BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 903|
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THIRD READING
Bill No: SB 903
Author: Anderson (R)
Amended: As introduced
Vote: 21
SEN. PUBLIC EMPLOY. & RETIRE. COMMITTEE : 5-0, 5/2/11
AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas
SENATE JUDICIARY COMMITTEE : 5-0, 5/3/11
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : 9-0, 5/16/11
AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley,
Price, Runner, Steinberg
SUBJECT : Public retirement systems: investments: Iran
SOURCE : Author
DIGEST : This bill requires that any decision, by the
Boards of Administration of the California Public Employees
Retirement System and the California State Teachers
Retirement System, to divest from a company as specified
under the California Public divest from Iran Act because
doing so would be a breach of fiduciary duty, must be made
in a public hearing of the full board after proper public
notice and an opportunity for public comment.
ANALYSIS :
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Existing Law
1.Pursuant to the State Constitution, as amended by
Proposition 162 (The California Pension Protection Act of
1972), provides that the boards of administration of
California's public retirement system 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, which added Constitutional language
providing that the Legislature also retained its
authority, by state "?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.Provides, pursuant to the State Constitution, 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 purpose of providing benefits to,
participants and their beneficiaries, minimizing employer
contributions thereto, and defraying reasonable expenses
of administering the system,"
4.Provides, pursuant to the Bagley-Keen Open Meeting Act,
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,
created by AB 221 (Anderson), Chapter 671, Statutes of
2007, which prohibits the boards of the California Public
Employees' Retirement System (CalPERS) and the California
Teachers' Retirement System (CalSTRS) from investing
public employee retirement funds in companies with
business operations in the defense or nuclear sector of
Iran, or that are involved in the development of Iranian
petroleum or natural gas resources and are su bject to
specified federal sanctions.
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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 supports for
acts of terrorism, and the President determines and
certifies that Iran has ceased specified efforts
regarding nuclear materials and technologies.
7.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 requires that any determination made by the
CalPERS and CalSTRS boards that an action, as specified in
the California Public Divest from Iran Act, will be a
breach of fiduciary duty, be made in a public hearing of
the full board after proper public notice and an
opportunity for public comment.
Comments
CalPERS and CalSTRS Activities in Compliance with AB 221
(Anderson), Chapter 671, Statutes of 2007 . In addition to
providing the required reports to the Legislature regarding
specified divestment activities, both CalPERS and CalSTRS
provided an update during a joint information hearing by
the Senate Public Employment and Retirement Committee and
the Assembly Public Employees, Retirement and Social
Security Committee in February of 2010.
During that hearing, representatives from both CalPERS and
CalSTRS testified that, pursuant to Chapter 671, they
identified, monitored and engaged companies in their
respective investment portfolios, reviewed their status
under Chapter 671, and taken specified action with some
companies, and will continue their commitment to compliance
with the Act.
As a result of activities pursuant to Chapter 671,
withdrawals by these major multinational corporations
reduced the value of CalPERS' portfolio holdings in
companies subject to divestment form $2 billion to
approximately $300 million, which potentially could be
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subject to further divestment.
CalSTRS has continued to monitor the situation with regards
to Iran and engage companies identified as having ties to
the country. According to CalSTRS, CalSTRS has divested
holdings under Chapter 671. Over the past year, CalSTRS
staff has met with identified companies and plans to
continue engagement activities in 2011.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Public investment -- Unknown, likely
minor -- Specials*
Discussion
*Teachers' Retirement Fund and the Public Employee
Retirement Fund
SUPPORT : (Verified 5/18/11)
AMVETS - Department of California
Anti-Defamation League
California Conference of Machinists
California State Commanders Veterans Council
California Teamsters Public Affairs Council
Jewish Public Affairs Committee
Military Officers Association of America - California
Council of Chapters
OPPOSITION : (Verified 5/18/11)
California State Teachers' Retirement System
ARGUMENTS IN SUPPORT : According to the Jewish Public
Affairs Committee (JPAC), "It is clear from both
legislative oversight hearing and the reports issued by
these agencies, particularly CalPERs, that they are
avoiding the intent of the Legislature and have not
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divested. These decisions are based on a questionable
interpretation of fiduciary duty. This bill would
establish a transparent and public process for such a
determination, and would also clarify the burden of making
such a finding by shifting the findings burden to a
specific determination of inconsistency which ism ore in
line with Legislative intent."
JPAC further adds, "The State Legislature passed AB 221 to
joint an international effort, a United States effort and
national movements among the states to put international
pressure on Iran to end its rogue activities. It is
unfortunate that CalPERS continue to defy the Legislature
and hide behind the fiduciary duty when other states have
divested. This bill is a step forward in shedding the
light of day on their efforts to avoid divestment."
ARGUMENTS IN OPPOSITION : According to CalSTRS, "This
measures changes the application of the board's fiduciary
duty pursuant to Section 17 of Article SVI of the
California Constitution relative to investment in Iran.
"Under the California Public Divest from Iran Act, the
CalSTRS board is required to take specified actions unless
the board determines, in good faith, that such actions
would not be consistent with its fiduciary duty. This
measure changes that standard so that the board's standard
for exercising the fiduciary duty would be set much
higher."
In addition, CalSTRS expresses concerns regarding
discussing investment strategies during an open, public
session of the board. CalSTRS states, "The public hearing
requirement runs counter to the Bagley-Keene Open Meeting
Act which authorizes a state body that invests retirement,
pension, or endowment funds to consider investment
decisions in closed session.
"If the board were to debate the fiduciary responsibility
of a specific investment in open session with the required
notice period, the investment would be exposed to a
potentially negative market impact which could result in
significant losses for CalSTRS. These actions would not
serve to maximize the investment and would run counter to
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the board's fiduciary responsibility of maximizing income
for the fund."
CPM:cm 5/18/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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