Purpose

• The bill modifies how the State Board of Investment (SBI) handles billing, expenses, and reporting. It also changes several duties, powers, and governance details for SBI, including how it works with private investment managers, how expenses are allocated across funds, and how results are reported to the Legislature and the public.

Key provisions and what the bill aims to accomplish

• State Board of Investment duties and transparency

  • SBI acts as a trustee for funds it manages, following the standard of care for state assets and pension assets.
  • SBI must formulate policies and procedures to carry out its work, and these policies should let fund beneficiaries and the public learn about proposed actions. Procedures and policies are not subject to the Administrative Procedure Act.
  • SBI may hire an executive director, investment advisors, and consultants, and must set policies to prevent conflicts of interest among its employees.
  • SBI must maintain records of its proceedings and can form advisory committees to help with duties.
  • SBI cannot use state funds to underwrite or directly purchase municipal securities from issuers or their agents.
  • SBI can direct the sale of escheated property (unclaimed property) if it’s in the state’s best interest; sales must go to the highest bidder under rules set by SBI.
  • SBI must establish formulas to measure management performance and return on investment, and public pension funds must use these formulas.
  • SBI may retain private external firms to invest, manage, or provide services for funds under its control, with annual appropriations to cover these costs.
  • SBI must adopt an investment policy statement with objectives, asset allocation, and investment management structure; it may revise this statement and should seek advice from the Council.
  • SBI may establish a compensation plan for unclassified employees and contract with the Mn State Colleges and Universities System for investment review and selection services.
  • SBI must report annually to the governor and Legislature on costs and the performance of each investment manager, including management fees.
  • SBI must invest and manage assets in a way consistent with law and public policy, and it can require the Department of Management and Budget to provide access to financial documents as needed.

• Budgeting, expenses, and billing (how costs are paid)

  • SBI receives annual appropriations from the assets of funds it serves to cover necessary administration, advisor/consultant/external firm fees, and other expenses. These amounts go into an SBI operating account in the special revenue fund.
  • The executive director is responsible for planning, directing, coordinating, and executing administrative and investment functions, preparing budgets, employing staff, reporting on operations, keeping records, and handling securities custody and related duties.
  • The executive director can modify how expenses are billed or allocated among funds if appropriate, while staying within statutory duties.
  • The statewide apportionment method for expenses is designed to be transparent and consistent with existing law and budget procedures.

• How expenses are allocated among funds (apportionment)

  • Expenses for SBI’s investment services are charged to the general fund, retirement funds (Minnesota State Retirement System, Public Employees Retirement Association, Teachers Retirement Association), and all other funds SBI serves.
  • There is an annual appropriation from all funds to cover these apportioned expenses, deposited into the SBI operating account.
  • Allocation methods:
  • A direct appropriation can be requested for the portion needed to provide services to the general fund.
  • Actual expenses for each fund are allocated first to the fund that incurs them, then proportionally among the remaining funds based on weighted average assets under management (AUM) for the fiscal year.
  • For retirement funds (MSRS, PERA, TRA), the annual estimated expenses are set at the start of the fiscal year and deposited into the SBI operating account.
  • Reconciliation and adjustments:
  • At least annually, the SBI compares actual expenses allocated to each retirement fund with the estimates. Any surplus or deficit is credited or debited to the respective funds.
  • If there’s a year-end surplus, the SBI executive director may keep it in the operating account to offset future costs; if there’s a deficit, the SBI must reimburse the affected retirement funds.
  • All amounts charged to funds (except for the general fund and specific retirement funds) are paid quarterly through interdepartmental payment procedures.

• Reporting and oversight

  • SBI must report to the governor and Legislature on costs and the performance of each investment manager, including management fees.
  • SBI must include in its annual report a summary of activities for the prior year, and an executive summary of quarterly reports on its website.

Significant changes to existing law

• Administrative Procedure Act exemption
  • Policies and procedures adopted by SBI are not subject to the Administrative Procedure Act, changing how some agency actions are reviewed.
• Expanded use and oversight of private managers
  • The bill explicitly allows SBI to hire private external firms to invest and manage assets and to pay those firms from fund assets, with annual appropriations and reporting on fees and performance.
• New cost allocation framework
  • The bill introduces a formal, itemized method for apportioning SBI expenses across the general fund, retirement funds, and other funds, including annual estimates, actuals, reconciliations, and handling of surpluses/deficits.
• New reporting requirements
  • The executive director must provide detailed annual reporting on expenses, investments, and external managers, including fees.
• Enhanced transparency for escheated and municipal transactions
  • The bill maintains that state funds cannot be used to underwrite or directly purchase municipal securities from issuers, and it clarifies procedures around escheated property sales.
• Governance and policy actions
  • SBI must adopt and possibly revise an investment policy statement with input from the council, and it can use advisory committees to support its duties.

Who is affected

• State Board of Investment (SBI) and its executive director
• Minnesota’s general fund and retirement funds (MSRS, PERA, TRA)
• External private investment managers and advisory firms hired by SBI
• The Department of Management and Budget (as a reporting and payment channel)
• State lawmakers and state residents who rely on SBI’s governance and transparency

Potential outcomes

• Increased transparency about how SBI spends money and the fees it pays to private managers.
• Clear, formal methods for dividing SBI costs among funds, which could affect fund budgets and annual reports.
• Greater use of private managers to invest state funds, with documented performance and fees.
• Updated governance practices and reporting that aim to improve oversight and accountability.

Relevant Terms - State Board of Investment (SBI) - Minnesota Statutes 2025 Supplement 11A.04 and 11A.07 - Administrative Procedure Act (APA) exemption - escheated property - weighted average assets under management (AUM) - private investment manager / external firm - investment policy statement - investment earnings - operating account - special revenue fund - annual and quarterly reporting - management fees - general fund - Minnesota State Retirement System (MSRS) - Public Employees Retirement Association (PERA) - Teachers Retirement Association (TRA) - cost apportionment / apportionment of expenses - advisory committees - custodian / custody of securities - interdepartmental payments - amendments to duties and powers of the SBI - chapter 356A (pension assets)