Bill Text: CA SB1353 | 2015-2016 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: State Teachers' Retirement System: funding.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2016-09-14 - Chaptered by Secretary of State. Chapter 350, Statutes of 2016. [SB1353 Detail]

Download: California-2015-SB1353-Amended.html

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BILL NUMBER: SB 1353	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  JUNE 8, 2016
	AMENDED IN SENATE  MARCH 28, 2016

INTRODUCED BY   Senator Pan

                        FEBRUARY 19, 2016

   An act to amend  Sections 7513.6 and 7513.75 of the
Government Code, relating to retirement.   Section
22955.1 of the Education Code, relating to state teachers'
retirement. 



	LEGISLATIVE COUNSEL'S DIGEST


   SB 1353, as amended, Pan.  Public employee retirement
systems: prohibited investments.   State Teachers'
Retirement System: funding.  
   Existing law, the Teachers' Retirement Law, establishes the State
Teachers' Retirement System and creates the Defined Benefit Program
of the State Teachers' Retirement Plan, which provides a defined
benefit to members of the program, based on final compensation,
credited service, and age at retirement, subject to certain
variations. The Defined Benefit Program is funded by employer and
employee contributions, investment returns, and state appropriations,
which are deposited or credited to the Teachers' Retirement Fund.
Existing law prescribes methods for calculating the amounts of
employer and employee contributions as well as state appropriations
for support of the system. For the 2017-18 fiscal year, and each
fiscal year thereafter, existing law requires the board to increase
or decrease certain percentages relating to the state appropriation
to reflect the contribution required to eliminate the unfunded
actuarial obligation of the system. Existing law prohibits these
requirements from being construed as applicable to any unfunded
actuarial obligation resulting from any benefit increase or change in
member or employer contribution rate under this part that occurs
after July 1, 1990.  
   This bill would qualify this prohibition to clarify that specified
state contributions made in this regard be allocated to reduce any
unfunded actuarial obligation resulting from the benefits and
contribution rates in effect as of July 1, 1990.  
   The California Constitution grants the retirement board of a
public employee retirement system plenary authority and fiduciary
responsibility for investment of moneys and administration of the
retirement fund and system. The California Constitution qualifies
this grant of powers by reserving to the Legislature the authority to
prohibit investments if it is in the public interest and the
prohibition satisfies standards of fiduciary care and loyalty
required of a retirement board. Existing law prohibits the boards of
administration of the Public Employees' Retirement System and the
State Teachers' Retirement System from investing, as specified, in
Sudan and in thermal coal companies, subject to the boards' plenary
authority and fiduciary responsibility for investment of moneys and
administration of the systems. Existing law requires the boards to
provide reports to the Legislature in regard to their actions in
connection with these provisions.  
   This bill would provide, in connection with the prohibitions
described above, that a board determination that an action fails to
satisfy constitutional fiduciary responsibilities requires a recorded
rollcall vote of the full board, following a presentation and
discussion of findings in an open session during a properly noticed
public hearing, as specified. The bill would also require that
proposed findings be made public 72 hours before board consideration
and that the findings and any public comments regarding adopted
findings and determinations be included in the required reports to
the Legislature. 
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 22955.1 of the  
Education Code   is amended to read: 
   22955.1.  (a) Notwithstanding Section 13340 of the Government
Code, commencing July 1, 2003, a continuous appropriation is hereby
annually made from the General Fund to the Controller, pursuant to
this section, for transfer to the Teachers' Retirement Fund. The
total amount of the appropriation for each year shall be equal to
2.017 percent of the total of the creditable compensation of the
fiscal year ending in the immediately preceding calendar year upon
which members' contributions are based, as reported annually to the
Director of Finance, the Chairperson of the Joint Legislative Budget
Committee, and the Legislative Analyst pursuant to Section 22955.5,
and shall be divided into four equal payments. The payments shall be
made on, or the following business day after, July 1, October 1,
December 15, and April 15 of each fiscal year.
   (b) (1) Commencing July 1, 2014, the amount of the appropriation
required under subdivision (a) shall increase by the following
percentages of the creditable compensation upon which that
appropriation is based:
   (A) On July 1, 2014, by 1.437 percent.
   (B) On July 1, 2015, by 2.874 percent.
   (C) On July 1, 2016, by 4.311 percent.
   (2) For fiscal year 2017-18 and each fiscal year thereafter, the
board shall increase or decrease the percentage specified in this
subdivision from the percentage paid during the prior fiscal year to
reflect the contribution required to eliminate the remaining unfunded
actuarial obligation, as determined by the board based upon a
recommendation from its actuary. If a rate increase is required, the
adjustment may be for no more than 0.50 percent per year of the total
of the creditable compensation of the fiscal year ending in the
immediately preceding calendar year upon which members' contributions
are based. At any time when there is not an unfunded actuarial
obligation as determined by the board, the percentage specified in
this subdivision shall be reduced to zero.
   (c) Pursuant to Section 22001 and case law, members are entitled
to a financially sound retirement system. It is the intent of the
Legislature that this section shall provide the retirement fund
stable and full funding over the long term.
   (d) This section continues in effect but in a somewhat different
form, fully performs, and does not in any way unreasonably impair,
the contractual obligations determined by the court in California
Teachers' Association v. Cory, 155 Cal.App.3d 494.
   (e) Subdivision (b) shall not be construed to be applicable to any
unfunded actuarial obligation resulting from any benefit increase or
change in  member or employer  contribution rate
under this part that occurs after July 1,  1990. 
 1990, except that state contributions made pursuant to
subdivision (b) shall be allocated to reduce the unfunded actuarial
obligation resulting from the benefits and contribution rates in
effect as of July 1, 1990. 
   (f) The provisions of this section shall be construed and
implemented to be in conformity with the judicial intent expressed by
the court in California Teachers' Association v. Cory, 155
Cal.App.3d 494.
   (g) (1)  Except as described in paragraph (2), this section shall
become inoperative on July 1, 2046, and as of January 1, 2047, is
repealed.
   (2) Notwithstanding paragraph (1), on July 1 of the first fiscal
year after a 30-day notice has been sent to the Joint Legislative
Budget Committee and the Controller in compliance with subdivision
(d) of Section 22957, this section shall become inoperative and, as
of the following January 1, is repealed. 
  SECTION 1.    Section 7513.6 of the Government
Code is amended to read:
   7513.6.  (a) As used in this section, the following definitions
shall apply:
   (1) "Active business operations" means a company engaged in
business operations that provide revenue to the government of Sudan
or a company engaged in oil-related activities.
   (2) "Board" means the Board of Administration of the Public
Employees' Retirement System or the Teachers' Retirement Board of the
State Teachers' Retirement System, as applicable.
   (3) "Business operations" means maintaining, selling, or leasing
equipment, facilities, personnel, or any other apparatus of business
or commerce in Sudan, including the ownership or possession of real
or personal property located in Sudan.
   (4) "Company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, its
subsidiary or affiliate that exists for profitmaking purposes or to
otherwise secure economic advantage. "Company" also means a company
owned or controlled, either directly or indirectly, by the government
of Sudan, that is established or organized under the laws of or has
its principal place of business in the Republic of the Sudan.
   (5) "Government of Sudan" means the government of Sudan or its
instrumentalities.
   (6) "Invest" or "investment" means the purchase, ownership, or
control of stock of a company, association, or corporation, the
capital stock of a mutual water company or corporation, bonds issued
by the government or a political subdivision of Sudan, corporate
bonds or other debt instruments issued by a company, or the
commitment of funds or other assets to a company, including a loan or
extension of credit to that company.
   (7) "Military equipment" means weapons, arms, or military defense
supplies.
   (8) "Oil-related activities" means, but is not limited to, the
export of oil, extracting or producing oil, exploration for oil, or
the construction or maintenance of a pipeline, refinery, or other oil
field infrastructure.
   (9) "Public employee retirement funds" means the Public Employees'
Retirement Fund described in Section 20062 of this code, and the
Teachers' Retirement Fund described in Section 22167 of the Education
Code.
   (10) "Research firm" means a reputable, neutral third-party
research firm.
   (11) "Substantial action" means a boycott of the government of
Sudan, curtailing business in Sudan until that time described in
subdivision (m), selling company assets, equipment, or real and
personal property located in Sudan, or undertaking significant
humanitarian efforts in the eastern, southern, or western regions of
Sudan.
   (12) "Sudan" means the Republic of the Sudan, a territory under
the administration or control of the Sudan, including but not limited
to, the Darfur region, or an individual, company, or public agency
located in Khartoum, northern Sudan, or the Nile River Valley that
supports the Republic of the Sudan.
   (b) The board shall not invest public employee retirement funds in
a company with business operations in Sudan that meets all of the
following criteria:
   (1) The company is engaged in active business operations in Sudan.
If that company is not engaged in oil-related activities, that
company also lacks significant business operations in the eastern,
southern, and western regions of Sudan.
   (2) Either of the following apply:
   (A) The company is engaged in oil-related activities or energy or
power-related operations, or contracts with another company with
business operations in the oil, energy, and power sectors of Sudan,
and the company failed to take substantial action related to the
government of Sudan because of the Darfur genocide.
   (B) The company has demonstrated complicity in the Darfur
genocide.
   (c) Notwithstanding subdivision (b), the board shall not invest
public employee retirement funds in a company that supplies military
equipment within the borders of Sudan. If a company provides
equipment within the borders of Sudan that may be readily used for
military purposes, including, but not limited to, radar systems and
military-grade transport vehicles, there shall also be a strong
presumption against investing in that company unless that company
implements safeguards to prevent the use of that equipment for
military purposes.
   (d) (1) The board shall, without regard to the provisions
regarding competitive bidding, contract with a research firm or firms
to determine those companies that have business operations in Sudan.
Those research firms shall, in the aggregate, obtain data on a
majority of companies with business operations in Sudan. On or before
March 30, 2007, those research firms shall report any findings to
the board and those research firms shall submit further findings to
the board if there is a change of circumstances in Sudan.
   (2) In addition to the reports described in paragraph (1), the
board shall take all of the following actions no later than March 30,
2007:
   (A) Review publicly available information regarding companies with
business operations in Sudan.
   (B) Contact other institutional investors that invest in companies
with business operations in Sudan.
   (C) Send written notice to a company with business operations in
Sudan that the company may be subject to this section.
   (e) (1) The board shall determine, by the next applicable board
meeting and based on the information and reports described in
subdivision (d), if a company meets the criteria described in
subdivision (b) or (c). If the board plans to invest or has
investments in a company that meets the criteria described in
subdivision (b) or (c), that planned or existing investment shall be
subject to subdivisions (g) and (h).
   (2) Investments of the board in a company that does not meet the
criteria described in subdivision (b) or (c) or does not have active
business operations in Sudan are not subject to subdivision (h),
provided that the company does not subsequently meet the criteria
described in subdivision (b) or (c) or engage in active business
operations. The board shall identify the reasons why that company
does not satisfy the criteria described in subdivision (b) or (c) or
does not engage in active business operations in the report to the
Legislature described in subdivision (i).
   (f) (1) Notwithstanding subdivision (e), if the board's investment
in a company described in subdivision (b) or (c) is limited to
investment via an externally and actively managed commingled fund,
the board shall contact that fund manager in writing and request that
the fund manager remove that company from the fund as described in
subdivision (h). On or before June 30, 2007, if the fund or account
manager creates a fund or account devoid of companies described in
subdivision (b) or (c), the transfer of board investments from the
prior fund or account to the fund or account devoid of companies with
business operations in Sudan shall be deemed to satisfy subdivision
(h).
   (2) If the board's investment in a company described in
subdivision (b) or (c) is limited to an alternative fund or account,
the alternative fund or account manager creates an actively managed
commingled fund that excludes companies described in subdivision (b)
or (c), and the new fund or account is deemed to be financially
equivalent to the existing fund or account, the transfer of board
investments from the existing fund or account to the new fund or
account shall be deemed to satisfy subdivision (h). If the board
determines that the new fund or account is not financially equivalent
to the existing fund, the board shall include the reasons for that
determination in the report described in subdivision (i).
   (3) The board shall make a good faith effort to identify any
private equity investments that involve companies described in
subdivision (b) or (c) or are linked to the government of Sudan. If
the board determines that a private equity investment clearly
involves a company described in subdivision (b) or (c) or is linked
to the government of Sudan, the board shall consider, at its
discretion, if those private equity investments shall be subject to
subdivision (h). If the board determines that a private equity
investment clearly involves a company described in subdivision (b) or
(c) or is linked to the government of Sudan and the board does not
take action as described in subdivision (h), the board shall include
the reasons for its decision in the report described in subdivision
(i).
   (g) Except as described in subdivision (f) or paragraph (2) of
subdivision (e), the board, in the board's capacity of shareholder or
investor, shall notify any company described in paragraph (1) of
subdivision (e) that the company is subject to subdivision (h) and
permit that company to respond to the information and reports
described in subdivision (d). The board shall request that the
company take substantial action no later than 90 days from the date
the board notified the company under this subdivision. If the board
determines that a company has taken substantial action or has made
sufficient progress towards substantial action before the expiration
of that 90-day period, that company shall not be subject to
subdivision (h). The board shall, at intervals not to exceed 90 days,
continue to monitor and review the progress of the company until
that company has taken substantial action in Sudan. A company that
fails to complete substantial action or continue to make sufficient
progress towards substantial action by the next time interval shall
be subject to subdivision (h).
   (h) If a company described in paragraph (1) of subdivision (e)
fails to complete substantial action by the time described in
subdivision (g), the board shall take the following actions:
   (1) The board shall not make additional or new investments or
renew existing investments in that company.
   (2) The board shall liquidate the investments of the board in that
company no later than 18 months after this subdivision applies to
that company. The board shall liquidate those investments in a manner
to address the need for companies to take substantial action in
Sudan and consistent with the board's fiduciary responsibilities as
described in Section 17 of Article XVI of the California
Constitution.
   (i) On or before January 1, 2008, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe the following:
   (1) A list of investments the board has in companies with business
operations in Sudan, including, but not limited to, the issuer, by
name, of the stock, bonds, securities, and other evidence of
indebtedness.
   (2) A detailed summary of the business operations a company
described in paragraph (1) has in Sudan and whether that company
satisfies all of the criteria in subdivision (b) or (c).
   (3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b) or (c).
   (4) If the board has not completely reduced its investments in a
company that satisfies the criteria in subdivision (b) or (c), when
the board anticipates that the board will reduce all investments in
that company or the reasons why a sale or transfer of investments is
inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.
   (5) Any information described in subdivision (e).
   (6) A detailed summary of investments that were transferred to
funds or accounts devoid of companies with business operations in
Sudan as described in subdivision (f).
   (j) If the board voluntarily sells or transfers all of its
investments in a company with business operations in Sudan, this
section shall not apply except that the board shall file a report
with the Legislature related to that company as described in
subdivision (i).
   (k) (1) Nothing in this section shall require the board to take
action as described in this section unless the board determines, in
good faith, that the action described in this section is consistent
with the fiduciary responsibilities of the board as described in
Section 17 of Article XVI of the California Constitution.
   (2) A determination that an action described in this section would
fail to satisfy the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California Constitution
shall require a recorded rollcall vote of the full board, following
a presentation and discussion of findings in open session, during a
properly noticed public hearing of the full board. All proposed
findings of the board shall be made public 72 hours before they are
considered by the board. The findings and any public comments
regarding the adopted findings and determinations made pursuant to
this paragraph shall be included in the report to the Legislature
required by subdivision (i).
   (l) Subdivision (h) shall not apply to any of the following:
   (1) Investments in a company that is primarily engaged in
supplying goods or services intended to relieve human suffering in
Sudan.
   (2) Investments in a company that promotes health, education,
journalistic, or religious activities in or welfare in the western,
eastern, or southern regions of Sudan.
   (3) Investments in a United States company that is authorized by
the federal government to have business operations in Sudan.
   (m) This section shall remain in effect only until one of the
following occurs, and as of the date of that action, is repealed:
   (1) The government of Sudan halts the genocide in Darfur for 12
months as determined by both the Department of State and the Congress
of the United States.
   (2) The United States revokes its current sanctions against Sudan.
 
  SEC. 2.    Section 7513.75 of the Government Code
is amended to read:
   7513.75.  (a) The Legislature finds and declares all of the
following:
   (1) The combustion of coal resources is the single largest
contributor to global climate change in the United States.
   (2) Climate change affects all parts of the California economy and
environment, and the Legislature has adopted numerous laws to
mitigate greenhouse gas emissions and to adapt to a changing climate.

   (3) The purpose of this section is to require the Public Employees'
Retirement System and the State Teachers' Retirement System,
consistent with, and not in violation of, their fiduciary
responsibilities, to divest their holding of thermal coal power as
one part of the state's broader efforts to decarbonize the California
economy and to transition to clean, pollution free energy resources.

   (b) As used in this section, the following definitions apply:
   (1) "Board" means the Board of Administration of the Public
Employees' Retirement System or the Teachers' Retirement Board of the
State Teachers' Retirement System, as applicable.
   (2) "Company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, or
its subsidiary or affiliate, that exists for profit-making purposes
or to otherwise secure economic advantage.
   (3) "Investment" means the purchase, ownership, or control of
publicly issued stock, corporate bonds, or other debt instruments
issued by a company.
   (4) "Public employee retirement funds" means the Public Employees'
Retirement Fund described in Section 20062 of this code, and the
Teachers' Retirement Fund described in Section 22167 of the Education
Code.
   (5) "Thermal coal" means coal used to generate electricity, such
as that which is burned to create steam to run turbines. Thermal coal
does not mean metallurgical coal or coking coal used to produce
steel.
   (6) "Thermal coal company" means a publicly traded company that
generates 50 percent or more of its revenue from the mining of
thermal coal, as determined by the board.
   (c) The board shall not make additional or new investments or
renew existing investments of public employee retirement funds in a
thermal coal company.
   (d) The board shall liquidate investments in a thermal coal
company on or before July 1, 2017. In making a determination to
liquidate investments, the board shall constructively engage with a
thermal coal company to establish whether the company is
transitioning its business model to adapt to clean energy generation,
such as through a decrease in its reliance on thermal coal as a
revenue source.
   (e) On or before January 1, 2018, the board shall file a report
with the Legislature, in compliance with Section 9795, and the
Governor, which shall include the following:
   (1) A list of thermal coal companies of which the board has
liquidated its investments pursuant to subdivision (d).
   (2) A list of companies with which the board engaged pursuant to
subdivision (d) that the board established were transitioning to
clean energy generation, with supporting documentation to
substantiate the board's determination.
   (3) A list of thermal coal companies of which the board has not
liquidated its investments as a result of a determination made
pursuant to subdivision (f) that a sale or transfer of investments is
inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California Constitution
and the board's findings adopted in support of that determination.
   (f) (1) Nothing in this section shall require a board to take
action as described in this section unless the board determines in
good faith that the action described in this section is consistent
with the fiduciary responsibilities of the board described in Section
17 of Article XVI of the California Constitution.
   (2) A determination that an action described in this section would
fail to satisfy the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California Constitution
shall require a recorded rollcall vote of the full board, following
a presentation and discussion of findings in open session, during a
properly noticed public hearing of the full board. All proposed
findings of the board shall be made public 72 hours before they are
considered by the board. The findings and any public comments
regarding the adopted findings and determinations made pursuant to
this paragraph shall be included in the report to the Legislature
required by subdivision (e).