The California State Teachers' Retirement System and the Teachers’ Retirement Board have modified
the proposed new regulations restricting campaign contributions from parties doing business with
CalSTRS.
The regulations, first noticed on January 26, 2007 (California Regulatory Notice Register, January 2007, No. 4-Z, p. 118.) were modified in response to public comments. During the June meeting of the Teachers’ Retirement Board, there was further consideration of the regulations by the Board.
The revised regulations are aimed at addressing the concerns raised by CalSTRS business partners, and are designed to ensure a high standard of ethical conduct, guard against even the perception of “pay to play” decision making in investment transactions, and still preserve the ability of CalSTRS to manage its investment assets in the most prudent and productive manner possible. The changes include:
- The scope of the regulations has been narrowed; the restrictions have been changed from “business relationship” to “investment relationships.”
- What constitutes an Investment Relationship has been defined.
- The regulations have been redrafted to clarify the parties to whom they apply.
- Fine and dollar penalties have been removed.
- The termination of existing business relationships provision was removed.
- The application of the regulations to third party solicitors was removed.
- A safe harbor provision was added for inadvertent violations voluntarily disclosed within ninety days.
- A disclosure and recusal section applicable to members of the TRB was added.
- A procedure for developing a quorum when TRB members are disqualified from participating in investment decisions.
- A safe harbor provision for members of the TRB was added.
The full text of the revised regulations is available (
attachment 1). A copy of the notice being sent to all parties who appeared and commented at the
public hearing, or who submitted written comments, is available (
attachment 2). Additional public comments will be received by CalSTRS until July 27, 2007 and
may be made electronically by addressing them to
PublicComments@CalSTRS.com.
Background Information
CalSTRS received public comments
on its proposed new regulations on certain campaign contributions through March 12, 2007.
The proposed new regulations were approved by the Teachers’ Retirement Board in November 2006
for its Board Governance policy. These regulations must proceed through the Administrative Procedure Act
rulemaking process and could take up to one year to implement.
Policy Review
The Teachers' Retirement Board began a comprehensive review of its Board Governance policy in December 2005.
During the April 2006 meeting, the board heard from a panel of experts covering the topics of government ethics,
current developments among state pension funds on the topic of restricting campaign contributions and gifts, and
the Department of Labor (the federal agency responsible for regulating private pension funds under the Employee
Retirement Income Security Act - ERISA) on activities addressing "pay to play" issues. The board found that when
contributions are made to a public official or candidate for public office, the public often perceives that such
contributors expect and receive reciprocal benefit for their contributions; in other words, "pay to play."
Preserving Credibility
While there has been no occurrence of impropriety associated with CalSTRS investments or contracts, nor any
allegations of improper investing based on campaign contributions, the board recognized there was a potential
for abuse, and that public perception of the possibility of potential abuse could undermine the credibility of
CalSTRS' investing and contracting processes.
Extensive Research
The regulations being proposed by the Teachers' Retirement Board reflect a one-year effort on the part of the
board to review and address ethical issues surrounding campaign gifts and contributions to public pension fund
board members. In the course of this review, the board examined the policies and practices of public pension funds
around the country, past rule making efforts of the Securities and Exchange Commission , and the historic efforts
of the California Public Employees' Retirement System to address what is referred to in the investment industry
as "pay to play" practices. The board heard from experts on ethics and public pension fund fiduciary standards. It
also solicited the input of the investment community and the public.
Related Resources
Full details about the rulemaking process may be found through the
Office of Administrative Law.
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