Vermont Gov. Howard Dean has signed a new law that subjects the two largest state pension funds to the "prudent person" rule and removes caps on investments in various asset classes.
The new law, which goes into effect July 1, will affect the Vermont State Employees' Retirement System and the Vermont Teachers' Retirement System.
The Vermont Municipal Employees Retirement System, the smallest of the state pension plans, has been subject to a prudent person standard since 1996, said James H. Douglas, state treasurer.
The other two public pension funds have been subject to the same restrictions as domestic life insurance companies. For example, they could not invest more than 10% of their assets in Canadian securities or alternative investments, or hold below-investment-grade bonds, Mr. Douglas said.
The old law stated foreign investments could not exceed 1.5 times reserves, "but it's a reference that doesn't mean anything because pension funds don't have reserves," Mr. Douglas said.
The new law "simply says the board of trustees shall use the judgment of a prudent person," he said.
Lawmakers in Vermont also enacted legislation that will ban trustees of the state teachers' pension fund from accepting gifts and favors from money managers and others conducting business with the pension fund. That law also goes into effect July 1. Trustees of the teachers fund have had a $250 annual limit on gifts and perquisites they could accept from those doing business with the fund. The other two state pension funds already are covered by such a prohibition.
