California Senate Bill SB1297 Amended / Bill

 BILL NUMBER: SB 1297AMENDED BILL TEXT 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.  The California Constitution grants the retirement board of a public pension or retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the system, as specified.   Under existing law, public employees may participate in prescribed supplemental defined benefit plans and deferred compensation plans established or maintained by employers.   Existing federal law prescribes requirements for different types tax-qualified retirement plans that permit employees to contribute portions of their pre-tax 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, would authorize a state or local public employer participating in an employee  supplemental  retirement  savings  plan, defined to include  certain defined benefit plans,   specified  deferred compensation  plans, or   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 that meets specified criteria and is either a stable value product or a default investment options, as defined.  The bill would provide that an employer that provides automatic enrollment or automatic escalation in an employee retirement plan 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.  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 authorizing those deductions. The bill would also prohibit an employer that makes contributions to an employee retirement plan on behalf of employees 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.  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.   (c)   (d)  "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" 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, 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.   (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 to the conforming limitations of Section 7523.4,  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.).  (b) An employer that provides for automatic enrollment in a supplemental employee retirement savings plan shall provide a default investment option that shall meet all of the following criteria:   (1) The default option has been agreed to with affected employees in a memorandum of understanding that has been collectively bargained in accordance with applicable laws. The agreement may identify a specific default investment option or allow the savings plan administrator to select the default investment in compliance with the requirements of this section.   (2) The default investment is either 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.   (3) The 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.   (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.   (b)   7523.3.   (a)    (1) An employer that provides automatic enrollment or automatic escalation in an employee  supplemental  retirement  savings  plan is not liable for the investment decisions made  by the employer   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: (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.  (c)   (b)  Nothing in this section modifies any existing responsibility of employers or other plan officials for the selection of investment funds for participating employees.  (d)   (c)  Nothing in this section or any other law 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 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 authorizing those deductions that has been collectively bargained in accordance with applicable laws. (b) An employer that makes contributions to an employee supplemental retirement savings plan on behalf of employees 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 to receive a lower rate of contribution in a memorandum of understanding that has been collectively bargained in accordance with applicable laws. (2) The related represented employees have agreed to not participate in the employee supplemental retirement savings plan in a memorandum of understanding that has been collectively bargained in accordance with applicable laws.