BILL ANALYSIS                                                                                                                                                                                                    Ó

                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair

          AB 1144 (Hall) - Post Retirement Health Benefits
          Amended: June 19, 2013          Policy Vote: PE&R 4-0
          Urgency: No                     Mandate: No
          Hearing Date: June 24, 2013                             
          Consultant: Maureen Ortiz       
          This bill does not meet the criteria for referral to the  
          Suspense File.
          Bill Summary:  AB 1144 authorizes the City of Carson to use an  
          alternative vesting schedule for providing post-retirement  
          health benefits under the Public Employees' Medical and Hospital  
          Care Act.  The new vesting schedule will be available only to  
          new employees hired on or after January 1, 2014.

          Fiscal Impact: 
              Minor, absorbable administrative costs to CalPERS  (Special  
              Unknown, potentially significant savings to City of Carson  
              (Local Fund)

          Background:  The Public Employees' Medical and Hospital Care Act  
          (PEMHCA) is administered by CalPERS and provides health coverage  
          for employees and annuitants of the state and the California  
          State University.  PEMHCA is also available to schools and local  
          agencies that opt to contract for the coverage.  

          Existing law does not allow contracting employers to provide  
          PEMHCA coverage to active employees without also covering  
          retired annuitants.  However, there are several options  
          available as to the employer contribution rates for employees  
          and annuitants.   In addition, over the years separate statutes  
          have been enacted that provide variations of those options for  
          the City of San Diego, school employers, Alameda County  
          Transportation Improvement Authority, and Mariposa County.  All  
          of these variations were subject to collective bargaining.


          AB 1144 (Hall)
          Page 1

          AB 1144 will provide an exception to the vesting and  
          contribution provisions of PEMHCA. The City of Carson indicates  
          the benefit changes it has negotiated are intended as both a  
          cost-saving measure and also a recruitment tool for experienced  
          employees. Its situation is an example of a broader issue for  
          many contracting agencies that have found the existing PEMHCA  
          vesting options to be static and not flexible to negotiation. 

          Since the adoption of Government Accounting Standards Board Rule  
          45, which requires public employers to report in their annual  
          financial statements any non-pension liabilities associated with  
          post-employment health and welfare benefits for current and  
          future retirees, many contracting agencies have also been  
          exploring and implementing methods to control and pre-fund such  

          CalPERS staff recently completed a Health Benefits Purchasing  
          Review to evaluate current health benefit design and purchasing  
          strategies, and to identify areas of improvement in the Health  
          Benefits Program. These efforts led to the Board of  
          Administration's (Board) approval of 21 strategies and  
          initiatives, including staff exploration of statutory and  
          regulatory actions which may create more flexible vesting  
          schedules. Among the potential solutions is to provide public  
          agencies the same flexibility in crafting health benefit vesting  
          schedules currently afforded school districts, by allowing them  
          to collectively bargain for any vesting schedule that they  
          negotiate. AB 1144 represents a viable approach to achieving  
          that flexibility. 

          Proposed Law:  AB 1144 authorizes the City of Carson to use an  
          alternative vesting schedule for providing post-retirement  
          health benefits under (PEMHCA).  The employer contribution must  
          be agreed to through a collective bargaining contract.  For  
          employees not represented by a bargaining unit, the employer  
          contribution will be determined pursuant to a resolution adopted  
          by the city council of the City of Carson.

          Under the proposed schedule, an employee will have to work 5  
          years to get post-retirement benefits with a 50% employer  
          contribution toward the premium.  The schedule would increase by  
          10% annually so that an employee who had worked for the city for  


          AB 1144 (Hall)
          Page 2

          10 years would receive 100% of the employer contribution.

          Additionally, AB 1144 does the following: 

             a)   With respect to employees who are not represented by a  
               bargaining unit, requires the City of Carson to certify to  
               CalPERS that there is not an applicable MOU.

            b)  Defines credited service as credited service performed  
              with the City of Carson.

            c)  Requires the city to provide to CalPERS any information  
              determined by CalPERS as necessary to implement the  
              provisions of AB 1144.

            d)  Specifies that the proposed vesting schedule applies only  
              to the City of Carson and only with regard to an employee  
              who is first hired on or after January 1, 2014.

          Related Legislation:   AB 1346 (Pan), currently pending before  
          this committee, creates an alternative vesting schedule and  
          employer contribution rate for annuitants of the Sacramento  
          Metropolitan Fire District.

          Staff Comments The City of Carson does not currently have a  
          vesting schedule (i.e., annuitants currently get 100% of the  
          employer contribution toward post-retirement PEMHCA if they have  
          5 years of CalPERS credited service).  The City of Carson and  
          its employees' representative have collectively bargained to  
          implement a vesting schedule that would require annuitants to  
          have at least 10 years of credited service  with the city  to get  
          100% of the employer contribution.  However, this vesting  
          schedule is not currently authorized by law and therefore  
          requires legislative action to authorize an exemption from the  
          pre-set vesting schedule currently in statute.  

          The City of Carson participates in PEMHCA under the equal  
          employer contribution method. As a result, most of its active  
          employees and retirees receive $1,385 from the City to help  
          defray their monthly health benefit costs. However, there are  
          two groups not receiving the equal contribution for health  
          benefits, which are the unclassified and non-represented  
          employees, who receive the minimum employer contribution for  


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          Page 3

          health benefits as specified in the PEMHCA.

          The City of Carson's new MOU goes into effect June 30, 2013, and  
          was collectively bargained between the City and the American  
          Federation of State, County and Municipal Employees (AFSCME).  
          For postretirement health coverage, the MOU stipulates this to  
          be predicated upon years of credited service, as shown in the  
          following table: 

             Credited Years of Service                        Percentage of  
            Employer Contribution  

            0-4.99 Years                                                    
                                             0 Percent                      
            5 Years                                                         
             ??                   50 Percent
            6 Years                                                         
             ??                   60 Percent
            7 Years                                                         
             ??                   70 Percent
            8 Years                                                         
             ??                   80 Percent
            9 Years                                                         
             ??                   90 Percent
            10 Years                                                        
              ??                 100 Percent

          As stipulated in the MOU, five of the 10 years of credited  
          service must be with the City of Carson. In order for the  
          provisions of this agreement to go into effect, the City must  
          receive legislative approval of this exception to the PEMHCA.