Bill Text: CA SB1297 | 2015-2016 | Regular Session | Amended
Bill Title: Public employee retirement plans: automatic enrollment and escalation.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Failed) 2016-11-30 - Returned to Secretary of Senate pursuant to Joint Rule 62(a). [SB1297 Detail]
Download: California-2015-SB1297-Amended.html
BILL NUMBER: SB 1297 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 19, 2016
AMENDED IN SENATE APRIL 5, 2016
INTRODUCED BY Senator Pan
FEBRUARY 19, 2016
An act to add Article 5 (commencing with Section 7523) to Chapter
21 of Division 7 of Title 1 of the Government Code, relating to
public employees' retirement.
LEGISLATIVE COUNSEL'S DIGEST
SB 1297, as amended, Pan. Public employee retirement plans:
automatic enrollment and escalation.
Existing federal law prescribes requirements for different types
tax-qualified retirement plans that permit employees to contribute
portions of their pre-tax pretax wages
to individual retirement accounts or that provide for deferred
compensation. Existing law authorizes the Department of Human
Resources to establish and administer tax-deferred saving plans in
accordance with specified provisions of federal law.
This bill, notwithstanding any other law,
bill would authorize a state or local public employer
participating in an employee supplemental retirement savings plan,
defined to include specified deferred compensation plans and payroll
deduction individual retirement account plans, to make a deduction
from the wages or compensation of an employee for contributions
attributable to automatic enrollment and automatic escalation in the
employee retirement plan. The bill would require an employer that
provides for automatic enrollment in a supplemental retirement
savings to provide a default investment option and default
investment plan that meets a variety of specified
criteria and is either a stable value product or a default
investment options, as defined. criteria, including
providing employees an opportunity to opt out or withdraw. The
bill would provide that an employer that provides automatic
enrollment or automatic escalation in an employee retirement plan
subject to these provisions is not liable for the
investment decisions made by the employer on behalf of any
participating employee with respect to the default investment of
contributions made for that employee to the plan, if
specified requirements are met. plan. The bill
would prohibit an employer from making deductions from the
compensation of represented employees in the absence of a
collectively bargained memorandum of understanding or other
collective bargaining agreement authorizing those deductions.
The bill would also prohibit an employer that makes employer
contributions to an employee retirement plan on behalf
of employees that implements automatic enrollment of
escalation from contributing at a greater rate for
nonrepresented, managerial, or supervisory employees than that
contributed for represented employees who are in related retirement
membership classifications, except in specified instances. The
bill would prohibit vendors for the default investment plan from
using that relationship to market other products. The bill
would prohibit personnel, including members of governing bodies,
acti ng on behalf of an employer from receiving
consideration from a vendor in exchange for the promotion of a vendor
product.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Article 5 (commencing with Section 7523) is added to
Chapter 21 of Division 7 of Title 1 of the Government Code, to read:
Article 5. Public Employee Retirement Plans: Automatic
Enrollment and Escalation
7523. As used in this article:
(a) "Automatic enrollment" means an employee supplemental
retirement savings plan provision under which an employee will have a
specified contribution made to the plan, equal to a compensation
reduction, that will be made for the employee unless the employee
affirmatively elects not to have any compensation reduction
contributions or elects a compensation reduction contribution in an
alternative amount, in accordance with the federal Pension Protection
Act of 2006 (Public Law 109-280). An employee supplemental
retirement savings plan may provide for automatic enrollment whether
or not the employee supplemental retirement savings plan elects to
provide for automatic escalation.
(b) "Automatic escalation" means an employee supplemental
retirement savings plan provision under which an employee's salary
reduction contribution to the plan is increased by a specified amount
annually up to the limits imposed by the Internal Revenue Code of
1986, as amended, unless the employee affirmatively elects not to
have the automatic escalation amount deducted from compensation or
elects an alternative contribution reduction amount.
(c) "Default investment option" means the investment option in
which funds would be invested unless the employee selected an
alternative investment option.
(d) "Default investment plan" means the investment plan that
provides the default investment option.
(d)
(e) "Employee supplemental retirement savings plan"
means a plan described in Sections 401(k) or 403(b), or a
governmental deferred compensation plan described in Section 457, or
a payroll deduction individual retirement account plan described in
Sections 408 or 408A, of the Internal Revenue Code of 1986, as
amended.
(e) "Stable value product"
(f) "Capital Preservation Account"
means an investment product or fund designed to preserve
principal, provide a rate of return generally consistent
with that earned on intermediate investment grade bonds,
principal and provide liquidity for withdrawals by
participants and beneficiaries, including transfers to other
investment alternatives, with both of the following characteristics:
(1) It imposes no fees or surrender charges in connection with
withdrawals initiated by a participant or beneficiary.
(1) It seeks to maintain, over the term of the investment, the
dollar value that is equal to the amount invested.
(2) It invests primarily in investment products that are backed by
state or federally regulated financial institutions.
7523.1. (a) This article shall apply to all state and local
public employee supplemental retirement savings plans and to their
participating employers.
(b) The administration of this article shall comply with
applicable provisions of the Internal Revenue Code and the Revenue
and Taxation Code.
7523.2. (a) Notwithstanding any other law, and subject
Subject to the conforming
limitations of Section 7523.4, this section,
a state or local public employer participating in an employee
supplemental retirement savings plan may make a deduction from the
wages or compensation of an employee for contributions attributable
to automatic enrollment and automatic escalation in the employee
supplemental retirement savings plan, regardless of whether the plan
is subject to the federal Employee Retirement Income Security Act of
1974, as amended (29 U.S.C. Sec. 1001 et seq.).
seq.), and under the following conditions:
(1) The deduction from the wages or compensation of an employee
for contributions attributable to automatic enrollment or automatic
escalation has been agreed to in a memorandum of understanding or
other agreement that has been collectively bargained in accordance
with applicable laws.
(2) The memorandum of understanding or other collective bargaining
agreement described in paragraph (1) includes the percentage amount
of agreed upon employee contributions and, if applicable, the amount
of automatic escalation and related time periods for automatic
escalation of employee contributions.
(b) An employer that provides for automatic enrollment in a
supplemental employee retirement savings plan shall provide a default
investment plan and default investment option that shall
meet all of the following criteria:
(1) The default option investment plan
has been agreed to with affected employees in a memorandum of
understanding or other agreement that has been
collectively bargained in accordance with applicable laws. The
agreement may identify a specific default investment option or allow
the savings default in vestment
plan administrator to select the default investment option
in compliance with the requirements of this section.
(2) The default investment is either
option is a qualified default investment alternative, as
defined in Section 2550.404c-5 of Title 29 of the Code of Federal
Regulations, effective April 30, 2008, or a stable value
product. 2008.
(3) The default investment option does not impose fees
or surrender charges in connection with withdrawals initiated by the
plan participant or beneficiary.
(4) Conditions for fiduciary relief described in Section
2550.404c-5 of Title 29 of the Code of Federal Regulations, effective
April 30, 2008, are met.
(c) This section does not modify the fiduciary responsibly of
employers or other plan officials for the selection of investment
funds, other than the default investment option, for participating
employees.
(5) The default investment plan offers a broad range of investment
alternatives and provides the participating employee at least
quarterly opportunities to select investments for the employee's
contributions among investment alternatives available under the plan.
(6) The participating employee is given notice of the investment
decisions that will be made in the absence of direction from the
employee, a description of all the investment alternatives available
for employee investment direction under the plan, and a brief
description of procedures available for the employee to change
investments.
(7) The employee is given at least annual notice of the actual
default investments made from contributions attributable to the
employee.
(8) The employee is given notice of his or her right to opt out
from automatic enrollment, to revise investment amounts, and to
choose an investment other than the default investment during the
relevant opt-out period, as described in subdivision (a) of Section
7523.4.
(9) The employee is given notice of the 90-day elective withdrawal
period from automatic enrollment, as described in subdivision (b) of
Section 7523.4.
(c) If the capital preservation account is selected as the default
investment option, it shall not remain as the default investment
option for more than 120 days after the date of the participant's
first contribution.
(d) The default investment option for state employees who
participate in the Savings Plus Program shall be the default
investment determined by the Savings Plus Program.
7523.3. (a) (1) An employer that provides automatic enrollment or
automatic escalation in an employee supplemental retirement savings
plan subject to the requirements in Section 7523.2 is not
liable for the investment decisions made that are subject to the
provisions of Section 7523.2 on behalf of any participating employee
with respect to the default investment of contributions made for that
employee to the plan, if all of the following requirements
are met: plan.
(A) The plan provides the participating employee at least
quarterly opportunities to select investments for the employee's
contributions among investment alternatives available under the plan.
(B) The participating employee is given notice of the investment
decisions that will be made in the absence of direction from the
employee, a description of all the investment alternatives available
for employee investment direction under the plan, and a brief
description of procedures available for the employee to change
investments.
(C) The employee is given at least annual notice of the actual
default investments made of contributions attributable to the
employee.
(2) The relief from liability of the employer under this section
extends to any employee supplemental retirement savings plan official
who makes the actual default investment decisions on behalf of
participating employees.
(b) Nothing in this section article
modifies any existing responsibility of employers
or other plan officials for the selection of investment
funds funds, other than the default option,
for participating employees.
(c) Nothing in this section or any other law
article shall be construed as authorizing an employer to
withhold or divert any portion of an employee's wages to pay any tax,
fee, or charge prohibited by Section 50026, whether or not the
employee authorizes that withholding or diversion.
7523.4. (a) An The employee shall have
the opportunity to opt out of the default investment plan prior to
enrollment, as may be applicable, and for a period of no less than 30
days following enrollment in the plan. Contributions shall not be
made to the plan on behalf of the employee pursuant to
automatic enrollment during the opt- out period. During
the opt -out period, the employee may choose to opt-out of
automatic enrollment, choose an investment amount other
than the default investment amount, or choose an investment other
than the default investment option.
(b) An employee shall have a 90-day elective withdrawal period
that shall begin on the date of the employee's first contribution to
the default investment option during which the employee may elect to
withdraw from automatic enrollment. During this period, the employee
may also elect to withdraw funds from the default investment option
or to transfer funds from the default investment option to another
investment in the default plan or to another investment of the
employee's outside of the default investment plan. During this
period, the employee shall not be subject to any restrictions, fees,
or expenses, including surrender charges, liquidation or exchange
fees, redemption fees, or similar expenses charged in connection with
the liquidation of, or transfer from, the investment.
(c) An employee subject to automatic enrollment or automatic
escalation of contributions shall have the opportunity to choose a
different investment amount than the amount determined for automatic
enrollment and escalation.
(d) An employer shall not make
deductions from the compensation of represented employees, as
described in Section 7523.2, in the absence of a memorandum of
understanding or other collective bargaining agreement
authorizing those deductions that has been collectively bargained in
accordance with applicable laws. An employer shall not impose
provisions upon represented employees following an impasse in
collective bargaining.
(e) An employer that implements an automatic enrollment or
escalation pursuant to this article may also include related
non-represented employees.
(b)
(f) An employer that makes employer
contributions to an employee supplemental retirement savings plan
on behalf of employees that
implements automatic enrollment or escalation shall not
contribute at a greater rate to the plan for nonrepresented,
managerial, or supervisory employees than the employer contributes
for represented employees who are in related retirement membership
classifications except if either of the following apply:
(1) The related represented employees have agreed not
to receive an employer contribution or have agreed to
a lower rate of employer contribution in a
memorandum of understanding or other agreement that has
been collectively bargained in accordance with applicable laws.
(2) The related represented employees have agreed to not
participate in automatic enrollment or escalation in the
employee supplemental retirement savings plan in a memorandum of
understanding or other agreement that has been
collectively bargained in accordance with applicable laws.
(g) The vendor selected for the default investment plan shall not
use its relationship with participants of the plan to market other
products provided by the vendor that are not included in the default
investment plan.
(h) Personnel, including members of a governing body, acting on
behalf of an employer shall not receive consideration from a vendor
in exchange for the promotion of a particular vendor or vendor's
products. If it is determined that a person acting on behalf of an
employer received this type of consideration, the applicable
memorandum of understanding or other collective bargaining agreement
shall be reopened and its provisions relative to automatic enrollment
or escalation may, at that time, be renegotiated.
(i) A memorandum of understanding or other collective bargaining
agreement made to implement this article that affects school
employees shall be affirmatively negotiated by the local bargaining
unit representing employees affected by the agreement.
7523.5. (a) Implementation of a collectively bargained default
investment plan and automatic enrollment is not intended to limit the
choice of investments that employees have. This article shall not
serve to limit the choice of investment options or plans available to
an employee from other investment vendors or providers. Investment
plans that were available to the employee prior to the implementation
of automatic enrollment into a default investment plan shall not be
reduced or eliminated as a direct result of implementing automatic
enrollment into a default investment plan.
(b) An employee who contributes to a supplemental retirement
savings plan other than the default plan shall not have his or her
contribution to the other plan modified as a direct result of
implementing automatic enrollment in a default investment option.
