BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                                    SB 1234


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          Date of Hearing:   June 22, 2016


                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT


                               Roger Hernández, Chair


          SB  
          1234 (De León) - As Amended June 15, 2016


          SENATE VOTE:  26-13


          SUBJECT:  Retirement savings plans


          SUMMARY:  Provides legislative approval for the California  
          Secure Choice Retirement Savings Program (SCRSP) and sets forth  
          recommendations and requirements for the design and  
          implementation of that program.  Specifically, this bill:


          1)Incorporates the findings and recommendations of the  
            California Secure Choice Retirement Savings Investment Board  
            (Board) that were made upon conclusion of the market analysis  
            authorized in the original version of SB 1234 (De Leon,  
            Chapter 734, Statutes of 2012) and deletes obsolete  
            requirements that are inconsistent with those findings.

          2)Defines a provider of in-home supportive services as an  
            employer if the Board determines their inclusion to be legally  
            permissible under federal and state laws and regulations.   
            (Section 100000, 100046)

          3)Requires that contract administrators and consultants also  
            discharge their duties as fiduciaries with respect to the  











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            program.  (Section 100002)

          4)States that investment policy decisions, including asset  
            allocation and investment options, shall be entrusted to the  
            Board subject to its fiduciary duties; specifies that the  
            primary objective of the investment policy is, through pooled  
            investing, to leverage economies of scale, lower risks, and  
            provide participants with stable and reasonable rate of  
            return; and eliminates language limiting the Board's options  
            as to which asset categories it may consider.  (Section  
            100002)

          5)Provides that the California Secure Choice Retirement Savings  
            Trust (Trust) is an instrumentality of the state and that any  
            security issued, managed, or invested by the Board shall be  
            exempt from specified provisions of law regarding the  
            qualification of securities for sale.  (Section 100004)

          6)Eliminates language requiring the Board to annually adopt a  
            stated rate of return for the following program year and  
            stating that an individual's retirement savings benefit under  
            the program shall be equal to the balance in the individual's  
            account at retirement.  (Section 100008)

          7)Requires the Treasurer to appoint an executive officer for the  
            program who shall serve at the pleasure of the Board.  The  
            Board may authorize the director to enter into contracts or  
            conduct business on behalf of the Board.  The Treasurer shall  
            determine the duties of the executive director and other  
            necessary staff and set his or her compensation.  (Section  
            100010)

          8)Requires the Board to collaborate with and evaluate the role  
            of insurance and financial advisors in assisting and providing  
            guidance for eligible employers and employees. (Section 10010)

          9)Authorizes the Board to disseminate educational information  
            designed to educate participants about the benefits of  
            planning and saving for retirement and information to help  











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            them decide the level of participation and savings strategies  
            that may be appropriate for them.  (Section 100012)

          10)Eliminates the requirement for the Board to ensure that an  
            insurance, annuity or other funding mechanism is in place at  
            all times that protects the value of individuals' accounts and  
            holds the state harmless.  (Sections 100012, 100036)

          11)Changes the timeframes of implementation requirements for  
            employers to the following and allows the Board to extend the  
            timelines if it deems necessary (Section 100032):

             a)   Within 12 months after opening of enrollment, employers  
               of 100 or more employees (that do not offer an  
               employer-sponsored retirement plan or automatic enrollment  
               payroll deduction IRA)  must have an arrangement to allow  
               employees to participate in the SCRSP.

             b)   Within 24 months after opening of enrollment, employers  
               of 50 or more employees (that do not offer an  
               employer-sponsored retirement plan or automatic enrollment  
               payroll deduction IRA) must have an arrangement to allow  
               employees to participate in the SCRSP.

             c)   Within 36 months after opening of enrollment, employers  
               of five or more employees (that do not offer an  
               employer-sponsored retirement plan or automatic enrollment  
               payroll deduction IRA) must have an arrangement to allow  
               employees to participate in SCRSP.

          12)Allows the Board to implement annual automatic escalation of  
            employee contributions subject to the following limitations  
            (Section 100032):

             a)   Contributions subject to automatic escalation cannot  
               exceed 8 percent.

             b)   Automatic escalation cannot amount to more than a  
               1-percent-of-salary increase in employee contributions per  











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               calendar year.

             c)   An employee may opt out of automatic escalation and set  
               his or her contribution rate at a level determined by the  
               employee.

          13)Allows the Board, unless otherwise specified by the employee,  
            to adjust the employee contribution into the SCRSP between 2  
            percent and 5 percent.  (Section 100032)

          14)Provides that an employer shall not have civil liability, and  
            no cause of action shall arise against an employer, for acting  
            pursuant to the regulations prescribed by the board defining  
            the roles and responsibilities of employers that have a  
            payroll deposit retirement savings arrangement to allow  
            employee participation in the program.  (Section 100034)




          15)Eliminates requirements for the Board to conduct an initial  
            market analysis and to present findings to the Legislature  
            before the SCRSP may be implemented, and related statutes.   
            (Sections 100040, 100042. 100043.5)

          16)Provides that, prior to opening the program for enrollment,  
            the Board shall report to the Governor and Legislature the  
            specific date on which the program will start to enroll  
            program participants and that the following prerequisites and  
            requirements for the program have been met:

             a)   The United States Department of Labor has finalized a  
               regulation setting forth a safe harbor for savings  
               arrangements established by states for nongovernmental  
               employees for the purposes of the federal Employee  
               Retirement Income Security Act.

             b)   The SCRSP is structured in a manner to meet the criteria  
               of the United States Department of Labor regulation.











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             c)   The payroll deduction IRA arrangements offered by the  
               SCRSP qualify for the favorable federal income tax  
               treatment ordinarily accorded to IRA arrangements under the  
               Internal Revenue Code.

             d)   The Board has defined in regulation the roles and  
               responsibilities of employers pursuant to the criteria  
               outlined in specified United States Department of Labor  
               regulation described and any associated guidance.

             e)   The Board has adopted an operational model that limits  
               employer interaction and transactions with the employee to  
               the extent feasible.  (Section 100043)

           17)Expresses the approval of SCRSP by the Legislature and its  
             implementation as of January 1, 2017, and requires the Board,  
             subject to its fiduciary responsibility, to design and  
             implement SCRSP while utilizing and considering the following  
             parameters (Section 100046):

             a)   For up to three years, the Board may establish managed  
               accounts invested in U.S. Treasuries or similarly safe  
               investments, during which time the Board may develop  
               investment options that address risk-sharing and smoothing  
               market gains and losses, as specified.

             b)   The Board shall seek to minimize participant fees.

             c)   The Board shall strive to implement features that  
               provide maximum income 
          replacement balanced with appropriate risk in an IRA based  
          environment.

             d)   The Board shall determine the default payout method for  
               retirees.

             e)   The Board shall include a provider of in-home supportive  
               services in the SCRSP if it determines the inclusion to be  











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               legally permissible under federal and state laws and  
               regulations.
             f)   The Board shall structure SCRSP so as to ensure that 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.

             g)   The Board shall determine all necessary costs related to  
               SCRSP, as specified.

             h)   The Board shall partner with employer representatives to  
               create an administrative structure that addresses employer  
               needs, as specified.

             i)   The Board shall include comprehensive worker education  
               and outreach and may collaborate with public and nonprofit  
               agencies and organizations and other entities to develop  
               education and outreach, as specified.

             j)   Requires the Board to include comprehensive employer  
               education and outreach with an emphasis on employers with  
               less than 100 employees, with the integration of the  
               following components:

                  a.        A program Web site to assist the employers of  
                    participating employees.

                  b.        A toll-free help line for employers with live  
                    and automated assistance.

                  c.        Online Web training.

                  d.        Live presentations to business associations.

                  e.        Targeted outreach to small businesses with 10  
                    or less employees.

          1)Gives the Board flexibility to design SCRSP in order to ensure  
            timely implementation and states that the parameters are not  











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            conclusive but may be augmented as needed to fully implement  
            the program and comply with the Board's fiduciary duties.   
            (Section 100046)

           2) Allows the Board to adopt emergency regulations for the  
             purposes of implementing the SCRSP.  (Section 100048)

           3) Specifies that a payroll IRA arrangement offered pursuant to  
             SCRSP shall have the same status and be treated consistently  
             with any other IRA qualified under specified federal law for  
             the purpose of determining eligibility or benefit level for a  
             program that uses a means test. (Section 100049)

           4) States that start-up and first-year administrative costs for  
             SCRSP may be appropriated from the General Fun dand shall be  
             repaid by the Board with interest calculated at the rate of  
             the Pooled Money Investment Account.  Future administrative  
             costs shall be paid from the administrative fund.  (Section  
             100050)
          
           5) Makes other minor, technical, and clarifying changes.
          





          EXISTING LAW:  


          1)Establishes the California Secure Choice Retirement Savings  
            Investment Board, as defined, and the California Secure Choice  
            Retirement Savings Trust, a continuously appropriated fund,  
            for the purpose of creating a statewide program known as  
            SCRSP.

          2)Defines who shall be appointed to the Board, the Board's  
            fiduciary role, and entrusts the Board with investment policy  
            oversight and design.











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          3)States that the primary objective of the investment policy is  
            to preserve the safety of principle and provide a stable and  
            low-risk rate of return, as specified.

          4)Requires that the program include, as determined by the Board,  
            one or more payroll deposit individual retirement account  
            (IRA) options; requires the Board to annually declare a stated  
            rate of return at which interest shall be allocated to program  
            accounts for the following year; and states that an  
            individual's retirement savings benefit under the program  
            shall be an amount equal to the balance in the individual's  
            account on the date the retirement savings benefit becomes  
            payable.

          5)Defines the Board's duties and powers, in the capacity of  
            trustee to administer and invest the Trust, and establishes  
            guiding principles and restrictions for investment policy of  
            Trust assets, and limits the types of investments which shall  
            be permitted for the investment of funds.

          6)Requires the Board to ensure that an insurance, annuity or  
            other funding mechanism is in place at all times that protects  
            the value of individuals' accounts.  Such funding mechanism  
            shall protect, indemnify and hold the state harmless at all  
            times against any and all liabilities in connection with  
            funding retirement benefits under the SCRSP.

          7)Provides that the state shall not have any liability for the  
            payment of the retirement savings benefit earned by SCRSP  
            participants.  The state, and any of the funds of the state,  
            shall have no obligation for payment of the benefits arising  
            from the SCRSP.

          8)Clarifies that employers shall not be fiduciaries of the SCRSP  
            nor be liable for employees' investment decisions.

          9)Provides that after the Board opens the SCRSP for enrollment,  
            any employer may choose to have a payroll deposit retirement  











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            savings arrangement to allow employee participation in the  
            SCRSP.  Thereafter the following timeline would apply:

             a)   Beginning three months after opening of enrollment,  
               employers of 100 or more employees must have an arrangement  
               to allow employees to participate in the SCRSP.



             b)   Beginning six months after opening of enrollment,  
               employers of 50 or more employees must have an arrangement  
               to allow employees to participate in the SCRSP.



             c)   Beginning nine months after opening of enrollment,  
               employers of five or more employees must have an  
               arrangement to allow employees to participate in SCRSP.

           1) Provides that, unless otherwise specified by the employee, a  
             participating employee shall contribute 3% of their annual  
             salary or wages into the SCRSP (which may be adjusted by the  
             Board to between 2% and 4%).

           2) Requires the Board, using private or non-profit funds, to  
             conduct an initial market analysis to determine whether the  
             necessary conditions for implementation of the SCRSP can be  
             met, as specified, and to report to the Legislature on its  
             findings, as specified.

           3) Provides that the SCRSP will only become operative if the  
             Board determines, based upon the market analysis, that the  
             SCRSP can be self-sustaining and only if implementation costs  
             are made available from a nonprofit or private entity, the  
             federal government, or a budget appropriation.

           4) Provides that the Board shall not implement the SCRSP if the  
             IRA arrangements offered fail to qualify for the favorable  
             federal income tax treatment ordinarily accorded IRAs under  











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             the IRC, or if it is determined that the SCRSP is an employee  
             benefit plan under the federal Employment Retirement Income  
             Security Act (i.e., ERISA).
           


          FISCAL EFFECT:  According to Senate Appropriations Committee:


               "An accurate depiction of exact costs to operate the  
            Program cannot be ascertained in advance. Costs would be  
            determined by several factors that are currently unknown,  
            including (1) the number of employers participating in the  
            Program, (2) the number of employees participating in the  
            Program, (3) costs related to recordkeeping, (4) the  
            investment performance of the Program, and, (5) the level of  
            contributions made by participants to the Program.  In  
            addition, the Employment Development Department would incur  
            costs associated with program operation, and the Board would  
            require staff and office space.


               Modeling done by the market analysis firm that performed  
            the feasibility study indicates that up to $134 million would  
            be required to finance implementation of the Program and  
            assure that participants would not be subject to  
            administrative fees exceeding 100 basis points.  As noted  
            previously, though the Board has determined that the Program  
            could ultimately be operated solely from Program assets, a  
            loan would be required to develop and implement the program  
            during the first few years of operation.  Options for startup  
            financing include a line of credit or a General Fund loan."


          COMMENTS: SCRSP's Board was statutorily required to perform a  
          feasibility study to determine whether the legal and practical  
          conditions for implementation of SCRSP could be met. The Board  
          approved an approach to the study analysis that included four  
          distinct, but well-coordinated focus areas: program design,  











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          market analysis, financial feasibility, and legal feasibility.

          Key Findings in the Report<1>:

           About 6.8 million workers are potentially eligible for the  
            California Secure Choice Retirement Savings Program.
           Likely participation rates (70-90%) are sufficiently high to  
            enable the Program to achieve broad coverage well above the  
            minimum threshold for financial sustainability.

           Eligible participants in California are equally comfortable  
            with a 3% or 5% contribution rate.  The vast majority of  
            likely participants are also comfortable with auto-escalation  
            in 1% increments up to 10%.

           To start, the program should offer a default investment option  
            consisting of a diversified portfolio with long-term growth  
            potential and the choice to opt into a low-risk investment.

           Given its inherent portability, the Program should have a  
            lower incidence of rollovers and cash-outs than  
            employer-sponsored 401(k) plans, which often force workers  
            with low balances to close their accounts.  At the same time,  
            pre-retirement withdrawals are likely to be higher for the  
            Program given eligible workers' income profile.

           The Program launch should include a concerted public education  
            campaign focused on workers and small businesses.

          Federal Regulations 




          ---------------------------
          <1>


          SCRSP Board Report with the California State Treasurer:   
           http://www.treasurer.ca.gov/scib/report.pdf  










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          President Obama directed the U.S. Secretary of Labor, to issue  
          regulations that would clarify how states could move forward  
          with retirement plans for private sector workers without being  
          preempted by the Employee Retirement Income Security Act  
          (ERISA). In the fall of 2015 the U.S. DOL Employee Benefits  
          Security Administration (EBSA) released a proposed regulation  
          that designates a safe harbor from ERISA for state laws that  
          facilitate enrollment in state-administered payroll deduction  
          individual retirement accounts (IRAs). which created a safe  
          harbor from ERISA for savings arrangements established by states  
          for non-governmental employees. The proposed rule allows  
          programs like Secure Choice to move forward without ERISA  
          preemption. The catalyst for this safe harbor is the employer  
          mandate. Employers acting pursuant to a state mandate to enroll  
          or auto-enroll their employees into Secure Choice or a similar  
          Individual Retirement Account (IRA) model would have no  
          liability or fiduciary duty for the plan. These new federal  
          regulations are expected to be finalized by summer 2016.



          Arguments in Support

          California Secure Choice Retirement Savings Investment Board  
          writes that, "In accordance with Government Code Section 100040,  
          the California Secure Choice Retirement Savings Investment Board  
          (Board) finds the Secure Choice Retirement Savings Program  
          (Secure Choice or Program) to be a feasible, sustainable, and  
          legally permissible program that could help 6.8 million workers  
          start saving for their future. 





          Based on the findings of the final report, stakeholder feedback,  
          and public comment, the Board recommends that legislative  
          language, consistent with the following principles be adopted to  











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          provide the Board sufficient flexibility, including if necessary  
          repealing statutory language impeding such flexibility, so that  
          it can shape the program as it develops and reacts to changes in  
          the market, while protecting workers' contributions and limiting  
          employer burdens. The Board recommends that Senate Bill 1234  
          allow the Board to: 

             1)   Establish managed accounts that would be invested in  
               U.S. Treasuries or similarly safe investments within the  
               first three years of the program 

             2)   The Board recognizes there are legal and practical  
               hurdles to overcome before the various investment options  
               could be implemented. Within the first three years, the  
               Board should begin to develop investment options that  
               address risk-sharing and smoothing of market losses and  
               gains at inception. Options could include but not be  
               limited to custom pooled, professionally managed funds that  
               minimize management costs and fees, the creation of a  
               reserve fund, or the establishment of investment products 
                                                                        
             3)   The Board will conduct an annual peer review to compare  
               California Secure Choice funds with similar funds on  
               performance and fees 

             4)   The Board will be required to seek to minimize  
               participant fees 

             5)   Implement program features that provide maximum possible  
               income replacement in an IRA based environment 

             6)   The Board will establish an initial automatic  
               contribution rate of between 2% and 5% of salary 

             7)   The Board may implement automatic escalation of  
               participants' contribution rates up to 10% of salary with  
               the option for participants to stop automatic escalation  
               and change their contribution rates 












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             8)   The Board and its contracted administrators and  
               consultants shall have a fiduciary duty to the participants  
               of the Program. Investment policy decisions, including  
               asset allocation and investment options, will be entrusted  
               with the Board subject to fiduciary duties 

             9)   Include quasi-public and quasi-private workers to be  
               enrolled if found legally permissible 

             10)  Conduct communication and education on the Program,  
               including the inherent risks of its investment strategy or  
               strategies, the purposes and inherent risks of investing in  
               U.S. Treasuries or similar safe investment options for the  
               first three years of the Program, therefore the state does  
               not have liability for the investment performance or  
               payment of benefits to Secure Choice participants 

             11)  Determine the default payout method to retirees 

             12)  Clearly define "ministerial duties" expected of  
               employers in the implementation of the program and limit  
               liability for all employers if an employer inadvertently  
               provides more than ministerial duties 

             13)  Fully determine all necessary costs associated with  
               outreach, customer service, enforcement, Board staffing and  
               consultant costs, and all other costs necessary for the  
               administration of the program and to ensure all investment  
               options are appropriated considered by the Board for the  
               Program 

             14)  Make determinations on how to structure the Program to  
               ensure the state is prohibited from incurring liabilities  
               associated with administering the Program 

          The board acknowledges the concerns raised by business  
          associations and will partner with employer representatives as  
          it creates the administrative structure to ensure their concerns  
          are addressed. The business community is a vital stakeholder in  











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          this work and we will ensure they are partners with us as we  
          form the outreach and education to California businesses. The  
          education campaign to California's employers will be a top  
          priority as we understand that employers must not hold any  
          liability. Additionally, it must be clear both in statute and as  
          part of the education campaign that the State of California has  
          no liability for the program or its investments. 

          We encourage the Legislature and the Governor to move forward  
          with Secure Choice. While the preliminary work for this endeavor  
          has come to a close, there is much more to do. We must continue  
          to collaborate with members of the Legislature, workers,  
          businesses and other stakeholders to improve the Program as it  
          develops. There are some outstanding legal questions with  
          respect to how this fund would be treated by the Securities and  
          Exchange Commission. However, these issues will not thwart the  
          ability of the Board to implement the Program. California  
          continues to be a thought leader on this front and believes that  
          every worker deserves the option to retire with dignity." 

          The California Black Chamber of Commerce is in support and  
          argues that, "Establishing this program will play a vital role  
          in keeping small businesses competitive and helping small  
          business owners and their employees prepare for retirement.  
          Retirement plans are crucial to employers' ability to attract  
          and retain employees in today's economy; yet, many small  
          businesses are unable to provide such a program because they do  
          not have the resources to staff a human resources department and  
          navigate ERISA requirements. The California Secure Choice  
          Retirement Savings Program offers an easy way for small business  
          owners to solve this problem by offering employees access to a  
          retirement plan with minimal administrative responsibilities on  
          the part of small employers and most importantly no fiduciary  
          responsibilities. 

          A recent poll by the Small Business Majority and AARP found  
          two-thirds of small business owners in California support a  
          state retirement savings program that would help small  
          businesses and their employees save for the future. Nearly  











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          three-fourths of respondents think offering such a program would  
          give their business a competitive edge. Our members are always  
          concerned about cost and administrative complexity, so as the  
          bill moves forward, we hope you will continue to ensure that the  
          program is simple to administer and low cost for small  
          businesses." 

          Arguments in Opposition
          
          The Financial Services Institute (FSI) opposes this bill,  
          arguing that it would disrupt the already healthy and  
          competitive retirement plan market in California.  They contend  
          that a state-run retirement plan for private employees will  
          disrupt the pre-existing market of retirement plan providers  
          already serving businesses of all sizes, including self-employed  
          and non-profit organizations. The existing market of retirement  
          plan providers consists of qualified independent financial  
          advisors and is robust, healthy, and competitive.  In addition,  
          they argue that enrolling private employees into a state-run  
          retirement plan will also place a heavy administrative burden on  
          the state, and taxpayers may be forced to shoulder the costs in  
          the event of economic difficulty. Further, employers will be  
          saddled with the additional responsibility of ensuring their  
          employees are enrolled in the plan and processing the necessary  
          payroll contributions. Many small business owners do not have  
          the time or resources for these added administrative tasks.





          In addition, a coalition of organizations, including the  
          California Chamber of Commerce and the California Manufacturers  
          & Technology Association opposes this bill unless amended.  They  
          state that they recognize the importance of encouraging people  
          to save for retirement, and acknowledge that there is a  
          retirement crisis facing California and our nation.  However,  
          opponents are concerned that the program that would be  
          implemented by this bill could create costs to the state, as  











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          well as potential employer liabilities, costs and administrative  
          burdens.  They urge the author to include solutions to these  
          critical issues in this bill and not simply them to be worked  
          out by the Board.


          Opponents have suggested a number of amendments that would  
          address these issues.  This bill was recently amended by the  
          author in an attempt to address many of these concerns.   
          However, at the time of preparation of this analysis, the  
          opponents were reviewing the amendments and it was unclear  
          whether the amendments would change their position on this bill.


          Liability - In particular, opponents have raised concerns  
          regarding potential employer liability and have expressed a  
          desire that this bill provide indemnification for employer.   
          They argue that when things go wrong, people will look for a  
          target for a lawsuit and it is imperative that employers be  
          protected.  They contend that rules and procedures as well as  
          the employer responsibilities remain vague in the legislation,  
          which creates open ended liabilities and administrative burdens  
          which can lead to increased costs. To strengthen protection from  
          liability for the employer as intended by the enabling  
          legislation, and to make it crystal clear that employers have no  
          liability and are immune from liability associated with all  
          aspects of the mandate and their participation in the program,  
          they have proposed language to address these issues.


               In an attempt to address this concern, the author has  
               amended the bill to provide that an employer shall not have  
               civil liability, and no cause of action shall arise against  
               an employer, for acting pursuant to the regulations  
               prescribed by the Board defining the roles and  
               responsibilities of employers that have a payroll deposit  
               retirement savings arrangement to allow employee  
               participation in the SCRSP.  The author notes that this  
               bill also directs the Board to partner with employer  











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               representatives to clearly define the employers' duties and  
               liability exemption.  However, the author states that the  
               opponents' suggested amendment requiring the state to  
               intervene and indemnify an employer for any and all costs  
               associated with federal litigation are unreasonable and  
               unprecedented.


          Enrollment Prerequisites - Opponents also argue that the Secure  
          Choice program should not begin to enroll employees until  
          certain enrollment prerequisites are met, such as until the  
          program is deemed to be in compliance with the United States  
          Department of Labor safe harbor under ERISA, as well as other  
          prerequisites deemed completed to ensure the program has  
          addressed liability issues for employers.  In addition,  
          opponents state that they have a higher level of comfort with an  
          operational model that includes a third party as the interface  
          between employer and employee, thus limiting the interaction  
          between employer and employee - rather than a model whereby  
          employers must handle all employee inquiries and transactions.





               In response to this concern, the author has amended this  
               bill to provide that,  prior to opening the program for  
               enrollment, the Board shall report to the Governor and  
               Legislature the specific date on which the program will  
               start to enroll program participants and that the following  
               prerequisites and requirements for the program have been  
               met:


                           The United States Department of Labor has  
                    finalized a regulation setting forth a safe harbor for  
                    savings arrangements established by states for  
                    nongovernmental employees for the purposes of the  
                    federal Employee Retirement Income Security Act.











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                           The SCRSP is structured in a manner to meet  
                    the criteria of the United States Department of Labor  
                    regulation.


                           The payroll deduction IRA arrangements offered  
                    by the SCRSP qualify for the favorable federal income  
                    tax treatment ordinarily accorded to IRA arrangements  
                    under the Internal Revenue Code.


                           The Board has defined in regulation the roles  
                    and responsibilities of employers pursuant to the  
                    criteria outlined in the federal regulations and any  
                    associated guidance.


                            The Board has adopted an operational model  
                    that limits employer interaction and transactions with  
                    the employee to the extent feasible.


           


          Education and Outreach - Opponents also argue that employer and  
          employee education and outreach are integral to the success of  
          the SCRSP, yet are not adequately addressed in this proposal.   
          They argue that, in order to facilitate the conduct of adequate  
          outreach, this bill must include language that specifies  
          required elements of the education and outreach plan to  
          employers and employees in advance of enrollment, with  
          particular emphasis on businesses with fewer than 100 employees.  
           The Board must be required to establish the specifics of the  
          employer outreach and education plan through consultation with  
          employer representatives engaged through an advisory committee  
          format.













                                                                    SB 1234


                                                                     Page T





               In response to this concern, the author has amended the  
               bill to require the Board to include comprehensive employer  
               education and outreach in the SCRSP, with an emphasis on  
               employers with less than 100 employees, developed in  
               consultation with employer representatives, with the  
               integration of the following components:


                           A program Web site to assist the employers of  
                    participating employees.
                           A toll-free help line for employers with live  
                    and automated assistance.


                           Online Web training.


                           Live presentations to business associations.


                           Targeted outreach to small businesses with 10  
                    or less employees.


           


          Definition of "Eligible Employer" - Opponents state that the  
          purpose of the legislation is to give access to retirement  
          vehicles to those who currently do not have it.  If an employer  
          is providing their employees with a retirement plan option, they  
          should not be subject to the mandate. However, the proposed  
          legislation, in some provisions, chooses certain retirement  
          plans to the exclusion of others which would inappropriately  
          limit employer options. The types of retirement savings plans  
          that may be chosen by the employer must include the array of  











                                                                    SB 1234


                                                                     Page U


          choices that are federally qualified and authorized. An employer  
          must not be limited to a choice simply between a 401(k) or the  
          SCRSP.  They also suggest the bill should be amended to include  
          other "federally qualified retirement savings programs."





               The author emphasizes that automatic enrollment is critical  
               because the goal of this legislation is for all workers to  
               be offered a meaningful retirement savings opportunity.   
               The author is open to discussing this issue further with  
               the opponents, but will likely insist that there be  
               auto-enrollment for the workers.





          Emergency Rulemaking - Opponents contend that regulations  
          promulgated by the Board deserve adequate time for deliberation  
          and collaboration.   They argue that the proposed emergency  
          rulemaking procedure in this bill may shorten the process so  
          that meaningful participation by stakeholders would be limited.   
          The rulemaking procedures should follow normal Administrative  
          Procedures Act rules.  If an emergency is present for a  
          rulemaking, then it would meet the criteria for emergency  
          rulemaking.





               The author responds that the emergency rulemaking process  
               still allows for public comment, and that this provision of  
               the bill is consistent with rulemaking authority currently  
               held by other boards, commissions, and financing  
               authorities that are administered through the State  











                                                                    SB 1234


                                                                     Page V


               Treasurer's Office.





          Opponents conclude that they urge the Legislature to move  
          carefully, thoughtfully and deliberately so that employers,  
          employees and the state are not at risk, and that the program is  
          beneficial to those who participate.

          Previous Related Legislation

          SB 1234 (De León) Chapter 734, Statutes of 2012 created the  
          initial statutory framework for SCRSP and required the Board to  
          perform a market analysis and feasibility study to determine if  
          SCRSP could be implemented and to publish its findings and bring  
          a recommendation to the Legislature for approval.
          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          American Association of Retired Persons


          American Retirement Association


          Asian Business Association


          California Advocacy Network for Aging Latinos











                                                                    SB 1234


                                                                     Page W




          California Asset Building Coalition 


          California Association of Nonprofits


          California Black Chamber of Commerce


          California Capital Financial Development Corporation


          California Commission on Aging


          California Conference Board of the Amalgamated Transit Union


          California Conference of Machinists


          California Council of Churches IMPACT


          California Employment Lawyers Association


          California Labor Federation, AFL-CIO


          California Secure Choice Retirement Savings Investment Board


          California Teamsters Public Affairs Council


          CaliforniaHealth+ Advocates











                                                                    SB 1234


                                                                     Page X




          California-Nevada Conference of Operating Engineers


          Carson Black Chamber of Commerce


          CFED


          CIO


          Congress of California Seniors


          Corporation for Enterprise Development


          Courage Campaign


          Earned Assets Resource Network


          Engineer & Scientists of California, IFPTE Local 20


          Fresno Metro Black Chamber of Commerce


          Insight Center for Community Economic Development


          International Longshore and Warehouse Union


          John Chiang, California State Treasurer











                                                                    SB 1234


                                                                     Page Y




          LA Metro Hispanic Chamber of Commerce


          Latin Business Association


          Los Angeles Latino Chamber of Commerce


          National Council of La Raza


          Pico Rivera Chamber of Commerce


          PolicyLink


          Professional & Technical Engineers, IFPTE Local 21


          Riverside County Black Chamber of Commerce


          Sacramento Black Chamber of Commerce


          San Francisco Office of the Treasurer and Tax Collector


          Service Employees International Union, California


          Service Employees International Union, Local 1000


          Service Employees International Union, State Council











                                                                    SB 1234


                                                                     Page Z




          Small Business Majority


          Social Action Commission of the African Methodist Episcopal  
          Church


          South Asian Business Alliance Network


          State Building and Construction Trades Council of California


          United Domestic Workers of America, AFSCME, Local 3930


          United Ways of California


          UNITE-HERE


          Utilities Workers Union of America, Local 132


          Vasquez & Company, LLP


          Ward Economic Development Corporation


          Women's Institute for a Secure Retirement


          Young Invincibles













                                                                    SB 1234


                                                                     Page A




          Opposition


          Financial Services Institute





          Oppose Unless Amended


          


          American Council of Life Insurers


          Associated Builders and Contractors of California


          Association of Ca Life and Health Insurance Companies


          California Asian Pacific Chamber of Commerce


          California Association of Health Services at Home


          California Building Industry Association


          California Business Properties Association


          California Business Roundtable











                                                                    SB 1234


                                                                     Page B




          California Chamber of Commerce


          California Farm Bureau Federation


          California Framing Contractors Association


          California Grocers Association


          California Hotel & Lodging Association


          California League of Food Processors


          California Lodging Industry Association


          California Manufacturers & Technology Association


          California Professional Association of Specialty Contractors


          California Restaurant Association


          California Retailers Association


          California Travel Association


          Camarillo Chamber of Commerce











                                                                    SB 1234


                                                                     Page C




          CAWA-Representing Automotive Parts Industry


          Culver City Chamber of Commerce


          Family Business Association


          Fresno Chamber of Commerce


          National Federation of Independent Business


          North Orange County Chamber


          Oxnard Chamber of Commerce


          Palm Desert Area Chamber of Commerce


          Redondo Beach Chamber of Commerce


          Residential Contractors Association


          Santa Maria Chamber of Commerce & Visitor and Convention Bureau


          Securities Industry and Financial Markets Association


          South Bay Association of Chambers of Commerce











                                                                    SB 1234


                                                                     Page D




          The Greater Conejo Valley Chamber of Commerce


          Western Carwash Association


          Western Electrical Contractors Association


          Western Growers Association


          Western Manufactured Housing Communities Association




          Analysis Prepared by:Ben Ebbink /Taylor Jackson / L. & E. /  
          (916) 319-2091