BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 1247|
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                                 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, 
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             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.

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          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 

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          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

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          NO VOTE RECORDED: Campos, Cedillo, Davis, Gorell, Jones


          CPM:do  8/16/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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