§5162. Investment of post-employment benefits trusts; political subdivisions

A. Any political subdivision of the state may invest post-employment benefits funds of the political subdivision held in a trust created pursuant to this Chapter in any of the following securities:

(1) Direct United States Treasury obligations, the principal and interest of which are fully guaranteed by the government of the United States.

(2) Bonds, debentures, notes, or other evidence of indebtedness any of which are issued or guaranteed by federal agencies and backed by the full faith and credit of the United States of America.

(3) Bonds, debentures, notes, or other evidence of indebtedness any of which are issued or guaranteed by a United States government-sponsored entity.

(4) Direct security repurchase agreements of any federal book-entry only securities enumerated in Paragraphs (1), (2), and (3) of this Subsection. "Direct security repurchase agreement" means an agreement under which the trust buys, holds for a specified time, and then sells back those securities and obligations enumerated in Paragraphs (1), (2), and (3) of this Subsection.

(5) Bonds, debentures, notes, or other evidence of indebtedness any of which are issued by corporations of the United States which are rated investment grade as reflected by a rating by Moody's, Inc., of Baa or its equivalent or better or a rating by Fitch or Standard & Poor's Corporation of BBB or its equivalent or better.

(6) Bonds, debentures, notes, or other evidence of indebtedness any of which are issued by and backed by the full faith and credit of sovereign nations, are denominated in United States dollars, and are rated investment grade as reflected by a rating by Moody's, Inc., of A or better or a rating by Fitch or Standard & Poor's Corporation of A or better.

(7) Money market mutual funds as authorized by Paragraph (11) of this Subsection, direct issue commercial paper except asset-backed commercial paper as prohibited by Paragraph (B)(3) of this Section, and other short-term money market securities as authorized by this Chapter.

(8) The Louisiana Asset Management Pool and any other intergovernmental pool formed by or of Louisiana governmental entities.

(9)(a) Time certificates of deposit of any bank domiciled or having a branch office in the state of Louisiana, savings accounts or shares, as defined by R.S. 6:703, of savings and loan associations and savings banks, or share accounts and share certificate accounts of federally or state-chartered credit unions issuing time certificates of deposit. For those funds made available for investment in time certificates of deposit, the rate of interest paid by the bank shall be established by contract between the bank and the trust; however, the interest rate at the time of investment shall be a rate not less than fifty basis points below the prevailing market interest rate on direct obligations of the United States Treasury with a similar length of maturity.

(b) Funds invested in accordance with the provisions of this Paragraph shall not exceed at any time the amount insured by the Federal Deposit Insurance Corporation in any one banking institution or in any one savings and loan association or National Credit Union Administration unless the uninsured portion is collateralized by the pledge of securities in the manner provided in R.S. 39:1221.

(10) Stocks of any corporation listed on the New York Stock Exchange, the American Stock Exchange, or authorized for quotations display on the National Association of Securities Dealers Automated Quotations System or any successor national exchanges.

(11) Mutual funds which are registered with the Securities and Exchange Commission under the Securities Act of 1933 and the Investment Company Act of 1940 and that are listed on the New York Stock Exchange, the American Stock Exchange, or authorized for quotations display on the National Association of Securities Dealers Automated Quotations System or any successor national exchanges, and that have underlying investments consisting predominantly of securities permitted by this Chapter. As used in this Section, "predominantly" means ninety percent or greater.

(12) Exchange traded funds which are registered with the Securities and Exchange Commission under the Securities Act of 1933 and the Investment Company Act of 1940 and that are listed on the New York Stock Exchange, the American Stock Exchange, or authorized for quotations display on the National Association of Securities Dealers Automated Quotations System or any successor national exchanges, and which have underlying investments consisting predominantly of securities permitted by this Chapter.

B. The following investments and activities are hereby prohibited by any political subdivision of the state in the investment of post-employment benefits funds of the political subdivision that are held in trusts created under this Chapter:

(1) The use of any leverage either directly or through mutual funds or exchange traded funds that use leverage.

(2) Selling short any securities either directly or through mutual funds or exchange traded funds that sell securities short.

(3) Investing in or by any of the following: asset-backed securities other than those issued directly by the entities described in Paragraphs (A)(1), (A)(2), and (A)(3) of this Section; the purchase of stock warrants; any direct interest in oil, gas, or other mineral exploration program; private or direct placements of any kind; direct ownership of real estate or real estate investment trusts; collectibles such as coins, stamps, or art; direct loans or extensions of credit; the direct purchase of securities denominated in foreign currencies, purchased on foreign exchanges, or cleared through foreign clearing entities; the direct purchase of single family or commercial mortgages; collateralized mortgage obligations that have been stripped into interest only or principal only obligations; inverse floaters; or structured notes. For the purposes of this Section, "structured notes" means securities which have been restructured, modified, or reissued by private entities.

C. This Subsection shall apply to all political subdivisions of the state in the administration of all post-employment benefits funds of the political subdivision that are held in trusts created under this Chapter:

(1)(a) Though the investment policy adopted by a political subdivision for the trust may provide for specific asset allocations for asset classes, in no circumstance except as provided in this Section shall a trust created under this Chapter allocate more than fifty-five percent, in value, of the total portfolio in equities.

(b) If the equity portion of the portfolio exceeds fifty-five percent of the total portfolio as measured at the end of a calendar quarter, the trust shall take such actions as are prudent to reduce the equity portion of the portfolio to no more than fifty-five percent during the following calendar quarter.

(c) The underlying assets of mutual funds and exchange traded funds shall be used when making calculations as required by this Paragraph.

(2)(a) The trust shall not own more than five percent of the outstanding stock of any company.

(b) In the event the trust shall come to own greater than five percent of the outstanding stock of a company as measured at the end of a calendar quarter, the trust shall take such actions as are prudent to reduce its ownership to below five percent during the following calendar quarter.

(3)(a) No more than five percent of the funds designated for equity allocation shall be invested in the stock of any single company.

(b) In the event that more than ten percent of the funds designated for equity allocation become invested in the stock of any single company as measured at the end of a calendar quarter, the trust shall take such actions as are prudent to reduce its ownership to below ten percent during the following calendar quarter.

(4)(a) The trust may not allow more than fifteen percent of the funds designated for equity allocation to be concentrated in any single industry.

(b) In the event the trust shall come to own greater than fifteen percent of the funds designated for equity allocation in a single industry as measured at the end of a calendar quarter, the trust shall take such actions as are prudent to reduce its ownership to below fifteen percent during the following calendar quarter.

(c) "Industry" as used in this Section shall be defined by the Global Industry Classification System as promulgated by Standard & Poor's or its successors from time to time.

(5) Fixed income securities shall be selected with consideration for the total anticipated return, taking into consideration both interest income and capital appreciation or loss.

(6) All fixed income investments shall be appropriately diversified by maturity, security, sector, and credit quality.

(7) If any fixed income investment security in the portfolio is downgraded below the applicable requirements in Paragraph (A)(5) or (6) of this Section, the trust shall take such actions as are prudent to eliminate its exposure to that security by the end of the next full calendar quarter.

(8) Active management of the investment portfolio is permitted.

(9)(a) The trust may retain one or more investment managers or advisors to manage a portfolio or portfolios in a discretionary manner strictly limited by this Chapter and the investment guidelines adopted by the trust.

(b) Any investment manager or advisor must be a Registered Investment Advisor under the Investment Advisers Act of 1940, or a bank trust department, under the supervision of the Office of the Comptroller of Currency or the Louisiana Office of Financial Institutions.

(c) An investment manager or advisor shall be a fiduciary with respect to the trust and shall acknowledge such in writing to the trust.

(d) Investment performance reports submitted by any investment manager or advisor to any trust covered by this Chapter shall be in compliance with the current Global Investment Performance Standards as amended and published by the CFA Institute or any successor entity.

D. The investment of monies in a post-employment benefits fund by a political subdivision of the state in violation of the provisions of this Section shall constitute an intentional performance of a duty in an unlawful manner and may be prosecuted pursuant to R.S. 14:134.

Acts 2008, No. 87, §1.