BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1151|
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THIRD READING
Bill No: AB 1151
Author: Feuer (D) and Blumenfield (D), et al.
Amended: 7/12/11 in Senate
Vote: 21
SENATE PUBLIC EMPLOYMENT & RETIRE.COMM. : 5-0, 6/13/11
AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas
SENATE JUDICIARY COMMITTEE : 5-0, 7/5/11
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : 9-0, 8/25/11
AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley,
Price, Runner, Steinberg
ASSEMBLY FLOOR : 79-0, 5/31/11 - See last page for vote
SUBJECT : Public retirement systems: investments: Iran
SOURCE : Author
DIGEST : This bill amends the California Public Divest
from Iran Act to, among other things, clarify that the
Board of Administration of the California Public Employees
Retirement System and the Teacher's Retirement Board of the
California State Teachers' Retirement System must divest
pension funds, as specified, unless to do so would fail to
satisfy the fiduciary responsibilities of the boards,
modify the types of companies that fall within the scope of
the bill, and require that certain findings and
CONTINUED
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determinations must be made in noticed public hearings.
ANALYSIS :
Existing law:
1. Pursuant to the state Constitution, as amended by
Proposition 162 (The California Pension Protection Act
of 1992), provides that the boards of California's
public retirement systems have "?plenary authority and
fiduciary responsibility for investment of monies and
administration of the system".
2. Pursuant to the state Constitution, as amended by
Proposition 162 added Constitutional language providing
that the Legislature also retained its authority, by
statute "?to prohibit certain investments by a
retirement board where it is in the public interest to
do so, and provided that the prohibition satisfies the
standards of fiduciary care and loyalty required of a
retirement board pursuant to this section".
3. Pursuant to the state Constitution, provides that "the
members of the retirement board of a public pension or
retirement system shall discharge their duties with
respect to the system solely in the interest of, and for
the exclusive purposes of providing benefits to,
participants and their beneficiaries, minimizing
employer contributions thereto, and defraying reasonable
expenses of administering the system".
4. Known as the Bagley-Keene Open Meeting Act provides that
nothing in the Act shall be construed to prevent a state
body that invests retirement, pension, or endowment
funds from holding closed sessions when considering
investment decisions.
5. Establishes the California Public Divest from Iran Act
(AB 221 �Anderson], Chapter 671, Statutes of 2007) which
prohibits the boards of the California Public Employees'
Retirement System (CalPERS) and the California State
Teachers' Retirement System (CalSTRS) from investing
public employee retirement funds in companies with
business operations in the defense and nuclear sectors
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of Iran, or that are involved in the development of
Iranian petroleum or natural gas resources and are
subject to specified federal sanctions, or have
demonstrated complicity with an Iranian organization
that has been labeled as a terrorist organization by the
United States government.
6. Requires the CalPERS and CalSTRS boards to sell or
transfer any assets in a company with business
operations in Iran until the federal government removes
Iran from its list of countries determined to provide
support for acts of terrorism, and the President
determines and certifies that Iran has ceased specified
efforts regarding nuclear materials and technology.
7. Requires the boards to identify and notify any company
that may be subject to divestment. If the company fails
to take corrective measures within one year, as
specified, then the board shall not make any new or
additional investments in that company and, thereafter,
shall liquidate existing investments within 18 months.
8. Requires the CalPERS and CalSTRS boards to file an
annual report with the Legislature detailing relevant
investments in companies subject to divestment, any
actions that the boards have taken to reduce
investments, and a calculation of any costs or losses
associated with compliance.
9. Does not require the boards of CalPERS and CalSTRS to
divest investments and take other prescribed actions, as
specified, unless they determine in good faith that the
action is consistent with their fiduciary duties.
This bill:
1. Specifies the criteria to be applied to companies
subject to divestment to include the following:
A. The company is invested in or engaged in business
operations with entities in the defense or nuclear
sectors of Iran, or has an investment of $20 million
or more in the energy sector of Iran, including a
company that provides oil or liquefied natural gas
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tankers, or products used to construct or maintain
pipelines used to transport oil or liquefied natural
gas, for the energy sector of Iran, and that company
is subject to sanctions under relevant federal law;
or
B. The company has demonstrated complicity with an
Iranian organization that has been labeled as a
terrorist organization by the United States
government.
2. Requires the boards to annually review their investment
portfolios and determine which companies are subject to
divestment based on publicly available information.
3. Requires that the boards' determination as to whether a
company is subject to, or remains subject to, divestment
be based on publicly available information and supported
by findings adopted by a rollcall vote and discussion in
open session during a properly noticed public hearing of
the full board.
4. Requires that all proposed findings of the boards shall
be made public 72 hours before they are considered by
the full board, and the boards shall maintain a list of
interested parties who shall be notified.
5. Specifies that nothing in the bill would require the
boards to take an action pursuant to the above
provisions if the boards determine, in good faith and
based on credible information available to the public,
that an action would fail to satisfy its fiduciary
responsibilities as described in the California
Constitution.
6. Requires that any determination that an action would
fail to satisfy the fiduciary responsibilities of the
board, as described in the California Constitution,
shall be made in a public hearing of the full board
after proper notice and an opportunity for public
comment.
7. Eliminates existing exemptions from the California
Public Divest from Iran Act for companies engaged in
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certain humanitarian, educational, religious,
journalistic, or welfare activities.
8. Makes the provisions of this act severable.
Comments
The California Public Divest from Iran Act prohibits
CalPERS and CalSTRS from investing public employee
retirement funds in a company with business operations in
Iran that is invested in or engaged in business operations
with entities in the defense or nuclear sectors, or the
company is invested or engaged in business operations with
entities involved in the development of petroleum or
natural gas resources, or engaged in business operations
with an Iranian organization that has been labeled as a
terrorist organization by the United States government.
The Act further requires CalPERS and CalSTRS to sell or
transfer any investments in companies with business
operations in Iran until Iran is removed from a U. S.
Department of State's list of countries that support
international terrorism, as specified. However, CalPERS
and CalSTRS are not required to divest if the boards
determine that the company has taken substantial action in
a 90-day period to curtail or end those operations.
Additionally, the boards do not have to take action unless
they determine in good faith that the action is consistent
with its fiduciary responsibilities.
CalSTRS
After enactment of AB 221 (Anderson), Chapter 671, Statutes
of 2007, CalSTRS contracted with external sources to
identify companies that have possible ties to Iran. The
list is reviewed by the Geopolitical Investments Review
Committee, and any companies that are identified as meeting
the requirements of law are engaged with through a letter
requesting information on that company's ties to the
respective investments and holdings. The initial list of
companies with some level of business ties to Iran was
presented to the CalSTRS board in June 2008 and was
comprised of 23 companies. Three of those companies were
already restricted under the Sudan Divestment Act, 18 did
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not meet the restriction criteria, and the last two were
not CalSTRS holdings. One additional company was later
identified as having ties to Iran, but by October 2008, the
CalSTRS' portfolio was free of that company.
Recently, CalSTRS had 29 investments identified as having
ties to Iran. Only seven of those companies were subject
to the restrictions under the Act and CalSTRS has divested
all seven from its portfolio. CalSTRS continues to monitor
and engage companies identified as having ties to Iran and
report annually to the Legislature. To date, CalSTRS has
not made a determination that taking action of divestiture
would be in conflict or be a breach of its fiduciary duty.
CalPERS
CalPERS is the largest public pension plan in the United
States, responsible for over $230 billion in global assets,
which are invested to provide retirement benefits for over
1.6 million members and retirees. The CalPERS board has
the exclusive authority and sole responsibility to
administer system funds to provide benefits to participants
and their beneficiaries, while minimizing employer
contributions and defraying reasonable administrative
expenses.
Existing board policy states that the board will meet in
closed session to discuss investment matters when a public
discussion is likely to impair CalPERS' ability to achieve
its investment objectives. Two specific situations that
trigger a closed session are the discussion of (1) activity
reports concerning the screening and review of potential
investments, and (2) decisions to terminate the contracts
of external managers or advisors.
According to CalPERS, it has fully implemented the
California Public Divest from Iran Act since it became
effective and has complied with all of the reporting
requirements. CalPERS has fully engaged with all of the
companies on its list, and many of the companies have
withdrawn from Iran through the imposition of economic
sanctions by the United Nations, the European Union, Japan,
South Korea, and the United States. However, CalPERS
indicates all actions to divest have been limited by the
board's fiduciary responsibilities. Since passage of the
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Act, CalPERS' portfolio holdings in companies subject to
the Act decreased from $2 billion to about $300 million.
On May 16, 2011, CalPERS announced that "in response to the
impact of federal and international sanctions, the board
adopted a plan to divest shares of the remaining public
companies operating in specific segments of the Iran and
Sudan economies, and that new investments in these
companies would be blocked as well."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
CalSTRS
-------------------minor----------------Special*
CalPERS potentially several hundred
thousandSpecial**
* Teachers Retirement Fund
** Public Employees Retirement Fund
SUPPORT : (Verified 8/29/11)
30 Years After
American Jewish Committee
American Legion, Department of California
AMVETS, Department of California
Anti-Defamation League
Center for the Promotion of Democracy and Human Rights
City of Beverly Hills
Jewish Labor Committee Western Region
Jewish Public Affairs Committee
Military Officers Association of America, California
Council of Chapters
Simon Wiesenthal Center
United Against Nuclear Iran
OPPOSITION : (Verified 8/29/11)
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California Public Employees' Retirement System
ARGUMENTS IN SUPPORT : According to the author's office:
"The State has the responsibility to decide how and where
its financial resources should be invested and California
for decades, has engaged in socially responsible
investing, ranging from divesting pension funds from
companies supporting apartheid in South Africa to
sanctions for human rights violations in Sudan.
California took further action in 2010 by passing AB 1650
(Feuer) to prohibit State and local governments from
entering into or renewing contracts over $1 million with
companies that have restricted business activities in
Iran's petroleum sector."
"This bill would further California's efforts to ensure
that public tax dollars and public pensions are not put
at risk by companies that invest in Iran's energy
sector."
ARGUMENTS IN OPPOSITION :
ASSEMBLY FLOOR : 79-0, 5/31/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani,
Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove,
Hagman, Halderman, Hall, Harkey, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Jeffries, Jones,
Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor,
Mendoza, Miller, Mitchell, Monning, Morrell, Nestande,
Nielsen, Norby, Olsen, Pan, Perea, V. Manuel P�rez,
Portantino, Silva, Skinner, Smyth, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Gorell
CPM:mw 8/29/11 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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