Senate Bill No. 216

Introduced by Senator Pan

February 12, 2015

An act to amend Sections 20235, 21002, and 21013 of, and to repeal Section 20194 of, the Government Code, relating to public employees’ retirement.

LEGISLATIVE COUNSEL’S DIGEST

SB 216, as introduced, Pan. The Public Employees’ Retirement System.

(1) The Public Employees’ Retirement Law (PERL) creates the Public Employees’ Retirement System (PERS) for the purpose of providing pension benefits to specified public employees and prescribes the rights and duties of members and annuitants of the system. PERL vests management and control of PERS in the Board of Administration. The California Constitution and PERL grant the board control over the investment of the retirement fund subject to certain restrictions. PERL directs the board to invest not less than 25 % of all funds that become available in a fiscal year for new investments in specified obligations and securities connected with residential realty, subject to the board’s authority to substitute other investments consistent with its fiduciary obligations to the retirement system and standards for prudent investment. PERL requires the board to report on these investments.

This bill would repeal the provisions regarding investing in residential realty, described above.

(2) PERL requires the board to submit a quarterly review of system assets to the Legislature, which is required to include reporting on the system’s portfolio on the basis of cost and market value, among other things.

This bill would change the frequency of this report to semiannual, would eliminate the requirement to report on the investments on a cost basis, and would make other changes to the content of the report.

(3) PERL permits a member who returns to active service following an employer-approved uncompensated leave of absence, as defined, because of his or her serious illness or injury to purchase service credit for that period of absence upon the payment of contributions, as specified.

This bill would specify that the option to purchase service credit shall be elected prior to retirement, that the member be returning to state service, and would make other related changes.

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 20194 of the Government Code is
repealed.

begin delete

20194.  

(a) Notwithstanding any other provision of law, the
board shall give first priority to investing not less than 25 percent
of all funds which become available in a fiscal year for new
investments, in the following:

(1) Obligations secured by a lien or charge solely on residential
realty, including rental housing, located in the state and on the
security of which, commercial banks are permitted to make loans
pursuant to Article 2 (commencing with Section 1220) of Chapter
10 of Division 1 of the Financial Code.

(2) Securities representing a beneficial interest in a pool of
obligations secured by a lien or charge solely on residential realty
located in the state.

(3) Certificates of deposit issued by savings and loan
associations, if the savings and loan associations agree to make
loans, or to fund tax-exempt notes or bonds issued by housing
authorities, cities, or counties, on residential realty located in the
state, including rental housing, in an amount equal to the amount
of the deposit.

(b) Funds subject to investment pursuant to this section include
all moneys received as employer and member contributions,
investment income, and the proceeds from all net gains and losses
from securities, reduced by the amount of benefit payments and
withdrawals occurring during the fiscal year. In computing the
amount of investment pursuant to this section, a dollar-for-dollar
credit shall be given for residential realty investments described
in this section that are contractually agreed to be made by a
financial institution from which the board, in consideration thereof,
purchases other investments. In computing the amount of
investment pursuant to this section, the board may elect to include
the dollar amount of commitments to purchase mortgages from
public revenue bond programs in the year the commitment is given.
However, that election may not exceed one-fifth of the total
guideline amount.

(c) Nothing in this section shall be construed to require the
acquisition of any instrument or security at less than the market
rate.

(d) If the board determines during any fiscal year that
compliance with this section will result in lower overall earnings
for the fund than obtainable from alternative investment
opportunities that would provide equal or superior security,
including guarantee of yield, the board may substitute those higher
yielding investments, to the extent actually available for
acquisition, for the investments otherwise specified by this section.
Additionally, if, and to the extent that, adherence to the
diversification guideline specified in this section would conflict
with its fiduciary obligations in violation of Section 9 of Article I
of the California Constitution or Section 10 of Article I of the
United States Constitution, or would conflict with the standard for
prudent investment of the fund set forth in Section 17 of Article
XVI of the California Constitution, the board may substitute
alternative investments. In that case, the board shall estimate the
amount of funds available for investment in substitute alternative
investments and the amount of funds invested pursuant to the first
paragraph of this section and shall submit its resolution of findings
and determinations, together with a description of the type,
quantity, and yield of the investments substituted, to the Governor
and to the Joint Committee on Legislative Audit within 20 days
following the conclusion of the fiscal year. Within 30 days
thereafter, the Joint Committee on Legislative Audit shall transmit
the State Auditor’s report to the Speaker of the Assembly and to
the Senate Committee on Rules for transmittal to affected policy
committees.

(e) The board, upon determining the final amount of funds
available for investment in substitute alternative investments and
the estimated amount of funds invested pursuant to the first
paragraph of this section, shall submit that information to the
Governor and the Joint Committee on Legislative Audit. Thereafter,
the Joint Committee on Legislative Audit shall transmit the report
of the State Auditor to the Speaker of the Assembly and the Senate
Committee on Rules for transmittal to the affected policy
committees.

end delete

SEC. 2.  

Section 20235 of the Government Code is amended
to read:

20235.  

(a) The board shall submit a review of this system’s
assets to the Legislature on a begin delete quarterly end delete begin insert semiannual end insert basis. The report
shall also be made available to all contracting agencies. The report
shall begin delete do both of the following: end delete begin insert end insert begin insert discuss the system’s assets,
including review of all defined benefit trusts and defined
contribution plans, and shall contain the following information: end insert

begin delete

(1) Discuss this system’s portfolio and contain the following
information:

(A) Concentration, current holdings at cost and market value,
of equities.

(B) Concentration, current holdings at cost and market value,
of fixed income instruments.

(C) Current holdings at cost and market value of real estate
equities.

(D) Current holdings at cost and market value of mortgages.

(E) Options and forward commitments.

(F) Cash and cash equivalents.

(2) Disclose the following information on the rate of return of
the fund by type of asset:

(A) Time-weighted return on a five-year, three-year, and
one-year basis.

(B) Dollar-weighted return on a five-year, three-year, and
one-year basis.

(C) Summary of performance of an alternative theoretical
portfolio containing all investments and performance of comparable
universes and other indexes.

end delete begin insert

(1) Defined benefit trust and defined contribution plan total
current market value and allocation of investments across primary
asset classes, if appropriate.

end insert begin insert

(2) Review of all portfolio and partnership current market value
by primary asset class and strategy.

end insert begin insert

(3) Historical time-weighted return for all defined benefit trusts,
defined contribution plans, portfolios, and partnerships on a
five-year, three-year, and one-year basis.

end insert begin insert

(4) Summary of performance of an alternative theoretical
portfolio for all defined benefit trusts and defined contribution
plans based upon policy benchmarks approved by the board.

end insert begin insert

(5) Description of policy benchmark components represented
in the alternative theoretical portfolio.

end insert

(b) Upon written request from a contracting agency that does
not participate in a risk pool, the board shall begin insert also end insert submit begin delete additional end delete
quarterly reports to the contracting agency as described in this
subdivision. For the first quarter of the fiscal year, the report shall
be submitted within 120 days after the end of the quarter and shall
contain the agency’s beginning balance for the fiscal year. For the
second and third quarters of the fiscal year, the report shall be
submitted to the contracting agency within 90 days after the end
of the quarter. For the fourth quarter of the fiscal year, the report
shall be submitted within 180 days after the end of the quarter and
shall contain the agency’s balance as of the end of the fiscal year.
The report shall include, but need not be limited to, the following:

(1) All contributions made to the system by the contracting
agency and its employees. The contributions shall be reported as
the amounts paid and the amounts due from the contracting agency
for both employer contributions and employee contributions.

(2) All benefits paid by the system to members of the contracting
agency and their survivors and beneficiaries, including payments
on account of pension, death, and disability benefits, and
withdrawals of contributions. The benefits shall be reported as the
total monthly allowances paid to retirees, survivors, and
beneficiaries; the amount of total refunds paid; and the amount of
any other lump sums paid.

(3) An amount that represents any miscellaneous adjustments,
including transfers in and out.

(4) That quarter’s portion of the agency’s estimated share of
the system’s administrative costs that shall be assessed at the end
of the fiscal year.

(5) The rate of return for the system during the quarter as
reported to the board by the investment committee.

(6) The estimated interest applied to the agency’s account as
determined by the system. For purposes of this paragraph, the
“estimated interest applied” means the estimate of the annual net
earnings, as defined in Section 20052, and is subject to adjustment
at the end of the fiscal year based on the actual dollar-weighted
amount of investment return that shall be credited to the agency’s
account for the fiscal year. The report for the fourth quarter of the
fiscal year shall also include the actual dollar-weighted amount of
investment return for the fiscal year that shall be credited to the
contracting agency’s account.

(c) Upon written request from a contracting agency that
participates in a risk pool, the board shall submit to the contracting
agency quarterly reports that reflect the total contributions made
to the system by agencies in the risk pool, the total benefits paid
by the system with respect to the risk pool, the total estimated
share of administrative costs for the risk pool, and the total
estimated share of investment returns for the risk pool.

(d) A contracting agency requesting quarterly reports pursuant
to subdivision (b) or (c) shall pay a fee, in an amount determined
by the board, not to exceed one thousand five hundred dollars
($1,500) quarterly per agency while the manual process of
collecting the information is in use.

(e) Any report received by a contracting agency pursuant to this
section shall be made available by the agency to any employee
organization that represents the agency’s employees and that
requests a copy of the report.

SEC. 3.  

Section 21002 of the Government Code is amended
to read:

21002.  

A member who returns to active begin insert state end insert service following
an employer-approved uncompensated leave of absence because
of his or her serious illness or injury may begin delete purchase end delete begin insert elect to receive end insert
service credit for that period of absence begin delete upon the payment end delete begin insert at any
time prior to retirement end insert of contributions as specified in Sections
21050 and 21052. The purchase of additional service credit
pursuant to this section shall not reduce the amount of service
credit that the member is eligible to purchase pursuant to this
chapter. A member may purchase service credit pursuant to this
section for a leave of absence that occurred either before or after
the effective date of these provisions.

SEC. 4.  

Section 21013 of the Government Code is amended
to read:

21013.  

“Leave of absence” also means any time, up to one
year, during which a member is granted an approved maternity or
paternity leave and returns to begin delete employment end delete begin insert active state service end insert at
the end of the approved leave for a period of time at least equal to
that leave. Any member begin delete electing end delete begin insert may elect end insert to receive service credit
for that leave of absence begin delete shall make end delete begin insert at any time prior to retirement
by making end insert the contributions as specified in Sections 21050 and
21052. This section applies to both past and future maternity or
paternity leaves of absences by members of the system.