BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1234|
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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
SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/27/16
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
requirements.
ANALYSIS:
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
payable.
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
10010)
9)Eliminates the requirement for the Board to ensure that an
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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 %
annually.
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 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)
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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
specified.
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
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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.
Background
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
SCRSP.
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.
http://www.treasurer.ca.gov/scib/report.pdf
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,
AFL-CIO
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
PolicyLink
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
Church
South Asian Business Alliance Network
State Building and Construction Trades Council of California
UNITE-HERE, AFL-CIO
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
future.
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
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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
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