BILL ANALYSIS Ó SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 2582 Norma Torres, Chair HEARING DATE: June 9, 2014 AB 2582 (Bonta) as amended 6/02/14 FISCAL: YES RETIREMENT HEALTH BENEFITS: BART VESTING SCHEDULE HISTORY : Sponsor: Bay Area Rapid Transit District (BART) Other legislation:AB 1144 (Hall), Chapter 244, Statutes of 2013 AB 2053 (Allen) of 2012, Vetoed by the Governor AB 2510 (Fletcher), Chapter 600, Statutes of 2010 ASSEMBLY VOTES : PER & SS 6-0 4/23/14 Appropriations 17-0 4/30/14 Assembly Floor 73-0 5/08/14 SUMMARY : AB 2582 authorizes the Bay Area Rapid Transit District (BART) to establish a vesting requirement for post-retirement health benefits coverage that is different than what is allowed under current law for contracting agencies and which has been bargained with BART's employee representatives. BART's health insurance employer contribution for annuitants with 10 years of credited service would be 50% of that provided to active employees. The employer contribution would increase incrementally by 10% for each credited year of service, reaching 100% if the annuitant attained 15 years of credited service. Annuitants who retire for disability and have at least 5 years of BART service would receive 100% of BART's employer contribution for active employees. BACKGROUND AND ANALYSIS : 1)Existing law : Glenn A. Miles Date: June 3, 2014 Page 1 a) 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 and the California State University. b) allows a school or local agency employer to contract with CalPERS for PEMHCA and requires the employee or annuitant contribution, when added to the employer contribution, to cover the total cost of the PEMHCA coverage premium. c) defines an annuitant as one who, among other requirements, retires from the system within 120 days of separation from public employment. d) does not allow contracting employers to provide PEMHCA coverage to active employees without also covering retired annuitants. However, with respect to the employer contribution for annuitants, provides specified options available to the contracting agency, including: i) an equal employer contribution amount for both active employees and annuitants. Under this option, an employee who retires and meets the definition of annuitant becomes 100% vested and receives an employer contribution amount equal to what the active employees receive; or ii) for a contracting agency that joins PEMHCA on or after January 1, 1986, the option to pay a lesser employer contribution amount for annuitants than for active employees as long as the agency increases its contribution for annuitants each year until it equals the agency's contributions for active employees as specified; or iii) a pre-set "vesting schedule" based on an employee's credited years of service to determine a set percentage of the employer contribution amount for annuitants. Under this option, an annuitant must have at least 10 years of CalPERS credited service to qualify for 50% of the employer contribution and would receive an additional 5% for each additional year of Glenn A. Miles Date: June 3, 2014 Page 2 credited service for a total of 100% with 20 years of credited service. At least 5 years must be with the employer providing PEMHCA. iv) allows under the 10-20 year vesting schedule, an employer contribution of 100% if the annuitant retired for disability or if the annuitant had 20 years of service, regardless of the length of separation from service prior to retirement. e) provides specified and individual variations to the above options and requirements under separate statutes specific to the City of Carson, the City of San Diego, school employers, Alameda County Transportation Improvement Authority, and Mariposa County. These statutes are subject to collective bargaining agreements. 2)This bill : a) authorizes BART to make contributions for postretirement health benefits for the districts' unrepresented employees, including members of the district board of directors to the extent that they are eligible under existing law, and for any unit of employees whose terms and conditions of employment are determined through collective bargaining. The employer contributions will be based on the following: i) credited years of service worked with BART; ii) a collectively bargained agreement with all represented employees regarding post-employment health coverage; and, iii) for unrepresented employees, including directors if eligible, criteria and schedules as provided to the represented employees through a collectively bargained agreement. b) requires the agreement to provide an employer contribution of 50% after 10 years of credited service, increasing incrementally to 100% after 15 years of credited service. All service must be with BART. c) requires any agreement for providing an employer contribution for retiree healthcare to also provide full Glenn A. Miles Date: June 3, 2014 Page 3 employer contributions for those employees who retire for disability with at least 5 years of service with BART. d) specifies that these provisions only apply to BART employees first hired on or after January 1, 2014, and to directors who first serve as director on or after January 1, 2014. e) specifies that these provisions only apply to represented employees if the agreement is expressly incorporated into a memorandum of understanding, as specified. f) specifies that these provisions do not apply to employees who retire prior to the effective date of the bargaining agreement, and, in the event the bargaining agreement establishes a retroactive effective date, these provisions will only apply to prospective retirements. g) requires BART to provide CalPERS with notification of each agreement or personnel action applying these new requirements, and any additional information necessary to implement the proposed change. FISCAL : According to the Assembly Appropriations committee, this bill would result in costs that are "minor and absorbable for the California Public Employees' Retirement System (CalPERS)." COMMENTS : 1)Suggested Amendments : The bill attempts to make clear that the new health benefit vesting schedule and terms will apply only to employees who retire after the effective date of the MOU or, if the effective date is made retroactive to a period before the MOU was signed, then only prospectively to an employee who retirees after the signing of the MOU. However, the provision causes confusion with respect to an employee who Glenn A. Miles Date: June 3, 2014 Page 4 may retire after the MOU effective date, or after the MOU signing date, but before the effective date of this bill, if enacted (i.e., January 1, 2015). In order to clarify that the provisions of the bill apply only to retirements that occur on or after the effective date of the bill, staff recommends that the bill be amended to state that the new plan applies to those retiring on or after the bill's effective date. 2)Arguments in Support : According to the sponsor, AB 2582 would "authorize a new vesting schedule for retiree lifetime healthcare benefits that was negotiated between BART and our employee organizations last fall?The new schedule will provide cost savings to BART of over $13.8 million over the next 30 years." 3)SUPPORT : Bay Area Rapid Transit District (BART), Sponsor 4)OPPOSITION : None. ##### Glenn A. Miles Date: June 3, 2014 Page 5