My name is James E. Burton and I am the Chief Executive Officer for the California Public Employees' Retirement System (CalPERS).
CalPERS is the largest public pension system in the United States with an investment portfolio of more than $165 billion, held in trust for its 1.2 million members. Among the members are 864,000 active duty police officers and fire fighters, college professors and school custodians, and other public employees. And some 356,000 retired public employees receive $4.8 billion in annual CalPERS retirement benefits.
In short, CalPERS provides retirement plan administration for the State of California and most of its cities, counties and special districts. In all, CalPERS administers the retirement system for 2,480 governmental entities.
Our $165 billion in assets are allocated among fixed income instruments, real estate, equities and other investments. Our investments in domestic equities are currently valued at some $67 billion.
I am here to support S. 143, the Competitive Market Supervision Act. We believe this measure would benefit large and small investors alike by reducing the cost of securities transactions that both types of investors must pay. We also support S. 143 because it would enhance the ability of the SEC to attract and keep expert staff that is responsible for protecting investors and ensuring accountability and integrity in our markets. This is a matter of great significance to all Americans.
According to the testimony of SEC Chairman Levitt last year, the Commission staff turnover rate is considerably higher than that of other similar regulatory agencies. I believe he estimated the attrition rate for the SEC at about 13 percent, while the Federal Reserve Board and others only lose about 5 percent of their staff per year.
The pay parity provisions in the bill would put the SEC on par with the Federal Reserve Board and other regulators. We also urge the Committee to be certain that there is a stable funding source for the SEC. This, too, is crucial for the agency to attract and retain talented people.
We have worked with the SEC and we know that when key personnel leave, they take their institutional knowledge with them. This results in inefficiencies as replacement staff go through learning curves. S. 143 will give the SEC the flexibility it needs to bring salaries in line with other financial regulatory agencies.
Next, I would like to address the securities transaction fees reduction element of S. 143 and how it will affect the 2,211 public employee retirement systems in the nation. The Federal Reserve Board says that these plans own approximately $2 trillion in equities.
Wilshire Associates, a pension plan consulting and research organization, estimates that the average annual turnover of equity portfolios of public pension plans is 30 to 40 percent. This totals $600 billion to $800 billion annually. Based on these estimates, the fee reduction formula in the bill would save public pension plans approximately $10 million per year in transaction fees.
CalPERS' domestic equity portfolio turnover rate is 10 percent per year. This lower-than-average rate is based on our view that the long-term investor performs better. The following table illustrates our historical rates of return since 1991:
Because we don't trade as frequently as mutual funds -- or even as often as other public pension plans -- our savings in transaction fees from S. 143 won't be as great as others. It will be about $342,000 annually. But what is important to us is that this becomes essentially a refund to taxpayers.
I will explain. CalPERS actuaries make a number of projections and assumptions to determine how much the plan needs in contributions today in order to pay beneficiaries in the future. While employee contributions remain fairly constant, employer contributions are adjusted based on actuarial estimates.
To the extent CalPERS' administrative costs are reduced, through fee reductions for example, actuarial guidelines require employer contributions to be decreased. Dollars not spent on administrative costs are invested. For California taxpayers who fund State and local public agencies, these savings translate into a smaller tax burden.
Mr. Chairman and Members of the Committee, the CalPERS Board of Administration passed a resolution last year in support of S. 2107, last year's version of the Competitive Market Supervision Act. This action followed a presentation to the Board on the merits of S. 2107 by Geof Gradler, your very capable Committee economist. We want you to know that we appreciate Mr. Gradler's assistance.
Finally, we are pleased to testify in support of S. 143. We urge the Committee to move the bill as quickly as possible. Thank you.
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