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Guest Joel F

Admin Fees In California

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Guest Joel F

I have taken the liberty of posting the AG Opinion on a critically important issue-----EXPENSES!

 

Peace and Hope,

Joel

======================================================03-1005 1

TO BE PUBLISHED IN THE OFFICIAL REPORTS

OFFICE OF THE ATTORNEY GENERAL

State of California

BILL LOCKYER

Attorney General

OPINION

of

BILL LOCKYER

Attorney General

GREGORY L. GONOT

Deputy Attorney General

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No. 03-1005

February 18, 2004

THE HONORABLE BONNIE GARCIA, MEMBER OF THE STATE

ASSEMBLY, has requested an opinion on the following question:

In light of a school district’s broad authority to conduct its programs and

activities, may a school district assess a fee upon providers of deferred compensation

plans to cover its costs of administering the plans for district employees?

CONCLUSION

Even though a school district has broad authority to conduct its programs

and activities, it may not assess a fee upon providers of deferred compensation plans to

cover its costs of administering the plans for district employees.

03-1005 2

ANALYSIS

In 57 Ops.Cal.Atty.Gen. 166 (1974), we concluded that a school district may

not assess a fee upon providers of deferred compensation plans to cover its costs of

administering the plans for district employees. We are now asked to revisit that question

in light of the flexibility given to school districts by the Legislature, effective January 1,

1976, in operating their programs and conducting their activities. We conclude that even

with its enhanced statutory authority, a school district remains barred from imposing a fee

upon providers of deferred compensation plans to cover the costs of administering the

plans for district employees.

In our 1974 opinion, we found that under former Education Code section

13009,1 a school district was not authorized to charge a fee to cover its “costs of

administering” a deferred compensation program for district employees. (57

Ops.Cal.Atty.Gen., supra, at p. 174.) Former section 13009 provided:

“The governing board of each school district when drawing an order

for the salary payment due to employees of the district shall, without charge,

reduce the order by the amount which it has been requested in a revocable

written authorization by the employee to deduct for any or all of the

following purposes: participating in a deferred compensation program offered

by the school district which provides for investments in corporate stocks,

bonds, securities, mutual funds, or annuities, except as prohibited by the

Constitution, or paying premiums on any policy or certificate of group life

insurance for the benefit of the employee or for group disability insurance or

both, for the benefit of the employee or his dependents issued by an

admitted insurer on a form of policy or certificate approved by the Insurance

Commissioner . . . .” (Italics added.)

We contrasted former section 13009 with former Government Code section 1156.1, which

expressly allowed the imposition of charges to cover administrative costs in the state

employee payroll deduction program. We observed:

1 All references hereafter to the Education Code are by section number only.

03-1005 3

“This statutory allocation, to the insurance providers, of the costs of

administering such programs for state employees stands in contrast to

Education Code section 13009, which requires similar payroll reductions to

be made ‘without charge’ by the district, and reflects a distinct legislative

determination that school districts must themselves bear the administrative

costs of providing tax-sheltered annuities to their employees.” (57

Ops.Cal.Atty.Gen., supra, at p. 174)

We then concluded:

“Accordingly, while it is permissible for a school district to employ a

bank in aid of its processing payroll reductions and premium payments for

employee tax-sheltered annuities, the cost of such processing must be borne

by the district itself, and may not be shifted, by contract or otherwise, to

either the insurer or the employee.” (Id. at p. 175.)

Our 1974 opinion would cover the costs of the administrative services

necessary in operating a deferred compensation program by a school district such as (1)

establishing comprehensive administration and compliance procedures, (2) providing forms

and documents for use with the plans, (3) maintaining forms, documents, and procedures

as federal and state regulatory changes occur in the future, (4) working directly with

providers and participants to ensure that the current agreements, forms, and procedures

meeting regulatory changes are in use, (5) establishing maximum annual deferral limits for

all plans, including all catch-up options, (6) monitoring on a monthly basis employee

contributions with respect to maximum annual deferral limits, (7) receiving for approval all

requests for distributions (retirement, hardship, in-service, loans, and (8) establishing and

overseeing employee education programs, while ensuring compliance with all federal and

state laws and regulations.

Since our 1974 opinion, the Legislature has given broad powers and flexibility

to school districts in conducting their programs and activities. Section 35160 states:

“On and after January 1, 1976, the governing board of any school

district may initiate and carry on any program, activity, or may otherwise act

in any manner which is not in conflict with or inconsistent with, or preempted

by, any law and which is not in conflict with the purposes for which school

districts are established.”

03-1005 4

Section 35160.1 provides:

“(a) The Legislature finds and declares that school districts, county

boards of education, and county superintendents of schools have diverse

needs unique to their individual communities and programs. Moreover, in

addressing their needs, common as well as unique, school districts . . .

should have the flexibility to create their own unique solutions.

“(b) In enacting Section 35160, it is the intent of the Legislature to

give school districts, county boards of education, and county

superintendents of schools broad authority to carry on activities and

programs, including the expenditure of funds for programs and activities

which, in the determination of the governing board of the school district . .

. are necessary or desirable in meeting their needs and are not inconsistent

with the purposes for which the funds were appropriated. It is the intent of

the Legislature that Section 35160 be liberally construed to effect this

objective.

“© The Legislature further declares that the adoption of this section

is a clarification of existing law under Section 35160.”

Do the terms of sections 35160 and 35160.1 affect the conclusion reached in our 1974

opinion?

We have previously observed with respect to section 35160 that “while the

powers of a school district are broad, they may not be exercised in a manner that is in

conflict, inconsistent, or preempted by state law.” (83 Ops.Cal.Atty.Gen. 40, 41 (2000).) As

noted by the Supreme Court, “the flexibility provided by section 35160 is not without

limits.” (Hartzell v. Connell (1984) 35 Cal.3d 899, 915.) In San Rafael Elementary School

Dist. v. State Board of Education (1999) 73 Cal.App.4th 1018, 1027, the court noted:

“. . .The generalized sentiment in section 35160.1 is of no help in

determining how much, if any, flexibility the Legislature has provided under

a specific statutory scheme. Section 35160.1 is a clarification of section

35160, which in turn provides flexibility to ‘act in any manner which is not in

conflict with or inconsistent with, or preempted by, any law. . . .’ Thus, its

application begins after the meaning of ‘law’. . . is ascertained.”

03-1005 5

Accordingly, sections 35160 and 35160.1 require our determination of

whether a state law precludes a school district from assessing a fee on providers of

deferred compensation plans. (See Dawson v. East Side Union High School Dist. (1994)

28 Cal.App.4th 998, 1017-1019; Howard Jarvis Taxpayers Assn. v. Whittier Union High

School Dist. (1993) 15 Cal.App.4th 730, 734-735; California School Employees Assn. v. Del

Norte County Unified Sch. Dist. (1992) 2 Cal.App.4th 1396, 1404; 84 Ops.Cal.Atty.Gen. 5,

8 (2001).)

While former section 13009 has been repealed, its replacement provides

similar language. Section 44041 states:

“The governing board of each school district when drawing an order

for the salary payment due to employees of the district shall, without charge,

reduce the order by the amount which it has been requested in a revocable

written authorization by the employee to deduct for any or all of the

following purposes: participating in a deferred compensation program offered

by the school district which provides for investments in corporate stocks,

bonds, securities, mutual funds, or annuities, except as prohibited by the

Constitution, or paying premiums on any policy or certificate of group life

insurance for the benefit of the employee or for group disability insurance,

or legal expense insurance, or any of them, for the benefit of the employee or

his dependents issued by an admitted insurer on a form of policy or

certificate approved by the Insurance Commissioner . . . .” (Italics added.)

The critical phrase “without charge” remains part of the authorizing legislation for school

districts, in contrast to the current authorizing legislation for the state employee payroll

deduction program set forth in Government Code section 1153:

“The Controller shall provide for the administration of payroll

deductions . . . .

“In determining these programs the Controller shall:

“. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“(d) Determine the cost of performing the requested service and

collect that cost from the organization, entity, or individual requesting or

03-1005 6

authorizing the service . . . .

“. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .”

The Legislature could have omitted the phrase “without charge” when it

enacted section 44041. However, it did not do so. Our interpretation of former 13009 is

applicable to the terms of section 44041. “[T]he failure of the Legislature to amend the

statute following publication of the Attorney General’s opinion supports an inference that

the legislative intent therein was correctly construed. . . .” (Sonoma County Board of

Education v. Public Employment Relations Board (1980) 102 Cal.App.3d 689, 700.)

Significantly, when the Legislature has chosen to allow school districts to

impose a charge in connection with employee payroll deductions, it has done so expressly.

For example, section 45060 provides:

“. . . [T]he governing board of each school district, when drawing an

order for the salary payment due to a certificated employee of the district,

shall with or without charge reduce the order by the amount which it has

been requested in a revocable written authorization by the employee to

deduct for the purpose of paying the dues of the employee for membership

in any . . . professional organization . . . .” (Italics added.)

Hence, we find that the rationale and conclusion of our 1974 opinion remain

applicable to the particular charges under consideration here. The broad powers set forth

in section 35160 and 35160.1 do not extend to adopting the administrative charges in

question because to do so would be “inconsistent” with the terms of section 44041.2

We conclude that even though a school district has broad authority to

conduct its programs and activities, it may not assess a fee upon providers of deferred

compensation plans to cover its costs of administering the plans for district employees.

*****

2 Our conclusion would be equally applicable to a community college district. (See §§ 70902,

87040.)

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Guest Joel F

Scotty---how did this opinion come about? Did some entity lodge a complaint?

 

This is a watershed victory for the employees of public school districts in California. Q.: Will it apply to all other local governments in California---in my view it will.

 

Result: Now that the governing board must pay for administering the 403(b) arrangement maybe they will be much more aware of the other fees/commissions that are borne by the employee. Hopefully, they will do the ethical and moral thing and offer no-load alternatives.

 

Peace,

Joel

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Thanks for the post Joel and congratulations Scotty, you are our man!! who dares to look our for educators best interests in this matter.

 

Just to let you know that to get the attention of the AG office on this matter is a major victory for all California educators. It is not easy.

 

For example,

Several years UTLA, myself, and a California state Senator Barnett had the AG to take another look at the 1974 state insurance code 770.3 interpretation of the wording of the hold harmless agreements. We felt that school districts were interpreting it incorrectly by making it more restrictive bordering on lunacy. A CTA attorney also looked at our claim and wrote a letter in our favor that the hold harmless agreements are too restrictive and in practice went beyond what the original 1974 AG opinion. We did get a response from the AG office too. However, the letter was complete nonsense. In other words, we have better things to do than look at this miniscule issue.

 

Scotty, in your case you must have presented blatant practices of excessive fees charged by school districts that the AG could not ignore this case.

 

Congratulations. Little by little, one tiny step at a time, the monopoly of excessive commissions, rip off surrender fees, and the inappropriate practice of putting 403b plans in expensive and worthless annuities will be crushed.

Have a great day,

Steve

 

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