Chapter 36. Annuity Contract And Custodial Accounts of California Education Code >> Division 1. >> Title 1. >> Part 13. >> Chapter 36.

(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.

(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.

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.

(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.

(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.