BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 104 - Calderon
Amended: April 1, 2009
Hearing: July 8, 2009 Tax Levy Fiscal: Yes
SUMMARY: Conforms California Law to Changes in the Pension
Protection Act of 2006 Waiving 10% Additional Tax
on Certain Distributions of Pension Plans.
EXISTING FEDERAL LAW provides an exception to the 10%
additional early withdrawal tax for qualified public safety
employees, as defined. Generally, taxpayers under the age
of 59 must pay a 10% additional tax applies to withdrawals
from government employee retirement plans. Congress
specifically exempted qualified public safety employees who
separate from service after age 50 from the withdrawal tax
in the Pension Protection Act (PPA) of 2006.
EXISTING STATE LAW does not conform to this provision.
THIS BILL conforms state law to the exemption from the
10% early withdrawal tax for retirement payments made to
qualified public safety employees who separate from service
after age 50 beginning in the 2010 tax year..
FISCAL EFFECT:
According to FTB, AB 104 results in revenue losses of
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$90,000 in 2009-10, and $200,000 in 2010-11 and 2011-12.
COMMENTS:
A. Purpose of the Bill
According to the Author, "This bill would provide
much-needed tax relief for public safety employees and
would bring California into further conformity with the
federal tax law by waiving the 2.5% early withdrawal
penalty on distributions from pension plans."
B. Pulling Out Early
AB 104 conforms state law to the 2006 exception
enacted by Congress to the 10% tax on pension plan
withdrawals for qualified public safety employees.
Generally, making withdrawals from one's pensions plan
triggers a penalty, or else tax-preferred retirement
accounts would more closely resemble tax-advantaged savings
accounts. Congress, in the not so aptly named Pension
Protection Act, waives the penalty for qualified public
safety employees leaving service after 50 but not yet 59.
Adopting AB 104 and catching California law up will ensure
that affected taxpayers don't have to pay an additional
state tax when the federal tax does not exist, a rarity in
the tax treatment of pension plans.
The provisions of AB 104 have been part of state
conformity bills since Congress enacted the PPA; however,
the Legislature has not enacted a conformity bill since
2005. Proponents have instead pulled out of the general
conformity bill, AB 1580 (Committee on Revenue and
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Taxation) which the Committee will consider today, and are
instead pursuing a stand-alone measure in the hopes that
this individual provision is more likely to be enacted than
the conformity bill.
Support and Opposition
Support:Peace Officers Research Association of
California; California Professional Firefighters; Riverside
Sheriffs' Association; Association of Los Angeles Deputy
Sheriffs
Oppose: None received
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Consultant: Colin Grinnell