduced to eighty per
19 cent of the market value of the real estate and
20 improvements mortgaged to secure it, at which time
21 the coverage shall be subject to cancellation
22 solely at the option of the board of trustees.
23 Real estate shall not be deemed to be encumbered
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1 within the meaning of this subparagraph by reason
2 of the existence of any of the restrictions,
3 charges, or claims described in section 431:6-308;
4 (E) Other obligations secured by first mortgages of
5 leasehold interests in improved real estate;
6 provided that:
7 (i) Each such leasehold interest at such time
8 shall have a current term extending at least
9 two years beyond the stated maturity of the
10 obligation it secures; and
11 (ii) The amount of the obligation [shall not] at
12 the time investment is made therein shall not
13 exceed eighty per cent of the value of the
14 respective leasehold interest and
15 improvements, and except that the amount of
16 the obligation[,] at the time investment is
17 made therein[,] may exceed eighty per cent
18 but no more than ninety per cent of the value
19 of the leasehold interest and improvements
20 mortgaged to secure it;
21 provided further that the obligation is insured or
22 guaranteed against default or loss under a
23 mortgage insurance policy issued by a casualty
24 insurance company licensed to do business in the
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1 State. The coverage provided by the insurer
2 [should] shall be sufficient to reduce the
3 system's exposure to not more than eighty per cent
4 of the value of the leasehold interest and
5 improvements mortgaged to secure it. [Such] The
6 insurance coverage shall remain in force until the
7 principal amount of the obligation is reduced to
8 eighty per cent of the market value of the
9 leasehold interest and improvements mortgaged to
10 secure it, at which time the coverage shall be
11 subject to cancellation solely at the option of
12 the board of trustees;
13 (F) Obligations for the repayment of home loans
14 guaranteed by the department of Hawaiian home
15 lands pursuant to section 214(b) of the Hawaiian
16 Homes Commission Act, 1920; and
17 (G) Obligations secured by second mortgages on
18 improved real estate for which the mortgagor
19 procures a second mortgage on the improved real
20 estate for the purpose of acquiring the
21 leaseholder's fee simple interest in the improved
22 real estate; provided that any prior mortgage does
23 not contain provisions [which] that might
24 jeopardize the security position of the retirement
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1 system or the borrower's ability to repay the
2 mortgage loan.
3 The board of trustees may retain such real estate,
4 including leasehold interests therein, as it may
5 acquire by foreclosure of mortgages or in enforcement
6 of security, or as may be conveyed to it in
7 satisfaction of debts previously contracted; provided
8 that all such real estate, other than leasehold
9 interests, shall be sold within five years after
10 acquiring the same, subject to extension by the
11 governor for additional periods not exceeding five
12 years each, and that all such leasehold interests shall
13 be sold within one year after acquiring the same,
14 subject to extension by the governor for additional
15 periods not exceeding one year each;
16 (2) Government obligations, etc. Obligations of any of the
17 following classes:
18 (A) Obligations issued or guaranteed as to principal
19 and interest by the United States or by any state
20 thereof or by any municipal or political
21 subdivision or school district of any of the
22 foregoing; provided that principal of and interest
23 on such obligations are payable in currency of the
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1 United States; or sovereign debt instruments
2 issued by agencies of, or guaranteed by foreign
3 governments;
4 (B) Revenue bonds, whether or not permitted by any
5 other provision hereof, of the State or any
6 municipal or political subdivision thereof,
7 including the board of water supply of the city
8 and county of Honolulu, and street or improvement
9 district bonds of any district or project in the
10 State; and
11 (C) Obligations issued or guaranteed by any federal
12 home loan bank including consolidated federal home
13 loan bank obligations, the Home Owner's Loan
14 Corporation, the Federal National Mortgage
15 Association, or the Small Business Administration;
16 (3) Corporate obligations. [Investments may be made in
17 below] Below investment grade or nonrated debt
18 instruments, foreign or domestic, in accordance with
19 investment guidelines adopted by the board of trustees;
20 (4) Preferred and common stocks. Shares of preferred or
21 common stock of any corporation created or existing
22 under the laws of the United States or of any state or
23 district thereof or of any country;
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1 (5) Obligations eligible by law for purchase in the open
2 market by federal reserve banks;
3 (6) Obligations issued or guaranteed by the International
4 Bank for Reconstruction and Development, the Inter-
5 American Development Bank, the Asian Development Bank,
6 or the African Development Bank;
7 (7) Obligations secured by collateral consisting of any of
8 the securities or stock listed above and worth[,] at
9 the time the investment is made[,] at least fifteen per
10 cent more than the amount of the respective
11 obligations;
12 (8) Insurance company obligations. Contracts and
13 agreements supplemental thereto providing for
14 participation in one or more accounts of a life
15 insurance company authorized to do business in Hawaii,
16 including its separate accounts, and whether the
17 investments allocated thereto are comprised of stocks
18 or other securities or of real or personal property or
19 interests therein;
20 (9) Interests in real property. Interests in improved or
21 productive real property in which, in the informed
22 opinion of the board of trustees, it is prudent to
23 invest funds of the system. For purposes of this
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1 paragraph, "real property" includes any property
2 treated as real property either by local law or for
3 federal income tax purposes. Investments in improved
4 or productive real property may be made directly or
5 through pooled funds, including common or collective
6 trust funds of banks and trust companies, group or unit
7 trusts, limited partnerships, limited liability
8 companies, investment trusts, title-holding
9 corporations recognized under section [501(c)(2) or
10 section 501(c)(23)] 501(c) of the Internal Revenue Code
11 of 1986, as amended, similar entities that would
12 protect the system's interest, and other pooled funds
13 invested on behalf of the system by investment managers
14 retained by the system;
15 (10) Other securities and futures contracts. Securities and
16 futures contracts in which in the informed opinion of
17 the board of trustees it is prudent to invest funds of
18 the system, including currency, interest rate, bond,
19 and stock index futures contracts and options on such
20 contracts to hedge against anticipated changes in
21 currencies, interest rates, and bond and stock prices
22 that might otherwise have an adverse effect upon the
23 value of the system's securities portfolios; covered
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1 put and call options on securities; and stock; whether
2 or not the securities, stock, futures contracts, or
3 options on futures are expressly authorized by or
4 qualify under the foregoing paragraphs, and
5 notwithstanding any limitation of any of the foregoing
6 paragraphs (including paragraph (4)); and
7 (11) Private placements. Investments in institutional blind
8 pool limited partnerships or direct investments [which]
9 that make private debt and equity investments in
10 privately held companies."
11 SECTION 2. Statutory material to be repealed is bracketed.
12 New statutory material is underscored.
13 SECTION 3. This Act shall take effect upon its approval.