California Code, Government Code - GOV § 20174

Interest earned on any cash deposit in a bank by the Treasurer and income on other assets constituting a part of the fund shall be credited to the fund as received. Income, of whatever nature, earned on the retirement fund during any fiscal year, in excess of the interest credited to contributions during that year shall be retained in the fund as a reserve against deficiencies in interest earned in other years, losses under investments, court-mandated costs, and actuarial losses resulting from terminations, mergers, and dissolutions of contracting agencies.

Unless specifically authorized by this part, no funds in the reserve against deficiencies shall be available for the payment of benefits. The board, however, may apply to reduce the book value of securities purchased all or part of the excess of the proceeds of the sale or the redemption prior to maturity of securities over the book value of the securities sold (a) if the purchase of securities is made with those proceeds and (b) if the terms of both securities from the date of sale, redemption prior to maturity, or purchase, as the case may be, to the respective dates of maturity do not differ by more than five years. All applications of these excess proceeds, even with greater differences in terms, heretofore made by the board are hereby validated and confirmed.

At the end of each fiscal year, the amount in the reserve against deficiencies that exceeds 0.20 percent of the total assets of this system shall be credited to other accounts as prescribed by this part.