BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 1151|
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                                 THIRD READING


          Bill No:  AB 1151
          Author:   Feuer (D) and Blumenfield (D), et al.
          Amended:  7/12/11 in Senate
          Vote:     21

           
           SENATE PUBLIC EMPLOYMENT & RETIRE.COMM.  :  5-0, 6/13/11
          AYES:  Negrete McLeod, Walters, Gaines, Padilla, Vargas

           SENATE JUDICIARY COMMITTEE  :  5-0, 7/5/11
          AYES:  Evans, Harman, Blakeslee, Corbett, Leno

           SENATE APPROPRIATIONS COMMITTEE  :  9-0, 8/25/11
          AYES:  Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley, 
            Price, Runner, Steinberg

           ASSEMBLY FLOOR  :  79-0, 5/31/11 - See last page for vote


           SUBJECT  :    Public retirement systems:  investments:  Iran

           SOURCE  :     Author


           DIGEST  :    This bill amends the California Public Divest 
          from Iran Act to, among other things, clarify that the 
          Board of Administration of the California Public Employees 
          Retirement System and the Teacher's Retirement Board of the 
          California State Teachers' Retirement System must divest 
          pension funds, as specified, unless to do so would fail to 
          satisfy the fiduciary responsibilities of the boards, 
          modify the types of companies that fall within the scope of 
          the bill, and require that certain findings and 
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          determinations must be made in noticed public hearings.

           ANALYSIS  :    

          Existing law:

          1. Pursuant to the state Constitution, as amended by 
             Proposition 162 (The California Pension Protection Act 
             of 1992), provides that the boards of California's 
             public retirement systems have "?plenary authority and 
             fiduciary responsibility for investment of monies and 
             administration of the system".

          2. Pursuant to the state Constitution, as amended by 
             Proposition 162 added Constitutional language providing 
             that the Legislature also retained its authority, by 
             statute "?to prohibit certain investments by a 
             retirement board where it is in the public interest to 
             do so, and provided that the prohibition satisfies the 
             standards of fiduciary care and loyalty required of a 
             retirement board pursuant to this section".

          3. Pursuant to the state Constitution, provides that "the 
             members of the retirement board of a public pension or 
             retirement system shall discharge their duties with 
             respect to the system solely in the interest of, and for 
             the exclusive purposes of providing benefits to, 
             participants and their beneficiaries, minimizing 
             employer contributions thereto, and defraying reasonable 
             expenses of administering the system".

          4. Known as the Bagley-Keene Open Meeting Act provides that 
             nothing in the Act shall be construed to prevent a state 
             body that invests retirement, pension, or endowment 
             funds from holding closed sessions when considering 
             investment decisions.

          5. Establishes the California Public Divest from Iran Act 
             (AB 221 ÝAnderson], Chapter 671, Statutes of 2007) which 
             prohibits the boards of the California Public Employees' 
             Retirement System (CalPERS) and the California State 
             Teachers' Retirement System (CalSTRS) from investing 
             public employee retirement funds in companies with 
             business operations in the defense and nuclear sectors 







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             of Iran, or that are involved in the development of 
             Iranian petroleum or natural gas resources and are 
             subject to specified federal sanctions, or have 
             demonstrated complicity with an Iranian organization 
             that has been labeled as a terrorist organization by the 
             United States government.

          6. Requires the CalPERS and CalSTRS boards to sell or 
             transfer any assets in a company with business 
             operations in Iran until the federal government removes 
             Iran from its list of countries determined to provide 
             support for acts of terrorism, and the President 
             determines and certifies that Iran has ceased specified 
             efforts regarding nuclear materials and technology.

          7. Requires the boards to identify and notify any company 
             that may be subject to divestment.  If the company fails 
             to take corrective measures within one year, as 
             specified, then the board shall not make any new or 
             additional investments in that company and, thereafter, 
             shall liquidate existing investments within 18 months.

          8. Requires the CalPERS and CalSTRS boards to file an 
             annual report with the Legislature detailing relevant 
             investments in companies subject to divestment, any 
             actions that the boards have taken to reduce 
             investments, and a calculation of any costs or losses 
             associated with compliance.
           
          9. Does not require the boards of CalPERS and CalSTRS to 
             divest investments and take other prescribed actions, as 
             specified, unless they determine in good faith that the 
             action is consistent with their fiduciary duties.

          This bill:

          1. Specifies the criteria to be applied to companies 
             subject to divestment to include the following:

             A.    The company is invested in or engaged in business 
                operations with entities in the defense or nuclear 
                sectors of Iran, or has an investment of $20 million 
                or more in the energy sector of Iran, including a 
                company that provides oil or liquefied natural gas 







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                tankers, or products used to construct or maintain 
                pipelines used to transport oil or liquefied natural 
                gas, for the energy sector of Iran, and that company 
                is subject to sanctions under relevant federal law; 
                or

             B.    The company has demonstrated complicity with an 
                Iranian organization that has been labeled as a 
                terrorist organization by the United States 
                government.

          2. Requires the boards to annually review their investment 
             portfolios and determine which companies are subject to 
             divestment based on publicly available information.

          3. Requires that the boards' determination as to whether a 
             company is subject to, or remains subject to, divestment 
             be based on publicly available information and supported 
             by findings adopted by a rollcall vote and discussion in 
             open session during a properly noticed public hearing of 
             the full board.

          4. Requires that all proposed findings of the boards shall 
             be made public 72 hours before they are considered by 
             the full board, and the boards shall maintain a list of 
             interested parties who shall be notified.

          5. Specifies that nothing in the bill would require the 
             boards to take an action pursuant to the above 
             provisions if the boards determine, in good faith and 
             based on credible information available to the public, 
             that an action would fail to satisfy its fiduciary 
             responsibilities as described in the California 
             Constitution.

          6. Requires that any determination that an action would 
             fail to satisfy the fiduciary responsibilities of the 
             board, as described in the California Constitution, 
             shall be made in a public hearing of the full board 
             after proper notice and an opportunity for public 
             comment.

          7. Eliminates existing exemptions from the California 
             Public Divest from Iran Act for companies engaged in 







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             certain humanitarian, educational, religious, 
             journalistic, or welfare activities.

          8. Makes the provisions of this act severable.

           Comments  

          The California Public Divest from Iran Act prohibits 
          CalPERS and CalSTRS from investing public employee 
          retirement funds in a company with business operations in 
          Iran that is invested in or engaged in business operations 
          with entities in the defense or nuclear sectors, or the 
          company is invested or engaged in business operations with 
          entities involved in the development of petroleum or 
          natural gas resources, or engaged in business operations 
          with an Iranian organization that has been labeled as a 
          terrorist organization by the United States government.

          The Act further requires CalPERS and CalSTRS to sell or 
          transfer any investments in companies with business 
          operations in Iran until Iran is removed from a U. S. 
          Department of State's list of countries that support 
          international terrorism, as specified.  However, CalPERS 
          and CalSTRS are not required to divest if the boards 
          determine that the company has taken substantial action in 
          a 90-day period to curtail or end those operations.  
          Additionally, the boards do not have to take action unless 
          they determine in good faith that the action is consistent 
          with its fiduciary responsibilities.
           
          CalSTRS
           
          After enactment of AB 221 (Anderson), Chapter 671, Statutes 
          of 2007, CalSTRS contracted with external sources to 
          identify companies that have possible ties to Iran.  The 
          list is reviewed by the Geopolitical Investments Review 
          Committee, and any companies that are identified as meeting 
          the requirements of law are engaged with through a letter 
          requesting information on that company's ties to the 
          respective investments and holdings.  The initial list of 
          companies with some level of business ties to Iran was 
          presented to the CalSTRS board in June 2008 and was 
          comprised of 23 companies.  Three of those companies were 
          already restricted under the Sudan Divestment Act, 18 did 







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          not meet the restriction criteria, and the last two were 
          not CalSTRS holdings.  One additional company was later 
          identified as having ties to Iran, but by October 2008, the 
          CalSTRS' portfolio was free of that company.

          Recently, CalSTRS had 29 investments identified as having 
          ties to Iran.  Only seven of those companies were subject 
          to the restrictions under the Act and CalSTRS has divested 
          all seven from its portfolio.  CalSTRS continues to monitor 
          and engage companies identified as having ties to Iran and 
          report annually to the Legislature.  To date, CalSTRS has 
          not made a determination that taking action of divestiture 
          would be in conflict or be a breach of its fiduciary duty.
           
          CalPERS
           
          CalPERS is the largest public pension plan in the United 
          States, responsible for over $230 billion in global assets, 
          which are invested to provide retirement benefits for over 
          1.6 million members and retirees.  The CalPERS board has 
          the exclusive authority and sole responsibility to 
          administer system funds to provide benefits to participants 
          and their beneficiaries, while minimizing employer 
          contributions and defraying reasonable administrative 
          expenses.

          Existing board policy states that the board will meet in 
          closed session to discuss investment matters when a public 
          discussion is likely to impair CalPERS' ability to achieve 
          its investment objectives.  Two specific situations that 
          trigger a closed session are the discussion of (1) activity 
          reports concerning the screening and review of potential 
          investments, and (2) decisions to terminate the contracts 
          of external managers or advisors. 
          According to CalPERS, it has fully implemented the 
          California Public Divest from Iran Act since it became 
          effective and has complied with all of the reporting 
          requirements.  CalPERS has fully engaged with all of the 
          companies on its list, and many of the companies have 
          withdrawn from Iran through the imposition of economic 
          sanctions by the United Nations, the European Union, Japan, 
          South Korea, and the United States.  However, CalPERS 
          indicates all actions to divest have been limited by the 
          board's fiduciary responsibilities.  Since passage of the 







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          Act, CalPERS' portfolio holdings in companies subject to 
          the Act decreased from $2 billion to about $300 million.  
          On May 16, 2011, CalPERS announced that "in response to the 
          impact of federal and international sanctions, the board 
          adopted a plan to divest shares of the remaining public 
          companies operating in specific segments of the Iran and 
          Sudan economies, and that new investments in these 
          companies would be blocked as well."

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

             Major Provisions               2011-12      2012-13    
             2013-14             Fund  

            CalSTRS           
            -------------------minor----------------Special*
            CalPERS           potentially several hundred 
            thousandSpecial**

             *    Teachers Retirement Fund
             **   Public Employees Retirement Fund
           
           SUPPORT  :   (Verified  8/29/11)

          30 Years After
          American Jewish Committee 
          American Legion, Department of California
          AMVETS, Department of California
          Anti-Defamation League 
          Center for the Promotion of Democracy and Human Rights
          City of Beverly Hills
          Jewish Labor Committee Western Region
          Jewish Public Affairs Committee
          Military Officers Association of America, California 
          Council of Chapters
          Simon Wiesenthal Center
          United Against Nuclear Iran

           OPPOSITION  :    (Verified  8/29/11)







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          California Public Employees' Retirement System 

           ARGUMENTS IN SUPPORT  :    According to the author's office:

            "The State has the responsibility to decide how and where 
            its financial resources should be invested and California 
            for decades, has engaged in socially responsible 
            investing, ranging from divesting pension funds from 
            companies supporting apartheid in South Africa to 
            sanctions for human rights violations in Sudan.  
            California took further action in 2010 by passing AB 1650 
            (Feuer) to prohibit State and local governments from 
            entering into or renewing contracts over $1 million with 
            companies that have restricted business activities in 
            Iran's petroleum sector."

            "This bill would further California's efforts to ensure 
            that public tax dollars and public pensions are not put 
            at risk by companies that invest in Iran's energy 
            sector."

           ARGUMENTS IN OPPOSITION  :    


           ASSEMBLY FLOOR  :  79-0, 5/31/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, 
            Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, 
            Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, 
            Hagman, Halderman, Hall, Harkey, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, 
            Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, 
            Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, 
            Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, 
            Portantino, Silva, Skinner, Smyth, Solorio, Swanson, 
            Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, 
            John A. Pérez
          NO VOTE RECORDED:  Gorell


          CPM:mw  8/29/11   Senate Floor Analyses 







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                         SUPPORT/OPPOSITION:  SEE ABOVE

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