BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 2473
Norma Torres, Chair HEARING DATE: June 9, 2014
AB 2473 (Asm. PER&SS Comm) as amended 4/28/14
FISCAL: NO
COUNTY EMPLOYEES RETIREMENT LAW OF 1937: FEDERAL LAW
COMPLIANCE
HISTORY :
Sponsor: State Association of County Retirement Systems
(SACRS)
ASSEMBLY VOTES :
PER & SS 5-0 5/07/14
Assembly Floor 78-0 5/15/14
SUMMARY :
AB 2473 conforms sections of the County Employees Retirement
Law of 1937 ('37 Act) to provisions of the federal Internal
Revenue Code (IRC) in order to ensure compliance with federal
tax law.
BACKGROUND AND ANALYSIS :
1)Conformance with Federal Internal Revenue Code (IRC)
Existing law :
a) establishes the '37 Act, which provides for
retirement systems for county and district employees in
those counties adopting its provisions. Currently, 20
counties operate retirement systems under the '37 Act.
b) establishes comprehensive public employee pension
reform through enactment of the Public Employees'
Pension Reform Act of 2013 (PEPRA) that applies to all
public employers and public pension plans on and after
January 1, 2013, excluding the University of California
and charter cities and counties that do not participate
in a retirement system governed by state statute.
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c) contains several statutes in the '37 Act that may not
conform with the federal Internal Revenue Code (IRC)
requirements for maintaining a tax-exempt qualified
retirement plan.
d) provides that any provision of the '37 Act that is
out of conformity with Section 415 of the IRC shall
become inoperative with respect to payment of benefits.
This bill : amends several sections of the '37 Act to clarify
statutory provisions and ensure conformity with the federal
IRC, including the following:
a) Forfeiture Rules (Government Code Section 31485.19)
Clarifies that a member's rights to his or her accrued
benefits under the retirement system are non-forfeitable
in accordance with 26 USC 401(a) relating to public plan
terminations to the extent they are funded on the date
of plan termination, partial termination, or complete
discontinuance of plan contributions but also provides
that forfeiture of accrued benefits under PEPRA related
to felony convictions still apply.
b) Early Retirement Distributions (GC 31485.20)
Provides that no distribution can be made from a '37 Act
retirement system unless the distribution can be made in
compliance with 26 USC 401(a) relating to plan
distributions prior to the plan's normal age of
retirement.
c) Prohibition of In-service Distributions/ Break in
Service Requirement ( 31485.21)
Adds conforming language respecting federal prohibitions
against distributions to a member who returns to work
unless the member has attained normal retirement age or
has had a bonafide separation from service, and
clarifies that if PEPRA requires more stringent
requirements for a break in service, those shall apply.
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d) Normal Retirement Age and Vesting (31485.22)
Provides that a member vests for purposes of the
IRC-and thus has a non-forfeitable right to his or her
accrued benefit-when the member attains normal
retirement age, as defined, and can draw a benefit, as
specified. Nevertheless, a member's earned and accrued
benefits may be forfeited if the member violates PEPRA's
felony forfeiture rules.
e) Refunds, Distributions, Reversions Limited to
Qualified Plans (31564)
Requires that if a member district withdraws its
employee from the retirement system, then any associated
refunds, distributions, or reversions can only be
transferred to another qualified plan.
f) Treatment of Excess Reserves and Contributions for
Health Benefits (31592.2, 31592.4)
Clarifies how monies from reserves that accumulate
from excess earning on investment returns, as specified,
may be used to fund contributions for retirement
benefits and post-retirement health benefits. Provides
that contributions for health benefits are subordinate
to those for retirement benefits and requires that funds
for health benefits be segregated from those for
retirement benefits.
g) Service Credit for Military Service (31649.5)
Makes mandatory, rather than optional, the provision
providing service credit in the retirement system for a
member's military service in the Armed Forces in order
to conform with the IRC.
h) Employee Representative Contributions (31656)
Provides that only the employer or the employee, and
not the official employee representative, can make
contributions for retirement service credited to the
employee for a period of an authorized leave of absence
to serve as an official of a recognized bargaining unit.
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i) Calendar Year Also Applicable for Imposition of IRC
Annual Compensation Limits (31671)
With respect to limitations on compensation imposed
by the IRC, adds conforming language for calendar year
based retirement systems.
j) Life & Disability Insurance Premiums and Medical
Benefit Payments - Funding (31691)
Clarifies that health and medical benefits funded
through excess earnings or supplemental reserves conform
to requirements of the IRC.
k) Increased Allowance In Lieu of Supplemental Benefits
(31691.1)
Provides that counties may provide an increase in the
member's or the member's surviving spouse's or
dependent's allowance in lieu of all supplemental
benefits, as specified.
l) Post - Employment Benefits Trust Accounts -
Segregation (31694.6)
Conforms the 37 Act with IRC requirements that
prohibit using funds from trust accounts established to
pay for retiree health benefits to pay for retirement
benefits, or vice versa.
m) Long-Term Care Benefits - Segregation and Prohibition
Against Co-mingling (31696.3)
In order to conform to the IRC, clarifies that
Long-Term Care (LTC) benefit trust funds are to be
segregated from retirement funds if the LTC benefit
program is part of the retirement fund trust account.
If the LTC is in a separate trust outside of the
retirement fund trust, then this bill prohibits
co-mingling LTC trust funds and retirement trust funds.
n) Vision Care Program (31698.5)
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In order to conform to the IRC, clarifies that Vision
Care (VC) benefit trust funds are to be segregated from
retirement funds if the VC benefit program is part of
the retirement fund trust account. If the VC benefit
program is in a separate trust outside of the retirement
fund trust, then this bill prohibits co-mingling VC
trust funds and retirement trust funds.
COMMENTS :
1)Background:
According to information provided to the committee by the
sponsor, SACRS systems negotiated for several years with
the IRS on an acceptable approach for submitting and
evaluating applications for tax qualified plan status. One
of the goals of that exercise was for there to be one
coordinated set of corrections to the CERL rather than a
series of non-integrated corrections. The IRS agreed to
this outcome and all the CERL systems submitted the same
proposed set of CERL changes to the IRS. The IRS has now
issued qualified plan letters to all the CERL systems
premised on the CERL being amended in accordance with the
materials provided to them.
2)Arguments in Support :
According to the author,
AB 2473 is sponsored by the State Association of County
Retirement Systems (SACRS). All 20 county employee
retirement systems operating under the '37 Act are
tax-qualified plans, as determined by the Internal
Revenue Service (IRS). Tax-qualified status is the
legal mechanism that allows retirement contributions
made by employees and employers, and the earnings on
those contributions, to accrue to the benefit of the
retirement system members on a tax-deferred basis.
This important technical bill conforms sections of the
'37 Act to provisions of the Internal Revenue Code in
order to ensure that all 20 retirement systems operating
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under the '37 Act are governed by state law consistent
with federal tax law requirements governing retirement
plans.
According to the sponsor of the bill, SACRS,
The provisions of this bill represent the work product
of 3 years of discussions with the IRS and '37 Act
county retirement systems to identify the elements of
California law in need of conformity and the specific
language required. The Orange County Employees
Retirement System engaged the IRS on a formal basis to
initiate the collaborative process to bring the '37 Act
into federal tax law compliance. Since the tax
conformity process began, the PEPRA was enacted in 2012,
where some PEPRA provisions now also require federal tax
law conformity.
3)SUPPORT :
State Association of County Retirement Systems (SACRS),
Sponsor
Los Angeles County Employees Retirement Association
(LACERA)
Orange County Board of Supervisors
Ventura County Employees' Retirement Association (VCERA)
4)OPPOSITION :
Supervisor, Mendocino County
Private Individual
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