BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 2510 (Fletcher) Hearing Date: 08/02/2010 Amended: 04/27/2010 Consultant: Maureen Ortiz Policy Vote: PE&R 5-0 _________________________________________________________________ ____ BILL SUMMARY: AB 2510 allows the City of San Diego to contract with CalPERS in order to provide postemployment health care benefits to certain employees, subject to a collective bargaining agreement. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund Health care benefits --------unknown, potential savings------ Local Admin expenses ------------minor, absorbable----------- Special* *Public Employees Retirement Fund _________________________________________________________________ ____ STAFF COMMENTS: AB 2510 could result in substantial savings to the City of San Diego if the negotiated rates with providers and the administrative costs are lower than those now paid, which could also result in a significant reduction in the city's unfunded liabilities. It is estimated that the current unfunded liability for annuitant healthcare would decrease from $157 million to approximately $121 million, and that the annual expenses would drop from $28.5 million to $21.5 million. Those numbers apply to the entire City of San Diego. The City of San Diego currently provides healthcare to its employees and retired annuitants through its own local system. The city pays for the cost of employees and their dependents, but covers only the healthcare cost of retired annuitants (not the annuitants' dependents). The CalPERS' Board of Administration administers the Public Employees' Medical and Hospital Care Act (PEMHCA). Under PEMHCA, eligible agencies may contract with CalPERS to provide health care benefits for their employees and annuitants. Contracting agencies must offer health care to both active and retired employees, and must also contribute toward the employees' cost of health care. Current law provides three different options for employer contributions that allow for full vesting for annuitants. It also allows school employers to use collective bargaining to establish an employer contribution amount for annuitants with at least 5 years of credited service. AB 2510 applies to employees of the City of San Diego who are members of the San Diego Police Officers Association, and unclassified or unrepresented employees under the following conditions: Page 2 AB 2510 (Fletcher) a)The benefit will be applied on a prospective basis only. b)The employer contribution for postretirement health coverage shall be subject to credited years of service that the employee worked with the City of San Diego, and a memorandum of understanding. c)If the MOU establishes a retroactive date, the health care benefit will be applied only on a prospective basis. d)Any employee who retires before the MOU is signed may not participate. e)An employee must have at least 10 years of credited service with the City of San Diego. There are approximately 2,000 employees within the San Diego Police Officers Association. The Governmental Accounting Standards Board (GASB) Statement 45 requires governmental entities to account for, on their financial statements, the estimated costs and liabilities associated with post-employment health benefits for current and future retirees. Agencies must now schedule investment activity to meet this liability, establish a current budget liability, or otherwise mitigate the impact of these future evaluations.