BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 1248
Gloria Negrete McLeod, Chair Hearing date: June 27, 2011
AB 1248 (Hueso) as amended 5/23/11 FISCAL: NO
PUBLIC EMPLOYEES: SOCIAL SECURITY COVERAGE FOR PUBLIC
EMPLOYEES NOT COVERED UNDER A DEFINED BENEFIT PLAN
HISTORY :
Sponsor: Author
Prior legislation: None
ASSEMBLY VOTES :
Rules 9-0 4/28/11
PER & SS 4-1 5/04/11
Assembly Floor 53-24 5/23/11
Assembly Floor 52-24 5/27/11
SUMMARY :
AB 1248 requires all local public employers to provide Social
Security coverage to any employee not covered under a defined
benefit retirement plan.
BACKGROUND AND ANALYSIS :
1) Existing state laws :
a) create public retirement systems for public employees,
which, in general, provide defined benefits that are
calculated by multiplying a member's age factor, years of
service, and highest average compensation, as specified
by the retirement system.
b) specify that a defined benefit is paid as a retirement
allowance for the member-retiree's lifetime and, as an
option to the member, the lifetime of his or her survivor
at a reduced actuarial amount.
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Date: 6/22/11 Page 1
c) in general, require that an employee who works a 50% or
higher time base must be included in the employer's
defined benefit retirement plan.
2) Existing federal laws :
a) require that employees be mandatorily included in
Federal Old Age and Survivor's Insurance (i.e., Social
Security) unless they are members of a public retirement
system.
b) require a public employer that does not provide Social
Security to provide a retirement benefit meeting minimum
standards, as specified by federal regulations.
c) allow public employers to contract to provide Social
Security coverage for their employees.
3) Who has Social Security ?
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| SS Coverage | No SS Coverage |
|------------------------------+----------------------------------|
|State Miscellaneous and |State Safety, Peace |
|Industrial, including |Officer/Firefighter, Patrol |
|Judicial and Legislative | |
|Branches | |
|------------------------------+----------------------------------|
|School Classified Employees |Teachers |
|------------------------------+----------------------------------|
|Most Local Miscellaneous or |Some Local Miscellaneous Members |
|General Members | |
|------------------------------+----------------------------------|
|Some Local Safety Members |Most Local Safety Members |
-----------------------------------------------------------------
As noted above, most local public employers have programs
similar to the state employee program in which
miscellaneous or general employees are included in Social
Security, and safety employees are not. However, some
local employers have opted to cover all employees under
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Date: 6/22/11 Page 2
Social Security (including Safety employees) and some local
employers have opted to stay out of Social Security
entirely for all employees (even General or Miscellaneous
employees).
Up until 1951, public employees were not included in Social
Security. In 1951, states were given the option of
including employees in Social Security. In 1991, federal
laws changed once more, and all employees have since then
been required to be covered by Social Security unless they
are public employees and covered under a pension plan that
meets the minimum federal requirements for coverage. The
federal laws, however, do not require that the coverage be
under a traditional defined benefit plan.
4) Part-time, Seasonal, and Temporary Employees
One group of employees does not fit neatly into this
either/or scenario. Part-time, seasonal, and temporary
employees often do not work enough hours to be included in
the public employer's defined benefit plan. Some of those
employers do not provide Social Security either. In such
cases, the employer must provide an alternate retirement
plan that meets federal requirements. For example, the
State Teacher's Retirement System administers the Cash
Benefit Program for part-time teachers, which is separate
and different from the main defined benefit plan, and may
be paid at retirement as a lifetime annuity or as a
lump-sum. Similarly, the Department of Personnel
Administration administers an alternate retirement plan for
part-time, seasonal, and temporary state employees.
Some alternate retirement plans are provided in addition to
Social Security, and some are stand-alone programs offered
in lieu of Social Security.
This bill could have the effect of forcing those employers
who only have alternate plans for their part-time,
seasonal, and temporary employees to provide social
Security benefits as well.
The committee recommends that the bill be amended to
grandfather existing alternate benefit plans for public
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employers that are currently in effect before being
referred out of the committee. The committee is informed
by the author that the bill is not intended to create new
costs for public employers or employees, and responds that
he will offer amendments in committee to amend the bill as
recommended.
FISCAL :
Unknown, but could be substantial for some employers if they
are required to provide defined pension benefits or Social
Security in addition to, or instead of, the alternate
retirement benefits they currently provide for specified
employees.
COMMENTS :
1) Arguments in Support
According to the author:
In 1981, San Diego determined to opt out of Social
Security and provide its employees its own defined
benefit pension plan. Today, San Diego would like to
eliminate the defined benefit pension plan by vote of
the people and replace it with a 401(k) plan?Volatility
in the stock market raises concerns about the security
of defined contribution retirement systems. This
volatility becomes an even larger concern for workers
who would not be covered under the federal Social
Security system.
Allowing local governments to offer a 401(k) only
retirement system will leave workers without a financial
safety net in their retirement years and will shift the
burden to the state in the long-run. If retired workers
require health services, Medi-Cal will have to step in.
Our state's budget for Medi-Cal today is $41 billion,
$13 billion of which comes directly from the state's
general fund. If workers do not have enough money in
their 401(k) when they retire, as is common with 401(k)
plans, California will have to supplement their income
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through our already burdened SSI/SSP program. These
costs are currently $2.7 billion and already represent
the highest figures in the nation. Allowing California
workers to participate in the Social Security System
will protect them in the future.
California School Employees Association supports AB 1248,
stating that:
"The current economic recession has made it increasingly
clear that a 401(k) system does not provide a secure
retirement savings because they can be deleted or wiped
out. AB 1248 provides a sensible requirement to ensure
that public employees who dedicated their lives to the
betterment of our schools, city and state have access to
a meaningful retirement system."
2) Argument in Opposition
Writing in opposition, the California State Association of
Counties states that:
Some part-time, seasonal, and temporary employees are
not in Social Security and have optional retirement
plans that are separate and different from the
traditional defined benefit plans. CSAC request an
amendment to exempt this sub-group of employees from the
bill's requirement:
For a limited group of part-time, temporary, and
seasonal employees an alternative to social security or
a defined benefit is provided consistent with the
federal Internal Revenue Code Section 3121(b)(7)(F).
These employees are not eligible for participation in
the county's defined benefit plan due to the limited
hours they work and their county employer does not
participate in social security.
3) SUPPORT :
American Federation of State, County and Municipal
Employees (AFSCME), AFL-CIO
California Alliance for Retired Americans (CARA)
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Date: 6/22/11 Page 5
California Labor Federation (CLF)
California Professional Firefighters (CPF)
California School Employees Association (CSEA), AFL-CIO
California Teamsters Public Affairs Council
Glendale City Employees Association (GCEA)
Organization of SMUD Employees (OSE)
Peace Officers Research Association of California (PORAC)
San Bernardino Public Employees Association (SBPEA)
San Diego and Imperial Counties Labor Council
San Luis Obispo County Employees Association (SLOCEA)
Santa Rosa City Employees Association (SRCEA)
United Nurses Associations of California/Union of Health
Care Professionals (UNAC/UHCP)
4) OPPOSITION :
California State Association of Counties (CSAC), Oppose
unless amended
Los Angeles County Board of Supervisors
Regional Council of Rural Counties (RCRC)
#####
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Date: 6/22/11 Page 6