BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 609|
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THIRD READING
Bill No: AB 609
Author: Conway (R)
Amended: 6/22/10 in Senate
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 5-1, 6/28/10
AYES: Correa, Corbett, Ducheny, Hollingsworth, Liu
NOES: Ashburn
ASSEMBLY FLOOR : 77-0, 6/3/09 - See last page for vote
SUBJECT : County employees retirement: administrative
costs
SOURCE : State Association of County Retirement Systems
DIGEST : 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.
ANALYSIS :
Existing "37 Act law:
1.Provides that the annual budget for administrative
expenses of a county retirement system may not exceed
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eighteen hundredths of 1% (0.18%) of the total assets of
the retirement system.
2.Allows '37 Act counties, pursuant to AB 1124 (Karnette),
Chapter 327, Statutes of 2007, 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:
A. Eighteen hundredths of 1% (0.18%) of the total
assets of the retirement system plus $1 million.
B. Twenty-three hundredths of 1% (0.23%) of the total
assets of the retirement system.
This bill:
1.Increases the amount '37 Act county retirement systems
are permitted to spend on administration from eighteen
hundredths of 1% (0.18%) to twenty-five hundredths of 1%
(0.25%).
2.Changes the base upon which the existing limit is
calculated from total assets of the system to the
system's accrued actuarial liability.
3.Exempts legal services and costs of litigation from being
administrative costs of the system for purposes of this
funding limitation.
4.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:
A. Twenty-five hundredths of 1% (0.25%) of the
accrued actuarial liability of the retirement system
plus $1 million.
B. Twenty-three hundredths of 1% (0.23%) of the
accrued actuarial liability of the retirement system.
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Comments
What is the effect if changing the base upon which the
limit of administrative costs is calculated?
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/30/10)
State Association of County Retirement Systems (source)
Peace Officers Research Association of California
Orange County Professional Firefighters Association, IAFF
Local 3631
ARGUMENTS IN SUPPORT : According to the author's office,
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 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, "AB 609 intends '37 Act systems to function
property regardless of market cycles. It also takes into
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account the differing sizes of the twenty '37 Act systems
in the state."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
Duvall, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nava, Nestande, Niello, Nielsen, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Bass
NO VOTE RECORDED: Block, DeVore, Yamada
CPM:cm 6/30/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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