BILL ANALYSIS Ó
SENATE COMMITTEE ON
PUBLIC EMPLOYMENT AND RETIREMENT
Dr. Richard Pan, Chair
2015 - 2016 Regular
Bill No: AB 1052 Hearing Date: 7/13/15
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|Author: |Cooley |
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|Version: |7/06/15 As amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Glenn Miles |
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Subject: Retirement board authority: investments.
SOURCE: California Public Employees' Retirement System
California State Teachers' Retirement System
ASSEMBLY VOTES:
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|Assembly Floor: |77 - 0 |
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|Assembly Appropriations |17 - 0 |
|Committee: | |
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|Assembly Public Employees, |7 - 0 |
|Retirement/Soc Sec Committee: | |
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DIGEST: This bill provides that the California State
Teachers' Retirement System (CalSTRS) and the California Public
Employees' Retirement System (CalPERS), in exercising their
constitutional discretion to invest fund assets, may contract
for services under terms and conditions established by their
respective boards and consistent with their fiduciary duties,
notwithstanding any other law pertaining to state contracting.
ANALYSIS:
Existing law:
AB 1052 (Cooley) Page 2 of ?
1)Establishes, under 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)Provides that, except as otherwise restricted by the State
Constitution and by law, the boards may in their discretion
invest the assets of the respective funds 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.
3)Requires, based on provisions in the California Constitution,
that services provided by state agencies generally be
performed by state civil service employees.
4)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.
5)Establishes, under the Public Contract Code, a process that
state departments must follow and requirements, as specified,
that must be fulfilled to bid out and enter into service
contracts, including requirements for competitive bidding and
contractor certification of compliance with specified state
policies.
6)Provides limited exceptions to the Public Contract Code, as
specified.
This bill:
1)This bill provides that, notwithstanding any other law
pertaining to state contracting, CalSTRS and CalPERS, in
exercising their constitutional discretion to invest fund
assets, may contract for services under terms and conditions
and utilizing the processes the boards deem necessary and
consistent with their fiduciary duties.
2)Requires the processes utilized by the boards to be
competitive except when allowed under existing law through
AB 1052 (Cooley) Page 3 of ?
specific exemptions in the Public Contract Code (e.g., for an
emergency contract), as specified.
3)Provides a new exemption to the requirement that the contract
process be competitive when there is an existing contractual
relationship with an investment manager that had previously
qualified as an emerging investment manager, as defined by the
boards. The bill requires that the boards monitor and assess
contractors under this exemption in accordance with all other
provisions governing investment managers generally and
consistent with the boards' fiduciary duties.
4)Specifies that CalPERS, 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 CalPERS board
deems necessary and consistent with its fiduciary duties. The
bill requires the process utilized to select a custodian to be
competitive, as specified.
5)Authorizes the CalPERS board, without compliance with any law,
rule, provision, or procedure pertaining to state contracting,
to 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, as
specified.
Background
According to the co-sponsor CalSTRS, "As global markets become
more complex and the assets of California's state retirement
systems grow in size, the CalSTRS and CalPERS boards are
increasingly constrained by the traditional state procurement
requirements when contracting for investment expertise.
Authorizing the boards to set the terms and conditions for
procuring investment management services, thus eliminating the
opportunity costs that result from a diminished universe of
potential managers and from delays in the timely funding of
asset allocations strategies, would significantly enhance the
boards' ability to successfully fulfil their fiduciary
obligations and secure the best value for our members."
AB 1052 (Cooley) Page 4 of ?
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
According to the Assembly Appropriations Committee, this bill
would result in:
1) Potentially significant administrative cost savings
as a result of reduced staff work and other efficiency
gains in contracting for investment-related services.
2) Unknown, but potentially significant reductions in
costs and/or gains in performance for each fund as a
result of reductions in opportunity costs associated with
current contracting processes and enhanced ability to
capitalize on favorable market dynamics.
SUPPORT:
California Public Employees' Retirement System (co-source)
California State Teachers' Retirement System (co-source)
OPPOSITION:
None received
ARGUMENTS IN SUPPORT:
According to the co-sponsor CalPERS, "As a fiduciary, CalPERS is
bound by standards set forth in state and federal law that
require us to discharge our duties with care, skill, prudence,
and diligence at a level that goes beyond the responsibilities
placed on most other state officials. AB 1052 would streamline
the contracting process to improve the System's ability to make
timely decisions regarding potential investment opportunities,
establish more appropriate contractual terms for international
and fiduciary agreements, and avoid opportunity costs."