CalPERS Adopts New Asset Allocation Strategy

Action is last step before the pension fund adopts a new assumed rate of return

In March of this year, the California Public Employees’ Retirement System (CalPERS) announced that it would conduct a top to bottom review of how its five asset classes (real estate, global fixed income, inflation-linked, global equity and alternative investment management), are allocated as well as the liability of the fund. In May, the CalPERS Investment Committee (Committee) began the review, which included an analysis of major risk factors, capital market assumptions and new approaches to asset allocation. The analysis concluded that the current asset classification structure doesn’t show underlying fundamental risks and, subsequently, an alternative asset classification was created by CalPERS staff. The alternative asset classification was presented to the Committee in September. In November, the agency held an Asset Liability Management Workshop that included a discussion regarding the current asset classification versus the alternative. 

On Monday, CalPERS changed its asset allocation structure to better reflect market conditions, stating the agency’s intention to focus less on assets and returns and more on the risk of allocations. The new structure places CalPERS assets in five groups (liquidity, growth, income, real and inflation), based on how they function in high- or low-growth markets as well as the inflation environment. CalPERS does not have a specific timeline for distributing funds under this new allocation structure; the next step is the adoption of CalPERS’ actuaries’ recommendation for an assumed rate of return on investments (currently scheduled for early 2011).

CalPERS Suspends Member Home Loan Program

CalPERS on Monday approved the suspension of its Member Home Loan Program (MHLP) due to increasing costs and limited usage. 

While CalPERS will no longer accept applications for MHLP, the suspension will not affect members with existing loans and loans which are currently under consideration should be complete within the next three months.

2011-12 Legislative Year Begins with Introduction of Familiar Bills

Employee Rights
AB 22 (Mendoza) – Pending
As Introduced on December 6, 2010

Assembly Bill 22, by Assembly Member Tony Mendoza, would prohibit prospective employers from using consumer credit reports for employment purposes unless the following criteria are met: 

• The information in the credit report is substantially job-related (i.e., the applicant has access to money, trade secrets or confidential information).
• The position sought is managerial, a position in the state Department of Justice, a sworn peace officer or other law enforcement position, or is a position in a city, county, or both a city and county.
• The credit report information is already required by law.

AB 22 is a re-introduction of last year’s AB 482, also by Assembly Member Mendoza, which was vetoed by the Governor. The notable difference between the two bills is that AB 22 exempts positions within cities and counties.

AB 22 is awaiting assignment to a policy committee.

AB 59 (Swanson) – Pending
As Introduced on December 7, 2010

AB 59, by Assembly Member Sandre Swanson, amends the Family Rights Act to permit an employee to take leave to care for an independent adult child with a health condition or a seriously ill grandparent, sibling, grandchild or domestic partner. AB 59 also expands the definition of “parent” to include a parent-in-law.

AB 59 is a re-introduction of Assembly Member Swanson’s AB 849, which was introduced in the last legislative session and died in the Assembly Appropriations Committee.

Wages and Retirement
SB 27 (Simitian) – Pending
As Introduced on December 6, 2010

SB 27, by Senator Joseph Simitian, is a reintroduction of SB 1425, which was vetoed by Governor Schwarzenegger in September. The bill amends the Public Employees Retirement Law and the State Teacher’s Retirement System law to limit those items that can be included in the calculation of final compensation for the purpose of prohibiting pension spiking; the bill also prohibits members who retire from public pension systems on or after January 1, 2013 from providing services to an employer covered by a state or local retirement system until the retiree has had a bona fide separation from service for at least six months. 

CSAC took an “Oppose Unless Amended” position on SB 1425, and requested that the author delete the section of the bill requiring a six-month separation from service prior to a retiree returning to work. 

SB 27 is awaiting assignment to a Senate policy committee.

SB 46 (Correa) – Pending
As Introduced on December 9, 2010

Senate Bill 46, by Senator Lou Correa, would require an elected or appointed officer of a county, city, city and county, school district, special district, or joint powers agency who is also required to file a Statement of Economic Interest (Form 700) as published by Fair Political Practices Commission to also complete a new form developed by the Secretary of State. The new form would include disclosure of the following:

• Annual salary or stipend.
• Employer payments to the filer’s deferred compensation or defined benefit plans.
• Automobile and equipment allowances.
• Supplemental incentive and bonus payments.
• Employer payments to the filer that are in excess of the standard benefits that the employer offers for all other employees.

The specified employees and elected officials include:

State officers, judges, court commissioners, members of various state commissions, members of boards of supervisors, district attorneys, county counsels, county treasurers, chief administrative officers of counties, city officials, members of city councils, other public officials who manage public investments and candidates for any of these offices at any election.

As an alternative to individuals filing the new form, a county that maintains a website may compile the information required for each filer and post that information on the internet. 

SB 46 is a reintroduction of Senator Correa’s SB 501, introduced in the last legislative session as part of a package of bills requiring additional disclosure of public employee compensation in response to the salary scandal in the city of Bell.