(a) An employer that employs persons to perform creditable service subject to coverage by the plan under this part that offers a deferred compensation plan as described in Section 457 of the Internal Revenue Code may enter into a written contract with the system for services regarding that deferred compensation plan provided by the employer. That contract may include any of the following services:

(1) Services to ensure compliance with Section 457 of the Internal Revenue Code regarding the deferred compensation plan 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 requests for unforeseeable emergency withdrawals, transfer requests, loan requests and other disbursements permitted under Section 457 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 the deferred compensation plan.

(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 deferred compensation plan as described in Sections 414(v) and 457 of the Internal Revenue Code.

(G) Calculate and maintain vesting information for contributions made by the employer to the deferred compensation plan.

(H) Identify and notify employees that are required to take a minimum distribution of the funds in that employee’s deferred compensation plan 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 deferred compensation plan.

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

(A) Common remitting services.

(B) General educational information to employees about the deferred compensation plan 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 457 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 custodial account offered under the employer’s plan. These audits shall not be conducted more than once per year for any provider’s plan unless documented evidence indicates a problem in complying with Section 457 of the Internal Revenue Code.

(b) The system may contract with a third-party administrator for the administrative and compliance services to employers described in subdivision (a). For purposes of this subdivision, a “third-party administrator” shall mean a person or entity other than the system that provides administrative or compliance services as described in subdivision (a). If the system contracts with a third-party administrator, the system shall do all of the following:

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

(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 deferred compensation plan.

(3) Require evidence, if the third-party administrator is related to or affiliated with a provider of investment products pursuant to Section 457 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.

(c) Nothing in this section requires an employer to contract with the system for the administrative or compliance services described in subdivision (a). A written contract for the administrative 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 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) 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.

(f) 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.

(g) 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 a deferred compensation plan by the employer. If the system or a third-party administrator is affiliated with or has a contractual relationship with a provider of deferred compensation plans, the system or third-party administrator shall disclose the existence of that relationship to each employer and each individual participant in the deferred compensation plan.

(Added by Stats. 2006, Ch. 780, Sec. 5. Effective January 1, 2007.)