BILL ANALYSIS Ó SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 277 Jim Beall, Chair HEARING DATE: April 8, 2013 SB 277 (Beall) as amended 3/21/13 FISCAL: YES STATE PEACE OFFICERS' AND FIREFIGHTERS' DEFINED CONTRIBUTION PLAN HISTORY : Sponsor: California Correctional Peace Officers' Association (CCPOA) Other legislation: AB 2472 (Leonard) Chapter 820, Statutes of 1998 SUMMARY : SB 277 closes the State Peace Officers' and Firefighters Defined Contribution Plan (PO/FFDCP) and defines how members' funds in the plan shall be distributed. BACKGROUND AND ANALYSIS : 1) Existing law : a) establishes PO/FFDCP, a tax-qualified retirement savings plan that is administered by the California Public Employees' Retirement System (CalPERS) and governed under section 401(a) of the Internal Revenue Code. b) allows a participant in PO/FFDCP to receive a distribution of his or her balance of funds in PO/FFDCP upon separation from service or retirement . The distribution must be a lump-sum unless the balance is over $5000, in which case the participant may choose between a lump-sum payment, or an annuity extending for no more than the expected life-span of the participant. c) pursuant to a memorandum of understanding (MOU) between the State and state Bargaining Unit 6 (Correctional Peace Pamela Schneider Date: 3/27/13 Page 1 Officers: BU6; 7/1/1998), established an employer contribution equal to 2 percent of base pay to PO/FFDCP for members of BU6 beginning on 10/1/1998. d) pursuant to a subsequent MOU (5/16/2011), eliminated the employer contribution to PO/FFDCP as of 4/1/2011 in exchange for increased employer health care contributions and a 1 percent increase to the top salary steps of BU6 employees, effective 7/1/2013, and allows participants of PO/FFDCP to withdraw contributions consistent with federal laws governing tax-qualified retirement savings plans. e) allows state employees in state Bargaining Unit 8 (California Department of Forestry Firefighters: BU8) to bargain to receive an employer contribution to PO/FFDCP; however, no bargaining agreement was ever reached between the State and BU8 for an employer contribution to PO/FFDCP for BU8 members. f) establishes the Supplemental Contributions Program (SCP), administered by CalPERS, which is a voluntary defined contribution retirement savings program for CalPERS members and employers. 2) This bill : a) includes findings and declarations that state contributions to PO/FFDCP have been eliminated and that the plan shall be terminated no later than January 1, 2014, or upon obtaining approval from the Internal Revenue Service. b) deletes the provision that would have allowed BU8 employees to participate in PO/FFDCP. c) requires that all funds in PO/FFDCP be distributed in accordance with plan requirements and federal laws, and specifies that if no specific election is made by a participant, that participant's funds shall be rolled over into SCP to an account established in that plan in the participant's name. Pamela Schneider Date: 3/27/13 Page 2 d) specifies that a distribution of funds from PO/FFDCP to a participant constitutes a discharge and release of CalPERS from liability for payments and that the CalPERS board and system shall not be treated as fiduciaries with respect to a transfer of funds from PO/FFDCP to SCP. e) specifies that SCP may accept rollovers from PO/FFDCP if the board establishes separate rollover accounts for PO/FFDCP participants. f) allows a participant whose funds have been rolled over into SCP to withdraw funds at any time to the extent that an in-service distribution is allowable under applicable state and federal laws. FISCAL : Costs are anticipated to be absorbable within existing program functions. Funds in PO/FFDCP are the property of the plan participants. PO/FFDCP has not received contributions since April of 2011. SCP already exists and allows CalPERS members to open and contribute to SCP accounts. COMMENTS : 1) Arguments in Support : According to the sponsor: In the late 19990's, CCPOA and the state agreed to establish a supplemental retirement program for correctional peace officers. The program was funded by our members taking a two percent less salary increase and the state depositing two percent of salaries into a tax-deferred account with CalPERS. The plan provided our members with a 401(k)-like account, but one that was managed only by CalPERS. In our 2011 collective bargaining agreement, the parties Pamela Schneider Date: 3/27/13 Page 3 agreed to stop contributions to the members' accounts as of April 2011, and agreed that so long as it was consistent with relevant state and federal law, the individual members could manage their balances in a manner similar to the way private sector employees could manage their 401(k) accounts. According to the author: Current law regarding PO/FFDCP does not allow an employee to withdraw or roll over PO/FFDCP funds prior to separation from employment or retirement. The BU6 employees with funds in PO/FFDCP would like to have the ability to roll over funds into other tax-qualified retirement plans or to make withdrawals, consistent with federal laws and tax requirements for defined contribution plans. 2) SUPPORT : California Correctional Peace Officers Association (CCPOA), Sponsor 3) OPPOSITION : None to date ##### Pamela Schneider Date: 3/27/13 Page 4