BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                  AB 2510|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  AB 2510
          Author:   Fletcher (R)
          Amended:  4/27/10 in Assembly
          Vote:     21

           
           SENATE PUBLIC EMP. & RET. COMMITTEE :  5-0, 6/23/10
          AYES:  Correa, Corbett, Ducheny, Hollingsworth, Liu
          NO VOTE RECORDED:  Ashburn

           SENATE APPROPRIATIONS COMMITTEE  :  9-0, 8/02/10
          AYES:  Kehoe, Alquist, Ashburn, Corbett, Emmerson, Price,  
            Wolk, Wyland, Yee
          NO VOTE RECORDED:  Leno, Walters

           ASSEMBLY FLOOR  :  71-0, 5/24/10 - See last page for vote


           SUBJECT  :    Public employees retirement:  contracting  
          agencies:
                      postretirement health benefits

           SOURCE  :     City of San Diego


           DIGEST  :    This bill authorizes the City of San Diego to  
          contract under the Public Employees Medical and Hospital  
          Care Act, administered by the California Public Employees'  
          Retirement system, for a retiree health care vesting  
          schedule that is not currently available in law.  This new  
          schedule will be subject to, and dependent upon, a  
          memorandum of understanding between the City of San Diego  
          and the affected San Diego employees' exclusive  
                                                           CONTINUED





                                                               AB 2510
                                                                Page  
          2

          representative. 

           ANALYSIS  :    
           
          Existing Law

           1.Establishes the Public Employees Medical and Hospital  
            Care Act (PEMHCA), administered by the California Public  
            Employees' Retirement System (CalPERS), to provide health  
            coverage for employees and annuitants of the State,  
            California State University, and contracting local  
            agencies and schools.

          2.Establishes several coverage options for contracting  
            local agencies:

          A.The employer contribution amount is equal for both active  
            employees and annuitants.  Under this option, eligible  
            annuitants receive an employer contribution amount equal  
            to what the active employees receive.  The employer  
            contribution may be no less than approximately $100 per  
            month, but may be higher.

          B.The employer contribution is less for annuitants than for  
            active employees.  This option is available for agencies  
            that contracted for PEMHCA after January 1, 1986.  Under  
            this option, the employer increases its contribution  
            amount for annuitants each year until that amount is  
            equal to the employer's contribution for active  
            employees.  The law requires that annual increases must  
            be enough so that the contribution for retirees is equal  
            to the contribution for active members within 20 years.

          C.The employer's contribution is based on a vesting  
            schedule.  Under this option, the retiree benefit is  
            determined by a pre-set "vesting schedule" of specific  
            percentages based on the retiree's credited years of  
            service earned while employed.

            The basic vesting schedule requires an annuitant to have  
            worked at least 10 years in public employment to qualify  
            for an employer contribution equal to 50 percent of that  
            paid for active employees, increasing five percent per  
            year until, after 20 years of service, the annuitant is  

                                                           CONTINUED





                                                               AB 2510
                                                                Page  
          3

            eligible for 100 percent of the employer contribution for  
            active members.  At least five years of the credited  
            service must have been worked for the employer providing  
            the annuitant health coverage.  Under this plan, the  
            annuitant's dependent is eligible for coverage of 90  
            percent of whatever amount the annuitant receives.

            There have been variations on this model legislated in  
            recent years, including an option for schools to  
            collectively bargain a vesting schedule based on no less  
            than five years of credited service; a vesting schedule  
            specific to North Orange County Community College  
            District and Riverside County Superintendent of Schools  
            that pays nothing until the employee has 15 years of  
            service, and 100 percent thereafter; and a vesting  
            schedule specific to Alameda County Transportation  
            Improvement Authority that provides 50 percent after five  
            years and increases to 100 percent after 15 years.

          3.Allows an annuitant who does not receive employer paid  
            health care to pay for his or her own premiums and  
            premiums for eligible dependents.

          This bill:

          1.Allows the City of San Diego and members of the San Diego  
            Police Officers Association to agree in a memorandum of  
            understanding (MOU) to an employer contribution for  
            retiree health coverage based on a specific number of  
            credited years of service, which may not be less than 10  
            years of service with the City of San Diego.

          2.Requires that the MOU may not be subject to impasse  
            procedures.

          3.Specifies that this law may not be applicable to anyone  
            who retires prior to the MOU effective date.

          4.Allows the City of San Diego to agree with unclassified  
            or unrepresented employees to provide this level of  
            coverage for that group also.

           Comments


                                                           CONTINUED





                                                              AB 2510
                                                                Page  
          4

           According to the City of San Diego, the sponsor of this  
          bill, "The City of San Diego currently provides healthcare  
          to its employees and retired annuitants through its own  
          local system.  The city pays for the health premiums of  
          employees and their dependents, but only covers the  
          healthcare costs of the retired annuitants.  Retirees must  
          cover the costs of any dependents they wish to cover.

          "Thus, no PEMPHCA option for contracting agencies fits San  
          Diego's current model, since the basic option that includes  
          a vesting schedule requires employer coverage of  
          annuitants' dependents.

          "The author concludes that the provision in current law  
          that requires a local agency electing to participate in  
          PEMHCA to provide at least 90 percent of the cost of  
          dependent coverage is cost prohibitive to many local  
          agencies, including the City of San Diego.  This bill would  
          allow the City of San Diego to participate in PEMHCA  
          without having to provide contributions for dependents of  
          retired annuitants." 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

                          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

          According to the Senate Appropriations Committee, this bill  
          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  

                                                           CONTINUED





                                                               AB 2510
                                                                Page  
          5

          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.

           SUPPORT  :   (Verified  8/3/10)

          City of San Diego (source)
          Peace Officers Research Association of California
          San Diego Police Officers Association

           ARGUMENTS IN SUPPORT  :    The San Diego Police Officers  
          Association states that this bill will improve the  
          officers' health care options while simultaneously reducing  
          costs for the city.


           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Anderson, Arambula, Beall, Bill  
            Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,  
            Bradford, Brownley, Buchanan, Caballero, Charles  
            Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De  
            La Torre, De Leon, DeVore, Emmerson, Eng, Feuer,  
            Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,  
            Galgiani, Garrick, Gilmore, Hagman, Harkey, Hayashi,  
            Hill, Huber, Huffman, Jeffries, Jones, Lieu, Logue,  
            Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nestande,  
            Niello, Nielsen, Norby, V. Manuel Perez, Portantino,  
            Ruskin, Salas, Silva, Skinner, Smyth, Solorio, Audra  
            Strickland, Swanson, Torlakson, Torres, Torrico, Tran,  
            Yamada, John A. Perez
          NO VOTE RECORDED:  Bass, Evans, Hall, Hernandez, Knight,  
            Nava, Saldana, Villines, Vacancy


          CPM:cm  8/3/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****





                                                           CONTINUED