SB 1297, as amended, Pan. Public employee retirement plans: automatic enrollment and escalation.
Existing federal law prescribes requirements for different types tax-qualified retirement plans that permit employees to contribute portions of theirbegin delete pre-taxend deletebegin insert pretaxend insert 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.
Thisbegin delete bill, notwithstanding any other law,end deletebegin insert billend insert would
authorize a state or local public employer participating in an employee supplemental retirement savings plan, defined to include specified deferred compensation 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 optionbegin insert and default investment planend insert that meetsbegin insert a variety ofend insert specifiedbegin delete criteria and is either a stable value product or a default investment options, as defined.end deletebegin insert
criteria, including providing employees an opportunity to opt out or withdraw.end insert The bill would provide that an employer that provides automatic enrollment or automatic escalation in an employee retirement planbegin insert subject to these provisionsend insert 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 thebegin delete plan, if specified requirements are met.end deletebegin insert plan.end 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 understandingbegin insert
or other collective bargaining agreementend insert authorizing those deductions. The bill would also prohibit an employer that makesbegin insert employerend insert contributions to an employee retirement planbegin delete on behalf of employeesend deletebegin insert that implements automatic enrollment of escalationend insert 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.begin insert The bill would prohibit vendors for the default investment plan from using that relationship to market other products. The
bill would prohibit personnel, including members of governing bodies, acting on behalf of an employer from receiving consideration from a vendor in exchange for the promotion of a vendor product.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:
Article 5 (commencing with Section 7523) is
2added to Chapter 21 of Division 7 of Title 1 of the Government
3Code, to read:
4
As used in this article:
9(a) “Automatic enrollment” means an employee supplemental
10retirement savings plan provision under which an employee will
11have a specified contribution made to the plan, equal to a
12compensation reduction, that will be made for the employee unless
13the employee affirmatively elects not to have any compensation
P3 1reduction contributions or elects a compensation reduction
2contribution in an alternative amount, in accordance with the
3federal Pension Protection Act of 2006 (Public Law 109-280). An
4employee supplemental retirement savings plan may provide for
5automatic enrollment whether or not the employee supplemental
6retirement savings plan elects to provide for
automatic escalation.
7(b) “Automatic escalation” means an employee supplemental
8retirement savings plan provision under which an employee’s
9salary reduction contribution to the plan is increased by a specified
10amount annually up to the limits imposed by the Internal Revenue
11Code of 1986, as amended, unless the employee affirmatively
12elects not to have the automatic escalation amount deducted from
13compensation or elects an alternative contribution reduction
14amount.
15(c) “Default investment option” means the investment option
16in which funds would be invested unless the employee selected
17an alternative investment option.
18
(d) “Default investment plan” means
the investment plan that
19provides the default investment option.
20(d)
end delete
21begin insert(e)end insert “Employee supplemental retirement savings plan” means a
22plan described in Sections 401(k) or 403(b), or a governmental
23deferred compensation plan described in Section 457, or a payroll
24deduction individual retirement account plan described in Sections
25408 or 408A, of the Internal Revenue Code of 1986, as amended.
26(e) “Stable value product”
end delete
27begin insert(f)end insertbegin insert end insertbegin insert“Capital Preservation Account”end insert means an investment
28product or fund designed to preservebegin delete principal, provide a rate of begin insert principalend insert and provide liquidity for
29return generally consistent with that earned on intermediate
30investment grade bonds,end delete
31withdrawals by participants and beneficiaries, including transfers
32to other investment alternatives, with both of the following
33characteristics:
34(1) It imposes no fees or surrender charges in connection with
35withdrawals initiated by a participant or beneficiary.
36
(1) It seeks to maintain, over the term of the investment, the
37dollar value that is equal to the amount invested.
38(2) It invests primarily in investment products that are backed
39by state or federally regulated financial institutions.
(a) This article shall apply to all state and local public
2employee supplemental retirement savings plans and to their
3participating employers.
4(b) The administration of this article shall comply with
5applicable provisions of the Internal Revenue Code and the
6Revenue and Taxation Code.
(a) begin deleteNotwithstanding any other law, and subject end deletebegin insertSubject end insert
8to thebegin delete conformingend delete limitations ofbegin delete Section 7523.4,end deletebegin insert this section,end insert a
9state or local public employer participating in an employee
10supplemental retirement savings plan may make a deduction from
11the wages or compensation of an employee for contributions
12
attributable to automatic enrollment and automatic escalation in
13the employee supplemental retirement savings plan, regardless of
14whether the plan is subject to the federal Employee Retirement
15Income Security Act of 1974, as amended (29 U.S.C. Sec. 1001
16etbegin delete seq.).end deletebegin insert seq.), and under the following conditions:end insert
17
(1) The deduction from the wages or compensation of an
18employee for contributions attributable to automatic enrollment
19or automatic escalation has been agreed to in a memorandum of
20understanding or other agreement that has been collectively
21bargained in accordance with applicable laws.
22
(2) The memorandum of understanding or other collective
23bargaining agreement described in paragraph (1) includes the
24percentage amount of agreed upon employee contributions and,
25if applicable, the amount of automatic escalation and related time
26periods for automatic escalation of employee contributions.
27(b) An employer that provides for automatic enrollment in a
28supplemental employee retirement savings plan shall provide a
29default investmentbegin insert plan and default investmentend insert option that shall
30meet all of the following criteria:
31(1) The defaultbegin delete optionend deletebegin insert
investment planend insert has been agreed to with
32affected employees in a memorandum of understandingbegin insert or other
33agreementend insert that has been collectively bargained in accordance with
34applicable laws. The agreement may identify a specific default
35investment option or allow thebegin delete savingsend deletebegin insert default investmentend insert plan
36administrator to select the default investmentbegin insert optionend insert in compliance
37with the requirements of this section.
38(2) The default investmentbegin delete is eitherend deletebegin insert
option isend insert a qualified default
39investment alternative, as defined in Section 2550.404c-5 of Title
P5 129 of the Code of Federal Regulations, effective April 30,begin delete 2008, begin insert 2008.end insert
2or a stable value product.end delete
3(3) Thebegin insert defaultend insert investment option does not impose fees or
4surrender charges in connection with withdrawals initiated by the
5plan participant or beneficiary.
6(4) Conditions for fiduciary relief described in Section
72550.404c-5 of Title 29 of the Code of Federal Regulations,
8effective
April 30, 2008, are met.
9(c) This section does not modify the fiduciary responsibly of
10employers or other plan officials for the selection of investment
11funds, other than the default investment option, for participating
12employees.
13
(5) The default investment plan offers a broad range of
14investment alternatives and provides the participating employee
15at least quarterly opportunities to select investments for the
16employee’s contributions among investment alternatives available
17under the plan.
18
(6) The participating employee is given notice
of the investment
19decisions that will be made in the absence of direction from the
20employee, a description of all the investment alternatives available
21for employee investment direction under the plan, and a brief
22description of procedures available for the employee to change
23investments.
24
(7) The employee is given at least annual notice of the actual
25default investments made from contributions attributable to the
26employee.
27
(8) The employee is given notice of his or her right to opt out
28from automatic enrollment, to revise investment amounts, and to
29choose an investment other than the default investment during the
30relevant opt-out period, as described in subdivision (a) of Section
317523.4.
32
(9) The employee is given notice of the 90-day elective
33withdrawal period from automatic enrollment, as described in
34subdivision
(b) of Section 7523.4.
35
(c) If the capital preservation account is selected as the default
36investment option, it shall not remain as the default investment
37option for more than 120 days after the date of the participant’s
38first contribution.
P6 1(d) The default investment option for state employees who
2participate in the Savings Plus Program shall be the default
3investment determined by the Savings Plus Program.
(a) (1) An employer that provides automatic
5enrollment or automatic escalation in an employee supplemental
6retirement savings planbegin insert subject to the requirements in Section
77523.2end insert is not liable for the investment decisions made that are
8subject to the provisions of Section 7523.2 on behalf of any
9participating employee with respect to the default investment of
10contributions made for that employee to the begin deleteplan, if all of the begin insert plan.end insert
11following requirements are met:end delete
12(A) The plan provides the participating employee at least
13quarterly opportunities to select investments for the employee’s
14contributions among investment alternatives available under the
15plan.
16(B) The participating employee is given notice of the investment
17decisions that will be made in the absence of direction from the
18employee, a description of all the investment alternatives available
19for employee investment direction under the plan, and a brief
20description of procedures available for the employee to change
21investments.
22(C) The employee is given at least annual notice of the actual
23default investments made of contributions attributable to the
24employee.
25(2) The relief from liability of the employer under this section
26extends to any employee supplemental retirement savings plan
27official who makes the actual default investment decisions on
28behalf of participating employees.
29(b) Nothing in thisbegin delete sectionend deletebegin insert articleend insert modifies anybegin delete existingend delete
30 responsibility of employers or other plan officials for the selection
31of investmentbegin delete fundsend deletebegin insert funds, other than
the default option,end insert for
32participating employees.
33(c) Nothing in thisbegin delete section or any other lawend deletebegin insert articleend insert shall be
34construed as authorizing an employer to withhold or divert any
35portion of an employee’s wages to pay any tax, fee, or charge
36prohibited by Section 50026, whether or not the employee
37authorizes that withholding or diversion.
(a) begin deleteAn end deletebegin insertThe employee shall have the opportunity to opt
39out of the default investment plan prior to enrollment, as may be
40applicable, and for a period of no less than 30 days following
P7 1enrollment in the plan. Contributions shall not be made to the plan
2on behalf of the employee pursuant to automatic enrollment during
3the opt-end insertbegin insertout period. During the optend insertbegin insert-out period, the employee may
4choose to opt-out of automatic enrollment, choose an
investment
5amount other than the default investment amount, or choose an
6investment other than the default investment option.end insert
7
(b) An employee shall have a 90-day elective withdrawal period
8that shall begin on the date of the employee’s first contribution to
9the default investment option during which the employee may elect
10to withdraw from automatic enrollment. During this period, the
11employee may also elect to withdraw funds from the default
12investment option or to transfer funds from the default investment
13option to another investment in the default plan or to another
14investment of the employee’s outside of the default investment plan.
15During this period, the employee shall not be subject to any
16restrictions, fees, or expenses, including surrender charges,
17liquidation or exchange fees, redemption fees, or similar expenses
18charged in
connection with the liquidation of, or transfer from,
19the investment.
20
(c) An employee subject to automatic enrollment or automatic
21escalation of contributions shall have the opportunity to choose
22a different investment amount than the amount determined for
23automatic enrollment and escalation.
24begin insert(d)end insertbegin insert end insertbegin insertAnend insert employer shall not make deductions from the
25compensation of represented employees, as described in Section
267523.2, in the absence of a memorandum of understandingbegin insert or other
27collective bargaining agreementend insert authorizing those deductions that
28has been
collectively bargained in accordance with applicable
29laws.begin insert
An employer shall not impose provisions upon represented
30employees following an impasse in collective bargaining.end insert
31
(e) An employer that implements an automatic enrollment or
32escalation pursuant to this article may also include related
33non-represented employees.
34(b)
end delete
35begin insert(f)end insert An employer that makesbegin insert
employerend insert contributions to an
36employee supplemental retirement savings planbegin delete on behalf of begin insert end insertbegin insertthat implements automatic enrollment or escalationend insert
37employeesend delete
38 shall not contribute at a greater rate to the plan for nonrepresented,
39managerial, or supervisory employees than the employer
P8 1contributes for represented employees who are in related retirement
2membership classifications except if either of the following apply:
3(1) The related represented employees have agreedbegin insert notend insert
to receive
4begin insert an employer contribution or end insertbegin inserthave agreed toend insert a lower rate of
5begin insert employerend insert
contribution in a memorandum of understandingbegin insert or other
6agreementend insert that has been collectively bargained in accordance with
7applicable laws.
8(2) The related represented employees have agreed to not
9participate inbegin insert automatic enrollment or escalation inend insert the employee
10supplemental retirement savings plan in a memorandum of
11understandingbegin insert or other agreementend insert that has been collectively
12bargained in accordance with applicable laws.
13
(g) The vendor selected for the default investment plan shall
14not use its relationship with participants of the plan to market
15other products provided by the vendor that are not included in the
16default investment plan.
17
(h) Personnel, including members of a governing body, acting
18on behalf of an employer shall not receive consideration from a
19vendor in exchange for the promotion of a particular vendor or
20vendor’s products. If it is determined that a person acting on behalf
21of an employer received this type of consideration, the applicable
22memorandum of understanding or other collective bargaining
23agreement shall be reopened and its provisions relative to
24automatic enrollment or escalation may, at that time, be
25
renegotiated.
26
(i) A memorandum of understanding or other collective
27bargaining agreement made to implement this article that affects
28school employees shall be affirmatively negotiated by the local
29bargaining unit representing employees affected by the agreement.
(a) Implementation of a collectively bargained default
31investment plan and automatic enrollment is not intended to limit
32the choice of investments that employees have. This article shall
33not serve to limit the choice of investment options or plans
34available to an employee from other investment vendors or
35providers. Investment plans that were available to the employee
36prior to the implementation of automatic enrollment into a default
37investment plan shall not be reduced or eliminated as a direct
38result of implementing automatic enrollment into a default
39investment plan.
P9 1
(b) An employee who contributes to a supplemental retirement
2savings plan other than the default plan shall not have his or her
3contribution to the other plan modified as a
direct result of
4implementing automatic enrollment in a default investment option.
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