BILL NUMBER: AB 2473 CHAPTERED
BILL TEXT
CHAPTER 740
FILED WITH SECRETARY OF STATE SEPTEMBER 28, 2014
APPROVED BY GOVERNOR SEPTEMBER 28, 2014
PASSED THE SENATE AUGUST 19, 2014
PASSED THE ASSEMBLY AUGUST 20, 2014
AMENDED IN SENATE AUGUST 14, 2014
AMENDED IN ASSEMBLY APRIL 28, 2014
INTRODUCED BY Committee on Public Employees, Retirement and Social
Security (Bonta (Chair), Rendon, Ridley-Thomas, and Wieckowski)
FEBRUARY 21, 2014
An act to amend Sections 31564, 31592.2, 31592.4, 31649.5, 31656,
31671, 31691, 31691.1, and 31696.3 of, and to add Sections 31485.19,
31485.20, 31485.21, 31485.22, 31694.6, and 31698.5 to, the Government
Code, relating to county employees.
LEGISLATIVE COUNSEL'S DIGEST
AB 2473, Committee on Public Employees, Retirement and Social
Security. County Employees Retirement Law of 1937: federal law
compliance.
Federal tax law regulates pension plans generally and regulates
public pension plans specifically based on their status as
governmental plans, as defined. In this regard, among other things,
federal law requires that accrued member retirement benefits be
nonforfeitable, as specified, establishes conditions for the
distribution of funds to members from a retirement system, prescribes
requirements for the vesting of benefits, and limits the application
of pension funds for medical benefits.
The County Employees Retirement Law of 1937 (CERL) permits
counties and districts, as defined, to provide retirement benefits to
their employees pursuant to its provisions and vests the management
of the retirement system in the board of retirement. CERL generally
conditions distribution of benefits upon compliance with federal
requirements. CERL requires a county to retain in its retirement fund
specified excess earnings to maintain a reserve against possible
future deficiencies in earnings, and to transfer certain of those
excess earnings into county advance reserves for the sole purpose of
paying the cost of benefits, as specified. CERL authorizes the use of
these reserves for the payment of certain health and medical
benefits, subject to specified limitations.
This bill would revise various provisions of CERL to explicitly
conform with federal law. In this regard, the bill would provide that
a member's accrued retirement benefits are nonforfeitable in
accordance with federal law in effect on the date of the termination
of, or discontinuance of contributions under, the retirement system.
Upon the withdrawal of a district from a retirement system, the bill
also would prohibit a refund, distribution, or transfer of
contributions or other funds to an employee or district unless in
compliance with prescribed federal law.
This bill would revise provisions authorizing a retirement system
to apply specified earnings to designated health benefits provided
federal requirements are met, and would allow the board of retirement
to authorize payment of those benefits with county advance reserves.
The bill would specify that, if a county establishes a
Post-Employment Benefits Trust Account as a part of its retirement
fund, that account shall be used exclusively to provide health
benefits for retired members, their spouses, and dependents.
This bill would revise county procedures applicable to providing
service credit to a member of the retirement system for all or part
of his or her military service, in accordance with federal law.
This bill would require a county that elects to provide optional
long-term care or vision benefits, to comply with applicable federal
law and regulation, including maintaining separate trust funds for
those benefits. The bill also would make various technical,
nonsubstantive changes to CERL.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 31485.19 is added to the Government Code, to
read:
31485.19. Notwithstanding any other provision of this chapter,
the rights of each member to his or her accrued retirement benefits
under the retirement system shall be nonforfeitable, in accordance
with the requirements of Sections 401(a) of Title 26 of the United
States Code that are applicable to public employee plans, to the
extent then funded, on the date of the termination of the system, the
partial termination of the system, or the complete discontinuance of
contributions under the system, as provided in Title 26 of the
United States Code.
SEC. 2. Section 31485.20 is added to the Government Code, to read:
31485.20. Notwithstanding any other provision of this chapter, no
amount shall be distributed from a retirement system established
under this chapter prior to the time that the distribution may be
made in compliance with the requirements of Section 401(a) of Title
26 of the United States Code that are applicable to public employee
plans, including, but not limited to, requirements relating to the
distribution of amounts prior to the earlier of a member's death,
disability, separation from service with all employers that maintain
the retirement system, or attainment of normal retirement age, as
defined by the retirement system.
SEC. 3. Section 31485.21 is added to the Government Code, to read:
31485.21. (a) A member who has not attained normal retirement age
shall have a bona fide separation from service to the extent
required by Section 401(a) of Title 26 of the United States Code
before working for the county or a district. The board shall
establish, by regulation, the criteria under which a bona fide
separation is satisfied.
(b) Notwithstanding any other provision of this chapter, to the
extent required or permitted by Section 401(a) of Title 26 of the
United States Code, no amount shall be paid to any member before the
date the member has attained normal retirement age or has had a bona
fide separation from service, whichever is earlier.
(c) The board may establish, by regulation, normal retirement age
consistent with federal law and eligibility requirements under state
law.
(d) To the extent that the California Public Employees' Pension
Reform Act of 2013 (Article 4 (commencing with Section 7522) of
Chapter 21 of Division 7 of Title 1) would provide for greater
restrictions with regard to separation from service, the provisions
of that act shall prevail.
SEC. 4. Section 31485.22 is added to the Government Code, to read:
31485.22. (a) A member who, while currently employed, has reached
normal retirement age, as defined by the retirement system, and has
met the benefit commencement requirements in Article 8 or Article 9,
shall be fully vested in the benefits payable under the retirement
system. Upon satisfying the requirements of this section, a member
may be retired upon filing with the board a written application in
the manner provided in Articles 8 and 9 of this chapter, as
applicable.
(b) Notwithstanding subdivision (a), Articles 8 and 9 of this
chapter, or any other applicable law, a member's earned and accrued
benefits may be forfeited under Section 7522.70, 7522.72, or 7522.74.
SEC. 5. Section 31564 of the Government Code is amended to read:
31564. (a) All officers and employees of any district who have
become members of the association as provided in Section 31557, may
be withdrawn by a resolution of the governing body declaring all of
the district's employees withdrawn from the association; provided,
the governing body has first received a written petition signed by a
majority of its officers and employees requesting that the district's
officers and employees be withdrawn from the association.
(b) Upon the adoption of any resolution to withdraw its members,
all accumulated contributions held in the association shall be
refunded to the district's employees upon the effective date of their
withdrawal and in the same manner as the accumulated contributions
would be refunded upon the termination of their employment by the
district.
(c) Upon the adoption of any resolution to withdraw its members
and where there are no existing retirees from the district, the
district's contributions shall be transferred to another public
retirement system that meets the requirement of a tax-qualified
retirement plan under Section 401(a) of Title 26 of the United States
Code.
(d) A refund, distribution, or transfer of contributions or other
funds shall not be made to any employee or any district unless that
action complies with the requirements of Section 401(a) of Title 26
of the United States Code.
(e) In the event of the transfer of district contributions to
another public retirement system, the employee contributions shall
also be transferred to the other public retirement system.
(f) The effective date of withdrawal of any resolution adopted
pursuant to this section shall be at the end of the calendar month
during which such resolution is adopted.
SEC. 6. Section 31592.2 of the Government Code is amended to read:
31592.2. (a) In any county, earnings of the retirement fund
during any year in excess of the total interest credited to
contributions and reserves during such year shall remain in the fund
as a reserve against deficiencies in interest earnings in other
years, losses on investments, and other contingencies, except that,
when such surplus exceeds 1 percent of the total assets of the
retirement system, the board may transfer all, or any part, of such
surplus in excess of 1 percent of the said total assets into county
advance reserves for the sole purpose of payment of the cost of the
benefits described in this chapter.
(b) Where the board of supervisors has provided for the payment of
all, or a portion, of the premiums, dues, or other charges for
health benefits, Medicare, or the payment of accrued sick leave at
retirement to or for all, or a portion, of officers, employees, and
retired employees and their dependents, from the county general fund
or other sources, the board of retirement may authorize the payment
of all, or a portion, of payments of the benefits described in this
subdivision from the county advance reserves. This payment shall
comply with the requirements of Section 401 of Title 26 of the United
States Code. Payment may be made directly from the county advance
reserves for the benefits described in Section 31691.1.
SEC. 7. Section 31592.4 of the Government Code is amended to read:
31592.4. (a) The amount of excess earnings available at the end
of a fiscal year of the retirement fund, shall, subject to the
limitations in this section, be treated in the immediately succeeding
fiscal year, for all purposes under this chapter, as appropriations,
transfers, and contributions made to the retirement fund by the
county and applicable districts. That treatment shall occur only to
the extent that, in the immediately succeeding fiscal year, the
county and applicable districts pay for an equal amount of health
benefits for members heretofore or hereafter retired and their
dependents or make contributions in an equal amount to an account
established under Section 401(h) of Title 26 of the United States
Code solely for the purpose of providing health benefits for retired
members, their spouses, and dependents, and for the associated
administrative and investment expenses.
(b) For purposes of this section, "excess earnings" means earnings
of the retirement fund at the end of any fiscal year that exceed the
total interest credited to contributions and reserves plus 1 percent
of the total assets of the retirement fund.
(c) The board of supervisors or the board of retirement shall take
any actions necessary and appropriate to ensure that the program
provided by this section complies with all applicable federal and
state income tax laws, including, but not limited to, establishing
rules and procedures for establishing and maintaining an account
under Section 401(h) of Title 26 of the United States Code.
(d) In accordance with Section 401(h) of Title 26 of the United
States Code and Section 1.401-14(c) of the Code of Federal
Regulations:
(1) The retirement system shall specify the medical benefits that
will be available and shall set out the amount that will be paid.
(2) Medical benefits shall be subordinate to the retirement
benefits when added to any life insurance benefits.
(3) A separate account shall be maintained for contributions to
fund the medical benefits.
(4) The funds in the separate account may be invested with the
funds for retirement benefits and the earnings shall be allocated to
each account in a reasonable manner.
(5) Amounts contributed for medical benefits shall be reasonable
and ascertainable.
(6) No part of the medical benefits account may be used for or
diverted to any purpose other than providing medical benefits and
paying necessary or appropriate expenses for the administration of
the medical benefits account.
(7) Any amounts remaining in the medical benefits account after
satisfaction of all medical benefits liabilities for all members,
their spouses, and dependents shall be returned to the employer.
(8) If a member's interest in the medical benefits account is
forfeited prior to plan termination, an amount equal to the
forfeiture shall reduce employer contributions to fund the account.
(e) Except to the extent allowed by Sections 401 and 420 of Title
26 of the United States Code, and related federal regulations, assets
shall not be transferred or otherwise paid from the funds held by
the retirement system for retirement benefits to a medical benefits
account. Assets shall not be transferred or otherwise paid from a
medical benefits account to the funds held by the retirement system
for retirement benefits.
(f) This section shall not be operative in any county until the
board of supervisors and the board of retirement of the county, by
resolution adopted by a majority vote of each board, make this
section operative in the county.
(g) This section is not intended, and shall not be construed to,
affect the validity of any agreement entered into by a county and a
retirement association whereby a county has agreed to provide and
fund a health insurance program for retired employees and their
dependents for hospital services, medical services, dental services,
and optical services, prior to the effective date of this section.
(h) This section establishes a method of providing health benefits
for retired members, their spouses, and dependents to the extent
allowed under Sections 31592.2 and 31691. This section does not
authorize duplicate benefits.
(i) This section may be made applicable in any county that has
adopted Article 5.5 (commencing with Section 31610), in which case
the Supplemental Retiree Benefits Reserve shall be substituted for
the excess earnings described in this section. This section also may
be made applicable to any arrangement established under Article 8.6
(commencing with Section 31694).
SEC. 8. Section 31649.5 of the Government Code is amended to read:
31649.5. Notwithstanding Section 31649, any member who resigned,
or obtained a leave of absence, to enter and did enter the Armed
Forces of the United States on a voluntary or involuntary basis and
returned to county service within one year after separation
therefrom, under honorable conditions, shall receive credit for
service and prior service for all or any part of his or her military
service, if, before retirement from the county, he or she contributes
what he or she would have paid to the fund based on his or her
compensation earnable pursuant to Section 31461 at the time he or she
resigned or received the leave of absence, together with regular
interest thereon, and if, when he or she contributes, the military
service is not a basis for present or future military retirement pay.
SEC. 9. Section 31656 of the Government Code is amended to read:
31656. Nothing in this chapter shall be construed to prohibit any
district established pursuant to Part 4 (commencing with Section
40000) of Division 10 of the Public Utilities Code, from extending
retirement service credit pursuant to Section 40127 of the Public
Utilities Code to any employee of the district who is on an
authorized leave of absence to serve as an official of a recognized
employee bargaining unit, under all of the following conditions:
(a) The employee agrees to pay the total contributions that would
otherwise be paid if the employee were not on leave, as well as any
additional costs which may accrue to the system as a result of this
extension of coverage.
(b) The maximum service credit accumulated under this section
shall not exceed 12 years.
(c) Employees covered under this section shall not be eligible for
disability benefits under any public employees' retirement system in
this state while on such leave of absence.
This section shall not be operative in any county until such time
as the board of supervisors shall, by resolution adopted by majority
vote, make the provisions of this section applicable in the county.
SEC. 10. Section 31671 of the Government Code is amended to read:
31671. (a) The amount of compensation that is taken into account
in computing benefits payable to any person who first becomes a
member of the retirement system on or after July 1, 1996, or January
1, 1996, for systems operating on a calendar basis, shall not exceed
the limitations in Section 401(a)(17) of Title 26 of the United
States Code upon public retirement systems, as that section may be
amended from time to time and as that limit may be adjusted by the
Commissioner of Internal Revenue for increases in cost of living. The
determination of compensation for each 12-month period shall be
subject to the annual compensation limit in effect for the calendar
year in which the 12-month period begins. In a determination of
average annual compensation over more than one 12-month period, the
amount of compensation taken into account for each 12-month period
shall be subject to the applicable annual compensation limit.
(b) The compensation limitations specified in Section 7522.10
shall also apply to a member who is subject to the provisions of the
California Public Employees' Pension Reform Act of 2013 for all or
any portion of his or her membership in the county retirement system.
SEC. 11. Section 31691 of the Government Code is amended to read:
31691. (a) The board of supervisors of any county by ordinance,
or the governing body of any district under the County Employees
Retirement Law, by ordinance or resolution, may provide for the
contribution by the county or district from its funds and not from
the retirement fund, toward the payment of all or a portion of the
premiums on a policy or certificate of life insurance or disability
insurance issued by an admitted insurer, or toward the payment of all
or part of the consideration for any hospital service or medical
service corporation, including any corporation lawfully operating
under Section 9201 of the Corporations Code, contract, or for any
combination thereof, for the benefit of any member heretofore or
hereafter retired or his or her dependents. At least one of these
plans shall include free choice of physician and surgeon.
(b) The benefits provided by this section are in addition to any
other benefits provided by this chapter.
(c) The board of retirement may provide on behalf of a member who
has retired, or an eligible surviving spouse who was married to the
member for one year prior to the date of retirement of the member,
or, if there is no such spouse, the surviving unmarried children of
the member who are under 18 years of age, or under 22 years of age
and full-time students, for the hospital and medical benefits
enumerated in subdivision (a) from the earnings of the retirement
fund that are in excess of the total interest credited to
contributions and reserves plus 1 percent of the total assets of the
retirement fund. The board may provide for the benefits enumerated
from like sources when the board of supervisors or the governing body
of a district has elected to provide these benefits to its active
employees, even though the benefits are not provided to those who
have retired from the service of the county or district. Hospital and
medical benefits provided under this section shall be provided in
compliance with Section 401(h) of Title 26 of the United States Code.
They may also be provided in compliance with Section 31592.2.
(d) Except in a county of the first class, upon adoption by any
county providing benefits pursuant to this section, that has adopted
Article 5.5 (commencing with Section 31610), the Supplemental Retiree
Benefits Reserve established pursuant to Section 31618 shall be
substituted for the excess earnings described in subdivision (c).
SEC. 12. Section 31691.1 of the Government Code is amended to
read:
31691.1. (a) In lieu of the benefits prescribed by Section 31691,
the board of retirement may provide on behalf of a member who has
retired, or an eligible surviving spouse who was married to the
member prior to the date of retirement of the member, or, if there is
no such spouse, the surviving unmarried children of the member who
are under 18 years of age, or under 22 years of age and full-time
students, for an equivalent increase in allowance from the earnings
of the retirement fund that are in excess of the total interest
credited to contributions and reserves plus 1 percent of the total
assets of the retirement fund. Any benefit provided by this section
shall be subject to Section 31692.
(b) Except in a county of the first class, upon adoption by any
county providing benefits pursuant to this section that has adopted
Article 5.5 (commencing with Section 31610), the board of retirement
shall, instead, pay those benefits from the Supplemental Retiree
Benefits Reserve established pursuant to Section 31618.
SEC. 13. Section 31694.6 is added to the Government Code, to read:
31694.6. (a) Notwithstanding any provision to the contrary in
this article, if the Post-Employment Benefits Trust Account
established under Section 31694 is established as a part of the
retirement fund, then that account shall be established for the sole
purpose of providing health benefits for retired members, their
spouses, and dependents, and shall comply with all requirements,
including the limitations on contributions, of Section 401(h) of
Title 26 of the United States Code, as applicable.
(b) The board of supervisors or the board of retirement shall take
any actions necessary or appropriate to ensure that the program
provided by this section complies with all applicable federal and
state income tax laws, including, but not limited to, establishing
rules and procedures for establishing and maintaining an account
under Section 401(h) of Title 26 of the United States Code.
(c) If the Post-Employment Benefits Trust Account is established
under Section 31694, assets shall not be transferred or otherwise
paid from the funds held by the retirement system for retirement
benefits to a medical benefits account. Assets shall not be
transferred or otherwise paid from a medical benefits account to the
funds held by the retirement system for retirement benefits.
SEC. 14. Section 31696.3 of the Government Code is amended to
read:
31696.3. (a) The board shall establish a trust fund designated as
the Long-Term Care Fund for the purpose of the payment of the costs
and administration of the long-term care plan. The Long-Term Care
Fund shall be held for the exclusive benefit of enrollees and the
payment of the costs and administration of the program.
(b) The board shall have exclusive control of the administration
and investment of the Long-Term Care Fund, except that in a county
having a board of investments, the board of investments shall have
exclusive control of the investment of the fund. Funds in the
Long-Term Care Fund shall be invested pursuant to the law governing
the investment of the retirement fund.
(c) Income, of whatever nature, earned on the Long-Term Care Fund
shall be credited to the fund.
(d) If the Long-Term Care Fund is intended to be a part of the
retirement system trust fund, then the operation of the Long-Term
Care Fund, including, but not limited to, its funding, governance,
investment of assets, allocation of income, and payment of benefits,
shall comply with the requirements of Section 401(h) of Title 26 of
the United States Code, to the extent required by that title and
related federal regulations. If the Long-Term Care Fund is intended
to be separate from and not a part of the retirement system, then no
assets attributable to that fund shall be commingled for investment
or any other purpose, with the assets of the retirement system and
shall constitute a separate fund with a trust that is separate from
the funds and trust of the retirement system to the extent
commingling of assets for investment purposes satisfies the
requirements of the federal tax laws. The board shall indicate, as a
part of establishment of the Long-Term Care Fund, whether the
separate fund is intended to be a part of, or separate from, the
retirement system.
SEC. 15. Section 31698.5 is added to the Government Code, to read:
31698.5. If the vision care program is intended to be part of the
retirement system trust fund, then the operation of the vision care
program, including, but not limited to, its funding, governance,
investment of assets, allocation of income, and payment of benefits,
shall comply with the requirements of Section 401(h) of Title 26 of
the United States Code, to the extent required by that title, and
related federal regulations. If the vision care program is intended
to be separate from and not a part of the retirement system, then no
assets attributable to that program shall be commingled for
investment, or any other purpose, with the assets of the retirement
system. Assets attributable to the program shall constitute a
separate fund with a trust that is separate from the funds and trust
of the retirement system except to the extent that the commingling of
assets for investment purposes satisfies the requirements of the
federal tax laws. The sponsor of the vision care program shall
indicate as part of the establishment of the program whether that
separate fund is intended to be a part of, or separate from, the
retirement system.