BILL ANALYSIS                                                                                                                                                                                                    






Date of Hearing: April 24, 1996

    ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT & SOCIAL  
                             SECURITY
                    Howard Kaloogian, Chairman

         AB 3252 (Kaloogian) - As Amended:  April 22, 1996

 SUMMARY:  Establishes the Public Employees' Defined Contribution  
Retirement Plan for state and other local public agency employees  
whose employers elect to participate in the plan.  The daily  
operation of the plan would be contracted out to a third party  
administrator.  The plan will be funded by employer and employee  
contributions established by the Public Employees' Defined  
Contribution Retirement Plan Board.  Specifically,  this bill:

1) Creates an alternative retirement plan for state and local  
   public agency employees whose employers choose to participate.   
   The day-to-day operation of the plan would be contracted out to  
   a private pension, insurance, annuity, mutual fund, or other  
   qualified company.

2) Specifies that the contribution rates would be set by the  
   board.  The board consists of two local government officials  
   appointed by the Governor; the Director of Personnel  
   Administration; the Controller; the Treasurer; and two persons  
   from the active or retired membership, one appointed by the  
   Speaker of the Assembly and the other appointed by the Senate  
   Committee on Rules.

3) Allows any state or other public agency employee who is a  
   member of any existing retirement system to transfer retirement  
   coverage to a defined contribution plan offered by the  
   employer.  Defines an existing retirement system to include any  
   state, university, or local public retirement system or systems  
   providing defined retirement benefits to employees of local  
   agencies.  Specifies that an agreement between the employees'  
   bargaining unit and employer must be in place prior to any such  
   transfer.  

4) Requires the transfer of a payment equal to the actuarial  
   present value of the member's accrued service benefit from the  
   existing retirement system to the defined contribution plan  
   offered by the employer if the member elects to transfer their  
   retirement coverage.

5) Allows the governing body of any local public agency and the  
   Board of Regents of the University of California to elect to  
   have any or all of their employees (employed part-time or  
   full-time) participate in a defined contribution plan either as  
   an alternative or as a supplement to an existing retirement  
   system.  These employers would also be permitted to contract  
   with an existing retirement system for an elective partial  
   defined benefit option to supplement retirement benefits in the  
   defined contribution plan.










6) Permits employers to require new employees to participate in  
   the defined contribution plan as long as it is not in conflict  
   with any bargaining agreement covering those new employees.

7) Requires all employees who terminate employment after January  
   1, 1997, and are later reemployed by their former employer into  
   the defined contribution plan, unless that participation would  
   be in conflict with a collective bargaining agreement covering  
   the employee.























































                                                          AB 3252
                                                         Page 3

8) Requires existing systems to provide, at the employer's  
   request, a disability benefit with an actuarially determined  
   employer contribution rate for employees who transfer their  
   membership to a defined contribution plan.

 FISCAL EFFECT:  Unknown.  To the extent that existing and future  
employers opt out of the existing defined benefit retirement  
systems, funding to these plans will be impacted.  Contribution  
rates to the existing defined benefit plans is based on a  
percentage of payroll, and when fewer employees participate in  
such plans the payroll and contributions funding the plans will be  
decreased.

For employers, increased competition could drive down costs  
substantially.  

 BACKGROUND:  Currently the California Public Employees' Retirement  
System (CalPERS) and the State Teachers' Retirement System (STRS)  
provide retirement benefits to the great majority of California's  
public employees.  The plans offered by these systems are defined  
benefit plans, where employees receive a pre-specified benefit  
upon retirement.  The benefit is typically determined by a formula  
that includes the number of years of service, the employee's  
"final compensation," and a factor to be applied to the years of  
service.  While the benefit is specified in advance for the  
employee, the actual cost to the employer is not known ahead of  
time.  The employer's contribution to fund this benefit is based  
on actuarial calculations, incorporating projections for future  
earnings, wage inflation, and other factors outside of the  
employer's control.

A defined contribution plan, as proposed by this bill, does not  
specify the retirement benefit to be received by the employee.   
Rather, it specifies a contribution, typically expressed as a  
percentage of compensation, which is deposited into an individual  
account for each participant.  The actual benefit for the  
participant is based solely on the amount contributed to the  
account by the employer and participant, and the investment  
earnings attributable to that account. 

 ARGUMENTS IN SUPPORT:  The Bureau of Labor Statistics projects  
that future workers will change jobs more than ever before.   
Employees need a retirement plan that is portable and will follow  
them from employer to employer.  

This bill allows an employee to immediately vest for the employer  
contribution, instead of leaving it in the system.  In the typical  
defined benefit plan, if an individual withdraws from the system  
without drawing a benefit, the employee only receives his or her  
contribution and a meager 6% interest or so.  For instance, the  
employer contribution, which is roughly 12.3% for CalPERS Tier I  
members, stays with the system and is returned to the employers to  
reduce their future contributions.  When seven out of ten CalPERS  
members never draw a benefit from the system, it is the employee  
who loses.  








                                                          AB 3252
                                                         Page 4

This bill will provide the state and local government public  
employers funding certainty, flexibility and predictable costs.   
This bill will likely reduce costs of public employers, and allow  
employees to take a more active role in self-directing their  
retirement investments.


























































                                                          AB 3252
                                                         Page 5


 ARGUMENTS IN OPPOSITION:  This bill will impact the funding of  
existing public retirement systems.  This bill also shifts the  
investment market risk from the employer to the employee.  

 REGISTERED SUPPORT / OPPOSITION:

 Support

California State Association of Counties
California Taxpayers' Association
League of California Cities

 Opposition

Association of California School Administrators
Association of California State Attorneys and Administrative Law  
Judges
Association for Los Angeles Deputy Sheriffs, Inc.
CalPERS
California Association of Highway Patrolmen
California Association of Professional Scientists
California Conference Board of the Amalgamated Transit Union
California Correctional Peace Officers Association
California School Employees Association
California State Employees' Association
CDF Firefighters
California Federation of Teachers
California Professional Firefighters
California State University
California Teachers Association
Los Angeles County Probation Department Union
Peace Officers Research Association
Professional Engineers in California Government
Retired Public Employees Association
Service Employees
State Teachers' Retirement System


 Analysis prepared by:  Michael J. D'Arelli / aper&ss / 322-4320