PSPRS; investments

SB1292 - 572R - S Ver

Senate Engrossed

PSPRS; investments

State of Arizona

Senate

Fifty-seventh Legislature

Second Regular Session

2026

SENATE BILL 1292

AN
ACT

Amending section 38-848, Arizona
Revised Statutes; relating to the public safety personnel retirement system.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it
enacted by the Legislature of the State of Arizona:

Section 1. Section 38-848, Arizona Revised
Statutes, is amended to read:

START_STATUTE
38-848.

Board of trustees; powers and duties; reporting requirements;
independent trust fund; administrator; agents and employees; advisory committee

A. The board of trustees shall consist of nine
members and shall have the rights, powers and duties that are set forth in this
section.� The term of office of members shall be five years to expire on the
third Monday in January of the appropriate year. The board shall
select a chairperson from among its members each calendar
year. Members are eligible to receive compensation in an amount of
$50 a day, but not to exceed $1,000 in any one fiscal year, and are eligible
for reimbursement of expenses pursuant to chapter 4, article 2 of this
title. The board consists of the following members appointed as
follows:

1. Two members representing law enforcement, one of
whom is appointed by the president of the senate and one of whom is appointed
by the governor. A statewide association representing law
enforcement in this state shall forward nominations to the appointing elected
officials, providing at least three nominees for each position.� At least one
of the members appointed under this paragraph shall be an elected local board
member.

2. Two members representing firefighters, one of
whom is appointed by the speaker of the house of representatives and one of
whom is appointed by the governor. A statewide association
representing firefighters in this state shall forward nominations to the
appointing elected officials, providing at least three nominees for each
position.� At least one of the members appointed under this paragraph shall be
an elected local board member.

3. Three members representing cities and towns in
this state, one of whom is appointed by the president of the senate, one of
whom is appointed by the speaker of the house of representatives and one of
whom is appointed by the governor. An association representing
cities and towns in this state shall forward nominations to the appointing
elected officials, providing at least three nominees for each
position. These nominees shall represent taxpayers or employers and
may not be members of the system.

4. One member who represents counties in this state
and who is appointed by the governor. An association representing
county supervisors in this state shall forward nominations to the governor,
providing at least three nominees for the position. These nominees
shall represent taxpayers or employers and may not be members of the system.

5. One member who is
appointed by the governor from a list of three nominees forwarded by the
board. The board shall select the nominees to forward to the
governor from a list of at least five nominees received from the advisory committee.

B. Each appointment made pursuant to subsection A of
this section shall be chosen from the list of nominees provided to the
appointing elected official. For any appointment made by the
governor pursuant to subsection A of this section, before appointment by the
governor, a prospective member of the board shall submit a full set of
fingerprints to the governor to obtain a state and federal criminal records
check pursuant to section 41-1750 and Public Law 92-544. The
department of public safety may exchange this fingerprint data with the federal
bureau of investigation. A board member may be
reappointed. Notwithstanding section 38-295, a board member
may be removed from office only for cause by the appointing power or because
the board member has vacated the member's seat on the board.� A board member
who is removed for cause shall be provided written notice and an opportunity
for a response. The appointing power may remove a board member based
on written findings that specify the reason for removal. Any vacancy
that occurs other than by expiration of a term shall be filled for the balance
of the term. All vacancies shall be filled in the same manner as the
initial appointment.� A board member vacates the office if the member either:

1. Is absent without excuse from three consecutive
regular meetings of the board.

2. Resigns, dies or becomes unable to perform board
member duties.

C. The members of the board who are appointed
pursuant to subsection A of this section and who are not members of the system
shall be independent, qualified professionals who are responsible for the
performance of fiduciary duties and other responsibilities required to preserve
and protect the fund and shall have at least ten years' substantial experience
as any one or a combination of the following:

1. A portfolio manager acting in a fiduciary
capacity.

2. A securities analyst.

3. A senior executive or principal of a trust
institution, investment organization or endowment fund acting either in a
management or an investment-related capacity.

4. A chartered financial analyst in good standing as
determined by the chartered financial analyst institute.

5. A current or former professor or instructor at
the college or university level in the field of economics, finance, actuarial
science, accounting or pension-related subjects.

6. An economist.

7. Any other senior executive engaged in the field
of public or private finances or with experience with public pension systems.

8. A senior executive in insurance, banking,
underwriting, auditing, human resources or risk management.

D. All monies in the fund shall be deposited and
held in a public safety personnel retirement system
depository. Monies in the fund shall be disbursed from the
depository separate and apart from all monies or funds of this state and the
agencies, instrumentalities and subdivisions of this state, except that the
board may commingle the assets of the fund and the assets of all other plans
entrusted to its management in one or more group trusts, subject to the
crediting of receipts and earnings and charging of payments to the appropriate
employer, system or plan. The monies shall be secured by the
depository in which they are deposited and held to the same extent and in the
same manner as required by the general depository law of this state. For
purposes of making the decision to invest in securities owned by the fund or
any plan or trust administered by the board, the fund and assets of the plans
and the plans' trusts are subject to the sole management of the board for the
purpose of this article except that, on the board's election to invest in a
particular security or make a particular investment, the assets comprising the
security or investment may be chosen and managed by third parties approved by
the board.� The board may invest in portfolios of securities chosen and managed
by a third party.� The board's decision to invest in securities such as mutual
funds, commingled investment funds, exchange traded funds, private equity or
venture capital limited partnerships, real estate limited partnerships or limited
liability companies and real estate investment trusts whose assets are chosen
and managed by third parties is not an improper delegation of the board's
investment authority.

E. All contributions under this system and other
retirement plans that the board administers shall be forwarded to the board and
shall be held, invested and reinvested by the board as provided in this
article.� All property and monies of the fund and other retirement plans that
the board administers, including income from investments and from all other
sources, shall be retained for the exclusive benefit of members, as provided in
the system and other retirement plans that the board administers, and shall be
used to pay benefits to members or their beneficiaries or to pay expenses of
operation and administration of the system and fund and other retirement plans
that the board administers.

F. The board shall have the full power in its sole
discretion to invest and reinvest, alter and change the monies accumulated
under the system and other retirement plans and trusts that the board
administers as provided in this article. In addition to its power to
make investments managed by others, the board may delegate the authority the
board deems necessary and prudent to investment management pursuant to section
38-848.03, as well as to the administrator, employed by the board
pursuant to subsection M, paragraph 6 of this section, and any deputy or
assistant administrators to invest the monies of the system and other
retirement plans and trusts that the board administers if the administrator,
investment management and any deputy or assistant administrators follow the
investment policies that are adopted by the board. The board may
commingle securities and monies of the fund, the elected officials' retirement
plan, the corrections officer retirement plan and other plans or monies
entrusted to its care, subject to the crediting of receipts and earnings and
charging of payments to the account of the appropriate employer, system or
plan. In making every investment, the board shall exercise the
judgment and care under the circumstances then prevailing that persons of
ordinary prudence, discretion and intelligence exercise in the management of
their own affairs, not in regard to speculation but in regard to the permanent
disposition of their funds, considering the probable income from their funds as
well as the probable safety of their capital, if:

1. Not more than eighty percent of the combined
assets of the system or other plans that the board manages is invested at any
given time in corporate stocks, based on the cost value of the stocks
irrespective of capital appreciation.

2. Not more than five percent of the combined assets
of the system or other plans that the board manages is invested in corporate
stock issued by any one corporation, other than corporate stock issued by
corporations chartered by the United States government or corporate stock
issued by a bank or insurance company.

3. Not more than five percent of the voting stock of
any one
publicly traded
corporation is owned by the
system and other plans that the board administers, except that this limitation
does not apply to membership interests in limited liability companies.

4. Corporate stocks and exchange traded funds
eligible for direct purchase are restricted to stocks and exchange traded funds
that, except for bank stocks, insurance stocks, stocks acquired as an
investment in any commingled investment, stocks acquired for coinvestment in
connection with the system's or the plans' or trusts' commingled investments
and interests in limited liability companies and mutual funds, are any of the
following:

(a) Listed or approved on issuance for listing on an
exchange registered under the securities exchange act of 1934, as amended
(15 United States Code sections 78a through 78pp).

(b) Designated or approved on notice of issuance for
designation on the national market system of a national securities association
registered under the securities exchange act of 1934, as amended (15 United
States Code sections 78a through 78pp).

(c) Listed or approved on issuance for listing on an
exchange registered under the laws of this state or any other state.

(d) Listed or
approved on issuance for listing on an exchange of a foreign country with which
the United States is maintaining diplomatic relations at the time of purchase,
except that not more than twenty percent of the combined assets of the system
and other plans that the board manages is invested in foreign securities, based
on the cost value of the stocks irrespective of capital appreciation.

(e) An exchange traded fund that is recommended by
the chief investment officer of the system, that is registered under the
investment company act of 1940 (15 United States Code sections 80a-1
through 80a-64) and that is both traded on a public exchange and based on
a publicly recognized index.

G. Notwithstanding any other law, the board is not
required to invest in any type of investment that is dictated or required by
any entity of the federal government and that is intended to fund economic
development projects, public works or social programs, but may consider such
economically targeted investments pursuant to its fiduciary responsibility.�
The board, on behalf of the system and all other plans or trusts the board
administers, may invest in, lend monies to or guarantee the repayment of monies
by a limited liability company, limited partnership, joint venture,
partnership, limited liability partnership or trust in which the system and
plans or trusts have a financial interest, whether the entity is closely held
or publicly traded and that, in turn, may be engaged in any lawful activity,
including venture capital, private equity, the ownership, development,
management, improvement or operation of real property and any improvements or
businesses on real property or the lending of monies.

H. Conference call meetings of the board that are
held for investment purposes only are not subject to chapter 3, article 3.1 of
this title, except that the board shall maintain minutes of these conference
call meetings and make them available for public inspection within twenty-four
hours after the meeting.� The board shall review the minutes of each conference
call meeting and shall ratify all legal actions taken during each conference
call meeting at the next scheduled meeting of the board.

I. The board is not liable for the exercise of more
than ordinary care and prudence in the selection of investments and performance
of its duties under the system and is not limited to so-called
"legal investments for trustees", but all monies of the system and
other plans that the board administers shall be invested subject to all of the
conditions, limitations and restrictions imposed by law.

J. Except as provided in subsection F of this
section, the board may:

1. Invest and reinvest the principal and income of
all assets that the board manages without distinction between principal and
income.

2. Sell, exchange, convey, transfer or otherwise
dispose of any investments made on behalf of the system or other plans the
board administers in the name of the system or plans by private contract or at
public auction.

3. Also:

(a) Vote on any stocks, bonds or other securities.

(b) Give general or special proxies or powers of
attorney with or without power of substitution.

(c) Exercise any conversion privileges, subscription
rights or other options and make any payments incidental to the exercise of the
conversion privileges, subscription rights or other options.

(d) Consent to or otherwise participate in corporate
reorganizations or other changes affecting corporate securities, delegate
discretionary powers and pay any assessments or charges in connection
therewith.

(e) Generally exercise any of the powers of an owner
with respect to stocks, bonds, securities or other investments held in or owned
by the system or other plans whose assets the board administers.

4. Make, execute, acknowledge and deliver any other
instruments that may be necessary or appropriate to carry out the powers
granted in this section.

5. Register any investment held by the system or
other plans whose assets the board administers in the name of the system or
plan or in the name of a nominee or trust.

6. At the expense of the system or other plans that
the board administers, enter into an agreement with any bank or banks for the
safekeeping and handling of securities and other investments coming into the
possession of the board. The agreement shall be entered into under
terms and conditions that secure the proper safeguarding, inventory, withdrawal
and handling of the securities and other investments. Access to and
deposit or withdrawal of the securities from any place of deposit selected by
the board is not allowed and may not be made except as the terms of the
agreement provide.

7. Appear before local boards and the courts of this
state and political subdivisions of this state through counsel or an appointed
representative to protect the fund or the assets of other plans that the board
administers. The board is not responsible for the actions or
omissions of the local boards under this system but may require a review or
rehearing of actions or omissions of local boards. A limitation
period does not prohibit the board or administrator from contesting or require
the board or administrator to implement or comply with a local board decision
that violates the internal revenue code or that threatens to impair the tax-qualified
status of the system or any plan administered by the board or administrator.

8. Empower the fund administrator to take actions on
behalf of the board that are necessary for the protection and administration of
the fund or the assets of other plans that the board administers pursuant to
the guidelines of the board.

9. Do all acts, whether or not expressly authorized,
that may be deemed necessary or proper for the protection of the investments
held in the fund or owned by other plans or trusts that the board administers.

10. Settle threatened or actual litigation against
any system or plan that the board administers.

K. Investment expenses and operation and
administrative expenses of the board shall be accounted for separately and
allocated against investment income.

L. The board, as soon as possible within a period of
six months following the close of any fiscal year, shall transmit to the
governor and the legislature a comprehensive annual financial report on the
operation of the system and other plans that the board administers that
contains, among other things:

1. A balance sheet.

2. A statement of income and expenditures for the
year.

3. A report on an actuarial valuation of its assets
and liabilities.

4. A list of investments owned.

5. The total rate of return, yield on cost,
percentage of cost to market value of the fund and the assets of other plans
that the board administers.

6. Any other statistical and financial data that may
be necessary for the proper understanding of the financial condition of the
system and other plans that the board administers and the results of their
operations. A synopsis of the annual report shall be published for
the information of members of the system, the elected officials' retirement
plan or the corrections officer retirement plan.

7. An analysis of the long-term level percent
of employer contributions and compensation structure and whether the funding
methodology is sufficient to pay one hundred percent of the unfunded accrued
liability under the elected officials' retirement plan.

8. An estimate of the aggregate employer
contribution rate for the public safety personnel retirement system for the
next ten fiscal years and an estimate of the aggregate employer contribution
rate for the corrections officer retirement plan for the next ten fiscal years.

9. An estimate of the employer contribution rates
for the next ten fiscal years for each of the following employers within the
public safety personnel retirement system:

(a) Department of liquor licenses and control.

(b) Department of public safety.

(c) Northern Arizona university.

(d) University of Arizona.

(e) Arizona state university.

(f) Arizona game and fish department.

(g) Department of law.

(h) Department of emergency and military affairs.

(i) Arizona state parks board.

10. An estimate of the employer contribution rates
for the next ten fiscal years for each of the following employers within the
corrections officer retirement plan:

(a) State department of corrections.

(b) Department of public safety.

(c) The judiciary.

(d) Department of juvenile corrections.

11. An estimate of the aggregate fees paid for
private equity investments and other alternative investments, including
management fees and performance fees and carried interest.

M. The board shall:

1. Maintain the accounts of the system and other
plans that the board administers and issue statements to each employer annually
and to each member who requests a statement.

2. Report the results of the actuarial valuations to
the local boards and employers.

3. Contract on a fee basis with an independent
investment counsel to advise the board in the investment management of the fund
and assets of other plans that the board administers and with an independent
auditing firm to audit the board's accounting.

4. Allow the auditor general to make an annual audit
and transmit the results to the governor and the legislature.

5. Contract on a fee basis with an actuary who shall
make actuarial valuations of the system and other plans that the board
administers, be the technical adviser of the board on matters regarding the
operation of the funds created by the provisions of the system, the elected
officials' retirement plan, the corrections officer retirement plan and the
public safety cancer insurance policy program and perform other duties required
in connection therewith. The actuary must be a member of a
nationally recognized association or society of actuaries.

6. Employ, as administrator, a person, state
department or other body to serve at the pleasure of the board.

7. Establish procedures and guidelines for contracts
with actuaries, auditors, investment counsel and legal counsel and for
safeguarding of securities.

8. Issue a request
for proposals every five years for an external auditor. The board is not required
to change its auditor after issuing the request for proposals.

9. Develop a policy
regarding routine stress testing of the retirement systems and plans
administered by the board at the employer level and system
level. The stress test shall use industry standards, such as the
inclusion of assumptions regarding investment returns, inflation, population
growth, payroll growth and employer contributions.� For the purposes of this
paragraph, "stress test" means an assessment of the risk exposure of
the retirement system or plan, including scenario analysis, simulation analysis
and sensitivity analysis.

N. The administrator, under the direction of the
board, shall:

1. Administer this article.

2. Be responsible for the recruitment, hiring and
day-to-day management of employees.

3. Invest the monies of the system and other plans
that the board administers as the board deems necessary and prudent as provided
in subsections F and J of this section and subject to the investment policies
and fund objectives adopted by the board.

4. Establish and maintain an adequate system of
accounts and records for the system and other plans that the board administers,
which shall be integrated with the accounts, records and procedures of the
employers so that the system and other plans that the board administers operate
most effectively and at minimum expense and that duplication of records and
accounts is avoided.

5. In accordance with the board's governance policy
and procedures and the budget adopted by the board, hire employees and services
the administrator deems necessary and prescribe their duties, including the
hiring of one or more deputy or assistant administrators to manage the system's
operations, investments and legal affairs.

6. Be responsible for income, the collection of the
income and the accuracy of all expenditures.

7. Recommend to the board annual contracts for the
system's actuary, auditor, investment counsel, legal counsel and safeguarding
of securities.

8. Perform additional duties and powers prescribed
by the board and delegated to the administrator.

O. The system is an independent trust fund, and the
board is not subject to title 41, chapter 6.� Contracts for goods and services
approved by the board are not subject to title 41, chapter 23.� As an
independent trust fund whose assets are separate and apart from all other funds
of this state, the system and the board are not subject to the restrictions
prescribed in section 35-154 or article IX, sections 5 and 8,
Constitution of Arizona. Loans, guarantees, investment management
agreements and investment contracts that are entered into by the board are
contracts memorializing obligations or interests in securities that the board
has concluded, after thorough due diligence, do not involve investments in
Sudan or Iran or otherwise provide support to terrorists or in any way
facilitate illegal immigration into the United States. These
contracts do not involve the procurement, supply or provision of goods,
equipment, labor, materials or services that would require the warranties
required by section 41-4401.

P. All trust funds administered by the board are
exempt from title 44, chapter 3.� The board shall adopt policies for monies
presumed to be abandoned, including requirements for the notification of the
presumed owner and for distributing the monies if the owner establishes an
entitlement in the monies. Monies in the retirement plans and system
administered by the board are presumed to be abandoned two years after any of
the following, whichever occurs first:

1. The date of the distribution or attempted
distribution of the monies.

2. The date of the required distribution as stated
in the plan or trust agreement that governs the plan.

3. If determinable by the holder, the date specified
in the income tax laws of the United States by which distribution of the monies
must begin in order to avoid a tax penalty.

Q. The board, the administrator, the deputy or
assistant administrators and all persons employed by them are subject to title
41, chapter 4, article 4. The administrator, deputy or assistant
administrators and other employees of the board are entitled to receive
compensation pursuant to section 38-611.

R. In consultation with the director of the
department of administration, the board may enter into employment agreements
and establish the terms of those agreements with persons holding any of the
following system positions:

1. Administrator.

2. Deputy or assistant administrator.

3. Chief investment officer.

4. Deputy chief investment officer.

5. Fiduciary or investment counsel.

S. The attorney general or an attorney approved by
the attorney general and paid by the fund is the attorney for the board and
shall represent the board in any legal proceeding or forum that the board deems
appropriate. The board, administrator, deputy or assistant
administrators and employees of the board are not personally liable for any
acts done in their official capacity in good faith reliance on the written
opinions of the board's attorney.

T. At least once in
each five-year period after the effective date, the actuary shall make an
actuarial investigation into the mortality, service and compensation experience
of the members and beneficiaries of the system and other plans that the board
administers and shall make a special valuation of the assets and liabilities of
the monies of the system and plans. Taking into account the results
of the investigation and special valuation, the board shall adopt for the
system and other plans that the board administers those mortality, service and
other tables deemed necessary.

U. On the basis of the tables the board adopts, the
actuary shall make a valuation of the assets and liabilities of the funds of
the system and other plans that the board administers at least every
year. By November 1 of each year the board shall provide a
preliminary report and by December
1
of each year
provide a final report to the governor, the speaker of the house of
representatives and the president of the senate on the contribution rate for
the ensuing fiscal year.

V. Neither the board nor any member or employee of
the board shall directly or indirectly, for the board, the member or the
employee or as an agent, in any manner use the monies or deposits of the fund
except to make current and necessary payments, nor shall the board or any
member or employee become an endorser or surety or in any manner an obligor for
monies loaned by or borrowed from the fund or the assets of any other plans
that the board administers.

W. Financial or commercial information that is
provided to the board, employees of the board and attorneys of the board in
connection with investments in which the board has invested or investments the
board has considered for investment is confidential, proprietary and not a
public record if the information is information that would customarily not be
released to the public by the person or entity from whom the information was
obtained.

X. A person who is a dealer as defined in section 44-1801
and who is involved in securities or investments related to the board's
investments is not eligible to serve on the board.

Y. The public safety personnel retirement system
advisory committee is established and shall serve as a liaison between the
board and the members and employers of the system.� The president of the senate
and the speaker of the house of representatives shall each appoint to the
committee one member. The remaining members of the committee shall
be appointed by the chairperson of the board from names submitted to the
chairperson by associations representing law enforcement, firefighters, state
government, counties, cities and towns and tribal governments. The
committee shall select a chairperson from among its members each calendar
year. The committee members appointed by the chairperson of the
board shall consist of the following ten members:

1. A member who is a
law enforcement officer.

2. A member who is a
firefighter.

3. A member of the elected officials' retirement
plan.

4. A member of the corrections officer retirement
plan.

5. A retiree from the public safety personnel
retirement system.

6. A representative from a city or town in this
state.

7. A representative from a county in this state.

8. A representative from a fire district in this
state.

9. A representative from a state employer.

10. A representative from a tribal government
located in this state.
END_STATUTE