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DOI Says Funds of $10 Million+ May Go to 65% in Equities

October 1st, 2012

            In a recent advisory opinion from the Illinois Department of Insurance, the issue of whether Article 3 and 4 pension funds with assets in excess of $10 million may invest up to 65% in equities was addressed.

            Per 40 ILCS 5/1-113.4a, Police and Fire pension funds meeting the $10 million or greater asset requirement may invest up to 55% in equity, as authorized under that statute.  Separately, 40 ILCS 5/1-113.2(13) allows up to 10% of a police or fire pension fund’s net assets to be invested in separate accounts managed by life insurance companies, authorized to transact business in Illinois, and mutual funds meeting the requirements of §113.2(13), which are comprised of diversified portfolios of “common or preferred stocks, bonds, or money market instruments.”

            The Public Pension Division’s opinion interprets the language of §1-113.4a, allowing 55% in equities in the investment vehicles as specified in §1-113.4a, §1-113.4, and §1-113.3, to be in addition to the up to 10% of assets provided for under §1-113.2(13), provided those investments meet the requirements as authorized under that section.  The DOI further feels that the legislature’s intent in §1-113.4a was to include the up to 10% found under §1-113.2(13) as an aggregate part of the 55% total authorization in certain equity type investments, not in addition to it.  As a result, future legislation may be proposed in an attempt to clarify the issue.

Of course, while the 65% equity allocation may be permissible, it may not be a prudent investment for pension boards.  Information conveyed through this summary should not be construed as legal or investment advice.  Consult an attorney or investment professional with questions.  DOI advisory opinions are not legal opinions.