BILL ANALYSIS
AB 1584
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1584 (Public Employees Committee)
As Amended September 1, 2009
2/3 vote. Urgency
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|ASSEMBLY: |72-0 |(July 16, 2009) |SENATE: |38-0 |(September 3, |
| | | | | |2009) |
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Original Committee Reference: P.E.,R.& S.S.
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 five 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
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Section 17 of Article XVI of the California Constitution.
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.
10)Contains an urgency clause, allowing this bill to take effect
immediately upon enactment.
The Senate amendments make minor and technical changes to the
bill.
EXISTING LAW :
1)Restricts, under the Political Reform Act, former employees
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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 violation of these provisions constitutes a
misdemeanor, subject to civil liability and administrative
fines, up to $5,000 per occurrence.
2)Prohibits, under the Public Contract Code, 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)Prohibits, under a provision of the Government Code, 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)States that 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 a one-year statutory prohibition that applies to
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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)Prohibits, under AB 246 (Torrico), Chapter 315, Statutes of
2007, a member of the board of retirement of a county
operating a retirement system under the County Employees'
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.
AS PASSED BY THE ASSEMBLY, this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
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
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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."
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
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