Amended in Senate April 5, 2016

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 amended, Pan. Public employee retirement plans: automatic enrollment and escalation.

begin delete

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.

end delete begin delete

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

end delete begin insert

Existing federal law prescribes requirements for different types tax-qualified retirement plans that permit employees to contribute portions of their pre-tax wages to individual retirement accounts or that provide for deferred compensation. Existing law authorizes the Department of Human Resources to establish and administer tax-deferred saving plans in accordance with specified provisions of federal law.

end insert

This bill, notwithstanding any other law, would authorize a state or local public employer participating in an employee begin insert supplemental end insert retirement begin insert savings end insert plan, defined to include begin delete certain defined benefit plans, end delete begin insert specified end insert deferred compensation begin delete plans, or end delete begin insert plans and end insert 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. begin insert The bill would require an employer that provides for automatic enrollment in a supplemental retirement savings to provide a default investment option that meets specified criteria and is either a stable value product or a default investment options, as defined. end insert 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. begin insert The bill would prohibit an employer from making deductions from the compensation of represented employees in the absence of a collectively bargained memorandum of understanding authorizing those deductions. The bill would also prohibit an employer that makes contributions to an employee retirement plan on behalf of employees from contributing at a greater rate for nonrepresented, managerial, or supervisory employees than that contributed for represented employees who are in related retirement membership classifications, except in specified instances. end insert

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 begin insert supplemental end insert
retirement begin insert savings end insert 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 begin insert supplemental end insert retirement begin insert savings end insert plan may provide for
automatic enrollment whether or not the employee begin insert supplemental end insert
retirement begin insert savings end insert plan elects to provide for automatic escalation.

(b) “Automatic escalation” means an employee begin insert supplemental end insert
retirement begin insert savings end insert 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.

begin insert

(c) “Default investment option” means the investment option
in which funds would be invested unless the employee selected an
alternative investment option.

end insert begin delete

(c)

end delete

begin insert (d) end insert  “Employee begin insert supplemental end insert retirement begin insert savings end insert 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.

begin insert

(e) “Stable value product” means an investment product or
fund designed to preserve principal, provide a rate of return
generally consistent with that earned on intermediate investment
grade bonds, and provide liquidity for withdrawals by participants
and beneficiaries, including transfers to other investment
alternatives, with both of the following characteristics:

end insert begin insert

(1) It imposes no fees or surrender charges in connection with
withdrawals initiated by a participant or beneficiary.

end insert begin insert

(2) It invests primarily in investment products that are backed
by state or federally regulated financial institutions.

end insert

7523.1.  

(a) This article shall apply to all state and local public
employee begin insert supplemental end insert retirement begin insert savings end insert 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, begin insert and subject to the
conforming limitations of Section 7523.4, end insert a state or local public
employer participating in an employee begin insert supplemental end insert retirement
begin insert savings end insert 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
begin insert supplemental end insert retirement begin insert savings end insert 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.).

begin insert

(b) An employer that provides for automatic enrollment in a
supplemental employee retirement savings plan shall provide a
default investment option that shall meet all of the following
criteria:

end insert begin insert

(1) The default option has been agreed to with affected
employees in a memorandum of understanding that has been
collectively bargained in accordance with applicable laws. The
agreement may identify a specific default investment option or
allow the savings plan administrator to select the default
investment in compliance with the requirements of this section.

end insert begin insert

(2) The default investment is either a qualified default investment
alternative, as defined in Section 2550.404c-5 of Title 29 of the
Code of Federal Regulations, effective April 30, 2008, or a stable
value product.

end insert begin insert

(3) The investment option does not impose fees or surrender
charges in connection with withdrawals initiated by the plan
participant or beneficiary.

end insert begin insert

(4) Conditions for fiduciary relief described in Section
2550.404c-5 of Title 29 of the Code of Federal Regulations,
effective April 30, 2008, are met.

end insert begin insert

(c) This section does not modify the fiduciary responsibly of
employers or other plan officials for the selection of investment
funds, other than the default investment option, for participating
employees.

end insert begin insert

(d) The default investment option for state employees who
participate in the Savings Plus Program shall be the default
investment determined by the Savings Plus Program.

end insert begin delete

(b) 

end delete

begin insert

begin insert 7523.3. end insert   

end insert

begin insert (a) end insert begin insert   end insert (1) An employer that provides automatic
enrollment or automatic escalation in an employee begin insert supplemental end insert
retirement begin insert savings end insert plan is not liable for the investment decisions
made begin delete by the employer end delete begin insert that are subject to the provisions of Section
7523.2 end insert 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 begin insert end insert begin insert supplemental end insert retirement begin insert savings end insert plan
official who makes the actual default investment decisions on
behalf of participating employees.

begin delete

(c)

end delete

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

begin delete

(d)

end delete

begin insert (c) end insert  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.

begin insert

begin insert 7523.4. end insert   

(a) An employer shall not make deductions from the
compensation of represented employees, as described in Section
7523.2, in the absence of a memorandum of understanding
authorizing those deductions that has been collectively bargained
in accordance with applicable laws.

(b) An employer that makes contributions to an employee
supplemental retirement savings plan on behalf of employees shall
not contribute at a greater rate to the plan for nonrepresented,
managerial, or supervisory employees than the employer
contributes for represented employees who are in related
retirement membership classifications except if either of the
following apply:

(1) The related represented employees have agreed to receive
a lower rate of contribution in a memorandum of understanding
that has been collectively bargained in accordance with applicable
laws.

(2) The related represented employees have agreed to not
participate in the employee supplemental retirement savings plan
in a memorandum of understanding that has been collectively
bargained in accordance with applicable laws.

end insert