BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1247
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          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
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           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
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            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