Amended in Assembly June 8, 2016

Amended in Senate March 28, 2016

Senate Bill No. 1353

Introduced by Senator Pan

February 19, 2016

An act to amend begin delete Sections 7513.6 and 7513.75 of the Government Code, relating to retirement. end delete begin insert Section 22955.1 of the Education Code, relating to state teachers’ retirement. end insert

LEGISLATIVE COUNSEL’S DIGEST

SB 1353, as amended, Pan. begin delete Public employee retirement systems: prohibited investments. end delete begin insert State Teachers’ Retirement System: funding. end insert

begin insert

Existing law, the Teachers’ Retirement Law, establishes the State Teachers’ Retirement System and creates the Defined Benefit Program of the State Teachers’ Retirement Plan, which provides a defined benefit to members of the program, based on final compensation, credited service, and age at retirement, subject to certain variations. The Defined Benefit Program is funded by employer and employee contributions, investment returns, and state appropriations, which are deposited or credited to the Teachers’ Retirement Fund. Existing law prescribes methods for calculating the amounts of employer and employee contributions as well as state appropriations for support of the system. For the 2017-18 fiscal year, and each fiscal year thereafter, existing law requires the board to increase or decrease certain percentages relating to the state appropriation to reflect the contribution required to eliminate the unfunded actuarial obligation of the system. Existing law prohibits these requirements from being construed as applicable to any unfunded actuarial obligation resulting from any benefit increase or change in member or employer contribution rate under this part that occurs after July 1, 1990.

end insert begin insert

This bill would qualify this prohibition to clarify that specified state contributions made in this regard be allocated to reduce any unfunded actuarial obligation resulting from the benefits and contribution rates in effect as of July 1, 1990.

end insert begin delete

The California Constitution grants the retirement board of a public employee retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the retirement fund and system. The California Constitution qualifies this grant of powers by reserving to the Legislature the authority to prohibit investments if it is in the public interest and the prohibition satisfies standards of fiduciary care and loyalty required of a retirement board. Existing law prohibits the boards of administration of the Public Employees’ Retirement System and the State Teachers’ Retirement System from investing, as specified, in Sudan and in thermal coal companies, subject to the boards’ plenary authority and fiduciary responsibility for investment of moneys and administration of the systems. Existing law requires the boards to provide reports to the Legislature in regard to their actions in connection with these provisions.

end delete begin delete

This bill would provide, in connection with the prohibitions described above, that a board determination that an action fails to satisfy constitutional fiduciary responsibilities requires a recorded rollcall vote of the full board, following a presentation and discussion of findings in an open session during a properly noticed public hearing, as specified. The bill would also require that proposed findings be made public 72 hours before board consideration and that the findings and any public comments regarding adopted findings and determinations be included in the required reports to the Legislature.

end delete

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 22955.1 of the end insert begin insert Education Code end insert begin insert is amended
to read: end insert

22955.1.  

(a) Notwithstanding Section 13340 of the
Government Code, commencing July 1, 2003, a continuous
appropriation is hereby annually made from the General Fund to
the Controller, pursuant to this section, for transfer to the Teachers’
Retirement Fund. The total amount of the appropriation for each
year shall be equal to 2.017 percent of the total of the creditable
compensation of the fiscal year ending in the immediately
preceding calendar year upon which members’ contributions are
based, as reported annually to the Director of Finance, the
Chairperson of the Joint Legislative Budget Committee, and the
Legislative Analyst pursuant to Section 22955.5, and shall be
divided into four equal payments. The payments shall be made on,
or the following business day after, July 1, October 1, December
15, and April 15 of each fiscal year.

(b) (1) Commencing July 1, 2014, the amount of the
appropriation required under subdivision (a) shall increase by the
following percentages of the creditable compensation upon which
that appropriation is based:

(A) On July 1, 2014, by 1.437 percent.

(B) On July 1, 2015, by 2.874 percent.

(C) On July 1, 2016, by 4.311 percent.

(2) For fiscal year 2017-18 and each fiscal year thereafter, the
board shall increase or decrease the percentage specified in this
subdivision from the percentage paid during the prior fiscal year
to reflect the contribution required to eliminate the remaining
unfunded actuarial obligation, as determined by the board based
upon a recommendation from its actuary. If a rate increase is
required, the adjustment may be for no more than 0.50 percent per
year of the total of the creditable compensation of the fiscal year
ending in the immediately preceding calendar year upon which
members’ contributions are based. At any time when there is not
an unfunded actuarial obligation as determined by the board, the
percentage specified in this subdivision shall be reduced to zero.

(c) Pursuant to Section 22001 and case law, members are entitled
to a financially sound retirement system. It is the intent of the
Legislature that this section shall provide the retirement fund stable
and full funding over the long term.

(d) This section continues in effect but in a somewhat different
form, fully performs, and does not in any way unreasonably impair,
the contractual obligations determined by the court in California
Teachers’ Association v. Cory, 155 Cal.App.3d 494.

(e) Subdivision (b) shall not be construed to be applicable to
any unfunded actuarial obligation resulting from any benefit
increase or change in begin delete member or employer end delete contribution rate under
this part that occurs after July 1, begin delete 1990. end delete begin insert 1990, except that state
contributions made pursuant to subdivision (b) shall be allocated
to reduce the unfunded actuarial obligation resulting from the
benefits and contribution rates in effect as of July 1, 1990. end insert

(f) The provisions of this section shall be construed and
implemented to be in conformity with the judicial intent expressed
by the court in California Teachers’ Association v. Cory, 155
Cal.App.3d 494.

(g) (1)  Except as described in paragraph (2), this section shall
become inoperative on July 1, 2046, and as of January 1, 2047, is
repealed.

(2) Notwithstanding paragraph (1), on July 1 of the first fiscal
year after a 30-day notice has been sent to the Joint Legislative
Budget Committee and the Controller in compliance with
subdivision (d) of Section 22957, this section shall become
inoperative and, as of the following January 1, is repealed.

begin delete

SECTION 1.  

Section 7513.6 of the Government Code is
amended to read:

7513.6.  

(a) As used in this section, the following definitions
shall apply:

(1) “Active business operations” means a company engaged in
business operations that provide revenue to the government of
Sudan or a company engaged in oil-related activities.

(2) “Board” means the Board of Administration of the Public
Employees’ Retirement System or the Teachers’ Retirement Board
of the State Teachers’ Retirement System, as applicable.

(3) “Business operations” means maintaining, selling, or leasing
equipment, facilities, personnel, or any other apparatus of business
or commerce in Sudan, including the ownership or possession of
real or personal property located in Sudan.

(4) “Company” means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, its
subsidiary or affiliate that exists for profitmaking purposes or to
otherwise secure economic advantage. “Company” also means a
company owned or controlled, either directly or indirectly, by the
government of Sudan, that is established or organized under the
laws of or has its principal place of business in the Republic of the
Sudan.

(5) “Government of Sudan” means the government of Sudan
or its instrumentalities.

(6) “Invest” or “investment” means the purchase, ownership,
or control of stock of a company, association, or corporation, the
capital stock of a mutual water company or corporation, bonds
issued by the government or a political subdivision of Sudan,
corporate bonds or other debt instruments issued by a company,
or the commitment of funds or other assets to a company, including
a loan or extension of credit to that company.

(7) “Military equipment” means weapons, arms, or military
defense supplies.

(8) “Oil-related activities” means, but is not limited to, the export
of oil, extracting or producing oil, exploration for oil, or the
construction or maintenance of a pipeline, refinery, or other oil
field infrastructure.

(9) “Public employee retirement funds” means the Public
Employees’ Retirement Fund described in Section 20062 of this
code, and the Teachers’ Retirement Fund described in Section
22167 of the Education Code.

(10) “Research firm” means a reputable, neutral third-party
research firm.

(11) “Substantial action” means a boycott of the government
of Sudan, curtailing business in Sudan until that time described in
subdivision (m), selling company assets, equipment, or real and
personal property located in Sudan, or undertaking significant
humanitarian efforts in the eastern, southern, or western regions
of Sudan.

(12) “Sudan” means the Republic of the Sudan, a territory under
the administration or control of the Sudan, including but not limited
to, the Darfur region, or an individual, company, or public agency
located in Khartoum, northern Sudan, or the Nile River Valley
that supports the Republic of the Sudan.

(b) The board shall not invest public employee retirement funds
in a company with business operations in Sudan that meets all of
the following criteria:

(1) The company is engaged in active business operations in
Sudan. If that company is not engaged in oil-related activities, that
company also lacks significant business operations in the eastern,
southern, and western regions of Sudan.

(2) Either of the following apply:

(A) The company is engaged in oil-related activities or energy
or power-related operations, or contracts with another company
with business operations in the oil, energy, and power sectors of
Sudan, and the company failed to take substantial action related
to the government of Sudan because of the Darfur genocide.

(B) The company has demonstrated complicity in the Darfur
genocide.

(c) Notwithstanding subdivision (b), the board shall not invest
public employee retirement funds in a company that supplies
military equipment within the borders of Sudan. If a company
provides equipment within the borders of Sudan that may be readily
used for military purposes, including, but not limited to, radar
systems and military-grade transport vehicles, there shall also be
a strong presumption against investing in that company unless that
company implements safeguards to prevent the use of that
equipment for military purposes.

(d) (1) The board shall, without regard to the provisions
regarding competitive bidding, contract with a research firm or
firms to determine those companies that have business operations
in Sudan. Those research firms shall, in the aggregate, obtain data
on a majority of companies with business operations in Sudan. On
or before March 30, 2007, those research firms shall report any
findings to the board and those research firms shall submit further
findings to the board if there is a change of circumstances in Sudan.

(2) In addition to the reports described in paragraph (1), the
board shall take all of the following actions no later than March
30, 2007:

(A) Review publicly available information regarding companies
with business operations in Sudan.

(B) Contact other institutional investors that invest in companies
with business operations in Sudan.

(C) Send written notice to a company with business operations
in Sudan that the company may be subject to this section.

(e) (1) The board shall determine, by the next applicable board
meeting and based on the information and reports described in
subdivision (d), if a company meets the criteria described in
subdivision (b) or (c). If the board plans to invest or has
investments in a company that meets the criteria described in
subdivision (b) or (c), that planned or existing investment shall be
subject to subdivisions (g) and (h).

(2) Investments of the board in a company that does not meet
the criteria described in subdivision (b) or (c) or does not have
active business operations in Sudan are not subject to subdivision
(h), provided that the company does not subsequently meet the
criteria described in subdivision (b) or (c) or engage in active
business operations. The board shall identify the reasons why that
company does not satisfy the criteria described in subdivision (b)
or (c) or does not engage in active business operations in the report
to the Legislature described in subdivision (i).

(f) (1) Notwithstanding subdivision (e), if the board’s
investment in a company described in subdivision (b) or (c) is
limited to investment via an externally and actively managed
commingled fund, the board shall contact that fund manager in
writing and request that the fund manager remove that company
from the fund as described in subdivision (h). On or before June
30, 2007, if the fund or account manager creates a fund or account
devoid of companies described in subdivision (b) or (c), the transfer
of board investments from the prior fund or account to the fund
or account devoid of companies with business operations in Sudan
shall be deemed to satisfy subdivision (h).

(2) If the board’s investment in a company described in
subdivision (b) or (c) is limited to an alternative fund or account,
the alternative fund or account manager creates an actively
managed commingled fund that excludes companies described in
subdivision (b) or (c), and the new fund or account is deemed to
be financially equivalent to the existing fund or account, the
transfer of board investments from the existing fund or account to
the new fund or account shall be deemed to satisfy subdivision
(h). If the board determines that the new fund or account is not
financially equivalent to the existing fund, the board shall include
the reasons for that determination in the report described in
subdivision (i).

(3) The board shall make a good faith effort to identify any
private equity investments that involve companies described in
subdivision (b) or (c) or are linked to the government of Sudan. If
the board determines that a private equity investment clearly
involves a company described in subdivision (b) or (c) or is linked
to the government of Sudan, the board shall consider, at its
discretion, if those private equity investments shall be subject to
subdivision (h). If the board determines that a private equity
investment clearly involves a company described in subdivision
(b) or (c) or is linked to the government of Sudan and the board
does not take action as described in subdivision (h), the board shall
include the reasons for its decision in the report described in
subdivision (i).

(g) Except as described in subdivision (f) or paragraph (2) of
subdivision (e), the board, in the board’s capacity of shareholder
or investor, shall notify any company described in paragraph (1)
of subdivision (e) that the company is subject to subdivision (h)
and permit that company to respond to the information and reports
described in subdivision (d). The board shall request that the
company take substantial action no later than 90 days from the
date the board notified the company under this subdivision. If the
board determines that a company has taken substantial action or
has made sufficient progress towards substantial action before the
expiration of that 90-day period, that company shall not be subject
to subdivision (h). The board shall, at intervals not to exceed 90
days, continue to monitor and review the progress of the company
until that company has taken substantial action in Sudan. A
company that fails to complete substantial action or continue to
make sufficient progress towards substantial action by the next
time interval shall be subject to subdivision (h).

(h) If a company described in paragraph (1) of subdivision (e)
fails to complete substantial action by the time described in
subdivision (g), the board shall take the following actions:

(1) The board shall not make additional or new investments or
renew existing investments in that company.

(2) The board shall liquidate the investments of the board in
that company no later than 18 months after this subdivision applies
to that company. The board shall liquidate those investments in a
manner to address the need for companies to take substantial action
in Sudan and consistent with the board’s fiduciary responsibilities
as described in Section 17 of Article XVI of the California
Constitution.

(i) On or before January 1, 2008, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe the following:

(1) A list of investments the board has in companies with
business operations in Sudan, including, but not limited to, the
issuer, by name, of the stock, bonds, securities, and other evidence
of indebtedness.

(2) A detailed summary of the business operations a company
described in paragraph (1) has in Sudan and whether that company
satisfies all of the criteria in subdivision (b) or (c).

(3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b) or (c).

(4) If the board has not completely reduced its investments in
a company that satisfies the criteria in subdivision (b) or (c), when
the board anticipates that the board will reduce all investments in
that company or the reasons why a sale or transfer of investments
is inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.

(5) Any information described in subdivision (e).

(6) A detailed summary of investments that were transferred to
funds or accounts devoid of companies with business operations
in Sudan as described in subdivision (f).

(j) If the board voluntarily sells or transfers all of its investments
in a company with business operations in Sudan, this section shall
not apply except that the board shall file a report with the
Legislature related to that company as described in subdivision
(i).

(k) (1) Nothing in this section shall require the board to take
action as described in this section unless the board determines, in
good faith, that the action described in this section is consistent
with the fiduciary responsibilities of the board as described in
Section 17 of Article XVI of the California Constitution.

(2) A determination that an action described in this section
would fail to satisfy the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution shall require a recorded rollcall vote of the full board,
following a presentation and discussion of findings in open session,
during a properly noticed public hearing of the full board. All
proposed findings of the board shall be made public 72 hours
before they are considered by the board. The findings and any
public comments regarding the adopted findings and determinations
made pursuant to this paragraph shall be included in the report to
the Legislature required by subdivision (i).

(l) Subdivision (h) shall not apply to any of the following:

(1) Investments in a company that is primarily engaged in
supplying goods or services intended to relieve human suffering
in Sudan.

(2) Investments in a company that promotes health, education,
journalistic, or religious activities in or welfare in the western,
eastern, or southern regions of Sudan.

(3) Investments in a United States company that is authorized
by the federal government to have business operations in Sudan.

(m) This section shall remain in effect only until one of the
following occurs, and as of the date of that action, is repealed:

(1) The government of Sudan halts the genocide in Darfur for
12 months as determined by both the Department of State and the
Congress of the United States.

(2) The United States revokes its current sanctions against
Sudan.

SEC. 2.  

Section 7513.75 of the Government Code is amended
to read:

7513.75.  

(a) The Legislature finds and declares all of the
following:

(1) The combustion of coal resources is the single largest
contributor to global climate change in the United States.

(2) Climate change affects all parts of the California economy
and environment, and the Legislature has adopted numerous laws
to mitigate greenhouse gas emissions and to adapt to a changing
climate.

(3) The purpose of this section is to require the Public
Employees’ Retirement System and the State Teachers’ Retirement
System, consistent with, and not in violation of, their fiduciary
responsibilities, to divest their holding of thermal coal power as
one part of the state’s broader efforts to decarbonize the California
economy and to transition to clean, pollution free energy resources.

(b) As used in this section, the following definitions apply:

(1) “Board” means the Board of Administration of the Public
Employees’ Retirement System or the Teachers’ Retirement Board
of the State Teachers’ Retirement System, as applicable.

(2) “Company” means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, or
its subsidiary or affiliate, that exists for profit-making purposes or
to otherwise secure economic advantage.

(3) “Investment” means the purchase, ownership, or control of
publicly issued stock, corporate bonds, or other debt instruments
issued by a company.

(4) “Public employee retirement funds” means the Public
Employees’ Retirement Fund described in Section 20062 of this
code, and the Teachers’ Retirement Fund described in Section
22167 of the Education Code.

(5) “Thermal coal” means coal used to generate electricity, such
as that which is burned to create steam to run turbines. Thermal
coal does not mean metallurgical coal or coking coal used to
produce steel.

(6) “Thermal coal company” means a publicly traded company
that generates 50 percent or more of its revenue from the mining
of thermal coal, as determined by the board.

(c) The board shall not make additional or new investments or
renew existing investments of public employee retirement funds
in a thermal coal company.

(d) The board shall liquidate investments in a thermal coal
company on or before July 1, 2017. In making a determination to
liquidate investments, the board shall constructively engage with
a thermal coal company to establish whether the company is
transitioning its business model to adapt to clean energy generation,
such as through a decrease in its reliance on thermal coal as a
revenue source.

(e) On or before January 1, 2018, the board shall file a report
with the Legislature, in compliance with Section 9795, and the
Governor, which shall include the following:

(1) A list of thermal coal companies of which the board has
liquidated its investments pursuant to subdivision (d).

(2) A list of companies with which the board engaged pursuant
to subdivision (d) that the board established were transitioning to
clean energy generation, with supporting documentation to
substantiate the board’s determination.

(3) A list of thermal coal companies of which the board has not
liquidated its investments as a result of a determination made
pursuant to subdivision (f) that a sale or transfer of investments is
inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution and the board’s findings adopted in support of that
determination.

(f) (1) Nothing in this section shall require a board to take action
as described in this section unless the board determines in good
faith that the action described in this section is consistent with the
fiduciary responsibilities of the board described in Section 17 of
Article XVI of the California Constitution.

(2) A determination that an action described in this section
would fail to satisfy the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution shall require a recorded rollcall vote of the full board,
following a presentation and discussion of findings in open session,
during a properly noticed public hearing of the full board. All
proposed findings of the board shall be made public 72 hours
before they are considered by the board. The findings and any
public comments regarding the adopted findings and determinations
made pursuant to this paragraph shall be included in the report to
the Legislature required by subdivision (e).

end delete