March 16, 2011
External Affairs Branch
Patricia K. Macht, Director
Brad Pacheco, Chief, Office of Public Affairs
Contact: Clark McKinley, Information Officer
CalPERS Endorses State Legislation Aimed at Future Employment and Gifts
Pension Board Approves 7.75% Assumed Rate of Return; Adds Standing Risk and Governance Committees
SACRAMENTO, CA – The California Public Employees' Retirement System Board of Administration today endorsed legislative bills sponsored by California State Controller John Chiang to prohibit Board Members and certain officers from accepting employment with business partners after leaving the public pension fund, and reduce gift limits to Members of the Board and consultants.
In addition, the CalPERS Board voted 7-3 to keep its assumed annual rate of investment return, also known as the discount rate, at the current 7.75 percent. Steve Coony, representative of the State Treasurer, Dan Dunmoyer and Richard Costigan voted against the motion indicating they favored the 7.50 percent rate recommended by staff.
A.B. 873, introduced by Assembly Member Warren Furutani, D-Carson, would impose a two-year waiting period on a Board Member, administrator, executive officer, investment officer or general counsel of CalPERS or the California State Teachers' Retirement System (CalSTRS) from certain employment with the Fund's business partners under certain circumstances. Staff was directed to work with the sponsor and author on identifying appropriate amendments to the bill.
"Given the serious issues involving placement agents in recent years, this bill represents an effort to ensure the investment integrity of pension funds," said CalPERS Board President Rob Feckner.
The Board also endorsed a second bill, S.B. 439, by Senator Gloria Negrete McLeod, D-Chino, that would prohibit pension fund Board Members, staff and consultants from accepting gifts valued in excess of $50 in a single calendar year from any entity doing business with or intending to seek to do business with CalPERS. The current limit for other statewide officials is $420 in a single calendar year.
"These new gift limits would apply to individuals who file Statements of Economic Interests," said George Diehr, Vice President of the Board. "Our staff will meet with the authors for some fine-tuning as both bills move through the Legislature."
In other actions, Feckner directed staff to bring an agenda item back to the Board in April or May to make the Board's current Ad Hoc Risk Management and Governance Committees regular standing committees of the Board.
"In light of the recommendations stemming from the special review, I can't emphasize enough the importance for us to keep a critical eye on our governance and potential risks across our organization going forward," said Feckner.
CalPERS Chief Actuary Alan Milligan recommended that the pension fund adopt a lower discount rate at 7.50 percent, but indicated that keeping the rate unchanged was also prudent. Employers appeared before the Pension Fund's Benefits and Program Administration Committee Tuesday urging the Fund to keep the rate unchanged due to their financial pressures.
The discount rate represents what a pension fund believes it can realistically earn from its investments on an annual basis when averaged over the course of 20 years or more. In any given year, investment returns are likely to be higher or lower than the long-term assumed rate.
Over the past 20 years, including the two recent recession years, CalPERS has earned an average annual 7.9 percent rate of return before deducting administrative and investment expenses. For the fiscal year that ended June 30, 2010, CalPERS earned a 13.3 percent return.
CalPERS is the nation's largest public pension fund with approximately $225 billion in assets. It administers retirement benefits for more than 1.6 million active and retired State, public school and local public employees and their families. For more CalPERS information, visit www.calpers.ca.gov.