BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1139|
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THIRD READING
Bill No: SB 1139
Author: Correa (D)
Amended: As introduced
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 6-0, 4/12/10
AYES: Correa, Ashburn, Corbett, Cox, Ducheny, Liu
SUBJECT : Public Employees Retirement Law
SOURCE : Public Employees Retirement System, Board of
Administration
DIGEST : This bill makes several technical and
non-controversial changes to various sections of the
Government Code administered by the Public Employees'
Retirement System (PERS) and grants PERS authority to offer
and manage expanded retirement savings options currently
authorized under federal law.
ANALYSIS :
Existing Law
1.Requires up to a two percent annual cost-of-living
adjustment (COLA) in May for state and school employee
retirees (depending on the Consumer Price Index) and a
two percent to five percent adjustment (subject to
contract options) for local public employee retirees, and
requires that retiree pensions be increased annually in
CONTINUED
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January to preserve 75 percent of original purchasing
power for state and school employee retirees and 80
percent of original purchasing power of retirees of local
public agencies contracting with PERS.
2.Provides a comprehensive set of rights and benefits for
judges. That law, the Public Employees' Retirement Law
(PERL) and the Judges' Retirement System (JRS) II Law,
set forth the provisions of the delivery of benefits,
including benefits, including benefits for retired
judges, administered by PERS.
3.Provides that (a) PERS may offer 403(b) and 457 deferred
compensation retirement plans to local public agencies
and school districts in which participants make pre-tax
contributions for retirement savings, (b) the State
Teachers Retirement System (STRS) may offer a Roth
Individual Retirement Account (IRA) for the purpose of
rolling over assets held in an annuity contract or
custodial account offered by the system, and (c) the
Department of Personnel Administration (DPA) may
administer 401(k) and 457 retirement accounts to most
State employees, including employees of the Legislature,
Judicial and California State University (CSU) system.
This bill:
1.Coordinates the date for adjustment of COLA and the
Purchasing Power Protection Allowance (PPPA) in the same
month each year.
2.Makes a minor, technical change to the Public Employees'
Medical and Hospital Care Act to align it with language
contained in the JRS II Law.
3.Expands the types of savings and opportunities offered to
public employees of a participating employer under the
PERS deferred compensation program, and makes other
conforming changes to the statutes governing the program.
Comments
1. Coordinating the Timing of Annual COLA and PPPA
Adjustments. According to PERS, by coordinating the
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timing of COLA and PPPA adjustments, retiree benefits
will only be adjusted once annually, reducing
administrative costs and benefit fluctuations.
In the first year of implementation, PPPA adjustments
will be deferred from January to May to synchronize the
two benefits. However, the total amounts paid to
retirees will be equal to what would have been paid prior
to the administrative change, thereby ensuring that this
provision will be cost neutral.
2. Health Benefits for Judges Who Leave Office Early . This
minor, technical change does not create an additional
benefit or cost beyond what is currently provided by
statute.
3. Tax-Deferred vs. Tax-Preferred Retirement Accounts .
Deferred compensation plans reduce taxable income while
saving pre-tax dollars, gain interest on tax-deferred
investments, and not taxed until money is withdrawn.
Alternatively, tax-preferred retirement accounts, such as
the Roth individual retirement account (IRA) and Roth
403(b), require income taxes to be paid on contributions,
but distributions are tax free if certain conditions are
met. Additionally, earnings and gains on amounts in a
Roth contribution program are not taxed if the
withdrawals are qualified distributions. Otherwise, they
are taxed once they are withdrawn.
4. Expanding Retirement Savings Products Offered:
Tax-Preferred Retirement Accounts . According to PERS,
changes in federal and state law have occurred since
enactment of the enabling statutes authorizing
establishment of the PERS Deferred Compensation Program
in 1991.
Although PERS may offer 457 and 403(b) plans to local
public agencies and school districts, the Economic Growth
and Tax Relief Reconciliation Act of 2001 expanded
employees' ability to save pre-tax compensation for their
retirement. This act amended in 2006 to allow employees
to designate some or all of their elective contributions
designated after-tax or Roth contributions rather than
traditional, pre-tax elective contributions.
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Because the enabling statutes for PERS' Deferred
Compensation Program predate many of these changes, this
expansion allows PERS to offer after-tax savings
arrangements such as the Roth 457 and Roth 401(k), Roth
IRA and other non-traditional savings arrangements
authorized under federal law, to better meet the needs of
local agency employers and employees while centralizing
and providing additional supplements to PERS' retirement
plan.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 4/13/10)
Public Employees' Retirement System, Board of
Administration (source)
American Federation of State, County and Municipal
Employees, AFL-CIO
CPM:cm 4/14/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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