More Disclosure, Less Investment: How SB 1319 Would Have Increased Pension Costs

Update: SB 1319 (Durazo) was held in the Senate Committee on Appropriations. This article was written before the bill was held.  

Private equity has often been among the top performing asset classes for California’s pension funds and has often outperformed public equity investments. Pending legislation, SB 1319 (Durazo), could severely limit pension fund investments in private equity and other alternative investments by requiring reporting and disclosure that exceeds requirements even for public equities.  

SB 1319 significantly expands public disclosure requirements for alternative investment vehicles (AIVs) to include detailed information that is not only privileged currently but is either not available or is protected by contractual agreements. Pension systems have reported significant concerns these changes would negatively impact companies’ desire to partner with public pension systems, severely limiting investment opportunities.  

According to CalPERS, the bill limits future investments so severely that it would cause them to reduce future investment return expectations. These changes would be expected to reduce the total funded status by five percent and warrant a 50 basis point decrease in the discount rate, causing an increase employer contributions by $6.1–$6.8 billion annually and increase contributions for PEPRA members.  

For example, CalPERS reports that annual contribution increases for members are as follows: a school member earning $50,000 would see an increase of about $600; a miscellaneous member earning $80,000 would see an increase of about $900; and a safety member earning $100,000 would see an increase of about $2,500. For more information, please review the CalPERS staff memo or the presentation materials detailing the impacts of the bill and private equity performance for CalPERS.  

For these reasons, CSAC opposes SB 1319. For any other questions, please contact Eric Lawyer, elawyer@counties.org.