2023 Laws of Puerto Rico › TITLE THREE - Executive (§§ 1 — 9311) › Chapter 33 - Retirement of Government Personnel (§§ 761 — 830q) › § 779 - Employees Retirement System—Investment and reinvestment of reserves

(a) Definitions.— For the purposes of this section and §§ 779a–779c of this title, the following terms shall have the meaning stated below:
(1) System.— Is the Retirement System of the Employees of the Government and its Instrumentalities.
(2) Board.— Is the Board of Trustees of the System.
(3) Administrator.— Is the Administrator of the System.
(4) Credit rating agencies.— Are those recognized agencies extensively used in the United States to establish credit ratings with regard to securities to be issued in the market.
(5) Risk capital.— Is the investment of capital in new or developing high risk enterprises in which there is a high growth potential.
(6) Higher credit scales.— Are the first four (4) categories in the rating of securities with regard to their credit rating.
(7) Money market instrument.— Covers, among others, short-term securities (a year or less) such as commercial paper, certificates of deposit, time deposits and bankers acceptances, among others.
(8) Futures.— Are contracts negotiated in established markets that specify a future date of delivery or receipt of a stated amount of a tangible or an intangible product of a specific nature.
(9) Options.— Are rights to purchase or sell a fixed amount of a specific financial instrument at a stated price for a limited time.
(10) Future delivery securities.— Are negotiable contracts in interbank or brokerage markets that specify a future date of delivery or the receipt of a definite amount of a tangible or an intangible product of a specific nature.
(b) Types of investments authorized.— The System shall keep all the available resources which are not needed for its ordinary operation invested and may invest in the following securities:
(1) Fixed yield securities.—
(A) Bonds, notes and obligations of the Government of the United States, its agencies and instrumentalities.
(B) Money market instruments; these must be recognized and have the highest rating for this type of short-term instrument of any of the credit-rating agencies.
(C) Bonds, notes or evidence of indebtedness, whether exempted or taxable securities that represent direct obligations or are secured by the good faith and credit of the government entities, instrumentalities, enterprises or public corporations and any other government entities created under the laws of the Government of the United States, any of its states, or of the Commonwealth of Puerto Rico.
(D) Bonds, promissory notes and corporate obligations.
(E) Bonds, promissory notes and obligations issued and secured by the central government of foreign countries.
(F) Financial instruments constituted directly or indirectly on financial obligations such as mortgage loans, instruments secured by such loans, as well as automobile loans and lease contracts.
The investments authorized by paragraphs (C), (D), (E), and (F) of this clause must be rated by the credit-rating agencies in any one of the four highest credit classifications.
(2) Stock.—
(A) The System is hereby authorized to purchase, sell or barter common or preferred stock of any corporation created under the laws of any state of the United States or the Federal Government or the Commonwealth of Puerto Rico, or by foreign countries, subject to the following criteria:
(i) That the stock to be acquired must be openly quoted in one or more financial markets or electronic quotation system of a national or international nature.
(ii) Securities shall not be acquired through private placings.
(iii) The System shall not invest more than 60% of its total resources in this type of securities.
(iv) No investment shall be made in enterprises whose market value is less than one hundred million (100,000,000) dollars (United States currency).
(v) The System shall not hold more than 5% of an enterprise’s authorized shares outstanding.
(vi) The System shall not have more than 20% of its funds invested in one single economic sector.
(3) Real properties.— The System may invest up to a maximum of 15% of its total resources in direct or indirect investments in income-yielding real estate. In such investments there must be a reasonable expectation of a yield equal to or higher than other types of investments and no investment may be made in undeveloped land.
(4) Risk capital.— The System may invest in risk capital, new or developing high risk or high growth enterprises where there is a high appreciation potential. In this case, the System may control more than 5% of the authorized shares, provided the funds dedicated to this type of investment do not exceed 5% of the total resources of the System.
(5) Financial instruments.— The Board of Trustees may authorize the System, through regulations, to make use of financial instruments such as options, futures, future delivery securities and transactions related to the exchange of foreign currency for the sole purpose of reducing risks.
(c) Restrictions and miscellaneous authorizations.—
(1) Investments in foreign countries shall not exceed 30% of the total resources of the System.
(2) No investment shall be made in securities of any government or firm located in communist or totalitarian countries or that discriminate for reasons of sex, race, religion or political affiliation.
(3) The investments by the System, whether of fixed yield as well as in stock, may be denominated in United States currency or foreign currency.
(4) In order to carry out the investments authorized by §§ 779–779c of this title, the Board shall contract the necessary specialized professional services including consultants and managers of System funds money managers.
(5) Any investments whatsoever made under the provisions of this section shall be carried out with foresight and care and according to, the criteria that prudent, reasonable and experienced men exercise when handling their own affairs, for investment and nonspeculative purposes, taking into account the balance that must exist between yield expectation and risks.
(6) The Secretary of the Treasury, acting as collecting and paying agent of the System, shall remit to it any remainder under his custody that is produced as a result of exercising those duties, quarterly and within thirty (30) days following the close of each calendar quarter.
(d) Authorization to incur debts.— The Board of Trustees may authorize the Administrator to take on a loan from any financial institution of the Government of the Commonwealth of Puerto Rico or the Federal Government of the United States of America. Bond Issues are hereby prohibited as part of the direct placement of debts secured with the assets of the System. For the direct placement of debts secured with the assets of the System, the consent of two-thirds of the members of the Board of Trustees of the System, through their secret vote, as well as the enactment of legislation by the Legislative Assembly to such purposes shall be necessary. This voting shall be detailed in the minutes of the Board by recording therein the number of votes in favor, against, and/or abstained. If the placement is made without such consent, it shall not be valid or binding on the System. In the event that an amendment is introduced in the Legislative Assembly to provide for the placement of direct debt secured with the assets of the System, the consent of two-thirds of the members of the Legislative Assembly shall be necessary to pass such amendment. It is hereby clarified for future generations that the Retirement System made a bond issue amounting to three billion dollars, which bears between 6.25% to 6.35% interest to bondholders, thus encumbering employer contributions of the System for up to fifty years. Such Bond Issue was made even though the System had been undergoing a cash flow deficit for several years. Such action has significantly contributed to the financial crisis of the System. The interest accrued on these obligations shall be exempt from the payment of income tax to the Commonwealth of Puerto Rico.
—May 15, 1951, No. 447, p. 1298, added as § 19 on June 29, 1988, No. 46, § 1; renumbered as § 4-105 and amended on Sept. 24, 1999, No. 305, § 34; July 6, 2011, No. 116, § 7, retroactive to July 1, 2011.
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