BILL NUMBER: AB 2940 AMENDED
AMENDED IN ASSEMBLY APRIL 3, 2008
INTRODUCED BY Assembly Member De Leon
FEBRUARY 22, 2008
An act to amend Section 978.6 of the Government Code,
relating to government tort claims. An act to add
Title 25 (commencing with Section 100000) to the Government Code,
relating to retirement.
LEGISLATIVE COUNSEL'S DIGEST
AB 2940, as amended, De Leon. Judgments against public
entities: bonds. Retirement: California Financial
Advantage Account Program.
Existing federal law provides for tax-qualified retirement plans
and individual retirement accounts or individual retirement annuities
by which private citizens may save money for retirement.
This bill would create the California Financial Advantage Account
Program, to be administered by the Public Employees' Retirement
System (PERS), with the intent of promoting greater retirement
savings for California private employees in a convenient, low-cost,
and portable manner. The bill would require PERS, under this program,
to offer one or more individual retirement accounts or individual
retirement annuities to eligible employees of all eligible employers,
as defined, who participate. The bill would require an employee to
have an annual income at or below 400% of the federal poverty level
to be eligible. The bill would require PERS in initiating and
administering the program to, among other things, employ staff and
3rd-party administrators, as necessary, collaborate with various
entities in the private sector, recover expenses from contributions
or investment returns, as specified, and create a process to allow an
employer to forward employee contributions to the program through
the Employment Development Department system currently used to
collect payroll taxes. The bill would require PERS to make reports to
the Legislature and to employers on the progress and status of the
program. The bill would require PERS to allow employers without
retirement plans to contribute and to match employee contributions.
The bill would require PERS to obtain the necessary approvals from
federal authorities for the program's implementation in order not to
jeopardize the status of existing retirement programs for public
employees, and would provide that the program will not be made
available until all approvals that PERS deems necessary are obtained.
The bill would indemnify from the General Fund and hold harmless the
present, former, and future board members, officers, employees of,
and investment managers under contract with, PERS in connection with
any decision or action related to the administration of the program.
The bill would also make a statement of findings.
Existing law authorizes any local public entity that levies taxes
or assessments to issue bonds to pay judgments against the public
entity. The governing board of the local public entity is authorized,
by resolution, to stop the further issue or sale of any unsold
portion of such a bond issue, thereby voiding the remaining unsold
This bill would make technical, nonsubstantive changes to that
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares the
(a) Currently, 6 million Californians, 41 percent of the state's
workforce, work at a job that does not offer them a pension or
retirement savings plan to supplement social security.
(b) Social security payments alone, which average $901 per month
in California, will not sustain Californians in their retirement.
Seniors without savings may be more likely to require government
assistance with housing, medical care, and other necessities.
(c) Though investments in savings accounts have increased over
time, investments from low-income small businesses, or short-tenured
and transient employees, are strikingly low and have not increased at
the same rate.
(d) Nationally, two out of three low-wage workers lack access to
an employer-sponsored retirement plan, while only one in four
high-wage workers do. Nearly 65 percent of low-income workers, those
earning less than $40,000 per year, do not participate in employer
plans, according to the Congressional Budget Office.
(e) Only 26 percent of full-time, full-year private sector workers
in businesses with fewer than 25 employees participated in a pension
plan in 2004, compared with 69 percent of those employed by
companies with 500 or more employees. Complexity and cost of
administering retirement systems may prevent small companies, in
comparison to larger corporations, from creating retirement plans for
(f) Low investment participation rates in retirement plans can
also be attributed to a worker losing coverage access after moving
into a new job with a new business.
(g) Workers today are spending more than they are saving, relying
more on credit, and thus accruing debt and putting their future
financial security at risk. Nationally, the personal savings rate for
individuals has fallen to 0.5 percent of income for 2007. At this
rate, even with social security benefits, Californians will not be
able to afford retirement.
(h) California workers without access to an employer-sponsored
retirement plan need a seamless, lifelong savings system, providing
them with the opportunity to build their assets and helping them to
attain their financial stability and future through a secure,
portable savings account.
(i) In creating this system, California would supplement existing
savings options, at no cost to taxpayers.
(j) The California Financial Advantage Account Program is hereby
established by this act to promote expanded retirement security for
working Californians' employers' sponsorship of retirement plans for
SEC. 2. Title 25 (commencing with Section 100000)
is added to the Government Code , to read:
TITLE 25. CALIFORNIA FINANCIAL ADVANTAGE ACCOUNT
100000. For purposes of this title:
(a) "Board" means the Board of Administration of the Public
Employees' Retirement System.
(b) "Eligible employer" means a person or entity engaged in a
business, industry, profession, trade, or other enterprise in the
state, whether for profit or not for profit, but excluding the state,
any county, any municipal corporation, or any of its units or
instrumentalities, and that satisfies the requirements to establish
or participate in a SIMPLE plan or a payroll deposit IRA arrangement.
An eligible employer shall only provide services under the program
to eligible employees. An eligible employer does not include any
employer to the extent that the employer replaces a preexisting
retirement plan with a plan provided for by this title.
(c) "Eligible employee" means a person who is an employee of an
eligible employer and who has an annual income at or below 400
percent of the federal poverty level.
(d) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(e) "IRA" means an individual retirement account or individual
retirement annuity under Section 408 or 408A of the Internal Revenue
Code of 1986.
(f) "Participating employer" means an eligible employer that
maintains or participates in a plan or payroll deposit IRA
arrangement provided for by this title for eligible employees.
(g) "Payroll deposit IRA arrangement" means an arrangement by
which an employer makes its payroll system available to employees as
a conduit for transferring salary reduction contributions to IRAs.
(h) "Program" means the California Financial Advantage Account
Program established by this title.
(i) "SIMPLE plan" means a SIMPLE IRA program under Section 408(p)
of the Internal Revenue Code of 1986.
(j) "System" means the Public Employees' Retirement System.
100002. (a) There is hereby established in the system a
retirement savings program known as the California Financial
Advantage Account with the intent of promoting greater retirement
savings for California private employees in a convenient, low-cost,
and portable manner. The California Financial Advantage Account is a
voluntary, universal, portable retirement account for California
(b) The program shall include, as determined by the system, one or
more of the following components:
(1) One or more SIMPLE IRA plans for the employees of
(2) One or more payroll deposit IRA arrangements for the employees
of participating employers.
(3) Other IRAs for employees of participating employers.
(c) The elements of the program established pursuant to
subdivision (b) shall include, as the system may determine:
(1) Prototype or master and prototype plans or IRAs.
(2) Multiple employer plans.
(3) Group administrative service arrangements that allow eligible
employers to achieve economies of scale with respect to their
retirement savings arrangements relating to investment, accounting,
payroll processing, employee communications, and investor education.
(4) Group investment vehicles for the plans or IRAs.
(5) Custodial or trustee arrangements for payroll deposit programs
or for other plans or IRAs.
100004. The system shall initiate, implement, maintain, and
administer the program and, in these capacities, shall:
(a) Employ staff and retain and contract with private financial
institutions, other financial and service providers, consultants,
third-party administrators, and other professionals as necessary.
(b) Collaborate and cooperate with private financial institutions,
service providers, business, financial, trade, membership, and other
organizations to the extent necessary or desirable for the effective
and efficient implementation of the program and to maximize outreach
to employers and individuals.
(c) Cause expenses incurred to initiate, implement, maintain, and
administer the program, to be paid from contributions to, or
investment returns or assets of the program or plans or IRAs
established under the program, to the extent permitted under federal
law, except for expenditures that are provided for through
appropriations from the Legislature.
(d) Facilitate compliance by the plans and IRAs established under
the program with all applicable requirements for the plans under the
Internal Revenue Code of 1986, including tax qualification
requirements, or, where applicable, ERISA, or any other applicable
law and accounting requirements, including providing or arranging for
assistance to plan sponsors and individuals in complying with
applicable law and tax qualification requirements in a cost-effective
(e) Cause the plans and IRAs established under the program to be
designed, established, and operated:
(1) In accordance with best practices for retirement savings
(2) To maximize participation, saving, and sound investment
practices, including the encouragement of automatic features,
including, but not limited to, automatic enrollment and investment.
(3) With simplicity, ease of administration, and portability of
(f) Seek to minimize costs by assisting or facilitating the
pooling of small employers and individuals in purchasing retirement
savings plans, arrangements, and investments, and through economies
of scale, standardization, designation of investment types, and other
(g) Arrange for collective, common, and pooled investment of
assets of the retirement savings plans and IRAs, including investment
in conjunction with other funds with which those assets are
permitted to be collectively invested, with a view to saving costs
through efficiencies and economies of scale, but only to the extent
that these collective investment arrangements would not jeopardize
the exemption from ERISA of the plans maintained for state and local
government employees and would otherwise comply with applicable law
and conditions for favorable tax treatment.
(h) Disseminate to the citizens of California educational
information concerning saving, investment, planning for retirement,
and financial planning.
(i) Disseminate information concerning the tax credits available
to small business owners for establishing new retirement plans and
the federal saver's tax credit available to moderate and lower income
households for saving in plans and IRAs.
(j) Submit progress and status reports to the Legislature and to
participating employers and individuals.
(k) If necessary, determine the eligibility of an employer,
employee, or other individual to participate in the program.
(l) Create for employees who want to contribute a portion of their
paycheck to a plan or account offered by the program a process by
which they are able to notify their employers, either at the time of
hiring or thereafter, and allow the employer to forward the employee
contribution to the program through the Employment Development
Department system currently used to collect payroll taxes.
(m) Allow employers to use the program to contribute to the
account on their employees' behalf or match their employees'
100006. The system shall obtain the necessary approvals, rulings,
opinions, determinations, or confirmations from federal authorities
or agencies, including the Internal Revenue Service, Department of
Labor, or Securities and Exchange Commission. It is intended that the
plans and IRAs established under the program shall adhere to all
applicable standards and requirements under federal law regulating
the operation of retirement plans and the offering, sale, or
distribution of securities under those plans, without regard to any
exemption under federal law available to a pension plan maintained by
a governmental employer, and the availability of this program shall
be contingent on the requirements of this section.
100008. No claim, tax lien, or other right of set-off of the
state or any of its agencies or instrumentalities shall apply against
any funds or assets held for the benefit of individuals in a plan or
IRA under the program or coming into the possession of a state
official under the program.
100010. Present, future, and former board members of the Public
Employees' Retirement System, jointly and individually, state
officers and employees, and investment managers under contract with
the Public Employees' Retirement System shall be indemnified from the
General Fund and held harmless by the State of California from all
claims, demands, suits, actions, damages, judgments, costs, charges,
and expenses, including court costs and attorney's fees, and against
all liability, losses, and damages of any nature whatsoever that they
shall or may at any time sustain by reason of any decision or action
related to the initiation, implementation, maintenance, or
administration of the program.
100012. This program shall be made available only upon receipt of
all approvals that the system deems necessary for its
SECTION 1. Section 978.6 of the Government Code
is amended to read:
978.6. The board may by resolution adopted by two-thirds vote of
all its members declare that no part of a described bond issue
authorized pursuant to this article that remains unsold shall be
issued or sold. When the resolution takes effect, the bonds described
in the resolution that remain unsold are voided.