BILL ANALYSIS Ó AB 736 Page 1 Date of Hearing: April 8, 2015 ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL SECURITY Rob Bonta, Chair AB 736 (Cooley) - As Introduced February 25, 2015 SUBJECT: State teachers' retirement: executive positions SUMMARY: 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 chief operating officer (COO) and chief financial officer (CFO), as specified. Specifically, this bill : 1)Adds the COO and CFO to the list of positions for which the TRB has the authority to set the compensation and terms and conditions of employment. 2)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 the California State Teachers' Retirement System (CalSTRS). AB 736 Page 2 EXISTING LAW: 1)Requires the TRB to establish compensation for the system's executive officer, chief actuary, general counsel, chief investment officer, and other investment officers and portfolio managers whose positions are designated managerial. 2)States that the compensation level for these positions is to 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. 3)States that except for the executive officers of both systems, these positions are subject to a modified civil service selection process, and the boards are able to take action against these personnel for causes related to their fiduciary duty, including the failure to meet specified performance objectives. 4)Prohibits individuals employed in these positions from being paid to influence the actions of the retirement system, or decisions of its governing board for two years following the end of their employment with the retirement system. AB 736 Page 3 FISCAL EFFECT: Unknown. COMMENTS: According to the sponsor, CalSTRS, "This bill seeks to improve CalSTRS ability to attract and retain a COO and CFO, key positions that require specialized expertise to manage the increasingly complex financial and operational components of the largest teacher pension fund in the world. Although CalSTRS has been fortunate to develop a strong executive management team, to proactively plan for the succession of these vulnerable top-level executive positions, prudent business practices and fiduciary obligations dictate that the board positions the organization to attract and recruit from among the best and the brightest in the industry. The most qualified candidates are likely to be found outside civil service in similarly large financial institutions in the private sector, endowments or other large public pension systems." This bill is similar to the introduced version of AB 125 (Wieckowski) of last year, which would have expanded the list of positions for which the TRB has the authority to set the compensation and terms and conditions of employment to include the COO and CFO and would have prohibited the salary for the COO and CFO from exceeding 110% of the maximum salary payable to an investment director of the retirement system. The bill was amended in the Senate to delete these provisions and to change the author. This bill is also similar to AB 1735 (Wieckowski) of 2012, which would have expanded the list of positions for which TRB has the authority to set the compensation and terms and conditions of AB 736 Page 4 employment to include the COO and the CFO and would have prohibited the salary for the COO and CFO from exceeding 150% of the Governor's salary. AB 1735 was held in the Senate Appropriations Committee. AB 1042 (Allen), Chapter 688, Statutes of 2011, authorized the CalPERS Board of Administration to appoint and set the compensation of a chief financial officer. SB 269 (Soto), Chapter 856, Statutes of 2003, allowed the CalPERS Board of Administration and the TRB to set compensation and terms and conditions of employment of certain key positions. AB 1317 (Mullin), Chapter 333, Statutes of 2007, expanded the list of positions to include the general counsel. REGISTERED SUPPORT / OPPOSITION: Support California State Teachers' Retirement System (Sponsor) AB 736 Page 5 Opposition None on file Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916) 319-3957