BILL ANALYSIS                                                                                                                                                                                                    



                                                          AB 3252
                                                         Page 1

ASSEMBLY THIRD READING
AB 3252 (Kaloogian) 
As Amended May 28, 1996
Majority vote

 PUBLIC EMPLOYEES        4-1     APPROPRIATIONS        12-6          
   

Ayes:  Kaloogian, Ackerman, Battin,Ayes:  Poochigian, Ackerman,  
Baldwin,
      Richter                         Bordonaro, Brewer, House,     
      Morrissey, Morrow, Olberg,                         Takasugi,  
Thompson, Woods

Nays:  Burton                   Nays:  Brown, Archie-Hudson,        
      Friedman, Gallegos, Martinez,
                                      Villaraigosa              

 SUMMARY:  Establishes the Public Employees' Defined Contribution  
Retirement Plan for state and local public agency employees whose  
employers elect to participate in the plan.  The defined  
contribution plan would be administered by the California Public  
Employees' Retirement System (CalPERS), the State Teachers'  
Retirement System (STRS), a private company, or the public  
employer.  The plan will be funded by employer and employee  
contributions negotiated between employers and employees.   
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 conducted by  
   CalPERS, STRS, the public employer, or a private pension,  
   insurance, annuity, mutual fund or other qualified company.

2) Allows public employers to establish a defined contribution  
   (DC) retirement plan.  The details of the plan, such as  
   contribution rates and vesting schedules, would be negotiated  
   between employees and employers.

3) Allows state or other public agency employees, except safety  
   members and California State University employees, who are  
   members of any existing retirement system, to transfer  
   retirement coverage to a DC 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.   

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 DC plan offered by the  
   employer if the member elects to transfer to a DC plan.

5) Requires public employers to continue offering defined benefit  
   (DB) plans if they choose to also offer a defined contribution  
   plan.







                                                          AB 3252
                                                         Page 2

   

 FISCAL EFFECT:  Savings of $1,642 per employee, per year,  
according to the Department of Finance.  

 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 DB plans, where employees  
receive a predetermined 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 DC 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, i.e. it 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  
DB 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 13% for CalPERS Tier I  
members, stays with the system and is not returned to employees  
upon withdrawl from the system.  When 7 out of 10 CalPERS and STRS  
members never draw a benefit from the system, it is employees who  
lose.  

This bill provides public employers funding certainty, flexibility  
and predictable costs.  This bill will reduce costs of public  
employers, and allow employees to capture the actual return of  
their retirement investments.

 ARGUMENTS IN OPPOSITION:  This bill shifts the investment market  
risk from the employer to the employee.  


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








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