Amended in Senate August 14, 2014

Amended in Assembly April 28, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2473

Introduced by Committee on Public Employees, Retirement and Social Security (Bonta (Chair), Rendon, Ridley-Thomas, and Wieckowski)

February 21, 2014

An act to amend Sections 31564, 31592.2, 31592.4, 31649.5, 31656, 31671, 31691, 31691.1, and 31696.3 of, and to add Sections 31485.19, 31485.20, 31485.21, 31485.22, 31694.6, and 31698.5 to, the Government Code, relating to county employees.

LEGISLATIVE COUNSEL’S DIGEST

AB 2473, as amended, Committee on Public Employees, Retirement and Social Security. County Employees Retirement Law of 1937: federal law compliance.

Federal tax law regulates pension plans generally and regulates public pension plans specifically based on their status as governmental plans, as defined. In this regard, among other things, federal law requires that accrued member retirement benefits be nonforfeitable, as specified, establishes conditions for the distribution of funds to members from a retirement system, prescribes requirements for the vesting of benefits, and limits the application of pension funds for medical benefits.

The County Employees Retirement Law of 1937 (CERL) permits counties and districts, as defined, to provide retirement benefits to their employees pursuant to its provisions and vests the management of the retirement system in the board of retirement. CERL generally conditions distribution of benefits upon compliance with federal requirements. CERL requires a county to retain in its retirement fund specified excess earnings to maintain a reserve against possible future deficiencies in earnings, and to transfer certain of those excess earnings into county advance reserves for the sole purpose of paying the cost of benefits, as specified. CERL authorizes the use of these reserves for the payment of certain health and medical benefits, subject to specified limitations.

This bill would revise various provisions of CERL to explicitly conform with federal law. In this regard, the bill would provide that a member’s accrued retirement benefits are begin delete nonforfeitable, end delete begin insert nonforfeitable end insert in accordance with federal begin delete law, upon end delete begin insert law in effect on the date of the end insert termination of, or discontinuance of contributions under, the retirement system. Upon the withdrawal of a district from a retirement system, the bill also would prohibit a refund, distribution, or transfer of contributions or other funds to an employee or district unless in compliance with prescribed federal law.

This bill would revise provisions authorizing a retirement system to apply specified earnings to designated health benefits provided federal requirements are met, and would allow the board of retirement to authorize payment of those benefits with county advance reserves. The bill would specify that, if a county establishes a Post-Employment Benefits Trust Account as a part of its retirement fund, that account shall be used exclusively to provide health benefits for retired members, their spouses, and dependents.

This bill would revise county procedures applicable to providing service credit to a member of the retirement system for all or part of his or her military service, in accordance with federal law.

This bill would require a county that elects to provide optional long-term care or vision benefits, to comply with applicable federal law and regulation, including maintaining separate trust funds for those benefits. The bill also would make various technical, nonsubstantive changes to CERL.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 31485.19 is added to the Government
Code, to read:

31485.19.  

begin delete (a) end delete begin delete   end delete Notwithstanding any other provision of this
chapter, the rights of each member to his or her accrued retirement
benefits under the retirement system shall be nonforfeitable, in
accordance with the requirements of Sections 401(a) of Title 26
of the United States Code that are applicable to public employee
plans, to the extent then funded, on the date of the termination of
the system, the partial termination of the system, or the complete
discontinuance of contributions under the system, as provided in
Title 26 of the United States Code.

begin delete

(b) Notwithstanding subdivision (a), the vesting provisions
under Section 31485.22 and Articles 8 and 9, or any other
applicable law, a member’s earned and accrued benefits may be
forfeited under Sections 7522.70, 7522.72, and 7522.74.

end delete

SEC. 2.  

Section 31485.20 is added to the Government Code,
to read:

31485.20.  

Notwithstanding any other provision of this chapter,
no amount shall be distributed from a retirement system established
under this chapter prior to the time that the distribution may be
made in compliance with the requirements of Section 401(a) of
Title 26 of the United States Code that are applicable to public
employee plans, including, but not limited to, requirements relating
to the distribution of amounts prior to the earlier of a member’s
death, disability, separation from service with all employers that
maintain the retirement system, or attainment of normal retirement
age, as defined by the retirement system.

SEC. 3.  

Section 31485.21 is added to the Government Code,
to read:

31485.21.  

(a) A member who has not attained normal
retirement age shall have a bona fide separation from service to
the extent required by Section 401(a) of Title 26 of the United
States Code before working for the county or a district. The board
shall establish, by regulation, the criteria under which a bona fide
separation is satisfied.

(b) Notwithstanding any other provision of this chapter, to the
extent required or permitted by Section 401(a) of Title 26 of the
United States Code, no amount shall be paid to any member before
the date the member has attained normal retirement age or has had
a bona fide separation from service, whichever is earlier.

(c) The board may establish, by regulation, normal retirement
age consistent with federal law and eligibility requirements under
state law.

(d) To the extent that the California Public Employees’ Pension
Reform Act of 2013 (Article 4 (commencing with Section 7522)
of Chapter 21 of Division 7 of Title 1) would provide for greater
restrictions with regard to separation from service, the provisions
of that act shall prevail.

SEC. 4.  

Section 31485.22 is added to the Government Code,
to read:

31485.22.  

(a) A member who, while currently employed, has
reached normal retirement age, as defined by the retirement system,
and has met the benefit commencement requirements in Article 8
or Article 9, shall be fully vested in the benefits payable under the
retirement system. Upon satisfying the requirements of this section,
a member may be retired upon filing with the board a written
application in the manner provided in Articles 8 and 9 of this
chapter, as applicable.

(b) Notwithstanding subdivision (a), begin delete the vesting provisions
under Section 31485.19 and end delete Articles 8 and 9 of this chapter, or
any other applicable law, a member’s earned and accrued benefits
may be forfeited under Section 7522.70, 7522.72, or 7522.74.

SEC. 5.  

Section 31564 of the Government Code is amended
to read:

31564.  

(a) All officers and employees of any district who have
become members of the association as provided in Section 31557,
may be withdrawn by a resolution of the governing body declaring
all of the district’s employees withdrawn from the association;
provided, the governing body has first received a written petition
signed by a majority of its officers and employees requesting that
the district’s officers and employees be withdrawn from the
association.

(b) Upon the adoption of any resolution to withdraw its
members, all accumulated contributions held in the association
shall be refunded to the district’s employees upon the effective
date of their withdrawal and in the same manner as the accumulated
contributions would be refunded upon the termination of their
employment by the district.

(c) Upon the adoption of any resolution to withdraw its members
and where there are no existing retirees from the district, the
district’s contributions shall be transferred to another public
retirement system that meets the requirement of a tax-qualified
retirement plan under Section 401(a) of Title 26 of the United
States Code.

(d) A refund, distribution, or transfer of contributions or other
funds shall not be made to any employee or any district unless that
action complies with the requirements of Section 401(a) of Title
26 of the United States Code.

(e) In the event of the transfer of district contributions to another
public retirement system, the employee contributions shall also be
transferred to the other public retirement system.

(f) The effective date of withdrawal of any resolution adopted
pursuant to this section shall be at the end of the calendar month
during which such resolution is adopted.

SEC. 6.  

Section 31592.2 of the Government Code is amended
to read:

31592.2.  

(a) In any county, earnings of the retirement fund
during any year in excess of the total interest credited to
contributions and reserves during such year shall remain in the
fund as a reserve against deficiencies in interest earnings in other
years, losses on investments, and other contingencies, except that,
when such surplus exceeds 1 percent of the total assets of the
retirement system, the board may transfer all, or any part, of such
surplus in excess of 1 percent of the said total assets into county
advance reserves for the sole purpose of payment of the cost of
the benefits described in this chapter.

(b) Where the board of supervisors has provided for the payment
of all, or a portion, of the premiums, dues, or other charges for
health benefits, Medicare, or the payment of accrued sick leave at
retirement to or for all, or a portion, of officers, employees, and
retired employees and their dependents, from the county general
fund or other sources, the board of retirement may authorize the
payment of all, or a portion, of payments of the benefits described
in this subdivision from the county advance reserves. This payment
shall comply with the requirements of Section 401 of Title 26 of
the United States Code. Payment may be made directly from the
county advance reserves for the benefits described in Section
31691.1.

SEC. 7.  

Section 31592.4 of the Government Code is amended
to read:

31592.4.  

(a) The amount of excess earnings available at the
end of a fiscal year of the retirement fund, shall, subject to the
limitations in this section, be treated in the immediately succeeding
fiscal year, for all purposes under this chapter, as appropriations,
transfers, and contributions made to the retirement fund by the
county and applicable districts. That treatment shall occur only to
the extent that, in the immediately succeeding fiscal year, the
county and applicable districts pay for an equal amount of health
benefits for members heretofore or hereafter retired and their
dependents or make contributions in an equal amount to an account
established under Section 401(h) of Title 26 of the United States
Code solely for the purpose of providing health benefits for retired
members, their spouses, and dependents, and for the associated
administrative and investment expenses.

(b) For purposes of this section, “excess earnings” means
earnings of the retirement fund at the end of any fiscal year that
exceed the total interest credited to contributions and reserves plus
1 percent of the total assets of the retirement fund.

(c) The board of supervisors or the board of retirement shall
take any actions necessary and appropriate to ensure that the
program provided by this section complies with all applicable
federal and state income tax laws, including, but not limited to,
establishing rules and procedures for establishing and maintaining
an account under Section 401(h) of Title 26 of the United States
Code.

(d) In accordance with Section 401(h) of Title 26 of the United
States Code and Section 1.401-14(c) of the Code of Federal
Regulations:

(1) The retirement system shall specify the medical benefits
that will be available and shall set out the amount that will be paid.

(2) Medical benefits shall be subordinate to the retirement
benefits when added to any life insurance benefits.

(3) A separate account shall be maintained for contributions to
fund the medical benefits.

(4) The funds in the separate account may be invested with the
funds for retirement benefits and the earnings shall be allocated
to each account in a reasonable manner.

(5) Amounts contributed for medical benefits shall be reasonable
and ascertainable.

(6) No part of the medical benefits account may be used for or
diverted to any purpose other than providing medical benefits and
paying necessary or appropriate expenses for the administration
of the medical benefits account.

(7) Any amounts remaining in the medical benefits account
after satisfaction of all medical benefits liabilities for all members,
their spouses, and dependents shall be returned to the employer.

(8) If a member’s interest in the medical benefits account is
forfeited prior to plan termination, an amount equal to the forfeiture
shall reduce employer contributions to fund the account.

(e) Except to the extent allowed by Sections 401 and 420 of
Title 26 of the United States Code, and related federal regulations,
assets shall not be transferred or otherwise paid from the funds
held by the retirement system for retirement benefits to a medical
benefits account. Assets shall not be transferred or otherwise paid
from a medical benefits account to the funds held by the retirement
system for retirement benefits.

(f) This section shall not be operative in any county until the
board of supervisors and the board of retirement of the county, by
resolution adopted by a majority vote of each board, make this
section operative in the county.

(g) This section is not intended, and shall not be construed to,
affect the validity of any agreement entered into by a county and
a retirement association whereby a county has agreed to provide
and fund a health insurance program for retired employees and
their dependents for hospital services, medical services, dental
services, and optical services, prior to the effective date of this
section.

(h) This section establishes a method of providing health benefits
for retired members, their spouses, and dependents to the extent
allowed under Sections 31592.2 and 31691. This section does not
authorize duplicate benefits.

(i) This section may be made applicable in any county that has
adopted Article 5.5 (commencing with Section 31610), in which
case the Supplemental Retiree Benefits Reserve shall be substituted
for the excess earnings described in this section. This section also
may be made applicable to any arrangement established under
Article 8.6 (commencing with Section 31694).

SEC. 8.  

Section 31649.5 of the Government Code is amended
to read:

31649.5.  

Notwithstanding Section 31649, any member who
resigned, or obtained a leave of absence, to enter and did enter the
Armed Forces of the United States on a voluntary or involuntary
basis and returned to county service within one year after separation
therefrom, under honorable conditions, shall receive credit for
service and prior service for all or any part of his or her military
service, if, before retirement from the county, he or she contributes
what he or she would have paid to the fund based on his or her
compensation earnable pursuant to Section 31461 at the time he
or she resigned or received the leave of absence, together with
regular interest thereon, and if, when he or she contributes, the
military service is not a basis for present or future military
retirement pay.

SEC. 9.  

Section 31656 of the Government Code is amended
to read:

31656.  

Nothing in this chapter shall be construed to prohibit
any district established pursuant to Part 4 (commencing with
Section 40000) of Division 10 of the Public Utilities Code, from
extending retirement service credit pursuant to Section 40127 of
the Public Utilities Code to any employee of the district who is on
an authorized leave of absence to serve as an official of a
recognized employee bargaining unit, under all of the following
conditions:

(a) The employee agrees to pay the total contributions that would
otherwise be paid if the employee were not on leave, as well as
any additional costs which may accrue to the system as a result of
this extension of coverage.

(b) The maximum service credit accumulated under this section
shall not exceed 12 years.

(c) Employees covered under this section shall not be eligible
for disability benefits under any public employees’ retirement
system in this state while on such leave of absence.

This section shall not be operative in any county until such time
as the board of supervisors shall, by resolution adopted by majority
vote, make the provisions of this section applicable in the county.

SEC. 10.  

Section 31671 of the Government Code is amended
to read:

31671.  

(a) The amount of compensation that is taken into
account in computing benefits payable to any person who first
becomes a member of the retirement system on or after July 1,
1996, or January 1, 1996, for systems operating on a calendar
basis, shall not exceed the limitations in Section 401(a)(17) of
Title 26 of the United States Code upon public retirement systems,
as that section may be amended from time to time and as that limit
may be adjusted by the Commissioner of Internal Revenue for
increases in cost of living. The determination of compensation for
each 12-month period shall be subject to the annual compensation
limit in effect for the calendar year in which the 12-month period
begins. In a determination of average annual compensation over
more than one 12-month period, the amount of compensation taken
into account for each 12-month period shall be subject to the
applicable annual compensation limit.

(b) The compensation limitations specified in Section 7522.10
shall also apply to a member who is subject to the provisions of
the California Public Employees’ Pension Reform Act of 2013 for
all or any portion of his or her membership in the county retirement
system.

SEC. 11.  

Section 31691 of the Government Code is amended
to read:

31691.  

(a) The board of supervisors of any county by
ordinance, or the governing body of any district under the County
Employees Retirement Law, by ordinance or resolution, may
provide for the contribution by the county or district from its funds
and not from the retirement fund, toward the payment of all or a
portion of the premiums on a policy or certificate of life insurance
or disability insurance issued by an admitted insurer, or toward
the payment of all or part of the consideration for any hospital
service or medical service corporation, including any corporation
lawfully operating under Section 9201 of the Corporations Code,
contract, or for any combination thereof, for the benefit of any
member heretofore or hereafter retired or his or her dependents.
At least one of these plans shall include free choice of physician
and surgeon.

(b) The benefits provided by this section are in addition to any
other benefits provided by this chapter.

(c) The board of retirement may provide on behalf of a member
who has retired, or an eligible surviving spouse who was married
to the member for one year prior to the date of retirement of the
member, or, if there is no such spouse, the surviving unmarried
children of the member who are under 18 years of age, or under
22 years of age and full-time students, for the hospital and medical
benefits enumerated in subdivision (a) from the earnings of the
retirement fund that are in excess of the total interest credited to
contributions and reserves plus 1 percent of the total assets of the
retirement fund. The board may provide for the benefits enumerated
from like sources when the board of supervisors or the governing
body of a district has elected to provide these benefits to its active
employees, even though the benefits are not provided to those who
have retired from the service of the county or district. Hospital and
medical benefits provided under this section shall be provided in
compliance with Section 401(h) of Title 26 of the United States
Code. They may also be provided in compliance with Section
31592.2.

(d) Except in a county of the first class, upon adoption by any
county providing benefits pursuant to this section, that has adopted
Article 5.5 (commencing with Section 31610), the Supplemental
Retiree Benefits Reserve established pursuant to Section 31618
shall be substituted for the excess earnings described in subdivision
(c).

SEC. 12.  

Section 31691.1 of the Government Code is amended
to read:

31691.1.  

(a) In lieu of the benefits prescribed by Section
31691, the board of retirement may provide on behalf of a member
who has retired, or an eligible surviving spouse who was married
to the member prior to the date of retirement of the member, or,
if there is no such spouse, the surviving unmarried children of the
member who are under 18 years of age, or under 22 years of age
and full-time students, for an equivalent increase in allowance
from the earnings of the retirement fund that are in excess of the
total interest credited to contributions and reserves plus 1 percent
of the total assets of the retirement fund. Any benefit provided by
this section shall be subject to Section 31692.

(b) Except in a county of the first class, upon adoption by any
county providing benefits pursuant to this section that has adopted
Article 5.5 (commencing with Section 31610), the board of
retirement shall, instead, pay those benefits from the Supplemental
Retiree Benefits Reserve established pursuant to Section 31618.

SEC. 13.  

Section 31694.6 is added to the Government Code,
to read:

31694.6.  

(a) Notwithstanding any provision to the contrary in
this article, if the Post-Employment Benefits Trust Account
established under Section 31694 is established as a part of the
retirement fund, then that account shall be established for the sole
purpose of providing health benefits for retired members, their
spouses, and dependents, and shall comply with all requirements,
including the limitations on contributions, of Section 401(h) of
Title 26 of the United States Code, as applicable.

(b) The board of supervisors or the board of retirement shall
take any actions necessary or appropriate to ensure that the program
provided by this section complies with all applicable federal and
state income tax laws, including, but not limited to, establishing
rules and procedures for establishing and maintaining an account
under Section 401(h) of Title 26 of the United States Code.

(c) If the Post-Employment Benefits Trust Account is established
under Section 31694, assets shall not be transferred or otherwise
paid from the funds held by the retirement system for retirement
benefits to a medical benefits account. Assets shall not be
transferred or otherwise paid from a medical benefits account to
the funds held by the retirement system for retirement benefits.

SEC. 14.  

Section 31696.3 of the Government Code is amended
to read:

31696.3.  

(a) The board shall establish a trust fund designated
as the Long-Term Care Fund for the purpose of the payment of
the costs and administration of the long-term care plan. The
Long-Term Care Fund shall be held for the exclusive benefit of
enrollees and the payment of the costs and administration of the
program.

(b) The board shall have exclusive control of the administration
and investment of the Long-Term Care Fund, except that in a
county having a board of investments, the board of investments
shall have exclusive control of the investment of the fund. Funds
in the Long-Term Care Fund shall be invested pursuant to the law
governing the investment of the retirement fund.

(c) Income, of whatever nature, earned on the Long-Term Care
Fund shall be credited to the fund.

(d) If the Long-Term Care Fund is intended to be a part of the
retirement system trust fund, then the operation of the Long-Term
Care Fund, including, but not limited to, its funding, governance,
investment of assets, allocation of income, and payment of benefits,
shall comply with the requirements of Section 401(h) of Title 26
of the United States Code, to the extent required by that title and
related federal regulations. If the Long-Term Care Fund is intended
to be separate from and not a part of the retirement system, then
no assets attributable to that fund shall be commingled for
investment or any other purpose, with the assets of the retirement
system and shall constitute a separate fund with a trust that is
separate from the funds and trust of the retirement system to the
extent commingling of assets for investment purposes satisfies the
requirements of the federal tax laws. The board shall indicate, as
a part of establishment of the Long-Term Care Fund, whether the
separate fund is intended to be a part of, or separate from, the
retirement system.

SEC. 15.  

Section 31698.5 is added to the Government Code,
to read:

31698.5.  

If the vision care program is intended to be part of
the retirement system trust fund, then the operation of the vision
care program, including, but not limited to, its funding, governance,
investment of assets, allocation of income, and payment of benefits,
shall comply with the requirements of Section 401(h) of Title 26
of the United States Code, to the extent required by that title, and
related federal regulations. If the vision care program is intended
to be separate from and not a part of the retirement system, then
no assets attributable to that program shall be commingled for
investment, or any other purpose, with the assets of the retirement
system. Assets attributable to the program shall constitute a
separate fund with a trust that is separate from the funds and trust
of the retirement system except to the extent that the commingling
of assets for investment purposes satisfies the requirements of the
federal tax laws. The sponsor of the vision care program shall
indicate as part of the establishment of the program whether that
separate fund is intended to be a part of, or separate from, the
retirement system.