BILL ANALYSIS
AB 125
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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 125 (De Leon) - As Introduced: January 15, 2009
Policy Committee: P.E.R. & S.S.
Vote: 4-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the California Public Employment Retirement
System (CalPERS) to study and, if feasible, implement, a program
that offers individual retirement accounts (IRAs) or defined
benefit plans to all California workers who do not have access
to employer-sponsored retirement plans.
FISCAL EFFECT
Costs associated with this bill can be divided into three
phases:
1)The initial study and approval phase . This initial phase takes
effect only when sufficient funds are appropriated in the
annual state budget or are made available from a nonprofit or
private entity to allow CalPERS to initiate a feasibility
study and to obtain the federal approvals necessary to
implement the program. Costs for this phase would be between
$400,000 and $1.7 million over two years. The amount would
depend, in part, on findings from initial marketing surveys
and other studies on the financial feasibility of the program.
2)Implementation phase . If the program is determined to be
feasible and is implemented, the state will incur additional
start up costs, potentially exceeding $10 million, to market
the program to workers and to implement recordkeeping,
collections, and processing functions. These costs would
eventually be recouped from fees deducted from participants'
contributions, but they would initially need to be covered
from an appropriation or a loan from the General Fund or other
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sources.
3)Ongoing phase . Costs during this phase would be covered by
fees deducted from participants' contributions.
SUMMARY (CONTINUED)
Specifically, this bill:
1)Requires CalPERs to offer one or more IRAs under the program
or defined benefit plans. These include traditional IRAs,
payroll deduction IRAs, SIMPLE IRAs, or other IRAs authorized
under federal law.
2)Allows employers that do not have a retirement plan to
participate in the program, to automatically enroll their
employees, and make contributions to their employees' IRA
accounts.
3)Requires employers that do not participate in the program to
allow individual employees to designate a portion of their
wages to be processed and forwarded by the employer to the
program.
4)Authorizes CalPERS to market the program to employers and
employees, and provide retirement education services to
participants.
5)Authorizes, but does not require, the state employment
development department (EDD) to participate in the development
and administration of the Program.
6)Indemnifies, from the General Fund, and holds harmless board
members and employees, and investment managers under contract
with CalPERS, with regard to any decisions or actions made in
connection with the savings program.
7)Specifies that the bill will become operative only when
funding becomes available for CalPERS to study the feasibility
of the program.
8)Specifies that the savings program will be implemented only
after (a) CalPERS submits a report to the Legislature that
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concludes the program is feasible and has received federal
approval; and (b) the Legislature appropriates funds in the
annual budget to cover the cost of the program.
COMMENTS
1)Background . CalPERS provides pension and health benefits to a
variety of public employees, including state, local agency,
and classified school employees. Existing federal law provides
for tax-qualified retirement plans and various types of
individual retirement accounts and individual retirement
annuities.
2)Rationale . The bill is aimed at improving savings
opportunities for workers who currently do not have access to
an employer-provided retirement plan. The sponsor asserts that
six million Californians, 43% of the state's workforce, work
at jobs that do not offer a pension or a retirement savings
plan to supplement Social Security. Absent these
opportunities, these workers are not saving adequately for
retirement. This bill is intended to provide these workers
with a low-cost and portable retirement option.
3)Opponents (including associations of life insurance, health
insurance, and securities companies) assert that there is
already a private market for IRAs. They also assert that
CalPERS would incur significant startup costs that it can ill
afford during this economic downturn.
4)Previous legislation . This bill is similar to AB 2940 (De
Leon) of 2008, which was held in the Senate Appropriations
Committee.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081