BILL ANALYSIS                                                                                                                                                                                                    






          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  
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          Date:  3/27/13                                          Page  
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              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.

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            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  
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          Date:  3/27/13                                          Page  
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            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




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          Pamela Schneider
          Date:  3/27/13                                          Page  
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