§ 7. Management of funds.
(a) Trustee of funds.
The Board of Trustees shall be the trustees of the several funds of the Employees' Retirement System of Baltimore created by Article 22 under this subtitle as provided in § 8. The Board of Trustees shall have the power to invest and reinvest such funds in the following types or classes of assets subject to the limitations, if any, as set forth with regard to each type or class of investment.
The Board of Trustees has the duty and responsibility of periodically determining investment policies consistent with the capital market environment, and the actuarial characteristics of the Employees' Retirement System and to publish these investment policy guidelines by filing a copy of them with the Department of Legislative Reference.
All contributions from time to time paid into the several funds, and the income thereof, without distinction between principal and income, shall be held and administered by the Board of Trustees or its agents in the funds, and the Board shall not be required to segregate or invest separately any portion of the funds.
Provided, however, that nothing in this section shall be deemed to render illegal or to invalidate the making and holding of any investment heretofore made and now remaining in said funds where such investment when made was authorized by law prior to the enactment of this section; and provided further, that nothing herein shall be deemed to prevent the Board of Trustees from accepting, in lieu or substitution of securities representing investments heretofore validly made, other securities not of the kind enumerated but authorized by ordinance as investments for the said Board prior to the enactment of this section, where the Board shall deem such substitution of securities desirable to preserve the investment of said funds. Subject to the terms, provisions and conditions contained herein, said Trustees shall have full power to hold, purchase, sell, assign, transfer, and dispose of any of the securities and investments in which any of the funds created herein shall have been invested, as well as the proceeds of said investments and any moneys belonging to said funds.
(1) Sudan investments.
(i) Definitions.
1. In this paragraph (1), the following words have the meanings indicated.
2. "Company" means any corporation, utility, partnership, joint venture, franchisor, franchisee, trust, entity, investment vehicle, financial institution, or its wholly-owned subsidiary.
3. "Divestment action" means selling, redeeming, transferring, exchanging, or otherwise disposing or refraining from further investment in certain investments.
4. "Doing business in Sudan" means maintaining equipment, facilities, personnel, or other apparatus of business or commerce in Sudan, including ownership of real or personal property in Sudan, or engaging in any business activity with the Government of Sudan.
5. Sudan.
A. "Sudan" means the government in Khartoum, Sudan, that is led by the National Congress Party (formerly known as the National Islamic Front) or any successor government formed on or after October 13, 2006, including the coalition National Unity Government agreed on in the Comprehensive Peace Agreement for Sudan.
B. "Sudan" does not include the regional government of southern Sudan.
6. Actively managed separate account.
A. "Actively managed separate account" means the accounts of the System that are actively managed at the direction of the Board of Trustees and held in separate accounts.
B. "Actively managed separate account" does not include:
1. indexed funds,
2. private equity funds,
3. hedge funds,
4. real estate funds, and
5. other commingled or passively managed funds.
(ii) Each Investment Manager engaged by the Board will provide to the Board quarterly written reports presenting a list of:
1. securities of companies under management doing business in Sudan, and
2. securities or instruments issued by Sudan held by the Investment Manager, in which System funds are invested.
(iii) In preparing reports required in subparagraph (ii) of this paragraph (1), an investment manager shall reference the U.S. Department of the Treasury's Office of Foreign Assets Control, Institutional Shareholder Services, or other list approved by the Board of Trustees.
(iv) Consistent with the fiduciary duties of the Board of Trustees under this Article 22, and the provisions of subparagraph (v) of this paragraph (1), the Board of Trustees may take divestment action in actively-managed separate accounts with regard to investments in:
1. any bank or financial institution that makes loans to the Republic of Sudan,
2. a national corporation of Sudan, and
3. the stocks, securities, or other obligations of any company doing business in or with Sudan.
(v) In determining whether to take divestment action under subparagraph (iv) of this paragraph (1) with regard to the investment of funds in actively-managed separate accounts in a company doing business in Sudan, the Board of Trustees may consider the following:
1. revenues paid by a company directly to the government of Sudan,
2. whether a company supplies infrastructure or resources used by the government of Sudan to implement its policies of genocide in Darfur or other regions of Sudan,
3. whether a company knowingly obstructs lawful inquiries into its operations and investments in Sudan,
4. whether a company attempts to circumvent any applicable sanctions of the United States,
5. the extent of any humanitarian activities undertaken by a company in Sudan,
6. whether a company is engaged solely in the provision of goods and services intended to relieve human suffering, or to promote welfare, health, education, or religious or spiritual activities,
7. whether a company is authorized by the federal government of the United States to do business in Sudan,
8. evidence that a company has engaged the government of Sudan to cease its abuses in Darfur or other regions in Sudan,
9. whether a company is engaged solely in journalistic activities,
10. the economic impact of the divestment from the portfolio, and
11. any other factor that the Board of Trustees deems prudent.
(vi) If the Board of Trustees takes divestment action under subparagraph (iv) of this paragraph (1) with respect to investments in a company, the Board of Trustees shall direct the investment manager to provide the company with written notice of its decision and reasons for the decision.
(vii) On or before October 1 of each year, the Board of Trustees shall submit a report to the City Council that provides:
1. all divestment actions taken by the Board in accordance with this paragraph (1),
2. a list of those companies doing business in Sudan and of those securities or instruments issued by Sudan, as reported to the Board by its investment managers under subparagraph (ii) of this paragraph (1), from which the Board has not divested; and
3. other developments relevant to investment in companies doing business in Sudan.
(2) Fossil fuel investments.
(i) Definitions.
1. In this paragraph (2), the following terms have the meanings indicated.
2. Actively managed separate account.
A. "Actively managed separate account" means assets of the System that are actively managed at the direction of the Board of Trustees and held in a separate account.
B. "Actively managed separate account" does not include:
1. an indexed fund;
2. a private equity fund;
3. a hedge fund;
4. a real estate fund; or
5. any other commingled or passively managed fund.
3. "Company" means any sole proprietorship, organization, association, corporation, limited liability company, utility, partnership, joint venture, or any other entity or business association, including any wholly-owned subsidiary, majority-owned subsidiary, or parent entity of any company.
4. "Divest" or "divestment action" means selling, redeeming, transferring, exchanging, or otherwise disposing or refraining from further investment in certain investments.
5. "Fossil fuel company" means a company listed in the 200 publicly traded coal, oil, and gas companies that hold reported fossil fuel reserves with the largest potential carbon emissions, as ranked and updated annually in the Carbon Underground 200 or any successor index.
(ii) New investments prohibited.
Except as otherwise provided in this paragraph (2), the Board of Trustees may not make any new investments in any fossil fuel company within an actively managed separate account.
(iii) Periodic review.
At least every 6 months, the Board of Trustees shall review the investment holdings in each actively managed separate account and identify each investment in any fossil fuel company.
(iv) Divestment.
Except as otherwise provided in this paragraph (2), the Board of Trustees shall:
1. by July 1, 2022, divest at least 20% of its investments in fossil fuel companies held in any actively managed separate account as of January 1, 2022;
2. by July 1, 2023, divest at least 40% of its investments in fossil fuel companies held in any actively managed separate account as of January 1, 2022;
3. by July 1, 2024, divest at least 60% of its investments in fossil fuel companies held in any actively managed separate account as of January 1, 2022;
4. by July 1, 2025, divest at least 80% of its investments in fossil fuel companies held in any actively managed separate account as of January 1, 2022; and
5. by July 1, 2026, divest at least 100% of its investments in fossil fuel companies held in any actively managed separate account as of January 1, 2022.
(v) Fiduciary duty.
1. Nothing in this paragraph (2) shall require the Board to take action as described in this paragraph (2) unless the Board determines, in good faith, that the action is consistent with the fiduciary duties and responsibilities of the Board as required by law.
2. If the Board of Trustees finds that a delay in divesting from a fossil fuel company is necessary due to its fiduciary duty, the Board shall, within 30 days of that finding, report the delay to the Mayor, the Board of Estimates, and the City Council and report an estimated timeline for the resumption of divestment.
(vi) Notice.
1. Before divesting from a fossil fuel company under this paragraph (2), the Board shall provide written notice and an opportunity to respond in writing to each company subject to the divestment action.
2. No divestment action may occur until 90 days from the date of the notice described in sub-subparagraph 1. of this subparagraph (vi).
3. No divestment action may occur if the company demonstrates to the Board of Trustees that it is exempt from divestment under subparagraph (vii) of this paragraph (2).
(vii) Exemption.
The divestment requirements and investment prohibitions of this paragraph (2) do not apply to any company that can demonstrate to the Board of Trustees that the company:
1. has stopped exploring for new hydrocarbons;
2. contractually agrees not to develop or sell 80% of its current proven fossil fuel reserves; and
3. has ceased lobbying or attempting to influence City, state, or federal government officials to preserve fossil fuel subsidies, tax breaks, or the company's competitive advantage with respect to clean, renewable energy.
(viii) Annual report.
On or before June 30 of each year, the Board of Trustees shall submit a report to the Mayor and City Council detailing the operation and compliance with this paragraph (2). The report shall include:
1. identification of each investment in a fossil fuel company held in an actively managed separate account;
2. a list of each divestment action taken under this paragraph (2) in the prior fiscal year;
3. a description of each decision to delay divestment; and
4. a calculation of the administrative cost of compliance with this paragraph (2).
(b) Interest.
(1)(i) As of July 1, 1978, the Trustees will determine the "carrying value" of the Fund in accordance with the asset valuation method theretofore employed and the "adjusted market value" of the Fund representing an average fair market value of that date.
(ii) During the 1979 fiscal year, the Trustees will establish a "Reserve for Book Value" as of July 1, 1978, equal to the difference as of that date between the carrying value and the adjusted market value of the Fund. On that date and on each annual valuation date thereafter, the value of the Fund assets for actuarial valuation purposes will be carried at (1) the then current adjusted market value, plus (2) the Reserve for Book Value.
(iii) The Board of Trustees annually shall credit regular interest less the investment management, custodian and investment adviser costs on the mean amount for the preceding year in each of the funds. After payment of pension fund management, custodian, and investment adviser services as provided in §§ 7(g) and 43(a), any excess of the earnings of the funds of this Retirement System as determined in accordance with an appropriate asset investment adviser services as provided in §§ 7(g) and 43(a), any excess of the earnings of the funds of this Retirement System as determined in accordance with an appropriate asset valuation method giving effect to actual earnings of the funds, over the earnings based on the regular interest rate used for valuation purposes, shall first be applied by the Board of Trustees to meet the conditions of any asset averaging method then in use under the system.
(iv) An additional amount equal to 1½% of the mean amount for the preceding year in each of the funds will be deducted from the remaining excess earnings, if any, and applied by the Board of Trustees to reduce the remaining balance, if any, in the "Reserve for Book Value"; to the extent that excess earnings are less than 1½% per annum, the City of Baltimore shall contribute the difference to the "Reserve for Book Value", averaged over a 5-year period in accordance with the asset valuation method theretofore employed. The remaining excess earnings, if any, shall next be applied by the Board in such amount or amounts as they determine (1) to decrease the amount contributed by the City of Baltimore, and/or (2) to decrease the period over which the unfunded accrued liability will be amortized as provided in § 8(c)(3), and/or (3) to reduce the remaining balance, if any, in the "Reserve for Book Value". Any deficiency of the earnings of the funds of this Retirement System, as determined in accordance with an appropriate asset valuation method giving recognition to actual earnings of the funds, below the required earnings based on the regular interest rate used for valuation purposes shall first be applied to meet the conditions of any asset averaging method then in use under the system; the remaining deficiency in earnings, if any, shall be applied by the Board of Trustees in such amount or amounts as they determine either (1) to increase the amount contributed by the City of Baltimore, and/or (2) to increase the period over which the unfunded accrued liability will be amortized as provided in § 8(c)(3).
(v) The increase or decrease of contribution and/or the increase or decrease in length of amortization period shall be determined by the Board after receiving the advice of the actuary engaged by the City, on the basis of regular interest rate used for valuation purposes, and of such mortality and other tables as shall be adopted by the Board of Trustees.
(2) The Board of Trustees shall use such portion of the net unallocated interest surplus (if any), which has not been used to reduce the City's contribution or the unfunded actuarial liability, as is deemed necessary by the actuary to cover the cost to the City of Baltimore which may result from the implementation of Ordinance 87-988, effective July 1, 1987, as it affects benefits for current members as of the date of enactment of the ordinance. All other costs of Ordinance 87-988 shall be provided for in the same manner as otherwise described in this section.
(3) The Board of Trustees shall apply the $19,633,535 restricted portion of the interest surplus, as noted in City Council Resolution 88-009, towards the cost to the City of Baltimore which results from the implementation of Ordinance 89-275.
(4) Any unallocated interest surplus as of June 30, 1990, shall be applied to reduce the current cost of the system. $1,000,000 of such surplus shall be applied for the City's fiscal year ending June 30, 1992. The remainder of such surplus shall be applied in each following fiscal year until exhausted. The amount to be applied in each such year shall be no more than $3,000,000 and no less than the lesser of $1,000,000 or the remaining amount of surplus not yet applied.
(5) The Board of Trustees shall use such portion of the net unallocated interest surplus, if any, as of June 30, 1995, as is deemed necessary by the actuary to cover the cost to the City of §§ 4(b)(2) and 9(c)(6) of this subtitle. Any additional costs of said sections shall be funded in the same manner as otherwise described in this section.
(6) The Board of Trustees shall use that portion of the net unallocated excess earnings, if any, as of June 30, 2000, that the actuary considers necessary to cover the cost to the City of §§ 6(a)(2)(iii), 6(b)(15)(i), 6(b-1), 6(c)(2)(ii), 6(c)(12)(ii), 6(d-1), 6(f)(12)(ii), 6(f)(14), 6(h)(4), 6(k), 9(e)(6), 9(j)(ii), 9(m)(8)(c) and (d), 9(o-1)(4), and 9(o-4) of this subtitle. Any additional costs of those sections shall be funded in the same manner as otherwise described in this section.
(c) Cash on deposit.
For the purpose of meeting disbursements for pensions, annuities, and other payments, there may be kept available cash on deposit in one or more banks or trust companies located in the City of Baltimore, organized under the laws of the State of Maryland or of the United States, in such amount as the Trustees may by resolution from time to time adopt, not exceeding a sum equal to the estimated disbursements projected for a period of 15 days. The sums on deposit in bank shall be secured by collateral posted by the depositories of such type and amount as the Board of Finance may prescribe, but in no event shall the market value of such collateral be less than 100% of the amount on deposit according to the depositories' records. In exercising this authority for bank deposits, the Trustees shall endeavor to minimize the amount of such deposits, and shall consider appropriate money management techniques, including wire transfers of funds and the zero-balance-fee-for-service method of maintaining bank accounts. In no event shall the bank accounts be used as the basis for, or form part of the basis for fees for the investment administrators or be used to provide supplementary compensation for such investment administrators.
(d) Securities handling.
The Director of Finance, as the Custodian designated in the City Charter, may cause any investment in securities held by the Trustees to be registered in or transferred into the name of the Trustees or into the name of such nominee as the Director of Finance may direct, including a nominee partnership created by the Board of Trustees, or the Director of Finance may retain them unregistered and in form permitting transferability, and further may authorize its contractual agents to deposit securities with "clearing corporations" as defined in § 8-102 of the State Commercial Law Article for the express purpose of having such clearing corporations act as centralized depositories for such securities, but the books and records of the Director of Finance and its contractual agents shall at all times show that all such investments are part of the several funds of the Employees' Retirement System. The authority to make use of a clearing corporation shall include the authority to utilize the "book entry" system of the United States Government, and agencies thereof, for which the Federal Reserve Bank is the authorized fiscal agent.
(e) Conflicts of interest.
Except as otherwise herein provided, no trustee and no employees of the Board of Trustees shall have any direct interest in the gains or profits of any investment made by the Board of Trustees or their designees, nor as such receive any pay or emolument for his services, except as authorized from time to time by the Board of Estimates. No trustee or employee of the Board shall, directly or indirectly, for himself or as an agent in any manner use said gains or profits, except to make such current and necessary payments as are authorized by the Board of Trustees; nor shall any Trustee or employee of the Board of Trustees become an endorser or surety or in any manner an obligor for moneys loaned by or borrowed from the Board of Trustees.
(f) Trustee Fiduciary liability.
Neither the Board of Trustees nor any agent, person or other entity acting on behalf of the Board of Trustees shall be liable for the making, retention or sale of any investment or reinvestment made as herein provided, nor for any loss or diminution of the funds, except that due to his or its own gross negligence, willful misconduct or lack of good faith.
(g) Custodian and supervision of funds.
The Director of Finance shall be the custodian of the several funds of the Employees' Retirement System. Supervision of the several funds of the Employees' Retirement System shall be vested in the Board of Trustees. Subject to the approval of the Board of Estimates, the Board of Trustees may hire and appoint such persons, agents or entities (including corporate fiduciaries) as in its discretion may be required or advisable to enable it to perform such pension fund investment management duties hereunder; provided further, that subject to the approval of the Board of Estimates the Board of Trustees may enter into agency and pension fund investment management agreements with one or more qualified pension fund managers for the purpose of obtaining pension fund investment management for the Employees' Retirement System and the several funds thereof. Payment for such investment management services shall be made from the resources of the pension fund or funds.
(h) Prudent investment of funds.
The Board of Trustees shall discharge its duties, with respect to the investment of the funds of the Employees' Retirement System, solely in the interest of the members and beneficiaries and:
(1) for the exclusive purpose of:
(i) providing benefits to members and beneficiaries; and
(ii) defraying reasonable expenses of administering the Retirement System;
(2) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person 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;
(3) by diversifying the investments of the Retirement Systems' funds so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and
(4) in accordance with the provisions of § 7 of this subtitle.