BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2473| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2473 Author: Assembly Public Employees, Retirement and Social Security Committee Amended: 4/28/14 in Assembly Vote: 21 SENATE PUBLIC EMPLOYMENT & RETIREMENT COMM. : 5-0, 6/9/14 AYES: Torres, Walters, Block, Evans, Gaines ASSEMBLY FLOOR : 78-0, 5/15/14 (Consent) - See last page for vote SUBJECT : County Employees Retirement Law of 1937: federal law compliance SOURCE : State Association of County Retirement Systems DIGEST : This bill conforms sections of the County Employees Retirement Law of 1937 (37 Act) to provisions of the federal Internal Revenue Code (IRC) in order to ensure compliance with federal tax law. ANALYSIS : Existing law: 1.Establishes the '37 Act, which provides for retirement systems for county and district employees in those counties adopting its provisions. Currently, 20 counties operate retirement systems under the '37 Act. CONTINUED AB 2473 Page 2 2.Establishes comprehensive public employee pension reform through enactment of the Public Employees' Pension Reform Act of 2013 (PEPRA) that applies to all public employers and public pension plans on and after January 1, 2013, excluding the University of California and charter cities and counties that do not participate in a retirement system governed by state statute. 3.Contains several statutes in the '37 Act that may not conform with the federal IRC requirements for maintaining a tax-exempt qualified retirement plan. 4.Provides that any provision of the '37 Act that is out of conformity with Section 415 of the IRC shall become inoperative with respect to payment of benefits. This bill amends several sections of the '37 Act to clarify statutory provisions and ensure conformity with the federal IRC, including the following: Forfeiture rules; Early retirement distributions; Prohibition of in-service distributions/break in service requirement; Normal retirement age and vesting; Refunds, distributions, reversions limited to qualified plans; Treatment of excess reserves and contributions for health benefits; Service credit for military service; Employee representative contributions; Calendar year also applicable for imposition of IRC annual compensation limits; Life and disability insurance premiums and medical benefit payments - funding; Increased allowance in lieu of supplemental benefits; Post - employment benefits trust accounts - segregation; Long-term care benefits - segregation and prohibition against co-mingling; and Vision care program. Background According to information provided by the bill's sponsor, State CONTINUED AB 2473 Page 3 Association of County Retirement Systems, they negotiated for several years with the Internal Revenue Service (IRS) on an acceptable approach for submitting and evaluating applications for tax qualified plan status. One of the goals of that exercise was for there to be one coordinated set of corrections to the '37 Act rather than a series of non-integrated corrections. The IRS agreed to this outcome and all the '37 Act systems submitted the same proposed set of '37 Act changes to the IRS. The IRS has now issued qualified plan letters to all the '37 Act systems premised on the '37 Act being amended in accordance with the materials provided to them. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 6/11/14) State Association of County Retirement Systems (source) Los Angeles County Employees Retirement Association Orange County Board of Supervisors Ventura County Employees' Retirement Association ARGUMENTS IN SUPPORT : According to the author, "AB 2473 is sponsored by the State Association of County Retirement Systems (SACRS). All 20 county employee retirement systems operating under the '37 Act are tax-qualified plans, as determined by the Internal Revenue Service (IRS). Tax-qualified status is the legal mechanism that allows retirement contributions made by employees and employers, and the earnings on those contributions, to accrue to the benefit of the retirement system members on a tax-deferred basis. This important technical bill conforms sections of the '37 Act to provisions of the Internal Revenue Code in order to ensure that all 20 retirement systems operating under the '37 Act are governed by state law consistent with federal tax law requirements governing retirement plans." ASSEMBLY FLOOR : 78-0, 5/15/14 AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, CONTINUED AB 2473 Page 4 Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins NO VOTE RECORDED: Mansoor, Vacancy JL:k 6/11/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED