BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1248
                                                                  Page  1

          CONCURRENCE IN SENATE AMENDMENTS
          AB 1248 (Hueso)
          As Amended  May 21, 2012
          Majority vote
           
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          |ASSEMBLY:  |52-24|(May 27, 2011)  |SENATE: |22-13|(August 27,    |
          |           |     |                |        |     |2012)          |
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           Original Committee Reference:    H.& C.D.  

           SUMMARY  :  Requires the City of San Diego to provide Social 
          Security coverage to all its employees not covered under a 
          defined benefit retirement plan and grandfathers in an 
          employers' defined contribution plan in place on July 1, 2012. 

           The Senate amendments  :

          1)Limit the applicability of the bill to the City of San Diego.

          2)Grandfather in an employers' defined contribution plan in 
            place on July 1, 2011.
           
           3)Make legislative findings and declarations as to the necessity 
            of a special statute for the City of San Diego.  

          AS PASSED BY THE ASSEMBY  , this bill was substantially similar to 
          the version approved by the Senate.

           FISCAL EFFECT  :  Unknown.  This bill is keyed non-fiscal by the 
          Legislative Counsel.

           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 








                                                                  AB 1248
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          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 
          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 or 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 or 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 








                                                                  AB 1248
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          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.

          "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 


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