STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL
September 25, 1969
Gordon O. Hayes, Executive Secretary
South Dakota Teachers Retirement System
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 69-82
Teachers Retirement System-Investment and reinvestment of funds. SDCL 1967 Sections 13-45-8; 13-45-17, and 13-45-43 as amended by Ch. 51, Laws of 1969
Dear Mr. Hayes:
You have requested my official opinion to answer these questions:
1. If the Board of Trustees of the Teachers Retirement System were to select a funding agent under the authority of SDCL 1967 13-45-43, as amended by Chapter 51 of the Session Laws of 1969, and such funding agent were granted custodial authority over the investments of the system, would there be any conflict with the provisions of SDCL 1967 13-45-17, and in case of such conflict, how should such conflict be resolved?
2. If the Board of Trustees were to select an investment counsel, under the authority of SDCL 1967 13-45-43, as amended by Ch. 51 of the Session Laws of 1969, and said investment counsel requested a bank authorized to do business in South Dakota be designated as the custodian of the investment assets of the system, would such designation by such investment counsel be in conflict with the provisions of SDCL 1967 13-45-17, and in case of such conflict, how should such conflict be resolved?
Reference should be made to the cited statutory authority for the full text thereof. Tersely stated, the statutes relative to the questions presented are as follows:
SDCL 1967 13-45-8 provides for the Board of Trustees to have power and authority to administer, manage and operate such retirement system.
SDCL 1967 13-45-17 provides the State Treasurer is the treasurer of such retirement system and the custodian of its funds.
SDCL 1967, 13-45-43 as amended by Chapter 51, Session Laws of 1969 reads in part as follows:
"The board of trustees shall be the trustees of the assets of the retirement system. The board shall have full and independent power to invest and reinvest the moneys and assets of the retirement system, and to hold, purchase, sell, assign, transfer and dispose of any securities and investments of the retirement system and may select a funding agent or agents to administer and invest the funds of the system. The board shall have the right to determine the form and substance of each and every agreement under which the funds are to be held, provided that it shall not be inconsistent with the provisions of this Act. A funding agent shall mean the corporate or individual trustee or trustees, insurance company or insurance companies authorized to do business in the State of South Dakota or a combination thereof, appointed and acting from time to time pursuant to the provisions of this Act in holding, investing and disbursing the funds of the System.
"The board may engage in contract for investment counsel and advice when they deem it necessary."
You have also advised that at the present time the assets of such retirement system, represented by investment securities, other than cash of such system, are placed in the custody of two banks, designated by the State Treasurer and approved by the State Board of Finance, for safekeeping.
It is settled by the canons of construction of statutes, that primarily all statutes should be construed as to harmonize with all other statutes on the same subject. It is only in case of absolute repugnancy, that statutory construction requires a finding that one particular enactment repeals a former enactment.
There is, of course, no repugnancy between the provisions of SDCL 1967 13-45-17, and SDCL 1967 13-45-43, as amended by Chapter 51 of the Session Laws of 1969. The one statute provides the State Treasurer is the custodian of the funds of such retirement system. The 1969 amendment is concerned with the investment of any part or all of such funds.
The investment of funds, and the custodial care of such funds are two separate and distinct subject matters. The granting of authority to have custodial care of certain funds, of itself, grants no authority to invest such funds; conversely, the grant of authority to invest funds, of itself, does not grant custodial care of such funds after such investment is made. Likewise, it is my opinion that the fact the Board of Trustees in the 1969 enactment was granted "full and independent power to invest and reinvest the moneys and assets of such retirement system, and to hold, purchase, sell, assign, transfer and dispose of any security or investment of the system" of itself, is not repugnant to the prior provision that the treasurer of such retirement system is to have custodial care of its funds.
"Funds," ordinarily are not limited to moneys only, but the term may encompass "choses in action as well as cash" (Dickson v. Commonwealth Trust Co. 361 Pa. 612, 65 A 2d 408). The term "funds" ordinarily will include stocks and bonds. State v. O’Connor, 58 ND 554, 226 NW 601; Sherwood v. Home Savings Bank, 131 Iowa 528, 109 NW 9; Davis v. State, 118 Neb. 828, 226 NW 449; Ayres v. Lawrence, 59 NY 192, and State v. Finney, 141 Kan. 12, 40 P 2d 411. In State ex rel Board of Supervisors v. Warren (Fla) 57 So, 2d 337, the Court said that a "state fund" means personality, something to be invested and reinvested.
It is my opinion that when cash of the Teachers Retirement System is invested in stocks, bonds, or other securities, as investments, the choses in action represented by the stock certificate or bond certificate, is a part of the funds of such retirement y tem the same as any cash credited to such system is funds of the system.
The fact that the Board of Trustees may appoint an investment counsel, grants to him no custody or control over the funds of the system. An investment adviser, like an investment counsel, is one who gives advice or determines what securities should be bought and what securities held by his principal should be sold. (Lutz v. Boas, 39 Del. Ch. 585, 171 A 2d 381.) With these fundamental principles of the law in mind, the answers to your questions become easy to ascertain.
A fair appraisal of the entire 1969 Amendment to the Teachers Retirement System law discloses that such legislative enactment authorizes the Board of Trustees several options in regard to the moneys paid into such system. First, the Board itself may invest and reinvest such funds, or any part thereof, into securities as selected by the Legislature, and specifically provided in such Act. This assumes that the Board itself will manage the payment of benefits under the Act. Secondly, the Board may enter into contracts with qualified funding agents, and receive a form of annuity or insurance contract for the payment of benefits under such retirement Act to the beneficiaries of such system. With the right to appoint investment counsel, it is apparent the Board may seek professional advice as to investing and reinvesting its funds, including advice as to what common or preferred stock or other obligations authorized by such statute should be bought, and which should be sold.
In answer to Question No.1, it is my opinion that such funding agent could act as either a broker, or other designation, to purchase and sell securities or investments of the fund. In this capacity, there seems little, if any, repugnancy between SDCL 1967 13-45-17 and 13-45-43, as amended. After the purchase of such securities, the same should be delievered to the State Treasurer to be kept in his custodial care, and should not be left with the funding agent.
It is only when the trustees enter into an annuity or insurance contract that a repugnancy could be said to occur. However, further analysis reveals such contention untenable. Upon entering into such authorized contract, common sense advises that funds of the system must be used to pay for such contract. Common sense advises that such moneys could not be held both by the treasurer of the system and the contracting party-the funding agent. The treasurer must disburse funds of the system. When he receives the choses in action, or the contract, he acts in his custodial capacity. In this manner, effect may be given to both statutes without finding one is repugnant to the other.
As it must be admitted that the funds of the retirement system may be used to purchase securities, by way of investment or reinvestment, common sense says the purchase price of such securities mut be paid from such funds. Payment should be made by the treasurer of such retirement system. Delivery to him of the chose in action representing such investment creates no conflict or repugnancy. In following the statutory authorization of investment and reinvestment, the treasurer lawfully may disburse funds of such retirement system. In taking into his custodial control, the choses in action representing such investment, he acts as custodian of the funds of such system. The same is also true of the contracts the Board of Trustees is authorized to make. Upon entering into such contractual agreements, the treasurer must disburse the necessary moneys required to be furnished from the funds of the system; his custodial control of such contract or contracts satisfies his authority of custodial control.
Question NO.2. As the investment counsel has only authority to advise as to investments, he has no authority to determine where the custody of the funds, or the choses in actions of such funds shall be placed. There is no conflict in this authority and the statutes making the State Treasurer the custodian of the funds of such system, for the very reason that such investment counsel has no authority to advise as to custody of such funds.
Respectfully submitted,
Gordon Mydland
Attorney General
