BILL NUMBER: AB 3252 AMENDED BILL TEXT AMENDED IN ASSEMBLY APRIL 22, 1996 INTRODUCED BY Assembly Member Kaloogian FEBRUARY 23, 1996 An act to add Chapter 21.6 (commencing with Section 7522) to Division 7 of Title 1 of the Government Code, relating to public employees, and making an appropriation therefor. LEGISLATIVE COUNSEL'S DIGEST AB 3252, as amended, Kaloogian. Public employees: retirement. Existing law establishes various public retirement systems for state and local public agency employees. This bill would establish the Public Employees' Defined Contribution RetirementSystemPlan for state and other local public agency employees whose employees elect to participate in the system. The system would be administered by the Public Employees'ConsolidatedDefined Contribution Retirement Board and on and afterJulyJanuary 1, 1997,the system shall be the single retirement program for newbargaining units representing statepublic agencyemployeeswhose employment commences on or after that date and who would have been state miscellaneous members of the Public Employees' Retirement Systemwould be authorized to reach agreement with the employer to have their members participate. Present state employees would be authorized to elect membershipin the defined contributionsystemretirement plan in lieu of continued membership in their existing system and the existing retirement system would be required to transfer the actuarial present value, as defined, to the plan administrator . The bill would establish the Public Employees' Defined Contribution Retirement Fund in the State Treasury and provide that all moneys would be continuously appropriated for payments of the system. Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Chapter 21.6 (commencing with Section 7522) is added to Division 7 of Title 1 of the Government Code, to read: CHAPTER 21.6. PUBLIC EMPLOYEES' DEFINED CONTRIBUTION RETIREMENTSYSTEMPLAN 7522. This chapter shall be known and may be cited as the Public Employees' Defined Contribution RetirementSystemPlan Law. 7522.1. As used in this chapter, unless the context clearly requires a different meaning: (a) "Accrued service benefit" means the amount, determined actuarially, that represents the present value of an employee's projected retirement benefit earned through the date on which a payment is made to a defined contribution retirement plan by an existing retirement system for the benefit of an individual account. In order to determine the present value of the projected benefit, the discount rate for investment earnings and the assumptions for projected salary increases shall be approved by the board. At the employer's written election, the accrued services benefit shall also include an employee's pro rata share of any actuarially determined excess of plan assets compared to accrued liabilities in the existing retirement system on the reporting date prior to the employer's election to make a defined contribution retirement plan available to a specific group of employees. (b) "Defined contributionsystem" or "system"plan" or "plan" means the defined contribution retirementsystemplan created and established by this chapter.(b)(c) "Existing retirement system" means any state or local public retirement systemin existence on January 1, 1997.(c)(d) "Existing employer" means any public employer of a member of the existing retirement system.(d)(e) "Board" means the Public Employees'Consolidated RetirementDefined Contribution Retirement Plan Board created and established to administer the provisions of this chapter.(e)(f) "Member" or "employee" means any person employedfull-timeby the state or any local public agency that elects to be included in thesystemplan .(f) "Year of employment service" means full-time employment for at least 10 months, a month being defined as 20 employment days. No more than one year of service may be accumulated in any 12-month period.(g) "Employer" means the state or local public agency that employs a member. (h) "Compensation" means the full compensation actually received by members for service provided by the state or local public agency. (i) "Member contribution" means an amount reduced from the employee's regular pay periods, and deposited into the member's individualannuityaccount within the defined contributionsystemplan . (j) "Employer contribution" means an amount deposited into the member's individualannuityaccount on a periodic basis coinciding with the employee's regular pay period by an employer from its own funds. (k)"Annuity account" or "annuity"Individual account" or "account" means an account in the defined contribution plan established for each member to record the deposit of member and employer contributions andinterest, dividends, or other accumulations creditedearnings there on on behalf of the member. (l) "Retirement" means a member's withdrawal from the active employment of a participating employer and completion of all conditions precedent to retirement. (m) "Permanent, total disability" means a mental or physical incapacity requiring the absence from employment service for at least six months. (n) "Fund" means the Public Employees' Defined Contribution RetirementSystemPlan Fund. 7522.2. The Public Employees' Defined Contribution RetirementSystemPlan is hereby created and established toprovide for the secure, fair, and orderly retirement of the state and local public agency employees in this state.provide state and other public agency employees with the opportunity for retirement savings and for the orderly administration of the defined contribution retirement plan. 7522.3. The provisions of this chapter shall be liberally construed to providea general annuity based retirement systeman alternative retirement plan for state and local public agency employees. The purpose of this chapter is to provide a defined contribution retirement program that is fully funded on a current basis from employer and employee contributions. 7522.4. (a) The Public Employees'Consolidated RetirementDefined Contribution Retirement Plan Board is hereby established to administer thesystemplan . (b) It consists of:______________________(1) Two local government officials appointed by the Governor. (2) The Director of the Department of Personnel Administration. (3) The Controller. (4) The Treasurer. (5) One person from the active or retired membership of the defined contribution retirement plan appointed by the Speaker of the Assembly. (6) One person from the active or retired membership of the defined contribution retirement plan appointed by the Senate Committee On Rules. (c) The board may sue and be sued, contract and be contracted with, and conduct all the business of thesystemplan . 7522.5. (a) The board has all powers necessary to effectuate the purposes of this chapter. The board shall determine and charge reasonable costs of administering the system. The board shall contract with a private pension, insurance, annuity, mutual fund, or other qualified company or companies to administer the day-to-day operations of thesystemplan . (b) The Public Employees' Defined Contribution RetirementSystemPlan Fund is hereby created and is a trust fund in the State Treasury administered by the board in accordance with this chapter and Section 17 of Article XVI of the California Constitution. Notwithstanding Section 13340, all moneys in the fund are continuously appropriated, without regard to fiscal years, for administrative costs and payments which shall be made upon warrants drawn by the Controller upon demands made by the board. 7522.6. Any state or other public agency employee who is a member of any existing retirement system on the effective date specified in an agreement between the employees' bargaining unit and the employer may, in lieu of continued or exclusive participation in an existing retirement system and upon written election, voluntarily and irrevocably elect membership in a defined contribution retirement plan offered by the employer. The administrator of the defined contribution retirement plan shall notify the existing retirement system of the employee's election and of the employee's service record and compensation history within 45 days of that election, and the existing retirement system, within 45 days, shall transfer to the plan administrator a payment equal to the actuarial present value of the employee's accrued service benefit on the date of the transfer. The amount so transferred shall be credited to the employee's individual account. 7522.7. (a) On or after January 1, 1997, any bargaining unit representing new state employees upon reaching an agreement with the employer may elect to have those employees participate in the defined contribution retirement plan. (b) The governing body of any local public agency and the Regents of the University of California may elect at any time to permit some or all of their employees to participate in the defined contribution retirement plan either as an alternative or as a supplement to an existing retirement system. Those employers may contract with an existing retirement system for elective partial defined benefit options in order to facilitate retirement or benefit plans through which employees may elect to receive a reduced defined benefit option and a supplemental complementary defined contribution retirement plan. Those employers may require new employees to participate in the defined contribution retirement plan, provided that no employee covered by a bargaining agreement shall be required to participate if the participation would be in contravention of the terms of that agreement. Any plan provided by a local agency shall include more than one employee-directed investment fund appropriate for investment by public employees, and an educational program, approved by the board or the employer, that explains to employees considering their elections the probable and possible benefits and risks of defined benefit and defined contribution retirement plans, and alternative investment strategies suitable for public employees. (c) Any bargaining unit representing state members of the Public Employees' Retirement System who are not state miscellaneous members upon reaching an agreement with the employer may elect to participate in the defined contribution retirement plan rather than the Public Employees' Retirement System. (d) The Department of Personnel Administration shall provide for the participation in the defined contribution retirement plan by state employees who are excluded from, or otherwise not subject to, collective bargaining. (e) Notwithstanding any other provision of law, any employee whose employment terminates after January 1, 1997, and is later reemployed by an employer shall be eligible for membership only in this plan unless that participation would be in contravention of a bargaining agreement. (f) An employee whose employment with a former employer or an existing employer is suspended as a result of an approved leave of absence, approved maternity or paternity break in service, or any other approved break in service authorized by the board, is eligible for readmission to the existing retirement system in which he or she was a member. (g) In all cases where a question exists as to readmission to membership in the existing retirement system, the board shall decide the question. 7522.8. The board or the local agency employer or its agent in conjunction with this plan, may purchase group annuity contracts, individual retirement annuities, disability insurance investment contracts, securities, interest in trusts and other financial instruments, health care benefit plans, and group insurance as necessary or appropriate for the plan to provide retirement and related benefits comparable to those provided under an existing retirement system. Selections of plan administrators, annuities, and insurance products shall be conducted through a competitive selection process. If requested by a participating employer, an existing retirement system shall provide an actuarially determined optional disability benefit option and employer contribution rate for employees who elect to participate in a defined contribution retirement plan. 7522.9. The board or the plan administrator shall prepare, or cause to be prepared, at least quarterly a statement for each member' s individual account. The statement shall include the current market value of the account, including self-directed investment options, an itemization of changes in the account, the amount vested, and other information as may be required by the board or the participating employer. The board or the employer shall arrange for an independent audit of the plan's assets unless the audit is provided for by a third party organization.7522.6. Any state employee who is a member of any existing retirement system may, upon written election, voluntarily elect membership in the defined contribution system, on a prospective basis, on or after July 1, 1997, in lieu of continued membership in the retirement system. All benefits earned by any employee making that voluntary election under the existing retirement system prior to a voluntary election shall be made available to that employee upon retirement as provided by the existing retirement system. A member of the existing retirement system who has less than five years of service in an existing retirement system may irrevocably elect to withdraw his or her contributions plus interest thereon as if the member is terminating employment and upon withdrawal transfer the funds to the defined contribution system. The member's years of contributing service in the existing system shall be applied for the years of employment service required under this chapter. After having made an election, the employee may not change that election or again become a member of the existing retirement system. 7522.7. (a) On and after July 1, 1997, the Public Employees' Defined Contribution Retirement System, rather than the Public Employees' Retirement System, shall be the retirement program for new state employees whose employment commences on or after that date and who would have become state miscellaneous members of the Public Employees' Retirement System. No additional new state employees except as may be provided in this chapter may be admitted as state miscellaneous members of the Public Employees' Retirement System. Members of the Public Employees' Retirement System whose employment continues beyond July 1, 1997, shall not be affected by this chapter and may continue to contribute and participate in the existing system. (b) The governing body of any local public agency and the Board of Regents of the University of California may elect at any time to have all or part of their employees participate in this system. (c) Any state member of the Public Employees' Retirement System who is not a state miscellaneous member may elect to participate in this system rather than the Public Employees' Retirement System. (d) Notwithstanding any other provision of law, any employee whose employment terminates after June 30, 1997, and is later reemployed by an employer shall be eligible for membership only this system. (e) An employee whose employment with a former employer or an existing employer is suspended as a result of an approved leave of absence, approved maternity or paternity break in service, or any other approved break in service authorized by the board, is eligible for readmission to the existing retirement system in which he or she was a member. (f) In all cases where a question exists as to readmission to membership in the existing retirement system, the board shall decide the question. 7522.8. (a) Each employee who is a member of the defined contribution system shall contribute 41/2 percent of his or her monthly gross compensation by salary reduction. Those salary reductions shall be made by the employer at the normal payroll intervals and shall be remitted within five working days to the private pension, insurance, annuity, mutual fund, or other qualified company or companies designated by the board to administer the day-to-day operations of the system. (b) All member contributions shall be immediately deposited in the fund to an account or accounts established in the name of the member and held in trust for the benefit of the member. An account agreement shall be issued to each member setting forth the terms and conditions under which contributions are received, and the investment and retirement options available to the member. The board, on or before June 30, 1997, shall adopt rules defining the minimum requirements for the investment and retirement options to be provided to the members. The adoption, repeal, amendment, or modification of the rules shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2). (c) The rules, to the extent not inconsistent with the applicable provisions of the Internal Revenue Code of the United States, shall provide for varied retirement options including, but not limited to: (1) Lump sum distributions. (2) Joint and survivor annuities. (3) Other annuity forms in the discretion of the board. (4) Variable annuities that gradually increase monthly retirement payments. Those increased payments shall be funded solely by the existing current value of the member's account at the time of the member's retirement payments commence and not, to any extent, in a manner that would require additional employer or employee contributions to any member's account after retirement or after the cessation of employment. (5) The instances in which, if any, distributions or loans may be made to members from their annuity account balances prior to having attained the age of 55 years. (d) The board shall study the feasibility of employees making personal contributions to the defined contribution system in addition to those required by this section and the impact of the United States Internal Revenue Code upon those contributions. The results of the study and recommendations for legislation to authorize additional payments shall be presented to the committee on retirement of each house of the Legislature on or before January 1, 1998. 7522.9. Each participating employer shall make a monthly contribution equal to 71/2 percent of each member's gross compensation. The pro rata share of this amount shall be paid into the fund upon each date that a member contribution is made and shall be remitted for credit to the member's annuity account. Each participating employer has a fiduciary duty to its employees to ensure that the employer contributions are timely made. In the event that any payment is not timely made, the participating employer shall immediately give to the employee and the Controller notice in writing of nonpayment, in the form and accompanied by the documentation as may be required by the Controller and shall be subject to an interest penalty determined by the board. 7522.10. Any member whose employment with a participating employer terminates shall be eligible to terminate his or her annuity account and receive a distribution of all funds contributed and earnings accumulated in his or her annuity account. However, on the death or permanent, total disability of any member, that member shall be eligible to terminate his or her annuity account and receive all funds contributed and earnings accumulated in his or her annuity account. 7522.11. At any time after an employee reaches the age of 55 years, he or she may elect to take retirement by notifying the board or its designee in writing of that intention not less than 60 days prior to the effective date of retirement. Retirement payments shall commence within 30 days of the retirement date under the payment option or options as may be provided by the board and elected by the employee. 7522.12. (a) The amount of annuity payments a retired member shall receive shall be based solely upon the balance in the member's annuity account at the date of retirement, the retirement option selected, or in the event of an annuity option being selected, the actuarial life expectancy of the member, and the other factors as normally govern annuity payments. (b) The board, or its designee, is authorized upon retirement of a member, with the approval of that member, to purchase an annuity with the balance of the member's account. Upon delivery of the annuity to the member upon his or her retirement, the member shall execute a release surrendering any claim the member may have against the retirement trust. 7522.13. The board shall authorize the private pension, insurance, annuity, mutual fund, or other qualified company or companies with whom it contracts to make available to members those supplemental annuity options, disability, and other insurance or benefits as the board deems appropriate. Those supplemental annuities, insurance, and benefits shall be funded solely from employee contributions. 7522.14. The board shall prepare or cause to be prepared, on an annual basis, an account statement for each member's annuity account. The statement shall include, but not be limited to, a statement of the current market value of the member's account. The board shall prescribe the form and content of the account statement not inconsistent with this section. 7522.15. The right of any person to a benefit under this chapter and the money in any account and the fund are not be subject to execution or any process whatsoever, except to the extent permitted by Section 704.110 of the Code of Civil Procedure, and are unassignable, except as specifically provided in this chapter.