SECTIONS 25100-25115 - California Statutes

EDUCATION CODE

SECTION 25100-25115

25100. (a) The board shall establish a vendor registration process
through which information about tax-deferred retirement investment
products as described in Section 403(b) of the Internal Revenue Code
of 1986 shall be made available for consideration by public employees
of all local school districts, community college districts, county
offices of education, and state employees 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) For the purposes of this chapter, "403(b) product or 403(b)
products" means tax-deferred retirement investment products as
described in Section 403(b) of the Internal Revenue Code of 1986, and
its subsequent amendments, and complying with applicable California
insurance laws, and federal and California securities laws and rules
as applied by appropriate regulatory entities.
(c) For the purposes of this chapter:
(1) "Employer" means any local school district, community college
district, or county office of education, or any state employer under
the uniform state payroll system, excluding the California State
University System, with employees eligible to participate in an
annuity contract and custodial account as described in Section 403(b)
of the Internal Revenue Code of 1986, with the Controller acting on
the state employer's behalf.
(2) "Vendor" means a public retirement system, broker-dealer,
registered investment company, nonbank custodian, or life insurance
company qualified to do business in California that provides 403(b)
products. "Vendor" does not include individual registered
representatives, brokers, financial planners, or agents.
(3) "Nonbank custodian" means a fund custodian, other than a bank,
that meets the criteria of a trustee specified in Section 408(a)(2)
of the Internal Revenue Code.
(4) "Broker-dealer" means only those broker-dealers who offer a
proprietary 403(b) product or who charge fees that are otherwise not
disclosed.

25101. A prospective vendor of 403(b) products that offers those
products, or the products of other 403(b) vendors, to employers and
their eligible employees, shall register those products with the
board pursuant to this chapter. Registered vendors shall offer only
registered 403(b) products as funding vehicles for 403(b) plans.
(a) Prospective vendors shall be registered with the board based
upon a complete response to the disclosures required by this
subdivision. This information shall be included in the impartial
investment information bank established pursuant to Section 25104.
The prospective vendors shall provide the following information:
(1) A statement of experience in California and in other states in
providing retirement annuities, custodial account mutual fund
arrangements, or other retirement products and related financial
services under public employer retirement plans.
(2) A characterization by the vendor of its offering as either an
annuity or custodial account, as defined under Sections 403(b)(1) and
403(b)(7) of the Internal Revenue Code, respectively.
(3) A disclosure of all expenses paid directly or indirectly by
retirement plan participants, including, but not limited to,
penalties for early withdrawals, declining or fixed withdrawal
charges, surrender or deposit charges, management fees, and annual
fees, supported by documentation as required for prospectus
disclosure by the National Association of Securities Dealers and the
Securities and Exchange Commission. Vendors shall be required to
provide information regarding the impact of product fees upon a
hypothetical investment, as described in Section 25104.
(4) The types of products, product features, including presence of
two tier annuity features, services offered to participants, and
information about how to access product prospectuses or other
relevant product information.
(5) A discussion of the ability, experience, and commitment of the
vendor to provide retirement counseling and education services,
including, but not limited to, access to group meetings and
individual counseling by various means, including telephone and
telecommunications devices for the deaf (TDD), Internet, and
face-to-face consultations by registered representatives.
(6) A statement of the financial strength and stability of the
vendor, as may be applicable, by identifying its ratings assigned by
nationally recognized rating services that evaluate the financial
strength of life insurance, mutual funds, and other similar
companies.
(7) The location of offices and counselors, or method of
distribution, of the vendor relative to serving employers and their
eligible employees in California.
(8) A description of the ability of the vendor to comply with all
applicable provisions of federal and state law governing retirement
plans, including minimum distribution requirements and contribution
limits.
(9) To the extent applicable, the demonstrated ability of the
vendor to offer an appropriate array of accumulation funding options,
including, but not limited to, a diversified mix of value, growth,
growth and income, hybrid and index funds or accounts across large,
mid, and small capitalization asset classes, both domestic and
international. These investment products may include mutual funds,
group or individual annuity contracts, fixed or variable annuity
contracts, individual retirement annuities, interests in trust and
collective trusts, separate accounts, and other financial
instruments.
(10) A discussion of the range of administrative and customer
services provided, including asset allocation, accounting and
administration of benefits for individual participants, recordkeeping
for individual participants, asset purchase, control, and
safekeeping, execution of a participant's instructions as to asset
and contribution allocation, calculation of daily net asset values,
direct access for participants to their account information, periodic
reporting to active participants, not less than quarterly, on their
account balances and transactions, and compliance with the standard
of care applicable in the provision of investment services and
consistent with federal law.
(11) Certification by the vendor that the information provided to
the board accurately reflects the provisions of the Section 403(b)
products they register pursuant to this chapter.
(b) Registration may not be conditioned upon the content of the
information.
(c) Vendors shall supply information and data in the format
required by the board.

25102. Registration shall be offered to vendors once annually, and
renewal of registration shall be required at least once every five
years thereafter for vendors that wish to continue to participate.
The board shall provide public notice prior to the initial
registration, annual registration, and registration renewal periods.
The board may require, through a password-based update system that
allows vendors to access the registration list for the purposes of
updating their product information, or through other means, an update
of the information required to be provided under Section 25101 with
each registration renewal. Registered vendors shall submit to the
board within the time required by the Securities and Exchange
Commission an amendment to the information required to be provided
under Section 25101 to reflect material changes to the products or
services offered that occur between registration or renewal periods.
Registered vendors may register additional 403(b) products with the
board between registration or renewal periods by providing the board
the information required under Section 25101 and fees required under
subdivision (c) of Section 25108. Upon receipt of information
reflecting material changes or additions to the products or services
offered by registered vendors that occur between registration or
renewal periods, the board shall reflect those changes in the
impartial investment information bank established pursuant to Section
25104 within the time required by the Securities and Exchange
Commission.

25103. (a) The board may remove a vendor from the registry if the
vendor submits materially inaccurate information to the board, does
not remit assessed fees within 60 days, or fails to submit notice of
material changes to its registered investment products, pursuant to
Section 25102. Vendors found to have submitted materially inaccurate
information to the board shall be allowed 60 days to correct the
information. The board may refer vendors that submit information
required under Section 25102 that is materially inaccurate and may
constitute conduct prohibited by the National Association of
Securities Dealers and the California Department of Insurance to
those entities.
(b) The board shall remove a vendor from the registry if the
vendor is not licensed or has had its license revoked by the National
Association of Securities Dealers or the California Department of
Insurance for engaging in conduct prohibited by those entities.
(c) The board shall establish an appeals process pursuant to
Section 22219 for vendors that are denied registration or removed
from the registry.

25104. (a) The board shall maintain an impartial investment
information bank, via an Internet Web site, containing the
information required by Section 25101 about the retirement investment
products offered by each registered vendor and objective comparisons
of vendors and types of products.
(b) The information bank shall include information on investment
performance based upon the investment's average annual total return,
as measured by a nationally recognized rating service selected by the
board for standard periods of time of not less than one year.
(c) The Web site shall include a table showing, for each
registered fund, the total fee cost in dollars incurred by a
shareholder who initially invested ten thousand dollars ($10,000),
earned a 5 percent rate of return for one, five, 10, 15, and 20 year
time periods. This table shall be accompanied by a disclaimer that
the rate of return is for purposes of illustrating the respective
impacts of different fee amounts on each investment, and is not to
predict future investment returns.
(d) The board shall have the authority to organize data, but may
not subjectively rank or give preference to a vendor or product.

25105. The board shall include notice of the existence of, and the
Internet Web site address for, the impartial investment information
bank in each newsletter sent to members. The board shall include a
notice in the individual account statements of members of the Defined
Benefit Program and participants of the Cash Balance Benefit Program
that explains the purpose and Web site address of the impartial
investment information bank.

25106. The board shall design the information bank Internet Web
site and include retirement investment product plan information and
education materials taken from and referenced to the Internal Revenue
Service, the Securities and Exchange Commission, the National
Association of Insurance Commissioners, and other applicable
governmental or regulatory agencies. Information shall be presented
and used in a manner that is consistent with the rules of those
agencies and with rules of the National Association of Securities
Dealers. The information shall be offered as a preface to the vendor
information required in Section 25101. The preface shall include, but
shall not be limited to, the following information:
(a) An explanation of Section 403(b) of the Internal Revenue Code
of 1986.
(b) The retirement investment products that may be purchased under
Section 403(b) of the Internal Revenue Code of 1986, and with
definitions of those products.
(c) Definitions or explanations of all fees referred to in the
investment information bank.

25107. A vendor may not charge a fee associated with a registered
403(b) product that is not disclosed, pursuant to Section 25101.

25108. (a) The actual cost of establishing the vendor registration
system and the investment information bank shall be borne equally by
registered vendors, based on the total number of registered vendors.
Each registered vendor shall pay a one-time establishment fee equal
to a pro rata share of the establishment costs charged to vendors
that register with the board prior to the close of the initial
registration period, as determined by the board. The one-time
establishment fee charged to vendors that register with the board
after the completion of the initial registration period shall be
distributed equally among registered vendors that have paid the
establishment fee, and credited toward subsequent maintenance and
administrative fees charged to each vendor.
(b) The actual cost of maintaining the vendor registration system
and the investment information bank, and the costs associated with
publicizing the availability of the investment information bank to
local school districts, community college districts, and county
offices of education and their employees, shall be borne equally by
registered vendors, based on the total number of registered vendors.
Each registered vendor shall pay a renewal fee equal to a pro rata
share of the maintenance costs, as determined by the board.
(c) Each registered vendor shall pay an administrative fee for
each 403(b) product it offers to school employees, which shall
represent the actual costs associated with processing the information
related to the investment option and presenting it on the investment
information bank, as determined by the board.
(d) The board may not divert member services resources or
personnel to establish or maintain the registration list.

25109. (a) The board and the system, and its officers and
employees, are not responsible for, and may not be held liable for
the adequacy of the information provided by the participating vendors
contained in the information bank. The information bank maintained
by the board serves only to provide information supplied by the
participating vendors for the consideration of selection of 403(b)
products.
(b) Participating vendors may not utilize the system's logo, or
claim or infer any endorsement or recommendation by the board or the
system with respect to products and services identified by the
vendors in the information bank. At the discretion of the board, a
violation of this section may lead to removal from the registry. This
restriction does not apply to 403(b) products offered by the board
to school employees pursuant to Section 24950.
(c) The board and the system may not be held liable for the
actions of other registered vendors.

25110. The board shall complete the initial registration process on
or before July 1, 2004.

25111. Each employer, in consultation with the exclusive bargaining
agent of its employees, if any, may develop a process to ensure that
employees are aware of, and have access to, information provided in
the impartial investment bank maintained by the board.

25112. Personnel, including elected school officials, acting on
behalf of an employer, may not receive consideration from a vendor in
exchange for the promotion of a particular vendor or vendor's
products.

25113. An employer may not forward annuity or custodial account
consideration to the vendor of any unregistered 403(b) product,
except insofar as an employee continues making contributions to an
unregistered product or products as described in Section 25114.

25114. Except as provided in this section, an employee shall select
from registered 403(b) products.
(a) An employee of a local school district, community college
district, or county office of education may continue to make
contributions to unregistered products purchased or entered into
prior to the date of implementation of the impartial investment bank,
as established by this chapter.
(b) A 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,
may continue to make contributions to unregistered products purchased
or entered into prior to January 1, 2009.

25115. For purposes of restricting the use of 403(b) investment
products provided to eligible employees of employers by those vendors
and investment products registered with the board pursuant to this
chapter, the provisions of Section 770.3 of the Insurance Code do not
apply.