BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 637
Lou Correa, Chair Hearing date: June 8, 2009
AB 637 (Hill) as amended 4/2/09 FISCAL: YES
PERS: ELECTRONIC FUNDS TRANSFER OF EMPLOYER CONTRIBUTIONS
HISTORY :
Sponsor: California Public Employees' Retirement System
(PERS)
Prior legislation: none
ASSEMBLY VOTES :
PER & SS 6-0 4/22/09
Appropriations 16-0 5/06/09
Assembly Floor 73-0 5/14/09
SUMMARY :
Would require PERS contracting agencies to use Electronic
Funds Transfer (EFT) for the payment of amounts due to PERS
and changes the method for calculating interest on late
employer payments, as specified.
BACKGROUND AND ANALYSIS :
1) Existing PERS law :
a) allows PERS contracting agencies may pay their
employees' retirement contributions and health premiums
through EFT, or through paper check, and
b) permits PERS to charge contracting agencies interest on
late payments, using a rate approximating the average rate
of return on investments.
2) This bill :
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Date: 5/28/09 Page 1
a) authorizes the PERS Board to require contracting
agencies to make payments for retirement contributions and
health premiums due to PERS through EFT,
b) specifies that this requirement only becomes effective
upon declaration of the PERS Board,
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Date: 5/28/09 Page 2
c) allows a PERS contracting agency that is unable to
comply with the EFT requirement to apply to the PERS Board
for a waiver allowing the agency to pay in an alternate
manner, as determined by the Board, but not by credit card,
d) defines the term "electronic funds transfer" as used in
this part, and
e) changes the method for calculating interest on late
employer payments so that interest will be charged at the
actuarial interest rate on amounts due and unpaid by a
CalPERS contracting agency.
FISCAL EFFECT :
According to the Assembly Appropriations analysis:
"Significant administrative savings and investment earnings
to CalPERS due to reduced processing costs and earlier
receipt of investable funds from its contracting agencies."
COMMENTS :
1) Arguments in support
According to the sponsor, PERS:
"EFT payments reduce manual processing and potential
errors, increasing efficiency. It is also environmentally
sound, and consistent with industry best practices. Both
CalPERS and contracting employers will be able to predict
exactly when money will be withdrawn from or deposited and
plan accordingly. EFT also permits CalPERS to provide
payroll reports online, allowing contracting agencies and
employees faster access to their accounts, with fewer
errors or lags in posting information.
The current method of calculating interest charges limits
CalPERS' ability to take advantage of the new EFT mandate
by collecting interest in a timely manner. CalPERS
captures the interest on late payments by adding it to the
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Date: 5/28/09 Page 3
employer's existing liabilities on which their contribution
rates are based. This method was adopted primarily because
CalPERS' information technology (IT) systems were unable to
support alternate means of capturing interest. The
upcoming consolidation of CalPERS' legacy IT systems into a
single database will allow the system to track employer
payments and account balances in real-time to encourage
timely payments. Unless the basis for calculating interest
charges on late payments is changed, CalPERS will be unable
to fully realize the increases in speed and efficiency made
possible by the new database. Charging a fixed interest
rate will enhance CalPERS' administrative efficiency, and
benefits employers by providing them up-to-date fiscal
information and improving their budget planning."
2) OPPOSITION :
None to date #####
David Felderstein
Date: 5/28/09 Page 4