CalSTRS Board Supports Pension Reform Legislation
Two bills before lawmakers would curb placement agents, pension spiking.

News release

 WEST SACRAMENTO, CA – The California State Teachers’ Retirement System (CalSTRS) is in support of two reform measures that limit controversial pension practices through increased transparency and accountability.

At its June 2010 board meeting last week, board members took a sponsor-if-amended position on SB 1425 (Simitian), a proposal that would control the controversial practice of inflating retirement benefits, commonly known as “spiking,” as well as “double-dipping,” in which retired public employees immediately return to work.

“While CalSTRS has safeguards to prevent ‘spiking’ and ‘double-dipping,’ it is in the interest of all of us to end the abuse and manipulation of defined benefit pensions while we increase transparency and accountability within the pension systems and the financial industry,” said Jerilyn Harris, CalSTRS Board chair.

Among its provisions, SB 1425 would:

  • Specify which types of compensation are included for the purpose of determining retirement benefits. Remuneration that is paid in addition to salary, such as car or housing allowances, would not be included in final compensation.
  • Require a 180-day separation from service before a retiree can return to work.

The board asked for amendments to include a 10-percent hard cap on final year compensation allowed when calculating retirement benefits. CalSTRS projects annual net savings of approximately $15 million to $25 million to the fund by this bill.

In February 2010, the board adopted a support position on AB 1743 (Hernandez), which provides additional regulation of placement agent fees and activities to prevent “pay-for-play” activities with public pension investments.

In 2006, CalSTRS took a leadership position when it adopted a policy for the disclosure of third party relationships and payments as part of its policy governing ethical and fiduciary conduct.

AB 1743 would:

  • Amend the definition of lobbyist under the Political Reform Act to include placement agent.
  • Add definitions of “placement agent” and “external manager” to the Political Reform Act.
  • Enhance current law and CalSTRS policy regarding disclosure of placement agent payments and activities.

The California State Teachers´ Retirement System, with a portfolio valued at $138 billion, is the second largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California´s 848,000 public school educators and their families from the state´s 1,400 school districts, county offices of education and community college districts.