BILL ANALYSIS Ó
SB 1234
Page 1
SENATE THIRD READING
SB 1234 (De León and Steinberg)
As Amended August 20, 2012
Majority vote
SENATE VOTE :23-13
LABOR & EMPLOYMENT 5-2 PUBLIC EMPLOYEES 4-2
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|Ayes:|Swanson, Ammiano, Allen, |Ayes:|Furutani, Allen, Ma, |
| |Furutani, Yamada | |Wieckowski |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Morrell, Gorell |Nays:|Mansoor, Harkey |
| | | | |
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APPROPRIATIONS 12-5
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|Ayes:|Gatto, Blumenfield, | | |
| |Bradford, Charles | | |
| |Calderon, Campos, Davis, | | |
| |Fuentes, Hall, Hill, | | |
| |Cedillo, Mitchell, | | |
| |Solorio | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey, Donnelly, | | |
| |Nielsen, Norby, Wagner | | |
| | | | |
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SUMMARY : Establishes the California Secure Choice Retirement
Savings Program (Program) to operate as a state-administered
retirement savings plan for private sector workers who do not
participate in any other type of employer-sponsored retirement
savings plan. Specifically, this bill :
1)Establishes the California Secure Choice Retirement Savings
Investment Board (Board) to consist of the State Treasurer,
the Director of Finance (or his or her designee), the State
Controller, an individual with retirement savings and
investment expertise appointed by the Senate Rules Committee,
a small business representative appointed by the Governor, a
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public member appointed by the Governor, and an employee
representative appointed by the Speaker of the Assembly.
2)Requires the Board to conduct an initial market analysis to
determine whether the necessary conditions for implementation
of the Program can be met, as specified.
3)Provides that the Program will only become operative if the
Board notifies the Director of Finance that, based upon the
market analysis, the Program can be self-sustaining and only
if implementation costs are made available from a nonprofit or
private entity, the federal government, or a budget
appropriation.
4)Requires the Board to forward and offer to present the
findings of the market analysis to the Chair of the Senate
Labor and Industrial Relations Committee, the Chair of the
Assembly Labor and Employment Committee, the Chair of the
Senate Public Employment and Retirement Committee, and the
Chair of the Assembly Public Employees, Retirement and Social
Security Committee.
5)Establishes the Program to include one or more individual
retirement account (IRA) arrangements for private sector
employees to operate under the following parameters:
a) The Board, prior to July 1 of the initial Program year
and annually thereafter, to adopt a Program amendment in
coordination with the investment management entity or
entities to declare the stated rate at which interest shall
be allocated to accounts for the following year.
b) Provides that an individual's retirement savings benefit
under the Program shall be an amount equal to the balance
of an individual's program account on the date the
retirement savings account becomes payable.
c) Requires the Board to set minimum and maximum investment
levels in accordance with contribution limits set forth for
IRAs by the Internal Revenue Code.
d) Authorizes the Board to allow participating employers to
use the Program to contribute to their employees'
individual retirement accounts on their employees' behalf
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or match their employees' contributions, provided that the
contributions would be permitted under the Internal Revenue
Code and would not cause the program to be treated as an
employee benefit plan under the Employee Retirement Income
Security Act (ERISA).
6)Provides that after the Board opens the Program for
enrollment, any employer may choose to have a payroll deposit
retirement savings arrangement to allow employee participation
in the Program. Thereafter the following timeline would
apply:
a) Beginning three months after opening of enrollment,
employers of 100 or more employees must have an arrangement
to allow employees to participate in the Program.
b) Beginning six months after opening of enrollment,
employers of 50 or more employees must have an arrangement
to allow employees to participate in the Program.
c) Beginning nine months after opening of enrollment,
employers of five or more employees must have an
arrangement to allow employees to participate in the
Program.
7)Requires the Board, prior to opening the Program for
enrollment, to disseminate an employee information packet and
disclosure form to employers that, among other things, clearly
articulates that the program is privately insured and not
guaranteed by the State of California and includes an opt-out
form for eligible employees.
8)Provides that an employer who, without good cause, fails to
allow its employees to participate in the Program within 90
days after being notified of failure to comply by the
Employment Development Department, shall pay a penalty of $250
per eligible employee. If the employer if found to be in
willful noncompliance 180 days after the notice shall be
subject to an additional penalty of $500 per eligible
employee.
9)Requires each eligible employee to be enrolled in the Program
unless the employee opts out as specified, and provides for an
open enrollment period.
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10)Provides that, unless otherwise specified by the employee, a
participating employee shall contribute 3% of their annual
salary or wages into the Program (which may be adjusted by the
Board to between 2% and 4%).
11)Establishes a trust (Trust) to be administered by the Board
and requires moneys to be segregated into a program fund and
an administrative fund. Annual expenditures from the
administrative fund shall not exceed more than 1% of the total
program fund.
12)Establishes guiding principles and restrictions for
investment policy of Trust assets, and limits the types of
investments which shall be permitted for the investment of
funds.
13)Provides that equities shall not exceed 50% of the overall
asset allocation of the fund.
14)Provides that employers shall not have any liability for an
employee's decision to participate or opt out of the Program,
or for the investment decisions of employees.
15)Provides that employers shall not be a fiduciary over the
Program and shall bear no responsibility for the
administration, investment, or investment performance of the
Program. An employer shall not be liable with regard to
investment returns, program design, and benefits paid to
participants.
16)Requires the Board to submit an annual independently-audited
financial report, as specified.
17)Provides that the state shall not have any liability for the
payment of the retirement savings benefit earned by Program
participants. Any financial liability for the payment of
benefits in excess of funds available shall be borne by
entities with whom the Board contracts to provide an
insurance, annuity, or other funding mechanism to protects the
returns earned by Program participants. The state, and any of
the funds of the state, shall have no obligation for payment
of the benefits arising from the Program.
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18)Requires the Board to ensure that an insurance, annuity or
other funding mechanism is in place at all times that protects
the value of individuals' accounts. Such funding mechanism
shall protect, indemnify and hold the state harmless at all
times against any and all liabilities in connection with
funding retirement benefits under the Program. The costs of
the funding mechanism shall be paid out of the funds held in
the Trust and shall not be attributed to the administrative
costs of the Board in operating the Trust.
19)Requires the Board (prior to opening the Program for
enrollment), if there is sufficient interest by vendors to
participate and provide the necessary funding, to establish a
Retirement Investments Clearinghouse (Clearinghouse) on its
Internet Web site. The Clearinghouse, among other features,
would contain the following:
a) Information about employer-sponsored retirement plans,
and payroll deduction individual retirement accounts and
annuities offered by private sector providers.
b) Specified other information, including investment
performance, fees, and other information.
20)Contains specific requirements for vendors to participate and
register in the Clearinghouse, and a process for the addition
and removal of vendors.
21)Requires the Board to include notice of the existence of the
Clearinghouse on a notice to eligible employers disseminated
through Employment Development Department (EDD).
22)Provides that the Board and the Program are not responsible
for or liable for the adequacy of information on the
Clearinghouse, as specified.
23)Provides that the Board shall not implement the Program if
the IRA arrangements offered fail to qualify for the favorable
federal income tax treatment ordinarily accorded IRAs under
the Internal Revenue Code, or if it is determined that the
Program is an employee benefit plan under the Employee
Retirement Income Security Act (ERISA).
24)Makes related and conforming changes to implement the
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provisions of this bill.
25)Makes related legislative findings and declarations.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, the initial study and approval phase of this bill
would result in costs in excess of $1 million. Implementation
costs would potentially exceed $10 million, but would eventually
be recouped from fees. Ongoing costs are estimated to be
multi-million annual expenses to be paid from earnings on the
Trust.
COMMENTS : This bill would establish a supplemental retirement
savings program for California's private sector workers that do
not have access to retirement plans through their jobs. The
author states that the program created by this bill would
provide a reliable, affordable and completely portable
retirement savings plan for the millions of Californians without
access to a workplace retirement plan.
According to the author, across the United States, millions of
workers will retire into poverty because they will not have
enough in assets to meet their basic needs in their senior
years. Here in California, nearly one-half of workers will face
significant economic hardship in retirement, with incomes below
200% of the federal poverty threshold. California workers in
the private sector need a lifelong retirement savings system
that provides them with the opportunity to build their assets
and achieve financial stability in retirement. The California
Secure Choice Retirement Savings Program would provide a vital
supplement to Social Security income by offering participants a
low-risk, low-cost, and completely portable retirement savings
plan that will have a rate of return on their retirement
savings.
The author argues that, under the California Secure Choice
Retirement Savings Program, voluntary contributions from
employees and employers would be pooled into a
professionally-managed retirement fund that leverages economies
of scale and longer investment horizons to offer every
California worker the chance to enroll in a retirement savings
plan.
Opponents, including the Securities Industry and Financial
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Markets Association, argue that California already faces
hundreds of billions of dollars in unfunded pension liability
for its public sector workers. They contend that now is not the
time for the state to create and assume liability for any new
plan for private sector employees. Moreover, they contend that
the legislation is unnecessary as California already has a
robust and highly competitive retirement savings market.
Opponents contend that, among other things, this bill could
create undue pressure on the General Fund, could create a
multi-billion dollar liability for the state, unnecessarily
enters the federal government's domain, and is inconsistent with
the Administration's efforts to reduce government.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091
FN: 0004973