BILL ANALYSIS
AB 3252
Date of Hearing: 05/15/96
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Charles Poochigian, Chair
AB 3252 (Kaloogian) - As Amended: 04/22/96
Policy Committee: P.E.,R. &S.S. Vote: 04-01
State Mandated Local Program: NoReimbursable: No Urgency: No
SUMMARY
Establishes the Public Employees' Defined Contribution Retirement
System PEDCRS) 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 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'
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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.
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
Undetermined, but potentially major State General Fund and local
government costs to fund the higher employer contributions to
existing plans because of a reduced employee base for spreading
benefit costs.
Undetermined but potentially major State General Fund and local
government savings from the reduced contribution necessary to fund
the defined contribution plan.
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BACKGROUND
Defined contribution plans dramatically lower retirement costs for
state and local employers over the career of a new employee. Also
under a defined contribution plan, the employer contribution is
set and doesn't fluctuate from year to year as it would under a
defined benefit plan. In addition, a defined contribution plan
typically costs less to administer than a defined benefit.
The Public Employees' Defined Contribution Retirement System could
also
pose a serious threat to the long term funding stability of
existing plans such as the State Teachers' Retirement System. The
Teacher Retirement Board argues that if a considerable portion of
STRS' current and future members migrate to the Proposed PEDCRS,
the period required to amortize the unfunded actuarial liability
would be extended and the long-term funding of STRS would be
adversely impacted.
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