BILL ANALYSIS Ó
AB 1052
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 1052
(Cooley) - As Introduced February 26, 2015
SUBJECT: Retirement board authority: investments
SUMMARY: Allows the California Public Employees' Retirement
System (CalPERS) and the California State Teachers' Retirement
System (CalSTRS) to enter into contracts for investment related
services under the terms and conditions established by their
respective boards rather than under the state contracting
requirements. Specifically, this bill:
1)Authorizes CalSTRS to enter into agreements for the investment
of the Teachers' Retirement Fund (TRF) or appoint investment
managers to manage the assets of the TRF under the terms and
utilizing the process the Teachers' Retirement Board (TRB)
deems necessary and consistent with its fiduciary duties.
2)Authorizes CalPERS to enter into agreements with a bank or
trust company to serve as custodian for services in connection
with the investment of the Public Employees' Retirement Fund
under the terms and conditions the CalPERS Board of
Administration deems necessary and consistent with its
fiduciary duties.
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3)Specifies that in exercising the authority granted above,
CalPERS is not required to comply with any law or rule
pertaining to state contracting.
EXISTING LAW:
1)Provides, as established by The California Pension Protection
Act of 1992 (Proposition 162) which amended Article XVI,
Section 17 of the State Constitution, that the retirement
board of a public pension or retirement system has plenary
authority and fiduciary responsibility for investment of
monies and administration of the system.
2)Requires, based on provisions in the California Constitution,
that services provided by state agencies generally be
performed by state civil service employees.
3)Restricts under state law, but does not prohibit, private
contracting by public agencies. Public agencies are
authorized to engage in private contracting in various
instances, as specified.
FISCAL EFFECT: Unknown.
COMMENTS: Most of California's state agencies, including
CalSTRS and CalPERS, must abide by state contracting
requirements. In recognition of the unique nature of the
services required of certain government agencies, often out of
the need for expediency, the Legislature has granted specific
exemptions from state competitive bidding requirements. For
example, the California Housing Finance Agency and the
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California Health Benefit Exchange Board have been granted
blanket exemptions. In addition, the CalPERS is exempt from
competitive bidding requirements when contracting with health
plans and long-term care insurance plans. General exemptions
also apply for any state agency when obtaining expert witnesses,
or for contracts for legal defense, legal advice or legal
services or the development, maintenance, administration or use
of licensing or proficiency testing examinations.
According to CalSTRS, "The overall purpose of the competitive
bidding requirements set forth in the Public Contract Code is to
stimulate competition conducive to sound fiscal practices;
protect the public from the misuse of public funds; and guard
against favoritism, fraud and corruption. As fiduciaries, the
CalSTRS and CalPERS boards are bound by standards set forth in
the California State Constitution and federal law to invest plan
assets in a manner that is solely in the interest of members and
beneficiaries. These strict standards require fiduciaries to
discharge duties with care, skill, prudence and diligence at a
level that goes beyond the goals of competitive bidding
requirements."
"In addition to competitive bidding, state law requires that
contractors certify compliance with a myriad of
California-specific statutes and regulations, some of which
require certification prior to even being considered. Many of
these certifications are entirely inapplicable to the highly
specialized nature of investment management. As a result, firms
that desire to compete for a contract must allocate the
necessary time and resources to decipher contract laws when
their expertise is and should be more centered on the management
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of investments."
"As a consequence, oftentimes smaller emerging manager firms
that do not employ the extensive marketing staff of larger firms
cannot afford to allocate critical investment staff capacity to
compete for these contracts. These disincentives to compete
reduce the universe of potential manager firms with which to
contract. This can prevent CalSTRS and CalPERS from being able
to invest timely in certain hard-to-reach sectors of the
marketplace, thus resulting in opportunity costs to the funds."
The author states, "Consistent with existing authority set forth
in the California State Constitution, AB 1052 authorizes the
CalSTRS and CalPERS boards to set the terms and conditions for
procuring investment management services, thus eliminating the
opportunity costs that result in a diminished universe of
potential investment manager firms and from delays in the timely
funding of asset allocation strategies. This authorization will
enhance the boards' ability to secure the best value for members
and beneficiaries and successfully fulfill their fiduciary
obligations."
REGISTERED SUPPORT / OPPOSITION:
Support
California Public Employees' Retirement System (Sponsor)
AB 1052
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California State Teachers' Retirement System (Sponsor)
Opposition
None on file
Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)
319-3957