BILL NUMBER: AB 3252 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 26, 1996
AMENDED IN SENATE JUNE 5, 1996
AMENDED IN ASSEMBLY MAY 28, 1996
AMENDED IN ASSEMBLY APRIL 22, 1996
INTRODUCED BY Assembly Member Kaloogian
FEBRUARY 23, 1996
An act to amend Section 22955 of, and to add Section 22207.5
to, the Education Code, and 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
(1) Existing law establishes various public retirement
systems for state and local public agency employees.
This bill would authorize state and local agency employers to
provide defined contribution retirement plans for state and other
local public agency employees who elect to participate in the system.
The plans would be administered by the state and local employers
and on and after January 1, 1997, bargaining units representing state
employees would be authorized to reach agreement with the employer
to have their members participate in the defined contribution
retirement 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 for the
state defined contribution plan and provide that all moneys would be
continuously appropriated for payments of the plan.
(2) The State Teachers' Retirement Law requires the Teachers'
Retirement Board to administer the system.
The bill would authorize the board to develop one or more
alternative defined benefit plans.
(3) The State Teachers' Retirement Law continuously appropriates a
specified percentage of total salaries from the General Fund to the
Teachers' Retirement Fund.
The bill would revise that computation and require annual
actuarial adjustment of the amount of appropriation.
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. Section 22207.5 is added to the Education Code, to
read:
22207.5. (a) The board may develop one or more alternative
defined benefit plans, defined contribution plans, or combined
defined benefit and defined contribution plans that an employer may
choose to establish and offer to its employees.
(b) In the event that an employer adopts an alternative retirement
plan developed by the board pursuant to subdivision (a) both of the
following shall apply:
(1) The employer shall enter into a written contractual
arrangement with the system under which the system shall provide
investment, recordkeeping, and administrative services on behalf of
the plan.
(2) The initial period of the contractual arrangement described in
paragraph (1) shall be for a term of five years.
(c) The plans developed pursuant to this section are alternatives
to the defined contribution retirement plans established pursuant to
Chapter 21.6 (commencing with Section 7522) of Division 7 of Title 1
of the Government Code.
SEC. 2. Section 22955 of the Education Code is amended to read:
22955. (a) Notwithstanding Section 13340 of the Government Code,
commencing October 1, 1991 commencing with
the 1995-96 fiscal year and annually on July 1, thereafter , a
continuous appropriation is hereby made from the General Fund to the
Controller, pursuant to this section, for transfer to the Teachers'
Retirement Fund. The total amount of the appropriation for
each year shall be equal to 4.3 percent of the total of the salaries
of the immediately preceding calendar year upon which members'
contributions are based, to be calculated annually on October 1, and
shall be divided into the 1996-97 fiscal year shall be
five hundred fifty million dollars ($550,000,000) and transferred in
four equal quarterly payments. The General Fund
appropriation shall be adjusted annually by the actuarially assumed
wage assumption as recommended by the system's consulting actuary and
adopted by the board. The percentage
annual appropriation shall be adjusted to reflect the
contribution required to fund the normal cost deficit when the
unfunded obligation has been deemed to be eliminated by the board
based upon a recommendation from its actuary. If a rate increase or
decrease is required, the adjustment may be for no more than 0.25
percent per year and in no case may the transfer exceed 4.3 percent
of the total of the salaries of the immediately preceding calendar
year upon which members' contributions are based.
(b) The funds transferred pursuant to subdivision (a) shall first
be applied to meeting the normal cost deficit, if any, for that
fiscal year.
(c) The transfers made pursuant to this section are in lieu of the
state contributions formerly made pursuant to Sections 23401 and
23402.
(d) For the purposes of this section, the term "normal cost
deficit" means the difference between the normal cost rate as
determined in the actuarial valuation required by Section 22226 and
the total of the member contribution rate required under Section
22804 and the employer contribution rate required under Section
23400, and shall exclude (1) the portion for unused sick leave
service granted pursuant to Section 22719, and (2) the cost of
benefit increases which occur after July 1, 1990. The contribution
rates prescribed in Section 22804 and Section 23400 on July 1, 1990,
shall be utilized to make the calculations. The normal cost deficit
shall then be multiplied by the total of the salaries upon which
member contributions are based to determine the dollar amount of the
normal cost deficit for the year.
(e) Pursuant to Section 22001 and the case law, the members are
entitled to a financially sound retirement system. The Legislature
recognizes that the system shall, pursuant to this act, receive less
funds in the short term than it would have received under former
Sections 23401 and 23402 (Chapter 282 of the Statutes of 1979).
However, it is the intent of the Legislature that this section shall
provide the retirement fund stable and full funding over the long
term.
(f) This section continues in effect but in a somewhat different
form, fully performs, and does not in any way unreasonably impair,
the contractual obligations determined by the court in California
Teachers' Association v. Cory, 155 Cal. App. 3d 494.
(g) This section shall not be construed to be applicable to any
unfunded liability resulting from any benefit increase or change in
contribution rate that occurs after July 1, 1990.
(h) The amendments to this section during the 1991-92 Regular
Session shall be construed and implemented to be in conformity with
the judicial intent expressed by the court in California Teachers'
Association v. Cory, 155 Cal. App. 3d 494.
SEC. 3. 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
RETIREMENT PLANS
7522. This chapter shall be known and may be cited as the Public
Employees' Defined Contribution Retirement Plan Law.
7522.1. As used in this chapter, unless the context clearly
requires a different meaning:
(a) "Accrued service benefit" means the amount, determined by the
actuary of the existing retirement system, that represents the
present value of an employee's accrued 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 accrued benefit, the discount rate for investment earnings and
the assumptions for current final average compensation shall be
approved by the employer. 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 contribution plan" or "plan" means the defined
contribution plans authorized by this chapter as those plans may be
established by the state or individual local public agencies.
(c) "Existing retirement system" means any state or local public
retirement system.
(d) "Existing employer" means any public employer of a member of
the existing retirement system.
(e) "Member" or "employee" means any person, other than a safety
employee, employed by the state or any local public agency that
elects to be included in a plan.
(f) "Employer" means the state or local public agency, including,
but not limited to, school districts, that employs a member.
"Employer" does not include the California State University.
(g) "Compensation" means the remuneration paid by the employer in
payment for the employee's services during normal working hours, but
does not include the monetary value of any other advantages furnished
to the employee.
(h) "Member contribution" means an amount reduced from the
employee's regular pay periods, and deposited into the member's
individual account within a defined contribution plan.
(i) "Employer contribution" means an amount deposited into the
member's individual account on a periodic basis coinciding with the
employee's regular pay period by an employer from its own funds.
(j) "Individual account" or "account" means an account in a
defined contribution plan established for each member to record the
deposit of member and employer contributions and earnings there on on
behalf of the member.
(k) "Retirement" means a member's withdrawal from the active
employment of a participating employer and completion of all
conditions precedent to retirement.
(l) "Fund" means the Public Employees' Defined Contribution
Retirement Plan Fund.
(m) "Administrator" means an employee of an employer who has been
designated by the employer as plan administrator of the plan, or the
service provider hired by the employer to provide plan administration
services to the plan.
7522.2. Public employees' defined contribution plans may provide
a framework under which the state and each local public agency are
authorized to create defined contribution plans for their respective
employees that are tailored to each employer's individual needs and
that provide the opportunity for retirement savings and for the
orderly administration of the plans.
7522.3. (a) This chapter shall be liberally construed to
authorize alternative retirement plans for state and local public
agency employees. The purpose of this chapter is to authorize the
state and local public agencies to provide defined contribution
retirement plans that are fully funded on a current basis from
employer or employee contributions, or both.
(b) In no event may the state or any local public agency fail to
continue to offer membership in any retirement system in existence on
January 1, 1997, to current employees, new employees, or retirees.
(c) Defined contribution plans shall be established and
administered in accordance with the requirements for qualified
retirement or eligible deferred compensation plans respectively under
the Internal Revenue Code of 1986, as amended.
7522.5. (a) The employer has all powers necessary to effectuate
the purposes of this chapter. The employer shall determine and
charge reasonable costs of administering the system. The employer
may contract with existing public retirement systems or may contract
with a private pension, insurance, annuity, mutual fund, bank,
savings association, or other qualified company or companies
, or any combination of these entities, to administer the
day-to-day operations of the plan.
(b) The Public Employees' Defined Contribution Retirement Plan
Fund is hereby created for the state defined contribution plan and is
a trust fund in the State Treasury administered by the employer 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 employer.
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 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 offer participation in the defined contribution
plan to those employees.
(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 a 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. 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
employer 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) 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. Those employees shall be given the right to
voluntarily elect membership in a defined contribution plan.
(d) Any employee whose employment terminates after January 1,
1997, and is later reemployed by an employer shall be eligible for
membership in either the existing retirement system or the defined
contribution plan, unless the latter participation would be in
contravention of a bargaining agreement.
(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 employer, is
eligible for readmission to the plan in which he or she was a member
at the time the break in service began.
(f) In all cases where a question exists as to the readmission to
membership in a plan, the employer shall decide the question.
7522.8. The employer or its agent , or
the entity or entities with which it has contracted, in
conjunction with this plan, may purchase group annuity contracts,
individual retirement annuities, disability insurance investment
contracts, securities, mutual funds, 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 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 plan administrator or the
participating employer. The plan administrator 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.