Bill Text

Bill Information


Add To My Favorites | print page

AB-2940 Retirement: California Employee Savings Program.(2007-2008)

SHARE THIS:share this bill in Facebookshare this bill in Twitter
AB2940:v94#DOCUMENT

Amended  IN  Senate  July 10, 2008
Amended  IN  Senate  June 17, 2008
Amended  IN  Assembly  May 23, 2008
Amended  IN  Assembly  April 10, 2008
Amended  IN  Assembly  April 03, 2008

CALIFORNIA LEGISLATURE— 2007–2008 REGULAR SESSION

Assembly Bill
No. 2940


Introduced  by  Assembly Member De Leon
(Principal Coauthor(s): Assembly Member Carter, Coto, Hernandez, Lieu, Ma)
(Coauthor(s): Assembly Member Eng)
(Coauthor(s): Senator Cedillo)

February 22, 2008


An act to amend Section 21670 of, and to add Title 25 (commencing with Section 100000) to, the Government Code, relating to retirement.


LEGISLATIVE COUNSEL'S DIGEST


AB 2940, as amended, De Leon. Retirement: California Employee Savings Program.
(1) Existing federal law provides for tax-qualified retirement plans and individual retirement accounts or individual retirement annuities by which private citizens may save money for retirement.
This bill would create the California Employee Savings Program, which would be operative only upon a specified appropriation in the annual Budget Act or if sufficient funds are made available through a nonprofit or private entity, as specified. The program would be administered by the Board of Administration of the Public Employees’ Retirement System (PERS), with the intent of promoting greater retirement savings for California private employees in a convenient, low-cost, and portable manner. The bill would require the board, under this program, to offer one or more individual retirement accounts or defined benefit plans, as specified, to eligible employees of participating eligible employers, as defined. The bill would specify that eligible employees of participating employers are not members of PERS. The bill would permit the board, in initiating and administering the program, to, among other things, employ staff and 3rd-party administrators, as necessary, collaborate with various entities in the private sector, recover expenses from contributions or investment returns, as specified, and create a process to require a participating employer to forward employee contributions to the program through the Employment Development Department system currently used to collect payroll taxes. The bill would require the Employment Development Department to cooperate in this regard. The bill would authorize the Employment Development Department to seek reimbursement for any administrative costs associated with implementing the program. The bill would require the board to make reports to employers on the progress and status of the program.
The bill would also require the board to make specified reports to the Legislature, including a report at least 90 days prior to implementing the program, upon determining that all specified conditions necessary to implement the program can be satisfied, a report if it finds that the program is not self-sustaining, and annual reports on the status of the program, as specified. The bill would require the board to keep program funds and accounts separate from those of PERS and would prohibit the use of funds in PERS, as specified, to implement or administer the program. In addition, the bill would require that all expenses and obligations created by the program be funded by its contributions, returns, and assets, except as the Legislature may appropriate funds for this purpose, to be deposited in the California Employee Savings Program Administrative Fund, which this bill would establish as a continuously appropriated fund. The bill would require PERS to obtain the necessary approvals from federal authorities for the program’s implementation. The bill would prohibit any claim, tax lien, or other right of set off from applying to funds or assets of the program, as specified. The bill would indemnify from the General Fund and hold harmless the present, former, and future board members, officers, employees of, and investment managers under contract with, PERS in connection with any decision or action related to the administration of the program. The bill would provide that the program may only be implemented if the board determines that certain conditions are satisfied, and would permit the board to discontinue the program on its determination, as specified. The bill would permit the board to adopt regulations in regard to the program, and would provide that the adoption, amendment, or repeal of a regulation is exempted from the rulemaking provisions of the Administrative Procedure Act. The bill would also make a statement of findings.
(2) Existing law authorizes the PERS Board of Administration to establish a deferred compensation program for California public employees. The board is required to make the program available to all employees of an employer, as defined, under procedures established by the board, except as specified.
This bill would extend the availability of this program to include state employees.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares the following:
(a) Currently, 6 million Californians, 43 percent of the state’s workforce, work at a job that does not offer them a pension or retirement savings plan to supplement social security.
(b) Social security payments alone, which average $1,081 per month in California, will not sustain Californians in their retirement. Seniors without savings may be more likely to require government assistance with housing, medical care, and other necessities.
(c) Though investments in savings accounts have increased over time, investments from low-income small businesses, or short-tenured and transient employees, are strikingly low and have not increased at the same rate.
(d) Nationally, two out of three low-wage workers lack access to an employer-sponsored retirement plan, while only one in four high-wage workers do. Nearly 65 percent of low-income workers, those earning less than $40,000 per year, do not participate in employer plans, according to the Congressional Budget Office.
(e) Only 26 percent of full-time, full-year private sector workers in businesses with fewer than 25 employees participated in a pension plan in 2004, compared with 69 percent of those employed by companies with 500 or more employees. Complexity and cost of administering retirement systems may prevent small companies, in comparison to larger corporations, from creating retirement plans for their employees.
(f) Low investment participation rates in retirement plans can also be attributed to a worker losing coverage access after moving into a new job with a new business.
(g) Workers today are spending more than they are saving, relying more on credit, and thus accruing debt and putting their future financial security at risk. Nationally, the personal savings rate for individuals has fallen to 0.5 percent of income for 2007. At this rate, even with social security benefits, Californians will not be able to afford retirement.
(h) California workers without access to an employer-sponsored retirement plan need a seamless, lifelong savings system, providing them with the opportunity to build their assets and helping them to attain their financial stability and future through a secure, portable savings account.
(i) In creating this system, California would supplement existing savings options, at no cost to taxpayers.
(j) The California Employee Savings Program is hereby established by this act to promote expanded retirement security for working Californians’ employers’ sponsorship of retirement plans for their employees.

SEC. 2.

 Section 21670 of the Government Code is amended to read:

21670.
 The board may establish a deferred compensation program for California public employees. The program shall be made available to all state employees and to all employees of an employer under procedures established by the board unless participation is subject to the terms of any memorandums of understanding between the employer and the employees.

SEC. 3.

 Title 25 (commencing with Section 100000) is added to the Government Code, to read:

TITLE 25. CALIFORNIA EMPLOYEE SAVINGS PROGRAM

100000.
 For purposes of this title:
(a) “Board” means the Board of Administration of the Public Employees’ Retirement System.
(b) “Eligible employer” means a person or entity engaged in a business, industry, profession, trade, or other enterprise in the state, whether for profit or not for profit, but excluding the state, any county, any municipal corporation, or any of its units or instrumentalities, and that satisfies the requirements to establish or participate in a SIMPLE plan or a payroll deposit IRA arrangement. An eligible employer shall only provide services under the program to eligible employees. An eligible employer does not include any employer to the extent that the employer replaces a preexisting retirement plan with a plan provided for by this title.
(c) “Eligible employee” means a person who is an employee of an eligible employer.
(d) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
(e) “IRA” means an individual retirement account or individual retirement annuity under Section 408 or 408A of the Internal Revenue Code of 1986.
(f) “Participating employer” means an eligible employer that maintains or participates in a plan or payroll deposit IRA arrangement provided for by this title for eligible employees.
(g) “Payroll deposit IRA arrangement” means an arrangement by which an employer makes its payroll system available to employees as a conduit for transferring salary reduction contributions to IRAs.
(h) “Program” means the California Employee Savings Program established by this title.
(i) “SIMPLE plan” means a SIMPLE IRA program under Section 408(p) of the Internal Revenue Code of 1986.
(j) “System” means the Public Employees’ Retirement System.

100002.
 (a) There is hereby established a retirement savings program known as the California Employee Savings Program to be administered by the board with the intent of promoting greater retirement savings for California private employees in a convenient, low-cost, and portable manner. The California Employee Savings Program is a voluntary, universal, portable retirement account for California private employees.
(b) The program shall include, as determined by the board, one or more of the following components:

(1)One or more payroll deposit IRA arrangements for the employees of participating employers.

(2)One or more traditional IRA arrangements.

(3)One or more SIMPLE IRA plans for the employees of participating employers.

(4)Other IRAs for employees of participating employers.

(1) One or more payroll deposit IRA arrangements.
(2) One or more traditional IRA arrangements.
(3) One or more SIMPLE IRA plans.
(4) Other IRAs.
(5) Defined benefit plans.
(c) Pursuant to the authority granted under this title, the board may establish the following:
(1) Prototype or master and prototype plans or IRAs.
(2) Multiple employer plans.
(3) Group administrative service arrangements that allow eligible employers to achieve economies of scale with respect to their retirement savings arrangements relating to investment, accounting, payroll processing, employee communications, and investor education.
(4) Group investment vehicles for the plans or IRAs.
(5) Custodial or trustee arrangements for payroll deposit programs or for other plans or IRAs.
(d) Participating employers and their eligible employees do not become members of, or participants in, the Public Employees’ Retirement System. The California Employee Savings Program does not create a new or separate public pension or retirement system.

100004.
 To initiate, implement, maintain, and administer the program, the board may:
(a) Employ staff.
(b) Retain and contract with private financial institutions, other financial and service providers, consultants, third-party administrators, and other professionals as necessary, without regard to provisions regarding competitive bidding.
(c) Collaborate and cooperate with private financial institutions, service providers, business, financial, trade, membership, and other organizations to the extent necessary or desirable for the effective and efficient implementation of the program and to maximize outreach to eligible employers and eligible employees.
(d) Cause expenses incurred to initiate, implement, maintain, and administer the program, to be paid from contributions to, or investment returns or assets of the program or plans or IRAs established under the program, to the extent permitted under federal law, except for expenditures that are provided for through appropriations from the Legislature.
(e) Facilitate compliance by the plans and IRAs established under the program with all applicable requirements for the plans under the Internal Revenue Code of 1986, including tax qualification requirements or any other applicable law and accounting requirements, including providing or arranging for assistance to plan sponsors and individuals in complying with applicable law and tax qualification requirements in a cost-effective manner.
(f) Cause the IRA plans or arrangements established under the program to be designed, established, and operated:
(1) In accordance with best practices for retirement savings vehicles.
(2) To maximize participation, saving, and sound investment practices, and to encourage the use of automatic features, including, but not limited to, automatic enrollment and appropriate selection of default investments.
(3) With simplicity, ease of administration for participating employers, and portability of benefits.
(g) Seek to minimize costs by assisting or facilitating the pooling of small employers and individuals in purchasing retirement savings plans, arrangements, and investments, and through economies of scale, standardization, designation of investment types, and other measures.
(h) Arrange for collective, common, and pooled investment of assets of the IRA plans or arrangements, including investment in conjunction with other funds with which those assets are permitted to be collectively invested, with a view to saving costs through efficiencies and economies of scale, but only to the extent that these collective investment arrangements would not jeopardize or alter the current exemptions from ERISA and federal securities laws of the plans maintained by the system and administered by the board for state and local government employers and employees. Nothing in this subdivision shall adversely affect or otherwise compromise the system’s ability to comply with applicable federal and state law and conditions for favorable tax treatment.
(i) Disseminate educational information concerning saving and planning for retirement to eligible employers and employees.
(j) Disseminate information concerning the tax credits available to small business owners for establishing new retirement plans and the federal saver’s tax credit available to moderate- and lower income households for saving in plans and IRAs to eligible employers and eligible employees.
(k) Submit progress and status reports to participating employers and eligible employees.
(l) If necessary, determine the eligibility of an employer, employee, or other individual to participate in the program.
(m) Create for eligible employees of participating employers who want to contribute a portion of their paycheck to a plan or account offered by the program a process by which they are able to notify their employers, either at the time of hiring or thereafter, and require the participating employer to forward the employee contribution to the program through the Employment Development Department system currently used to collect payroll taxes. In this case, the Employment Development Department shall cooperate by forwarding the employee contribution to the IRA plan or arrangement under the program.
(n) Subject to the conditions specified in Section 100014, allow participating employers to use the program to contribute to the account on their employees’ behalf or match their employees’ contribution.

100005.
 In the event the Employment Development Department participates in the implementation and administration of the program, it may seek reimbursement for any administrative costs associated with implementing the program.

100005.5.
 (a) The board shall keep separate and distinct any and all IRA plans or arrangements established under the program, including any and all funds or accounts of those IRA plans or arrangements, from all programs, funds, or assets maintained by the system and administered by the board for state and local government employers and employees. No funds in the system’s defined benefit plans, health and welfare plans, or its supplemental income plans for state and local government employers and employees shall be used to implement initiate, develop, implement, or administer the program.
(b) All expenses and obligations created by, or pursuant to, the program shall be funded solely from contributions to, or investment returns or assets of, the programs, accounts, or IRA plans or arrangements, or defined benefit plan arrangements established under the program, except as the Legislature may provide for funding through appropriation which shall be deposited in the California Employee Savings Program Administrative Fund established pursuant to Section 100016.

100006.
 The board shall obtain the necessary approvals, rulings, opinions, determinations, or confirmations from federal authorities or agencies, including the Internal Revenue Service, Department of Labor, or Securities and Exchange Commission. It is intended that the IRA plans or arrangements established under the program shall adhere to all applicable standards and requirements under federal law regulating the operation of, and the offering, sale, or distribution of securities under, those plans or arrangements.

100008.
 No claim, tax lien, or other right of setoff of the state or any of its agencies or instrumentalities shall apply against any funds or assets held for the benefit of individuals in a plan or IRA under the program or coming into the possession of a state official under the program.

100010.
 No claim, tax lien, or other right of setoff of the state or any of its agencies or instrumentalities shall apply against any funds or assets administered by the board for the purpose of providing pension, long-term care, or health benefits for employees of the state or contracting agencies, by reason of any decision or action related to the initiation, implementation, maintenance, or administration of the program.

100012.
 Present, future, and former board members of the Public Employees’ Retirement System, jointly and individually, state officers and employees, and investment managers under contract with the Public Employees’ Retirement System shall be indemnified from the General Fund and held harmless by the State of California from all claims, demands, suits, actions, damages, judgments, costs, charges, and expenses, including court costs and attorney’s fees, and against all liability, losses, and damages of any nature whatsoever that they shall or may at any time sustain by reason of any decision or action related to the initiation, implementation, maintenance, or administration of the program.

100014.
 (a) The program may only be implemented if the board determines the following conditions are satisfied:
(1) There is an adequate appropriation or loan under appropriate terms and conditions to the California Employee Savings Program Administrative Fund sufficient to fund program development, implementation, and administrative costs.
(2) Approval satisfactory to the board is received from agencies or departments of the United States government, including, but not limited to, the Internal Revenue Service, the United States Department of Labor, and the Securities and Exchange Commission that both of the following are true:
(A) The IRA plans or arrangements offered under the program do not jeopardize or alter the current status of the system with respect to its operations under relevant federal laws.
(B) Any payroll deposit IRA arrangement offered under the program is not subject to ERISA.
(3) The board obtains offers from well-qualified and experienced financial service providers to administer the recordkeeping, investment, and compliance functions of any IRA plan or arrangement offered under the program.
(4) The program will be self-sustaining.
(b) If the board determines that all of the conditions in subdivision (a) can be satisfied, it shall file a report with the Legislature pursuant to paragraph (1) of subdivision (a) of Section 100017.

(b)

(c) If the board determines that any of the conditions in subdivision (a) cannot be satisfied, the program shall not be implemented. If, at any time after initial implementation, any of the conditions set forth in subdivision (a) are not satisfied, the board may discontinue the program. In either instance, the board shall file a report with the Legislature pursuant to paragraph (2) of subdivision (a) of Section 100017.
(d) If, subsequent to the program’s implementation, any traditional or payroll deposit IRA arrangement offered pursuant to the program becomes subject to ERISA, or the board determines in its discretion that it may be feasible to offer another plan or arrangement authorized by subdivision (b) of Section 100002, the board shall have the sole discretion to determine whether it shall establish or maintain the plan or arrangement that is subject to ERISA, and in no event shall the board be required to establish or maintain that plan or arrangement.

100016.
 (a) The California Employee Savings Program Administrative Fund is hereby established to serve as the repository of funds received by the program for administrative expenses pursuant to this title.
(b) Notwithstanding Section 13340 of the Government Code, all moneys in the California Employee Savings Fund shall be continuously appropriated without regard to fiscal years to carry out the purposes of this title.
(c) The board may establish multiple accounts within the California Employee Savings Program Administrative Fund to assist in the allocation of funds for various program needs and functions, including administration, operation, and reserve.

100017.
 The board shall submit reports to the Legislature, as follows:
(a) (1) The board shall submit a report to the Legislature at least 90 days prior to implementing the program. This report shall Upon determining that all the conditions necessary to implement the program under subdivision (a) of Section 100014 can be satisfied, the board shall submit a report to the Legislature that shall include, but not be limited to, information regarding the expectations of the program, an outline of the program, and details regarding administration of the program the administration and projected cost of the program. The board shall not implement the program until after the report is presented to the Legislature, and moneys in an amount sufficient to fund the projected cost of the program are either appropriated by the Legislature in an annual Budget Act or made available through a nonprofit or private entity.
(2) If the board concludes that the program will not be self-sustaining, or if the necessary conditions specified in subdivision (a) of Section 100014 are not satisfied, the board shall submit a report to the Legislature regarding the details of its conclusion, including, but not limited to, legal, financial, regulatory, and administrative considerations and obstacles, and actions taken to address those concerns. This report shall also include any changes that the board believes that the Legislature could make in order to implement the program.
(b) The board shall submit annual reports to the Legislature on the status of the program, including, but not limited to, outreach, investments, and solvency efforts.
(c) If the board finds it necessary to suspend or discontinue the program, it shall submit a report to the Legislature at least 90 days prior to that suspension or discontinuation. This report shall include, but is not limited to, any conditional changes that need to be made by the Legislature in order to continue the program.

100018.
 The board may adopt regulations that implement this title. The adoption, amendment, or repeal of a regulation authorized by this section is hereby exempted from the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2. However, the board shall transmit those regulations to the Office of Administrative Law for filing with the Secretary of State and publication in the California Code of Regulations. Those regulations shall become effective immediately upon filing with the Secretary of State.

100019.
 This title shall become operative only if an annual Budget Act appropriates moneys in amounts sufficient to implement this title or funds are made available through a nonprofit or private entity, in amounts sufficient to allow the board to initiate, study, develop, and obtain the approvals necessary to implement the program pursuant to the conditions in subdivision (a) of Section 100014. Existing assets, resources, and personnel administered by the board may shall not be used to develop, initiate, implement, or administer the program without that appropriation or outside funding.