11 KAR 12:020. General rules for

investments and fund transfers.

 

      RELATES TO: KRS 164A.310(4), 164A.325(7),

164A.335, 164A.375

      STATUTORY AUTHORITY: KRS 164A.325(9)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS

164A.325(7) authorizes the board to promulgate administrative regulations necessary

for the administration of the savings plan trust. KRS 164A.310(4) requires the

board to invest moneys within the program fund in investments determined by the

board to be appropriate. This administrative regulation establishes the

requirements for investments and fund transfers.

 

      Section 1. Investments. (1) The program

administrator, an investment manager, a trustee or depository institution

holding funds received pursuant to KRS 164A.335 shall adhere to the following standards:

      (a) Safety of principal at the time of a

projected cash need shall be paramount for all investment situations;

      (b) Liquidity of investments shall be

assured for funds which may be needed to satisfy short term cash flow needs;

and

      (c) Except as provided in paragraphs (a)

and (b) of this subsection, maximizing investment yield shall be the prime

objective of an investment.

      (2) In accordance with the standards

established in subsection (1) of this section, the board through the program

administrator or an investment manager shall invest funds received pursuant to

KRS 164A.335 in any of the following solely in the interest of the participants

and beneficiaries and for the exclusive purposes of providing benefits to

beneficiaries and defraying reasonable expenses of administering the plan:

      (a) Deposits or banker's acceptances with

commercial banks whose outstanding indebtedness is rated A or better by a

nationally recognized rating service, and deposits with a financial institution

to the extent fully insured by the Federal Deposit Insurance Corporation or

other U.S. government insurance entity;

      (b) U.S. Treasury securities, obligations

backed by the full faith and credit of the United States government, and U. S.

government agency securities;

      (c) Repurchase agreements, both overnight

and term, which shall be:

      1. Governed by a Public Securities

Association or equivalent master repurchase agreement including the appropriate

annexes; and

      2. Collateralized at 100 percent with

U.S. Treasury securities, U.S. government agency securities, and other

obligations backed by the full faith and credit of the United States

government. Collateral shall be held by a third party custodian;

      (d) Bank certificates of deposit rated

A/A-1 or better by a nationally recognized rating service;

      (e) State or municipal obligations rated

in one (1) of the two (2) top classifications by a nationally recognized rating

service (at least AA or Aa, SP-2 or MIG-2/VMIG-2);

      (f) Obligations of a U.S. corporation, if

the obligations are rated at least AA or As by a nationally recognized rating

service;

      (g) Collateralized mortgage or credit

card obligations, mortgage backed securities, or similar securities that are

collateralized at 100 percent, if the obligations are either:

      1. Fully insured by a U.S. government

insurance entity; or

      2. Issued by a corporation whose

obligations would be an authorized investment;

      (h) Commercial paper rated in the highest

classification as established by a nationally recognized rating service (A-1 or

Prime-1);

      (i) Mutual funds, including money market

funds, equity funds, international funds, growth funds, income funds, and funds

combining one (1) or more of the foregoing investment options which, at the

time of making the investment, are, by law, permitted for the investment of

funds by fiduciaries in this state; and

      (j) Other investments approved by the

board of directors with the care, skill, prudence, and diligence under the

circumstances then prevailing that a prudent investor acting in a like capacity

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

like character and with like aims.

 

      Section 2. Administrative Fund. (1) The

costs of administering the Kentucky educational savings plan trust shall be

paid out of the administrative fund.

      (2) Funds shall be transferred to the

administrative fund from the program fund, as the program administrator

determines is necessary to cover the administrative costs of the trust.

      (3) The total amount transferred to the

administrative fund during a trust year shall not exceed four (4) percent of

the total investment earnings accruing and credited to the program fund during

that trust year.

      (4) Monies transferred to the

administrative fund pursuant to KRS 164A.335 and this administrative regulation

shall be deposited in accordance with KRS 41.070(2). (17 Ky.R. 3570; eff.

8-2-91; Am. 19 Ky.R. 435; eff. 10-1-92; 26 Ky.R. 86; 626; 714; eff. 10-11-99.)