BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 277 (Beall) - State Peace Officers'/Firefighters Defined
Contribution Plan
Amended: May 13, 2013 Policy Vote: PE&R 5-0
Urgency: No Mandate: No
Hearing Date: May 23, 2013 Consultant: Maureen Ortiz
SUSPENSE FILE.
Bill Summary: SB 277 terminates the State Peace
Officers'/Firefighters Defined Contribution Plan (POFF DCP) and
requires the distribution of all funds. Plan participants may
choose from a variety of distribution methods, and if no
election is made CalPERS will roll over the money to the
Supplemental Contributions Program.
Fiscal Impact:
One-time costs estimated at $700,000 to the POFF DCP Trust
(Special)
Administrative costs result from activities involving outreach
to participants, making distributions upon the termination of
the plan, and management of account rollovers into the default
Supplemental Contribution Program. Third party administrator
costs will result from the following activities:
- General implementation of the termination, including
participant data analysis, establishing the rollover source,
adding on-line functionality for distributions, managing default
distributions of less than $1,000, facilitating data and fund
transfer, and reviewing and updating the CalPERS' website,
publications and forms.
- Participant Communication including a general announcement,
reminder letters, SCP welcome kits, and missing participant
search.
- System and business analyses for the transfer of assets from
the POFF DCP to the SCP.
SB 277 (Beall)
Page 1
The POFF DCP administrative account is funded through account
maintenance fees paid by participants. The fee was reduced
March 1, 2013 from .55% to .45%. Any administrative expenses
associated with terminating the plan and distributing the funds
to members will be paid out of an existing surplus in that
maintenance fees account. To the extent that members choose to
withdraw their money instead of rolling it over to another
investment option, there could be several million dollars in
state tax revenue from an existing 2.5% penalty if the member is
subject to the early distribution penalty.
Background: The State Peace Officers' and Firefighters' (POFF)
Supplemental Plan is an employer-provided benefit negotiated
with the State of California by the California Correctional
Peace Officers' Association (CCPOA). The Plan is administered
by CalPERS and governed under section 401 (a) of the Internal
Revenue Code. It became effective in 1998 for rank and file
employees pursuant to a memorandum of understanding (MOU)
between the State and Bargaining Unit 6 (Correctional Peace
Officers: and became effective in 1999 for associated
supervisors and managers. Effective April 1, 2011, the State no
longer contributed two percent (2%) of Unit 6 employees' base
salary to the POFF Supplemental Plan, pursuant to a subsequent
MOU in exchange for increased employer health care contributions
and a 1 percent increase to the top salary steps of BU 6
employees effective July 1, 2013. Effective May 2011, the State
longer contributed two percent (2%) of Unit 6 -- related
excluded employees' base salary to the POFF Supplemental Plan,
which includes supervisors, management and exempt positions.
Currently, members must terminate or retire from state service
in order to have access to their funds in the 401(a). At that
time, they have an option of deferring distribution until a
later date (but not later than upon turning age 70 ), electing
to receive installment payments, receive a lump sum, roll the
money into a tax qualified plan such as an IRA, or use funds to
purchase up to 5 years of additional service credit (this option
ended January 1, 2013 with the implementation of the Public
Employees' Pension Reform Act). If the balance of the account
is less than $5,000 the member must receive a lump sum payment.
The contributions to the POFF DCP were made on a pre-tax basis,
whereby the Supplemental Contribution Plan is an after-tax plan
SB 277 (Beall)
Page 2
available to state employees and members of the Judges'
Retirement System I and II. Participants voluntarily invest
after-tax contributions into a SCP account where all earnings
grow tax-deferred until the participant begins to take
withdrawals in retirement or upon separation from service. Upon
distribution, members only pay taxes on the earnings. If
necessary approvals are obtained from the Internal Revenue
Service, the POFF rollover accounts would retain their pre-tax
status and be separately accounted for as such.
Proposed Law: SB 277 terminates the POFF DCP effective January
1, 2014 or upon obtaining appropriate approvals from the
Internal Revenue Service, ceases all contributions to the plan,
and prohibits new participants.
SB 277 allows a participant access to his or her funds in the
POFF DCP to the extent that an in-service distribution is
allowed under applicable federal and state law.
SB 277 provides that distribution of all funds in the POFF DCP
constitutes a complete discharge and release of the CalPERS
board, system, and plan from liability for payments.
Additionally, the CalPERS board and system will not be
considered fiduciaries with respect to a transfer of funds from
the POFF DCP to the Supplemental Contributions Program.
Staff Comments: The POFF DCP has 37,010 participants and
approximately $481.5 million in assets. Comparatively, the SCP
plan has 567 participants and $19 million in assets.
The contributions to the POFF DCP were considered before-tax
contributions. However, the SCP is currently an after-tax plan.
SB 277 provides if any member does not specify how he or she
wants her funds to be distributed, the default will be the SCP -
but due to the differences in tax status between the two
programs, separate accounts will have to be maintained for the
funds that are rolled over from the POFF DCP to the SCP. Plan
participants will pay sufficient fees to cover these
administrative expenses.
SB 277 (Beall)
Page 3