BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                       SB 1234|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                UNFINISHED BUSINESS 

          Bill No:  SB 1234
          Author:   De León (D), et al.
          Amended:  8/18/16 in Assembly
          Vote:     21 

           SENATE PUBLIC EMP. & RET. COMMITTEE:  3-2, 4/11/16
           AYES:  Pan, Beall, Hall
           NOES:  Morrell, Moorlach

           AYES:  Lara, Beall, Hill, McGuire, Mendoza
           NOES:  Bates, Nielsen

           SENATE FLOOR:  26-13, 6/2/16
           AYES:  Allen, Beall, Block, De León, Galgiani, Glazer, Hall,  
            Hancock, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara,  
            Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Pan,  
            Pavley, Roth, Wieckowski, Wolk
           NOES:  Anderson, Bates, Berryhill, Cannella, Fuller, Gaines,  
            Huff, Moorlach, Morrell, Nguyen, Nielsen, Stone, Vidak
           NO VOTE RECORDED:  Runner

           ASSEMBLY FLOOR:  52-26, 8/25/16 - See last page for vote

           SUBJECT:   Retirement savings plans

          SOURCE:    Author
          DIGEST:   This bill 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.


                                                                    SB 1234  
                                                                    Page  2

          Assembly Amendments further clarify the California Secure Choice  
          Retirement Savings Investment Board's (Board) role in developing  
          and administering SCRSP, including a requirement to set up  
          managed accounts invested in treasuries or similar securities  
          for the first three years following implementation; add  
          provisions clearly indemnifying employers from any liability  
          resulting from employees' participation in SCRSP and clarifying  
          that employers always retain the right to provide their own  
          employer-sponsored retirement plans in lieu of SCRSP; clarify  
          requirements that must be met in order to include in-home  
          supportive services workers in SCRSP; and make technical changes  
          to ensure consistency among the bills various provisions and  

          Existing law:
          1)Establishes the Board, as defined, and the California Secure  
            Choice Retirement Savings Trust (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.

          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  


                                                                    SB 1234  
                                                                    Page  3

          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. Requires the Board to structure the program so  
            as to ensure the state is prohibited from incurring  
            liabilities associated with the program.

          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  
            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.

           10)   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  


                                                                    SB 1234  
                                                                    Page  4

             adjusted by the Board to between 2% and 4%).

           11)          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.

           12)          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.

           13)          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 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).

          This bill:

          1)Incorporates the findings and recommendations of the Board  
            upon concluding 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 specific terms related to the SCRSP, including  
            "eligible employer" and "eligible employee" and "myRA."   
            (Section 100000)

          3)Requires that contract administrators and consultants  
            discharge their duties as fiduciaries with respect to the  
            program.  (Section 100002)

          4)States that the Board shall design and implement SCRSP subject  
            to its authority and fiduciary duty; requires, for up to three  
            years following initial implementation, that the Board shall  
            establish managed accounts invested in US treasuries, myRAs,  
            or similar investments; requires that myRA contributions and  


                                                                    SB 1234  
                                                                    Page  5

            returns be administered in accordance with federal  
            requirements; and eliminates language limiting the Board's  
            options as to which asset categories it may consider.   
            (Section 100002)

          5)Requires the Board, during the three year period following  
            implementation, to develop and implement an investment policy  
            and establish policies and procedures designed to meet  
            investment objectives in a prudent manner, minimizing  
            participant fees and maximizing returns, as specified; allows  
            the Board to include a range of risk and return opportunities;  
            allows the Board to  develop investment options that address  
            risk-sharing and smoothing of market losses and gains and  
            include the creation of a reserve fund, pursuant to  
            legislative approval; and requires the Board, after the  
            initial three year period, to annually prepare and adopt a  
            written statement of investment policy, as specified.   
            (Section 100002)

          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; eliminates language requiring costs of  
            the program administrator to be paid out of funds held in the  
            trust and prohibiting the attribution of those costs to the  
            administrative costs of the Board.  (Section 100008)

          7)Gives the Treasurer the authority to appoint an executive  
            officer for the program who shall serve at the pleasure of the  
            Board, which 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  

          9)Eliminates the requirement for the Board to ensure that an  


                                                                    SB 1234  
                                                                    Page  6

            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 10008, 100012, 100036)

          10)Specifies the Board's duties to provide information and  
            appropriate forms to employers and employees and clarifies  
            that the program is not sponsored by the employer and that the  
            employer is not responsible or liable of the plan.  (Sections  
            100014, 100034 )

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

             a)   Beginning 12 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 24 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 36 months after opening of enrollment,  
               employers of five or more employees 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 1 %  
             c)   An employee may opt out of automatic escalation and set  
               his or her contribution rate at a level determined by the  

          13)          Allows the Board, unless otherwise specified by the  
            employee, to set the initial employee contribution into the  
            SCRSP between 2% and 5% and clearly states that employers  
            always retain the right to provide their own  
            employer-sponsored retirement plans in lieu of SCRSP.   
            (Section 100032)


                                                                    SB 1234  
                                                                    Page  7

           14)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)

           15)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 and  Welfare and Institutions  
             Code, 12302.2):

             a)   The Board, if legally permissible under federal and  
               state laws and subject to approval by the directors of the  
               state departments of Social Services and Finance, shall  
               include in-home supportive services providers in SCRSP, as  
             b)   The Board shall structure SCRSP so as to ensure that the  
               state is free from all liability for the program.
             c)   The Board shall determine all necessary costs related to  
               SCRSP, as specified.
             d)   The Board shall consult with employer representatives to  
               create an administrative structure that addresses employer  
               needs, as specified.
             e)   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.

           1) Allows the Board to adopt emergency regulations for  the  
             purposes of designing and implementing SCRSP for up to 180  
             days, after which, the regulations would be subject to the  
             standard rule making process.  (Section 100048)

           2) 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 the United State Code for  
             the purpose of determining eligibility or benefit level for a  
             program that uses a means test.  (Section 100049)

           3) States that start-up costs for SCRSP may be appropriated  


                                                                    SB 1234  
                                                                    Page  8

             from the General Fund as a loan that shall be repaid by SCRSP  
             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.   
             (Section 100050)
           4) Makes other minor, technical, and clarifying changes.


          In 2012, SB 1234 (De León, Chapter 734, Statutes of 2012) was  
          passed to create SCRSP and to create and empower its Board 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, market analysis, financial feasibility, and  
          legal feasibility.

          The key findings in the report are the following:

          1)About 6.8 million workers are potentially eligible for the  
          2)Likely participation rates (70-90%) are sufficiently high to  
            enable the SCRSP to achieve broad coverage well above the  
            minimum threshold for financial sustainability.
          3)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%.
          4)To start, the SCRSP 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.
          5)Given its inherent portability, the SCRSP 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.
          6)The SCRSP launch should include a concerted public education  
            campaign focused on workers and small businesses.


                                                                    SB 1234  
                                                                    Page  9

          The report in its entirety can be found on the SCRSP webpage on  
          the Treasurer's website.   

          Related/Prior 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.
          FISCAL EFFECT:   Appropriation:    Yes         Fiscal  
          Com.:YesLocal:   No

          According to Assembly Appropriations Committee, 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.

          SUPPORT:   (Verified8/19/16)

          John Chiang, California State Treasurer
          American Association of Retired Persons
          American Retirement Association
          Asian Business Association
          California Advocacy Network for Aging Latinos
          California Asset Building Coalition
          California Association of Nonprofits
          California Capital Financial Development Corporation
          California Council of Churches IMPACT
          California Commission on Aging
          California Conference Board of the Amalgamated Transit Union


                                                                    SB 1234  
                                                                    Page  10

          California Conference of Machinists
          California Labor Federation
          California Secure Choice Retirement Savings Investment Board
          California Teamsters Public Affairs Council
          Congress of California Seniors
          Corporation for Enterprise Development
          Courage Campaign
          Earned Assets Resource Network
          Engineer & Scientists of California, Local 20, IFPTE Local 20,  
          Fresno Metro Black Chamber of Commerce
          Insight Center for Community Economic Development
          International Longshore and Warehouse Union
          Latin Business Association
          Los Angeles Latino Chamber of Commerce
          National Council of La Raza
          Pico Rivera Chamber of Commerce
          Professional & Technical Engineers, IFPTE Local 21, AFL-CIO
          Riverside County Black Chamber of Commerce
          San Francisco Office of the Treasurer and Tax Collector
          Service Employees International Union, Local 1000
          Service Employees International Union, State Council
          Small Business Majority
          Social Action Commission of the African Methodist Episcopal  
          South Asian Business Alliance Network
          State Building and Construction Trades Council of California
          United Domestic Workers of America, American Federation of  
           State, County and Municipal Employees, Local 3930
          United Ways of California
          Utilities Workers Union of America, Local 132, AFL-CIO
          Vasquez & Company, LLP
          Ward Economic Development Corporation
          Women's Institute for a Secure Retirement

          OPPOSITION:   (Verified8/19/16)

          Financial Services Institute


                                                                    SB 1234  
                                                                    Page  11

          ARGUMENTS IN SUPPORT:  From the SCRSP Board:

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

               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.  California continues  
               to be a thought leader on this front and believes that  
               every worker deserves the option to retire with dignity.
          From the author:
               Social Security is the foundation of retirement income for  
               the vast majority of retirees in California, but these  
               payments alone-today averaging $1,328 per month-are simply  
               not enough to sustain workers in retirement. Although  
               Social Security has reduced the poverty rate among retirees  
               in general, women and minorities are disproportionately  
               represented among retirees living in poverty and among  
               low-income retirees.  In California, approximately 2/3 of  
               the retirees living in poverty are women.

               On February 24, 2016, AARP and Small Business Majority  
               released an opinion poll that revealed that two-thirds of  
               small business owners in California support the creation of  
               a state retirement savings program that would help small  
               businesses and their employees save for retirement.  In  
               addition, nearly three-fourths (73%) of the respondents  
               expressed the belief that offering such a program would  
               give their business a competitive edge.

               Overall, the lack of retirement savings impacts all  
               Californians, as seniors without sufficient retirement  


                                                                    SB 1234  
                                                                    Page  12

               income will need to rely on government assistance for  
               housing, health care and other basic necessities.  The  
                                                                                            California Secure Choice Program will provide participants  
               with a professionally-managed, lifelong retirement savings  
               system that offers them the opportunity to build their  
               assets and achieve financial stability when they can no  
               longer work.


          ARGUMENTS IN OPPOSITION:      According to the Financial  
          Services Institute:

               Financial advisors provide group retirement plans to  
               private employers and individual plans to employees who  
               lack access to an employer provided retirement plan.  These  
               advisors work closely with clients to develop  
               individually-tailored retirement plans that are much better  
               suited to achieving the client's retirement goals than a  
               "one size fits all" approach.  In contrast, necessity  
               demands that state-run retirement vehicles be managed in  
               the best interest of the group instead of the individual  
               participants.  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.

           ASSEMBLY FLOOR:  52-26, 8/25/16
           AYES: Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown,  
            Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh,  
            Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia,  
            Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández,  
            Holden, Irwin, Jones-Sawyer, Lackey, Levine, Linder, Lopez,  
            Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk,  
            Ridley-Thomas, Rodriguez, Santiago, Mark Stone, Thurmond,  
            Ting, Weber, Williams, Wood, Rendon


                                                                    SB 1234  
                                                                    Page  13

           NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,  
            Chávez, Dahle, Beth Gaines, Gallagher, Grove, Hadley, Harper,  
            Jones, Kim, Maienschein, Mathis, Mayes, Melendez, Obernolte,  
            Patterson, Salas, Steinorth, Wagner, Waldron, Wilk
           NO VOTE RECORDED: Burke, Olsen

          Prepared by:Pamela Schneider / P.E. & R. / (916) 651-1519
          8/25/16 18:00:20

                                   ****  END  ****