Not too long ago, we were browsing the California State Controller’s website and were surprised to find a requirement for the filing of a Public Retirement System Financial Transactions Report for each state and local public retirement system on an annual basis.
Of course, we were familiar with the requirement under California Government Code (CGC) section 7504 for the preparation and filing of an independent actuarial report, on a triennial basis – but, this was something different. Further investigation that included discussion with the staff at the State Controller’s Office (SCO) confirmed that the SCO indeed expects all California public employee retirement systems to annually furnish it with a “Financial Transactions Report” (FTR) and audited financial statements.
According to the SCO, the term “public employee retirement systems” is defined in the Public Employees’ Pension Reform Act and includes not only CalPERS, CalSTRS, and all of the ’37 Act County plans, but also includes all independently maintained public agency Internal Revenue Code (IRC) section 401(a) plans, whether they are defined benefit or defined contribution. Instructions for the two different types of plans can be found in the SCO-provided General Instructions.
While the plan audited financial statements and actuarial reports (if applicable) may be submitted by mail or email, the SCO encourages public agencies to file their plan FTRs online through the SCO Local Government Reporting System.
A “retirement alert letter” on the SCO website indicates an agency’s plan FTR and plan audited financials are due at the beginning of each calendar year, and should be submitted within six months of the close of the fiscal year. CGC section 7504(c) goes on to state that a failure to comply with the audited financial statements and/or actuarial report requirements will trigger a “penalty” under CGC section 53895. The good news is that this penalty of up to $5,000 only applies if the local agency fails or refuses to comply following written notice from the SCO. The bad news is that the local agency is only given 20 days to comply after receiving such notice.
The SCO is required to review all of the plan financial reports and actuarial reports and publish a report annually on the financial condition of all state and local public retirement systems.
Perhaps the most surprising aspect of what we found is the general rate of compliance with these requirements. According to the SCO-published Retirement Systems Raw Data for Fiscal Year 2021-22 (the most recent available from the SCO) only about 132 public retirement systems submitted information to SCO. Of these, only 45 were defined contribution plans. Although we are not aware of any publicly available data base that reflects the total number of public agency 401(a) plans maintained in California, we can assure our readers that there are dozens and dozens of public agency defined benefit plans that are not being reported, along with hundreds of defined contribution plans that are not included.
Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at email@example.com or (916) 329-3685.