BILL ANALYSIS Ó
AB 410
Page 1
ASSEMBLY THIRD READING
AB 410 (Jones-Sawyer)
As Introduced February 15, 2013
Majority vote
PUBLIC EMPLOYEES 7-0 APPROPRIATIONS 17-0
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|Ayes:|Bonta, Allen, Harkey, |Ayes:|Gatto, Harkey, Bigelow, |
| |Jones-Sawyer, Mullin, | |Bocanegra, Bradford, Ian |
| |Rendon, Wieckowski | |Calderon, Campos, |
| | | |Donnelly, Eggman, Gomez, |
| | | |Hall, Holden, Linder, |
| | | |Pan, Quirk, Wagner, Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Permits a California Public Employees' Retirement
System (CalPERS) retired annuitant to reinstate to active
employment without losing his or her accrued retiree health
benefits earned with the previous employer, as specified.
Specifically, this bill :
1)Allows an annuitant who, after reinstatement to active
employment, subsequently retires to enroll as an annuitant of
the employer from which he or she first retired, unless the
annuitant is entitled to a higher contribution from the
employer from which he or she subsequently retires.
2)Specifies that in order to be eligible, the annuitant must
have at least five years of service with the employer from
which he or she first retired.
3)Specifies that retirement must occur within 120 days after
separation from employment from the most recent employer.
4)Specifies that any creditable service acquired after
reinstatement will not be applicable unless the individual
reinstates from retirement with the same employer from which
he or she first retired.
5)Specifies that these provisions only apply to an annuitant
who, after reinstatement, subsequently retires on or after
January 1, 2014.
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FISCAL EFFECT : According to the Assembly Appropriations
Committee:
There are no significant net costs to this bill.
Historically, very small numbers of CalPERS members
have retired from state service, reinstated to work
full time with a local agency employer, and then
retired again. This number is small because few
people are willing to give up what is likely to be a
generous health care benefit to work for another
employer where they are unlikely to vest and obtain a
significant retiree health care benefit.
Under existing law CalPERS saves money when this
occurs because it is the most recent employer, not the
state, who will bear the health benefit costs in
retirement. This bill could reduce state savings,
likely in the tens of thousands of dollars, for any
retiree who makes the choice to go from a state
employer to a local CalPERS employer.
However, there are savings to the state because during
the time period in which an annuitant has reinstated
as an active employee, the state will not be paying
that member's Public Employees' Medical and Hospital
Care Act (PEMHCA) coverage or the member's pension
benefit while they are employed. To the extent this
measure encourages additional state employees to
retire and then reinstate to active employment with
another agency, without losing their accrued health
benefits, and retire again after working long enough
to meet the vesting requirements of the second CalPERS
employer, these savings will increase.
COMMENTS : Generally, the PEMHCA specifies that the last
employer of record before a member's retirement is the employer
responsible for paying the employer contribution for the
annuitant's health coverage, based on the length of service or
vested status. It also requires participants to perform a
minimum number of years of service, typically five, prior to
obtaining eligibility for annuitant health coverage or any
employer contribution toward that coverage. In addition,
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eligibility for enrollment in PEMHCA requires most annuitants to
retire within a specified number of days of permanent separation
from a CalPERS employer. The amount of the employer
contribution for annuitants varies widely among employers.
Alternatively, the state and some contracting agency employers
use PEMHCA vesting schedules to determine eligibility for
retiree health coverage and the employer contribution toward
participant premiums.
The enactment of the Public Employees' Pension Reform Act of
2013, AB 340 (Furutani), Chapter 296, Statutes of 2012,
eliminated most exemptions to the requirement that a retired
annuitant work no more than 960 hours per year for a CalPERS
employer before automatic reinstatement to active service and
suspension of the retirement allowance and retiree health
coverage. As a result, retired annuitants whose financial
circumstances or desire to serve leads to a return to full-time
active status, results in them returning to work for a CalPERS
employer other than their prior employer, may experience a
reduction in, or outright loss of, the employer contribution
toward annuitant health coverage.
In an example provided to the Assembly Public Employees,
Retirement and Social Security Committee by CalPERS, if an
annuitant who had worked for the State earns the full employer
contribution for health coverage under the 100/90 formula after
20 years of service, later reinstates to active service with a
PEMHCA contracting agency, when the employee subsequently
retires from that contracting agency, he or she would only be
eligible to receive the employer contribution from the
contracting agency, whereas, if the person had returned to
active CalPERS-covered service with the state, he or she would
experience no reduction in retiree health benefits. This
discrepancy could result in a substantial increase in the
annuitant's out-of-pocket costs for health care in retirement.
According to the author, "Given escalating, uncapped health
benefit costs, the threat of losing employer-provided health
care coverage under PEMHCA has created a major disincentive
among retired public employees to return to work in the public
sector. Similarly, current law discourages skilled, experienced
employees who retire as a result of a job-related injury to
rehabilitate from their injury and go back to work in a less
physically demanding job."
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Supporter state, "AB 410 incentivizes a public agency retiree to
return to work because he or she is protected against the risk
of losing his or her earned health care contribution.
Additionally, the previous employer experiences a cost-savings
as the retirement allowance and related benefits for that
retiree cease when the retiree returns to full time employment
and any obligation to pay a health care contribution is
suspended until that employee subsequently re-retires."
Supporters conclude, "AB 410 has been crafted to discourage
'double dipping' (i.e. a practice where an employee is
collecting a retirement allowance and a paycheck) by only
applying to a retiree who reinstates to active employment
causing the retirement allowance to cease."
This bill is similar to SB 695 (Wiggins) of 2008 which would
have allowed an annuitant who, after reinstatement to active
employment, subsequently retires to enroll as an annuitant of
the employer from which he or she first retired, unless the
annuitant is entitled to a higher contribution from the employer
from which he or she subsequently retires. This bill was held
in the Senate Appropriations Committee.
This bill is also similar to AB 2132 (Levine) of 2006 which
would have allowed an annuitant who, after reinstatement to
active employment, subsequently retires to enroll as an
annuitant of the employer from which he or she first retired,
unless the annuitant is entitled to a higher contribution from
the employer from which he or she subsequently retires. This
bill was vetoed by the Governor. In his veto message, Governor
Schwarzenegger stated, in part, that while the bill is intended
to eliminate disincentives for retirees to return to work and
encourage experienced public employees to return to public
service, it is premature given recent changes in the
Governmental Accounting Standard Board rules that require both
state and local governments to undertake an actuarial assessment
of their unfunded retiree health benefits and that until that
information is available, this bill is premature.
Finally, this bill is also similar to AB 1611 (Levine) of 2003
which would have allowed an annuitant who, after reinstatement
to active employment, subsequently retires to enroll in PEMHCA
as an annuitant of the employer from which he or she first
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retired, unless the annuitant is entitled to a greater
contribution from the employer from which he or she subsequently
retires. This bill was held in the Assembly Appropriations
Committee.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0000325