BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1247| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1247 Author: Fletcher (R) Amended: 8/16/11 in Senate Vote: 21 SENATE PUBLIC EMPLOYMENT & RETIRE. COMM. : 5-0, 6/27/11 AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 75-0, 5/26/11(Consent) - See last page for vote SUBJECT : Public retirement systems: reporting SOURCE : Author DIGEST : This bill modifies the pension reform transparency reporting requirements that were enacted last year as part of the 2010-11 Budget package that requires the California Public Employees Retirement System to report its investment returns, amortization period, and discount rate using specific analytical guidelines every time contribution rates are adopted for all employers. ANALYSIS : Existing law, pursuant to SB 867 (Hollingsworth) Chapter 733, Statutes of 2010: 1. Requires the California Public Employees' Retirement System (CalPERS) to report its investment returns, CONTINUED AB 1247 Page 2 amortization period, and discount rates using specific analytical guidelines every time it adopts contribution rates for all employers. 2. Requires the California State Treasurer, within 30 days following receipt of the report, to report during a publicly noticed floor session of each house of the Legislature on the following: A. The role investment return assumptions and amortization periods have on contribution rates. B. The consequences for future state budgets if the investment return assumptions are not realized. C. Whether the amortization period exceeds the estimated remaining service periods of employees covered by the contributions. D. His/her opinion of the reasonableness of CalPERS' calculation of the contribution rates. 3. Provides under the State Constitution, pursuant to Proposition 162, the California Pension Protection Act of 1992, that the retirement board of a public retirement system has the sole and exclusive power to provide for actuarial services in order to assure the competency of the assets of the retirement system. 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. CONTINUED AB 1247 Page 3 5. Deletes the role of the Treasurer and the requirement to express an opinion of the reasonableness of CalPERS' calculation of the contribution rates. 6. Requires that the Chair of the California Actuarial Advisory Panel (CAAP), or his/her panel designee, report to the Legislature in a publicly noticed, joint hearing of the Senate and Assembly public employment committees. Comments As part of their findings and recommendations on the 2011-12 Budget, the Legislative Analyst's Office (LAO) recommends that amendments be made to the pension reporting bill that was passed as part of the 2010 Budget package, SB 867 (Hollingsworth), to make the pension reporting requirements more useful and workable. The LAO recommends 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 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 8/16/11) California Public Employees' Retirement System (support if amended) ARGUMENTS IN SUPPORT : 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 CONTINUED AB 1247 Page 4 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 3 possible rates of return (the assumed rate ? 2%) be included in the pension system's annual report. "AB 1247 also adopts several 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." CalPERS supports the bill because it simplifies the prior version enacted under last year's bill. However, CalPERS recommends amendments to use a one percent variation in reporting rates (instead of the current two percent up and down) because "the calculation thus obtained would provide a base of information for external parties to effectively extrapolate to develop guidelines and analyze alternate return scenarios. In addition, CalPERS notes that, to avoid a conflict of interest, the bill should allow the Chairman of the California Actuarial Advisory Panel or a designee to provide the report to the Legislature since the current Chairman is the CalPERS Chief Actuary. ASSEMBLY FLOOR : 75-0, 5/26/11 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Carter, Chesbro, Conway, Cook, 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, 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 CONTINUED AB 1247 Page 5 NO VOTE RECORDED: Campos, Cedillo, Davis, Gorell, Jones CPM:do 8/16/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED