Senate Bill No. 1297

Introduced by Senator Pan

February 19, 2016

An act to add Article 5 (commencing with Section 7523) to Chapter 21 of Division 7 of Title 1 of the Government Code, relating to public employees’ retirement.

LEGISLATIVE COUNSEL’S DIGEST

SB 1297, as introduced, Pan. Public employee retirement plans: automatic enrollment and escalation.

The California Constitution grants the retirement board of a public pension or retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the system, as specified.

Under existing law, public employees may participate in prescribed supplemental defined benefit plans and deferred compensation plans established or maintained by employers.

This bill, notwithstanding any other law, would authorize a state or local public employer participating in an employee retirement plan, defined to include certain defined benefit plans, deferred compensation plans, or payroll deduction individual retirement account plans, to make a deduction from the wages or compensation of an employee for contributions attributable to automatic enrollment and automatic escalation in the employee retirement plan. The bill would provide that an employer that provides automatic enrollment or automatic escalation in an employee retirement plan is not liable for the investment decisions made by the employer on behalf of any participating employee with respect to the default investment of contributions made for that employee to the plan, if specified requirements are met.

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

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

SECTION 1.  

Article 5 (commencing with Section 7523) is
added to Chapter 21 of Division 7 of Title 1 of the Government
Code, to read:

 

Article 5.  Public Employee Retirement Plans: Automatic
Enrollment and Escalation

 

7523.  

As used in this article:

(a) “Automatic enrollment” means an employee retirement plan
provision under which an employee will have a specified
contribution made to the plan, equal to a compensation reduction,
that will be made for the employee unless the employee
affirmatively elects not to have any compensation reduction
contributions or elects a compensation reduction contribution in
an alternative amount, in accordance with the federal Pension
Protection Act of 2006 (Public Law 109-280). An employee
retirement plan may provide for automatic enrollment whether or
not the employee retirement plan elects to provide for automatic
escalation.

(b) “Automatic escalation” means an employee retirement plan
provision under which an employee’s salary reduction contribution
to the plan is increased by a specified amount annually up to the
limits imposed by the Internal Revenue Code of 1986, as amended,
unless the employee affirmatively elects not to have the automatic
escalation amount deducted from compensation or elects an
alternative contribution reduction amount.

(c) “Employee retirement plan” means a plan described in
Sections 401(k) or 403(b), or a governmental deferred
compensation plan described in Section 457, or a payroll deduction
individual retirement account plan described in Sections 408 or
408A, of the Internal Revenue Code of 1986, as amended.

7523.1.  

(a) This article shall apply to all state and local public
employee retirement plans and to their participating employers.

(b) The administration of this article shall comply with
applicable provisions of the Internal Revenue Code and the
Revenue and Taxation Code.

7523.2.  

(a) Notwithstanding any other law, a state or local
public employer participating in an employee retirement plan may
make a deduction from the wages or compensation of an employee
for contributions attributable to automatic enrollment and automatic
escalation in the employee retirement plan, regardless of whether
the plan is subject to the federal Employee Retirement Income
Security Act of 1974, as amended (29 U.S.C. Sec. 1001 et seq.).

(b) (1) An employer that provides automatic enrollment or
automatic escalation in an employee retirement plan is not liable
for the investment decisions made by the employer on behalf of
any participating employee with respect to the default investment
of contributions made for that employee to the plan, if all of the
following requirements are met:

(A) The plan provides the participating employee at least
quarterly opportunities to select investments for the employee’s
contributions among investment alternatives available under the
plan.

(B) The participating employee is given notice of the investment
decisions that will be made in the absence of direction from the
employee, a description of all the investment alternatives available
for employee investment direction under the plan, and a brief
description of procedures available for the employee to change
investments.

(C) The employee is given at least annual notice of the actual
default investments made of contributions attributable to the
employee.

(2) The relief from liability of the employer under this section
extends to any employee retirement plan official who makes the
actual default investment decisions on behalf of participating
employees.

(c) Nothing in this section modifies any existing responsibility
of employers or other plan officials for the selection of investment
funds for participating employees.

(d) Nothing in this section or any other law shall be construed
as authorizing an employer to withhold or divert any portion of an
employee’s wages to pay any tax, fee, or charge prohibited by
Section 50026, whether or not the employee authorizes that
withholding or diversion.