SECTIONS 24950-24953 - California Statutes

EDUCATION CODE

SECTION 24950-24953

24950. (a) An annuity contract and custodial account as described
in Section 403(b) of the Internal Revenue Code of 1986 shall be
offered to :
(1) All employees of any state agency who are members of the plan
under this part.
(2) Any employee of a local public agency or political subdivision
of this state that employs persons to perform creditable service
subject to coverage by the plan under this part.
(3) Any state employee of a state employer under the uniform state
payroll system, excluding the California State University System,
eligible to participate in an annuity contract and custodial account
as described in Section 403(b) of the Internal Revenue Code of 1986.
(b) The following criteria shall apply to that annuity contract
and custodial account:
(1) The annuity contract and custodial account shall be offered
for at least five years.
(2) The annuity contract and custodial account may be administered
by a qualified third-party administrator that shall, under agreement
with the system, provide custodial, investment, recordkeeping, or
administrative services, or any combination thereof. The third-party
administrator may not provide investment options other than pursuant
to a shareholders' services agreement between the third-party
administrator and the investment manager.
(3) The investment options offered shall be determined by the
board consistent with those annuity contract and custodial accounts
described in Section 403(b) of the Internal Revenue Code of 1986.
(4) The system's investment staff shall make recommendations to
the board as to the appropriate investment options. At a minimum, the
board shall offer at least three investment options. The board shall
have sole responsibility for the selection of service providers.
(5) All contributions made in accordance with the provisions of
Section 403(b) of the Internal Revenue Code of 1986 and this section
shall be remitted directly to the administrator and held by the
administrator in a custodial account on behalf of the employee. Any
investment gains or losses shall be credited to those accounts. The
forms of payment and disbursement procedure shall be consistent with
those generally offered by similar annuity contracts and custodial
accounts and applicable federal and state statutes governing those
contracts and accounts.
(6) Any employer, other than the state, may elect to make
contributions to the employee's annuity contract and custodial
account on behalf of the employee. The employer shall take whatever
action is necessary to implement this section, including the adoption
of an annuity contract and custodial account, or provide the
appropriate authorization in accordance with the provision of Section
403(b) of the Internal Revenue Code of 1986. Employer contributions
made under this section are excluded from the definition of
creditable compensation as provided in Section 22119.2.
(7) The design and administration of the annuity contract and
custodial account shall comply with the applicable provisions of the
Internal Revenue Code of 1986 and the Revenue and Taxation Code.
Section 770.3 of the Insurance Code shall not be applicable.

24950.5. (a) The system may administer an individual retirement
plan as described in Section 408A of Title 26 of the United States
Code for the purpose of accepting a rollover from an annuity contract
or custodial account offered by the system pursuant to this chapter
to the extent the rollover complies with Title 26 of the United
States Code.
(b) The system may provide for the administration of the
individual retirement plan described in subdivision (a) by a
qualified third-party administrator who shall, by agreement with the
system, provide custodial, investment, recordkeeping, or
administrative services, or any combination thereof.

24951. If the rate of participation in the annuity contract and
custodial account is less than 2 percent of active members in the
Defined Benefit Program upon the completion of the initial five years
of administration, the board may elect to terminate the offering of
the annuity contract and custodial account as described in Section
403(b) of the Internal Revenue Code of 1986. The board shall provide
two years' notice to the annuity contract and custodial account
participants of its intention to terminate.

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 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.

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, or the Controller
on behalf of any state employer under the uniform state payroll
system, excluding the California State University System, that
employs persons eligible to participate in an annuity contract or
custodial account as described in Section 403(b) of the Internal
Revenue Code of 1986, 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.
(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 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 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, as may be applicable.
(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.