Amended in Senate August 17, 2015

Amended in Senate July 6, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 1052

Introduced by Assembly Member Cooley

February 26, 2015

An act to amend Sections 22203 and 22257 of the Education Code, and to amend begin delete Sections 20172 and 20190 end delete begin insert Section 20172 end insert of, and to add Section 20211 to, the Government Code, relating to retirement.

LEGISLATIVE COUNSEL’S DIGEST

AB 1052, as amended, Cooley. Retirement board authority: investments.

The California Constitution grants the retirement board of a public pension or retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the system, as specified. The California Constitution also requires the retirement board of a public pension or retirement system, consistent with the exclusive fiduciary responsibilities vested in it, to have the sole and exclusive power to provide for actuarial services in order to assure the competency of the assets of the public pension or retirement system.

The Teachers’ Retirement Law creates the State Teachers’ Retirement System for the provision of service, disability, and other benefits to members. The law requires the assets of the plan, including, but not limited to, employee contributions, employer contributions, and investment income, to be deposited into the Teachers’ Retirement Fund, and continuously appropriates the fund for, among other things, the payment of member benefits. The Teachers’ Retirement Law authorizes the board to appoint investment managers to manage the assets of the fund.

This bill would specify that, without regard to state contracting laws, the board is authorized to contract for services for the investment of the fund or appoint investment managers to manage the assets of the fund under the terms and conditions and utilizing the processes the board deems necessary and consistent with its fiduciary duties, as specified. The bill would require the board’s processes to be competitive, except as elected by the board, as specified.

The Public Employees’ Retirement Law (PERL) creates the Public Employees’ Retirement System (PERS) and the Public Employees’ Retirement Plan for the provision of pension benefits to members. PERL requires the assets of the system, including, but not limited to, employee contributions, employer contributions, and investment income, to be deposited into the Public Employees’ Retirement Fund, a continuously appropriated fund. PERL grants the Board of Administration of PERS exclusive control of and fiduciary responsibility for the investment of the fund and authorizes the board to retain a bank or trust company to serve as a custodian for services in connection with the investment of the fund.

This bill would specify that, without regard to state contracting laws, the board of administration is authorized to contract for services with a bank or trust company for those custodial services and to invest the assets of the fund under the terms, conditions, and processes the board deems necessary and consistent with its fiduciary duties and is not required to comply with any law or rule pertaining to state contracting to do so. The bill would require the board’s processes to be competitive, except as begin delete elected by the board, as end delete specified. The bill would specify that the board is authorized to contract with individuals or outside firms with demonstrated expertise in trade order management services in connection with investment of the retirement fund without regard to state contracting laws. The bill would require the board’s processes in this regard to be competitive, except as begin delete elected by the board, as end delete specified.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 22203 of the Education Code is amended
to read:

22203.  

(a) The board has exclusive control of the investment
of the Teachers’ Retirement Fund. Except as otherwise restricted
by the California Constitution and by law, the board may in its
discretion invest the assets of the fund through the purchase,
holding, or sale thereof of any investment, financial instrument,
or financial transaction when the investment, financial instrument,
or financial transaction is prudent in the informed opinion of the
board.

(b)  Notwithstanding any other law pertaining to state
contracting, the board, in exercising its discretion pursuant to this
section, may contract for services under the terms and conditions
and utilizing the processes the board deems necessary and
consistent with its fiduciary duties.

(c) The processes utilized by the board pursuant to subdivision
(b) shall be competitive except as elected by the board as follows:

(1) Competitive bids or proposals are not required under
subdivision (b) of Section 10340 of the Public Contract Code.

(2) At the time of the contract, an executed contract with an
investment manager qualifies that person as an emerging
investment manager, as defined by the board. The board shall
monitor and assess investment managers selected pursuant to this
paragraph in accordance with all other provisions under this part
and consistent with its fiduciary duties.

SEC. 2.  

Section 22257 of the Education Code is amended to
read:

22257.  

(a) Notwithstanding any other law pertaining to state
contracting, the board may contract with or appoint one or more
investment managers to manage the assets of the retirement fund
under the terms and conditions and utilizing the processes the
board deems necessary and consistent with its fiduciary duties. In
selecting investment managers, the processes utilized by the board
shall be competitive, pursuant to subdivision (c) of Section 22203.
If the board has acted with care, skill, prudence, and diligence in
meeting the requirements of Sections 22252 and 22253 in selecting
and monitoring the investment managers, then, notwithstanding
Sections 22250, 22252, 22253, 22254, and 22256, no board
member shall be liable for the acts or omissions of the investment
managers or be under any obligation to invest or otherwise manage
any assets of the retirement fund that are subject to the management
of the investment managers.

(b) Incorporation of the fiduciary duty set forth in Section 22250
into the terms of a contract between the system and an investment
manager shall be admissible as evidence that the board has acted
with care, skill, prudence, and diligence in the selection of the
investment manager.

SEC. 3.  

Section 20172 of the Government Code is amended
to read:

20172.  

Notwithstanding any other law, the board may retain
a bank or trust company to serve as custodian for safekeeping,
delivery, securities valuation, investment performance reporting,
and other services in connection with investment of the retirement
fund. The board, without compliance with any law, rule, provision,
or procedure pertaining to state contracting, may enter into
agreements, contracts, or other arrangements with a bank or trust
company for custodian and custodian-related services under the
terms and conditions the board deems necessary and consistent
with its fiduciary duties. In selecting a custodian, the processes
utilized by the board shall be competitive, begin delete pursuant to subdivision
(c) of Section 20190. end delete begin insert except where a competitive bid or proposal
is not required under subdivision (b) of Section 10340 of the Public
Contract Code. end insert Notwithstanding Section 13340, all moneys in the
fund are continuously appropriated, without regard to fiscal years,
for payments which shall be made upon warrants drawn by the
Controller upon demands made by the board. Upon demand of the
board, warrants shall be drawn for the purpose of making payments
by electronic fund transfers.

begin delete

SEC. 4.  

Section 20190 of the Government Code is amended
to read:

20190.  

(a) The board has exclusive control of the investment
of the retirement fund. Except as otherwise restricted by the
California Constitution and by law, the board may, in its discretion,
invest the assets of the fund through the purchase, holding, or sale
thereof of any investment, financial instrument, or financial
transaction when the investment, financial instrument, or financial
transaction is prudent in the informed opinion of the board.

(b)  In exercising its discretion pursuant to this section, the
board, without compliance with any law, rule, provision, or
procedure pertaining to state contracting, may enter into
agreements, contracts, or other arrangements for the purposes of
investing or managing the assets of the fund under the terms and
conditions and processes the board deems necessary and consistent
with its fiduciary duties.

(c) The processes utilized by the board pursuant to subdivision
(b) shall be competitive except as elected by the board as follows:

(1) Competitive bids or proposals are not required under
subdivision (b) of Section 10340 of the Public Contract Code.

(2) At the time of the contract, an executed contract with an
investment manager qualifies that person as an emerging
investment manager, as defined by the board. The board shall
monitor and assess investment managers selected pursuant to this
paragraph in accordance with all other provisions under this part
and consistent with its fiduciary duties.

end delete

begin delete SEC. 5. end delete
begin insert SEC. 4. end insert   

Section 20211 is added to the Government Code, to
read:

20211.  

The board may contract with individuals or outside
firms with demonstrated expertise to perform trade order
management services in connection with investment of the
retirement fund. The board, without compliance with any law,
rule, provision, or procedure pertaining to state contracting, may
enter into agreements, contracts, or other arrangements for the
providing of trade order management services under the terms and
conditions the board deems necessary and consistent with its
fiduciary duties. In selecting an individual or outside firm for trade
order management services, the processes utilized by the board
shall be competitive, begin delete pursuant to subdivision (c) of Section 20190. end delete
begin insert except where a competitive bid or proposal is not required under
subdivision (b) of Section 10340 of the Public Contract Code. end insert