7/31/2007

In this Alert

…UPDATE ON AMENDED RETIREMENT-RELATED BILLS

… IRS MANDATES SIGNIFICANT NEW 403(b) RULES ON SCHOOLS AND COLLEGES

…UPDATE ON AMENDED RETIREMENT-RELATED BILLS

In the last Alert, we updated the public employee retirement-related bills that are still alive for the year. As the State Legislature has been dominated by overdue budget negotiations over the past few weeks, little has changed on the legislative front. As such, the following is a brief update on only those bills that have been amended or became law in the past month. Please also remember that some of the bills might be considered to be under the purview of the Governor’s Pension and Benefits Commission and eventually be halted.

AB 757 (Comm. on Public Emp., Retirement, & Social Security) STRS Housekeeping Bill

This bill would make technical changes to the Teachers’ Retirement Law, including clarifying: (1) maternity leave service credit; (2) Option 3 under the Family and Survivor Benefits; (3) ad hoc increases to retirement allowances due to purchase power preservation; (4) conversion from disability to service retirement; (5) option beneficiary election; and (6) administration of the Deferred Compensation Fund. This bill was amended to prohibit employees of a school or community college district from making mid-year workload reductions and receiving the same STRS service credit. This bill passed the Senate Retirement Committee and is under consideration by the Appropriations Committee.

AB 775 (Niello) County Post-Retirement Employment Prohibitions

The County Employees Retirement Law of 1937 authorizes a county to employ a retired member in a position requiring special skills or knowledge without reinstating them from retirement. Under the law, a retired member may not work more than 90 days in any 12-month period. The law authorizes a board of supervisors to extend that re-employment period up to 120 days in any 12-month period. This bill would prohibit the re-employment of a retiree who was employed within the prior 12 months and who received unemployment insurance compensation following the termination of an appointment with the same employer. This bill was chaptered on July 12 to become law.

AB 1124 (Karnette) County Post-Employment Benefits

This bill fine-tunes ‘37 Act County retirement systems’ ability to establish post-employment benefits trust accounts, which they were given authority to establish in 2006. This bill was amended July 9th to include a few other changes to ’37 Act County Law related to retirement board members and budgets. The bill passed out of the Senate Retirement Committee on July 10th.

AB 1255 (Parra) Fresno County Pension Benefits

This bill would authorize the board of supervisors of Fresno County to implement a 2% at age 55 formula for employees first hired after the effective date of this bill and for members represented by Service Employees International Union Local 521 whose retirement benefits were established prior to the effective date. This bill was chaptered on July 17th to become law.

AB 1307 (Krekorian) PERS Supplemental Contribution Program

This bill allows PERS to expand its supplemental defined contribution program. This bill was amended early in July to remove language allowing employer contributions and any pre-tax employee contributions to the plans. According to PERS, there were concerns by Republican legislators, taxpayer groups, and even unions that if such language was left intact, it could lead to further employee benefit enhancements, particularly for management employees.

SB 901 (Padilla) STRS Post-retirement Earnings

This bill would extend the STRS post-retirement earnings requirements and exemptions, which were scheduled to sunset at the end of the year. SB 901 was amended on July 5th to apply those exemptions only to employees hired prior to January 1, 2006. This bill passed the Assembly Appropriations Committee on July 12 and is currently awaiting a vote on the floor.

…IRS MANDATES SIGNIFICANT NEW 403(b) RULES ON SCHOOLS AND COLLEGES

On July 23, 2007, the Internal Revenue Service (IRS) issued final 403(b) regulations, requiring significant changes to how school districts, community colleges, and other educational and non-profit entities administer 403(b) plans for their employees. The regulations generally apply to most agencies on January 1, 2009, with the exception of collectively bargained plans.

Highlights of the new regulations include:

• Requires that a 403(b) program have, for the first time, a written plan which satisfies 403(b) and contains all the terms and conditions for eligibility, limitations and benefits under the plan.

• Rules that require 403(b) plans to be made “universally available” to employees will still apply, with some previous exclusions eliminated as of 2010. Exclusions include employees who make a one-time election to participate in a governmental plan instead of a 403(b) plan and professors who are providing services on a temporary basis to another school.

• Elective deferrals are limited to contributions under a cash or deferred election as defined under 401(k).

• Contribution amounts must be transferred to providers within a period no longer than is reasonable for proper plan administration, such as transferring elective deferrals within 15 business days following the month in which these amounts would have been paid to the participant.

• Incidental life insurance, unless grandfathered, may not be part of a 403(b) plan.

• Plans may terminate and distribute assets with full rollover ability, as well as recognize the occurrence of an employment severance where an employee no longer works for an employer eligible to maintain a 403(b).

• In-service, plan-to-plan 403(b) asset transfers are limited to situations where the participant is an employee or former employee of the employer sponsoring the receiving plan.

In response to concerns about the added cost to public schools of maintaining a written plan, the IRS intends to publish model plan provisions that may be used by public school employers. The IRS regulations also make it clear that districts can delegate the new administrative responsibilities to third party administrators as long as they meet certain requirements.

Feel free to contact PARS with any question or requests for further information. Additional news and an archive of past Legislative Alerts are available on the PARS website at www.pars.org.

Thank you,

Maureen Toal
Vice President, Public Affairs
Public Agency Retirement Services (PARS)
mtoal@pars.org

(800) 540-6369 ext. 135
 

PARS HAS ESTABLISHED TWO INNOVATIVE MULTIPLE-EMPLOYER TRUSTS TO ASSIST PUBLIC AGENCIES WITH PRE-FUNDING THEIR OPEB (POST-RETIREMENT HEALTHCARE) OBLIGATIONS UNDER GASB 45. FOR MORE INFORMATION, CONTACT:

Maureen Toal
(800) 540-6369 Ext. 135
MToal@pars.org

The contents of this publication reflect PARS’ understanding of the facts.
Before taking any action based on this information,
consult professional advisors regarding your agency’s specific objectives and circumstances.
For further information, contact PARS.
 

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