BILL ANALYSIS Ó SB 216 Page 1 Date of Hearing: June 24, 2015 ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL SECURITY Rob Bonta, Chair SB 216 (Pan) - As Amended June 3, 2015 SENATE VOTE: 34-0 SUBJECT: The Public Employees' Retirement System. SUMMARY: Makes various technical and non-controversial changes to various sections of the Government Code governing the California Public Employees' Retirement System (CalPERS) to maintain and ensure effective administration of the system. Specifically, this bill: 1)Repeals an obsolete statute dating from 1987 that required CalPERS to give first priority to investing not less than 25% of all funds available for new investment in a fiscal year to investment securities and products related to specified real property located in the state. This bill also eliminates corresponding obsolete reporting requirements. 2)Clarifies that CalPERS' authority to audit to determine the correctness of benefits also applies to determining the SB 216 Page 2 eligibility for benefits. 3)Changes, from quarterly to semi-annually, the period by which CalPERS must produce its asset and performance report and submit it to the Legislature. This bill also eliminates the requirement that the report include the cost basis for CalPERS' holdings and instead requires that the report include asset performance data based on a time-weighted return and a comparison to alternative portfolios based on policy benchmarks approved by the CalPERS board. 4)Clarifies that a member, upon return to active state service following an employer-approved leave due to serious illness or injury, may elect to purchase additional service credit for the uncompensated period of absence. This is consistent with current business practices and processes. 5)Clarifies that a member who wishes to purchase service credit for an approved medical leave or parental leave must do so after returning to active public employment and prior to retirement. EXISTING LAW: 1)Grants CalPERS, under the California Constitution, plenary SB 216 Page 3 authority over investment decisions and specifically authorizes CalPERS to invest in accordance with modern portfolio theory. 2)Grants CalPERS broad authority to review the records of local government employers that have chosen to contract with CalPERS for retirement benefits to ensure that individuals are receiving the benefits to which they are entitled. Employers are required to provide any information that CalPERS requires in the administration of the System. 3)Requires CalPERS to submit a review of its assets to the Legislature and contracting agencies on a quarterly basis and provides that the report include specific information, including the cost basis and market value of investments by asset class. 4)Provides that a CalPERS member who returns to active service after an approved medical leave or parental leave may purchase service credit for that period of absence, as specified. FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs. COMMENTS: CalPERS annually sponsors "housekeeping" legislation to provide technical and non-controversial amendments to portions of the Government Code that CalPERS administers. SB 216 Page 4 Proposition 162 granted public retirement systems plenary authority over the systems' investment programs. Moreover, Proposition 21 authorized public retirement systems to invest assets in accordance with modern portfolio theory. Certain requirements in the statutes predate these constitutional changes and this bill repeals and updates certain of these outdated provisions with regard to CalPERS' investment program. Some investment program reporting requirements have also become outdated and do not reflect current practices. According to CalPERS, this bill will save money by allowing CalPERS to sync legislative reporting with other investment reports CalPERS produces, include more useful information while eliminating requirements for information that CalPERS does not currently provide, and allow more flexibility in reporting to keep current with industry standards as they change in the future. While CalPERS staff have the authority to review whether individuals were eligible to receive the retirement benefits they have received, some CalPERS contracting employers have unsuccessfully argued that because existing law does not explicitly use the word 'eligibility' then the employers do not have to provide relevant records to CalPERS auditing staff. This bill simply clarifies existing law on this point in order to avoid future misunderstandings. Finally, CalPERS' general rules regarding service credit SB 216 Page 5 purchases require that an individual must be actively employed by a CalPERS employer or one of the reciprocal public employers at the time of the service credit purchase election. The election must be made prior to the retirement election. Two individual service credit elections do not make this specifically clear, creating confusion for individuals who wish to purchase service credit under those options. REGISTERED SUPPORT / OPPOSITION: Support California Public Employees' Retirement System (Sponsor) Opposition None on file Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916) 319-3957 SB 216 Page 6