BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1052| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1052 Author: Cooley (D) Amended: 8/17/15 in Senate Vote: 21 SENATE PUBLIC EMP. & RET. COMMITTEE: 5-0, 7/13/15 AYES: Pan, Morrell, Beall, Fuller, Hall SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 77-0, 5/7/15 - See last page for vote SUBJECT: Retirement board authority: investments SOURCE: California Public Employees' Retirement System California State Teachers' Retirement System DIGEST: This bill provides that the California State Teachers' Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS) may enter into investment related contracts, as specified, 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: 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 AB 1052 Page 2 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)Provides that, notwithstanding any other law pertaining to state contracting, CalSTRS, in exercising its 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 its fiduciary duties. 2)Requires the processes utilized by CalSTRS to be competitive except as allowed under existing law through specific exemptions in the Public Contract Code (e.g., for an emergency contract), as specified. AB 1052 Page 3 3)Provides, for CalSTRS, 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 board. The bill requires that the CalSTRS board 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 except where a competitive bid or proposal is not required under the Public Contract Code. 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 except where a competitive bid or proposal is not required under the Public Contract Code. 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 AB 1052 Page 4 asset allocations strategies, would significantly enhance the boards' ability to successfully fulfil their fiduciary obligations and secure the best value for our members." FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified8/18/15) California Public Employees' Retirement System (co-source) California State Teachers' Retirement System (co-source) OPPOSITION: (Verified8/18/15) None received ARGUMENTS IN SUPPORT: According to the co-sponsor CalPERS, this bill "would allow CalPERS to streamline these very different contract evaluation functions into a single integrated investment procurement process and system. CalPERS anticipates leveraging a technological platform to gain, efficiencies, reduce administrative expenditures, and ensure a robust control environment is in place. Additionally, the proposed contracting process may allow for increased transparency, the more expedient deployment of capital, and better alignment with CalPERS' fiduciary obligations to its plan participants." ASSEMBLY FLOOR: 77-0, 5/7/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, AB 1052 Page 5 Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Campos, Roger Hernández, Steinorth Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519 8/19/15 20:57:44 **** END ****