Today's Law As Amended

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SB-783 Public employee pension funds: divestment proposals: review.(2017-2018)

As Amends the Law Today

 The intent of the Legislature in enacting this act is all of the following:
(a) To promote the stability and security of public employee pension funds while addressing the public’s interest in ensuring that public funds do not support enterprises that fund or underwrite activities inimical to the health and welfare of Californians or to the principles of liberal democracy that form the core of California’s societal values.
(b) To provide a logical process in determining how best to balance the Legislature’s constitutional right in extraordinary circumstances to reasonably restrict certain investments made by public employee pension funds with the constitutional mandate that public pension boards, acting as fiduciaries to their plan members and beneficiaries, maintain exclusive and plenary authority to invest pension plan assets.
(c) To establish a dispassionate, analytical method using clear criteria for evaluating each legislative proposal to divest or restrict pension fund investments for the proposal’s effectiveness, both in terms of cost and in achieving the proposal’s intended policy objective, in order that the Governor and the Legislature receive current, accurate data and information when considering the proposal.
(d) That the Pension Divestment Review Program authorized by this act create a written analysis, including supporting expert data, of the policy efficacy and cost-effectiveness of each legislative proposal for the divestment or restriction of pension fund investments that shall be available to the public.
SEC. 2.
 The Legislature finds and declares the following:
(a) An ever increasing number of proposals seek to require or pressure public employee pension funds to divest from or restrict specified investments.
(b) While motivated by important public policy purposes, divestment proposals are often in conflict with the fundamental public policy purpose of a public employee pension fund, which is to maximize returns to fund investments in order to ensure that moneys are available to pay the deferred compensation earned by public employees over the course of their service to California and, thereby, reduce the overall cost to the taxpayer of providing the employees’ vested rights to a secure pension.
(c) Divestment proposals can often result in increased costs and reduced returns to a public employee pension fund that then cause increases in employer contribution rates, possible increases in employee contribution rates, and possible pressure to increase employee compensation.
(d) Divestment proposals may not effectively achieve their intended policy goals when investments are liquid and assets are traded on global markets. If one investor divests from an asset, another may simply purchase those assets, perhaps at a discount, and with no expectation that the asset or investment modifies the offending activity that prompted the divestment initiative.
(e) Divestment proposals are a costly and often ineffective method of conveying California’s concerns about public policy. In contrast, pension fund engagement strategies by which pension fund trustees or their representatives exercise the fund’s ownership qualities over its investments and conduct meetings with asset managers, including executive managers and boards of public corporations and private companies, are effective tools to reduce economic and political risk to the fund.
(f) When determining the appropriate balance between exercising the Legislature’s constitutional authority to restrict certain pension fund investments and a public employee pension board’s constitutional authority to invest pension assets, the Legislature may opt to give greater weight to targeted, well-crafted divestment proposals when public employee pension funds are substantially overfunded. However, when the funds face significant unfunded actuarial liabilities, the Legislature should give greater weight to maximizing investment return in order to ensure the public policy purpose of funding public employee retirement benefits.
(g) Therefore, a pension divestment proposal should only be considered if:
(1) The proposal’s policy objective is a critical priority of the Legislature and the Governor.
(2) Other alternatives for achieving the policy goals of the proposal, such as engagement strategies or regulatory action, have failed.
(3) The Legislature and the Governor are fully aware of the costs of imposing the divestment proposal.
(4) The proposal does not cause the public employee pension board trustees to violate their fiduciary duties.

SEC. 3.

 Section 7514.8 is added to the Government Code, to read:

 (a) For the purpose of this section:
(1) “Divestment proposal” means a bill or constitutional amendment, introduced or amended in the Legislature, that would require a public employee pension fund to divest assets or restrict the fund from investing based on specific criteria or by reference to an external benchmark.
(2) “Public employee pension fund” means the Public Employees’ Retirement Fund described in Section 20062 of this code or the Teachers’ Retirement Fund described in Section 22167 of the Education Code.
(3) “The Pension Divestment Review Program” or “program” means a program established by the University of California, at the request of the Legislature, to assess divestment proposals.
(b) The Legislature hereby requests the University of California to establish the Pension Divestment Review Program to assess divestment proposals. If the University of California establishes the program, the program shall comply with this section.
(c) When requested by the Legislature pursuant to subdivision (e), the program shall assess a divestment proposal and prepare a written analysis with relevant data on the following with respect to that proposal:
(1) The following employee pension fund effects:
(A) The effect on the expected return on investment to the fund’s portfolio, including the probability of ongoing gains or losses resulting from the divestment mandate or investment prohibition.
(B) The impact on the funded status of the pension fund.
(C) The consequence to employer and employee contribution rates.
(D) The administrative costs on the pension system to analyze, report, and implement the divestment proposal.
(E) Whether the divestment proposal would have de minimis impact on the fund’s portfolio.
(F) Whether the divestment proposal would, taken cumulatively with other divestment proposals, have significant impact on the fund’s portfolio.
(2) The following policy effects:
(A) The probability that the divestment proposal will achieve its goal as described in the proposal and as advocated by its proponents in letters of support or testimony before legislative committees.
(B) The priority established by the Legislature or the Governor for implementing the divestment proposal.
(C) Whether other forms of policy measures have been attempted to achieve the policy goals as defined in the proposal and as advocated by its proponents in letters of support or testimony before legislative committees and the results of these other measures.
(D) The ability of other investors to undermine the divestment proposal by supplanting the public employee pension fund’s divestment or curtailment of investment.
(E) The probability that, if successfully implemented, the divestment proposal would garner substantial support from a significant number of other large institutional investors, as measured by their decisions to also divest.
(F) The size and substance of the support of, or opposition to, the divestment proposal by members and beneficiaries of the public employee retirement fund.
(d) In assessing and preparing a written analysis of the financial impact of a divestment proposal, the program shall do all of the following:
(1) Use the services of a certified actuary or other person with relevant knowledge and expertise to determine the financial impact, as recommended by the California Actuarial Advisory Panel.
(2) Collaborate with experts in the public pension fund investment profession.
(3) Use the university’s resources that specialize in providing objective financial and policy analysis of complicated policy and economic issues.
(e) A request to the program to assess a divestment proposal may be made by the Chairperson of the Assembly Committee on Public Employees, Retirement, and Social Security, the chairperson of the Senate Committee on Public Employment and Retirement, the Speaker of the Assembly, or the President pro Tempore of the Senate. The requesting party shall forward the proposal to the program.
(f) Not later than 60 days after receiving a request, the program shall provide its analysis to the appropriate policy and fiscal committees of the Legislature. The program’s analysis shall be made publicly available.
(g) Pension Divestment Review Program Fund is hereby established in the State Treasury. The moneys in the fund, upon appropriation by the Legislature, shall be available to support the program in implementing this section.
(h) There is hereby appropriated from the General Fund two million dollars ($2,000,000) to the Pension Divestment Review Program Fund for the 2018–19 fiscal year for the purposes of this section. It is the intent of the Legislature that future appropriations for purposes of this section shall be part of the annual Budget Act.
(i) (1) The program shall submit a report to the Governor and the Legislature on or before January 1, 2020, regarding the implementation of this section.
(2) The report required by this subdivision shall be provided in conformance with Section 9795.
(j) Nothing in this section, nor in any assessment or analysis by the program, shall require a pension fund to take any action unless the respective pension fund’s board finds that the action is consistent with its fiduciary responsibilities, as described in Section 17 of Article XVI of the California Constitution.