BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1234|
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THIRD READING
Bill No: SB 1234
Author: De León (D) and Steinberg (D), et al.
Amended: 8/20/12
Vote: 21
SENATE PUBLIC EMPLOY. & RETIRE. COMM. : 3-1, 4/16/12
AYES: Negrete McLeod, Padilla, Vargas
NOES: Gaines
NO VOTE RECORDED: Walters
SENATE LABOR & INDUST. RELATIONS COMM. : 4-1, 4/25/12
AYES: Lieu, DeSaulnier, Leno, Yee
NOES: Wyland
NO VOTE RECORDED: Padilla, Runner
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/24/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
SENATE FLOOR : 23-13, 5/30/12
AYES: Alquist, Calderon, Corbett, Correa, De León,
DeSaulnier, Evans, Hancock, Hernandez, Kehoe, Leno, Lieu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio,
Steinberg, Vargas, Wolk, Wright, Yee
NOES: Anderson, Berryhill, Blakeslee, Cannella, Dutton,
Emmerson, Fuller, Gaines, Harman, Huff, La Malfa,
Walters, Wyland
NO VOTE RECORDED: Liu, Runner, Simitian, Strickland
SUBJECT : Retirement savings plans
CONTINUED
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SOURCE : Author
DIGEST : This bill establishes the California Secure
Choice Retirement Savings Investment Board (Board), as
defined, and the California Secure Choice Retirement
Savings Trust (Trust), a continuously appropriated fund,
for the purpose of creating a statewide program known as
the California Secure Choice Retirement Savings Program
(SCRSP). SCRSP will exist to provide a statewide
retirement savings plan for private workers who do not
participate in any other type of employer sponsored
retirement savings plan. Contributions by employers and
employees will be voluntary. In order for SCRSP to become
operational, this bill requires that the Board conduct a
market analysis to determine various factors in regard to
implementing the SCRSP and to report to the Legislature on
its findings; the analysis may be done only if sufficient
funds to do so are made available through a non-profit or
private entity, federal funding, or an annual Budget Act
appropriation. Once created, administrative costs for the
SCRSP shall be paid for from earnings on investments into
the trust and shall be no more than 1%, annually, of the
total program fund assets.
Assembly Amendment (1) authorize rather than require the
Board to establish a Gain and Loss Reserve Account; (2)
specify risk management act and investment policies that
the Board will be subject to regarding administration of
the program; (3) require the Board to ensure that an
insurance, annuity, or other funding mechanism is in place
at all times that protects the value of individuals'
accounts; (4) specify that upon sufficient funds being made
available through a nonprofit or private entity or federal
funding, require the Board to conduct a market analysis to
determine whether the necessary conditions for
implementation can be met; (5) require moneys make
available to conduct the market analysis to be deposited in
the Secure Choice Retirement Savings Program Fund created
by the bill; (6) clarify language concerning opt-out
provisions; and (7) prohibit the Board from implementing
the program if the Individual Retirement Arrangement (IRA)
arrangements offered fail to qualify for the favorable
federal income tax treatment ordinarily accorded to IRAs
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under the Internal Revenue Code (IRC), or if it is
determined that the program is an employee benefit plan
under the federal Employee Retirement Income Security Act
(ERISA).
ANALYSIS : 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.
Existing state law:
1. Establishes California Public Employees' Retirement
System (CalPERS), the state's largest public retirement
system with over $239 billion in assets, providing
worker and employer funded retirement benefits for over
1.6 million public workers, retirees, and their
survivors and dependents.
2. Empowers CalPERS with exclusive authority and fiduciary
responsibility to invest the Public Employees'
Retirement Fund in order to ensure the payment of
benefits for members and their survivors and to control
costs for participating employers.
3. Prohibits, in the Constitution, the state from creating
debt or liability, as specified, without a vote of the
people.
4. Allows individuals to save for retirement on a pre-tax
basis through payroll deductions when the employee is
eligible to enroll in an employer-sponsored retirement
savings plan.
According to a recent report by the University of
California, Berkeley Center for Labor Research and
Education, Meeting California's Retirement Security
Challenge (October 2011), 62% of private sector workers in
California do not participate in an employer-sponsored
retirement plan, compared to 57% in the United States as a
whole. Also, workers in small and medium sized firms are
disadvantaged in their access to employer-sponsored
retirement plans-in California, 84% of people working for
employers with 25 or fewer workers do not participate in a
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retirement plan at work.
This bill establishes the Board, as defined, and the Trust,
a continuously appropriated fund, for the purpose of
creating a statewide program known as the SCRSP. SCRSP
will exist to provide a statewide retirement savings plan
for private workers who do not participate in any other
type of employer sponsored retirement savings plan.
Contributions by employers and employees will be voluntary.
In order for SCRSP to become operational, this bill
requires that the Board conduct a market analysis to
determine various factors in regard to implementing the
SCRSP and to report to the Legislature on its findings; the
analysis may be done only if sufficient funds to do so are
made available through a non-profit or private entity,
federal funding, or an annual Budget Act appropriation.
Once created, administrative costs for the SCRSP shall be
paid for from earnings on investments into the trust and
shall be no more than 1%, annually, of the total program
fund assets.
This bill:
1. Establishes the Board to consist of the State Treasurer,
the Director of Finance (or his/her designee), the State
Controller, an individual with retirement savings and
investment expertise appointed by the Senate Rules
Committee, a small business representative appointed by
the Governor, a public member appointed by the Governor,
and an employee representative appointed by the Speaker
of the Assembly.
2. Requires the Board to conduct an initial market analysis
to determine whether the necessary conditions for
implementation of the SCRSP can be met, as specified.
3. Provides that the SCRSP will only become operative if
the Board notifies the Director of Finance that, based
upon the market analysis, the SCRSP can be
self-sustaining and only if implementation costs are
made available from a nonprofit or private entity, the
federal government, or a budget appropriation.
4. Requires the Board to forward and offer to present the
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findings of the market analysis to the Chair of the
Senate Labor and Industrial Relations Committee, the
Chair of the Assembly Labor and Employment Committee,
the Chair of the Senate Public Employment and Retirement
Committee, and the Chair of the Assembly Public
Employees, Retirement and Social Security Committee.
5. Establishes the SCRSP to include one or more IRA
arrangements for private sector employees to operate
under the following parameters:
A. The Board, prior to July 1 of the initial SCRSP
year and annually thereafter, to adopt a SCRSP
amendment in coordination with the investment
management entity or entities to declare the stated
rate at which interest shall be allocated to accounts
for the following year.
B. Provides that an individual's retirement savings
benefit under the SCRSP shall be an amount equal to
the balance of an individual's program account on the
date the retirement savings account becomes payable.
C Requires the Board to set minimum and maximum
investment levels in accordance with contribution
limits set forth for IRAs by the IRC.
D. Authorizes the Board to allow participating
employers to use the SCRSP to contribute to their
employees' individual retirement accounts on their
employees' behalf or match their employees'
contributions, provided that the contributions would
be permitted under the IRC and would not cause the
program to be treated as an employee benefit plan
under the ERISA.
6. Provides that after the Board opens the SCRSP for
enrollment, any employer may choose to have a payroll
deposit retirement savings arrangement to allow employee
participation in the SCRSP. Thereafter the following
timeline would apply:
A. Beginning three months after opening of
enrollment, employers of 100 or more employees must
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have an arrangement to allow employees to participate
in the SCRSP.
B. Beginning six months after opening of enrollment,
employers of 50 or more employees must have an
arrangement to allow employees to participate in the
SCRSP.
C. Beginning nine months after opening of enrollment,
employers of five or more employees must have an
arrangement to allow employees to participate in the
SCRSP.
7. Requires the Board, prior to opening the SCRSP for
enrollment, to disseminate an employee information
packet and disclosure form to employers that, among
other things, clearly articulates that the SCRSP is
privately insured and not guaranteed by the State of
California and includes an opt-out form for eligible
employees.
8. Provides that an employer who, without good cause, fails
to allow its employees to participate in the SCRSP
within 90 days after being notified of failure to comply
by the Employment Development Department (EDD), shall
pay a penalty of $250 per eligible employee. If the
employer if found to be in willful noncompliance 180
days after the notice shall be subject to an additional
penalty of $500 per eligible employee.
9. Requires each eligible employee to be enrolled in the
SCRSP unless the employee opts out as specified, and
provides for an open enrollment period.
10.Provides that, unless otherwise specified by the
employee, a participating employee shall contribute 3%
of their annual salary or wages into the SCRSP (which
may be adjusted by the Board to between 2% and 4%).
11.Establishes the Trust to be administered by the Board
and requires moneys to be segregated into a program fund
and an administrative fund. Annual expenditures from
the administrative fund shall not exceed more than 1% of
the total program fund.
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12.Establishes guiding principles and restrictions for
investment policy of Trust assets, and limits the types
of investments which shall be permitted for the
investment of funds.
13.Provides that equities shall not exceed 50% of the
overall asset allocation of the fund.
14.Provides that employers shall not have any liability for
an employee's decision to participate or opt out of the
SCRSP, or for the investment decisions of employees.
15.Provides that employers shall not be a fiduciary over
the SCRSP and shall bear no responsibility for the
administration, investment, or investment performance of
the SCRSP. An employer shall not be liable with regard
to investment returns, program design, and benefits paid
to participants.
16.Requires the Board to submit an annual
independently-audited financial report, as specified.
17.Provides that the state shall not have any liability for
the payment of the retirement savings benefit earned by
SCRSP participants. Any financial liability for the
payment of benefits in excess of funds available shall
be borne by entities with whom the Board contracts to
provide an insurance, annuity, or other funding
mechanism to protects the returns earned by SCRSP
participants. The state, and any of the funds of the
state, shall have no obligation for payment of the
benefits arising from the SCRSP.
18.Requires the Board to ensure that an insurance, annuity
or other funding mechanism is in place at all times that
protects the value of individuals' accounts. Such
funding mechanism shall protect, indemnify and hold the
state harmless at all times against any and all
liabilities in connection with funding retirement
benefits under the SCRSP. The costs of the funding
mechanism shall be paid out of the funds held in the
Trust and shall not be attributed to the administrative
costs of the Board in operating the Trust.
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19.Requires the Board (prior to opening the SCRSP for
enrollment), if there is sufficient interest by vendors
to participate and provide the necessary funding, to
establish a Retirement Investments Clearinghouse
(Clearinghouse) on its Internet Web site. The
Clearinghouse, among other features, would contain the
following:
A. Information about employer-sponsored retirement
plans, and payroll deduction individual retirement
accounts and annuities offered by private sector
providers.
B. Specified other information, including investment
performance, fees, and other information.
20.Contains specific requirements for vendors to
participate and register in the Clearinghouse, and a
process for the addition and removal of vendors.
21.Requires the Board to include notice of the existence of
the Clearinghouse on a notice to eligible employers
disseminated through EDD.
22.Provides that the Board and the SCRSP are not
responsible for or liable for the adequacy of
information on the Clearinghouse, as specified.
23.Provides that the Board shall not implement the SCRSP if
the IRA arrangements offered fail to qualify for the
favorable federal income tax treatment ordinarily
accorded IRAs under the IRC, or if it is determined that
the SCRSP is an employee benefit plan under the ERISA.
24.Makes related and conforming changes to implement the
provisions of this bill.
25.Makes related legislative findings and declarations.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Assembly Appropriations Committee, the
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initial study and approval phase of this bill would result
in costs in excess of $1 million. Implementation costs
would potentially exceed $10 million, but would eventually
be recouped from fees. Ongoing costs are estimated to be
multi-million annual expenses to be paid from earnings on
the Trust.
SUPPORT : (Verified 8/27/12)
AARP-California
AFSCME, AFL-CIO
American Society of Pension Professionals and Actuaries
Association of California School Administrators
California Alliance for Retired Americans
California Association of Professional Scientists
California Association of Psychiatric Technicians
California Communities United Institute
California Faculty Association
California Federation of Teachers, AFL-CIO
California Labor Federation, AFL-CIO
California Professional Firefighters
California Retired County Employees Association
California School Employees Association
California Teachers Association
California-Nevada Conference of Operating Engineers
Congress of California Seniors
Earned Assets Resource Network
East Hollywood Chamber of Commerce
Faculty Association of California Community College
Greenlining Institute
JERICHO
Latinos for a Secure Retirement
Little Armenia Neighborhood Association
Los Angeles County Federation of Labor, AFL-CIO
National Conference on Public Employee Retirement Systems
National Hispanic Council on Aging
Paramount Contractors and Developers, Inc.
Peace Officers Research Association of California
Professional Engineers in California Government
SEIU Local 1000
SEIU Local 99
SEIU United Long Term Care Workers
State Association of County Retirement Systems
State Building and Construction Trades Council of
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California
TELACU
United Food and Commercial Workers Local 1428
United Teachers Los Angeles
Western Prelacy Armenian Schools
Workers United-SEIU Western States Regional Joint Board
OPPOSITION : (Verified 8/27/12)
Allstate Insurance Company
American Council of Engineering Companies of California
American Council of Life Insurers
Association of California Life and Health Insurance
Companies
California Association of Health Underwriters
California Chamber of Commerce
California Farm Bureau Federation
California Framing Contractor's Association
California Grocers Association
California Independent Grocers Association
California Manufacturers and Technology Association
California Retailers Association
Financial Planning Association
Financial Services Institute
Fullerton Chamber of Commerce
Garden Grove Chamber of Commerce
Hispanic Engineers Business Corporation
Howard Jarvis Taxpayers Association
ING
Insurance Brokers and Agents of the West
Investment Company Institute
Long Beach Area Chamber of Commerce
National Association of Insurance and Financial Advisors of
California
Orange Chamber of Commerce
Pacific Life Insurance Company
Personal Insurance Federation of California
Plumbing-Heating-Cooling Contractors Association of
California
Principal Financial Group
Securities Industry and Financial Markets Association
State Farm
The Standard
Western Electrical Contractors Association
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ARGUMENTS IN SUPPORT : The author states the following:
Today, due to inadequate retirement savings, nearly 50%
of middle-income California workers will face living in
or near poverty during their senior years. Social
Security payments alone are simply not enough to cover
basic life necessities, and over seven million workers in
the private sector currently do not have access to a
retirement savings plan through their jobs.
Ensuring that all workers have the opportunity to save
for retirement will benefit all of society-in addition to
promoting personal responsibility and providing
Californians with a pathway to self-sufficiency in
retirement, it will alleviate the strain on our already
overburdened safety net programs as California's
population ages."
Senate Bill 1234 seeks to create a vital supplement to
Social Security through the establishment of a retirement
savings plan for the seven million private sector workers
in California that lack a workplace retirement plan.
The proposed California Secure Choice Retirement Savings
Plan would be a cash balance-type plan, similar to the
Defined Benefit Supplement Program currently offered by
the California State Teachers' Retirement System
(CalSTRS). This type of retirement savings plan has a
guaranteed rate of return, and participants would not be
exposed on the individual market and vulnerable to the
volatility of the unpredictable stock market.
The guaranteed benefit would be closely tied to the
Treasury-bond (T-bond) rate, which is modest yet superior
to the interest rate currently offered by regular savings
accounts. The conservative and stable nature of the
T-bond rate ensures that the guarantee is extremely
low-risk and underwriters would provide insurance for the
funding liability. Also, since the retirement
contributions would be pooled and have an investment
horizon that spans multiple lifetimes, the
professionally-managed fund will be able to have a
balanced portfolio and leverage economies of scale to
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offer a retirement plan that is reliable, low-cost, and
completely portable for the participants.
In addition, I would like to highlight that the proposed
California Secure Choice Retirement Savings Plan would be
governed by the California Secure Choice Retirement
Savings Investment Board, a statewide governing board
chaired by the State Treasurer. This administration and
oversight is modeled after ScholarShare, California's 529
College Savings Plan, which is a professionally-managed
fund that has grown to over $4.4 Billion in assets and
offers families an opportunity to build savings to cover
the costs of higher education.
As stated by AARP, "Social Security is the bedrock of all
retirement plans. For most Americans, Social Security is
the only defined-benefit plan they can count on to provide
an income stream that lasts a lifetime. But it isn't
enough. Some are fortunate to have an employer-sponsored
pension plan to supplement Social Security, but most do
not. Saving for retirement on your own can be an
expensive, risky proposition. With inadequate investment
expertise, high fees charged by money managers, and a
volatile stock market, this is rarely a road to financial
security in retirement. This measure will provide a solid
retirement savings option for the many Californians."
According to the Greenlining Institute, "Today, millions of
Californians do not have the option to save for retirement
through payroll deductions. Approximately six million
Californians, roughly 43% of the state's workforce, work at
a job that does not offer them a pension or a retirement
savings plan to Supplement Social Security. As a result,
around 40% of today's baby boomer retirees rely on Social
Security benefits for more than 90% of their income.
However, Social Security payments alone, which average
$1,081 per month, will not be enough to sustain
Californians in their retirement."
ARGUMENTS IN OPPOSITION : Opponents, including the
Securities Industry and Financial Markets Association,
argue that California already faces hundreds of billions of
dollars in unfunded pension liability for its public sector
workers. They contend that now is not the time for the
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state to create and assume liability for any new plan for
private sector employees. Moreover, they contend that the
legislation is unnecessary as California already has a
robust and highly competitive retirement savings market.
Opponents contend that, among other things, this bill could
create undue pressure on the General Fund, could create a
multi-billion dollar liability for the state, unnecessarily
enters the federal government's domain, and is inconsistent
with the Administration's efforts to reduce government.
DLW:k 8/29/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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