No. 41928 (New Rule): Rule R628-2. Investment of Funds of Public Education Foundations Established under Section 53A-4-205 or Funds Acquired by Gift, Devise, or Bequest

(New Rule)

DAR File No.: 41928
Filed: 07/14/2017 12:03:37 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this rule is to provide investment criteria as per Section 51-7-13 for funds of public education foundations or other funds acquired by gift, devise, or bequest which have a permanent longer term nature, different than operating funds that the Money Management Act, Title 51, Chapter 7, details investments for. This rule was in place and due to oversight it expired.

Summary of the rule or change:

This rule allows for funds of public education foundations or funds given to an entity that were given by gift, devise, or bequest to be invested in a broader range of investments as these types of funds are longer term or permanent in nature. It allows for the use of highly rated mutual funds, equity securities, fixed income securities, and fixed income securities issued by agencies of the United State and US government sponsored organizations with no limit on maturity. It provides for limitations on the percentage of the funds that may be in equity securities, the disposition of non-qualifying investments, investment policy approval by trustees and reporting requirements.

Statutory or constitutional authorization for this rule:

• Section 51-7-13
• Subsection 51-7-11(4)
• Subsection 51-7-18(2)

Anticipated cost or savings to:

the state budget:

This rule does not apply to state funds.

local governments:

As this rule has been in place there are no changes as to how public entities have been investing.

small businesses:

This rule applies to public entities and has been in place so there are no costs or savings.

persons other than small businesses, businesses, or local governmental entities:

This rule does not apply to other businesses.

Compliance costs for affected persons:

There will be not compliance costs as the rule has been in place and there are no changes.

Comments by the department head on the fiscal impact the rule may have on businesses:

After conducting a thorough analysis, it was determined that this proposed rule will not result in a fiscal impact to business as it has been in place and there are no changes.

Marina Scott, Chair

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Money Management Council
Administration
Room 180 UTAH STATE CAPITOL COMPLEX
350 N STATE ST
SALT LAKE CITY, UT 84114

Direct questions regarding this rule to:

• Ann Pedroza at the above address, by phone at 801-538-1883, by FAX at 801-538-1465, or by Internet E-mail at [e-mail]
• Marina Scott at the above address, by phone at 801-535-6565, by FAX at , or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

08/31/2017

This rule may become effective on:

09/07/2017

Authorized by:

Marina Scott, Chair

RULE TEXT

R628. Money Management Council, Administration.

R628-2. Investment of Funds of Public Education Foundations Established Under Section 53A-4-205 or Funds Acquired by Gift, Devise , or Bequest.

R628-2-1. Authority.

This rule is issued pursuant to Section 51-7-18(2)(b).

 

R628-2-2. Scope of Rule.

This rule relates to all funds of public education foundations established under Section 53A-4-205 and any funds held by a public treasurer which were acquired by gift, devise, or bequest and which are permitted by statute to be invested according to rules adopted by the Money Management Council.

 

R628-2-3. Investment Directions Contained in Gift or Grant.

If any gift, devise, or bequest, whether outright or in trust, is made by a written instrument which contains lawful directions as to investment thereof, the funds embodied within the gift, devise or bequest shall be invested and held in accordance with those directions. Common stock received by donation which is registered stock, or which is otherwise restricted from sale because it is not registered with the Securities and Exchange Commission, may be retained until the restrictions lapse, expire, or are revoked and shall be considered to be invested according to the terms of the donation. A gift, devise or bequest of closely held non - marketable securities, shall be purchased by the closely held entity within twenty four months of the gift, devise or bequest. Evidence of such put shall be furnished at the time of the gift, devise or bequest.

 

R628-2-4. Investment of Funds.

A. Funds within the scope of this rule, except funds described in Section R628-2-3, may be invested in any of the following:

1. in any deposit or investment authorized by Section 51-7-11 or 51-7-5;

2. in professionally managed pooled or commingled investment funds registered with the Securities and Exchange Commission with a Morningstar rating of "3" or higher.

3. in equity securities, including common and convertible preferred stock and convertible bonds, issued by corporations listed on a major securities exchange or in the NASDAQ, in accordance with the following criteria applied, on a total market basis, at the time of investment:

a) no more than 20% of all funds may be invested in securities listed in the NASDAQ;

b) no more than 5% of all funds may be invested in the securities of any one corporate issuer;

c) no more than 25% of all funds may be invested in a particular industry;

d) no more than 5% of all funds may be invested in securities of corporations that have been in continuous operation for less than three years;

e) no more than 5% of the outstanding voting securities of any one corporation may be held; and

f) at least 50% of the corporations in which equity investments are made under R628-2-4.(A)(3) must appear on the Standard and Poor's 500 Composite Stock Price Index and the Wilshire 5000;

4. in fixed - income securities, including bonds, notes, mortgage securities and zero coupon securities, issued by corporations rated "investment grade" or higher by Moody's Investors Service, Inc. or by Standard and Poor's Corporation in accordance with the following criteria applied, on a total market basis, at the time of investment:

a) no more than 5% of all funds may be invested in the securities of any one corporate issuer;

b) no more than 25% of all funds may be invested in a particular industry;

c) the dollar-weighted average maturity of fixed-income securities acquired under R628-2-4(A)(4) may not exceed ten years; and

5. in fixed-income securities issued by agencies of the United States and United States government-sponsored organizations, including mortgage-backed pass-through certificates, mortgage-backed bonds and collateralized mortgage obligations (CMO's).

B. Investments made under this rule shall observe the following investment percentages on a total market basis as of the most recent quarterly review, for specified subsections;

1. no more than 75% of all funds may be invested in equity securities (Subsection R628-2-4(A)(3) investments).

2. no more than 5% of all funds may be invested in collateralized mortgage obligations (CMO's) (Subsection R628-2-4(A)(5) investments).

C. The selection criteria established in Section 51-7-14 shall apply to investments permitted by this rule.

D. Certified investment advisers may be employed to assist in the investment of funds under this rule. Compensation to certified investment advisers may be provided from earnings generated by the funds' investments.

 

R628-2-5. Disposition of Nonqualifying Investments.

A. If at any time securities do not qualify for investment in accordance with this rule, investments shall be disposed of within a reasonable time. In determining what constitutes reasonable time for the disposition of assets, the following factors, among others, shall be given consideration:

1. the legality of sale under the rules and regulations of the Securities and Exchange Commission and the Utah State Securities Commission;

2. the size of the investment held in relation to the normal trading volume therein, and the effect upon the market price of the sale of the investment; and

3. the wishes of the donor respecting the sale of the investment.

B. If, in the opinion of the custodian or investment manager of the funds, an orderly liquidation of a nonqualifying investment cannot be accomplished within a period of two years, a request may be made to the Council for approval of a specific plan of disposition of nonqualifying investments. Nothing contained in this paragraph shall make an investment nonqualifying, if the retention of the investment is specifically authorized or directed under terms of the gift, devise, or bequest, or if the security is restricted from sale as provided in this rule.

 

R628-2-6. Nonqualifying Investments Held on Effective Date.

Any nonqualifying investments held on November 1, 2005 shall be treated as having been received on the effective date and shall be disposed of as provided in Subsection R628-2-5.

 

R628-2-7. Multiple Funds.

If a public treasurer or a public education foundation has more than one fund or investment pool in which funds covered by this rule are managed, the following rules apply in determining investment percentages:

A. If the investment of any funds is covered by a direction in the instrument creating a gift, devise, or bequest, or if the donation consists of securities restricted from sale, the funds shall be excluded from any computation of permitted investments.

B. All other funds within the scope of this rule shall be consolidated for determining the propriety of investments. Any restrictions as to investment percentages shall be determined as provided for in Subsection R628-2-4(B).

 

R628-2-8. Investment Policy Approval.

Each public education foundation or public treasurer having funds acquired by gift, devise, or bequest shall have their investment policies approved by their respective board of trustees or governing body.

 

R628-2-9. Reporting by Public Education Foundations and Public Treasurers.

Each public education foundation and public treasurer, having funds acquired by gift, devise, or bequest and funds functioning as endowments shall file a written report with the Council on or before July 31 and January 31 of each year containing the following information for investments held on June 30 and December 31 respectively:

A. total market value of funds held under gifts, devise or bequest and funds functioning as endowments;

B. amount invested under this rule;

C. amounts invested under this rule indicating the carrying value and market value of each category of investment; and

D. a list of all nonqualifying assets held under this rule containing the date acquired, the carrying value and market value of each asset.

E. The board of trustees or governing body shall review the portfolio at least quarterly, and shall receive the certification from the public treasurer that the portfolio complies with the Money Management Act, Rules of the Money Management Council and the prudent person rule in section 51-7-14 of the Act.

 

KEY: public investments, higher education, public education

Date of Enactment or Last Substantive Amendment: 2017

Authorizing, and Implemented or Interpreted Law: 51 - 7 - 11(4); 51 - 7 - 13; 51 - 7 - 18(2)

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