BILL NUMBER: SB 1297 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 5, 2016
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.
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.
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.
This bill, notwithstanding any other law, would authorize a state
or local public employer participating in an employee
supplemental retirement savings plan, defined to
include certain defined benefit plans,
specified deferred compensation plans, or
plans and 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 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. 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. 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.
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 supplemental
retirement savings 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
supplemental retirement savings plan may
provide for automatic enrollment whether or not the employee
supplemental retirement savings plan elects to
provide for automatic escalation.
(b) "Automatic escalation" means an employee supplemental
retirement savings 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) "Default investment option" means the investment option in
which funds would be invested unless the employee selected an
alternative investment option.
(c)
(d) "Employee supplemental retirement
savings 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.
(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:
(1) It imposes no fees or surrender charges in connection with
withdrawals initiated by a participant or beneficiary.
(2) It invests primarily in investment products that are backed by
state or federally regulated financial institutions.
7523.1. (a) This article shall apply to all state and local
public employee supplemental retirement savings
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, and subject to
the conforming limitations of Section 7523.4, a state or local
public employer participating in an employee supplemental
retirement savings 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
supplemental retirement savings 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) 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:
(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.
(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.
(3) The investment option does not impose fees or surrender
charges in connection with withdrawals initiated by the plan
participant or beneficiary.
(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.
(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.
(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.
(b)
7523.3. (a) (1) An employer that
provides automatic enrollment or automatic escalation in an employee
supplemental retirement savings plan is not
liable for the investment decisions made by the employer
that are subject to the provisions of Section 7523.2
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 supplemental retirement
savings plan official who makes the actual default
investment decisions on behalf of participating employees.
(c)
(b) Nothing in this section modifies any existing
responsibility of employers or other plan officials for the selection
of investment funds for participating employees.
(d)
(c) 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.
7523.4. (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.