BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 1247
Gloria Negrete McLeod, Chair Hearing date: June 27, 2011
AB 1247 (Fletcher) as amended 6/22/11 FISCAL: YES
PUBLIC RETIREMENT SYSTEMS: REPORTING
HISTORY :
Sponsor: Author
Prior legislation: SB 867 (Hollingsworth)
Chapter 733, Statutes of 2010
ASSEMBLY VOTES :
PER & SS 6-0 5/04/11
Appropriations 17-0 5/18/11
Assembly Floor 75-0 5/26/11
SUMMARY :
Modifies the pension reform transparency reporting
requirements that were enacted last year as part of the
2010-11 budget package that required the California Public
Employees' Retirement System (CalPERS) to report its
investment returns, amortization period, and discount rate
using specific analytical guidelines every time contribution
rates are adopted for all employers.
BACKGROUND AND ANALYSIS :
1) Existing law, pursuant to SB 867 (Hollingsworth) Chapter
733, Statutes of 2010 :
a) requires CalPERS to report its investment returns,
amortization period, and discount rates using specific
analytical guidelines every time it adopts contribution
rates for all employers.
b) requires the Treasurer, within 30 days following
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receipt of the report, to report during a publicly
noticed floor session of each house of the Legislature on
the following:
i) the role investment return assumptions and
amortization periods have on contribution rates.
ii) the consequences for future state budgets if the
investment return assumptions are not realized.
iii) whether the amortization period exceeds the
estimated remaining service periods of employees
covered by the contributions.
iv) his or her opinion of the reasonableness of
CalPERS' calculation of the contribution rates.
c) provides under the State Constitution, pursuant to
Proposition 162, the California Pension Protection Act of
1992, that the retirement board of a public retirement
system has the sole and exclusive power to provide for
actuarial services in order to assure the competency of
the assets of the retirement system.
2) This bill :
a) requires CalPERS to report annually rather than every
time they adopt contribution rates.
b) limits the scope of the report to only apply to state
employee retirement plans.
c) revises the adjustments of the investment return
assumptions and discount rates CalPERS is required to use
in the report.
d) deletes the requirement that CalPERS report to the
Legislature, utilizing a specified investment rate
assumption, any time it forecasts contribution rates.
e) deletes the role of the Treasurer and the requirement
to express an opinion of the reasonableness of CalPERS'
calculation of the contribution rates.
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f) requires that the Chair of the California Actuarial
Advisory Panel report to the Legislature in a publicly
noticed, joint hearing of the Senate and Assembly public
employment committees.
FISCAL :
According to the Assembly Appropriations Committee, CalPERS
estimates minor savings in the range of $50,000 from these
reduced requirements.
COMMENTS :
As part of their findings and recommendations on the 2011-12
budget, the Legislative Analyst Office's (LAO) recommended
that amendments be made to the pension reporting bill that
was passed as part of the 2010 budget package, SB 867
(Hollingsworth), to make the pension reporting requirements
more useful and workable. The LAO recommended requiring the
reporting to be based on more reasonable alternate investment
return rates, focusing the reporting requirements on state
plans instead of the hundreds of CalPERS local plans,
requiring one report per year by CalPERS, and requiring an
official other than the Treasurer to provide the independent
analysis to the Legislature. The LAO suggested this
independent entity could be one or more members of the
California Actuarial Advisory Panel (CAAP). The LAO also
recommended the Legislature consider requiring the report to
be presented to the Legislature every two years and that
instead of being presented to the full Legislature, the
report be presented in a public, joint meeting of the two
houses' budget and/or public employment committees.
1) Arguments in Support
According to the author:
AB 1247 improves the ability of decision makers and the
public to evaluate the future funding status of state
employee pension plans while controlling costs. This
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bill would provide more insight into how the state's
contributions will change if the rate of return is
better or worse than expected by requiring that
estimates of future liabilities and contributions based
on 3 possible rates of return (the assumed rate ? 2%) be
included in the pension system's annual report.
AB 1247 also adopts several LAO recommendations for
streamlining the reporting requirements currently in
law, which will prevent precious pension plan dollars
from being wasted on excessive bureaucracy. Namely, the
frequency and scope of the report are adjusted to rein
in actuarial costs while maintaining transparency.
CalPERS supports the bill because it simplifies the prior
version enacted under last year's bill. However, CalPERS
recommends amendments to use a 1% variation in reporting
rates (instead of the current 2% up and down) because "the
calculation thus obtained would provide a base of information
for external parties to effectively extrapolate to develop
guidelines and analyze alternate return scenarios."
In addition, CalPERS notes that, to avoid a conflict of
interest, the bill should allow the Chairman of the
California Actuarial Advisory Panel or a designee to provide
the report to the Legislature since the current Chairman is
the CalPERS Chief Actuary.
2) Arguments in Opposition
Writing in opposition, the California Teachers Association
states concerns that:
"The additional data AB 1247 is attempting to gather is
specifically designed to manipulate portions of the
actuarial valuation to shorten the projected timelines
for funding to create an inflated shortfall inconsistent
with actuarial standards."
3) SUPPORT :
California Public Employees' Retirement System (CalPERS),
Support if amended
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4) OPPOSITION :
None to date
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