BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1248|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 1248
Author: Hueso (D)
Amended: 5/21/12 in Senate
Vote: 21
SENATE PUBLIC EMPLOY. & RETIRE. COMMITTEE : 3-2, 6/27/11
AYES: Negrete McLeod, Padilla, Vargas
NOES: Walters, Gaines
ASSEMBLY FLOOR : 52-24, 5/27/11 - See last page for vote
SUBJECT : Local public employees retirement
SOURCE : Author
DIGEST : This bill requires the City of San Diego to
provide coverage under the federal social security system
to all employees who are not covered under a defined
benefit plan, except as specified.
Senate Floor Amendments of 5/21/12 delete the Senate Floor
Amendment of 5/10/12 and make the bill apply only to the
City of San Diego.
ANALYSIS :
Existing state law:
1.Creates public retirement systems for public employees,
which, in general, provide defined benefits that are
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calculated by multiplying a member's age factor, years of
service, and highest average compensation, as specified
by the retirement system.
2.Specifies that a defined benefit is paid as a retirement
allowance for the member-retiree's lifetime and, as an
option to the member, the lifetime of his or her survivor
at a reduced actuarial amount.
3.Requires that an employee who works at a 50 percent or
higher time base must be included in the employer's
defined benefit retirement plan.
Existing federal law:
1. Requires that employees be mandatorily included in the
Federal Old Age and Survivor's Insurance (i.e., Social
Security) unless they are members of a public retirement
system.
2. Requires a public employer that does not provide Social
Security to provide a retirement benefit meeting minimum
standards, as specified by federal regulation.
3. Allows public employees to contract to provide Social
Security coverage for their employees.
Background
Who has Social Security ?
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| SS Coverage | No SS Coverage |
|------------------------------+----------------------------|
| State Miscellaneous & | |
| Industrial | State Safety, Peace |
| including Judicial & | Officer/ |
| Legislative | Firefighter, Patrol |
| Branches | |
|------------------------------+----------------------------|
| School Classified Employees | Teachers |
|------------------------------+----------------------------|
| Most Local Miscellaneous or | |
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| General Members | Some Local Miscellaneous |
| | Members |
|------------------------------+----------------------------|
| Some Local Safety Members |Most Local Safety |
| |Members |
| | |
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As noted above, most local public employers have programs
similar to the state employee program in which
miscellaneous or general employees are included in Social
Security, and safety employees are not. However, some
local employers have opted to cover all employees under
Social Security (including Safety employees) and some local
employers have opted to stay out of Social Security
entirely for all employees (even General or Miscellaneous
employees).
Up until 1951, public employees were not included in Social
Security. In 1951, states were given the option of
including employees in Social Security. In 1991, federal
laws changed once more, and all employees have since then
been required to be covered by Social Security unless they
are public employees and covered under a pension plan that
meets the minimum federal requirements for coverage. The
federal laws, however, do not require that the coverage be
under a traditional defined benefit plan.
Comments
Part-time, Seasonal, and Temporary Employees . One group of
employees does not fit neatly into this either/or scenario.
Part-time, seasonal, and temporary employees often do not
work enough hours to be included in the public employer's
defined benefit plan. Some of those employers do not
provide Social Security either. In such cases, the
employer must provide an alternate retirement plan that
meets federal requirements. For example, the State
Teachers' Retirement System administers the Cash Benefit
Program for part-time teachers, which is separate and
different from the main defined benefit plan, and may be
paid at retirement as a lifetime annuity or as a lump-sum.
Similarly, the Department of Personnel Administration
administers an alternate retirement plan for part-time,
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seasonal, and temporary state employees.
Some alternate retirement plans are provided in addition to
Social Security, and some are stand-alone programs offered
in lieu of Social Security.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/23/12)
American Federation of State, County and Municipal
Employees, AFL-CIO
California Alliance for Retired Americans
California Labor Federation
California Nurses Association
California Professional Firefighters
California School Employees Association
California Teamsters Public Affairs Council
Glendale City Employees Association
Organization of SMUD Employees
Peace Officers Research Association of California
San Bernardino Public Employees Association
San Diego and Imperial Counties Labor Council
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
United Nurses Associations of California/Union of Health
Care Professionals
ARGUMENTS IN SUPPORT : According to the author's office,
"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. 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
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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."
Proponents state, "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
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 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.
Allowing local governments to offer a 401(k) only
retirement system will leave workers without a financial
safety net in their retirement years and shift the burden
to the state in the long-run. Until the federal government
provides adequate safeguards of investments, 401(k)s are
going to be extremely risky. It's possible our employees
will retire without any coverage at all."
ASSEMBLY FLOOR : 52-24, 5/27/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer,
Fong, Furutani, Galgiani, Gatto, Gordon, Hall, Hayashi,
Roger Hernández, Hill, Huber, Hueso, Huffman, Lara,
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Bonnie Lowenthal, Ma, Mendoza, Mitchell, Pan, Perea, V.
Manuel Pérez, Portantino, Skinner, Solorio, Swanson,
Torres, Wieckowski, Williams, Yamada, John A. Pérez
NOES: Conway, Cook, Donnelly, Beth Gaines, Garrick, Grove,
Hagman, Halderman, Harkey, Jeffries, Jones, Knight,
Logue, Mansoor, Miller, Morrell, Nestande, Nielsen,
Norby, Olsen, Silva, Smyth, Valadao, Wagner
NO VOTE RECORDED: Fletcher, Fuentes, Gorell, Monning
DLW:mw 5/23/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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