2023 Tennessee Code › Title 8 - PUBLIC OFFICERS AND EMPLOYEES (§§ 8-1-101 — 65-168) › Chapter 37 - RETIREMENT-FINANCING AND FUNDS (§§ 8-37-101 — 8-37-601) › Part 1 - CUSTODY AND MANAGEMENT OF FUNDS-INVESTMENT (§§ 8-37-101 — 8-37-117) › Section 8-37-104 - Power of investment - Restrictions on investments

(a)
The board of trustees shall invest and manage assets solely in the interest of the beneficiaries of the retirement system in a manner consistent with §
35-14-107
, the prudent investor rule pursuant to §
35-14-103
, the standard of care pursuant to §
35-14-104
, and the exercise of reasonable care in delegation of investment and management functions pursuant to §
35-14-111
. Notwithstanding the foregoing, the power of investment of retirement system funds shall be subject to the approval by the board of trustees through its investment policy and in accordance with the following:
(1)
The total sum invested in common and preferred stocks shall not exceed seventy-five percent (75%) of the total of the funds of the retirement system;
(2)
The total sum invested in notes and bonds or other fixed income securities shall not exceed seventy-five percent (75%) of the total funds of the retirement system;
(3)
Within the restrictions set forth in subdivisions (a)(1) and (2), the board of trustees may invest in or otherwise acquire stocks, bonds and other securities in such foreign countries as the board may determine with the approval of the council on pensions. However, any such securities must be substantially of the same kinds, classes, and investment grades as those otherwise eligible for investment by the board and no more than fifteen percent (15%) of the system's total assets may be invested in such securities; provided, however, that such percentage may be increased by the board with the subsequent approval of the council on pensions;
(4)
Subject to the limitations in subdivisions (a)(1) and (2), funds of the retirement system may be invested in Canadian securities which are substantially of the same kinds, classes and investment grades as those otherwise eligible for investment;
(5)
The board of trustees shall have the power and authority to invest in derivative instruments for hedging, replication, or income-generating purposes. For the purposes of this subdivision (a)(5), "derivative transaction" includes, but is not limited to, an agreement, option or instrument, or any series or combinations of an agreement, option or instrument: to make or take delivery of, or assume or relinquish, a specified amount of one (1) or more underlying interests, or to make a cash settlement in lieu thereof; or that has a price, performance, value, or cash flow based primarily upon the actual or expected price, yield, level, performance, value or cash flow of one (1) or more underlying interests. Derivative instruments include, but are not limited to, options, warrants (not attached to another investment), caps, floors, collars, swaps, security-based swaps, security-based swap agreements, mixed swaps, swaptions, forwards, futures, and any other agreements, options or instruments substantially similar thereto, or any series or combinations thereof. Derivative instruments do not include collateralized mortgage obligations, treasury-inflation protected securities, other asset-backed securities, principal-protected structured securities, and floating rate securities;
(6)
The board of trustees shall have the power and authority to enter into securities lending agreements whereby securities are loaned for a fee; provided, that such loans are limited so that the total amount of securities lent does not exceed thirty percent (30%) of the market value of the total assets in the retirement system's portfolio; and provided further, that such loans are secured by collateral. Securities received as collateral hereunder shall have a market value equal to at least one hundred two percent (102%) of the market value of the loaned securities. Cash received as collateral hereunder shall equal at least one hundred percent (100%) of the market value of the loaned securities; and may be invested by or on behalf of the retirement system in any investment instrument in which the system's assets may be directly invested. Such cash may also be invested in short-term investment funds; provided, that the portfolio of such funds contains only those investment instruments in which the system's assets may be directly invested;
(7)
The board of trustees shall have the power and authority to purchase or sell domestic and international stock index futures contracts for the purpose of asset allocation relating to the equity portfolios. Stock index futures contracts shall not be utilized for purposes of speculative leveraging. For purposes of this subdivision (a)(7), "speculative leveraging" is defined as buying financial futures where the amount of the contract obligation is an amount greater than the market value of the system's cash and short-term securities. The total amount of the system's financial futures contract obligation shall not exceed ten percent (10%) of the market value of the system's total assets. The sum total of the domestic and international equity portfolios, together with the value of the stock index futures contract obligation, should be within the asset allocation range for domestic and international equity securities. The board may use cash and obligations of the United States government or any of its agencies to meet the variation margin requirement of such futures contracts;
(8)
The board of trustees shall have the power and authority to enter into contracts to serve as a standby note purchaser for the Tennessee state school bond authority, the Tennessee state funding board and the Tennessee local development authority; provided, that:
(A)
The retirement fund receives an annual commission which represents a fair market value fee adjusted for any additional cost incurred by the issuer due to the retirement fund serving as the standby note purchaser; and
(B)
If called upon to purchase such notes, the retirement fund receives a rate of return exceeding the market rate for short-term investments;
(9)
The board of trustees shall have the power and authority to establish an investment policy to authorize the retirement system to acquire, hold and convey real property for investment purposes. Such acquisitions may be direct, with or without partners, or in a commingled pool; provided, that:
(A)
[Deleted by 2016 amendment.]
(B)
The retirement system cannot acquire real property located in the state of Tennessee, unless such acquisition is in the shares or interests of a regulated investment company, mutual fund, common trust fund, investment partnership, real estate investment trust, or similar organizations in which funds are commingled and investment determinations as to which properties to purchase are made by persons other than the board;
(C)
The board shall establish limitations on the percentage of ownership that the retirement system may hold in individual real estate properties; and
(D)
The investment policy adopted by the board pursuant to this subdivision (a)(9) shall be approved by the legislative council on pensions and insurance;
(10)
(A)
(i)
The board of trustees shall have the power and authority to establish an investment policy to permit the retirement system to invest system assets in private equity. Private equity investments may include, but shall not be limited to, strategic lending, domestic and international venture capital, corporate buyouts, mezzanine and distressed debt, special situations and secondary funds;
(ii)
The investment policy adopted by the board pursuant to subdivision (a)(10)(A)(i) shall be approved by the legislative council on pensions and insurance;
(B)
Records of the retirement system relating to the identity of the name of the private equity investment vehicle used, such as the name of any limited partnership, the name of the funds-of-funds manager and title of the fund, the amount invested in the vehicle, or the present value of the investment shall be open to public inspection pursuant to title 10, chapter 7, part 5; provided, however, that records relating to the retirement system's review of any private equity investment shall not be public to the extent that:
(i)
The records contain confidential information provided to the retirement system or analysis or evaluation by the retirement system; or
(ii)
Disclosure of the records would have a potentially adverse effect on the retirement system's private equity program, the value of an investment, or the provider of the information;
(11)
Relative to the retirement system's transactions that require collateralization, the board of trustees shall have the authority to pledge, post, accept, and rehypothecate a counterparty's collateral and allow other entities or individuals to rehypothecate the retirement system's collateral;
(12)
The board of trustees shall have the power and authority to invest in publicly listed investment companies, including, but not limited to, unit investment trusts, exchange-traded funds, open-ended mutual funds, and close-ended mutual funds;
(13)
The board of trustees shall have the power and authority to invest currency; and
(14)
The total sum invested in real property and private equity, as authorized and described in subdivisions (a)(9) and (10)(A), shall not exceed forty percent (40%) of the total funds of the retirement system, unless further restricted or qualified by the board and the legislative council on pensions and insurance in the investment policy adopted pursuant to this section.
(b)
[Deleted by 2016 amendment.]
(c)
In determining compliance with the percentage limitations of this section, the funds of the retirement system shall be valued at their market value. Accordingly, an investment may be made on any given day; provided, that such investment does not cause any applicable limitation prescribed in subsection (a) to be exceeded on such day.
(d)
Notwithstanding any other law to the contrary, the board of trustees is expressly authorized to contract for investment management services for the retirement system's portfolios. The board shall provide for the powers, duties, functions and compensation of any investment managers so engaged. Any contract for the investment management services shall be procured in the manner prescribed by the board. The board may authorize the system's investment consultant to initially evaluate and make recommendations regarding proposals submitted by investment managers. Personal services, professional services, consultant services, and management of the portfolios may be procured in the manner prescribed by the board without regard to the requirements of former §
12-4-109
[see the Compiler's Notes], if the board determines that the services are necessary or desirable for the efficient administration of the retirement system's investment program. All expenses and fees incidental to the outside investment management shall be charged to and paid from the earnings of the funds.
(e)
(1)
The treasurer shall report to the members of the council on pensions and insurance any holdings of the Tennessee consolidated retirement system in securities issued by companies that have substantial current operations in nations determined by the United States department of state to be state-sponsors of terrorism. The names of the companies shall be obtained by the treasurer from a publicly available list at no cost to the retirement system formulated by an authoritative entity, which entity may include another public pension system. The disclosures required in this section shall commence no later than as of the quarter ending December 31, 2008, and continue quarterly thereafter.
(2)
Notwithstanding any law to the contrary, no person or entity may bring any civil, criminal, or administrative action against this state, its officers, employees, or agents, or against the Tennessee consolidated retirement system, its officers, directors, board members, employees, or agents for any act done in good faith in accordance with this subsection (e).
(3)
If a civil action or proceeding is nevertheless commenced by any person or entity against any official or employee of the state, or against any officers, directors, board members or employees of the Tennessee consolidated retirement system for any act done in good faith in accordance with this subsection (e), the state shall defend, indemnify and hold harmless the person from any costs, damages, awards, judgments or settlements arising from the claim or proceeding.
(f)
The board may adopt a group trust instrument for the purpose of pooling funds of the retirement system with other assets in the custody of the state treasurer, solely for investment purposes, that consist exclusively of assets of pension and profit sharing trusts qualified under § 401(a) of the Internal Revenue Code (
26 U.S.C. § 401(a)
), individual retirement accounts that are exempt under § 408(e) of the Internal Revenue Code (
26 U.S.C. § 408(e)
), eligible governmental plans that meet the requirements of § 457(b) of the Internal Revenue Code (
26 U.S.C. § 457(b)
), and governmental plans under § 401(a)(24) of the Internal Revenue Code (
26 U.S.C. § 401(a)(24)
), as permitted under Rev. Rul. 81-100, as modified by Rev. Ruls. 2004-67, 2008-40, 2011-1, and 2014-24 or subsequent guidance. For this purpose, a trust includes a custodial account or separate tax-favored account maintained by an insurance company that is treated as a trust under § 401(f) or under § 457(g)(3) of the Internal Revenue Code (
26 U.S.C. §§ 401(f)
or
457(g)(3)
). Such group trust declaration shall, upon its adoption by the board, convert the trust established for the retirement system into the group trust. The board will act as trustee for the group trust under the terms and conditions of the group trust declaration. The board may amend the terms of the group trust from time to time. The terms of the group trust, including any subsequent amendments, are hereby incorporated by reference and made a part of the retirement system. Simultaneously with the adoption of the group trust declaration, there shall be established a sub trust for the retirement system which will exclusively hold all of the assets of the retirement system and shall not be used for, or diverted to, any purpose other than for the exclusive benefit of the members and beneficiaries of the retirement system. On the date of creation of the group trust, one hundred percent (100%) of the interest in the group trust will be allocable to the sub trust for the retirement system, and the value of the sub trust maintained by the group trust for the retirement system, determined in accordance with generally recognized valuation procedures. The assets of the sub trust invested in the group trust shall be subject to all the provisions of the group trust instruments establishing and governing such trust.
Amended by 2021 Tenn. Acts, ch. 303, s 10, eff. 7/1/2021.
Amended by 2016 Tenn. Acts, ch. 962, Secs.s 46, s 47, s 48, s 49, s 50, s 51, s 52, s 53, s 54 eff. 4/27/2016.
Amended by 2016 Tenn. Acts, ch. 605, s 11, eff. 3/17/2016.
Amended by 2014 Tenn. Acts, ch. 659, s 31, eff. 7/1/2014.
Amended by 2013 Tenn. Acts, ch. 259, s 4, eff. 7/1/2014.
Amended by 2014 Tenn. Acts, ch. 659, Secs.s 29, s 30, s 32 eff. 4/10/2014.
Acts 1972, ch. 814, § 7; T.C.A., § 8-3929(3); Acts 1986, ch. 553, § 24; 1987, ch. 366, § 1; 1990, ch. 1027, §§ 5-8; 1991, ch. 378, § 17; 1993, ch. 250, §§ 1-4; 1994, ch. 594, § 1; 1994, ch. 733, §§ 1-3; 1995, ch. 164, § 12; 1996, ch. 616, § 2; 1997 , ch. 219, § 9; 2002, ch. 863, § 13; 2007 , ch. 175, § 1; 2007 , ch. 175, § 1; 2008 , ch. 674, § 1; 2008 , ch. 934, § 1; 2008 , ch. 1094, § 1; 2010 , ch. 777, §§ 36, 37; 2012 , ch. 941, § 1.