CALIFORNIA LEGISLATURE—
2017–2018 REGULAR SESSION

Introduced by Senator Morrell |

February 17, 2017 |

An act to amend Section 22324 of the Education Code, and to amend Sections 7507.5 and 20229 of the Government Code, relating to public employee retirement systems.

SB 601, as introduced, Morrell.
Public employee retirement systems: asset valuation: reporting.

Existing law requires the Board of Administration of the Public Employees’ Retirement System and the Teachers’ Retirement Board to provide annual reports to the Legislature and the Governor with regard to investment returns on assets of the Public Employees’ Retirement System and the State Teachers’ Retirement System, respectively. As part of these reports, the boards are required to calculate and report on the rate of return on investments based on different assumptions.

This bill would require the Board of Administration of the Public Employees’ Retirement System to report a calculation of liabilities based on a discount rate equal to the yield on a 10-year United States Treasury note in the year prior to the report. The bill would require the Teachers’ Retirement Board to provide a description of the discount rate the board uses for reporting
liabilities calculations, a calculation of liabilities based on a discount rate that is 2% below the long-term rate of return assumed by the board, and a calculation of liabilities based on a discount rate equal to the yield on a 10-year United States Treasury note in the year prior to the report.

Existing law states the intent of the Legislature that the Regents of the University of California provide written notice to the Legislature of any proposed changes to retirement plan benefits, employer or employee contribution rates, or actuarial assumptions affecting the University of California Retirement System, as specified.

This bill would state the intent of the Legislature that the Regents of the University of California provide an annual written report to the Legislature regarding annual return on investments for the University of California Retirement System for the past 20 years and certain information regarding the
rate of return of the system by asset type, as specified.

(a) A copy of the annual audit performed pursuant to Section 22217.

(b) A certification letter from the system’s consulting actuary concerning the findings of the most recent actuarial valuation, accompanied by analysis of funding progress and summaries of the actuarial cost method, assumptions, and demographic data,
including actual payroll subject to the system.

(c) A review of the system’s asset mix strategy, a market review or the economic and financial environment in which investments were made, and a summary of the system’s general investment strategy.

(d) A description of the investments of the system at cost and market value, and a summary of major changes that occurred since the previous year.

(e) The annual return on investments and the following information regarding the rate of return of the system by asset type:

(1) Time-weighted market value rate of return on a five-year, three-year, and one-year basis.

(2) Time-weighted book value rate of return on a five-year, three-year, and one-year
basis.

(3) Portfolio return comparisons that compare investment returns with universes and indexes.

(f) A description of the discount rate utilized by the board for reporting liabilities.

(1) A calculation of those liabilities based upon a discount rate that is 2 percent below the long-term rate of return actually assumed by the board.

(2) A calculation of those liabilities that is based upon a discount rate that is equal to the yield on a 10-year United
States Treasury note in the year prior to the report.

~~(f)~~

~~(g)~~

~~(h)~~

~~(i)~~

(1) The percentage of purchasing power protection and any changes adopted by the board.

(2) The extent to which inflation has eroded the purchasing power of benefits provided under the Defined Benefit Program.

(3) The amount of supplementary increases in retirement allowances required to preserve the purchasing power of benefits provided by the Defined Benefit Program.

~~(a)~~

~~(b)~~

(b) (1) It is the intent of the Legislature that the Regents of the University of California provide an annual written report to
the Legislature regarding annual return on investments for the University of California Retirement System for the past 20 years and the following information regarding the rate of return of the system by asset type:

(A) Time-weighted market value rate of return on a five-year, three-year, and one-year basis.

(B) Time-weighted book value rate of return on a five-year, three-year, and one-year basis.

(C) Portfolio return comparisons that compare investment returns with universes and indexes.

(D) A description of the discount rate utilized by the system for reporting liabilities.

(i) A
calculation of those liabilities based upon a discount rate that is 2 percent below the long-term rate of return actually assumed by the system.

(ii) A calculation of those liabilities that is based upon a discount rate that is equal to the yield on a 10-year United States Treasury note in the year previous to the report.

(2) It is the intent of the Legislature that the report described in paragraph (1) be submitted in compliance with Section 9795.

(1) (A) A description of the investment return assumption utilized by the board when determining the contribution rates.

(B) A calculation of the contribution rates utilizing an investment return assumption 2 percentage points above and 2 percentage points below the investment return assumption utilized by the board.

(2) (A) A description of the amortization period for any unfunded liabilities utilized by the board when determining the contribution rates.

(B) A calculation of the contribution rates based on an amortization period equal to the estimated average remaining service periods of employees covered by the contributions.

(3) (A) A description of the discount rate utilized by the board for reporting liabilities.

(B) A calculation of those liabilities based upon a discount rate that is 2 percent below the long-term rate of return actually assumed by the board.

(C) A calculation of those liabilities that is based upon a
discount rate that is equal to the yield on a 10-year United States Treasury note in the year prior to the report.

(4) The market value of the assets controlled by the board and an explanation of how the actuarial value assigned to those assets differs from the market value of those assets.

(b) Each legislative session, the Chair of the California Actuarial Advisory Panel, or his or her designee, shall, during a publicly noticed joint hearing of the Senate Committee on Public Employment and Retirement and the Assembly Committee on Public Employees, Retirement and Social Security, do all of the following based on information received in the report required by subdivision (a):

(1) Explain the role played by the investment return assumption and amortization period in the calculation of the
contribution rates.

(2) Describe the consequences for future state budgets should the investment return assumption not be realized.

(3) Report whether the board’s amortization period exceeds the estimated average remaining service periods of employees covered by the contributions.

(c) The report required by subdivision (a) shall be submitted in compliance with Section 9795.