BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   AB 609|
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                                 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  
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            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.


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           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  

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          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

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