BILL ANALYSIS Ó
AB 1248
Page 1
ASSEMBLY THIRD READING
AB 1248 (Hueso)
As Amended May 23, 2011
Majority vote
PUBLIC EMPLOYEES 4-1
-----------------------------------------------------------------
|Ayes:|Furutani, Allen, Ma, | | |
| |Wieckowski | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey | | |
| | | | |
-----------------------------------------------------------------
SUMMARY : Requires a local public employer to provide Social
Security coverage to all its employees not covered by a defined
benefit plan.
FISCAL EFFECT : Unknown
COMMENTS : The Social Security Act of 1935 excluded state and
local government employees from coverage because of concerns
about the federal government's right to impose a tax on state
governments and because many state and local employees were
already covered by public pension plans. In 1950, 1954, and
1956, amendments were adopted to the Social Security Act
allowing states to enter into voluntary agreements with the
Social Security Administration (SSA) in order to elect Social
Security coverage for their public employees. These amendments
also permitted states that had entered into such agreements to
elect to withdraw from the Social Security program. These
agreements were called Section 218 Agreements because they are
authorized under Section 218 of the Social Security Act. In
1983, Congress removed the authority of states and localities to
withdraw from the program, but retained their ability to
voluntarily participate.
In 1990, Congress mandated Social Security for all state and
local employees who are not members of a public retirement
system and not covered by a Section 218 Agreement beginning July
2, 1991. State and local retirement systems that do not
participate in Social Security must provide comparable benefits
to the retirement, disability, and survivors' benefits provided
AB 1248
Page 2
by Social Security. For mandatory Social Security coverage
purposes, a public retirement system is a pension plan
maintained by a public employer that meets specified
requirements of the Internal Revenue Code and specified Internal
Revenue System regulations. These requirements must be met for
a retirement system to be used as an alternative to mandatory
Social Security coverage.
A public retirement system is not required to be a qualified
plan within the meaning of the Employees' Retirement Income
Security Act of 1974 (ERISA). The employee may be a member of
any type of retirement system, including a nonqualified system
as long as the plan provides a minimum level of benefits, as
specified by law, under that system. The public retirement
system may be either a defined benefit retirement system which
is based on a guaranteed minimum benefit or a defined
contribution retirement system, which is based on a required
contribution from the employee.
In order for a defined benefit retirement system to be
considered a public retirement system, benefits must be measured
by and based on various factors including years of service
rendered by the employee, compensation earned by the employee
and the age of the employee at retirement.
In order for a defined contribution retirement system to be
considered a qualified plan, the worker must be covered in a
plan in which at least 7.5% of his/her income is placed into a
retirement plan. This contribution can be any combination of
employer and employee contributions, but must total a minimum of
7.5% of his/her pay, and cannot include any credited interest in
the calculation. The plan may include any plan described in
Section 401(a), an annuity plan or contract under Section 403(b)
or a plan described in Section 457(b) or (f) of the Internal
Revenue Code.
According to the author, "In 1981, San Diego determined to opt
out of Social Security and provide its employees its own defined
benefit pension plan. Today, San Diego would like to eliminate
the defined benefit pension plan by vote of the people and
replace it with a 401(k) plan?Volatility in the stock market
raises concerns about the security of defined contribution
retirement systems. This volatility becomes an even larger
concern for workers who would not be covered under the federal
Social Security system.
AB 1248
Page 3
"Allowing local governments to offer a 401(k) only retirement
system will leave workers without a financial safety net in
their retirement years and will shift the burden to the state in
the long-run. If retired workers require health services,
Medi-Cal will have to step in. Our state's budget for Medi-Cal
today is $41 billion, $13 billion of which comes directly from
the state's general fund. If workers do not have enough money
in their 401(k) when they retire, as is common with 401(k)
plans, California will have to supplement their income through
our already burdened SSI/SSP program. These costs are currently
$2.7 billion and already represent the highest figures in the
nation. Allowing California workers to participate in the
Social Security System will protect them in the future."
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0000759