BILL ANALYSIS Ó SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 1042 Gloria Negrete McLeod, Chair Hearing date: June 13, 2011 AB 1042 (Allen) as amended 3/31/11 FISCAL: YES CALPERS: CHIEF FINANCIAL OFFICER HISTORY : Sponsor: California Public Employees' Retirement System (CalPERS) Prior legislation: AB 1317 (Mullin) Chapter 333, Statutes of 2007 SB 269 (Soto) Chapter 856, Statutes of 2003 ASSEMBLY VOTES : PER & SS 4-0 4/13/11 Appropriations 15-0 5/04/11 Assembly Floor 72-0 5/12/11 SUMMARY : This bill would require the California Public Employees' Retirement System (CalPERS) Board of Administration to appoint and set the compensation of a chief financial officer (CFO). BACKGROUND AND ANALYSIS : 1)Existing law : a) requires the CalPERS Board of Administration to appoint and establish compensation for the system's chief executive officer, a general counsel, a chief actuary, a chief investment officer, and other investment officers and portfolio managers whose positions are designated managerial; Michael Bolden Date: 6/08/11 Page 1 b) states that the compensation level for these positions are to be comparable to other public retirement systems and financial services companies and, when these positions are filled through a general civil service appointment, that the candidates be selected from an eligible list based on an open examination; c) states that except for the executive officers of both CalPERS and the California State Teachers' Retirement System (CalSTRS), these positions are subject to a modified civil service selection process, and the boards are able to take action against these personnel for causes related to their fiduciary duty, including the failure to meet specified performance objectives, and d) prohibits individuals employed in these positions for less than five years from being paid to influence the actions of the retirement system, or decisions of its governing board for two years following the end of their employment with the retirement system. 2)This bill : a) maintains existing provisions and requirements regarding the Board's authority to appoint and set the compensation of specified employees, and b) requires the CalPERS Board to appoint and set the compensation of a CFO. FISCAL : According to the Assembly Appropriations Committee, this bill would have a minor increased costs to CalPERS, likely to be less than $50,000 annually, which would depend on compensation packages developed and approved by the board. COMMENTS : 1)Arguments in Support Michael Bolden Date: 6/08/11 Page 2 According to the author: "CalPERS recently undertook a comprehensive evaluation of its organizational structure and identified a need for a new CFO position that reports to the Chief Executive Officer. Giving CalPERS the authority to set the salary of the new CFO will enable hiring of an individual with the necessary investment finance experience needed to coordinate with the Chief Actuary and the Chief Investment Officer." According to the sponsor: "As recently proposed under the new CalPERS organization structure, the CFO will oversee corporate finance and coordinate other finance functions throughout the organization to create a single point of financial accountability. Establishing such a position and hiring a high caliber, experienced individual is a critical step in achieving a higher level of transparency and tighter internal controls in our financial operations. It is anticipated that the cost of establishing such a position with a competitive salary will be offset by the anticipated savings generated by a higher standard of organizational financial accountability." 2) SUPPORT : California Public Employees' Retirement System (CalPERS), Sponsor 3) OPPOSITION : None to date ##### Michael Bolden Date: 6/08/11 Page 3 Michael Bolden Date: 6/08/11 Page 4