KRS 21.450: Funding of benefits -- Trustee -- Duties of board members, investment

manager or other fiduciary, or proxy advisor -- Accrual of benefits --

Standards of conduct.

(1) The benefits provided by KRS 21.350 to 21.510 to be paid shall be funded through

contract with a reputable life insurance company authorized to do business in this

state, or through investment and reinvestment of funds in securities which, at the

time of making the investment, are by law permitted for the investment of funds b y

fiduciaries in this state, or through a combination of such methods. To the extent

that funding is provided through insurance contract, no contributions, payments or

premiums shall be subject to any tax on insurance premiums or annuity

considerations. The investment committee for the judicial retirement fund shall be

trustee of any and all funds contributed or appropriated to the retirement system,

and shall have sole authority to make insurance contracts or investments.

(2) (a) For the purposes of this subsection:

1. "Solely in the interest of the members and beneficiaries" shall be

determined using only pecuniary factors and shall not include any

purpose to further a nonpecuniary interest;

2. "Pecuniary factor" means a consideration having a direct and m aterial

connection to the financial risk or financial return of an investment;

3. A "material connection" is established if there is a substantial likelihood

that a reasonable investor would consider it important in determining the

financial risk or the financial return of an investment;

4. "Nonpecuniary interest" includes but is not limited to an environmental,

social, political, or ideological interest which does not have a direct and

material connection to the financial risk or financial return of an

investment;

5. "Investment manager" shall have the same definition attributed to

"investment adviser" under the federal Investment Advisers Act of 1940,

15 U.S.C. sec. 80b-2;

6. "Shareholder-sponsored proposal" means a proposal by a shareholder

included in the proxy statement of an issuer of securities pursuant to 17

C.F.R. sec. 240.14a-8;

7. "Economic analysis" means a written analysis of the economic impact of

a shareholder-sponsored proposal, which shall include, at a minimum:

a. The subject matter of the shareholder-sponsored proposal;

b. Whether the board of directors of the issuer of secu rities opposes

the shareholder-sponsored proposal and the stated reasons for the

opposition;

c. Whether the shareholder-sponsored proposal is consistent with the

investment policy of the retirement system;

d. The economic benefits and costs of implementing the shareholder-

sponsored proposal, as written, in the long and short term;

e. The quantifiable impact of the shareholder -sponsored proposal, as

written, on the investment returns of the funds of the retirement

system; and

f. An explanation of the modeling, procedures, and processes used to

complete the economic analysis; and

8. a. "Proxy adviser" means any person who is engaged in the business

of providing advice, research, analysis, ratings, or

recommendations specifically with respect to proxy voting an d

who has entered into an agreement or contracted with the board of

trustees of the retirement system to receive compensation for those

purposes.

b. "Proxy adviser" does not include an investment manager as

defined in this paragraph.

(b) The board members, any investment manager or other fiduciary, or proxy

adviser shall discharge their duties with respect to the funds of the retirement

system solely in the interest of the members and beneficiaries and:

1. For the exclusive purposes of providing benefits to members and their

beneficiaries and defraying reasonable expenses of administering the

plan;

2. With the care, skill, prudence, and diligence under the circumstances

then prevailing that a prudent person acting in a like capacity and

familiar with such matters would use in the conduct of an enterprise of a

like character and with like aims; and

3. In accordance with the federal, state, and common laws, regulations and

other instruments governing the funds and fiduciaries.

(c) Evidence that a fiduciary has considered or acted on a nonpecuniary interest

shall include but is not limited to:

1. Statements, explanations, reports, or correspondence;

2. Communications with portfolio companies;

3. Statements of principles or policies, whether made individually or

jointly;

4. Votes of shares or proxies; or

5. Coalitions, initiatives, agreements, or commitments to which the

fiduciary is a participant, affiliate, or signatory.

(d) When exercising or recommending a vote on a shareholder -sponsored

proposal, a proxy advis er that has entered into an agreement or contracted

with the board of trustees of the retirement system acts solely in the interest of

the members and beneficiaries under this subsection if:

1. The proxy adviser's vote or recommendation is consistent with the

recommendation of the board of directors of the issuer of the shares,

provided:

a. The board of directors of the issuer of the shares is composed of a

majority of independent directors; and

b. The recommendation of the board of directors is not for the

purpose of furthering a nonpecuniary interest; or

2. The proxy adviser's vote or recommendation is inconsistent with the

recommendation of the board of directors of the issuer of the shares,

provided the proxy adviser conducts and documents an economic

analysis demonstrating that the vote or recommendation is solely in the

interest of the members and beneficiaries.

(3) Any accrual of benefits provided under this or any other applicable statute shall be

no less than the benefit adjustment provided for in KR S 21.405(4) from the date of

the last establishment of that benefit.

(4) The board shall establish ethics policies and procedures by promulgation of

administrative regulations in accordance with the provisions of KRS Chapter 13A.

The ethics policies shall include but not be limited to annual financial and conflict

of interest disclosure requirements which mus t be completed by all board members

and made available to the public upon request.

(5) In addition to the standards of conduct prescribed by subsection (2) of this section:

(a) Investment managers shall comply with all applicable provisions of the

Investment Advisers Act of 1940, as amended, and the rules and regulations

promulgated thereunder, and shall comply with all other applicable federal

securities statutes and related rules and regulations that apply to investment

managers; and

(b) Proxy advisers an d proxy voting services shall comply with all applicable

provisions of the Investment Advisers Act of 1940, as amended, and the rules

and regulations promulgated thereunder, and shall comply with all other

federal statutes and related rules and regulations that apply to proxy advisers

and proxy voting services.

(6) No contract or agreement, whether made in writing or not, shall in any manner

waive, restrict, or limit a fiduciary's liability as to any of the duties imposed by this

section. Any agreement shal l specify that it is made in the Commonwealth of

Kentucky and governed by the laws of the Commonwealth of Kentucky.