BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 277| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 277 Author: Beall (D) Amended: 5/13/13 Vote: 21 SENATE PUBLIC EMPLOYMENT & RETIREMENT COMM. : 5-0, 4/8/13 AYES: Beall, Walters, Block, Gaines, Yee SENATE APPROPRIATIONS COMMITTEE : 6-0, 5/23/13 AYES: De León, Walters, Hill, Lara, Padilla, Steinberg NO VOTE RECORDED: Gaines SUBJECT : State Peace Officers and Firefighters Defined Contribution Plan SOURCE : California Correctional Peace Officers Association DIGEST : This bill closes the State Peace Officers and Firefighters Defined Contribution Plan (PO/FFDCP) and defines how members funds in the plan will be distributed. ANALYSIS : Existing law: 1. 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. CONTINUED SB 277 Page 2 2. Allows a participant in PO/FFDCP to receive a distribution of his/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. 3. Pursuant to a memorandum of understanding (MOU) between the state and State Bargaining Unit 6 (BU6), established an employer contribution equal to 2% of base pay to PO/FFDCP for members of BU6 beginning on October 1, 1988. 4. Pursuant to a subsequent MOU (May 16, 2011), eliminated the employer contribution to PO/FFDCP as of April 1, 2011, in exchange for increased employer health care contributions and a 1% increase to the top salary steps of BU6 employees, effective July 1, 2013, and allows participants of PO/FFDCP to withdraw contributions consistent with federal laws governing tax-qualified retirement savings plans. 5. Allows state employees in State Bargaining Unit 8 (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. 6. Establishes the Supplemental Contributions Program (SCP), administered by CalPERS, which is a voluntary defined contribution retirement savings program for CalPERS members and employers. This bill: 1. Includes findings and declarations that state contributions to PO/FFDCP have been eliminated and the plan terminates no later than January 1, 2014, or upon obtaining approval from the Internal Revenue Service. 2. Deletes provisions extending plan coverage to BU8 employees. 3. 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 CONTINUED SB 277 Page 3 participant, that participant's funds shall be rolled over into SCP to an account established in that plan in the participant's name. 4. 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. 5. Specifies that SCP may accept rollovers from PO/FFDCP if the CalPERS board establishes separate rollover accounts for PO/FFDCP participants. 6. 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. 7. Authorizes participants to elect investment fund options, as specified, in the SCP. 8. Requires that certain rollover contributions be invested in the applicable target retirement date fund investment fund option available, until the participant elects another investment fund option. 9. Make various clarifying and technical changes in the SCP. FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee analysis, one-time costs estimated at $476,500 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, CONTINUED SB 277 Page 4 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' Web site, 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. 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. SUPPORT : (Verified 5/23/13) California Correctional Peace Officers Association (source) JL:d 5/24/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED