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