BILL ANALYSIS Ó AB 1247 Page 1 Date of Hearing: May 18, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 1247 (Fletcher) - As Amended: May 9, 2011 Policy Committee: PERS Vote:6-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill modifies the pension reform transparency reporting requirements enacted last year as part of the 2010-11 budget package that required the California Public Employees' Retirement System (CalPERS) to report its investment returns, amortization period, and discount rate using specific analytical guidelines every time contribution rates are adopted. Specifically, this bill: 1)Requires CalPERS to report annually rather than every time they adopt contribution rates. 2)Limits the scope of the report to only apply to state employee retirement plans. 3)Revises the adjustments of the investment return assumptions and discount rates CalPERS is required to use in the report. 4)Deletes the requirement that CalPERS report to the Legislature, utilizing a specified investment rate assumption, any time it forecasts contribution rates. 5)Deletes the requirement that the Treasurer express his or her opinion of the reasonableness of CalPERS' calculation of the contribution rates when reporting on the CalPERS report to the Legislature. FISCAL EFFECT CalPERS estimates minor savings in the range of $50,000 from these reduced requirements. AB 1247 Page 2 COMMENTS 1)Purpose . According to the author, "AB 1247 improves the ability of decision makers and the public to evaluate the future funding status of state employee pension plans while controlling costs. This bill would provide more insight into how the state's contributions will change if the rate of return is better or worse than expected by requiring that estimates of future liabilities and contributions based on three possible rates of return (the assumed rate ? 2%) be included in the pension system's annual report. "AB 1247 also adopts several Legislative Analyst Office's (LAO) recommendations for streamlining the reporting requirements currently in law, which will prevent precious pension plan dollars from being wasted on excessive bureaucracy. Namely, the frequency and scope of the report are adjusted to rein in actuarial costs while maintaining transparency." 2)LAO view. The LAO recommended that amendments be made to SB 867 (Hollingsworth), to make the pension reporting requirements more useful and workable. The LAO recommended requiring the reporting to be based on more reasonable alternate investment return rates, focusing the reporting requirements on state plans instead of the hundreds of CalPERS local plans, requiring one report per year by CalPERS, and requiring an official other than the Treasurer to provide the independent analysis to the Legislature. The LAO suggested this independent entity could be one or more members of the California Actuarial Advisory Panel (CAAP). The LAO also recommended the Legislature consider requiring the report to be presented to the Legislature every two years and that instead of being presented to the full Legislature, the report be presented in a public, joint meeting of the two houses' budget and/or public employment committees. 3)Background . Current law requires, pursuant to SB 867 (Hollingsworth) Chapter 733, Statutes of 2010, the California Public Employees Retirement System (CalPERS) to report its investment returns, amortization period, and discount rates using specific analytical guidelines every time it adopts contribution rates. AB 1247 Page 3 The CAAP was established by SB 1123 (Wiggins), Chapter 371, Statutes of 2008, to provide impartial and independent information on pensions, other post-employment benefits (OPEB), and best practices to public agencies and the Legislature. 4)This bill has no registered opposition. Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081