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
Fund)
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)
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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
liabilities.
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)
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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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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.