BILL NUMBER: AB 2191	CHAPTERED
	BILL TEXT

	CHAPTER  230
	FILED WITH SECRETARY OF STATE  AUGUST 1, 2008
	APPROVED BY GOVERNOR  AUGUST 1, 2008
	PASSED THE SENATE  JUNE 26, 2008
	PASSED THE ASSEMBLY  MAY 1, 2008
	AMENDED IN ASSEMBLY  APRIL 3, 2008

INTRODUCED BY   Assembly Member Mullin

                        FEBRUARY 20, 2008

   An act to amend Sections 24950, 24953, 25100, 25101, 25111, 25112,
25113, 25114, and 25115 of the Education Code, to amend Section
12420.2 of the Government Code, and to amend Section 770.3 of the
Insurance Code, relating to public employees.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2191, Mullin. Public employees: annuities.
   Existing law prohibits state and local agencies from negotiating
life and disability insurance or requiring the placing of that
insurance through particular agents, brokers, or companies, except to
the extent that the state has a direct financial interest in the
subject of the insurance, as specified. Existing law excepts from
these provisions a tax-sheltered annuity under an annuity plan that
meets the requirements of Section 403(b) of the Internal Revenue Code
to be placed or purchased for an employee, as specified. Existing
law permits the Controller to purchase annuity contracts for
permanent employees of specified state entities, and requires the
Controller to install and operate a uniform state payroll system, as
specified. Existing law requires an annuity contract and custodial
account as described in Section 403(b) of the Internal Revenue Code
to be offered to all employees of any state agency who are members of
the State Teachers' Retirement Plan. The Teachers' Retirement Law
provides a registration process for information relating to
tax-deferred retirement investment products.
   This bill would revise the authority of the Controller to purchase
annuity contracts for employees of state entities, as described
above, to specify that this authority may be exercised on behalf of
any state employer under the uniform state payroll system, excluding
the California State University System, that employs persons eligible
to participate in an annuity contract and custodial account as
described in Section 403(b) of the Internal Revenue Code of 1986. The
bill would require the Teachers' Retirement Board of the State
Teachers' Retirement System to offer an annuity contract and
custodial account as described in Section 403(b) of the Internal
Revenue Code to eligible state employees of a state employer under
the uniform state payroll system, excluding the California State
University System, as described above. The bill would make the
registration process for information relating to tax-deferred
retirement investment products applicable to eligible state employees
of these employers. The bill would make various conforming changes.



THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 24950 of the Education Code is amended to read:

   24950.  (a) An annuity contract and custodial account as described
in Section 403(b) of the Internal Revenue Code of 1986 shall be
offered to :
   (1) All employees of any state agency who are members of the plan
under this part.
   (2) Any employee of a local public agency or political subdivision
of this state that employs persons to perform creditable service
subject to coverage by the plan under this part.
   (3) Any state employee of a state employer under the uniform state
payroll system, excluding the California State University System,
eligible to participate in an annuity contract and custodial account
as described in Section 403(b) of the Internal Revenue Code of 1986.
   (b) The following criteria shall apply to that annuity contract
and custodial account:
   (1) The annuity contract and custodial account shall be offered
for at least five years.
   (2) The annuity contract and custodial account may be administered
by a qualified third-party administrator that shall, under agreement
with the system, provide custodial, investment, recordkeeping, or
administrative services, or any combination thereof. The third-party
administrator may not provide investment options other than pursuant
to a shareholders' services agreement between the third-party
administrator and the investment manager.
   (3) The investment options offered shall be determined by the
board consistent with those annuity contract and custodial accounts
described in Section 403(b) of the Internal Revenue Code of 1986.
   (4) The system's investment staff shall make recommendations to
the board as to the appropriate investment options. At a minimum, the
board shall offer at least three investment options. The board shall
have sole responsibility for the selection of service providers.
   (5) All contributions made in accordance with the provisions of
Section 403(b) of the Internal Revenue Code of 1986 and this section
shall be remitted directly to the administrator and held by the
administrator in a custodial account on behalf of the employee. Any
investment gains or losses shall be credited to those accounts. The
forms of payment and disbursement procedure shall be consistent with
those generally offered by similar annuity contracts and custodial
accounts and applicable federal and state statutes governing those
contracts and accounts.
   (6) Any employer, other than the state, may elect to make
contributions to the employee's annuity contract and custodial
account on behalf of the employee. The employer shall take whatever
action is necessary to implement this section, including the adoption
of an annuity contract and custodial account, or provide the
appropriate authorization in accordance with the provision of Section
403(b) of the Internal Revenue Code of 1986. Employer contributions
made under this section are excluded from the definition of
creditable compensation as provided in Section 22119.2.
   (7) The design and administration of the annuity contract and
custodial account shall comply with the applicable provisions of the
Internal Revenue Code of 1986 and the Revenue and Taxation Code.
Section 770.3 of the Insurance Code shall not be applicable.
  SEC. 2.  Section 24953 of the Education Code is amended to read:
   24953.  (a) For purposes of this section, the following
definitions shall apply:
   (1) "Annuity contract" means an annuity contract described in
Section 403(b) of the Internal Revenue Code that is available to
employees as described in Section 770.3 of the Insurance Code.
   (2) "Custodial account" means a custodial account described in
Section 403(b)(7) of the Internal Revenue Code.
   (3) "Third-party administrator" means a person or entity other
than the system that provides administrative or compliance services
to the system as described in subdivision (b).
   (b) An employer that employs persons to perform creditable service
subject to coverage by the plan under this part, or the Controller
on behalf of any state employer under the uniform state payroll
system, excluding the California State University System, that
employs persons eligible to participate in an annuity contract or
custodial account as described in Section 403(b) of the Internal
Revenue Code of 1986, may enter into a written contract with the
system for services regarding an annuity contract and custodial
account provided by the employer. That contract may include any of
the following:
   (1) Services to ensure compliance with Section 403(b) of the
Internal Revenue Code regarding the annuity contract and custodial
account including, but not limited to, services that permit the
system to do any of the following:
   (A) Administer and maintain written plan documents governing the
employer's plan.
   (B) Review and authorize hardship withdrawal requests, transfer
requests, loan requests and other disbursements permitted under
Section 403(b) of the Internal Revenue Code.
   (C) Review and determine domestic relations orders as qualified
domestic relations orders as described in Section 414(p) of the
Internal Revenue Code.
   (D) Provide notice to eligible employees that is consistent with
Title 26 of the Code of Federal Regulations that those employees may
participate in an annuity contract and custodial account.
   (E) Administer and maintain specimen salary reduction agreements
for the employer and employees of that employer to initiate payroll
deferrals.
   (F) Monitor, from information provided either directly from the
employee, as part of the common remitting services provided pursuant
to paragraph (2), through information provided by the employer, or
through information provided by vendors authorized by the employer to
provide investment products, the maximum contributions allowed by
employees participating in the annuity contract and custodial account
as described in Sections 402(g), 414(v), and 415 of the Internal
Revenue Code.
   (G) Calculate and maintain vesting information for contributions
made by the employer to the annuity contract and custodial account.
   (H) Identify and notify employees that are required to take a
minimum distribution of the funds in that employee's annuity contract
and custodial account as described in Section 401(a)(9) of the
Internal Revenue Code.
   (I) Coordinate responses to the Internal Revenue Service if there
is an Internal Revenue Service audit of the annuity contract and
custodial account.
   (2) Services to administer the annuity contract and custodial
account that include, but are not limited to, all of the following:
   (A) Common remitting services.
   (B) General educational information to employees about the annuity
contract and custodial account that includes, but is not limited to,
the enrollment process, program eligibility, and investment options.

   (C) Internal reports for the employer to ensure compliance with
Section 403(b) of the Internal Revenue Code and Title 26 of the Code
of Federal Regulations.
   (D) Consulting services related to the design, operation, and
administration of the plan.
   (E) Internal audits, on behalf of an employer, of a provider's
plan compliance procedures with respect to the provider's annuity
contract and custodial account offered under the employer's plan.
These audits shall not be conducted more than once per year for a
provider's plan, unless documented evidence indicates a problem in
complying with Section 403(b) of the Internal Revenue Code.
   (c) If the system elects to contract with a third-party
administrator for the administrative or compliance services to
employers described in subdivision (b), the system shall do all of
the following:
   (1) Determine that hiring the third-party administrator is in the
best interest of the participants to the annuity contract and
custodial account, their beneficiaries, and the employer that
provides that annuity contract and custodial account.
   (2) Require the third-party administrator to provide proof of
liability insurance and a fidelity bond in an amount determined by
the system to be sufficient to protect the assets of participants and
beneficiaries in the annuity contract and custodial account.
   (3) Require evidence, if the third-party administrator is related
to or affiliated with a provider of investment products pursuant to
Section 403(b) of the Internal Revenue Code, that data generated from
the services provided by the third-party administrator are
maintained in a manner that prevents the provider of investment
products from accessing that data.
   (d) Any personal information obtained by the system in providing
services pursuant to this section shall be used by the system only to
provide those services for the employer in accordance with the
contract entered into with the employer pursuant to subdivision (b).
   (e) Nothing in this section requires an employer to contract with
the system for the administrative or compliance services described in
subdivision (b). A written contract for the administrative or
compliance services described in subdivision (b) shall be on behalf
of and at the request of the employer.
   (f) Nothing in this section shall be construed to interfere with
either:
   (1) The rights of employees or beneficiaries as described in
Section 770.3 of the Insurance Code.
   (2) The ability of an employer to establish nonarbitrary
requirements upon providers of an annuity contract that, in the
employer's determination, aid in the administration of its benefit
programs and do not unreasonably discriminate against any provider of
an annuity contract or interfere with the rights of employees or
beneficiaries as described in Section 770.3 of the Insurance Code.
   (g) The cost of providing administrative or compliance services
pursuant to this section shall be deemed to be a cost incurred by the
employer and subject to subdivision (b) of Section 44041 or
subdivision (b) of Section 87040, as may be applicable.
   (h) In any conflict between this section and Section 44041.5 or
87040.5, including, with respect to the provision of services
provided pursuant to a contract between an employer and the system,
the provisions of this section shall prevail.
   (i) The system shall disclose to an employer seeking the services
described in this section any fees, commissions, cost offsets,
reimbursements, or marketing or promotional items received by the
system or a third-party administrator from any plan provider selected
as a vendor of an annuity contract or custodial account by the
employer. If the system or a third-party administrator is affiliated
with or has a contractual relationship with a provider of annuity
contracts or custodial accounts, the system or third-party
administrator shall disclose the existence of that relationship to
each employer and employee participating in the annuity contract or
custodial account.
  SEC. 3.  Section 25100 of the Education Code is amended to read:
   25100.  (a) The board shall establish a vendor registration
process through which information about tax-deferred retirement
investment products as described in Section 403(b) of the Internal
Revenue Code of 1986 shall be made available for consideration by
public employees of all local school districts, community college
districts, county offices of education, and state employees of a
state employer under the uniform state payroll system, excluding the
California State University System, eligible to participate in an
annuity contract and custodial account as described in Section 403(b)
of the Internal Revenue Code of 1986.
   (b) For the purposes of this chapter, "403(b) product or 403(b)
products" means tax-deferred retirement investment products as
described in Section 403(b) of the Internal Revenue Code of 1986, and
its subsequent amendments, and complying with applicable California
insurance laws, and federal and California securities laws and rules
as applied by appropriate regulatory entities.
   (c) For the purposes of this chapter:
   (1) "Employer" means any local school district, community college
district, or county office of education, or any state employer under
the uniform state payroll system, excluding the California State
University System, with employees eligible to participate in an
annuity contract and custodial account as described in Section 403(b)
of the Internal Revenue Code of 1986, with the Controller acting on
the state employer's behalf.
   (2) "Vendor" means a public retirement system, broker-dealer,
registered investment company, nonbank custodian, or life insurance
company qualified to do business in California that provides 403(b)
products. "Vendor" does not include individual registered
representatives, brokers, financial planners, or agents.
   (3) "Nonbank custodian" means a fund custodian, other than a bank,
that meets the criteria of a trustee specified in Section 408(a)(2)
of the Internal Revenue Code.
   (4) "Broker-dealer" means only those broker-dealers who offer a
proprietary 403(b) product or who charge fees that are otherwise not
disclosed.
  SEC. 4.  Section 25101 of the Education Code is amended to read:
   25101.  A prospective vendor of 403(b) products that offers those
products, or the products of other 403(b) vendors, to employers and
their eligible employees, shall register those products with the
board pursuant to this chapter. Registered vendors shall offer only
registered 403(b) products as funding vehicles for 403(b) plans.
   (a) Prospective vendors shall be registered with the board based
upon a complete response to the disclosures required by this
subdivision. This information shall be included in the impartial
investment information bank established pursuant to Section 25104.
The prospective vendors shall provide the following information:
   (1) A statement of experience in California and in other states in
providing retirement annuities, custodial account mutual fund
arrangements, or other retirement products and related financial
services under public employer retirement plans.
   (2) A characterization by the vendor of its offering as either an
annuity or custodial account, as defined under Sections 403(b)(1) and
403(b)(7) of the Internal Revenue Code, respectively.
   (3) A disclosure of all expenses paid directly or indirectly by
retirement plan participants, including, but not limited to,
penalties for early withdrawals, declining or fixed withdrawal
charges, surrender or deposit charges, management fees, and annual
fees, supported by documentation as required for prospectus
disclosure by the National Association of Securities Dealers and the
Securities and Exchange Commission. Vendors shall be required to
provide information regarding the impact of product fees upon a
hypothetical investment, as described in Section 25104.
   (4) The types of products, product features, including presence of
two tier annuity features, services offered to participants, and
information about how to access product prospectuses or other
relevant product information.
   (5) A discussion of the ability, experience, and commitment of the
vendor to provide retirement counseling and education services,
including, but not limited to, access to group meetings and
individual counseling by various means, including telephone and
telecommunications devices for the deaf (TDD), Internet, and
face-to-face consultations by registered representatives.
   (6) A statement of the financial strength and stability of the
vendor, as may be applicable, by identifying its ratings assigned by
nationally recognized rating services that evaluate the financial
strength of life insurance, mutual funds, and other similar
companies.
   (7) The location of offices and counselors, or method of
distribution, of the vendor relative to serving employers and their
eligible employees in California.
   (8) A description of the ability of the vendor to comply with all
applicable provisions of federal and state law governing retirement
plans, including minimum distribution requirements and contribution
limits.
   (9) To the extent applicable, the demonstrated ability of the
vendor to offer an appropriate array of accumulation funding options,
including, but not limited to, a diversified mix of value, growth,
growth and income, hybrid and index funds or accounts across large,
mid, and small capitalization asset classes, both domestic and
international. These investment products may include mutual funds,
group or individual annuity contracts, fixed or variable annuity
contracts, individual retirement annuities, interests in trust and
collective trusts, separate accounts, and other financial
instruments.
   (10) A discussion of the range of administrative and customer
services provided, including asset allocation, accounting and
administration of benefits for individual participants, recordkeeping
for individual participants, asset purchase, control, and
safekeeping, execution of a participant's instructions as to asset
and contribution allocation, calculation of daily net asset values,
direct access for participants to their account information, periodic
reporting to active participants, not less than quarterly, on their
account balances and transactions, and compliance with the standard
of care applicable in the provision of investment services and
consistent with federal law.
   (11) Certification by the vendor that the information provided to
the board accurately reflects the provisions of the Section 403(b)
products they register pursuant to this chapter.
   (b) Registration may not be conditioned upon the content of the
information.
   (c) Vendors shall supply information and data in the format
required by the board.
  SEC. 5.  Section 25111 of the Education Code is amended to read:
   25111.  Each employer, in consultation with the exclusive
bargaining agent of its employees, if any, may develop a process to
ensure that employees are aware of, and have access to, information
provided in the impartial investment bank maintained by the board.
  SEC. 6.  Section 25112 of the Education Code is amended to read:
   25112.  Personnel, including elected school officials, acting on
behalf of an employer, may not receive consideration from a vendor in
exchange for the promotion of a particular vendor or vendor's
products.
  SEC. 7.  Section 25113 of the Education Code is amended to read:
   25113.  An employer may not forward annuity or custodial account
consideration to the vendor of any unregistered 403(b) product,
except insofar as an employee continues making contributions to an
unregistered product or products as described in Section 25114.
  SEC. 8.  Section 25114 of the Education Code is amended to read:
   25114.  Except as provided in this section, an employee shall
select from registered 403(b) products.
   (a) An employee of a local school district, community college
district, or county office of education may continue to make
contributions to unregistered products purchased or entered into
prior to the date of implementation of the impartial investment bank,
as established by this chapter.
   (b) A state employee of a state employer under the uniform state
payroll system, excluding the California State University System,
eligible to participate in an annuity contract and custodial account
as described in Section 403(b) of the Internal Revenue Code of 1986,
may continue to make contributions to unregistered products purchased
or entered into prior to January 1, 2009.
  SEC. 9.  Section 25115 of the Education Code is amended to read:
   25115.  For purposes of restricting the use of 403(b) investment
products provided to eligible employees of employers by those vendors
and investment products registered with the board pursuant to this
chapter, the provisions of Section 770.3 of the Insurance Code do not
apply.
  SEC. 10.  Section 12420.2 of the Government Code is amended to
read:
   12420.2.  The Controller may purchase annuity contracts on behalf
of any state employer under the uniform state payroll system,
excluding the California State University System, that employs
persons eligible to participate in an annuity contract and custodial
account as described in Section 403(b) of the Internal Revenue Code
of 1986 provided that all of the following conditions are met:
   (a) The annuity contract is under an annuity plan which meets the
requirements of subdivision (b) of Section 403 of the Internal
Revenue Code.
   (b) The employee makes application to the Controller for the
purchase and reduction of salary.
   (c) All provisions of the Insurance Code applicable to the
purchase of those annuities are satisfied.
  SEC. 11.  Section 770.3 of the Insurance Code is amended to read:
   770.3.  No state department or agency shall negotiate any life or
disability insurance or require the placing of that insurance through
particular agents, brokers, or companies, except to the extent that
the state has a direct financial interest in the subject of the
insurance. The state has no financial interest in an annuity
purchased for an employee if the premium therefor is paid from a
deduction from or reduction in the employee's salary, and any annuity
paid for through a deduction or reduction shall not be deemed to
have been provided by the state for its employees for purposes of
this section, and the state shall not negotiate or require the
placing of the annuity through particular agents, brokers, or
companies. Nothing contained in this section shall affect the program
of life and disability insurance in connection with veterans' farm
and home purchases through the Department of Veterans Affairs except
that the total life insurance benefit under that program shall in no
event exceed 120 percent of the unpaid contract balance. Except in
those cases where the premium for an annuity is paid entirely from a
deduction from or reduction in an employee's salary, nothing
contained in this section shall affect life or disability insurance
programs which may be provided by the state for its employees.
   Notwithstanding anything in this section to the contrary, in any
case in which a tax-sheltered annuity under an annuity plan which
meets the requirements of Section 403(b) of the Internal Revenue Code
of 1954 is to be placed or purchased for an employee, the employee
shall have the right to designate the licensed agent, broker, or
company through whom the employee's employer shall arrange for the
placement or purchase of the tax-sheltered annuity. In any case in
which the employee has designated an agent, broker, or company, the
employer shall comply with that designation, except in the case of a
designation subject to Section 1153 or Section 12420.2 of the
Government Code, or Section 24950 of the Education Code.
   As used in this section, "state department or agency" shall
include, but not be limited to, school districts.
   This section shall apply to all local governmental agencies, as
well as state departments and agencies.