BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 125
Jim Beall, Chair HEARING DATE: June 24, 2013
AB 125 (Wieckowski) as amended 5/24/13 FISCAL: YES
CALIFORNIA STATE TEACERS' RETIREMENT SYSTEM: MANAGERIAL AND
EXECUTIVE POSITIONS
HISTORY :
Sponsor: California State Teachers' Retirement System
(CalSTRS)
Other legislation: AB 1735 (Wieckowski), 2012
Died in Senate Appropriations Committee
AB 1042 (Allen),
Chapter 688, Statutes of 2011
AB 1317 (Mullin),
Chapter 333, Statutes of 2007
SB 269 (Soto),
Chapter 856, Statutes of 2003
ASSEMBLY VOTES :
PER & SS 7-0 4/10/13
Appropriations 17-0 5/24/13
Assembly Floor 75-1 5/29/13
SUMMARY :
AB 125 amends the State Teachers' Retirement Law to include
the positions of chief operating officer (COO) and chief
financial officer (CFO) in the list of positions for which
the Teachers' Retirement Board (TRB) has the authority to set
the compensation and terms and conditions of employment, and
limits the compensation for these individuals to 110% of the
maximum salary payable to an investment director of the
retirement system.
In addition, AB 125 requires the TRB to report on
improvements and cost savings relative to the new positions,
as specified, and makes technical changes to certain
prohibitions on working for a subsequent employer after
separation from employment with CalSTRS.
Pamela Schneider
Date: June 17, 2013 Page
1
BACKGROUND AND ANALYSIS :
1)Existing law :
a) requires the TRB to establish compensation for
CalSTRS' executive officer, chief actuary, general
counsel, chief investment officer, and other investment
officers and portfolio managers whose positions are
designated managerial.
b) requires that the compensation level for these
positions be comparable to other public retirement
systems and financial services companies and, when these
positions are filled through a general civil service
appointment, that the candidates be selected from an
eligible list based on an open examination.
c) states that, except for the executive officer, these
positions are subject to a modified civil service
selection process, and the board may take action against
these personnel for causes related to their fiduciary
duty, including the failure to meet specified
performance objectives.
d) prohibits individuals employed in these positions,
upon separation from employment, from being paid by a
subsequent employer to influence the actions of the
retirement system or decisions of its governing board
for two years following the end of employment with the
retirement system.
2)This bill :
a) expands the list of positions for which the Teachers'
Retirement Board (TRB) has the authority to set the
compensation and terms and conditions of employment to
include the COO and CFO.
b) prohibits the salary for the COO and CFO from
exceeding 110% of the maximum salary payable to an
investment director of the retirement system.
Pamela Schneider
Date: June 17, 2013 Page
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c) makes technical changes to the list of key employees
who are prohibited for two years from working for
private interests to influence the TRB after leaving
employment with CalSTRS.
d) requires the TRB, within 12 months of filling the
positions of the COO and CFO and annually thereafter, to
report to the fiscal committees of the Legislature on
the improvements and cost savings realized as a result
of the new positions, as specified.
FISCAL :
The Assembly fiscal analysis states the following:
Increased special fund costs to CalSTRS of approximately
$200,000, if the salaries are adjusted using the
flexibility in this bill. The ceiling in the bill
currently allows an annual salary of $264,000. The
actual costs will depend on the compensation packages
developed by the Teachers' Retirement Board.
Any increase in CalSTRS costs could create commensurate
General Fund pressure either directly through state
support or indirectly through state payments to school
districts.
COMMENTS :
1)Arguments in Support :
According to the author:
Current law requires that the hiring of the Chief
Operating Officer (COO) and Chief Financial Officer
(CFO) is limited to the state civil service pool. This
limitation constrains the California State Teachers'
Retirement System's (CalSTRS) ability to recruit highly
Pamela Schneider
Date: June 17, 2013 Page
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qualified candidates that possess essential specialized
knowledge, skills, abilities and competencies that are
required for positions that are associated with
investment financial management in a large public
pension fund. The type of experience needed to manage
the risks associated with a large pension fund is not
likely to be found within the state civil service but
from other pension funds or private sector financial
institutions. Currently, there is only one other state
agency outside of CalSTRS that manages pension funds -
the California Public Employees' Retirement System
(CalPERS) - while there are many such funds elsewhere in
California that would be suitable sources of executive
management."
CalSTRS states:
This bill enhances CalSTRS' ability to proactively plan
for the succession of vulnerable top level executive
positions, particularly those responsible for managing
the increasingly complex financial and operation
components of the largest teacher pension fund in the
nation. This bill also improves CalSTRS' ability to
attract and retain employees for key executive positions
that require specialized and critical expertise and
competencies and allows the board to recruit from peer
financial institutions in the private sector, endowments
and other large public pension systems.
2)Argument in Opposition :
The Department of Finance (DOF) opposes AB 125 because it
circumvents the salary setting authority of the Department of
Human Resources and due to the fact that both positions are
currently filled-without the increased compensation
authorized by the bill. DOF states that the bill would
increase operational costs by up to $300,000 at a time when
the system is underfunded.
3)SUPPORT :
California State Teachers' Retirement System (CalSTRS),
Sponsor
Pamela Schneider
Date: June 17, 2013 Page
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California Federation of Teachers (CFT)
4)OPPOSITION :
Department of Finance
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Pamela Schneider
Date: June 17, 2013 Page
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