BILL NUMBER: SB 216 INTRODUCED
BILL TEXT
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 Section 20194 of the Government Code is repealed.
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.
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 quarterly
semiannual basis. The report shall also be made available to
all contracting agencies. The report shall do both of the
following: discuss the system's assets,
including review of all defined benefit trusts and defined
contribution plans, and shall contain the following
information:
(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.
(1) Defined benefit trust and defined contribution plan total
current market value and allocation of investments across primary
asset classes, if appropriate.
(2) Review of all portfolio and partnership current market value
by primary asset class and strategy.
(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.
(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.
(5) Description of policy benchmark components represented in the
alternative theoretical portfolio.
(b) Upon written request from a contracting agency that does not
participate in a risk pool, the board shall also submit
additional 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 state service
following an employer-approved uncompensated leave of absence because
of his or her serious illness or injury may purchase
elect to receive service credit for that period
of absence upon the payment at any time prior
to retirement 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 employment active state
service at the end of the approved leave for a period of time
at least equal to that leave. Any member electing
may elect to receive service credit for that leave of
absence shall make at any time prior to
retirement by making 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.