BILL ANALYSIS Ó
AB 1410
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 1410
(Nazarian) - As Introduced February 27, 2015
SUBJECT: Public employees' retirement: investments: Turkish
investment vehicles
SUMMARY: Enacts the California Public Divest from Turkey to End
the Perpetuation of the Armenian Genocide Act which prohibits
the California Public Employees' Retirement System (CalPERS) and
the California State Teachers' Retirement System (CalSTRS) from
investing in any investment vehicle issued by, owned,
controlled, or managed by the government of Turkey.
Specifically, this bill:
1)Makes various legislative findings and declarations regarding
the Armenian Genocide and the Republic of Turkey's refusal to
acknowledge its responsibility, and to reach resolution on
compensation for the victims of, the Armenian Genocide.
2)Prohibits the boards of CalPERS and CalSTRS from investing
public employee retirement funds in any investment vehicle
issued by, owned, controlled, or managed by the government of
Turkey.
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3)Requires the boards to determine which Turkish investment
vehicles are subject to divestment on or before June 30, 2016.
4)Specifies how the boards are to address externally and
actively managed comingled funds and private equity
investments that may include Turkish investment vehicles.
5)Requires the boards to request those Turkish investment
vehicles that are subject to divestment to make sufficient
progress to disassociate themselves from the government of
Turkey within 90 days and to take substantial action to do so
within one year.
6)Requires the boards to liquidate investments in Turkish
investment vehicles that the board determines have not taken
substantial action to disassociate with the government of
Turkey within 18 months after such a determination provided
that doing so is consistent with its fiduciary
responsibilities.
7)Requires the boards to report to the Legislature on or before
January 1, 2017, and annually thereafter, including the
following information:
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a) A list of investments in Turkish investment vehicles;
b) The association between the investment vehicle and the
Turkish government;
c) Reductions in Turkish investment vehicles;
d) When the investments will be reduced or the reason why
the investments will not be reduced because to do so would
be inconsistent with the board's fiduciary
responsibilities;
e) Investment vehicles that are found to not be Turkish
investment vehicles and investments in externally and
actively managed comingled funds and private equity
investments that were transferred to be devoid of Turkish
investment vehicles; and,
f) An annual calculation of any costs or investment losses
due to compliance.
8)Specifies that nothing in this bill would require the boards
to take an action pursuant to the above provisions if the
boards determine, in good faith and based on credible
information available to the public, that an action would fail
to satisfy the fiduciary responsibilities of the board as
described in the California constitution.
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9)Indemnifies from the General Fund and holds harmless the
present, former and future board members, officers and
employees of and investment managers under contract with those
retirement systems.
EXISTING LAW: As provided in the state Constitution by
Proposition 162, The California Pension Protection Act of 1992,
the boards of California's public retirement systems have
"plenary authority and fiduciary responsibility for investment
of monies and administration of the system". Under Proposition
162, the Legislature also retained its authority to, by statute,
"continue to prohibit certain investments by a retirement board
where it is in the public interest to do so, and provided that
the prohibition satisfies the standards of fiduciary care and
loyalty required of a retirement board pursuant to this
section."
The Constitution also states, "The members of the retirement
board of a public pension or retirement system shall discharge
their duties with respect to the system solely in the interest
of, and for the exclusive purposes of providing benefits to,
participants and their beneficiaries, minimizing employer
contributions thereto, and defraying reasonable expenses of
administering the system."
Existing state law prohibits CalPERS and CalSTRS from investing
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in companies with active business operations in Sudan and in
Iran, as specified.
FISCAL EFFECT: Unknown.
COMMENTS: According to the author, "CalPERS and CalSTRS both
have investment holdings in bonds directly issued by the
Republic of Turkey. CalPERS has an estimated $185,000,000 in
Turkish bonds, while CalSTRS has investment holdings in excess
of several hundred million dollars.
"California's investment in Turkish government bonds indirectly
subsidizes Turkish denial of the Genocide. AB 1410 aims to
address the issue of Turkey's denial of the systematic killings
of 1.5 million Armenian victims during World War I. The
Republic of Turkey's unwillingness to cease teaching genocide
denial in its public schools continues the pattern of
discrimination against Armenians, and minorities. AB 1410
continues California's commitment to act appropriately against
countries that have a record of human rights violations and
undermine democracy."
CalSTRS opposes the bill, stating, "The board's policy is to
oppose legislation that restricts its ability to invest in
specific areas because, as described in its divestment policy,
such restrictions could impair the board's ability to exercise
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its fiduciary obligation to act exclusively for the benefit of
the retirement plan members and beneficiaries. The board has a
policy by which it evaluates potential divestment of assets,
utilizing 21 Risk Factors that are part of the board's
Investment Policy for Mitigating Environmental, Social and
Governance Risks. There is no indication that investments in
securities affected by AB 1410 violate any of the 21 Risk
Factors."
The California Teachers Association states in their opposition
letter, "The Legislature recently enacted legislation to fund
and close a $74 billion unfunded actuarial obligation to the
Defined Benefit Plan of CalSTRS. The investment losses
associated with AB 1410 could lead to an additional shortfall of
the Defined Benefit Plan which the State could be financially
responsible for covering, leaving a significant fiscal hole in
the annual State budget."
CURRENT AND PRIOR LEGISLATION:
SB 185 (De León) of this year, would require the CalPERS and
CalSTRS boards to engage with thermal coal companies, as
defined, and to divest the public employee retirement funds of
any investments in thermal coal companies; would prohibit
additional or new investments or the renewal of existing
investments in thermal coal companies; and would require an
assessment of the feasibility of divesting from additional
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fossil fuel investments, such as natural gas and petroleum.
This bill was heard in the Senate Public Employment and
Retirement Committee on April 13, 2015, and passed on a 3 to 2
vote.
H.Res.154 (Dold) of this year, would call on the United States
President to work toward equitable, constructive, stable and
durable Armenian-Turkish relations based upon the Republic of
Turkey's full acknowledgment of the facts and ongoing
consequences of the Armenian Genocide and a fair, just and
comprehensive international resolution of this crime against
humanity. This resolution has been referred to, but not yet
heard, in the House Committee on Foreign Affairs.
S.Res. 410 (Menendez), of 2014, would have expressed the sense
of the United States Senate: (1) in remembrance of the
anniversary of the Armenian Genocide on April 24, 2014, and (2)
that the United States President should ensure that U.S. foreign
policy reflects appropriate understanding and sensitivity
concerning issues related to human rights, crimes against
humanity, ethnic cleansing and genocide documented in the U.S.
record relating to the Armenian Genocide. This resolution was
held on the Senate Floor.
AB 761 (Dickinson), of 2013, would have prohibited CalPERS and
CalSTRS from investing in companies that manufacture firearms or
ammunition for a recipient other than the U.S. military, subject
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to a process specified in the bill and consistent with previous
divestment legislation, but subject to the board's fiduciary
duties. This bill was held in the Assembly Appropriations
Committee.
SR 18 (Leno), of 2013, in response to the Russian government
taking an aggressive course of action to pass laws targeting the
lesbian, gay, bisexual and transgender (LGBT) community,
strongly encouraged CalPERS and CalSTRS, whenever feasible and
consistent with their fiduciary responsibilities, to cease
making direct investments in Russia and to encourage companies
in which employee retirement funds are invested and that are
doing business in Russia not to take actions that promote or
otherwise enable human rights violations in Russia. This
resolution was adopted.
AB 221 (Anderson), Chapter 671, Statues of 2007, enacted the
California Public Divest from Iran Act prohibiting CalPERS and
CalSTRS from investing in companies with business operations in
Iran and requiring each pension system to sell or transfer any
investments in a company with business operations in Iran.
AB 2941 (Koretz), Chapter 442, Statues of 2006, prohibited
CalPERS and CalSTRS from investing in companies with business
operations in Sudan that are complicit in the Darfur genocide or
have specified relationships with the Sudanese government or
military and required the boards of both retirement systems to
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divest from such companies, consistent with their fiduciary
obligations.
SB 424 (Poochigian), Chapter 9, Statutes of 2005, established
April 24 of each year as the "California Day of Remembrance of
the Armenian Genocide" and the period beginning on the Sunday
before that day through the following Sunday as the days of
remembrance of the Armenian Genocide.
SJR 2 (Speier), Resolution Chapter 22, Statutes of 2005,
designated April 24, 2005, as the "California Day of Remembrance
for the Armenian Genocide of 1915-1923" and also memorialized
the United States Congress to act likewise to commemorate the
Armenian Genocide.
AB 107 (Knox), of 2000, would have prohibited new or additional
investments in tobacco companies by CalPERS and CalSTRS on and
after January 1, 2001, and would have required divestment from
existing investments by July 1, 2002. This bill was held in the
Assembly with concurrence pending.
REGISTERED SUPPORT / OPPOSITION:
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Support
Armenian National Committee of America - Western Region
(Sponsor)
Opposition
California State Teachers' Retirement System
California Teachers Association
Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)
319-3957