BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 609
Lou Correa, Chair Hearing date: June 28, 2010
AB 609 (Conway) as amended 6/22/10 FISCAL: NO
'37 ACT: LIMITS ON ADMINISTRATIVE COSTS
HISTORY :
Sponsor: State Association of County Retirement Systems
(SACRS)
Prior legislation: AB 1124 (Karnette),
Chapter 327, Statutes of 2007
ASSEMBLY VOTES :
PER & SS 6-0 5/06/09
Assembly Floor 77-0 6/03/09
SUMMARY :
This bill increases the amount county retirement systems that
participate in the County Employees Retirement Act of 1937
('37 Act) are permitted to spend on administration costs and
changes the base upon which those costs are calculated. In
addition, it exempts legal services and litigation costs from
this definition of administrative costs.
BACKGROUND AND ANALYSIS :
1) Existing '37 Act law provides:
a) that the annual budget for administrative expenses of a
county retirement system may not exceed eighteen hundredths
of 1% (0.18%) of the total assets of the retirement system ,
and
b) pursuant to Chapter 327, Statutes of 2007 , '37 Act
counties are allowed, until January 1, 2013, to increase
the budget for administration of the retirement system in
years when they incur expenses for software, hardware, and
computer technology consulting services, providing the
annual expenditure does not exceed the greater of:
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Date: 6/23/10 Page 1
- eighteen hundredths of 1% (0.18%) of the total assets
of the retirement system plus $1 million; or
- twenty-three hundredths of 1% (0.23%) of the total
assets of the retirement system.
2) This bill :
a) would increase the amount county retirement systems
that participate in the County Employees Retirement Act of
1937 ('37 Act) are permitted to spend on administration
from eighteen hundredths of one percent (0.18%) to
twenty-five hundredths of one percent (0.25%),
b) changes the base upon which the existing limit is
calculated from total assets of the system to the system's
accrued actuarial liability,
c) exempts legal services and costs of litigation from
being administrative costs of the system for purposes of
this funding limitation, and
d) specifies that in years when systems incur expenses for
software, hardware, and computer technology consulting
services, the annual expenditure may not exceed the greater
of:
i. twenty-five hundredths of 1% (0.25%) of the accrued
actuarial liability of the retirement system plus $1
million; or
ii. twenty-three hundredths of 1% (0.23%) of the accrued
actuarial liability of the retirement system.
(The sponsor informs the committee that a subsequent
amendment will remove this provision)
FISCAL :
Unknown.
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COMMENTS :
1) What is the effect of changing the base upon which the
limit of administrative costs is calculated ?
The committee is advised that the "accrued actuarial
liability" of a retirement system is usually significantly
higher than the "total assets" the retirement system has on
hand at any given time.
For example, a retirement system that has an assets to
liability ratio of 70% or greater is said to be considered
common. Thus, under the above example, a retirement system
with total assets of $20 billion would have an actuarial
liability of $28.6 billion.
2) Arguments in Support
According to the author, because the cost of administration
of a '37 Act county retirement system is based on the assets
of the retirement system, the current significant decline in
the market value of those assets will result in reduced
operating budgets, potentially in the range of 30% to 50%.
The author states:
"The costs of administration are driven by staff activities
with regard to processing employees into retirement,
disability retirement process, retiree payroll, supporting
accounting responsibilities and IT systems; these day to
day functions make up the bulk of the administrative costs
of system operations. Regardless of investment market
cycles, the responsibility to assist the system's clients
remains relatively constant."
The Orange County Professional Firefighters Association
states that "AB 609 intends "37 Act systems to function
properly regardless of market cycles. It also takes into
account the differing sizes of the twenty "37 Act systems
in this state."
3) SUPPORT:
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State Association of County Retirement Systems (SACRS),
(Sponsor)
Orange County Professional Firefighters' Association,
IAFF Local 3631
4) OPPOSITION :
None to date
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