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Committee advances bill to codify 'pecuniary‑only' investment standard for state investments
Summary
SB 1093, advanced by the Senate Government Committee, would require investments made by the state treasurer or plan fiduciaries to be made solely in the interest of beneficiaries and based on pecuniary factors; the Arizona State Retirement System raised implementation concerns and asked to work with sponsors on technical changes.
The Senate Government Committee gave SB 1093 a due‑pass recommendation after a policy discussion and testimony from the Arizona State Retirement System (ASRS). The bill would require state investments made by the treasurer or fiduciaries to be made “in the sole interest of the beneficiary” and based on prescribed pecuniary factors, prohibit taking unnecessary risks, and limit proxy voting to the governmental entity that establishes a plan. The sponsor said the measure aims to codify current best practices in statute.
Jessica Thomas, legislative liaison for the Arizona State Retirement System, testified that ASRS is concerned about the bill’s drafting as written. Thomas said the retirement system’s fiduciary duty is to its members and beneficiaries (retirees and employees), not to a generic “beneficiary taxpayer,” and expressed concern that the bill might restrict contracting with investment managers that offer environmental, social and governance (ESG) options to other clients even when ASRS does not use those options. She also noted that ASRS invests in commingled funds, where the system cannot directly control proxy votes for each share.
Committee members sought clarification about how ASRS weighs long‑term risks, smoothing of returns and how non‑pecuniary policies might be considered where they affect pecuniary returns. Thomas said ASRS evaluates investments on a long‑term basis — using smoothing and amortization practices — and considers social or governance issues only “to the extent that it affects the pecuniary returns.”
The sponsor said the bill is modeled to preserve the treasurer’s and fiduciaries’ focus on financial returns for taxpayers and retirees and said she has worked with the treasurer’s office on policy language. The committee moved SB 1093 forward with a recorded vote of 4 ayes and 3 nos.
What to watch: ASRS asked to work with the sponsor on technical changes, particularly clarifying the beneficiary language and the treatment of commingled funds and proxy voting. The bill would change the statutory standard for public investing if enacted and could affect contracting rules for managers and the practice of proxy voting for commingled funds.
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