Ab_2462_bill_20060830_enrolled
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Assembly Bill No. 2462
Passed the Assembly August 28, 2006
Chief Clerk of the Assembly
Passed the Senate August 23, 2006
Secretary of the Senate
This bill was received by the Governor this of
, 2006, at
o’clock
day
m.
Private Secretary of the Governor
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CHAPTER An act to amend Sections 22950, 24952, 44041, and 87040 of, and to add Sections 22307.5, 24953, 24977, 44041.5, and 87040.5 to, the Education Code, relating to state teachers’ retirement, and making an appropriation therefor. legislative counsel’s digest
AB 2462, Mullin. State teachers’ retirement. (1) The State Teachers’ Retirement Law prescribes the rights and benefits of the members of the Defined Benefit Program of the State Teachers’ Retirement Plan. The law requires participating employers to contribute a specified percentage of creditable compensation of members of the program to the system, and these contributions are deposited in the Teachers’ Retirement Fund, as specified. Existing law creates the Teachers’ Health Benefits Fund, a continuously appropriated trust fund, for the purpose of developing health care benefit programs, which is funded by employer contributions, as specified. This bill would create the Teachers’ Retirement Program Development Fund, to be continuously appropriated, to pay any costs determined by the board to be related to the development of programs authorized by statute that the board determines directly or indirectly enhance the financial security of members, participants, or beneficiaries of the State Teachers’ Retirement Plan, upon a specified resolution by the Teachers’ Retirement Board. The Teachers’ Retirement Program Development Fund would be funded by employer contributions in an amount to be determined by the board. The bill would require an amount equal to these employer contributions together with interest, as specified, to be deposited in the Teachers’ Retirement Fund from moneys generated from the programs receiving development funds pursuant to these provisions, on terms and conditions established by the board. (2) The State Teachers’ Retirement Law requires that an annuity contract and custodial account, as described in Section 403(b) of the Internal Revenue Code, be offered to specified employees who perform creditable service subject to coverage by
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the Defined Benefit Program of the State Teachers’ Retirement Plan. The annuity contract and custodial account may be administered by a qualified 3rd-party administrator. The law permits deferred compensation plans, as described in Section 457 of the Internal Revenue Code, to be offered to participating employers for the employers to establish and offer to their employees, and these plans may also be administered by a 3rd-party administrator. Existing law requires the governing board of a school district when drawing orders for salary payments to make, without charge, certain reductions connected to participation in various programs, including deferred compensation plans. This bill would additionally provide for deferred compensation plans and annuity contracts and custodial accounts that permit the employer to enter into a contract with the system or a 3rd-party administrator to provide administrative or compliance services for those plans, contracts, and accounts, and would specify the rights and obligations of employers, the system, and 3rd-party administrators in this regard. The bill would also specify that the State Teachers’ Retirement System may provide employers services to ensure compliance with federal law, and to provide for cost recovery, as specified. (3) Existing law permits a community college employee to deduct from his or her salary payments for participating in specified programs, including, but not limited to, deferred compensation, group life or disability insurance, legal expense insurance, and hospital service contracts. This bill would additionally provide for deferred compensation plans and annuity contracts and custodial accounts that permit a community college district to enter into a contract with the system or a 3rd-party administrator to provide administrative or compliance services for those plans, contracts, and accounts and would specify the rights and obligations of the community college district and 3rd-party administrators in this regard. Appropriation: yes. The people of the State of California do enact as follows: SECTION 1. Section 22307.5 is added to the Education Code, to read: 95
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22307.5. (a) There is in the State Treasury a trust fund to be known as the Teachers’ Retirement Program Development Fund. There shall be deposited directly in that fund, and not transferred from the Teachers’ Retirement Fund, that portion of employer contributions determined by the board as necessary to fund the expenditures authorized by this section. (b) Notwithstanding Section 13340 of the Government Code, moneys in the Teachers’ Retirement Program Development Fund are continuously appropriated without regard to fiscal years to pay any costs determined by the board to be related to the development of programs authorized by statute that the board determines directly or indirectly enhance the financial security of members, participants, or beneficiaries of the State Teachers’ Retirement Plan, if the board determines, by resolution, the proposed program is to have a reasonable expectation to generate sufficient revenue to carry out the ongoing responsibilities of the programs under development and permit the subsequent deposit of funds, pursuant to subdivision (e), into the Teachers’ Retirement Fund. (c) The board may authorize the transfer and disbursement of funds from the Teachers’ Retirement Program Development Fund for the purpose of carrying into effect this section upon the signature of either or both of its chairperson and vice chairperson or the chief executive officer or any employee of the system designated by the chief executive officer. (d) Disbursements of moneys from the Teachers’ Retirement Program Development Fund of whatever nature shall be made upon claims duly audited in the manner prescribed for the disbursement of other public funds. (e) An amount equal to employer contributions deposited in the Teachers’ Retirement Program Development Fund pursuant to subdivision (a), together with interest calculated based on the actuarially assumed rate of investment return for the Defined Benefit Program for the period beginning with the deposit of employer contributions into the Teachers’ Retirement Program Development Fund and ending with the transfer to the Teachers’ Retirement Fund, on terms and conditions established by the board pursuant to subdivision (b), shall be deposited in the Teachers’ Retirement Fund, from funds generated from the programs receiving development funds pursuant to this section. 95
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SEC. 2. Section 22950 of the Education Code is amended to read: 22950. (a) Employers shall contribute monthly to the system 8 percent of the creditable compensation upon which members’ contributions under this part are based. (b) From the contributions required under subdivision (a), there shall be deposited in the Teachers’ Retirement Fund an amount, determined by the board, that is not less than the amount, determined in an actuarial valuation of the Defined Benefit Program pursuant to Section 22311.5, necessary to finance the liabilities associated with the benefits of the Defined Benefit Program over the funding period adopted by the board, after taking into account the contributions made pursuant to Sections 22901, 22951, and 22955. (c) The amount of contributions required under subdivision (a) that is not deposited in the Teachers’ Retirement Fund pursuant to subdivision (b) shall be deposited directly into the Teachers’ Health Benefits Fund, as established in Section 25930, and shall not be deposited into or transferred from the Teachers’ Retirement Fund. (d) (1) Notwithstanding subdivisions (b) and (c), there may be deposited into the Teachers’ Retirement Program Development Fund, as established in Section 22307.5, from the contributions required under subdivision (a), an amount determined by the board, not to exceed the limit specified in paragraph (2). (2) The balance of deposits into the Teachers’ Retirement Development Fund, minus the subsequent transfer of funds, with interest, into the Teachers’ Retirement Fund pursuant subdivision (e) of Section 22307.5, shall not exceed 0.01 percent of the total of the creditable compensation of the fiscal year ending in the immediately preceding calendar year upon which member’s contributions to the Defined Benefit Program are based. (3) The deposits described in this subdivision shall not be deposited into, or transferred from, the Teachers’ Retirement Fund. SEC. 3. Section 24952 of the Education Code is amended to read: 24952. (a) Any annuity contract and custodial account advertised, promoted, or offered through one or more third-party service providers, shall provide for recovery, from the employees 95
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who participate, of all costs and expenses of its own administration, including, but not limited to, advertising, promotion, legal, accounting, compliance, recordkeeping, and investment costs and expenses. (b) Any annuity contract and custodial account administered by the system shall provide for the recovery of all costs and expenses of its administration. (c) The system may promote and advertise an annuity contract and custodial account administered directly by the system or by a third-party administrator. SEC. 4. Section 24953 is added to the Education Code, to read: 24953. (a) For purposes of this section, the following definitions shall apply: (1) “Annuity contract” means an annuity contract described in Section 403(b) of the Internal Revenue Code that is available to employees as described in Section 770.3 of the Insurance Code. (2) “Custodial account” means a custodial account described in Section 403(b)(7) of the Internal Revenue Code. (3) “Third-party administrator” means a person or entity other than the system that provides administrative or compliance services to the system as described in subdivision (b). (b) An employer that employs persons to perform creditable service subject to coverage by the plan under this part may enter into a written contract with the system for services regarding an annuity contract and custodial account provided by the employer. That contract may include any of the following: (1) Services to ensure compliance with Section 403(b) of the Internal Revenue Code regarding the annuity contract and custodial account including, but not limited to, services that permit the system to do any of the following: (A) Administer and maintain written plan documents governing the employer’s plan. (B) Review and authorize hardship withdrawal requests, transfer requests, loan requests and other disbursements permitted under Section 403(b) of the Internal Revenue Code. (C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code.
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(D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in an annuity contract and custodial account. (E) Administer and maintain specimen salary reduction agreements for the employer and employees of that employer to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to paragraph (2), through information provided by the employer, or through information provided by vendors authorized by the employer to provide investment products, the maximum contributions allowed by employees participating in the annuity contract and custodial account as described in Sections 402(g), 414(v), and 415 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the employer to the annuity contract and custodial account. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s annuity contract and custodial account as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the annuity contract and custodial account. (2) Services to administer the annuity contract and custodial account that include, but are not limited to, all of the following: (A) Common remitting services. (B) General educational information to employees about the annuity contract and custodial account that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the employer to ensure compliance with Section 403(b) of the Internal Revenue Code and Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan. (E) Internal audits, on behalf of an employer, of a provider’s plan compliance procedures with respect to the provider’s annuity contract and custodial account offered under the employer’s plan. These audits shall not be conducted more than 95
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once per year for a provider’s plan, unless documented evidence indicates a problem in complying with Section 403(b) of the Internal Revenue Code. (c) If the system elects to contract with a third-party administrator for the administrative or compliance services to employers described in subdivision (b), the system shall do all of the following: (1) Determine that hiring the third-party administrator is in the best interest of the participants to the annuity contract and custodial account, their beneficiaries, and the employer that provides that annuity contract and custodial account. (2) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the system to be sufficient to protect the assets of participants and beneficiaries in the annuity contract and custodial account. (3) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 403(b) of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data. (d) Any personal information obtained by the system in providing services pursuant to this section shall be used by the system only to provide those services for the employer in accordance with the contract entered into with the employer pursuant to subdivision (b). (e) Nothing in this section requires an employer to contract with the system for the administrative or compliance services described in subdivision (b). A written contract for the administrative or compliance services described in subdivision (b) shall be on behalf of and at the request of the employer. (f) Nothing in this section shall be construed to interfere with either: (1) The rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (2) The ability of an employer to establish nonarbitrary requirements upon providers of an annuity contract that, in the employer’s determination, aid in the administration of its benefit programs and do not unreasonably discriminate against any provider of an annuity contract or interfere with the rights of 95
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employees or beneficiaries as described in Section 770.3 of the Insurance Code. (g) The cost of providing administrative or compliance services pursuant to this section shall be deemed to be a cost incurred by the employer and subject to subdivision (b) of Section 44041 or subdivision (b) of Section 87040. (h) In any conflict between this section and Section 44041.5 or 87040.5, including, with respect to the provision of services provided pursuant to a contract between an employer and the system, the provisions of this section shall prevail. (i) The system shall disclose to an employer seeking the services described in this section any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the system or a third-party administrator from any plan provider selected as a vendor of an annuity contract or custodial account by the employer. If the system or a third-party administrator is affiliated with or has a contractual relationship with a provider of annuity contracts or custodial accounts, the system or third-party administrator shall disclose the existence of that relationship to each employer and employee participating in the annuity contract or custodial account. SEC. 5. Section 24977 is added to the Education Code, to read: 24977. (a) An employer that employs persons to perform creditable service subject to coverage by the plan under this part that offers a deferred compensation plan as described in Section 457 of the Internal Revenue Code may enter into a written contract with the system for services regarding that deferred compensation plan provided by the employer. That contract may include any of the following services: (1) Services to ensure compliance with Section 457 of the Internal Revenue Code regarding the deferred compensation plan including, but not limited to, services that permit the system to do any of the following: (A) Administer and maintain written plan documents governing the employer’s plan. (B) Review and authorize requests for unforeseeable emergency withdrawals, transfer requests, loan requests and other disbursements permitted under Section 457 of the Internal Revenue Code. 95
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(C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code. (D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in the deferred compensation plan. (E) Administer and maintain specimen salary reduction agreements for the employer and employees of that employer to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to paragraph (2), through information provided by the employer, or through information provided by vendors authorized by the employer to provide investment products, the maximum contributions allowed by employees participating in the deferred compensation plan as described in Sections 414(v) and 457 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the employer to the deferred compensation plan. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s deferred compensation plan as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the deferred compensation plan. (2) Services to administer the deferred compensation plan that include, but are not limited to, all of the following: (A) Common remitting services. (B) General educational information to employees about the deferred compensation plan that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the employer to ensure compliance with Section 457 of the Internal Revenue Code and Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan.
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(E) Internal audits, on behalf of an employer, of a provider’s plan compliance procedures with respect to the provider’s custodial account offered under the employer’s plan. These audits shall not be conducted more than once per year for any provider’s plan unless documented evidence indicates a problem in complying with Section 457 of the Internal Revenue Code. (b) The system may contract with a third-party administrator for the administrative and compliance services to employers described in subdivision (a). For purposes of this subdivision, a “third-party administrator” shall mean a person or entity other than the system that provides administrative or compliance services as described in subdivision (a). If the system contracts with a third-party administrator, the system shall do all of the following: (1) Determine that hiring a third-party administrator is in the best interest of the participants to the deferred compensation plan, their beneficiaries, and the employer that provides that deferred compensation plan. (2) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the system to be sufficient to protect the assets of participants and beneficiaries in the deferred compensation plan. (3) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 457 of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data. (c) Nothing in this section requires an employer to contract with the system for the administrative or compliance services described in subdivision (a). A written contract for the administrative or compliance services described in subdivision (a) shall be on behalf of and at the request of the employer. (d) Any personal information obtained by the system in providing services pursuant to this section shall be used by the system only to provide those services for the employer in accordance with the contract entered into with the employer pursuant to subdivision (b). (e) The cost of providing administrative or compliance services pursuant to this section shall be deemed to be a cost 95
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incurred by the employer and subject to subdivision (b) of Section 44041 or subdivision (b) of Section 87040. (f) In any conflict between this section and Section 44041.5 or 87040.5, including with respect to the provision of services provided pursuant to a contract between an employer and the system, the provisions of this section shall prevail. (g) The system shall disclose to an employer seeking the services described in this section any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the system or a third-party administrator from any plan provider selected as a vendor of a deferred compensation plan by the employer. If the system or a third-party administrator is affiliated with or has a contractual relationship with a provider of deferred compensation plans, the system or third-party administrator shall disclose the existence of that relationship to each employer and each individual participant in the deferred compensation plan. SEC. 6. Section 44041 of the Education Code is amended to read: 44041. (a) (1) The governing board of each school district when drawing an order for the salary payment due to employees of the district shall, without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for any or all of the following purposes: (A) Paying premiums on any policy or certificate of group life insurance for the benefit of the employee or for group disability insurance, or legal expense insurance, or any of them, for the benefit of the employee or his or her dependents issued by an admitted insurer on a form of policy or certificate approved by the Insurance Commissioner. (B) Paying rates, dues, fees, or other periodic charges on any hospital service contract for the benefit of the employee, or his or her dependents, issued by a nonprofit hospital service corporation on a form approved by the Insurance Commissioner pursuant to the provisions of Chapter 11A (commencing with Section 11491) of Part 2 of Division 2 of the Insurance Code. (C) Paying periodic charges on any medical and hospital service agreement or contract for the benefit of the employee, or his or her dependents, issued by a nonprofit corporation subject 95
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to Part 2 (commencing with Section 5110) of, Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (D) Paying periodic charges on any legal services contract for the benefit of the employee, or his or her dependents issued by a nonprofit corporation subject to Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (2) The requirements of this subdivision shall not apply to subdivision (b). (b) For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an annuity program authorized by Section 403(b) of the Internal Revenue Code that is offered by the school district which provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each school district when drawing an order for the salary payment due to an employees of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the school district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee’s participant account, or the organization or entity authorizing the deduction. (c) The governing board of the district shall, beginning with the month designated by the employee and each month thereafter until authorization for the deduction is revoked, draw its order upon the funds of the district in favor of the insurer which has issued the policies or certificates or in favor of the nonprofit hospital service corporation which has issued hospital service 95
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contracts, or in favor of the nonprofit corporation which has issued medical and hospital service or legal service agreements or contracts, for an amount equal to the total of the respective deductions therefor made during the month. The governing board may require that the employee submit his or her authorization for the deduction up to one month in advance of the effective date of coverage. (d) “Group insurance” as used in this section shall mean only a bona fide group program of life or disability or life and disability insurance where a master contract is held by the school district or an employee organization but it shall, nevertheless, include annuity programs authorized by Section 403(b) of the Internal Revenue Code when approved by the governing board. SEC. 7. Section 44041.5 is added to the Education Code, to read: 44041.5. (a) purposes of this section, the following definitions shall apply: (1) “Annuity contract” means an annuity contract described in Section 403(b) of the Internal Revenue Code that is available to employees as described in Section 770.3 of the Insurance Code. (2) “Custodial account” means a custodial account described in Section 403(b)(7) of the Internal Revenue Code. (3) “Deferred compensation plan” means a plan described in Section 457 of the Internal Revenue Code. (4) “Employer” means a school district or county office of education. (5) “Third-party administrator” means a person or entity that provides administrative or compliance services to an employer as described in subdivision (b). (b) An employer may enter into a written contract with a third-party administrator for services regarding an annuity contract and custodial account or a deferred compensation plan provided by the employer. That contract may include any of the following: (1) Services to ensure compliance with either Section 403(b) of the Internal Revenue Code regarding the annuity contract and custodial account or Section 457 of the Internal Revenue Code regarding a deferred compensation plan including, but not limited to, any of the following:
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(A) Administer and maintain written plan documents governing the employer’s plan. (B) Review and authorize hardship withdrawal requests under Section 403(b) of the Internal Revenue Code, transfer requests, loan requests, unforeseeable emergency withdrawals under Section 457 of the Internal Revenue Code and other disbursements permitted under either Section 403(b) or 457 of the Internal Revenue Code. (C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code. (D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in an annuity contract and custodial account. (E) Administer and maintain specimen salary reduction agreements for the employer and employees of that employer to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to subparagraph (2), through information provided by the employer, or through information provided by vendors authorized by the employer to provide investment products, the maximum contributions allowed by employees participating in either the annuity contract and custodial account as described in Sections 402(g), 414(v), and 415 of the Internal Revenue Code or the deferred compensation plan as described in Sections 414(v) or 457 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the employer to the annuity contract and custodial account or deferred compensation plan. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s annuity contract and custodial account or deferred compensation plan as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the annuity contract and custodial account or deferred compensation plan. (2) Services to administer the annuity contract and custodial account or a deferred compensation plan that includes, but is not limited to, all of the following: 95
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(A) Common remitting services. (B) General educational information to employees about the annuity contract and custodial account or the deferred compensation plan that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the employer to ensure compliance with either Section 403(b) or 457 of the Internal Revenue Code and compliance with Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan. (E) Internal audits, on behalf of an employer, of a provider’s plan compliance procedures with respect to the provider’s annuity contract or custodial account offered under the employer’s plan. These audits shall not be conducted more than once per year for any provider’s plan unless documented evidence indicates a problem in complying with either Section 403(b) or 457 of the Internal Revenue Code. (c) (1) If an employer elects to contract with a third-party administrator for the administrative or compliance services to employers described in subdivision (b), the employer shall do all of the following: (A) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the employer to be sufficient to protect the assets of participants and beneficiaries in the annuity contract and custodial account or deferred compensation plan. (B) Require the third-party administrator to provide evidence of a safe chain-of-custody of assets process for ensuring fulfillment of fiduciary responsibilities and timely placement of participant investments. (C) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 403(b) or 457 of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data unless access to the data is required to provide the services in accordance with the contract entered into with the employer pursuant to subdivision (b).
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(2) This subdivision shall apply to any administrative or compliance services provided pursuant to a contract for services between an employer and the State Teachers’ Retirement System if the system does not contract with a third-party administrator to provide those administrative and compliance services on behalf of the system. (d) A third-party administrator shall disclose to any employer seeking his or her services any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the administrator, a related entity, or a representative or agent of the administrator or related entity from any plan provider selected as a vendor of a annuity contract, custodial account, or deferred compensation plan by the employer. A third-party administrator that is affiliated with or has a contractual relationship with a provider of annuity contracts, custodial accounts, or deferred compensation plans shall disclose the existence of the relationship to each employer and each individual participant in the annuity contract, custodial account or deferred compensation plan. (e) Any personal information obtained by the third-party administrator in providing services pursuant to this section shall be used by the third-party administrator only to provide those services for the employer in accordance with the contract entered into with the employer pursuant to subdivision (b). (f) Nothing in this section shall be construed to interfere with either: (1) The rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (2) The ability of the employer to establish nonarbitrary requirements upon providers of an annuity contract that, in the employer’s discretion, aid in the administration of its benefit programs and do not unreasonably discriminate against any provider of an annuity contract or interfere with the rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (g) This section shall not apply to any services provided by a third-party administrator pursuant to a contract for services between an employer and the State Teachers’ Retirement System. Any services provided by a third-party administrator pursuant to a contract for services between an employer and the State 95
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Teachers’ Retirement System shall be subject to either Section 24953, in the case of an annuity contract or custodial account, or Section 24977, in the case of a deferred compensation plan. SEC. 8. Section 87040 of the Education Code is amended to read: 87040. (a) (1) The governing board of each community college district when drawing an order for the salary payment due to employees of the district shall, without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for any or all of the following purposes: (A) Paying premiums on any policy or certificate of group life insurance for the benefit of the employee or for group disability insurance, or legal expense insurance, or any of them, for the benefit of the employee or his dependents issued by an admitted insurer on a form of policy or certificate approved by the Insurance Commissioner. (B) Paying rates, dues, fees, or other periodic charges on any hospital service contract for the benefit of the employee, or his dependents, issued by a nonprofit hospital service corporation on a form approved by the Insurance Commissioner pursuant to the provisions of Chapter 11a (commencing with Section 11491) of Part 2 of Division 2 of the Insurance Code. (C) Paying periodic charges on any medical and hospital service agreement or contract for the benefit of the employee, or his dependents, issued by a nonprofit corporation subject to Part 2 (commencing with Section 5110) of, Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (D) Paying periodic charges on any legal services contract for the benefit of the employee, or his dependents issued by a nonprofit corporation subject to Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (2) The requirements of this subdivision shall not apply to subdivision (b). (b) For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an annuity program authorized by Section 403(b) of the Internal Revenue Code that is offered by the community college district 95
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which provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each community college district when drawing an order for the salary payment due to an employees of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the community college district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a community college district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee’s participant account, or the organization or entity authorizing the deduction. (c) The governing board of the district shall, beginning with the month designated by the employee and each month thereafter until authorization for the deduction is revoked, draw its order upon the funds of the district in favor of the insurer which has issued the policies or certificates or in favor of the nonprofit hospital service corporation which has issued hospital service contracts, or in favor of the nonprofit corporation which has issued medical and hospital service or legal service agreements or contracts, for an amount equal to the total of the respective deductions therefor made during the month. The governing board may require that the employee submit his authorization for the deduction up to one month in advance of the effective date of coverage. (d) “Group insurance” as used in this section shall mean only a bona fide group program of life or disability or life and disability insurance where a master contract is held by the community college district or an employee organization but it shall, nevertheless, include annuity programs authorized by Section 403(b) of the Internal Revenue Code when approved by the governing board.
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SEC. 9. Section 87040.5 is added to the Education Code, to read: 87040.5. (a) For purposes of this section, the following definitions shall apply: (1) “Annuity contract” means an annuity contract described in Section 403(b) of the Internal Revenue Code that is available to employees as described in Section 770.3 of the Insurance Code. (2) “Custodial account” means a custodial account described in Section 403(b)(7) of the Internal Revenue Code. (3) “Deferred compensation plan” means a plan described in Section 457 of the Internal Revenue Code. (4) “Third-party administrator” means a person or entity that provides administrative or compliance services to a community college district as described in subdivision (b). (b) A community college district may enter into a written contract with a third-party administrator for services regarding an annuity contract and custodial account or a deferred compensation plan provided by the community college district. That contract may include any of the following: (1) Services to ensure compliance with either Section 403(b) of the Internal Revenue Code regarding the annuity contract and custodial account or Section 457 of the Internal Revenue Code regarding a deferred compensation plan including, but not limited to, any of the following: (A) Administer and maintain written plan documents governing the community college district’s plan. (B) Review and authorize hardship withdrawal requests under Section 403(b) of the Internal Revenue Code, transfer requests, loan requests, unforeseeable emergency withdrawals under Section 457 of the Internal Revenue Code and other disbursements permitted under either Section 403(b) or 457 of the Internal Revenue Code. (C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code. (D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in an annuity contract and custodial account.
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(E) Administer and maintain specimen salary reduction agreements for the community college district and employees of that community college district to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to subparagraph (2), through information provided by the community college district, or through information provided by vendors authorized by the community college district to provide investment products, the maximum contributions allowed by employees participating in either the annuity contract and custodial account as described in Sections 402(g), 414(v), and 415 of the Internal Revenue Code or the deferred compensation plan as described in Sections 414(v) or 457 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the community college district to the annuity contract and custodial account or deferred compensation plan. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s annuity contract and custodial account or deferred compensation plan as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the annuity contract and custodial account or deferred compensation plan. (2) Services to administer the annuity contract and custodial account or a deferred compensation plan that includes, but is not limited to, all of the following: (A) Common remitting services. (B) General educational information to employees about the annuity contract and custodial account or the deferred compensation plan that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the community college district to ensure compliance with either Section 403(b) or 457 of the Internal Revenue Code and compliance with Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan.
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(E) Internal audits, on behalf of a community college district, of a provider’s plan compliance procedures with respect to the provider’s annuity contract or custodial account offered under the community college district’s plan. These audits shall not be conducted more than once per year for any provider’s plan unless documented evidence indicates a problem in complying with either Section 403(b) or 457 of the Internal Revenue Code. (c) (1) If a community college district elects to contract with a third-party administrator for the administrative or compliance services to community college districts described in subdivision (b), the community college district shall do all of the following: (A) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the community college district to be sufficient to protect the assets of participants and beneficiaries in the annuity contract and custodial account or deferred compensation plan. (B) Require the third-party administrator to provide evidence of a safe chain-of-custody of assets process for ensuring fulfillment of fiduciary responsibilities and timely placement of participant investments. (C) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 403(b) or 457 of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data unless access to the data is required to provide the services in accordance with the contract entered into with the community college district pursuant to subdivision (b). (2) This subdivision shall apply to any administrative or compliance services provided pursuant to a contract for services between a community college district and the State Teachers’ Retirement System if the system does not contract with a third-party administrator to provide those administrative and compliance services on behalf of the system. (d) A third-party administrator shall disclose to any community college district seeking his or her services any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the administrator, a related entity, or a representative or agent of the administrator or related entity 95
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from any plan provider selected as a vendor of an annuity contract, custodial account, or deferred compensation plan by the community college district. A third-party administrator that is affiliated with or has a contractual relationship with a provider of annuity contracts, custodial accounts, or deferred compensation plans shall disclose the existence of the relationship to each community college district and each individual participant in the annuity contract, custodial account or deferred compensation plan. (e) Any personal information obtained by the third-party administrator in providing services pursuant to this section shall be used by the third-party administrator only to provide those services for the community college district in accordance with the contract entered into with the community college district pursuant to subdivision (b). (f) Nothing in this section shall be construed to interfere with either: (1) The rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (2) The ability of the community college district to establish nonarbitrary requirements upon providers of an annuity contract that, in the community college district’s discretion, aid in the administration of its benefit programs and do not unreasonably discriminate against any provider of an annuity contract or interfere with the rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (g) This section shall not apply to any services provided by a third-party administrator pursuant to a contract for services between a community college district and the State Teachers’ Retirement System. Any services provided by a third-party administrator pursuant to a contract for services between a community college district and the State Teachers’ Retirement System shall be subject to either Section 24953, in the case of an annuity contract or custodial account, or Section 24977, in the case of a deferred compensation plan.
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Approved
, 2006
Governor
Passed the Assembly August 28, 2006
Chief Clerk of the Assembly
Passed the Senate August 23, 2006
Secretary of the Senate
This bill was received by the Governor this of
, 2006, at
o’clock
day
m.
Private Secretary of the Governor
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CHAPTER An act to amend Sections 22950, 24952, 44041, and 87040 of, and to add Sections 22307.5, 24953, 24977, 44041.5, and 87040.5 to, the Education Code, relating to state teachers’ retirement, and making an appropriation therefor. legislative counsel’s digest
AB 2462, Mullin. State teachers’ retirement. (1) The State Teachers’ Retirement Law prescribes the rights and benefits of the members of the Defined Benefit Program of the State Teachers’ Retirement Plan. The law requires participating employers to contribute a specified percentage of creditable compensation of members of the program to the system, and these contributions are deposited in the Teachers’ Retirement Fund, as specified. Existing law creates the Teachers’ Health Benefits Fund, a continuously appropriated trust fund, for the purpose of developing health care benefit programs, which is funded by employer contributions, as specified. This bill would create the Teachers’ Retirement Program Development Fund, to be continuously appropriated, to pay any costs determined by the board to be related to the development of programs authorized by statute that the board determines directly or indirectly enhance the financial security of members, participants, or beneficiaries of the State Teachers’ Retirement Plan, upon a specified resolution by the Teachers’ Retirement Board. The Teachers’ Retirement Program Development Fund would be funded by employer contributions in an amount to be determined by the board. The bill would require an amount equal to these employer contributions together with interest, as specified, to be deposited in the Teachers’ Retirement Fund from moneys generated from the programs receiving development funds pursuant to these provisions, on terms and conditions established by the board. (2) The State Teachers’ Retirement Law requires that an annuity contract and custodial account, as described in Section 403(b) of the Internal Revenue Code, be offered to specified employees who perform creditable service subject to coverage by
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the Defined Benefit Program of the State Teachers’ Retirement Plan. The annuity contract and custodial account may be administered by a qualified 3rd-party administrator. The law permits deferred compensation plans, as described in Section 457 of the Internal Revenue Code, to be offered to participating employers for the employers to establish and offer to their employees, and these plans may also be administered by a 3rd-party administrator. Existing law requires the governing board of a school district when drawing orders for salary payments to make, without charge, certain reductions connected to participation in various programs, including deferred compensation plans. This bill would additionally provide for deferred compensation plans and annuity contracts and custodial accounts that permit the employer to enter into a contract with the system or a 3rd-party administrator to provide administrative or compliance services for those plans, contracts, and accounts, and would specify the rights and obligations of employers, the system, and 3rd-party administrators in this regard. The bill would also specify that the State Teachers’ Retirement System may provide employers services to ensure compliance with federal law, and to provide for cost recovery, as specified. (3) Existing law permits a community college employee to deduct from his or her salary payments for participating in specified programs, including, but not limited to, deferred compensation, group life or disability insurance, legal expense insurance, and hospital service contracts. This bill would additionally provide for deferred compensation plans and annuity contracts and custodial accounts that permit a community college district to enter into a contract with the system or a 3rd-party administrator to provide administrative or compliance services for those plans, contracts, and accounts and would specify the rights and obligations of the community college district and 3rd-party administrators in this regard. Appropriation: yes. The people of the State of California do enact as follows: SECTION 1. Section 22307.5 is added to the Education Code, to read: 95
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22307.5. (a) There is in the State Treasury a trust fund to be known as the Teachers’ Retirement Program Development Fund. There shall be deposited directly in that fund, and not transferred from the Teachers’ Retirement Fund, that portion of employer contributions determined by the board as necessary to fund the expenditures authorized by this section. (b) Notwithstanding Section 13340 of the Government Code, moneys in the Teachers’ Retirement Program Development Fund are continuously appropriated without regard to fiscal years to pay any costs determined by the board to be related to the development of programs authorized by statute that the board determines directly or indirectly enhance the financial security of members, participants, or beneficiaries of the State Teachers’ Retirement Plan, if the board determines, by resolution, the proposed program is to have a reasonable expectation to generate sufficient revenue to carry out the ongoing responsibilities of the programs under development and permit the subsequent deposit of funds, pursuant to subdivision (e), into the Teachers’ Retirement Fund. (c) The board may authorize the transfer and disbursement of funds from the Teachers’ Retirement Program Development Fund for the purpose of carrying into effect this section upon the signature of either or both of its chairperson and vice chairperson or the chief executive officer or any employee of the system designated by the chief executive officer. (d) Disbursements of moneys from the Teachers’ Retirement Program Development Fund of whatever nature shall be made upon claims duly audited in the manner prescribed for the disbursement of other public funds. (e) An amount equal to employer contributions deposited in the Teachers’ Retirement Program Development Fund pursuant to subdivision (a), together with interest calculated based on the actuarially assumed rate of investment return for the Defined Benefit Program for the period beginning with the deposit of employer contributions into the Teachers’ Retirement Program Development Fund and ending with the transfer to the Teachers’ Retirement Fund, on terms and conditions established by the board pursuant to subdivision (b), shall be deposited in the Teachers’ Retirement Fund, from funds generated from the programs receiving development funds pursuant to this section. 95
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SEC. 2. Section 22950 of the Education Code is amended to read: 22950. (a) Employers shall contribute monthly to the system 8 percent of the creditable compensation upon which members’ contributions under this part are based. (b) From the contributions required under subdivision (a), there shall be deposited in the Teachers’ Retirement Fund an amount, determined by the board, that is not less than the amount, determined in an actuarial valuation of the Defined Benefit Program pursuant to Section 22311.5, necessary to finance the liabilities associated with the benefits of the Defined Benefit Program over the funding period adopted by the board, after taking into account the contributions made pursuant to Sections 22901, 22951, and 22955. (c) The amount of contributions required under subdivision (a) that is not deposited in the Teachers’ Retirement Fund pursuant to subdivision (b) shall be deposited directly into the Teachers’ Health Benefits Fund, as established in Section 25930, and shall not be deposited into or transferred from the Teachers’ Retirement Fund. (d) (1) Notwithstanding subdivisions (b) and (c), there may be deposited into the Teachers’ Retirement Program Development Fund, as established in Section 22307.5, from the contributions required under subdivision (a), an amount determined by the board, not to exceed the limit specified in paragraph (2). (2) The balance of deposits into the Teachers’ Retirement Development Fund, minus the subsequent transfer of funds, with interest, into the Teachers’ Retirement Fund pursuant subdivision (e) of Section 22307.5, shall not exceed 0.01 percent of the total of the creditable compensation of the fiscal year ending in the immediately preceding calendar year upon which member’s contributions to the Defined Benefit Program are based. (3) The deposits described in this subdivision shall not be deposited into, or transferred from, the Teachers’ Retirement Fund. SEC. 3. Section 24952 of the Education Code is amended to read: 24952. (a) Any annuity contract and custodial account advertised, promoted, or offered through one or more third-party service providers, shall provide for recovery, from the employees 95
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who participate, of all costs and expenses of its own administration, including, but not limited to, advertising, promotion, legal, accounting, compliance, recordkeeping, and investment costs and expenses. (b) Any annuity contract and custodial account administered by the system shall provide for the recovery of all costs and expenses of its administration. (c) The system may promote and advertise an annuity contract and custodial account administered directly by the system or by a third-party administrator. SEC. 4. Section 24953 is added to the Education Code, to read: 24953. (a) For purposes of this section, the following definitions shall apply: (1) “Annuity contract” means an annuity contract described in Section 403(b) of the Internal Revenue Code that is available to employees as described in Section 770.3 of the Insurance Code. (2) “Custodial account” means a custodial account described in Section 403(b)(7) of the Internal Revenue Code. (3) “Third-party administrator” means a person or entity other than the system that provides administrative or compliance services to the system as described in subdivision (b). (b) An employer that employs persons to perform creditable service subject to coverage by the plan under this part may enter into a written contract with the system for services regarding an annuity contract and custodial account provided by the employer. That contract may include any of the following: (1) Services to ensure compliance with Section 403(b) of the Internal Revenue Code regarding the annuity contract and custodial account including, but not limited to, services that permit the system to do any of the following: (A) Administer and maintain written plan documents governing the employer’s plan. (B) Review and authorize hardship withdrawal requests, transfer requests, loan requests and other disbursements permitted under Section 403(b) of the Internal Revenue Code. (C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code.
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(D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in an annuity contract and custodial account. (E) Administer and maintain specimen salary reduction agreements for the employer and employees of that employer to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to paragraph (2), through information provided by the employer, or through information provided by vendors authorized by the employer to provide investment products, the maximum contributions allowed by employees participating in the annuity contract and custodial account as described in Sections 402(g), 414(v), and 415 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the employer to the annuity contract and custodial account. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s annuity contract and custodial account as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the annuity contract and custodial account. (2) Services to administer the annuity contract and custodial account that include, but are not limited to, all of the following: (A) Common remitting services. (B) General educational information to employees about the annuity contract and custodial account that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the employer to ensure compliance with Section 403(b) of the Internal Revenue Code and Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan. (E) Internal audits, on behalf of an employer, of a provider’s plan compliance procedures with respect to the provider’s annuity contract and custodial account offered under the employer’s plan. These audits shall not be conducted more than 95
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once per year for a provider’s plan, unless documented evidence indicates a problem in complying with Section 403(b) of the Internal Revenue Code. (c) If the system elects to contract with a third-party administrator for the administrative or compliance services to employers described in subdivision (b), the system shall do all of the following: (1) Determine that hiring the third-party administrator is in the best interest of the participants to the annuity contract and custodial account, their beneficiaries, and the employer that provides that annuity contract and custodial account. (2) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the system to be sufficient to protect the assets of participants and beneficiaries in the annuity contract and custodial account. (3) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 403(b) of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data. (d) Any personal information obtained by the system in providing services pursuant to this section shall be used by the system only to provide those services for the employer in accordance with the contract entered into with the employer pursuant to subdivision (b). (e) Nothing in this section requires an employer to contract with the system for the administrative or compliance services described in subdivision (b). A written contract for the administrative or compliance services described in subdivision (b) shall be on behalf of and at the request of the employer. (f) Nothing in this section shall be construed to interfere with either: (1) The rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (2) The ability of an employer to establish nonarbitrary requirements upon providers of an annuity contract that, in the employer’s determination, aid in the administration of its benefit programs and do not unreasonably discriminate against any provider of an annuity contract or interfere with the rights of 95
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employees or beneficiaries as described in Section 770.3 of the Insurance Code. (g) The cost of providing administrative or compliance services pursuant to this section shall be deemed to be a cost incurred by the employer and subject to subdivision (b) of Section 44041 or subdivision (b) of Section 87040. (h) In any conflict between this section and Section 44041.5 or 87040.5, including, with respect to the provision of services provided pursuant to a contract between an employer and the system, the provisions of this section shall prevail. (i) The system shall disclose to an employer seeking the services described in this section any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the system or a third-party administrator from any plan provider selected as a vendor of an annuity contract or custodial account by the employer. If the system or a third-party administrator is affiliated with or has a contractual relationship with a provider of annuity contracts or custodial accounts, the system or third-party administrator shall disclose the existence of that relationship to each employer and employee participating in the annuity contract or custodial account. SEC. 5. Section 24977 is added to the Education Code, to read: 24977. (a) An employer that employs persons to perform creditable service subject to coverage by the plan under this part that offers a deferred compensation plan as described in Section 457 of the Internal Revenue Code may enter into a written contract with the system for services regarding that deferred compensation plan provided by the employer. That contract may include any of the following services: (1) Services to ensure compliance with Section 457 of the Internal Revenue Code regarding the deferred compensation plan including, but not limited to, services that permit the system to do any of the following: (A) Administer and maintain written plan documents governing the employer’s plan. (B) Review and authorize requests for unforeseeable emergency withdrawals, transfer requests, loan requests and other disbursements permitted under Section 457 of the Internal Revenue Code. 95
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(C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code. (D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in the deferred compensation plan. (E) Administer and maintain specimen salary reduction agreements for the employer and employees of that employer to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to paragraph (2), through information provided by the employer, or through information provided by vendors authorized by the employer to provide investment products, the maximum contributions allowed by employees participating in the deferred compensation plan as described in Sections 414(v) and 457 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the employer to the deferred compensation plan. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s deferred compensation plan as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the deferred compensation plan. (2) Services to administer the deferred compensation plan that include, but are not limited to, all of the following: (A) Common remitting services. (B) General educational information to employees about the deferred compensation plan that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the employer to ensure compliance with Section 457 of the Internal Revenue Code and Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan.
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(E) Internal audits, on behalf of an employer, of a provider’s plan compliance procedures with respect to the provider’s custodial account offered under the employer’s plan. These audits shall not be conducted more than once per year for any provider’s plan unless documented evidence indicates a problem in complying with Section 457 of the Internal Revenue Code. (b) The system may contract with a third-party administrator for the administrative and compliance services to employers described in subdivision (a). For purposes of this subdivision, a “third-party administrator” shall mean a person or entity other than the system that provides administrative or compliance services as described in subdivision (a). If the system contracts with a third-party administrator, the system shall do all of the following: (1) Determine that hiring a third-party administrator is in the best interest of the participants to the deferred compensation plan, their beneficiaries, and the employer that provides that deferred compensation plan. (2) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the system to be sufficient to protect the assets of participants and beneficiaries in the deferred compensation plan. (3) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 457 of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data. (c) Nothing in this section requires an employer to contract with the system for the administrative or compliance services described in subdivision (a). A written contract for the administrative or compliance services described in subdivision (a) shall be on behalf of and at the request of the employer. (d) Any personal information obtained by the system in providing services pursuant to this section shall be used by the system only to provide those services for the employer in accordance with the contract entered into with the employer pursuant to subdivision (b). (e) The cost of providing administrative or compliance services pursuant to this section shall be deemed to be a cost 95
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incurred by the employer and subject to subdivision (b) of Section 44041 or subdivision (b) of Section 87040. (f) In any conflict between this section and Section 44041.5 or 87040.5, including with respect to the provision of services provided pursuant to a contract between an employer and the system, the provisions of this section shall prevail. (g) The system shall disclose to an employer seeking the services described in this section any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the system or a third-party administrator from any plan provider selected as a vendor of a deferred compensation plan by the employer. If the system or a third-party administrator is affiliated with or has a contractual relationship with a provider of deferred compensation plans, the system or third-party administrator shall disclose the existence of that relationship to each employer and each individual participant in the deferred compensation plan. SEC. 6. Section 44041 of the Education Code is amended to read: 44041. (a) (1) The governing board of each school district when drawing an order for the salary payment due to employees of the district shall, without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for any or all of the following purposes: (A) Paying premiums on any policy or certificate of group life insurance for the benefit of the employee or for group disability insurance, or legal expense insurance, or any of them, for the benefit of the employee or his or her dependents issued by an admitted insurer on a form of policy or certificate approved by the Insurance Commissioner. (B) Paying rates, dues, fees, or other periodic charges on any hospital service contract for the benefit of the employee, or his or her dependents, issued by a nonprofit hospital service corporation on a form approved by the Insurance Commissioner pursuant to the provisions of Chapter 11A (commencing with Section 11491) of Part 2 of Division 2 of the Insurance Code. (C) Paying periodic charges on any medical and hospital service agreement or contract for the benefit of the employee, or his or her dependents, issued by a nonprofit corporation subject 95
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to Part 2 (commencing with Section 5110) of, Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (D) Paying periodic charges on any legal services contract for the benefit of the employee, or his or her dependents issued by a nonprofit corporation subject to Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (2) The requirements of this subdivision shall not apply to subdivision (b). (b) For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an annuity program authorized by Section 403(b) of the Internal Revenue Code that is offered by the school district which provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each school district when drawing an order for the salary payment due to an employees of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the school district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee’s participant account, or the organization or entity authorizing the deduction. (c) The governing board of the district shall, beginning with the month designated by the employee and each month thereafter until authorization for the deduction is revoked, draw its order upon the funds of the district in favor of the insurer which has issued the policies or certificates or in favor of the nonprofit hospital service corporation which has issued hospital service 95
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contracts, or in favor of the nonprofit corporation which has issued medical and hospital service or legal service agreements or contracts, for an amount equal to the total of the respective deductions therefor made during the month. The governing board may require that the employee submit his or her authorization for the deduction up to one month in advance of the effective date of coverage. (d) “Group insurance” as used in this section shall mean only a bona fide group program of life or disability or life and disability insurance where a master contract is held by the school district or an employee organization but it shall, nevertheless, include annuity programs authorized by Section 403(b) of the Internal Revenue Code when approved by the governing board. SEC. 7. Section 44041.5 is added to the Education Code, to read: 44041.5. (a) purposes of this section, the following definitions shall apply: (1) “Annuity contract” means an annuity contract described in Section 403(b) of the Internal Revenue Code that is available to employees as described in Section 770.3 of the Insurance Code. (2) “Custodial account” means a custodial account described in Section 403(b)(7) of the Internal Revenue Code. (3) “Deferred compensation plan” means a plan described in Section 457 of the Internal Revenue Code. (4) “Employer” means a school district or county office of education. (5) “Third-party administrator” means a person or entity that provides administrative or compliance services to an employer as described in subdivision (b). (b) An employer may enter into a written contract with a third-party administrator for services regarding an annuity contract and custodial account or a deferred compensation plan provided by the employer. That contract may include any of the following: (1) Services to ensure compliance with either Section 403(b) of the Internal Revenue Code regarding the annuity contract and custodial account or Section 457 of the Internal Revenue Code regarding a deferred compensation plan including, but not limited to, any of the following:
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(A) Administer and maintain written plan documents governing the employer’s plan. (B) Review and authorize hardship withdrawal requests under Section 403(b) of the Internal Revenue Code, transfer requests, loan requests, unforeseeable emergency withdrawals under Section 457 of the Internal Revenue Code and other disbursements permitted under either Section 403(b) or 457 of the Internal Revenue Code. (C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code. (D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in an annuity contract and custodial account. (E) Administer and maintain specimen salary reduction agreements for the employer and employees of that employer to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to subparagraph (2), through information provided by the employer, or through information provided by vendors authorized by the employer to provide investment products, the maximum contributions allowed by employees participating in either the annuity contract and custodial account as described in Sections 402(g), 414(v), and 415 of the Internal Revenue Code or the deferred compensation plan as described in Sections 414(v) or 457 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the employer to the annuity contract and custodial account or deferred compensation plan. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s annuity contract and custodial account or deferred compensation plan as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the annuity contract and custodial account or deferred compensation plan. (2) Services to administer the annuity contract and custodial account or a deferred compensation plan that includes, but is not limited to, all of the following: 95
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(A) Common remitting services. (B) General educational information to employees about the annuity contract and custodial account or the deferred compensation plan that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the employer to ensure compliance with either Section 403(b) or 457 of the Internal Revenue Code and compliance with Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan. (E) Internal audits, on behalf of an employer, of a provider’s plan compliance procedures with respect to the provider’s annuity contract or custodial account offered under the employer’s plan. These audits shall not be conducted more than once per year for any provider’s plan unless documented evidence indicates a problem in complying with either Section 403(b) or 457 of the Internal Revenue Code. (c) (1) If an employer elects to contract with a third-party administrator for the administrative or compliance services to employers described in subdivision (b), the employer shall do all of the following: (A) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the employer to be sufficient to protect the assets of participants and beneficiaries in the annuity contract and custodial account or deferred compensation plan. (B) Require the third-party administrator to provide evidence of a safe chain-of-custody of assets process for ensuring fulfillment of fiduciary responsibilities and timely placement of participant investments. (C) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 403(b) or 457 of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data unless access to the data is required to provide the services in accordance with the contract entered into with the employer pursuant to subdivision (b).
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(2) This subdivision shall apply to any administrative or compliance services provided pursuant to a contract for services between an employer and the State Teachers’ Retirement System if the system does not contract with a third-party administrator to provide those administrative and compliance services on behalf of the system. (d) A third-party administrator shall disclose to any employer seeking his or her services any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the administrator, a related entity, or a representative or agent of the administrator or related entity from any plan provider selected as a vendor of a annuity contract, custodial account, or deferred compensation plan by the employer. A third-party administrator that is affiliated with or has a contractual relationship with a provider of annuity contracts, custodial accounts, or deferred compensation plans shall disclose the existence of the relationship to each employer and each individual participant in the annuity contract, custodial account or deferred compensation plan. (e) Any personal information obtained by the third-party administrator in providing services pursuant to this section shall be used by the third-party administrator only to provide those services for the employer in accordance with the contract entered into with the employer pursuant to subdivision (b). (f) Nothing in this section shall be construed to interfere with either: (1) The rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (2) The ability of the employer to establish nonarbitrary requirements upon providers of an annuity contract that, in the employer’s discretion, aid in the administration of its benefit programs and do not unreasonably discriminate against any provider of an annuity contract or interfere with the rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (g) This section shall not apply to any services provided by a third-party administrator pursuant to a contract for services between an employer and the State Teachers’ Retirement System. Any services provided by a third-party administrator pursuant to a contract for services between an employer and the State 95
AB 2462
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Teachers’ Retirement System shall be subject to either Section 24953, in the case of an annuity contract or custodial account, or Section 24977, in the case of a deferred compensation plan. SEC. 8. Section 87040 of the Education Code is amended to read: 87040. (a) (1) The governing board of each community college district when drawing an order for the salary payment due to employees of the district shall, without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for any or all of the following purposes: (A) Paying premiums on any policy or certificate of group life insurance for the benefit of the employee or for group disability insurance, or legal expense insurance, or any of them, for the benefit of the employee or his dependents issued by an admitted insurer on a form of policy or certificate approved by the Insurance Commissioner. (B) Paying rates, dues, fees, or other periodic charges on any hospital service contract for the benefit of the employee, or his dependents, issued by a nonprofit hospital service corporation on a form approved by the Insurance Commissioner pursuant to the provisions of Chapter 11a (commencing with Section 11491) of Part 2 of Division 2 of the Insurance Code. (C) Paying periodic charges on any medical and hospital service agreement or contract for the benefit of the employee, or his dependents, issued by a nonprofit corporation subject to Part 2 (commencing with Section 5110) of, Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (D) Paying periodic charges on any legal services contract for the benefit of the employee, or his dependents issued by a nonprofit corporation subject to Part 3 (commencing with Section 7110) of, or Part 11 (commencing with Section 10810) of, Division 2 of Title 1 of the Corporations Code. (2) The requirements of this subdivision shall not apply to subdivision (b). (b) For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an annuity program authorized by Section 403(b) of the Internal Revenue Code that is offered by the community college district 95
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which provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each community college district when drawing an order for the salary payment due to an employees of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the community college district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a community college district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee’s participant account, or the organization or entity authorizing the deduction. (c) The governing board of the district shall, beginning with the month designated by the employee and each month thereafter until authorization for the deduction is revoked, draw its order upon the funds of the district in favor of the insurer which has issued the policies or certificates or in favor of the nonprofit hospital service corporation which has issued hospital service contracts, or in favor of the nonprofit corporation which has issued medical and hospital service or legal service agreements or contracts, for an amount equal to the total of the respective deductions therefor made during the month. The governing board may require that the employee submit his authorization for the deduction up to one month in advance of the effective date of coverage. (d) “Group insurance” as used in this section shall mean only a bona fide group program of life or disability or life and disability insurance where a master contract is held by the community college district or an employee organization but it shall, nevertheless, include annuity programs authorized by Section 403(b) of the Internal Revenue Code when approved by the governing board.
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SEC. 9. Section 87040.5 is added to the Education Code, to read: 87040.5. (a) For purposes of this section, the following definitions shall apply: (1) “Annuity contract” means an annuity contract described in Section 403(b) of the Internal Revenue Code that is available to employees as described in Section 770.3 of the Insurance Code. (2) “Custodial account” means a custodial account described in Section 403(b)(7) of the Internal Revenue Code. (3) “Deferred compensation plan” means a plan described in Section 457 of the Internal Revenue Code. (4) “Third-party administrator” means a person or entity that provides administrative or compliance services to a community college district as described in subdivision (b). (b) A community college district may enter into a written contract with a third-party administrator for services regarding an annuity contract and custodial account or a deferred compensation plan provided by the community college district. That contract may include any of the following: (1) Services to ensure compliance with either Section 403(b) of the Internal Revenue Code regarding the annuity contract and custodial account or Section 457 of the Internal Revenue Code regarding a deferred compensation plan including, but not limited to, any of the following: (A) Administer and maintain written plan documents governing the community college district’s plan. (B) Review and authorize hardship withdrawal requests under Section 403(b) of the Internal Revenue Code, transfer requests, loan requests, unforeseeable emergency withdrawals under Section 457 of the Internal Revenue Code and other disbursements permitted under either Section 403(b) or 457 of the Internal Revenue Code. (C) Review and determine domestic relations orders as qualified domestic relations orders as described in Section 414(p) of the Internal Revenue Code. (D) Provide notice to eligible employees that is consistent with Title 26 of the Code of Federal Regulations that those employees may participate in an annuity contract and custodial account.
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(E) Administer and maintain specimen salary reduction agreements for the community college district and employees of that community college district to initiate payroll deferrals. (F) Monitor, from information provided either directly from the employee, as part of the common remitting services provided pursuant to subparagraph (2), through information provided by the community college district, or through information provided by vendors authorized by the community college district to provide investment products, the maximum contributions allowed by employees participating in either the annuity contract and custodial account as described in Sections 402(g), 414(v), and 415 of the Internal Revenue Code or the deferred compensation plan as described in Sections 414(v) or 457 of the Internal Revenue Code. (G) Calculate and maintain vesting information for contributions made by the community college district to the annuity contract and custodial account or deferred compensation plan. (H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s annuity contract and custodial account or deferred compensation plan as described in Section 401(a)(9) of the Internal Revenue Code. (I) Coordinate responses to the Internal Revenue Service if there is an Internal Revenue Service audit of the annuity contract and custodial account or deferred compensation plan. (2) Services to administer the annuity contract and custodial account or a deferred compensation plan that includes, but is not limited to, all of the following: (A) Common remitting services. (B) General educational information to employees about the annuity contract and custodial account or the deferred compensation plan that includes, but is not limited to, the enrollment process, program eligibility, and investment options. (C) Internal reports for the community college district to ensure compliance with either Section 403(b) or 457 of the Internal Revenue Code and compliance with Title 26 of the Code of Federal Regulations. (D) Consulting services related to the design, operation, and administration of the plan.
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(E) Internal audits, on behalf of a community college district, of a provider’s plan compliance procedures with respect to the provider’s annuity contract or custodial account offered under the community college district’s plan. These audits shall not be conducted more than once per year for any provider’s plan unless documented evidence indicates a problem in complying with either Section 403(b) or 457 of the Internal Revenue Code. (c) (1) If a community college district elects to contract with a third-party administrator for the administrative or compliance services to community college districts described in subdivision (b), the community college district shall do all of the following: (A) Require the third-party administrator to provide proof of liability insurance and a fidelity bond in an amount determined by the community college district to be sufficient to protect the assets of participants and beneficiaries in the annuity contract and custodial account or deferred compensation plan. (B) Require the third-party administrator to provide evidence of a safe chain-of-custody of assets process for ensuring fulfillment of fiduciary responsibilities and timely placement of participant investments. (C) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 403(b) or 457 of the Internal Revenue Code, that data generated from the services provided by the third-party administrator are maintained in a manner that prevents the provider of investment products from accessing that data unless access to the data is required to provide the services in accordance with the contract entered into with the community college district pursuant to subdivision (b). (2) This subdivision shall apply to any administrative or compliance services provided pursuant to a contract for services between a community college district and the State Teachers’ Retirement System if the system does not contract with a third-party administrator to provide those administrative and compliance services on behalf of the system. (d) A third-party administrator shall disclose to any community college district seeking his or her services any fees, commissions, cost offsets, reimbursements, or marketing or promotional items received by the administrator, a related entity, or a representative or agent of the administrator or related entity 95
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from any plan provider selected as a vendor of an annuity contract, custodial account, or deferred compensation plan by the community college district. A third-party administrator that is affiliated with or has a contractual relationship with a provider of annuity contracts, custodial accounts, or deferred compensation plans shall disclose the existence of the relationship to each community college district and each individual participant in the annuity contract, custodial account or deferred compensation plan. (e) Any personal information obtained by the third-party administrator in providing services pursuant to this section shall be used by the third-party administrator only to provide those services for the community college district in accordance with the contract entered into with the community college district pursuant to subdivision (b). (f) Nothing in this section shall be construed to interfere with either: (1) The rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (2) The ability of the community college district to establish nonarbitrary requirements upon providers of an annuity contract that, in the community college district’s discretion, aid in the administration of its benefit programs and do not unreasonably discriminate against any provider of an annuity contract or interfere with the rights of employees or beneficiaries as described in Section 770.3 of the Insurance Code. (g) This section shall not apply to any services provided by a third-party administrator pursuant to a contract for services between a community college district and the State Teachers’ Retirement System. Any services provided by a third-party administrator pursuant to a contract for services between a community college district and the State Teachers’ Retirement System shall be subject to either Section 24953, in the case of an annuity contract or custodial account, or Section 24977, in the case of a deferred compensation plan.
95
Approved
, 2006
Governor
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