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ACA-1 Public employee defined contribution plan.(2005-2006)

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ACA1:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2005–2006 1st Ext.

Assembly Constitutional Amendment
No. 1


Introduced  by  Assembly Member Richman

January 06, 2005


A resolution to propose to the people of the State of California an amendment to the Constitution of the State, by adding Section 8 to Article XX thereof, relating to public pension or retirement benefits.


LEGISLATIVE COUNSEL'S DIGEST


ACA 1, as introduced, Richman. Public employee defined contribution plan.
The California Constitution reserves a role for the elected officials of this state in the governance of public pension systems through several means, including the power to determine the appropriateness of retirement benefits for public employees.
This measure would establish the California Public Employee Defined Contribution Plan. The measure would provide that on and after July 1, 2007, any person hired by a public agency may enroll only in a defined contribution plan of a public pension or retirement system, and is prohibited from enrolling in a defined benefit plan, as defined. The measure would permit an active member of a defined benefit plan, during a specified period, to transfer a sum equal to the member’s interest in the defined benefit plan to a defined contribution plan.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

WHEREAS, California’s state and local governments face severe budget crisis because elected officials spend more than they receive in taxes. A fair and balanced approach to restoring long-term fiscal responsibility must include limiting the cost of government employee pensions which have grown dramatically in recent years, threatening the long-term investments California needs in education, infrastructure, health care, and public safety; and
WHEREAS, California has among the nation’s most generous public pension plans, providing some employees with more than 100 percent of their final years’ salary at age 50. During the past 20 years, most private employers have moved to defined contribution plans such as 401(k) plans to limit costs, promote responsible budgeting, and improve fiscal accountability; and
WHEREAS, The struggle to meet the demands of generous pension plans negotiated by elected officials has increased state and local government debt by more than $12 billion, leaving more than $30 billion in additional unfunded costs for future retirees. Creating defined contribution plans for all state and local government employees will eliminate new unfunded liabilities; and
WHEREAS, Under current law, existing state and local government employees cannot have their retirement plans changed by this measure. Promises made to all current public employee retirement system members will be kept under this measure. A switch from defined benefits to defined contributions plans will only affect employees hired by public agencies on or after July 1, 2007; and
WHEREAS, Unlike current government pension plans, defined contribution plans allow employees to enhance their credit standing, control their assets, move pension assets from one job to another, and pass along remaining funds to their heirs; and
WHEREAS, Defined contribution plans will make government officials more accountable for spending public money, reduce the long-term cost of retirement plans, provide greater budget predictability, and help restore fiscal responsibility to state and local budgets; now, therefore, be it
Resolved by the Assembly, the Senate concurring, That the Legislature of the State of California at its 2005-06 First Extraordinary Session commencing on the sixth day of January 2005, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended as follows:

First

 That Section 8 is added to Article XX thereof, to read:

SEC. 8.
 (a) The California Public Employee Defined Contribution Plan is hereby established.
(b) Notwithstanding any other provision of law or this Constitution, on and after July 1, 2007, any person hired as a new employee by a public agency may enroll only in a defined contribution plan of a public pension or retirement system, and shall not enroll in a defined benefit plan.
(c) On and after July 1, 2007, and before January 1, 2008, any active member of a defined benefit plan offered by any public agency may transfer a sum equal to the net present value of that member’s interest in the defined benefit plan to a defined contribution plan as defined in this section.
(d) As used in this section, the following terms apply:
(1) “Defined benefit plan” means a system providing a pension benefit determined by a formula based on age, service credit, and salary.
(2) “Defined contribution plan” means a system providing a pension benefit that is equal to the combined employer and employee contributions plus interest and net investment earnings, less administrative expenses. A public agency may use one or more private sector third-party administrators to manage a defined contribution plan, provide investment vehicles, and educate members and retirees on appropriate investment strategies.
(3) “Public agency” includes, but is not limited to, the State of California, and any city, city and county, or county, including a charter city or charter county, district, school district, University of California, California State University or other political subdivision or public entity of, or organized under the laws of, this State, or any department, instrumentality, or agency thereof.

Second

 That in the event that this measure and any other measure relating to retirement plans of public employees appear on the same statewide election ballot, the provisions of that other measure shall be deemed to be in conflict with this measure. In the event that this measure shall receive a greater number of affirmative votes than that other measure, the provisions of this measure shall prevail in their entirety, and the provisions of the other measure shall be null and void.

Third

 That the provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.