ab 2462 bill 20060830 enrolled

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 day

of , 2006, at o’clock m.

Private Secretary of the Governor

CHAPTER

An act to amend Sections 22950, 24952, 44041, and 87040 of,and to add Sections 22307.5, 24953, 24977, 44041.5, and87040.5 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 ofthe State Teachers’ Retirement Plan. The law requiresparticipating employers to contribute a specified percentage ofcreditable compensation of members of the program to thesystem, 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, forthe purpose of developing health care benefit programs, which isfunded by employer contributions, as specified.

This bill would create the Teachers’ Retirement ProgramDevelopment Fund, to be continuously appropriated, to pay anycosts determined by the board to be related to the development ofprograms authorized by statute that the board determines directlyor indirectly enhance the financial security of members,participants, or beneficiaries of the State Teachers’ RetirementPlan, upon a specified resolution by the Teachers’ RetirementBoard. The Teachers’ Retirement Program Development Fundwould be funded by employer contributions in an amount to bedetermined by the board. The bill would require an amount equalto these employer contributions together with interest, asspecified, to be deposited in the Teachers’ Retirement Fund frommoneys generated from the programs receiving developmentfunds pursuant to these provisions, on terms and conditionsestablished by the board.

(2) The State Teachers’ Retirement Law requires that anannuity contract and custodial account, as described in Section403(b) of the Internal Revenue Code, be offered to specifiedemployees who perform creditable service subject to coverage by

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the Defined Benefit Program of the State Teachers’ RetirementPlan. The annuity contract and custodial account may beadministered by a qualified 3rd-party administrator. The lawpermits deferred compensation plans, as described in Section 457of the Internal Revenue Code, to be offered to participatingemployers for the employers to establish and offer to theiremployees, and these plans may also be administered by a3rd-party administrator. Existing law requires the governingboard of a school district when drawing orders for salarypayments to make, without charge, certain reductions connectedto participation in various programs, including deferredcompensation plans.

This bill would additionally provide for deferred compensationplans and annuity contracts and custodial accounts that permit theemployer to enter into a contract with the system or a 3rd-partyadministrator to provide administrative or compliance servicesfor those plans, contracts, and accounts, and would specify therights and obligations of employers, the system, and 3rd-partyadministrators in this regard. The bill would also specify that theState Teachers’ Retirement System may provide employersservices to ensure compliance with federal law, and to providefor cost recovery, as specified.

(3) Existing law permits a community college employee todeduct from his or her salary payments for participating inspecified programs, including, but not limited to, deferredcompensation, group life or disability insurance, legal expenseinsurance, and hospital service contracts.

This bill would additionally provide for deferred compensationplans and annuity contracts and custodial accounts that permit acommunity college district to enter into a contract with thesystem or a 3rd-party administrator to provide administrative orcompliance services for those plans, contracts, and accounts andwould specify the rights and obligations of the communitycollege 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 EducationCode, to read:

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22307.5. (a) There is in the State Treasury a trust fund to beknown as the Teachers’ Retirement Program Development Fund.There shall be deposited directly in that fund, and not transferredfrom the Teachers’ Retirement Fund, that portion of employercontributions determined by the board as necessary to fund theexpenditures authorized by this section.

(b) Notwithstanding Section 13340 of the Government Code,moneys in the Teachers’ Retirement Program Development Fundare continuously appropriated without regard to fiscal years topay any costs determined by the board to be related to thedevelopment of programs authorized by statute that the boarddetermines directly or indirectly enhance the financial security ofmembers, participants, or beneficiaries of the State Teachers’Retirement Plan, if the board determines, by resolution, theproposed program is to have a reasonable expectation to generatesufficient revenue to carry out the ongoing responsibilities of theprograms under development and permit the subsequent depositof funds, pursuant to subdivision (e), into the Teachers’Retirement Fund.

(c) The board may authorize the transfer and disbursement offunds from the Teachers’ Retirement Program DevelopmentFund for the purpose of carrying into effect this section upon thesignature of either or both of its chairperson and vice chairpersonor the chief executive officer or any employee of the systemdesignated by the chief executive officer.

(d) Disbursements of moneys from the Teachers’ RetirementProgram Development Fund of whatever nature shall be madeupon claims duly audited in the manner prescribed for thedisbursement of other public funds.

(e) An amount equal to employer contributions deposited inthe Teachers’ Retirement Program Development Fund pursuantto subdivision (a), together with interest calculated based on theactuarially assumed rate of investment return for the DefinedBenefit Program for the period beginning with the deposit ofemployer contributions into the Teachers’ Retirement ProgramDevelopment Fund and ending with the transfer to the Teachers’Retirement Fund, on terms and conditions established by theboard pursuant to subdivision (b), shall be deposited in theTeachers’ Retirement Fund, from funds generated from theprograms receiving development funds pursuant to this section.

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SEC. 2. Section 22950 of the Education Code is amended toread:

22950. (a) Employers shall contribute monthly to the system8 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 anamount, determined by the board, that is not less than theamount, determined in an actuarial valuation of the DefinedBenefit Program pursuant to Section 22311.5, necessary tofinance the liabilities associated with the benefits of the DefinedBenefit Program over the funding period adopted by the board,after taking into account the contributions made pursuant toSections 22901, 22951, and 22955.

(c) The amount of contributions required under subdivision (a)that is not deposited in the Teachers’ Retirement Fund pursuantto subdivision (b) shall be deposited directly into the Teachers’Health Benefits Fund, as established in Section 25930, and shallnot be deposited into or transferred from the Teachers’Retirement Fund.

(d) (1) Notwithstanding subdivisions (b) and (c), there may bedeposited into the Teachers’ Retirement Program DevelopmentFund, as established in Section 22307.5, from the contributionsrequired under subdivision (a), an amount determined by theboard, not to exceed the limit specified in paragraph (2).

(2) The balance of deposits into the Teachers’ RetirementDevelopment Fund, minus the subsequent transfer of funds, withinterest, into the Teachers’ Retirement Fund pursuant subdivision(e) of Section 22307.5, shall not exceed 0.01 percent of the totalof the creditable compensation of the fiscal year ending in theimmediately preceding calendar year upon which member’scontributions to the Defined Benefit Program are based.

(3) The deposits described in this subdivision shall not bedeposited into, or transferred from, the Teachers’ RetirementFund.


24952. (a) Any annuity contract and custodial accountadvertised, promoted, or offered through one or more third-partyservice providers, shall provide for recovery, from the employees

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who participate, of all costs and expenses of its ownadministration, including, but not limited to, advertising,promotion, legal, accounting, compliance, recordkeeping, andinvestment costs and expenses.

(b) Any annuity contract and custodial account administeredby the system shall provide for the recovery of all costs andexpenses of its administration.

(c) The system may promote and advertise an annuity contractand custodial account administered directly by the system or by athird-party administrator.

SEC. 4. Section 24953 is added to the Education Code, toread:

24953. (a) For purposes of this section, the followingdefinitions shall apply:

(1) “Annuity contract” means an annuity contract described inSection 403(b) of the Internal Revenue Code that is available toemployees as described in Section 770.3 of the Insurance Code.

(2) “Custodial account” means a custodial account describedin Section 403(b)(7) of the Internal Revenue Code.

(3) “Third-party administrator” means a person or entity otherthan the system that provides administrative or complianceservices to the system as described in subdivision (b).

(b) An employer that employs persons to perform creditableservice subject to coverage by the plan under this part may enterinto a written contract with the system for services regarding anannuity 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 theInternal Revenue Code regarding the annuity contract andcustodial account including, but not limited to, services thatpermit the system to do any of the following:

(A) Administer and maintain written plan documentsgoverning the employer’s plan.

(B) Review and authorize hardship withdrawal requests,transfer requests, loan requests and other disbursementspermitted under Section 403(b) of the Internal Revenue Code.

(C) Review and determine domestic relations orders asqualified 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 withTitle 26 of the Code of Federal Regulations that those employeesmay participate in an annuity contract and custodial account.

(E) Administer and maintain specimen salary reductionagreements for the employer and employees of that employer toinitiate payroll deferrals.

(F) Monitor, from information provided either directly fromthe employee, as part of the common remitting services providedpursuant to paragraph (2), through information provided by theemployer, or through information provided by vendorsauthorized by the employer to provide investment products, themaximum contributions allowed by employees participating inthe annuity contract and custodial account as described inSections 402(g), 414(v), and 415 of the Internal Revenue Code.

(G) Calculate and maintain vesting information forcontributions made by the employer to the annuity contract andcustodial account.

(H) Identify and notify employees that are required to take aminimum distribution of the funds in that employee’s annuitycontract and custodial account as described in Section 401(a)(9)of the Internal Revenue Code.

(I) Coordinate responses to the Internal Revenue Service ifthere is an Internal Revenue Service audit of the annuity contractand custodial account.

(2) Services to administer the annuity contract and custodialaccount 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 notlimited to, the enrollment process, program eligibility, andinvestment options.

(C) Internal reports for the employer to ensure compliancewith Section 403(b) of the Internal Revenue Code and Title 26 ofthe Code of Federal Regulations.

(D) Consulting services related to the design, operation, andadministration of the plan.

(E) Internal audits, on behalf of an employer, of a provider’splan compliance procedures with respect to the provider’sannuity contract and custodial account offered under theemployer’s plan. These audits shall not be conducted more than

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once per year for a provider’s plan, unless documented evidenceindicates a problem in complying with Section 403(b) of theInternal Revenue Code.

(c) If the system elects to contract with a third-partyadministrator for the administrative or compliance services toemployers described in subdivision (b), the system shall do all ofthe following:

(1) Determine that hiring the third-party administrator is in thebest interest of the participants to the annuity contract andcustodial account, their beneficiaries, and the employer thatprovides that annuity contract and custodial account.

(2) Require the third-party administrator to provide proof ofliability insurance and a fidelity bond in an amount determinedby the system to be sufficient to protect the assets of participantsand beneficiaries in the annuity contract and custodial account.

(3) Require evidence, if the third-party administrator is relatedto or affiliated with a provider of investment products pursuant toSection 403(b) of the Internal Revenue Code, that data generatedfrom the services provided by the third-party administrator aremaintained in a manner that prevents the provider of investmentproducts from accessing that data.

(d) Any personal information obtained by the system inproviding services pursuant to this section shall be used by thesystem only to provide those services for the employer inaccordance with the contract entered into with the employerpursuant to subdivision (b).

(e) Nothing in this section requires an employer to contractwith the system for the administrative or compliance servicesdescribed in subdivision (b). A written contract for theadministrative 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 witheither:

(1) The rights of employees or beneficiaries as described inSection 770.3 of the Insurance Code.

(2) The ability of an employer to establish nonarbitraryrequirements upon providers of an annuity contract that, in theemployer’s determination, aid in the administration of its benefitprograms and do not unreasonably discriminate against anyprovider of an annuity contract or interfere with the rights of

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employees or beneficiaries as described in Section 770.3 of theInsurance Code.

(g) The cost of providing administrative or complianceservices pursuant to this section shall be deemed to be a costincurred by the employer and subject to subdivision (b) ofSection 44041 or subdivision (b) of Section 87040.

(h) In any conflict between this section and Section 44041.5 or87040.5, including, with respect to the provision of servicesprovided pursuant to a contract between an employer and thesystem, the provisions of this section shall prevail.

(i) The system shall disclose to an employer seeking theservices described in this section any fees, commissions, costoffsets, reimbursements, or marketing or promotional itemsreceived by the system or a third-party administrator from anyplan provider selected as a vendor of an annuity contract orcustodial account by the employer. If the system or a third-partyadministrator is affiliated with or has a contractual relationshipwith a provider of annuity contracts or custodial accounts, thesystem or third-party administrator shall disclose the existence ofthat relationship to each employer and employee participating inthe annuity contract or custodial account.

SEC. 5. Section 24977 is added to the Education Code, toread:

24977. (a) An employer that employs persons to performcreditable service subject to coverage by the plan under this partthat offers a deferred compensation plan as described in Section457 of the Internal Revenue Code may enter into a writtencontract with the system for services regarding that deferredcompensation plan provided by the employer. That contract mayinclude any of the following services:

(1) Services to ensure compliance with Section 457 of theInternal Revenue Code regarding the deferred compensation planincluding, but not limited to, services that permit the system to doany of the following:


(B) Review and authorize requests for unforeseeableemergency withdrawals, transfer requests, loan requests andother disbursements permitted under Section 457 of the InternalRevenue Code.

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(D) Provide notice to eligible employees that is consistent withTitle 26 of the Code of Federal Regulations that those employeesmay participate in the deferred compensation plan.


(F) Monitor, from information provided either directly fromthe employee, as part of the common remitting services providedpursuant to paragraph (2), through information provided by theemployer, or through information provided by vendorsauthorized by the employer to provide investment products, themaximum contributions allowed by employees participating inthe deferred compensation plan as described in Sections 414(v)and 457 of the Internal Revenue Code.

(G) Calculate and maintain vesting information forcontributions made by the employer to the deferredcompensation plan.

(H) Identify and notify employees that are required to take aminimum distribution of the funds in that employee’s deferredcompensation plan as described in Section 401(a)(9) of theInternal Revenue Code.

(I) Coordinate responses to the Internal Revenue Service ifthere is an Internal Revenue Service audit of the deferredcompensation plan.

(2) Services to administer the deferred compensation plan thatinclude, but are not limited to, all of the following:


deferred compensation plan that includes, but is not limited to,the enrollment process, program eligibility, and investmentoptions.

(C) Internal reports for the employer to ensure compliancewith Section 457 of the Internal Revenue Code and Title 26 ofthe Code of Federal Regulations.


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(E) Internal audits, on behalf of an employer, of a provider’splan compliance procedures with respect to the provider’scustodial account offered under the employer’s plan. Theseaudits shall not be conducted more than once per year for anyprovider’s plan unless documented evidence indicates a problemin complying with Section 457 of the Internal Revenue Code.

(b) The system may contract with a third-party administratorfor the administrative and compliance services to employersdescribed in subdivision (a). For purposes of this subdivision, a“third-party administrator” shall mean a person or entity otherthan the system that provides administrative or complianceservices as described in subdivision (a). If the system contractswith a third-party administrator, the system shall do all of thefollowing:

(1) Determine that hiring a third-party administrator is in thebest interest of the participants to the deferred compensationplan, their beneficiaries, and the employer that provides thatdeferred compensation plan.

(2) Require the third-party administrator to provide proof ofliability insurance and a fidelity bond in an amount determinedby the system to be sufficient to protect the assets of participantsand beneficiaries in the deferred compensation plan.

(3) Require evidence, if the third-party administrator is relatedto or affiliated with a provider of investment products pursuant toSection 457 of the Internal Revenue Code, that data generatedfrom the services provided by the third-party administrator aremaintained in a manner that prevents the provider of investmentproducts from accessing that data.

(c) Nothing in this section requires an employer to contractwith the system for the administrative or compliance servicesdescribed in subdivision (a). A written contract for theadministrative 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 inproviding services pursuant to this section shall be used by thesystem only to provide those services for the employer inaccordance with the contract entered into with the employerpursuant to subdivision (b).

(e) The cost of providing administrative or complianceservices pursuant to this section shall be deemed to be a cost

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incurred by the employer and subject to subdivision (b) ofSection 44041 or subdivision (b) of Section 87040.

(f) In any conflict between this section and Section 44041.5 or87040.5, including with respect to the provision of servicesprovided pursuant to a contract between an employer and thesystem, the provisions of this section shall prevail.

(g) The system shall disclose to an employer seeking theservices described in this section any fees, commissions, costoffsets, reimbursements, or marketing or promotional itemsreceived by the system or a third-party administrator from anyplan provider selected as a vendor of a deferred compensationplan by the employer. If the system or a third-party administratoris affiliated with or has a contractual relationship with a providerof deferred compensation plans, the system or third-partyadministrator shall disclose the existence of that relationship toeach employer and each individual participant in the deferredcompensation plan.


44041. (a) (1) The governing board of each school districtwhen drawing an order for the salary payment due to employeesof the district shall, without charge, reduce the order by theamount which it has been requested in a revocable writtenauthorization by the employee to deduct for any or all of thefollowing purposes:

(A) Paying premiums on any policy or certificate of group lifeinsurance for the benefit of the employee or for group disabilityinsurance, or legal expense insurance, or any of them, for thebenefit of the employee or his or her dependents issued by anadmitted insurer on a form of policy or certificate approved bythe Insurance Commissioner.

(B) Paying rates, dues, fees, or other periodic charges on anyhospital service contract for the benefit of the employee, or his orher dependents, issued by a nonprofit hospital service corporationon a form approved by the Insurance Commissioner pursuant tothe 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 hospitalservice agreement or contract for the benefit of the employee, orhis or her dependents, issued by a nonprofit corporation subject

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to Part 2 (commencing with Section 5110) of, Part 3(commencing with Section 7110) of, or Part 11 (commencingwith Section 10810) of, Division 2 of Title 1 of the CorporationsCode.

(D) Paying periodic charges on any legal services contract forthe benefit of the employee, or his or her dependents issued by anonprofit corporation subject to Part 3 (commencing withSection 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 tosubdivision (b).

(b) For purposes of a deferred compensation plan authorizedby Section 403(b) or 457 of the Internal Revenue Code or anannuity program authorized by Section 403(b) of the InternalRevenue Code that is offered by the school district whichprovides for investments in corporate stocks, bonds, securities,mutual funds, or annuities, except as prohibited by the CaliforniaConstitution, the governing board of each school district whendrawing an order for the salary payment due to an employees ofthe district shall, with or without charge, reduce the order by theamount which it has been requested in a revocable writtenauthorization by the employee to deduct for participating in adeferred compensation plan or annuity program offered by theschool district. The governing board shall determine the cost ofperforming the requested deduction and may collect that costfrom the organization, entity, or employee requesting orauthorizing the deduction. For purposes of this subdivision, thegoverning board of a school district is entitled to include in theamounts reducing the order the costs of any compliance oradministrative services that are required to perform the requesteddeduction in compliance with federal or state law, and maycollect these costs from the participating employee, theemployee’s participant account, or the organization or entityauthorizing the deduction.

(c) The governing board of the district shall, beginning withthe month designated by the employee and each month thereafteruntil authorization for the deduction is revoked, draw its orderupon the funds of the district in favor of the insurer which hasissued the policies or certificates or in favor of the nonprofithospital service corporation which has issued hospital service

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contracts, or in favor of the nonprofit corporation which hasissued medical and hospital service or legal service agreementsor contracts, for an amount equal to the total of the respectivedeductions therefor made during the month. The governing boardmay require that the employee submit his or her authorization forthe deduction up to one month in advance of the effective date ofcoverage.

(d) “Group insurance” as used in this section shall mean onlya bona fide group program of life or disability or life anddisability insurance where a master contract is held by the schooldistrict or an employee organization but it shall, nevertheless,include annuity programs authorized by Section 403(b) of theInternal Revenue Code when approved by the governing board.

SEC. 7. Section 44041.5 is added to the Education Code, toread:

44041.5. (a) purposes of this section, the followingdefinitions shall apply:



(3) “Deferred compensation plan” means a plan described inSection 457 of the Internal Revenue Code.

(4) “Employer” means a school district or county office ofeducation.

(5) “Third-party administrator” means a person or entity thatprovides administrative or compliance services to an employer asdescribed in subdivision (b).

(b) An employer may enter into a written contract with athird-party administrator for services regarding an annuitycontract and custodial account or a deferred compensation planprovided by the employer. That contract may include any of thefollowing:

(1) Services to ensure compliance with either Section 403(b)of the Internal Revenue Code regarding the annuity contract andcustodial account or Section 457 of the Internal Revenue Coderegarding a deferred compensation plan including, but not limitedto, any of the following:

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(B) Review and authorize hardship withdrawal requests underSection 403(b) of the Internal Revenue Code, transfer requests,loan requests, unforeseeable emergency withdrawals underSection 457 of the Internal Revenue Code and otherdisbursements permitted under either Section 403(b) or 457 ofthe Internal Revenue Code.




(F) Monitor, from information provided either directly fromthe employee, as part of the common remitting services providedpursuant to subparagraph (2), through information provided bythe employer, or through information provided by vendorsauthorized by the employer to provide investment products, themaximum contributions allowed by employees participating ineither the annuity contract and custodial account as described inSections 402(g), 414(v), and 415 of the Internal Revenue Code orthe deferred compensation plan as described in Sections 414(v)or 457 of the Internal Revenue Code.

(G) Calculate and maintain vesting information forcontributions made by the employer to the annuity contract andcustodial account or deferred compensation plan.

(H) Identify and notify employees that are required to take aminimum distribution of the funds in that employee’s annuitycontract and custodial account or deferred compensation plan asdescribed in Section 401(a)(9) of the Internal Revenue Code.

(I) Coordinate responses to the Internal Revenue Service ifthere is an Internal Revenue Service audit of the annuity contractand custodial account or deferred compensation plan.

(2) Services to administer the annuity contract and custodialaccount or a deferred compensation plan that includes, but is notlimited to, all of the following:

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annuity contract and custodial account or the deferredcompensation plan that includes, but is not limited to, theenrollment process, program eligibility, and investment options.

(C) Internal reports for the employer to ensure compliancewith either Section 403(b) or 457 of the Internal Revenue Codeand compliance with Title 26 of the Code of Federal Regulations.


(E) Internal audits, on behalf of an employer, of a provider’splan compliance procedures with respect to the provider’sannuity contract or custodial account offered under theemployer’s plan. These audits shall not be conducted more thanonce per year for any provider’s plan unless documentedevidence indicates a problem in complying with either Section403(b) or 457 of the Internal Revenue Code.

(c) (1) If an employer elects to contract with a third-partyadministrator for the administrative or compliance services toemployers described in subdivision (b), the employer shall do allof the following:

(A) Require the third-party administrator to provide proof ofliability insurance and a fidelity bond in an amount determinedby the employer to be sufficient to protect the assets ofparticipants and beneficiaries in the annuity contract andcustodial account or deferred compensation plan.

(B) Require the third-party administrator to provide evidenceof a safe chain-of-custody of assets process for ensuringfulfillment of fiduciary responsibilities and timely placement ofparticipant investments.

(C) Require evidence, if the third-party administrator is relatedto or affiliated with a provider of investment products pursuant toSection 403(b) or 457 of the Internal Revenue Code, that datagenerated from the services provided by the third-partyadministrator are maintained in a manner that prevents theprovider of investment products from accessing that data unlessaccess to the data is required to provide the services inaccordance with the contract entered into with the employerpursuant to subdivision (b).

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(2) This subdivision shall apply to any administrative orcompliance services provided pursuant to a contract for servicesbetween an employer and the State Teachers’ Retirement Systemif the system does not contract with a third-party administrator toprovide those administrative and compliance services on behalfof the system.

(d) A third-party administrator shall disclose to any employerseeking his or her services any fees, commissions, cost offsets,reimbursements, or marketing or promotional items received bythe administrator, a related entity, or a representative or agent ofthe administrator or related entity from any plan providerselected as a vendor of a annuity contract, custodial account, ordeferred compensation plan by the employer. A third-partyadministrator that is affiliated with or has a contractualrelationship with a provider of annuity contracts, custodialaccounts, or deferred compensation plans shall disclose theexistence of the relationship to each employer and eachindividual participant in the annuity contract, custodial accountor deferred compensation plan.

(e) Any personal information obtained by the third-partyadministrator in providing services pursuant to this section shallbe used by the third-party administrator only to provide thoseservices for the employer in accordance with the contract enteredinto with the employer pursuant to subdivision (b).



(2) The ability of the employer to establish nonarbitraryrequirements upon providers of an annuity contract that, in theemployer’s discretion, aid in the administration of its benefitprograms and do not unreasonably discriminate against anyprovider of an annuity contract or interfere with the rights ofemployees or beneficiaries as described in Section 770.3 of theInsurance Code.

(g) This section shall not apply to any services provided by athird-party administrator pursuant to a contract for servicesbetween an employer and the State Teachers’ Retirement System.Any services provided by a third-party administrator pursuant toa contract for services between an employer and the State

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Teachers’ Retirement System shall be subject to either Section24953, in the case of an annuity contract or custodial account, orSection 24977, in the case of a deferred compensation plan.


87040. (a) (1) The governing board of each communitycollege district when drawing an order for the salary paymentdue to employees of the district shall, without charge, reduce theorder by the amount which it has been requested in a revocablewritten authorization by the employee to deduct for any or all ofthe following purposes:

(A) Paying premiums on any policy or certificate of group lifeinsurance for the benefit of the employee or for group disabilityinsurance, or legal expense insurance, or any of them, for thebenefit of the employee or his dependents issued by an admittedinsurer on a form of policy or certificate approved by theInsurance Commissioner.

(B) Paying rates, dues, fees, or other periodic charges on anyhospital service contract for the benefit of the employee, or hisdependents, issued by a nonprofit hospital service corporation ona form approved by the Insurance Commissioner pursuant to theprovisions of Chapter 11a (commencing with Section 11491) ofPart 2 of Division 2 of the Insurance Code.

(C) Paying periodic charges on any medical and hospitalservice agreement or contract for the benefit of the employee, orhis dependents, issued by a nonprofit corporation subject to Part2 (commencing with Section 5110) of, Part 3 (commencing withSection 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 forthe benefit of the employee, or his dependents issued by anonprofit corporation subject to Part 3 (commencing withSection 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 tosubdivision (b).

(b) For purposes of a deferred compensation plan authorizedby Section 403(b) or 457 of the Internal Revenue Code or anannuity program authorized by Section 403(b) of the InternalRevenue Code that is offered by the community college district

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which provides for investments in corporate stocks, bonds,securities, mutual funds, or annuities, except as prohibited by theCalifornia Constitution, the governing board of each communitycollege district when drawing an order for the salary paymentdue to an employees of the district shall, with or without charge,reduce the order by the amount which it has been requested in arevocable written authorization by the employee to deduct forparticipating in a deferred compensation plan or annuity programoffered by the community college district. The governing boardshall determine the cost of performing the requested deductionand may collect that cost from the organization, entity, oremployee requesting or authorizing the deduction. For purposesof this subdivision, the governing board of a community collegedistrict is entitled to include in the amounts reducing the orderthe costs of any compliance or administrative services that arerequired to perform the requested deduction in compliance withfederal or state law, and may collect these costs from theparticipating employee, the employee’s participant account, orthe organization or entity authorizing the deduction.

(c) The governing board of the district shall, beginning withthe month designated by the employee and each month thereafteruntil authorization for the deduction is revoked, draw its orderupon the funds of the district in favor of the insurer which hasissued the policies or certificates or in favor of the nonprofithospital service corporation which has issued hospital servicecontracts, or in favor of the nonprofit corporation which hasissued medical and hospital service or legal service agreementsor contracts, for an amount equal to the total of the respectivedeductions therefor made during the month. The governing boardmay require that the employee submit his authorization for thededuction up to one month in advance of the effective date ofcoverage.

(d) “Group insurance” as used in this section shall mean onlya bona fide group program of life or disability or life anddisability insurance where a master contract is held by thecommunity college district or an employee organization but itshall, nevertheless, include annuity programs authorized bySection 403(b) of the Internal Revenue Code when approved bythe governing board.

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SEC. 9. Section 87040.5 is added to the Education Code, toread:

87040.5. (a) For purposes of this section, the followingdefinitions shall apply:



(3) “Deferred compensation plan” means a plan described inSection 457 of the Internal Revenue Code.

(4) “Third-party administrator” means a person or entity thatprovides administrative or compliance services to a communitycollege district as described in subdivision (b).

(b) A community college district may enter into a writtencontract with a third-party administrator for services regarding anannuity contract and custodial account or a deferredcompensation 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 andcustodial account or Section 457 of the Internal Revenue Coderegarding a deferred compensation plan including, but not limitedto, any of the following:

(A) Administer and maintain written plan documentsgoverning the community college district’s plan.

(B) Review and authorize hardship withdrawal requests underSection 403(b) of the Internal Revenue Code, transfer requests,loan requests, unforeseeable emergency withdrawals underSection 457 of the Internal Revenue Code and otherdisbursements permitted under either Section 403(b) or 457 ofthe Internal Revenue Code.



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(E) Administer and maintain specimen salary reductionagreements for the community college district and employees ofthat community college district to initiate payroll deferrals.

(F) Monitor, from information provided either directly fromthe employee, as part of the common remitting services providedpursuant to subparagraph (2), through information provided bythe community college district, or through information providedby vendors authorized by the community college district toprovide investment products, the maximum contributionsallowed by employees participating in either the annuity contractand custodial account as described in Sections 402(g), 414(v),and 415 of the Internal Revenue Code or the deferredcompensation plan as described in Sections 414(v) or 457 of theInternal Revenue Code.

(G) Calculate and maintain vesting information forcontributions made by the community college district to theannuity contract and custodial account or deferred compensationplan.

(H) Identify and notify employees that are required to take aminimum distribution of the funds in that employee’s annuitycontract and custodial account or deferred compensation plan asdescribed in Section 401(a)(9) of the Internal Revenue Code.

(I) Coordinate responses to the Internal Revenue Service ifthere is an Internal Revenue Service audit of the annuity contractand custodial account or deferred compensation plan.

(2) Services to administer the annuity contract and custodialaccount or a deferred compensation plan that includes, but is notlimited to, all of the following:


annuity contract and custodial account or the deferredcompensation plan that includes, but is not limited to, theenrollment process, program eligibility, and investment options.

(C) Internal reports for the community college district toensure compliance with either Section 403(b) or 457 of theInternal Revenue Code and compliance with Title 26 of the Codeof Federal Regulations.


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(E) Internal audits, on behalf of a community college district,of a provider’s plan compliance procedures with respect to theprovider’s annuity contract or custodial account offered under thecommunity college district’s plan. These audits shall not beconducted more than once per year for any provider’s plan unlessdocumented evidence indicates a problem in complying witheither Section 403(b) or 457 of the Internal Revenue Code.

(c) (1) If a community college district elects to contract with athird-party administrator for the administrative or complianceservices 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 ofliability insurance and a fidelity bond in an amount determinedby the community college district to be sufficient to protect theassets of participants and beneficiaries in the annuity contract andcustodial account or deferred compensation plan.

(B) Require the third-party administrator to provide evidenceof a safe chain-of-custody of assets process for ensuringfulfillment of fiduciary responsibilities and timely placement ofparticipant investments.

(C) Require evidence, if the third-party administrator is relatedto or affiliated with a provider of investment products pursuant toSection 403(b) or 457 of the Internal Revenue Code, that datagenerated from the services provided by the third-partyadministrator are maintained in a manner that prevents theprovider of investment products from accessing that data unlessaccess to the data is required to provide the services inaccordance with the contract entered into with the communitycollege district pursuant to subdivision (b).

(2) This subdivision shall apply to any administrative orcompliance services provided pursuant to a contract for servicesbetween a community college district and the State Teachers’Retirement System if the system does not contract with athird-party administrator to provide those administrative andcompliance services on behalf of the system.

(d) A third-party administrator shall disclose to anycommunity college district seeking his or her services any fees,commissions, cost offsets, reimbursements, or marketing orpromotional items received by the administrator, a related entity,or a representative or agent of the administrator or related entity

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from any plan provider selected as a vendor of an annuitycontract, custodial account, or deferred compensation plan by thecommunity college district. A third-party administrator that isaffiliated with or has a contractual relationship with a provider ofannuity contracts, custodial accounts, or deferred compensationplans shall disclose the existence of the relationship to eachcommunity college district and each individual participant in theannuity contract, custodial account or deferred compensationplan.

(e) Any personal information obtained by the third-partyadministrator in providing services pursuant to this section shallbe used by the third-party administrator only to provide thoseservices for the community college district in accordance withthe contract entered into with the community college districtpursuant to subdivision (b).



(2) The ability of the community college district to establishnonarbitrary requirements upon providers of an annuity contractthat, in the community college district’s discretion, aid in theadministration of its benefit programs and do not unreasonablydiscriminate against any provider of an annuity contract orinterfere with the rights of employees or beneficiaries asdescribed in Section 770.3 of the Insurance Code.

(g) This section shall not apply to any services provided by athird-party administrator pursuant to a contract for servicesbetween a community college district and the State Teachers’Retirement System. Any services provided by a third-partyadministrator pursuant to a contract for services between acommunity college district and the State Teachers’ RetirementSystem shall be subject to either Section 24953, in the case of anannuity contract or custodial account, or Section 24977, in thecase of a deferred compensation plan.

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Approved , 2006

Governor

ab 2462 bill 20060830 enrolled

Documents

teachers retirement

teachers retirement

state teachers retirement

state teachers retirement

teachers health benets

specied programs

development of programs

deferred compensation