BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 609| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 609 Author: Conway (R) Amended: 6/22/10 in Senate Vote: 21 SENATE PUBLIC EMP. & RET. COMMITTEE : 5-1, 6/28/10 AYES: Correa, Corbett, Ducheny, Hollingsworth, Liu NOES: Ashburn ASSEMBLY FLOOR : 77-0, 6/3/09 - See last page for vote SUBJECT : County employees retirement: administrative costs SOURCE : State Association of County Retirement Systems DIGEST : This bill increases the amount county retirement systems that participate in the County Employees Retirement Act of 1937 (37 Act) are permitted to spend on administration costs and changes the base upon which those costs are calculated. In addition, it exempts legal services and litigation costs from this definition of administrative costs. ANALYSIS : Existing "37 Act law: 1.Provides that the annual budget for administrative expenses of a county retirement system may not exceed CONTINUED AB 609 Page 2 eighteen hundredths of 1% (0.18%) of the total assets of the retirement system. 2.Allows '37 Act counties, pursuant to AB 1124 (Karnette), Chapter 327, Statutes of 2007, until January 1, 2013, to increase the budget for administration of the retirement system in years when they incur expenses for software, hardware, and computer technology consulting services, providing the annual expenditure does not exceed the greater of: A. Eighteen hundredths of 1% (0.18%) of the total assets of the retirement system plus $1 million. B. Twenty-three hundredths of 1% (0.23%) of the total assets of the retirement system. This bill: 1.Increases the amount '37 Act county retirement systems are permitted to spend on administration from eighteen hundredths of 1% (0.18%) to twenty-five hundredths of 1% (0.25%). 2.Changes the base upon which the existing limit is calculated from total assets of the system to the system's accrued actuarial liability. 3.Exempts legal services and costs of litigation from being administrative costs of the system for purposes of this funding limitation. 4.Specifies that in years when systems incur expenses for software, hardware, and computer technology consulting services, the annual expenditure may not exceed the greater of: A. Twenty-five hundredths of 1% (0.25%) of the accrued actuarial liability of the retirement system plus $1 million. B. Twenty-three hundredths of 1% (0.23%) of the accrued actuarial liability of the retirement system. CONTINUED AB 609 Page 3 Comments What is the effect if changing the base upon which the limit of administrative costs is calculated? The "accrued actuarial liability" of a retirement system is usually significantly higher than the "total assets" the retirement system has on hand at any given time. For example, a retirement system that has an assets to liability ratio of 70% or greater is said to be considered common. Thus, under the above example, a retirement system with total assets of $20 billion would have an actuarial liability of $28.6 billion. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 6/30/10) State Association of County Retirement Systems (source) Peace Officers Research Association of California Orange County Professional Firefighters Association, IAFF Local 3631 ARGUMENTS IN SUPPORT : According to the author's office, because the cost of administration of a '37 Act county retirement system is based on the assets of the retirement system, the current significant decline in the market value of those assets will result in reduced operating budgets, potentially in the range of 30% to 50%. The author states, "The costs of administration are driven by staff activities with regard to processing employees into retirement, disability process, retiree payroll, supporting accounting responsibilities and IT systems; these day to day functions make up the bulk of the administrative costs of system operations. Regardless of investment market cycles, the responsibility to assist the system's clients remains relatively constant. The Orange County Professional Firefighters' Association states, "AB 609 intends '37 Act systems to function property regardless of market cycles. It also takes into CONTINUED AB 609 Page 4 account the differing sizes of the twenty '37 Act systems in the state." ASSEMBLY FLOOR : AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill Berryhill, Tom Berryhill, Blakeslee, Blumenfield, Brownley, Buchanan, Caballero, Charles Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon, Duvall, Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande, Niello, Nielsen, John A. Perez, V. Manuel Perez, Portantino, Price, Ruskin, Salas, Saldana, Silva, Skinner, Smyth, Solorio, Audra Strickland, Swanson, Torlakson, Torres, Torrico, Tran, Villines, Bass NO VOTE RECORDED: Block, DeVore, Yamada CPM:cm 6/30/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED