HomeMy WebLinkAbout2001 09 24 Regular A Retirement Investment Policy
COMMISSION AGENDA
ITEM A
CONSENT
INFORMATIONAL
PUBLIC HEARING
REGULAR XX
Septemher 24,2001
Meeting
MGRJVl IDEPT ~
A lIt.hori zMi on
REQUEST:
The Finance Department requesting the Commission approve and adopt a new City Retirement
Investment Policy.
PURPOSE:
To approve and adopt a new City Retirement Investment Policy in accordance with a newly
created section of the Florida Statutes, section 112.661.
CONSIDERATIONS:
. Section 112.661 of the Florida Statutes regarding local government retirement investment
policies was created during the 2000 Legislative Session.
. The section calls for a written investment policy for assets of any local retirement system or
plan adopted by the board.
. The Pension Board of Trustees adopted the new City Retirement Investment Policy at their
special meeting held on September 12,2001.
. The section lists 17 different provisions that the retirement investment policy must address
such as annual training requirements for board members.
. Effective date for the law is October 1,2000.
. The City hired Steve Alexander from Public Financial Management in April to prepare a
new Retirement Investment Policy in accordance with the new Florida Statute.
ATTACHMENTS:
. New Retirement Investment Policy
. Florida Statute 112.661
RECOMMENDATION: The Finance Department recommends that the Commission approve
and adopt the new City Retirement Investment Policy.
COMMISSION ACTION:
GENERAL EMPLOYEE RETIREMENT SYSTEM
INVESTMENT POLICY STATEMENT
APPROVED ON
Table of Contents
Page
I. SCOPE........................................................ ............................................................. ..3
II. INVESTMENT OBJECTIVES.................................................................................3
III. PERFORMANCE MEASUREMENT..... ............ ........................... ............... ............3
IV. INVESTMENT AND FIDUCIARY STANDARDS.................................................4
V. AUTHORIZED INVESTMENTS ............. ...................................................... ..........5
VI. MA TURITY AND LlQUIDITY REQUIREMENTS ...............................................6
VII. POR TFOLlO COMPOS ITI ON ................................................................................. 7
VIII. RISK AND D IVERSIFICA TI ON ......... .................................................................... 7
IX. EXPECTED ANNUAL RATE OF RETURN ...........................................................8
X. THIRD PARTY CUSTODIAL AGREEMENTS......................................................8
XI. MASTER REPURCHASE AGREEMENT...............................................................8
XII. BID REQUIREMENT...............................................................................................8
XIII. INTERNAL CONTROLS......................................................................................... 8
XIV. CONTINUING EDUCATION ..................................................................................9
XV. REPORTING ..... ............................................................................................... .........9
XVI. FILIN G OF INVESTMENT POLl CY ..................................................... .................9
XVII. V ALUA nON OF ILLlQUID INVESTMENTS.......................................................9
Retirement System Investment Policy
City of Winter Springs
Page 2
CITY OF WINTER SPRINGS
GENERAL EMPLOYEES' RETIREMENT SYSTEM
INVESTMENT POLICY STATEMENT
I. Scope
A. The City Commission of Winter Springs ("City") has adopted this investment policy statement
for the investment of the General Employees' Retirement System ("Plan") assets to be
administered by the Board of Trustees ("Board") of the General Employees' Retirement System
in accordance with applicable Florida State Statutes and City Ordinances. To that end, this
investment policy is intended to set forth the investment objectives and parameters for the
management of those assets in a manner designed to fulfill the requirements of the Board's
fiduciary investment responsibilities.
B. The Board recognizes their responsibility for the investment of the Plan's assets, and in order to
implement this function, the Board is authorized by law to retain the services of Investment
Managers who possess the necessary skilled personnel and facilities to provide the expertise with
respect to the investment of the Plans funds.
C. This investment policy will be reviewed annually by the Board and may be revised upon the
City's approval.
II. Investment Objectives
A. The foremost objective of this investment policy is the proper investment of the assets of
the Plan in order to provide ongoing pension benefits to the Plan's members and their
beneficiaries.
B. The Board will strive to increase the Plan's total rate of return through capital appreciation and
income while limiting the amount of risk exposure to the Plan. The methodology to determine
the Plan's risk/return characteristics is through a diversification of investments across various
asset classes detailed in Section V.
C. Additionally, the Board will try to keep losses at a minimum due to erosion of market value or
from security defaults. To that end, investment managers will trade securities from time to time
to improve yield, maturity, quality, credit risk, and total return potential.
D. The assumed actuarial rate of return, over a market cycle (3-5 years), along with the annualized
total return for the Plan should exceed the rate of inflation as measured by the Consumer Price
Index ("CPI") by 4 percent.
III. Performance Measurements
A. The Board shall adopt performance measurements for the Plan's assets to be reviewed on a
quarterly basis and evaluated based on a market cycle of 3-5 years. The Board may retain the
Retirement System Investment Policy
City of Winter Springs
Page 3
services of an independent investment consultant to assist in monitoring the investment
perfonnance of the Plan's individual investment managers. Such performance is measured to
determine the following:
1. If the investment manager has performed according to this investment policy.
2. If the investment manager has perforn1ed within the appropriate investment style.
3. How the manager has performed in relation to the performance measurements for the
appropriate asset class.
B. The performance measurement indexes on the asset categories are as follows:
1. The Plan's total fund return will be compared to the CPI Index as an inflationary
measurement and the actuarial interest assumption as described in Section IX.
2. The Plan's ftxed income portfolio return will be compared to the weighted average return
of the Lehman Aggregate Bond Index or equivalent.
3. The Plan's domestic equity portfolio return will be compared to the weighted average
return of the Standard and Poor's 500 Index or equivalent.
4. The Plan's international portfolio return will be compared to the weighted average return
of the Morgan Stanley Europe, Australia, & Far East (EAFE) Index or equivalent.
5. The Plan's emerging markets portfolio return will be compared to the weighted average
return of the MSCI Index for Emerging Markets or equivalent.
IV. Investment and Fiduciary Standards
A. The Plan's assets will be invested in a manner consistent with the standards set forth in:
I. The Employee Retirement Income Security Act of 1974 at 29 U.s.C. s. l104(a)(l)(A)-
(C).
2. Chapters 112 and 518, Florida Statutes.
3. City of Winter Springs Ordinances.
4. The Plan's Investment Policy Statement.
5. The Pension Plan document.
6. In the event of a conflict within these provisions or any other provisions of law
authorizing investments, the investment and fiduciary standards set forth in Section
112.661(4), Florida Statutes and item I above shall prevail.
B. The Board will adhere to the Prudent Person standard and this standard shall be applied in the
context of managing the overall Plan. The Prudent Person standard is as follows:
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City of Winter Springs
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"Investments shall be made with judgment and care, under circumstances then
prevailing, which persons of prudence, discretion and intelligence exercise in the
management of their own affairs, not for speculation, but for investment,
considering the probable safety of their capital as well as the probable income to
be derived from the investment."
C. Any person or firm hired or retained to invest, monitor, or advise concerning these assets shall
be held to the higher standard of Prudent Expert. The standard shall be that in investing and
reinvesting moneys and in acquiring, retaining, managing, and disposing of investments of these
funds, the contractor shall exercise: the judgment, care, skill, prudence, and diligence under the
circumstances then prevailing, which persons of prudence, discretion, and intelligence, acting
in a like capacity and familiar with such matters would use in the conduct of an enterprise of like
character and with like aims by diven;ifying the investments of the funds, so as to minimize the
risk, considering the probable income as well as the probable safety of their capital.
V. Authorized Investments
A. Funds placed with investment managers are to be invested only in those authorized classes of
investments as contained in this investment policy. Investments should be made subject to the
Plan's cash flow needs and such cash flows are subject to revision due to changes in the Plan's
needs and market conditions. Investments not listed in the investment policy are prohibited.
B. The authorized classes of investments for the Plan are as follows:
1. Obligations guaranteed as to principal and interest by the United States government.
2. Bonds, securities, and certificates of indebtedness of United States government agencies.
3. Obligations guaranteed as to principal and interest by government-sponsored agencies
of the United States government.
4. The Florida Local Government Surplus Funds Trust Fund (SBA).
5. Commercial Paper rated in the highest category by a nationally recognized rating service.
Ifa Letter of Credit (LOC) backs the Commercial Paper, the long-term debt of the LOC
provider must be rated A or better by at least two nationally recognized rating services.
6. Bankers Acceptances of United States banks or a federally chartered domestic office of
a foreign bank, which are eligible for purchase by the Federal Reserve System, rated in
the highest category by a nationally recognized rating service.
7. Corporate bonds or notes, registered or unregistered under Rule 144A, issued by firms
organized and operating within the United States or by depository institutions licensed
by the United States rated (A) or equivalent by a nationally recognized rating service at
the time of purchase. Rule 144A bonds or notes must include rights of registration. Any
bond or note that falls below investment quality must be eliminated immediately.
8. General Obligation and/or Revenue Bonds of state or local government taxable or tax-
exempt debt rated A, for long term debt, by a nationally recognized rating service or
rated MIG-2 or SP-2, for short term debt, by a nationally recognized rating service.
Retirement System Investment Policy
City of Winter Springs
Page 5
9. Intergovernmental investment pools authorized pursuant to the Florida Interlocal
Cooperation Act provided in Section 163.0 I, Florida Statutes.
10. Common and preferred stocks from domestic or foreign corporations.
11. Real estate and real estate securities as deemed proper investments by the Board.
12. Repurchase Agreements
a. The Plan's investment managers may invest in repurchase agreements composed
of only those investments authorized in numbers 1,2, and 3 (above). All firms
are required to sign the Plan's Master Repurchase Agreement prior to the
execution of a repurchase agreement transaction.
b. A third party custodian with whom the Plan has a current custodial agreement
will hold the collateral for all repurchase agreements with a term longer than
one (I) business day. A clearly marked receipt that shows evidence of
ownership must be supplied to and retained by the Plan's investment manager.
c. Securities authorized for collateral must have maturities less than 10 years with
a market value for the principal and accrued interest of 102% of the value and
for the term of the repurchase agreement. Immaterial short-term deviations
from 102% requirement are permissible only upon the approval of the Pension
Plan Administrator.
13. Mutual funds registered under the Investment Company Act of 1940.
VI. Maturity and Liquidation Requirements
A. The Plan's maximum investment maturities for the following securities are as follows:
1. The overall duration of the principal return for the Plan will be less than 140% of the
Lehman Aggregate Bond Index.
2. For commercial paper, 180 days or less from the date of purchase.
3. For bankers' acceptances, 180 days or less from the date of purchase.
4. For repurchase agreements, 90 days or less from the date of purchase.
B. On a quarterly basis, the Plan's Actuary will notify the investment manager of the plan's liquidity
requirements for the payroll and administrative expenses.
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City of Winter Springs
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VII. Portfolio Composition
The Board has adopted the following long-term target asset mix for the Plan as shown below.
1. 70% of the Plan's assets market value will be allocated to equity investments. Based on
market fluctuations, the Board will accept variances of up to five percent (between 65%-
75%) from the above asset target. This target is further allocated as follows:
Stock Category
Target Range
High Grade Equity
High Grade Equity Income
Small Caps
Mid Caps
International
10% - 30%
15% - 25%
15% - 30%
15% - 30%
5% - 15%
2. 30% of the Plan's asset market value will be allocated to the fixed income securities.
3. Quarterly, the Board will review the investment portfolio for the purpose of potentially
reallocating assets within the individual asset class target ranges based on changes
within the capital market environment.
4. The Board will review these asset allocation targets annually and will revise the targets
if any significant changes occur within the capital market environment.
VIII. Risk and Diversification
A. The Board has adopted a strategy, described in Section VII, whereby the Plan's assets will be
diversified to the extent practicable in order to control the risk of loss which might result from
an over-concentration of investments in a specific security, maturity, issuer, dealer, or bank
through which financial instruments are bought or sold.
B. In a further effort to control the risk of loss and assure adequate diversification, the following
limitations are imposed upon the investment of the Plan's assets:
1. A maximum of 5% investment in the outstanding common stock of anyone company
or organization.
2. A maximum of 5% investment in the outstanding debt issuance of anyone company or
organization.
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City of Winter Springs
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IX. Expected Annual Rate of Return
The Board has set the Plan's current expected rate of return at 9% and to the extent the actual rate of
return various from the expected rate of return the gains or losses will be spread over a 5 year moving
average period. The short term expected rate of return is 9%, and long term expected rate of return to
be at least the actuarial interest assumption rate of 9% along with an additional annualized return that
exceeds the rate of inflation measured by the CPI.
X. Third-Party Custodial Agreements
Ail securities will be held with the custodial bank under a contractual agreement with the Board. All
securities purchased by and all collateral obtained by the investment managers and/or the Board are
designated as assets of the Plan. No withdrawal of securities, or transfer of funds, in whole or in part,
can be made from safekeeping except by authorization of the Board and written execution by anyone of
the following: the Board Chairnlan, Vice-Chairman, or the Plan Administrator. Securities transactions
between a broker/dealer and the custodial bank involving the purchase or sale of securities by transfer
of money or securities must be made on a "delivery vs. payment" basis, if applicable, to ensure that the
custodial bank will have the security or money, as appropriate, in hand at the conclusion of the
transaction.
XI. Master Repurchase Agreement
Ail approved institutions and dealers transacting repurchase agreements will execute and perform as
stated in the Master Repurchase Agreement. All repurchase agreement transactions will adhere to the
requirements of the Master Repurchase Agreement.
XU. Bid Requirements
Each investment manager shall obtain competitive bids and offers on investment transactions to the
fullest extent possible. The investment managers will make periodic reports to the Board reflecting
purchases, sales, or other activity.
XIII. Internal Controls
A. The Plan Administrator will establish a system of internal controls and written operational
procedures to be a part of the Plan's operational procedures. The internal controls should be
designed to prevent losses of funds, which might arise from fraud, employee error, and
misrepresentation by third parties, or imprudent actions by employees. The written procedures
should include reference to safekeeping, repurchase agreements, separation of transaction
authority from accounting and record keeping, wire transfer agreements, banking service
contracts, collateraVdepository agreements, and "delivery-vs. -payment" procedures. No person
may engage in an investment transaction except as authorized under the terms of this investment
policy.
B. Independent auditors, as a normal part of their annual financial audits, will conduct a review of
the system of internal controls to ensure compliance with policies and procedures. Additionally,
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City of Winter Springs
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the Plan's Actuary, Investment Consultant, and the City auditors will complete an annual system
reVIew.
XIV. Continuing Education
Annually, members of the Board have the responsibility for completing continuing education programs
in matters relating to the Plan's investments by reading the appropriate materials and by attending the
appropriate local and national conferences and seminars as authorized by the Board.
XV. Reporting
On an annual basis, the Board will provide the City with an investment report regarding the Plan's
investment portfolio. The annual report shall provide all, but not limited to, the following: name and type
of securities in which the funds are invested, the amount invested, income earned, the book value and the
market value of the investment portfolio. Investment reports shall be available to the public.
XVI. Filing of Investment Policy
A. Upon adoption, the Board will promptly file this investment policy statement with the State of
Florida's Department of Management Services, the City of Winter Springs, and the Plan's
Actuary .
B. The effective date of this investment policy shall be the 30th calendar day following the date filed
with the City of Winter Springs.
XVD. Valuation of Illiquid Investments
All illiquid investments for which a generally recognized market is not available or for which there is no
consistent or generally recognized pricing mechanism will be given an actuarial valuation by the Plan's
Actuary on an annual basis. For each actuarial valuation, the Board must verify the determination of a
fair market value for those investments and ascertain that their determination complies with all applicable
state and federal requirements. The Board will disclose each illiquid investment to the State of Florida's
Department of Management Services and to the City of Winter Springs.
APPROVED AND ADOPTED BY THE GENERAL EMPLOYEE'S RETIREMENT SYSTEM
BOARD OF TRUSTEES ON 0. / I d.... / 0 \
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Retirement System Investment Policy
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Security Act of 1974 and as permitted under regulations
prescribed by the Secretary of the Treasury. Assets for which
a fair market value is not provided shall be excluded from the
assets used in the determination of annual funding cost.
(8) "Named fiduciary.L....board," or "board of trustees"
means the person or persons so designated by the terms of the
instrument or instruments, ordinance, or statute under which
the plan is operated.
(9) "Plan sponsor" means the local governmental entity
that has established or that may establish a local retirement
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Section 2. Section 112.661, Florida Statutes, is
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112.661 Investment policies.--Investment of the assets
of any local retirement system or plan must be consistent with
a written investment policy adopted by the board. Such
policies shall be structured to maximize the financial return
to the retirement system or plan consistent with the risks
incumbent in each investment and shall be structured to
establish and maintain an appropriate diversification of the
retirement system or plan's assets.
(1) SCOPE.--The investment policy shall apply to funds
under the control of the board.
(2) INVESTMENT OBJECTIVES.--The investment policy
hall describe the investment objectives of the board.
(3) PERFORMANCE MEASUREMENT.--The investment policy
hall specify performance measures as are appropriate for the
ature and size of the assets within the board's custody.
(4) INVESTMENT AND FIDUCIARY STANDARDS.--The
nvestment policy shall describe the level of prudence and
thical standards to be followed by the board in carrying out
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its investment activities with respect to funds described in
this section. The board in performing its investment duties
shall comply with the fiduciary standards set forth in the
Employee Retirement Income Security Act of 1974 at 29 U.S.C.
s. 1104(a) (1) (A)-(C). In case of conflict with other
provisions of law authorizing investments, the investment and
fiduciary standards set forth in this section shall prevail.
(5) AUTHORIZED INVESTMENTS.--
(a) The investment policy shall list investments
authorized by the board. Investments not listed in the
investment policy are prohibited. Unless otherwise authorized
by law or ordinance, the investment of the assets of any local
retirement system or plan covered by this part shall be
subiect to the limitations and conditions set forth in s.
215.47 (1), (2), (3), (4), (5), (6), (7), (8), (10), and (16).
(b) If a local retirement system or plan has
investments that, on October 1, 2000, either exceed the
applicable limit or do not satisfy the applicable investment
standard, such excess or investment not ln compliance with the
be continued until such time as it is economicall
feasible to dispose of such investment. However, no additional
lnvestment may be made in the investment category which
exceeds the applicable limit, unless authorized by law or
ordinance.
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(6) MATURITY AND LIQUIDITY REQUIREMENTS.--The
nvestment policy shall require that the investment portfolio
e structured in such manner as to provide sufficient
iquidity to pay obligations as they come due. To that end,
he investment policy should direct that, to the extent
ossible, an attempt will be made to match investment
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maturities with known cash needs and anticipated cash-flow
requirements.
(7) PORTFOLIO COMPOSITION.--The investment policy
shall establish guidelines for investments and limits on
security issues, issuers, and maturities. Such guidelines
shall be commensurate with the nature and size of the funds
within the custody of the board.
(8) RISK AND DIVERSIFICATION.--The investment policy
shall provide for appropriate diversification of the
investment portfolio. Investments held should be diversified
to the extent practicable to control the risk of loss
resulting from overconcentration of assets in a specific
maturity, issuer, instrument, dealer, or bank through which
financial instruments are bought and sold. Diversification
strategies within the established guidelines shall be reviewed
and revised periodically, as deemed necessary by the board.
(9) EXPECTED ANNUAL RATE OF RETURN.--The investment
policy shall require that, for each actuarial valuation, the
board determine the total expected annual rate of return for
the current year, for each of the next several years, and for
the long term thereafter. This determination must be filed
promptly with the Department of Management Services and with
the plan's sponsor and the consulting actuary. The department
hall use this determination only to notify the board, the
lan's sponsor, and consulting actuary of material differences
etween the total expected annual rate of return and the
ctuarial assumed rate of return.
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(10) THIRD-PARTY CUSTODIAL AGREEMENTS.--The investment
olicy shall provide appropriate arrangements for the holding
f assets of the board. Securities should be held with a third
arty, and all securities purchased by, and all collateral
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obtained by, the board should be properly designated as an
asset of the board. No withdrawal of securities, in whole or
in part, shall be made from safekeeping except by an
authorized member of the board or the board's designee.
Securities transactions between a broker-dealer and the
custodian involving purchase or sale of securities by transfer
of money or securities must be made on a "delivery vs.
payment" basis, if applicable, to ensure that the custodian
will have the security or money, as appropriate, in hand at
the conclusion of the transaction.
(11) MASTER REPURCHASE AGREEMENT.--The investment
policy shall require all approved institutions and dealers
transacting repurchase agreements to execute and perform as
stated in the Master Repurchase Agreement. All repurchase
agreement transactions shall adhere to the requirements of the
Master Repurchase Agreement.
(12) BID REQUIREMENT.--The investment policy shall
provide that the board determine the approximate maturity date
based on cash-flow needs and market conditions, analyze and
select one or more optimal types of investment, and
competitively bid the security in question when feasible and
appropriate. Except as otherwise required by law, the most
economically advantageous bid must be selected.
(13) INTERNAL CONTROLS.--The investment policy shall
provide for a system of internal controls and operational
rocedures. The board shall establish a system of internal
ontrols which shall be in writing and made a part of the
oard's operational procedures. The policy shall provide for
eview of such controls by independent certified public
ccountants as art of an financial audit eriodicall
equired of the board's unit of local government. The internal
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controls should be designed to prevent losses of funds which
might arise from fraud, error, misrepresentation by third
parties, or imprudent actions by the board or employees of the
unit of local government.
(14) CONTINUING EDUCATION.--The investment policy
shall provide for the continuing education of the board
members in matters relating to investments and the board's
responsibilities.
(15) REPORTING.--The investment policy shall provide
1 for appropriate annual or more frequent reporting of
1 investment activities. To that end, the board shall prepare
1 periodic reports for submission to the governing body of the
1 unit of local government which shall include investments in
1 the portfolio by class or type, book value, income earned, and
15 market value as of the report date. Such reports shall be
16 available to the public.
17 (16) FILING OF INVESTMENT POLICY.--Upon adoption by
18 the board, the investment policy shall be promptly filed with
19 the Department of Management Services and the plan's sponsor
20 and consulting actuary. The effective date of the investment
21 policy, and any amendment thereto, shall be the 31st calendar
22 day following the filing date with the plan sponsor.
23 (17) VALUATION OF ILLIQUID INVESTMENTS.--The
24 nvestment policy shall provide for the valuation of illiquid
25 nvestments for which a generally recognized market is not
26 vailable or for which there is no consistent or generally
27 ccepted pricing mechanism. If those investments are utilized,
28 he investment policy must include the criteria set forth in
29 . 215.47(6), except that submission to the Investment
30 dvisory Council is not required. The investment policy shall
31 equire that, for each actuarial valuation, the board must
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1 verify the determination of the fair market value for those
2 investments and ascertain that the determination complies with
3 all applicable state and federal requirements. The investment
4 policy shall require that the board disclose to the Department
of Management Services and the plan's sponsor each such
investment for which the fair market value is not provided.
Section 3. Section 218.415, Florida Statutes, is
amended to read:
218.415 Local government investment
policies.--Investment activity by a unit of local government
must be consistent with a written investment plan adopted by
the governing body, or in the absence of the existence of a
governing body, the respective principal officer of the unit
of local government and maintained by the unit of local
government or, in the alternative, such activity must be
conducted in accordance with Lbe ';'l1Ve.:>tIllel1L '::ju';'del.i.llt:::.:> ~et
[oLL!. in subsectionQ2li+5T. Any such unit of local
government shall have an investment policy for any public
funds in excess of the amounts needed to meet current expenses
as provided in subsections (1) - (16) (l) (14), or shall meet
the alternative investment guidelines contained in subsection
(17)TT5r. Such policies shall be structured to place the
highest priority on the safety of principal and liquidity of
funds. The optimization of investment returns shall be
secondary to the requirements for safety and liquidity. Each
unit of local government shall adopt policies that are
commensurate with the nature and size of the public funds
wi thin its L1,eir custody.
(1) SCOPE.--The investment policy shall apply to funds
under the control of the unit of local government in excess of
those required to meet current expenses. The investment policy
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