BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1247|
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THIRD READING
Bill No: AB 1247
Author: Fletcher (R)
Amended: 8/16/11 in Senate
Vote: 21
SENATE PUBLIC EMPLOYMENT & RETIRE. COMM. : 5-0, 6/27/11
AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 75-0, 5/26/11(Consent) - See last page for
vote
SUBJECT : Public retirement systems: reporting
SOURCE : Author
DIGEST : This bill modifies the pension reform
transparency reporting requirements that were enacted last
year as part of the 2010-11 Budget package that requires
the California Public Employees Retirement System to report
its investment returns, amortization period, and discount
rate using specific analytical guidelines every time
contribution rates are adopted for all employers.
ANALYSIS : Existing law, pursuant to SB 867
(Hollingsworth) Chapter 733, Statutes of 2010:
1. Requires the California Public Employees' Retirement
System (CalPERS) to report its investment returns,
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amortization period, and discount rates using specific
analytical guidelines every time it adopts contribution
rates for all employers.
2. Requires the California State Treasurer, within 30 days
following receipt of the report, to report during a
publicly noticed floor session of each house of the
Legislature on the following:
A. The role investment return assumptions and
amortization periods have on contribution rates.
B. The consequences for future state budgets if the
investment return assumptions are not realized.
C. Whether the amortization period exceeds the
estimated remaining service periods of employees
covered by the contributions.
D. His/her opinion of the reasonableness of
CalPERS' calculation of the contribution rates.
3. 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.
This bill:
1. Requires CalPERS to report annually rather than every
time they adopt contribution rates.
2. Limits the scope of the report to only apply to state
employee retirement plans.
3. Revises the adjustments of the investment return
assumptions and discount rates CalPERS is required to
use in the report.
4. Deletes the requirement that CalPERS report to the
Legislature, utilizing a specified investment rate
assumption, any time it forecasts contribution rates.
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5. Deletes the role of the Treasurer and the requirement to
express an opinion of the reasonableness of CalPERS'
calculation of the contribution rates.
6. Requires that the Chair of the California Actuarial
Advisory Panel (CAAP), or his/her panel designee, report
to the Legislature in a publicly noticed, joint hearing
of the Senate and Assembly public employment committees.
Comments
As part of their findings and recommendations on the
2011-12 Budget, the Legislative Analyst's Office (LAO)
recommends 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 recommends
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 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/16/11)
California Public Employees' Retirement System (support if
amended)
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 bill would
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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 one percent variation in
reporting rates (instead of the current two percent 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.
ASSEMBLY FLOOR : 75-0, 5/26/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Carter,
Chesbro, Conway, Cook, 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, 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
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NO VOTE RECORDED: Campos, Cedillo, Davis, Gorell, Jones
CPM:do 8/16/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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