BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 2122
Deborah V. Ortiz, Chair Hearing date: April 24, 2000
SB 2122 (Ortiz) as amended 4/24/00 FISCAL: YES
PERS AND STRS: JOINT INVESTMENT ADVISORY PANEL
HISTORY :
Sponsor: State Controller Kathleen Connell
Prior legislation: Proposition 162 (adopted in 1992)
SUMMARY :
Would establish the Joint Retirement System Investment
Advisory Panel to make recommendations to the Boards of
Administration of the State Teachers' Retirement System
(STRS) and the Public Employees' Retirement System (PERS) on
active and passive investments, asset allocation, and the
sharing of information, until January 1, 2004.
ANALYSIS :
1) Existing language in the State Constitution , pursuant to
Proposition 162 (adopted in 1992), provides that pension
boards such as the PERS and STRS Boards of Administration
"?shall have plenary authority and fiduciary responsibility
for investment monies and administration?." of the retirement
systems (Section 17 of Article XVI).
"Plenary" is defined by Funk and Wagnalls as, "Full in all
respects or requisites; entire; absolute; complete."
2) This bill creates the Joint Retirement System Advisory
Panel (advisory panel), until 2004, consisting of the
following members:
- The Governor (or representative),
- The Treasurer (or representative),
- The Controller (or representative),
- Two members of the STRS Board of Administration for
one-year, non-repeating terms,
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- Two elected members of the PERS Board of Administration
for one-year, non-repeating terms, and
- Six investment professionals (with specified experience
required), for two-year terms, appointed jointly by the
Treasurer and Controller, and confirmed by the Senate, with
reappointment permitted.
2) The proposed advisory panel shall :
a) annually elect a chair, with all members voting except
the six investment advisors,
b) meet at least quarterly or at the call of the chair,
c) receive no salary or compensation or reimbursement of
expenses,
d) have its expenses shared equally by PERS and STRS, and
e) have its staff needs supplied by PERS and STRS.
3) This bill provides:
a) that the advisory panel shall not establish investment
policies ,
b) that the advisory panel shall , consistent with the
applicable provisions of the State Constitution:
- review asset allocation and make recommendations to
PERS and STRS once a year before their annual asset
allocation workshops,
- analyze active versus passive management of investments
from a "strategic perspective," and
- facilitate information sharing and education between
PERS and STRS.
COMMENTS :
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1) The committee is advised that the sponsor's intent in
proposing this bill is to accomplish two goals:
a) to improve the working relationship in the investment
area between the PERS and STRS boards, and
b) to provide both boards advice from key professionals in
the investment field in high level policy issues such as
asset allocation and investment policy.
2) This bill would create an advisory panel similar to that
which has functioned for many years in New York State,
advising the State Comptroller, who has sole investment
authority of the public NY Common Fund.
The New York advisory panel:
a) was established by statute, is made up of investment
professionals, the majority of whom are current or former
chief investment officers in various private investment
funds such as General Motors pension fund, the Princeton
Fund, the Common Fund, U.S. Steel, etc.,
b) meets quarterly and provides a sounding board for the
Comptroller on various "big picture" issues, looking at the
long-term focus on the fund, giving feedback on various
fund managers, and examining the methodology and results of
the asset allocation and liability studies,
c) provides a non-political, highly talented group of
investment professionals who can provide the fund advise
and information it would be difficult to get from
consultants, and
d) requires that each member must sign a code of ethics,
and cannot profit from any activity arising from being on
this panel.
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3) The sponsor asserts:
"Especially at this crucial juncture when we do not have a
chief investment officer either at PERS or STRS, the boards
of both funds, which are made up of non-investment
professionals, would greatly benefit from the expertise and
knowledge base such a panel would offer in California.
Other states such as Virginia have established similar
boards.
In and of itself, this board would help information sharing
across both boards. We are also looking at language which
would specifically authorize both boards to increase their
information sharing to enable these boards, which are both
supported with California taxpayers' dollars, to improve
their performance and decrease costs, through coordination
and increased communication."
4) According to the PERS bill analysis:
"Consistent with its fiduciary duties, PERS has
well-established policies and sophisticated methodologies
for establishing asset allocation and tactical investment
strategies. The expertise and advice of highly qualified
investment professionals, consultants, and advisors is an
integral part of this process. PERS Investment Committee
participates in an Asset/Liability Workshop every 12 to 18
months. The objectives of these workshops are to better
understand asset/liability management, assess decision
factors critical to asset allocation policy decisions, and
provide direction regarding key issues. Independent asset
allocation analyses and recommendations are also presented
to the Investment Committee during these workshops.
Nearly one-half of the members of the proposed joint
advisory board already sit on the boards of administration
for PERS and STRS. This appears to be unnecessarily
duplicative."
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5) SUPPORT :
American Federation of State, County and Municipal
Employees(AFSCME)
6) OPPOSITION :
PERS Board of Administration
Peace Officers Research Association of California
(PORAC)
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