BILL ANALYSIS Ó SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 410 Jim Beall, Chair HEARING DATE: June 10, 2013 AB 410 (Jones-Sawyer) as amended 6/04/13FISCAL: YES PUBLIC EMPLOYEES' MEDICAL AND HOSPITAL CARE ACT: RIGHT TO POST-RETIREMENT HEALTH CARE COVERAGE HISTORY : Sponsor: California Professional Firefighters (CPF) Other legislation: SB 695 (Wiggins), 2008 Died in Senate Appropriations Committee AB 2132 (Levine), 2006 Vetoed by the Governor AB 1611 (Levine), 2003 Died in Assembly Appropriations Committee ASSEMBLY VOTES : PER & SS 7-0 4/10/13 Appropriations 17-0 5/01/13 Assembly Floor 72-3 5/13/13 SUMMARY : AB 410 permits a California Public Employees' Retirement System (CalPERS) retiree to reinstate to active employment without losing his or her accrued retiree health benefits earned with the prior employer under the Public Employees' Medical and Hospital Care Act (PEMHCA), which is administered by CalPERS, as specified. BACKGROUND AND ANALYSIS : 1) Existing law : a) establishes PEMHCA, which provides health care coverage for state and California State University employees and retirees who meet specific vesting requirements, and for employees and retirees of participating local public employers that contract with CalPERS for PEMHCA coverage. Pamela Schneider Date: June 04, 2013 Page 1 b) requires participants to perform a minimum number of years of service, typically five, prior to obtaining eligibility for retiree health coverage or any employer contribution toward that coverage. c) specifies that the last employer of record before a member's retirement from CalPERS is the employer responsible for paying the employer contribution for the retiree's health coverage. d) makes eligibility for enrollment in PEMHCA for most retirees dependent on retirement within a specified number of days of permanent separation from a CalPERS employer (usually 120 days). e) requires, in most cases, that the retiree enroll in PEMHCA within 60 days of retirement. f) provides varying employer contribution levels for retiree health care depending upon whether the employer is the state or a local contracting agency and the employee's years of service with that employer. g) allows, as a contract option for a local employer, that the retiree will not be subject to the 120-day rule if he or she had 20 years of service with the local employer. 2) This bill : a) allows a retiree who reinstates to active employment with a CalPERS employer to subsequently re-retire and enroll in PEMHCA as a retiree of the prior employer from which he or she first retired. In such cases, the retiree would be eligible for the employer contribution toward retiree health care that he or she had when first retired. b) allows the retiree to enroll for retiree health care coverage under the subsequent employer upon re-retirement if the employer contribution under the subsequent employer is higher than that provided by the Pamela Schneider Date: June 04, 2013 Page 2 first employer. c) specifies that the subsequent retirement must occur within 120 days after separation from employment from the most recent employer. The 120-day rule would not apply in cases in which a local contracting employer contracts for the option to allow coverage regardless of the length of separation for employees who had 20 years of service with that local employer. d) requires that any creditable service acquired with the subsequent employer after reinstatement will not be applicable with regard to vesting for the employer contribution from the prior employer upon re-retirement. e) requires that the retiree must enroll in PEMHCA within 60 days of re-retirement. f) states that these provisions only apply to an annuitant who, after reinstatement, subsequently retires on or after January 1, 2014. FISCAL : According to the Assembly Appropriations committee, "There are no significant net costs to this bill." COMMENTS : 1) Arguments in Support : The sponsor states: Under PEMHCA, the last employer of record before an employee retires is the employer responsible for paying any earned employer-contribution for that retiree's health care coverage, regardless of that employee's tenure or any previously accrued retiree healthcare contribution. Pamela Schneider Date: June 04, 2013 Page 3 If a retired member reinstates to active employment, the new employer is considered the last employer of record for purposes of determining health coverage eligibility. When that member retires a second time, regardless of the amount of the employer-paid health care contribution already earned from service with the employer they retired from the first time, the retiree is only eligible for the contribution earned by work with the second employer. 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. 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. Those who have reinstated are not receiving a retirement allowance and continue to contribute to the assets of the retirement system, rather than drawing from them. Other supporters note that AB 410 incentivizes retirees to return to work because they will be protected from permanently losing their earned retiree health benefits, and acknowledge the cost savings to prior employers for unrequired health care and pension payments during the reinstatement period. 2) SUPPORT : California Professional Firefighters, Sponsor California Association of Professional Scientists (CAPS) California Fire Chiefs Association (CFCA) California Public Employees' Retirement System (CalPERS) Glendale City Employees' Association (GCEA) Organization of SMUD Employees (OSE) San Bernardino Public Employees Association (SBPEA) San Luis Obispo County Employees Association (SLOCEA) Santa Rosa City Employees Association (SRCEA) Pamela Schneider Date: June 04, 2013 Page 4 3) OPPOSITION : None to date ##### Pamela Schneider Date: June 04, 2013 Page 5