BILL ANALYSIS Ó
SB 1234
Page 1
Date of Hearing: August 3, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
SB 1234
(De León) - As Amended June 15, 2016
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill provides legislative approval for the California
Secure Choice Retirement Savings Program (Secure Choice Program)
and modifies recommendations and requirements for the design and
implementation of the Secure Choice Program. Specifically, this
bill:
1)Expresses the approval of the Secure Choice Program by the
Legislature and its implementation as of January 1, 2017.
2)Incorporates the findings and recommendations of the Board
SB 1234
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upon concluding the market analysis and deletes obsolete
requirements that are inconsistent with those findings.
3)States that investment policy decisions, including asset
allocation and investment options, will be entrusted to the
Board subject to its fiduciary duties, and eliminates language
limiting the Board's options as to which asset categories it
may consider.
4)Deletes provisions 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.
5)Gives the Treasurer the authority to appoint an executive
officer for the Secure Choice Program.
6)Deletes provisions requiring the Board to ensure that
insurance, an annuity, or another funding mechanism is in
place at all times that protects the value of individuals'
accounts and holds the state harmless.
7)Requires the Secure Choice Program's Board to design and
implement the Secure Choice Program while considering
parameters such as minimizing participant fees and ensuring
the state is free from all liability.
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8)States that start-up costs for the Secure Choice Program may
be appropriated from the General Fund as a loan that shall be
repaid by the Program with interest calculated at the rate of
the Pooled Money Investment Account, and specifies that
administrative costs shall be paid in future from the
administrative fund.
FISCAL EFFECT:
Unknown fiscal impact. Total costs would be determined by the
number of employers and workers participating, administrative
costs, and investment performance and contribution levels. While
the Secure Choice Program is likely to eventually operate
without the need for state funds, SB 1234 states that initial
startup costs for the Secure Choice Program may be financed by a
General Fund loan. The State Treasurer's Office (STO) estimates
that total implementation costs over a multi-year period could
reach up to $134 million.
COMMENTS:
1)Background. SB 1234 (De León, Chapter 734, Statutes of 2012)
created the Secure Choice Program and authorized its Board to
perform a feasibility study to determine whether the legal and
practical conditions for implementation of the Secure Choice
Program could be met. The Board approved an approach to the
study analysis that included four areas: program design,
market analysis, financial feasibility, and legal feasibility.
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The feasibility study found that about 6.8 million workers are
potentially eligible for the Secure Choices Program and that
likely participation rates are high enough to achieve the
coverage necessary for financial sustainability. Other key
findings of the study are that the retirement program should
offer a default investment option, consisting of a diversified
portfolio with long-term growth potential, the choice to opt
into a low-risk investment, and that the Secure Choices
Program should include a concerted public education campaign
focused on workers and small businesses.
2)Purpose. According to the author, SB 1234 will authorize the
Board to move forward with implementation of the Secure Choice
Program now that the Board has determined that such a program
can be financially viable, self-sustaining, and legally
permissible.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081