BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 277
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          Date of Hearing:   June 26, 2013

            ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL  
                                      SECURITY
                                  Rob Bonta, Chair
                     SB 277 (Beall) - As Amended:  June 18, 2013

           SENATE VOTE  :   38-0
           
          SUBJECT  :   State Peace Officers' and Firefighters' Defined  
          Contribution Plan.

           SUMMARY  :   Closes the State Peace Officers and Firefighters  
          Defined Contribution Plan (PO/FF DCP) and defines how members'  
          funds in the plan will be distributed.  Specifically,  this bill  :

          1)Includes findings and declarations that state contributions to  
            PO/FF DCP 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 State Bargaining  
            Unit 8 (BU 8) employees and certain state peace officers and  
            firefighters.

          3)Requires that all funds in PO/FF DCP 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 will be rolled over into  
            the Supplemental Contributions Program (SCP) to an account  
            established in that plan in the participant's name.

          4)Specifies that the fiduciary of the SCP will not be liable for  
            any loss that results from a participant's fund selection or  
            participation in the default option.

          5)Specifies that a distribution of funds from PO/FF DCP to a  
            participant constitutes a discharge and release of the  
            California Public Employees' Retirement System (CalPERS) from  
            liability for payments and that the CalPERS board and system  
            will not be treated as fiduciaries with respect to a transfer  
            of funds from PO/FF DCP to SCP.

          6)Specifies that SCP may accept rollovers from PO/FF DCP if the  
            CalPERS board establishes separate rollover accounts for PO/FF  








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            DCP participants.

          7)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.

          8)Authorizes participants to elect investment fund options, as  
            specified, in the SCP.

          9)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.

          10)Makes various clarifying and technical changes in the SCP.



           EXISTING LAW  :

          1)Establishes PO/FF DCP, a tax-qualified retirement savings plan  
            that is administered by CalPERS) and governed under section  
            401(a) of the Internal Revenue Code.

          2)Allows a participant in PO/FF DCP to receive a distribution of  
            his or her balance of funds in PO/FF DCP upon separation from  
            service or retirement.  The distribution must be a lump-sum  
            unless the balance is over $5,000, 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.

          Pursuant to a memorandum of understanding (MOU) between the  
            state and State Bargaining Unit 6 (BU 6), established an  
            employer contribution equal to 2% of base pay to PO/FF DCP for  
            members of BU 6 beginning on October 1, 1988.

          3)Pursuant to a subsequent MOU (May 16, 2011), eliminated the  
            employer contribution to PO/FF DCP 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/FF DCP  
            to withdraw contributions consistent with federal laws  
            governing tax-qualified retirement savings plans.








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          4)Allows state employees in BU 8 to bargain to receive an  
            employer contribution to PO/FF DCP; however, no bargaining  
            agreement was ever reached between the state and BU 8 for an  
            employer contribution to PO/FF DCP for BU 8 members.

          5)Establishes the Supplemental Contributions Program (SCP),  
            administered by CalPERS, which is a voluntary defined  
            contribution retirement savings program for CalPERS members  
            and employers.

           FISCAL EFFECT  :   According to the Senate Appropriations  
          Committee:

               One-time costs estimated at $700,000 to the PO/FF 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 PO/FF DCP to the SCP.

               The PO/FF 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  








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               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.

           COMMENTS  :   According to the sponsor, "In the late 1990's, the  
          California Correctional Peace Officers Association (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 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/FF DCP does  
          not allow an employee to withdraw or roll over PO/FF DCP funds  
          prior to separation from employment or retirement.  The BU 6  
          employees with funds in PO/FF DCP 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."

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Correctional Peace Officers Association (Sponsor)
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916)  
          319-3957 












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