BILL NUMBER: SB 1234 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 2, 2012
AMENDED IN SENATE APRIL 17, 2012
AMENDED IN SENATE MARCH 27, 2012
INTRODUCED BY Senators De León and Steinberg
(Principal coauthor: Assembly Member Furutani)
(Coauthors: Senators Hernandez, Pavley, and Price)
(Coauthors: Assembly Members Allen, Blumenfield, and Solorio)
FEBRUARY 23, 2012
An act to add Section 20139 to, and to add Title 21 (commencing
with Section 100000) to, the Government Code, and to add Section
1088.9 to the Unemployment Insurance Code, relating to retirement
savings plans, and making an appropriation therefor.
LEGISLATIVE COUNSEL'S DIGEST
SB 1234, as amended, De León. Retirement savings plans.
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 enact the California Secure Choice Retirement
Savings Trust Act, which would create the California Secure Choice
Retirement Savings Trust to be administered by the California Secure
Choice Retirement Savings Investment Board, which would also be
established by the bill. The bill would require eligible employers,
as defined, to offer a payroll deposit retirement savings arrangement
so that eligible employees, as defined, could contribute a portion
of their salary or wages to a retirement savings program account in
the California Secure Choice Retirement Savings Program, as
specified. The bill would require eligible employees to participate
in the program, unless the employee opts out of the program, as
specified. The bill would require a specified percentage of the
annual salary or wages of an eligible employee participating in the
program to be deposited in the California Secure Choice Retirement
Savings Trust, which would be segregated into a program fund and an
administrative fund, both of which would be continuously appropriated
to the board for purposes of the act. The bill would limit
expenditures from the administrative fund, as specified. The bill
would also require the board to establish a Gain and Loss Reserve
Account within the program fund.
The bill would require an employer to use the Employment
Development Department exemption certificate to create an option for
employees to elect to opt out of the program. The bill would,
commencing January 1, 2014, require the Employment Development
Department to assess a penalty on any eligible employer that fails to
make the program available to eligible employees, as specified. The
bill also would make a statement of legislative findings. The bill
would provide that the state would have no liability for the payment
of the benefits under the program, as specified.
The bill would provide that the operational provisions of the
California Secure Choice Retirement Savings Trust Act shall be
operative only if sufficient funds are made available through a
nonprofit or private entity or federal funding, as specified, to
allow the board to study, develop, and obtain the approvals necessary
to implement the program and the board determines that the program
can be self-sustaining.
Existing law establishes the Board of Administration of the Public
Employees' Retirement System and vests the board with various powers
and duties.
This bill would authorize that board to administer funds in the
California Secure Choice Retirement Savings Trust, as specified.
Vote: majority. Appropriation: yes. 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) 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 future financial stability through a program that offers
secure and portable retirement savings.
(b) According to recent data by the University of California,
Berkeley, Center for Labor Research and Education, middle class
families in California are at significant risk of not having enough
retirement income to meet even basic expenses, as nearly 50 percent
of middle-income California workers will retire at or near poverty.
(c) The lack of sufficient retirement savings poses a significant
threat to the state's already strained safety net programs and also
threatens to undermine California's fiscal stability and ongoing
economic recovery.
(d) The looming retirement security crisis exacerbates the state's
high unemployment rate, as seniors are forced to work longer and
fewer jobs are available for younger workers trying to enter the
workforce.
(e) Providing California workers with a guaranteed retirement
income to supplement social security, traditionally funded by stable
employer contributions via a defined benefit, employer-based pension
plan, is optimal to ensure that workers accumulate the benefits they
need for a secure retirement. California must pursue guaranteed
replacement income programs, including defined benefit plans, for all
working Californians. Establishing and offering a universal
retirement savings program to provide a vital supplement to social
security income would be an important step toward ensuring the
retirement security of all working Californians.
(f) Though employer-sponsored guaranteed retirement income
programs are valuable savings tools for workers, given the changing
needs and work habits of California's workers, they alone are
insufficient to afford workers a secure retirement. California
workers need additional retirement savings options to ensure their
retirement security.
(g) Private individuals have limited access to attractive
financial products that allow them to convert their savings into
secure, lifelong retirement income.
(h) Employers in the private sector that want to offer a
retirement savings plan for their employees often face significant
barriers in setting up their own workplace plans. In addition to the
costs of hiring service providers and paying fees, employer-sponsored
plans can be complex to maintain and administer, and they are
subject to an array of rules and regulations, including fiduciary
responsibility.
(i) In creating an additional retirement savings program for its
workers, California would supplement existing savings options, thus
assisting California's working men and women to save for retirement.
This program would be funded by the program's participants without
incurring liabilities to the state.
(j) The California Secure Choice Retirement Savings Trust
established by this act will promote expanded retirement security for
working Californians.
(k) The implementation and effectuation of the California Secure
Choice Retirement Savings Trust constitutes the carrying out of a
valid and vital public purpose.
SEC. 2. Section 20139 is added to the Government Code, to read:
20139. The board shall have the power to administer funds in the
California Secure Choice Retirement Savings Trust pursuant to a
contract with the California Secure Choice Retirement Savings
Investment Board as provided in Title 21 (commencing with Section
100000) and to help all California workers to plan and save for
retirement.
SEC. 3. Title 21 (commencing with Section 100000) is added to the
Government Code, to read:
TITLE 21. THE CALIFORNIA SECURE CHOICE RETIREMENT SAVINGS
TRUST ACT
100000. For purposes of this title the following definitions
shall apply:
(a) "Board" means the California Secure Choice Retirement Savings
Investment Board.
(b) "California Secure Choice Retirement Savings Program" or
"program" means a retirement savings program offered by the
California Secure Choice Retirement Savings Trust.
(c) (1) "Eligible employee" means a person who is employed by an
eligible employer.
(2) "Eligible employee" does not include:
(A) Any employee covered under the federal Railway Labor Act (45
U.S.C. Sec. 151), or any employee engaged in interstate commerce so
as not to be subject to the legislative powers of the state, except
insofar as application of this title is authorized under the United
States Constitution or laws of the United States.
(B) Any employee covered by a valid collective bargaining
agreement that expressly provides for an employee pension benefit
plan for those employees as defined in the federal Employee
Retirement Income Security Act of 1974, as amended (29 U.S.C. Sec.
1002).
(d) "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, excluding the federal
government, the state, any county, any municipal corporation, or any
of the state's units or instrumentalities, that has five or more
employees and that satisfies the requirements to establish or
participate in a payroll deposit retirement savings arrangement.
(e) "Participating employer" means an eligible employer that
provides a payroll deposit retirement savings arrangement provided
for by this title for eligible employees.
(f) "Payroll deposit retirement savings arrangement" means an
arrangement by which an employer makes its payroll system available
to employees to remit payroll deduction contributions to a retirement
savings program.
(g) "Stated interest rate" means the rate of interest creditable
to program accounts as determined by the board pursuant to
subdivision (c) of Section 100005.
(h) "Trust" means the California Secure Choice Retirement Savings
Trust established by this title.
100002. (a) There is hereby created the California Secure Choice
Retirement Savings Investment Board, which shall consist of the
Treasurer, the Director of Finance, the Controller, an individual
with retirement savings and investment expertise appointed by the
Senate Committee on Rules, a small business representative and a
public member each appointed by the Governor, and an employee
representative appointed by the Speaker of the Assembly. The
Treasurer shall serve as chair of the board.
(b) The board shall annually prepare and adopt a written statement
of investment policy. The board shall consider the statement of
investment policy and any changes in the investment policy at a
public hearing.
(c) The board shall approve an investment management entity or
entities. Not later than 30 days after the close of each month, the
board shall place on file for public inspection during business hours
a report with respect to investments made pursuant to this section
and a report of deposits in financial institutions. The investment
manager shall report the following information to the board within 20
days following the end of the each month:
(1) The type of investment, name of the issuer, date of maturity,
and the par and dollar amount invested in each security, investment,
and money within the program fund.
(2) The weighted average maturity of the investments within the
program fund.
(3) Any amounts in the program fund that are under the management
of private money managers.
(4) Any amounts in the program fund that are under the management
of the Board of Administration of the Public Employees' Retirement
System.
(5) The market value as of the date of the report and the source
of this valuation for each security within the program fund.
(6) A description of compliance with the statement of investment
policy.
100004. (a) There is hereby established a retirement savings
trust known as the California Secure Choice Retirement Savings Trust
to be administered by the board for the purpose of promoting greater
retirement savings for California private employees in a convenient,
voluntary, low cost, and portable manner. The California Secure
Choice Retirement Savings Trust, as a self-sustaining trust, shall
pay all costs of administration out of earnings on moneys on deposit
therein.
(b) The board shall segregate moneys received by the California
Secure Choice Retirement Savings Trust into two funds, which shall be
identified as the program fund and the administrative fund.
Notwithstanding Section 13340, moneys in the trust are hereby
continuously appropriated, without regard to fiscal years, to the
board for the purposes of this title.
(c) Moneys in the program fund may be invested or reinvested by
the Treasurer or may be invested in whole or in part under contract
with the Board of Administration of the Public Employees' Retirement
System, or private money managers, or both, as determined by the
board.
(d) Transfers may be made from the program fund to the
administrative fund for the purpose of paying operating costs
associated with administering the trust and as required by this
title. On an annual basis, expenditures from the administrative fund
shall not exceed more than 1 percent of the total program fund. All
costs of administration of the trust shall be paid out of the
administrative fund.
(e) Any contributions paid by employees and employers into the
trust shall be used exclusively for the purpose of paying benefits to
the participants of the California Secure Choice Retirement Savings
Program, for the cost of administration of the program, and for
investments made for the benefit of the program.
100004.5. (a) The board shall establish a segregated account
within the program fund to be known as the Gain and Loss Reserve
Account, and the board shall have sole authority over the account.
The Gain and Loss Reserve Account shall be maintained for the program
and may be used to credit interest at the stated interest rate for
program years in which the board determines that the stated interest
rate cannot be met from investment earnings.
(b) The board shall establish a goal for the balance of the Gain
and Loss Reserve Account and shall periodically review the
sufficiency of the reserve account based on the recommendations of
the board's actuary.
(c) The board may allocate excess earnings of the program with
respect to assets attributable to the program to the Gain and Loss
Reserve Account. In addition, the board may allocate any liability
gains and losses to the Gain and Loss Reserve Account. Based on an
actuarial valuation following each program year, the board shall
determine annually the amount, if any, that is to be allocated to the
Gain and Loss Reserve Account for that program year. In determining
whether to allocate excess earnings to the Gain and Loss Reserve
Account, the board shall consider all of the following:
(1) Whether or not the program has excess earnings.
(2) The sufficiency of the Gain and Loss Reserve Account in light
of the goal established pursuant to subdivision (b).
(3) The amount required for the program's administrative costs.
(4) The amount required for crediting individuals' accounts at the
stated interest rate.
(d) In determining whether to allocate liability gains and losses
to the Gain and Loss Reserve Account, the board shall consider the
matters described in paragraphs (2), (3), and (4) of subdivision (c).
(e) Any contributions paid by employees and employers into the
California Secure Choice Retirement Savings Trust shall be used
exclusively for the purpose of paying benefits to the participants of
the California Secure Choice Retirement Savings Program, for the
cost of administration of the program, and for investments made for
the benefit of the program.
100005. (a) The California Secure Choice Retirement Savings
Program shall include, as determined by the board, one or more
payroll deposit retirement savings arrangements.
(b) Individual accounts under the California Secure Choice
Retirement Savings Program shall be nominal accounts. Individual
contributions and any employer contributions on behalf of the
individual that are specifically identified as creditable to the
program shall be treated as credits to the individual's California
Secure Choice Retirement Savings Program account, together with
interest credited at the stated interest rate and any additional
earnings credited thereon. The balance of the credits in an
individual's account shall determine the amount to which the
individual is entitled under the program upon termination of coverage
by the program. The individual shall not have the right or claim to
any specific assets of the account, program, or program fund.
(c) (1) Prior to July 1 of the initial program year, and prior to
the beginning of each program year thereafter, the board shall adopt
a program amendment with respect to the program to declare the stated
rate at which interest shall be credited to program accounts for the
following program year.
(2) Interest shall be credited to program accounts and shall be
computed at the stated interest rate on the balance of credits in an
individual's account and shall be compounded daily.
(d) An individual's retirement savings benefit under the program
shall be an amount equal to the balance of the credits in the
individual's program account on the date the retirement savings
benefit becomes payable.
100006. (a) The board, in the capacity of trustee, shall have the
power and authority to do all of the following:
(1) Make and enter into contracts necessary for the administration
of the trust.
(2) Adopt a seal and change and amend it from time to time.
(3) Cause moneys in the program fund to be held and invested and
reinvested.
(4) Accept any grants, gifts, legislative appropriation, and other
moneys from the state, any unit of federal, state, or local
government or any other person, firm, partnership, or corporation for
deposit to the administrative fund or the program fund.
(5) Appoint a program administrator and determine the duties of
the program administrator and other staff as necessary and set their
compensation.
(6) Make provisions for the payment of costs of administration and
operation of the trust.
(7) Employ staff.
(8) Retain and contract with the Board of Administration of the
Public Employees' Retirement System, private financial institutions,
other financial and service providers, consultants, actuaries,
counsel, auditors, third-party administrators, and other
professionals as necessary.
(9) Procure insurance against any loss in connection with the
property, assets, or activities of the trust, and secure private
underwriting to insure the retirement savings benefit that is
guaranteed to program participants.
(10) Procure insurance indemnifying each member of the board from
personal loss or liability resulting from a member's action or
inaction as a member of the board.
(11) Set minimum and maximum investment levels.
(12) Collaborate and cooperate with the Board of Administration of
the Public Employees' Retirement System, private financial
institutions, service providers, and business, financial, trade,
membership, and other organizations to the extent necessary or
desirable for the effective and efficient design, implementation, and
administration of the program and to maximize outreach to eligible
employers and eligible employees.
(13) 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 arrangements
established under the program, to the extent permitted under state
and federal law.
(14) Facilitate compliance by the retirement savings program or
arrangements established under the program with all applicable
requirements for the program under the Internal Revenue Code of 1986,
including tax qualification requirements or any other applicable law
and accounting requirements, including providing or arranging for
assistance to program sponsors and individuals in complying with
applicable law and tax qualification requirements in a cost-effective
manner.
(15) Carry out the duties and obligations of the California Secure
Choice Retirement Savings Trust pursuant to this title and exercise
any and all other powers as may be reasonably necessary for the
effectuation of the purposes, objectives, and provisions of this
title pertaining to the trust.
(b) The board shall adopt regulations it deems necessary to
implement this title consistent with the federal Internal Revenue
Code and regulations issued pursuant to that code to ensure that the
program meets all criteria for federal tax-deferral or tax-exempt
benefits, or both.
100008. In addition to the powers and authority granted to the
board pursuant to Section 100006, the board shall have the power and
authority to do the following:
(a) Cause the retirement savings program or arrangements
established under the program to be designed, established, and
operated, in a manner consistent with all of the following:
(1) In accordance with best practices for retirement savings
vehicles.
(2) To maximize participation, saving, and sound investment
practices, and appropriate selection of default investments.
(3) With simplicity, ease of administration for participating
employers, and portability of benefits.
(b) Arrange for collective, common, and pooled investment of
assets of the retirement savings program or arrangements, including
investments 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.
(c) Explore and establish investment options that offer employees
guaranteed returns on contributions and the conversion of retirement
savings account balances to secure retirement income without
incurring debt or liabilities to the state.
(d) Disseminate educational information concerning saving and
planning for retirement.
(e) 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 lower and moderate-income
households for saving in plans or arrangements.
(f) Submit progress and status reports to participating employers
and eligible employees.
(g) If necessary, determine the eligibility of an employer,
employee, or other individual to participate in the program.
(h) Evaluate and establish the process by which an eligible
employee of an eligible employer is able to contribute a portion of
his or her salary or wages to the program for automatic deposit of
those contributions and the participating employer provides a payroll
deposit retirement savings arrangement to forward the employee
contribution and related information to the program or its agents.
This may include, but is not limited to, financial services companies
and third-party administrators with the capability to receive and
process employee information and contributions for payroll deposit
retirement savings arrangements or other arrangements authorized by
this title.
(i) Allow participating employers to use the program to contribute
to the account on their employees' behalf or match their employees'
contributions.
(j) Evaluate and establish the process by which an individual or
an employee of a nonparticipating employer may establish and make
contributions to the program.
100010. (a) After the board opens the program for enrollment, any
employer may choose to participate and make the program available to
employees.
(b) Beginning three months after the board opens the program for
enrollment, eligible employers with more than 100 eligible employees
and that do not offer an employer-sponsored retirement plan shall
make the program available to eligible employees, and each eligible
employee shall be enrolled in the program, unless the employee elects
not to participate in the program as provided in subdivision (e).
(c) Beginning six months after the board opens the program for
enrollment, eligible employers with more than 50 eligible employees
and that do not offer an employer-sponsored retirement plan shall
make the program available to eligible employees, and each eligible
employee shall be enrolled in the program, unless the employee elects
not to participate in the program as provided in subdivision (e).
(d) Beginning nine months after the board opens the program for
enrollment, all other eligible employers that do not offer an
employer-sponsored retirement plan shall make the program available
to eligible employees, and each eligible employee shall be enrolled
in the program, unless the employee elects not to participate in the
program as provided in subdivision (e).
(e) An eligible employee may elect to opt out of the program by
making a notation on the exemption certificate produced by the
Employment Development Department. If the employee elects to opt out,
the employee shall, after 24 months, be enrolled in the program,
unless the employee again elects to opt out as provided in this
subdivision.
(f) Employers shall retain the option at all times to set up any
type of retirement plan, such as a defined benefit plan or a 401(k)
plan, instead of making the program available to its eligible
employees.
(g) An eligible employee may also terminate his or her
participation in the program at any time in a manner prescribed by
the board and thereafter by making a notation on the exemption
certificate produced by the Employment Development Department.
(h) Unless otherwise specified by the employee, a participating
employee shall contribute 3 percent of the employee's annual salary
or wages to the program.
(i) By regulation, the board may adjust the contribution amount
set in subdivision (h) to no less than 2 percent and no more than 4
percent and may vary that amount within that 2 percent to 4 percent
range for participating employees according to the length of time the
employee has contributed to the program.
100016. Participating employers shall not be liable for the
investment decisions of employees whose assets are deposited in the
program.
100017. The state shall have no liability for the payment of the
retirement savings benefit that is guaranteed to program participants
pursuant to this title. Any financial liability for the payment of
benefits in excess of funds available under the program shall be
borne by the underwriters pursuant to the contract entered into with
the board on behalf of the program participants. The state, and any
of the funds of the state, shall have no obligation for payment of
the guaranteed benefits arising from this title.
100018. (a) Notwithstanding Section 10231.5, the board shall
submit an annual audited financial report, prepared in accordance
with generally accepted accounting principles, on the operations of
the California Secure Choice Retirement Savings Trust by August 1 to
the Governor, the Controller, the State Auditor, and the Legislature,
pursuant to Section 9795. The annual audit shall be made by an
independent certified public accountant and shall include, but not be
limited to, direct and indirect costs attributable to the use of
outside consultants, independent contractors, and any other persons
who are not state employees.
(b) The annual audit shall be supplemented by the following
information prepared by the board:
(1) Any studies or evaluations prepared in the preceding year.
(2) A summary of the benefits provided by the trust including the
number of participants in the trust.
(3) Any other information that is relevant in order to make a
full, fair, and effective disclosure of the operations of the
California Secure Choice Retirement Savings Trust.
100022. The board shall initially conduct a market analysis to
determine whether the necessary conditions for implementation of this
title can be met, including, but not limited to, likely
participation rates, participants' comfort with various investment
vehicles and degree of risk, contribution levels, and the rate of
account closures and rollovers. The board shall conduct this analysis
only if sufficient funds are made available through a nonprofit or
private entity, federal funding, or an annual Budget Act
appropriation. The board shall forward its findings to the Chair
of the Senate Committee on Labor and Industrial Relations, the
Chair of the Senate Committee on Public Employment and Retirement
, and to the Chair of the Assembly
Committee on Public Employees, Retirement and Social Security
, pursuant to Section 9795 .
100024. With the exceptions of subdivision (a) of Section 100002,
and Sections 100022 and 100026, the provisions of this title shall
become operative only if funds are made available through a nonprofit
or private entity or federal funding, in amounts sufficient to allow
the board to study, develop, and obtain the approvals necessary to
implement this title and the board notifies the Director of Finance
that, based on its market analysis, the provisions of this title can
be self-sustaining pursuant to this title.
100026. This title shall be construed liberally in order to
effectuate its legislative intent. The purposes of this title and all
of its provisions with respect to the powers granted shall be
broadly interpreted to effectuate that intent and purposes and not as
to any limitation of powers.
SEC. 4. Section 1088.9 is added to the Unemployment Insurance
Code, to read:
1088.9. (a) The department shall have the power and duties
necessary to administer the enforcement of employer compliance with
Title 21 (commencing with Section 100000) of the Government Code.
(b) An eligible employer shall use the department's exemption
certificate to create an option for an eligible employee to note his
or her decision to opt out of utilizing the California Secure Choice
Retirement Savings Program. The department shall make the opt-out
notation simple and concise and in a manner it deems necessary to
appropriately evidence the employee's understanding that he or she is
choosing not to automatically deduct earnings to save for
retirement.
(c) Each eligible employer who, without good cause, fails to make
the California Secure Choice Retirement Savings Program available to
all of its eligible employees pursuant to Section 100010 of the
Government Code, on or before 90 days after service of notice by the
director pursuant to
Section 1206 of his or her failure to comply, shall pay a penalty of
one thousand dollars ($1,000) for every eligible employee not offered
the retirement savings program. The department shall enforce this
penalty as part of its existing investigation and audit function.
(d) The provisions of this article, the provisions of Article 9
(commencing with Section 1176), with respect to refunds and
overpayments, and the provisions of Article 11 (commencing with
Section 1221), with respect to administrative appellate review shall
apply to the penalty imposed by this section. Penalties collected
pursuant to this section shall be deposited in the contingent fund.
(e) This section shall become operative on January 1, 2014.