Amended in Senate May 31, 2016

Amended in Senate April 5, 2016

Senate Bill No. 1234

Introduced by Senator De León

begin insert

(Coauthor: Senator Beall)

end insert

February 18, 2016

An act to amend Sections 100002, 100004, 100008, 100010, 100012, 100014, 100032, and 100036 of, to add Sections 100046, 100048, begin insert 100049, end insert and 100050 to, and to repeal Sections 100013, 100040, 100042, and 100043.5 of, the Government Code, relating to retirement savings plans, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

SB 1234, as amended, De León. Retirement savings plans.

Existing federal law provides for tax-qualified retirement plans and individual retirement accounts or individual retirement annuities by which private citizens may save money for retirement. Existing law, the California Secure Choice Retirement Savings Trust Act, establishes the California Secure Choice Savings Program, administered by the California Secure Choice Retirement Savings Investment Board, contingent on specified funding and interest criteria being met. Existing law prescribes the composition of the board and its duties and provides that it acts as trustee in entering contracts and accepting moneys, among other things. Existing law prohibits the board from permitting enrollment in the program until enactment of a statute expressing legislative approval of program implementation. The program requires specified eligible employers, as defined, to offer a payroll deposit retirement savings arrangement and requires eligible employees, as defined, who do not opt out of the program, to contribute a portion of their salary or wages to a retirement savings account in the program, as specified. Existing law requires contributions from the wages of employees participating in the program to be deposited in the California Secure Choice Retirement Savings Trust, which is continuously appropriated and administered by the board. Existing law authorizes the board to adjust the employee contribution amount between 2% and 4%, inclusive, of the employee’s annual salary or wages, as specified.

This bill would express legislative approval of the program and its implementation on January 1, 2017. The bill would require the board to design and implement the program and would prescribe certain parameters that the board is to consider and utilize in establishing the design. The bill would specify that funding and first year administrative costs may be appropriated in the annual budget from the General Fund and would require the board to repay the amount appropriated, plus interest, as specified. The bill would provide that investment policy decisions, including asset allocation and investment options, are entrusted to the board as a fiduciary, and would revise certain principles that the board is to consider in connection with investment policy. The bill would make various changes to existing duties of the begin delete broad, end delete begin insert board, end insert including those regarding dissemination of information and the entities with which the board is to collaborate and cooperate. The bill would require the Treasurer to appoint an executive director of the board, to begin delete service end delete begin insert serve at end insert its pleasure, and to determine the duties of the office and its compensation. The bill would eliminate the duty of the board to ensure that insurance or some other mechanism is in place to protect the value of individual accounts. The bill would repeal the duty of the board to conduct an initial market analysis to determine if the condition for the implementation of the program can be met and associated provisions.

This bill would require eligible employers that do not offer specified retirement plans or accounts to have a payroll deposit retirement savings arrangement so that employees may participate in the program within specified time periods based on the number of eligible employees that the employer has, and the bill would authorize the board to extend these time periods. The bill would authorize the board to adjust the employee contribution amount described above up to begin delete 5%. end delete begin insert 5% and would prescribe other limits on increasing employee contributions. end insert The bill would authorize the board to make annual, automatic escalations of employee contributions subject to certain limitations, including that the employee may opt out, as specified. By authorizing the board to increase moneys that are deposited into the California Secure Choice Retirement Savings Trust, which is continuously appropriated, the bill would make an appropriation. The bill would authorize the board to adopt regulations to implement the program and would provide that the adoption, amendment, repeal, or readoption of a regulation authorized by this section is deemed to address an emergency. The bill would make various conforming changes.

Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 100002 of the Government Code is
amended to read:

100002.  

(a) (1) There is hereby created within state
government the California Secure Choice Retirement Savings
Investment Board, which shall consist of nine members, with the
Treasurer serving as chair, as follows:

(A) The Treasurer.

(B) The Director of Finance, or his or her designee.

(C) The Controller.

(D) An individual with retirement savings and investment
expertise appointed by the Senate Committee on Rules.

(E) An employee representative appointed by the Speaker of
the Assembly.

(F) A small business representative appointed by the Governor.

(G) A public member appointed by the Governor.

(H) Two additional members appointed by the Governor.

(2) Members of the board appointed by the Governor, the Senate
Committee on Rules, and the Speaker of the Assembly shall serve
at the pleasure of the appointing authority.

(b) All members of the board shall serve without compensation.
Members of the board shall be reimbursed for necessary travel
expenses incurred in connection with their board duties.

(c) A board member, program administrator, and other staff of
the board shall not do any of the following:

(1) Directly or indirectly have any interest in the making of any
investment made for the program, or in the gains or profits accruing
from any investment made for the program.

(2) Borrow any funds or deposits of the trust, or use those funds
or deposits in any manner, for himself or herself or as an agent or
partner of others.

(3) Become an endorser, surety, or obligor on investments by
the board.

(d) The board and the program administrator and staff, including
contracted administrators and consultants, shall discharge their
duties as fiduciaries with respect to the trust solely in the interest
of the program participants as follows:

(1) For the exclusive purposes of providing benefits to program
participants and defraying reasonable expenses of administering
the program.

(2) By investing with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with those matters would use
in the conduct of an enterprise of a like character and with like
aims.

(e) (1) Investment policy decisions, including asset allocation
and investment options, shall be entrusted to the board subject to
its fiduciary duties. The board shall annually prepare and adopt a
written statement of investment policy that includes a risk
management and oversight program. The board shall consider the
statement of investment policy and any changes in the investment
policy at a public hearing.

(2) The investment policy shall adhere to the following guiding
principles:

(A) The primary objective of the investment policy is, through
pooled begin delete investing, to extend investment horizons, end delete begin insert investing, to
leverage economies of scale, end insert lower risks, and provide participants
with a stable and reasonable rate of return.

(B) The investment policy shall mitigate risk by maintaining a
balanced investment portfolio that provides assurance that no single
investment or class of investments will have a disproportionate
impact on the total portfolio.

(3) The risk management and oversight program shall begin delete be
designed to ensure that end delete begin insert include end insert an effective risk management
system begin delete is in place end delete to monitor the risk levels of the California Secure
Choice Retirement Savings Program investment portfolio and
ensure that the risks taken are prudent and properly managed. The
program shall be managed to provide an integrated process for
overall risk management on both a consolidated and disaggregated
basis, and to monitor investment returns as well as risk to determine
if the risks taken are adequately compensated compared to
applicable performance benchmarks and standards.

(f) The board shall approve an investment management entity
or entities, the costs of which shall be paid out of funds held in the
trust and shall not be attributed to the administrative costs of the
board in operating the trust. Not later than 30 days after the close
of each month, the board shall place on file for public inspection
during business hours a report with respect to investments made
pursuant to this section and a report of deposits in financial
institutions. The investment manager shall report the following
information to the board within 20 days following the end of the
each month:

(1) The type of investment, name of the issuer, date of maturity,
and the par and dollar amount invested in each security, investment,
and money within the program fund.

(2) The weighted average maturity of the investments within
the program fund.

(3) Any amounts in the program fund that are under the
management of private money managers.

(4) Any amounts in the program fund that are under the
management of the Board of Administration of the Public
Employees’ Retirement System.

(5) The market value as of the date of the report and the source
of this valuation for each security within the program fund.

(6) A description of compliance with the statement of investment
policy.

SEC. 2.  

Section 100004 of the Government Code is amended
to read:

100004.  

(a) There is hereby established a retirement savings
trust known as the California Secure Choice Retirement Savings
Trust to be administered by the board for the purpose of promoting
greater retirement savings for California private employees in a
convenient, voluntary, low-cost, and portable manner. After
sufficient funds are made available for this title to be operative,
the California Secure Choice Retirement Savings Trust, as a
self-sustaining trust, shall pay all costs of administration only out
of moneys on deposit therein.

(b) The board shall segregate moneys received by the California
Secure Choice Retirement Savings Trust into two funds, which
shall be identified as the program fund and the administrative fund.
Notwithstanding Section 13340, moneys in the trust are hereby
continuously appropriated, without regard to fiscal years, to the
board for the purposes of this title.

(c) Moneys in the program fund may be invested or reinvested
by the Treasurer or may be invested in whole or in part under
contract with the begin delete Board of Administration of the Public Employees’
Retirement System end delete begin insert board of a California public retirement system end insert
or private money managers, or both, as determined by the board.

(d) Transfers may be made from the program fund to the
administrative fund for the purpose of paying operating costs
associated with administering the trust and as required by this title.
On an annual basis, expenditures from the administrative fund
shall not exceed more than 1 percent of the total program fund.
All costs of administration of the trust shall be paid out of the
administrative fund. Operating costs associated with administering
the trust do not include the procurement of private underwriting
for the retirement savings’ return.

(e) Any contributions paid by employees and employers into
the trust shall be used exclusively for the purpose of paying benefits
to the participants of the California Secure Choice Retirement
Savings Program, for the cost of administration of the program,
and for investments made for the benefit of the program.

SEC. 3.  

Section 100008 of the Government Code is amended
to read:

100008.  

The California Secure Choice Retirement Savings
Program shall include, as determined by the board, one or more
payroll deposit IRA arrangements.

SEC. 4.  

Section 100010 of the Government Code is amended
to read:

100010.  

(a) The begin delete board, in the capacity of trustee, end delete begin insert board end insert shall
have the power and authority to do all of the following:

(1) Make and enter into contracts necessary for the
administration of the trust.

(2) Adopt a seal and change and amend it from time to time.

(3) Cause moneys in the program fund to be held and invested
and reinvested.

(4) Accept any grants, gifts, legislative appropriation, and other
moneys from the state, any unit of federal, state, or local
government or any other person, firm, partnership, or corporation
for deposit to the administrative fund or the program fund.

(5) Appoint a program administrator and determine the duties
of the program administrator and other staff as begin delete necessary end delete
begin insert appropriate end insert and set their compensation. The Treasurer shall, on
behalf of the board, appoint an executive director, who shall not
be a member of the board and who shall serve at the pleasure of
the board. The Treasurer shall determine the duties of the executive
director and other staff as begin delete necessary end delete begin insert appropriate end insert and set his or her
compensation. The board may authorize the executive director to
enter into contracts on behalf of the board or conduct any business
necessary for the efficient operation of the board.

(6) Make provisions for the payment of costs of administration
and operation of the trust. The costs of the program administrator
shall be paid out of funds held in the trust and shall not be attributed
to the administrative costs of the board in operating the trust.

(7) Employ staff.

(8) Retain and contract with the board of a California public
retirement system, private financial institutions, other financial
and service providers, consultants, actuaries, counsel, auditors,
third-party administrators, and other professionals as necessary.

(9) Procure insurance against any loss in connection with the
property, assets, or activities of the trust, and secure private
underwriting and reinsurance to manage risk and insure the
retirement savings rate of return.

(10) Procure insurance indemnifying each member of the board
from personal loss or liability resulting from a member’s action
or inaction as a member of the board.

(11) Set minimum and maximum investment levels in
accordance with contribution limits set for IRAs by the Internal
Revenue Code.

(12) Collaborate and cooperate with the board of a California
public retirement system, private financial institutions, service
providers, and business, financial, trade, membership, and other
organizations to the extent necessary or desirable for the effective
and efficient design, implementation, and administration of the
program and to maximize outreach to eligible employers and
eligible employees.

begin insert

(13) Collaborate with, and evaluate the role of, insurance and
financial advisors in assisting and providing guidance for eligible
employers and eligible employees.

end insert begin delete

(13)

end delete

begin insert (14) end insert  Cause expenses incurred to initiate, implement, maintain,
and administer the program to be paid from contributions to, or
investment returns or assets of, the program or arrangements
established under the program, to the extent permitted under state
and federal law.

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(14)

end delete

begin insert (15) end insert  Facilitate compliance by the retirement savings program
or arrangements established under the program with all applicable
requirements for the program under the Internal Revenue Code of
1986, including tax qualification requirements or any other
applicable law and accounting requirements, including providing
or arranging for assistance to program sponsors and individuals
in complying with applicable law and tax qualification
requirements in a cost-effective manner.

begin delete

(15)

end delete

begin insert (16) end insert  Carry out the duties and obligations of the California Secure
Choice Retirement Savings Trust pursuant to this title and exercise
any and all other powers as begin delete may be reasonably necessary end delete
begin insert appropriate end insert for the effectuation of the purposes, objectives, and
provisions of this title pertaining to the trust.

(b) The board shall adopt regulations it deems necessary to
implement this title consistent with the Internal Revenue Code and
regulations issued pursuant to that code to ensure that the program
meets all criteria for federal tax-deferral or tax-exempt benefits,
or both.

SEC. 5.  

Section 100012 of the Government Code is amended
to read:

100012.  

In addition to the powers and authority granted to the
board pursuant to Section 100010, the board shall have the power
and authority to do the following:

(a) Cause the retirement savings program or arrangements
established under the program to be designed, established, and
operated, in a manner consistent with all of the following:

(1) In accordance with best practices for retirement savings
vehicles.

(2) To begin delete maximize end delete begin insert encourage end insert participation, saving, and sound
investment practices, and appropriate selection of default
investments.

(3) With simplicity, ease of administration for participating
employers, and portability of benefits.

(b) Arrange for collective, common, and pooled investment of
assets of the retirement savings program or arrangements, including
investments in conjunction with other funds with which those
assets are permitted to be collectively invested, with a view to
saving costs through efficiencies and economies of scale.

(c) Explore and establish investment options that offer
employees returns on contributions and the conversion of individual
retirement savings account balances to secure retirement income
without incurring debt or liabilities to the state.

(d) Disseminate educational information designed to educate
participants about the benefits of planning and saving for retirement
and information to help them decide the level of California Secure
Choice Retirement Savings Program participation and savings
strategies that may be appropriate for them.

(e) Disseminate information concerning the tax credits available
to small business owners for establishing new retirement plans
and the federal Retirement Savings Contribution Credit (Saver’s
Credit) available to lower and moderate-income households for
qualified savings contributions.

(f) Submit progress and status reports to participating employers
and eligible employees.

(g) If necessary, determine the eligibility of an employer,
employee, or other individual to participate in the program.

(h) Evaluate and establish the process by which an eligible
employee of an eligible employer is able to contribute a portion
of his or her salary or wages to the program for automatic deposit
of those contributions and the participating employer provides a
payroll deposit retirement savings arrangement to forward the
employee contribution and related information to the program or
its agents. This may include, but is not limited to, financial services
companies and third-party administrators with the capability to
receive and process employee information and contributions for
payroll deposit retirement savings arrangements or other
arrangements authorized by this title.

(i) Design and establish the process for the enrollment of
program participants.

(j) Allow participating employers to use the program to remit
employees’ contributions to their individual retirement accounts
on their employees’ behalf.

(k) Allow participating employers to make their own
contributions to their employees’ individual retirement accounts,
provided that the contributions would be permitted under the
Internal Revenue Code and would not cause the program to be
treated as an employee benefit plan under the federal Employee
Retirement Income Security Act.

(l) Evaluate and establish the process by which an individual
or an employee of a nonparticipating employer may enroll in and
make contributions to the program.

SEC. 6.  

Section 100013 of the Government Code is repealed.

SEC. 7.  

Section 100014 of the Government Code is amended
to read:

100014.  

(a) Prior to opening the California Secure Choice
Retirement Savings Program for enrollment, the board shall design
and disseminate to employers through the Employment
Development Department (EDD) an employee information packet.
The packet shall include background information on the program
and appropriate disclosures for employees.

(b) The disclosure form shall include, but not be limited to, all
of the following:

(1) The benefits and risks associated with making contributions
to the program.

(2) The mechanics of how to make contributions to the program.

(3) How to opt out of the program.

(4) The process for withdrawal of retirement savings.

(5) How to obtain additional information on the program.

(c) In addition, the disclosure form shall clearly articulate the
following:

(1) Employees seeking financial advice should contact financial
advisors, that employers are not in a position to provide financial
advice, and that employers are not liable for decisions employees
make pursuant to Section 100034.

(2) The program is not an employer-sponsored retirement plan.

(3) The program fund is not guaranteed by the State of
California.

(d) The disclosure form shall include a signature line for the
employee to sign and date acknowledging that the employee has
read all of the disclosures and understands their content.

(e) The employee information packet shall also include an
opt-out form for an eligible employee to note his or her decision
to opt out of participation in the program. The opt-out notation
shall be simple and concise and drafted in a manner that the board
deems necessary to appropriately evidence the employee’s
understanding that he or she is choosing not to automatically deduct
earnings to save for retirement.

(f) The employee information packet shall be made available
to employers through EDD and supplied to employees at the time
of hiring. All new employees shall review the packet and
acknowledge having read it by signing the signature line
accompanied by the date of the signature.

(g) The employee information packet shall be supplied to
existing employees when the program is initially launched for that
participating employer pursuant to Section 100032 and employees
shall review and sign the disclosure form at that time.

SEC. 8.  

Section 100032 of the Government Code is amended
to read:

100032.  

(a) After the board opens the California Secure Choice
Retirement Savings Program for enrollment, any employer may
choose to have a payroll deposit retirement savings arrangement
to allow employee participation in the begin delete program. end delete begin insert program under
the terms and conditions prescribed by the board. end insert

(b) Within 12 months after the board opens the program for
enrollment, eligible employers with more than 100 eligible
employees and that do not offer an employer-sponsored retirement
plan or automatic enrollment payroll deduction IRA shall have a
payroll deposit retirement savings arrangement to allow employee
participation in the program.

(c) Within 24 months after the board opens the program for
enrollment, eligible employers with more than 50 eligible
employees and that do not offer an employer-sponsored retirement
plan or automatic enrollment payroll deduction IRA shall have a
payroll deposit retirement savings arrangement to allow employee
participation in the program.

(d) Within 36 months after the board opens the program for
enrollment, all other eligible employers that do not offer an
employer-sponsored retirement plan or automatic enrollment
payroll deduction IRA shall have a payroll deposit retirement
savings arrangement to allow employee participation in the
program.

(e) The board, in its discretion, may extend the time limits
defined in subdivisions (b) to (d), inclusive.

(f) (1) Each eligible employee shall be enrolled in the program
unless the employee elects not to participate in the program. An
eligible employee may elect to opt out of the program by making
a notation on the opt-out form.

(2) Following initial implementation of the program pursuant
to this section, at least once every two years, participating
employers shall designate an open enrollment period during which
eligible employees that previously opted out of the program shall
be enrolled in the program unless the employee again elects to opt
out as provided in this subdivision.

(3) An employee who elects to opt out of the program who
subsequently wants to participate through the employer’s payroll
deposit retirement savings arrangement may only enroll during
the employer’s designated open enrollment period or if permitted
by the employer at an earlier time.

(g) Employers shall retain the option at all times to set up any
type of employer-sponsored retirement plan, such as a defined
benefit plan or a 401(k), Simplified Employee Pension (SEP) plan,
or Savings Incentive Match Plan for Employees (SIMPLE) plan,
or to offer an automatic enrollment payroll deduction IRA, instead
of having a payroll deposit retirement savings arrangement to allow
employee participation in the California Secure Choice Retirement
Savings Program.

(h) An eligible employee may also terminate his or her
participation in the program at any time in a manner prescribed
by the board and thereafter by making a notation on the opt-out
form.

(i) Unless otherwise specified by the employee, a participating
employee shall contribute 3 percent of the employee’s annual
salary or wages to the program.

(j) By regulation, the board may adjust the contribution amount
set in subdivision (i) to no less than 2 percent and no more than 5
percent and may vary that amount within that 2 percent to 5 percent
range for participating employees according to the length of time
the employee has contributed to the program.

(k) The board may implement annual automatic escalation of
employee contributions.

(1) Employee contributions subject to automatic escalation shall
not exceed 8 percent of salary.

(2) Automatic escalation shall result in no more than a begin delete 1-percent end delete
begin insert 1-percent-of-salary end insert increase in employee contributions per calendar
year.

(3) A participating employee may elect to opt out of automatic
escalation and may set his or her contribution percentage rate at a
level determined by the participating employee.

SEC. 9.  

Section 100036 of the Government Code is amended
to read:

100036.  

The state shall not have any liability for the payment
of the retirement savings benefit earned by program participants
pursuant to this title. The state, and any of the funds of the state,
shall have no obligation for payment of the benefits arising from
this title.

SEC. 10.  

Section 100040 of the Government Code is repealed.

SEC. 11.  

Section 100042 of the Government Code is repealed.

SEC. 12.  

Section 100043.5 of the Government Code is
repealed.

SEC. 13.  

Section 100046 is added to the Government Code,
to read:

100046.  

(a) Based upon findings and recommendations of the
board pursuant to Section 100040, the California Secure Choice
Retirement Savings Program is approved by the Legislature and
implemented as of January 1, 2017. The board, subject to its
authority and fiduciary duty, shall design and implement the
California Secure Choice Retirement Savings Program. The board
shall consider and utilize the following parameters in designing
the program:

(1) For up to three years, the board may establish managed
accounts invested in United States Treasuries or similarly safe
investments. During this time, the board may develop investment
options that address risk-sharing and smoothing of market losses
and gains. Options may include, but are not limited to, custom
pooled, professionally managed funds that minimize costs and
fees, the creation of a reserve fund, or the establishment of
investment products.

(2) The board shall seek to minimize participant fees.

(3) The board shall strive to implement program features that
provide maximum possible income replacement balanced with
appropriate risk in an IRA-based environment.

(4) The board shall determine the default payout method for
retirees.

(5) The board shall include quasi-public and quasi-private
employees in the program if the board determines the inclusion to
be legally permissible under federal and state laws and regulations.

(6) The board shall structure the program so as to ensure the
state is prohibited from incurring liabilities associated with
administering the program and that the state has no liability for
the program or its investments.

(7) The board shall determine necessary costs associated with
outreach, customer service, enforcement, staffing and consultant
costs, and all other costs necessary to administer the program.

(8) The board shall partner with employer representatives to
create an administrative structure that ensures employee
participation while addressing employer needs, including, but not
limited to, clearly defining employers’ duties and liability
exemption pursuant to Section 100034.

begin insert

(9) The board shall include comprehensive worker education
and outreach, and the board may collaborate with state and local
government agencies, community-based and nonprofit
organizations, foundations, vendors, and other entities deemed
appropriate to develop and secure ongoing resources for education
and outreach that reflect the cultures and languages of the state’s
diverse workforce population.

end insert

(b) In order to ensure timely implementation of the California
Secure Choice Retirement Savings Program, the board shall have
flexibility in designing and implementing the California Secure
Choice Retirement Savings Program. The program parameters set
forth in this section shall not be conclusive. The board shall have
the authority to augment these requirements as necessary to fully
implement the program and comply with the board’s fiduciary
duties.

SEC. 14.  

Section 100048 is added to the Government Code,
to read:

100048.  

The board may adopt regulations to implement this
title. The adoption, amendment, repeal, or readoption of a
regulation authorized by this section is deemed to address an
emergency, for purposes of Sections 11346.1 and 11349.6, and
the board is hereby exempted for this purpose from the
requirements of subdivision (b) of Section 11346.1.

begin insert

begin insert SEC. 15. end insert   

end insert

begin insert Section 100049 is added to the end insert begin insert Government Code end insert begin insert , to
read: end insert

begin insert

begin insert 100049. end insert   

A payroll deposit IRA arrangement offered pursuant
to the California Secure Choice Retirement Savings Program shall
have the same status as, and be treated consistently with, any other
IRA qualified under Section 408(a) or 408(b) of the United States
Code for the purpose of determining eligibility or benefit level for
a program that uses a means test.

end insert

begin delete SEC. 15. end delete

begin insert SEC. 16. end insert   

Section begin delete 10050 end delete begin insert 100050 end insert is added to the Government
Code, to read:

begin delete 10050. end delete

begin insert 100050. end insert   

Funding for startup and first-year administrative costs
may be appropriated from the General Fund in the annual Budget
Act. The board shall repay the amount appropriated, plus interest
calculated at the rate earned by the Pooled Money Investment
Account. Necessary administrative costs in future years shall be
paid out of the administrative fund.