An Act providing for divestiture by the State Treasurer, the State Employees' Retirement System, the Public School Employees' Retirement System and the Pennsylvania Municipal Retirement System of investments in assets relating to China.

PRINTER'S NO. 327
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No. 380
Session of
2025
INTRODUCED BY MASTRIANO, ROTHMAN, PENNYCUICK, PHILLIPS-HILL,
HUTCHINSON, STEFANO AND DUSH, MARCH 6, 2025
REFERRED TO FINANCE, MARCH 6, 2025
AN ACT
Providing for divestiture by the State Treasurer, the State
Employees' Retirement System, the Public School Employees'
Retirement System and the Pennsylvania Municipal Retirement
System of investments in assets relating to China.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Short title.
This act shall be known and may be cited as the China
Divestiture Act.
Section 2. Definitions.
The following words and phrases when used in this act shall
have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Alternative investments." An investment in a private equity
fund, private debt fund, venture fund, real estate fund, hedge
fund or absolute return fund.
"Board." Any of the following:
(1) The Pennsylvania Municipal Retirement Board.
(2) The Public School Employees' Retirement Board.
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(3) The State Employees' Retirement Board.
"China." The People's Republic of China.
"Company." A sole proprietorship, organization, association,
corporation, partnership, joint venture, limited partnership,
limited liability partnership, limited liability company or
other entity or business association that exists for the purpose
of making a profit.
"Direct holdings." All securities of a company or the
government of China that are held directly by the public fund.
"Foreign company." An entity which is not organized under
the laws of the United States.
"Government of China." The government of China and its
political subdivisions and the instrumentalities and companies
owned or controlled by the government of China or its political
subdivisions.
"Indemnitee." Each current or former board member, duly
appointed designee of a board member, officer, employee,
including, without limitation, the attorneys in the Office of
Chief Counsel that serve a public fund, agent, research firm or
investment manager of a public fund who was or is a party to, or
is threatened to be made a party to or is otherwise involved in,
any proceeding by reason of the fact that the person is or was a
board member, designee of a board member, officer, employee,
agent, research firm or investment manager of a public fund.
"Indirect holdings." All securities held in an account or
fund such as a mutual fund managed by one or more persons not
employed by a public fund, in which the public fund owns shares
or interests together with other investors.
"Public fund." Any of the following:
(1) The State Employees' Retirement Fund established
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under 71 Pa.C.S. Pt. XXV (relating to retirement for State
employees and officers).
(2) The Public School Employees' Retirement Fund
established under 24 Pa.C.S. Pt. IV (relating to retirement
for school employees).
(3) The Pennsylvania Municipal Retirement Fund.
(4) Any Commonwealth fund of which the State Treasurer
is the custodian.
"Sanctioned Chinese company." A foreign company sanctioned
under the authority of Presidential Executive Order 14032 (June
3, 2021), published at 86 Fed. Reg. 107, 30145 (June 7, 2021).
"Scrutinized company." A foreign company domiciled in or
organized under the laws of China. The term includes a
sanctioned Chinese company.
Section 3. Identification.
Within 30 days of the effective date of this section and no
less frequently as deemed necessary by the State Treasurer or a
board thereafter, a public fund shall make its best effort to
identify all direct holdings, indirect holdings and alternative
investments of scrutinized companies and the government of
China.
Section 4. Divestment.
(a) Initial divestment of direct holdings.--A public fund
shall sell, redeem, divest or withdraw from its direct holdings
all securities of the government of China.
(b) Additional divestment.--Beginning on the effective date
of this section, a public fund shall sell, redeem, divest or
withdraw from the following:
(1) A scrutinized company in which the public fund has
direct holdings.
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(2) A scrutinized company in which the public fund has
indirect holdings and alternative investments.
(3) Securities of the government of China in which the
public fund has indirect holdings and alternative
investments.
(c) Prohibition.--A public fund may not acquire direct
holdings, indirect holdings or alternative investments of
scrutinized companies or the government of China.
(d) Deadline.--
(1) All investments referenced in subsections (a) and
(b) must be divested not later than the following:
(i) At least 50% of the investment shall be removed
from a public fund's assets within three years after the
effective date of this subparagraph.
(ii) At least 75% of the investment shall be removed
from a public fund's assets within five years of the
effective date of this subparagraph.
(iii) One hundred percent of the investment shall be
removed from a public fund's assets within 10 years of
the effective date of this subparagraph.
(2) An administrator of a public fund shall use the
administrator's best efforts to liquidate the assets listed
in subsection (b)(2) and (3) over unspecified periods of time
in a manner that does not result in significant adverse
economic harm to the public fund since these assets are
invested in partnerships and other investment vehicles that
make these assets illiquid and typically represent long-term
public fund investment holdings.
Section 5. Reporting.
(a) Duty of public fund.--A public fund shall, within three
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months of the effective date of this subsection and not less
than once per year thereafter, provide a report with the content
under subsection (b) to the Governor, the President pro tempore
of the Senate, the Speaker of the House of Representatives and
each member of the boards of the Pennsylvania Municipal
Retirement System, the State Employees' Retirement System and
the Public School Employees' Retirement System. The report shall
include the items required under subsection (b). The public
funds may file a joint report under this subsection. The report
shall be made available to the public.
(b) Contents.--The report under subsection (a) shall include
all of the following:
(1) A list of all scrutinized companies in which the
public fund has direct holdings, indirect holdings and
alternative investments.
(2) All investments sold, redeemed, divested or
withdrawn in compliance with section 4(a), the costs and
expenses of the transfers and a determination of net gain or
loss on account of the transactions incurred in compliance
with the provisions of this act, which shall be determined in
accordance with section 9.
(3) All investments sold, redeemed, divested or
withdrawn in compliance with section 4(b).
(4) All prohibited investments under section 4(c).
Section 6. Expiration.
A public fund shall have no obligations under this act with
respect to foreign companies which are domiciled in or organized
under the laws of China or the government of China upon the
occurrence of any of the following:
(1) The company is no longer a foreign company which is
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domiciled in or organized under the laws of China.
(2) The President or Congress of the United States,
through executive order or legislation, declares that
mandatory divestment of the type provided for in this act
interferes with the conduct of United States foreign policy.
Section 7. Conflict with other laws.
(a) Compliance.--Except as otherwise provided under
subsection (b), a public fund may perform any action necessary
to comply with this act, including, but not limited to, any
fiduciary or prudent investing responsibilities as prescribed in
20 Pa.C.S. § 7302 (relating to authorized investments; in
general), 24 Pa.C.S. § 8521 (relating to management of fund and
accounts), 71 Pa.C.S. § 5931 (relating to management of fund and
accounts) and section 110 of the act of February 1, 1974
(P.L.34, No.15), known as the Pennsylvania Municipal Retirement
Law, and any obligations of a public fund with respect to choice
of asset managers, investment funds or investments for the
public fund's securities portfolios.
(b) Applicable standard.--Divestment under section 4(b)
shall be made in accordance with any applicable fiduciary or
prudent investing responsibilities as prescribed under 20
Pa.C.S. § 7302, 24 Pa.C.S. § 8521 and 71 Pa.C.S. § 5931, section
110 of the Pennsylvania Municipal Retirement Law and any
obligations of a public fund with respect to choice of asset
managers, investment funds or investments for the public fund's
securities portfolios.
Section 8. Indemnification.
(a) Actions subject to indemnification.--Each indemnitee
shall be indemnified and held harmless by the Commonwealth for
all good faith actions taken by the indemnitee and for all good
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faith failures to take action, regardless of the date of any
action or failure to take action, in connection with attempts to
comply with any investment limitations imposed by statute
against all expense, liability and loss, including, without
limitation, attorney fees, judgments, fines, taxes, penalties
and amounts paid or to be paid in settlements reasonably
incurred or suffered by the indemnitee in connection with any
proceeding.
(b) Advance payment.--The right to indemnification provided
under this section shall include the right to have the expenses
reasonably incurred by the indemnitee in defending any
proceeding paid by the Commonwealth in advance of the final
disposition of the proceeding upon the receipt by the
Commonwealth of a written undertaking by the indemnitee to
refund the amounts so advanced if it is ultimately determined
that the indemnitee is not entitled to indemnification under
this section.
(c) Persons entitled.--Indemnification under this section
shall continue as to an indemnitee who has ceased to be a board
member, designee of a board member, officer or employee of a
public fund and shall inure to the benefit of the person's legal
representatives, heirs, executors and administrators.
(d) Reimbursement to public funds.--To the extent that the
Commonwealth does not make any indemnification payments,
including any advancement of legal fees and expenses, within 30
days of demand therefor, a public fund shall make such payment
and the Commonwealth shall reimburse the public fund.
(e) Construction.--The repeal, expiration or amendment of
any provision of this section shall not limit the rights of any
indemnitee to indemnification, including advancement of
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expenses, with respect to any action or failure to act occurring
prior to the effective date of a repeal or amendment.
Section 9. Fund reimbursement.
The Commonwealth shall reimburse each public fund for the
public fund's net losses, costs and expenses incurred as a
result of compliance with the provisions of this act. The
reimbursements shall occur in the following manner:
(1) The public fund shall submit to the Secretary of the
Budget an itemization of the amount necessary to be
appropriated by the General Assembly to reimburse the public
fund for net losses, costs and expenses incurred as a result
of compliance with the provisions of section 4(a) in the
previous fiscal year. This paragraph shall only apply to net
losses, costs and expenses incurred after the effective date
of this paragraph and relating to a first year after sale,
redemption, divestiture or withdrawal under section 4(a). To
the extent the public fund experiences net gains as a result
of compliance with the provisions of section 4(a) in a fiscal
year, the net gains shall be used to offset any reported
costs or expenses incurred by the public fund.
(2) In consultation with each public fund, the Secretary
of the Budget shall annually establish a uniform method for
the determination of gains and losses under paragraph (1).
The method shall be used by each public fund in making a
claim for reimbursement under this section. The budget
submission shall be on a form and in a manner determined by
the Secretary of the Budget, including net losses, along with
an itemized accounting of all costs and expenses claimed by
the public fund. Budget submission shall occur no later than
November 1 following the fiscal year in which the net losses,
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costs and expenses were incurred.
(3) Upon appropriation by the General Assembly to
provide for the obligations of the Commonwealth, the amount
shall be paid by the State Treasurer through the Department
of Revenue into the public fund within 90 days of receipt of
the requisition presented by the public fund.
Section 10. Nonapplicability.
(a) State Employees' Defined Contribution Plan and
Commonwealth's Deferred Compensation Plan.--The provisions and
restrictions of this act shall not apply to the State Employees'
Defined Contribution Plan established under 71 Pa.C.S. Pt. XXV
(relating to retirement for State employees and officers), known
as the State Employees' Retirement Code, the Commonwealth's
Deferred Compensation Plan established under section VIII.2 of
the act of March 30, 1811 (P.L.145, No.99), referred to as the
Settlement of Public Accounts Act, or to the individual
investment accounts or the funds and investments therein of the
participants of the plans, but the State Employees' Retirement
Board is authorized to offer to the participants of the plans
investment vehicles that would be permitted under this act.
(b) School Employees' Defined Contribution Plan.--The
provisions and restrictions of this act shall not apply to the
School Employees' Defined Contribution Plan established under 24
Pa.C.S. Ch. 84 (relating to School Employees' Defined
Contribution Plan) or to the individual investment accounts or
the funds and investments therein of the participants of the
plan, but the Public School Employees' Retirement Board is
authorized to offer to the participants of the plan investment
vehicles that would be permitted under this act.
(c) Tuition Account Guaranteed Savings Program, Tuition
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Account Investment Program and Pennsylvania ABLE Savings
Program.--The provisions and restrictions of this act shall not
apply to the Tuition Account Guaranteed Savings Program or the
Tuition Account Investment Program established under the act of
April 3, 1992 (P.L.28, No.11), known as the Tuition Account
Programs and College Savings Bond Act or the Pennsylvania ABLE
Savings Program established under the act of April 18, 2016
(P.L.128, No.17), known as the Pennsylvania ABLE Act.
Section 11. Severability.
If any provision of this act or its application to any person
or circumstances is held invalid, the invalidity shall not
affect other provisions or applications of this act that can be
given effect without the invalid provision or application.
Section 12. Effective date.
This act shall take effect immediately.
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