BILL ANALYSIS
AB 1584
Page 1
Date of Hearing: July 1, 2009
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Ed Hernandez, Chair
AB 1584 (Public Employees Committee) - As Amended: June 18,
2009
SUBJECT : Public employees' retirement: retirement boards.
SUMMARY : Requires all public pension systems to adopt a policy
requiring the disclosure of fees paid to investment placement
agents, requires the disclosure of campaign contributions and
gifts made by placement agents to public retirement board
members, as specified, prohibits public retirement board members
from selling investment products to other public retirement
systems, and lengthens post-employment restrictions on
influencing retirement board actions for former system
executives and board members that currently apply to the
California Public Employees' Retirement System (CalPERS) and to
the California State Teachers' Retirement System (CalSTRS) and
extends those expanded provisions to apply to all public
retirement systems in California. Specifically, this bill :
1)Requires public retirement system boards to develop and
implement, on or before June 30, 2010, a policy requiring the
disclosure of payments to placement agents in connection with
system investments with external investment managers.
2)Prohibits an external investment manager or placement agent
that violates the board's disclosure policy from soliciting
new investments from the system for 5 years from the time of
violation but allows the board to reduce this by a majority
vote, in open session, upon the showing of good cause.
3)Prohibits a public retirement system from entering into any
agreement with an external investment manager that does not
provide written consent to comply with the disclosure policy.
4)Provides that the board does not have to take action as
described above unless the board determines, in good faith,
that the action described above is consistent with the
fiduciary responsibilities of the board as described in
Section 17 of Article XVI of the California Constitution.
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5)Requires placement agents to disclose to the retirement board
all campaign contributions he or she has made to any elected
member of the board during the prior 24-month period before
attempting to place any system investments, and to disclose
any subsequent campaign contribution during the time the
placement agent is receiving compensation in connection with a
system investment.
6)Requires placement agents to disclose all gifts he or she has
made to any member of the board during the prior 24-month
period before attempting to place any system investments, and
to disclose any subsequent gifts given during the time the
placement agent is receiving compensation in connection with a
system investment.
7)Prohibits a member or employee of the board from, directly or
indirectly, by himself or herself, or as an agent, partner, or
employee of a person or entity other than the board, selling
or providing any investment product that would be considered
an asset of the fund to any public retirement system in
California.
8)Expands current provisions that apply to CalPERS and CalSTRS
that prohibit high level officers and investment staff, who
have been in those positions for less than five years, from
acting as agents before the boards or staff for a period of
two years after leaving the retirement system, by removing the
five year limitation and including board members, deputy
executive officers and assistant officers to the list of staff
subject to these provisions.
9)Applies these expanded provisions to all public pension plans
in California.
EXISTING LAW :
1)The Political Reform Act restricts former employees and Board
members from being paid to appear before or communicate with
their former agency to influence the agency's actions for a
period of one year following the end of their employment or
term. The Political Reform Act also prohibits state officials
from making, participating in, or influencing government
decisions directly relating to a prospective employer with
whom they are negotiating employment or after they have
reached an employment arrangement. A knowing or willful
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violation of these provisions constitutes a misdemeanor,
subject to civil liability and administrative fines, up to
$5,000 per occurrence.
2)The Public Contract Code prohibits a covered former state
official from entering into a contract for which he or she
engaged in any of the negotiations, transactions, planning,
arrangements, or any part of the decision-making process while
in state service-for a two-year period after separation. For
a one-year period after separation, a covered former state
official may not enter into a contract with the former agency
if he or she was in a policy-making position in that agency in
the same general subject area as the proposed contract. Any
contract entered in violation of these provisions is void, and
a willful violation of these provisions is a misdemeanor.
3)Another provision of the Government Code prohibits a state
officer from having a financial interest in any contract he or
she makes in his or her official capacity. Current law also
prohibits a state officer or employee from engaging in any
employment, activity, or enterprise which is inconsistent,
incompatible, or in conflict with his or her duties as a state
officer or employee.
4)As part of chaptered legislation that allowed the CalPERS
Board of Administration and the Teachers' Retirement Board to
establish the compensation and terms of employment for senior
investment personnel and key system executives, individuals
serving in these positions for less than five years were also
prohibited from influencing the actions of retirement boards
or retirement systems on behalf of any person, other than the
state, within two years after leaving that position.
This created a stricter conflict of interest standard for
retirement system employees in the designated positions,
rather than one-year statutory prohibition that applies to all
other state employees. This change was intended to address
the "revolving door" issue - when CalPERS and CalSTRS hire
high-level executives or investment managers who may use their
new positions to find other opportunities in the private
sector.
5)As enacted by AB 246 (Torrico), Chapter 315, Statutes of 2007,
prohibits a member of the board of retirement of a county
operating a retirement system under the County Employees'
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Retirement Law of 1937 ('37 Act) from selling investment
products that would be considered an asset for the fund to
their own, or any other, '37 Act retirement system.
FISCAL EFFECT : Unknown.
COMMENTS : Recently, federal and state investigators have
alleged that certain placement agents may have paid bribes or
kickbacks in "pay-to-play" arrangements to help their investment
firm clients obtain capital commitments from public pension
funds.
Placement agents are persons that are hired in connection with
an investment transaction as a finder, solicitor, marketer,
consultant, broker or other intermediary to raise money or
investments from, or to obtain access to, an investor such as
public pension fund.
According to the author, "This proposal is intended to ensure
that public pension board members, employees and consultants
conduct business to the highest ethical standard, comply with
all fiduciary responsibilities and actively work to eliminate
actual or perceived conflicts of interest."
According to one of the bill's sponsors, the California State
Controller, "This bill would shed sunlight into the role played
by placement agents in state investment decisions and prohibit
activities that may expose CalPERS, CalSTRS, and local
retirement systems to undue influence by those agents.
"With the recent scandal involving placement agents and the New
York Pension Fund, it is important to ensure that such activity
cannot happen in California. The public also needs to be
assured that California's public pension funds operate under the
highest ethical standards. By strengthening current revolving
door laws and requiring full transparency of any dealings with
placement agents, this bill provides that public assurance."
REGISTERED SUPPORT / OPPOSITION :
Support
John Chiang, California State Controller (Co-sponsor)
Bill Lockyer, California State Treasurer (Co-sponsor)
American Federation of State, County and Municipal Employees
California Public Employees' Retirement System
AB 1584
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California School Employees Association
Los Angeles County Employees Retirement Association
Service Employees International Union
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957