Bill Text: CA AB125 | 2009-2010 | Regular Session | Amended
Bill Title: Retirement: California Employee Savings Program.
Spectrum: Partisan Bill (Democrat 11-0)
Status: (Engrossed - Dead) 2009-08-27 - In committee: Held under submission. [AB125 Detail]
Download: California-2009-AB125-Amended.html
BILL NUMBER: AB 125 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 18, 2009
AMENDED IN ASSEMBLY JUNE 1, 2009
INTRODUCED BY Assembly Member De Leon
(Coauthors: Assembly Members Beall, Carter, Coto, Eng, Hernandez,
Jones, Lieu, Ma, Solorio, and Torrico)
JANUARY 15, 2009
An act to add Title 25 (commencing with Section 100000) to the
Government Code, relating to retirement, and making an appropriation
therefor.
LEGISLATIVE COUNSEL'S DIGEST
AB 125, as amended, De Leon. Retirement: California Employee
Savings Program.
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 or federal funding, 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 evaluate and establish the process by which eligible
employees who want to contribute a portion of their paycheck to an
account offered by the program are able to notify their employers and
require the employer to forward the contribution and related
information to the program. The bill would require the Employment
Development Department to cooperate in this regard. The bill would
authorize the Employment Development Department to charge a fee for
any administrative costs it incurs by reason of implementing and
administering 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 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 PERS, after specified acts have
occurred, to request funding through a Budget Act appropriation or
from a nonprofit or private entity or from federal funding for the
purpose of implementing the program. 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 initiate,
develop, 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 setoff 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. Subject to the
availability of funds, as specified, the bill would require the board
to report to Legislature regarding the feasibility of creating a
defined benefit plan option to be available to employers. The bill
would also make a statement of findings.
Vote: majority. Appropriation: yes. Fiscal committee: yes.
State-mandated 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 plans 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) Providing California workers with a guaranteed retirement
income to supplement Social Security, traditionally funded by stable
employer contributions via a defined-benefit employer-based pension
plan, is optimal to ensure that workers accumulate the benefits they
need for a secure retirement. California must continue to explore
guaranteed replacement income programs, such as defined benefit
plans, for working Californians. Establishing and offering a defined
benefit plan would require additional study to research and address
the complex policies and regulatory approvals necessary for creation
and implementation, and would be an important step toward ensuring
the retirement security for working Californians.
(j) Though guaranteed retirement income programs are valuable
savings tools for workers, given the changing needs and work habits
of California's workers, alone, they are insufficient to afford
workers a comfortable and secure retirement. California workers need
additional retirement savings options to ensure their retirement
security.
(k) In creating an additional savings program for its workers,
California would supplement existing savings options, assisting
California's working men and women to save for retirement. This
program would be funded by the program's participants and would be
maintained and administered at no cost to taxpayers.
(l) 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. 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 IRA or a payroll deposit IRA arrangement.
An eligible employer does not include any employer to the extent that
the employer replaces a preexisting retirement plan with a
an arrangement 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, 408A, or 408(p) of the Internal
Revenue Code of 1986.
(f) "Participating employer" means an eligible employer that
maintains or participates in an 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 IRA" 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.
(2) One or more traditional IRA arrangements.
(3) One or more SIMPLE IRA plans.
(4) Other IRAs.
(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 design, implementation, and administration 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 IRAs
IRA plans or arrangements 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 IRAs IRA
plans or arrangements 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
IRAs, IRA plans or 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 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.
(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
IRA plans or arrangements .
(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) Evaluate and establish the process by which eligible employees
of participating employers who want to contribute a portion of their
paycheck to an account offered by the program are able to notify
their employers, either at the time of hiring or thereafter, and
require the participating employer to forward the employee
contribution and related information to the program or its agents
, provided, however, the board shall not be responsible for
ensuring employer compliance in executing requests by eligible
employees to participate in the program . This may include, but
is not limited to, the ability to use the current tax processing and
accounting system of the Employment Development Department,
financial services companies, and third-party administrators with the
capability to receive and process employee information and
contributions for payroll deduction IRA arrangements or other
retirement savings IRA plans or
arrangements authorized by this title. The Employment Development
Department shall assist the board in its efforts to study and
implement these tasks, and, if selected by the board, shall cooperate
by forwarding the employee contribution to the IRA
arrangement or other retirement savings arrangements
plans or arrangements established 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'
contributions.
100005. If the Employment Development Department participates in
the implementation and administration of the program, it may charge a
fee for any administrative costs it incurs by reason of implementing
and administering 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 deferred compensation plans,
or any other plan administered by the board for state and
local government employers and employees shall be used to study,
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, 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, the Department
of Labor, or the 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. The board shall also obtain approval from the
Department of Labor that the default investments offered under an
automatic enrollment feature of any IRA plan or
arrangement has the same safe-harbor relief as plan fiduciaries
receive for "qualified default investment alternatives" (QDIAs) under
the Department of Labor's regulations.
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.
100013. The board shall follow the process described in this
section in developing and implementing the program:
(a) Initially, the board shall conduct an economic feasibility
study to determine whether the necessary conditions for
implementation can be met, including, but not limited to, likely
participation rates, participants' comfort with various investment
vehicles and degree of risk, contribution levels, and the rate of
account closures and rollovers. The board shall present these
findings to the Legislature for review. The board shall conduct this
study only if sufficient funds therefor are made available through a
nonprofit or private entity, federal funding, or an annual Budget Act
appropriation. The board shall not use assets, resources, or
personnel administered by the board that are not associated with this
study. The board shall notify the Legislature if it determines
that it must delay the start of the study, development, and approval
process until completion of PERS pension system resumption project.
(b) Upon completing the study described in subdivision (a) and
reaching the conclusion that the program is feasible, the board shall
request additional funding through a Budget Act
appropriation or from a nonprofit or private entity or federal
funding to be used for the purpose of obtaining the necessary
approvals described in Section 100006 and subdivision (a) of Section
100014 and for the purpose of designing the program. After obtaining
the necessary approvals to implement the program and completing the
design of the program, the board shall report to the Legislature as
described in subdivision (a) of Section 100017. The board
shall not use assets, resources, and personnel administered by the
board that are not associated with these purposes.
(c) After completing the actions described in subdivision (b), the
board shall request funding through a Budget Act appropriation or
from a nonprofit or private entity or federal funding for the purpose
of implementing the program.
(d) No funds in or resources, including personnel, of the defined
benefit plans, health and welfare plans, deferred compensation plans,
or any other plan administered by the board for state and local
government employers and employees may be used to undertake any
actions described in subdivisions (a) through (c), except where other
funds are received from an appropriation or nonprofit or private
entity for those purposes.
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 or other funding
under appropriate terms and conditions to the California Employee
Savings Program Administrative Fund sufficient to fund program
development, implementation, and administrative costs. In no
event shall the board be required to repay any moneys or funds made
available to the program through an appropriation, a nonprofit or
private entity, or otherwise, unless and until the program's fees
have generated sufficient revenue to pay for and sustain the program'
s accrued 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.
(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. The board shall include in its
report suggested funding options and alternative ways of operating
the program, including, but not limited to, identifying another
entity to study, design, or implement the program.
(d) If, subsequent to the program's implementation, any
traditional or payroll deposit IRA plan or 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) 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 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 appropriated by the
Legislature in an annual Budget Act.
(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 would make it feasible to
implement the programs, including suggested changes 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 or improve the
program, and address any concerns that the board has regarding 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. The board shall submit to the Legislature a report
evaluating the feasibility of creating a defined benefit plan option
available to employers, including any related considerations and
issues. This report shall be required only if an annual Budget Act
appropriates moneys, or funds are made available through a nonprofit
or private entity or federal funding, in amounts sufficient to allow
the board to 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 shall not be used to develop, initiate,
implement, or administer the program without that appropriation or
outside funding.
100022. This title shall become operative only if an annual
Budget Act appropriates moneys or funds are made available through a
nonprofit or private entity or federal funding, in amounts sufficient
to allow the board to 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 shall not be used to develop,
initiate, implement, or administer the program without that
appropriation or outside funding.
