BILL ANALYSIS
AB 3252
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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
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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
AB 3252
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