BILL NUMBER: AB 2940 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 23, 2008
AMENDED IN ASSEMBLY APRIL 10, 2008
AMENDED IN ASSEMBLY APRIL 3, 2008
INTRODUCED BY Assembly Member De Leon
FEBRUARY 22, 2008
An act 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.
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, to
be administered by 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 PERS, under this program, to offer one
or more individual retirement accounts or individual retirement
annuities to eligible employees of all eligible employers, as
defined, who participate. The bill would specify that eligible
employees of participating employers are not members of PERS.
The bill would require PERS 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 allow an employer to
forward employee contributions to the program through the Employment
Development Department system currently used to collect payroll
taxes. The bill would authorize the Employment Development
Department to seek reimbursement for any administrative costs
associated with implementing the program. The bill would
require PERS to make reports to the Legislature and
to employers on the progress and status of the program. The
bill would also require PERS to make specified reports to
the Legislature, including a report at least 90 days prior to
implementing the program, a report if it finds the program
economically unfeasible, and annual reports on the status of the
program, as specified. The bill would require PERS to allow
employers without retirement plans to contribute and to match
employee contributions. The bill would require PERS to keep
program funds and accounts separate from those of PERS and would
prohibit the use of funds in the PERS defined benefit plan 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. The bill
would require PERS to obtain the necessary approvals from federal
authorities for the program's implementation in order not to
jeopardize the status of existing retirement programs for public
employees, and would provide that the program will not be made
available until all approvals that PERS deems necessary are obtained.
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 make operation of these provisions contingent
upon appropriation in the annual Budget Act of moneys sufficient to
implement these provisions. The bill would also make a
statement of findings.
Vote: majority. Appropriation: no. 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, 41
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 $901
$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. 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 in the system a
retirement savings program known as the California Employee Savings
Program 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 system, one or
more of the following components:
(1) One or more SIMPLE IRA plans for the employees of
participating employers.
(2) One or more payroll deposit IRA arrangements for the employees
of participating employers.
(3) Other IRAs for employees of participating employers.
(c) The elements of the program established pursuant to
subdivision (b) shall include, as the system may determine:
(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. The system shall initiate, implement, maintain, and
administer the program and, in these capacities, shall:
(a) Employ staff and retain and contract with private financial
institutions, other financial and service providers, consultants,
third-party administrators, and other professionals as necessary.
(b) 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 employers and individuals.
(c) 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.
(d) 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, where applicable, ERISA, 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.
(e) Cause the plans and IRAs 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, including the encouragement of automatic features,
including, but not limited to, automatic enrollment and investment.
(3) With simplicity, ease of administration, and portability of
benefits.
(f) 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.
(g) Arrange for collective, common, and pooled investment of
assets of the retirement savings plans and IRAs, 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
the exemption from ERISA of the plans maintained for state and local
government employees and would otherwise comply with applicable law
and conditions for favorable tax treatment.
(h) Disseminate to the citizens of California educational
information concerning saving, investment, planning for retirement,
and financial planning.
(i) 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.
(j) Submit progress and status reports to the Legislature
and to participating employers and individuals.
(k) Submit reports to the Legislature, as follows:
(1) (A) The system shall submit a report to the Legislature at
least 90 days prior to implementing the program. This report 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.
(B) If the system concludes that the program will not be
self-sustaining and finds it economically unfeasible to implement the
program, the system 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 should also include any conditional changes that could be made
by the Legislature in order to implement the program.
(2) The system shall submit annual reports to the Legislature on
the status of the program, including, but not limited to, outreach,
investments, and solvency efforts.
(3) If the system finds it necessary to suspend the program, the
system shall submit a report to the Legislature at least 90 days
prior to that suspension. 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.
(k)
(l) If necessary, determine the eligibility of an
employer, employee, or other individual to participate in the
program.
(l)
(m) Create for employees 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 allow the employer to
forward the employee contribution to the program through the
Employment Development Department system currently used to collect
payroll taxes.
(m)
(n) Allow employers to use the program to contribute to
the account on their employees' behalf or match their employees'
contribution.
100005. The Employment Development Department may seek
reimbursement for any administrative costs associated with
implementing the program.
100005.5. (a) The system shall keep separate and distinct any and
all programs, accounts, plans, or IRAs established pursuant to the
program, and any and all funds of those programs, accounts, plans, or
IRAs, from all accounts and funds in the system. No funds in the
system's defined benefit plan shall be used to 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, plans, or IRAs
established under the program, except as the Legislature may provide
for funding through appropriation.
100006. The system 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
plans and IRAs established under the program shall adhere to all
applicable standards and requirements under federal law regulating
the operation of retirement plans and the offering, sale, or
distribution of securities under those plans, without regard to any
exemption under federal law available to a pension plan maintained by
a governmental employer, and the availability of this program shall
be contingent on the requirements of this section.
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. 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.
100012. This program shall be made available only upon receipt of
all approvals that the system deems necessary for its
implementation.
100014. This title shall become operative only if an annual
Budget Act appropriates moneys in amounts sufficient to implement
this title.