Amended in Senate April 15, 2013

Senate Bill No. 774

Introduced by Senator Walters

February 22, 2013

An act to begin insert amend Section 22890 of, and to end insert add begin delete Article 7.5 (commencing with Section 22889.1) to Chapter 2 of Part 5 of Division 5 of Title 2 of end delete begin insert Sections 22874.3, 22875.3, and 22910.2 to, end insert the Government Code, relating to retirement.

LEGISLATIVE COUNSEL’S DIGEST

SB 774, as amended, Walters. State employees: postemployment benefits.

begin insert

The Public Employees’ Medical and Hospital Care Act (PEMHCA), which is administered by the Board of Administration of the Public Employees’ Retirement System, establishes provisions governing postemployment health care benefits for certain retired public employees and their families, upon meeting vesting requirements and subject to various limitations. Existing law provides that a represented state employee first hired on or after January 1, 1989, shall not be vested for the full employer contribution payable for annuitants unless he or she has 20 years of credited state service, as defined, at the time of retirement, as specified.

end insert begin insert

This bill would prohibit a state employer, as defined, for employees first hired on or after January 1, 2015, from providing postemployment health care benefits on behalf of its employees unless it fully funds those benefits, as determined by an actuary. This bill would also prohibit a public employer, for employees first hired on or after January 1, 2015, from entering into a memorandum of understanding or other collective bargaining agreement that provides for defined postemployment health care benefits for which a state employee may opt in unless each employee pays at least 50% of the actuarially required contributions to fund those health care benefits. This bill would additionally provide that, for state employees who become members of the system on and after January 1, 2015, the employer share of contribution for these benefits is 50% after 15 years of credited state service and would increase that percentage by 5% for each year of credit state service up to 100% after 25 years of credited state service.

end insert begin delete

The Public Employees’ Medical and Hospital Care Act authorizes the Board of Administration of the Public Employees’ Retirement System to contract with carriers for health benefit plans and major medical plans for employees and annuitants, as defined, and approve other specified plans.

end delete begin delete

This bill would require the Board of Administration of the Public Employees’ Retirement System to develop a comprehensive plan, pursuant to specified criteria, to restructure health and other postretirement benefits, exclusive of pension benefits, for new state employees hired on or after January 1, 2015. Specified elements of the plan to be developed by the board include prefunding methods and contribution requirements, new employee vesting requirements, and employee benefit and participation options.

end delete

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 22874.3 is added to the end insert begin insert Government Code end insert begin insert ,
to read: end insert

begin insert

begin insert 22874.3. end insert   

(a) Notwithstanding any other law, for employees
first hired on or after January 1, 2015, a state employer shall not
enter into a memorandum of understanding or other collective
bargaining agreement that provides for defined postemployment
health care benefits for which a state employee may opt in unless
each employee pays at least 50 percent of the actuarially required
contributions to fund those health care benefits.

(b) If the provisions of this section are in conflict with the
provisions of a memorandum of understanding or other collective
bargaining agreement, the memorandum of understanding or other
collective bargaining agreement shall be controlling, except upon
expiration of the memorandum of understanding or other collective
bargaining agreement, this section shall be controlling and may
not be superseded by a subsequent memorandum of understanding
or other collective bargaining agreement.

(c) For purposes of this section, the following definitions apply:

(1) “State employee” means an officer, including those elected
or appointed, or an employee of a state employer.

(2) “State employer” means the state and every state entity.
“State employer” shall not include the University of California.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 22875.3 is added to the end insert begin insert Government Code end insert begin insert , to
read: end insert

begin insert

begin insert 22875.3. end insert   

(a) Notwithstanding Sections 22870, 22871, 22873,
and 22874, a state employee, defined by subdivision (c) of Section
3513, who is employed by the state for the first time, who becomes
a state member of the system on or after January 1, 2015, shall
not receive any portion of the employer contribution payable for
annuitants unless the person is credited with 15 years of state
service at the time of retirement.

(b) The percentage of the employer contribution payable for
postretirement health benefits for an employee subject to this
section shall be based on the completed years of credited state
service at retirement as shown in the following table:

 

begin insert Credited Years of Service end insert	begin insert Percentage of Employer Contribution end insert
begin insert 15    end insert	begin insert 50    end insert
begin insert 16    end insert	begin insert 55    end insert
begin insert 17    end insert	begin insert 60    end insert
begin insert 18    end insert	begin insert 65    end insert
begin insert 19    end insert	begin insert 70    end insert
begin insert 20    end insert	begin insert 75    end insert
begin insert 21    end insert	begin insert 80    end insert
begin insert 22    end insert	begin insert 85    end insert
begin insert 23    end insert	begin insert 90    end insert
begin insert 24    end insert	begin insert 95    end insert
begin insert 25 or more    end insert	begin insert  100    end insert

 

(c) This section shall apply only to state employees that retire
for service. For purposes of this section, “state service” means
service rendered as an employee of the state or an appointed or
elected officer of the state for compensation. Notwithstanding
Section 22826, for purposes of this section, credited state service
includes service to the state for which the employee, pursuant to
Section 20281.5, did not receive credit.

(d) This section does not apply to employees of the California
State University, the judicial branch, or the Legislature.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 22890 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

22890.  

(a) The contracting agency and each employee or
annuitant shall contribute a portion of the cost of providing the
benefit coverage afforded under the health benefit plan approved
or maintained by the board in which the employee or annuitant
may be enrolled.

(b) An annuitant is entitled to only one employer contribution.
If more than one annuitant is receiving an allowance as the survivor
of the same employee or annuitant, there shall be only one
employer contribution with respect to all such annuitants.

(c) The contribution of each employee and annuitant shall be
the total cost per month of the benefit coverage afforded him or
her under the health benefit plan or plans in which he or she is
enrolled less the portion thereof to be contributed by the employer.
The employer contribution for each employee and annuitant shall
commence on the effective date of enrollment.

begin insert

(d) The formulas for contributors pursuant to this article are
subject to the prefunding requirements in Section 22874.3.

end insert

begin insert

begin insert SEC. 4. end insert   

Section 22910.2 is added to the Government Code, to
read:

begin insert 22910.2. end insert   

(a) Notwithstanding any other law, for employees
first hired on or after January 1, 2015, a state employer shall not
provide postemployment health care benefits on behalf of its
employees, unless it fully funds these benefits, as determined by
an actuary.

(b) For purposes of this section, “state employer” means the
state and every state entity. “State employer” shall not include
the University of California.

end insert

begin delete

  

SECTION 1.  

Article 7.5 (commencing with Section 22889.1)
is added to Chapter 2 of Part 5 of Division 5 of Title 2 of the Government Code, to read:

 

Article 7.5.  Other Postemployment Benefits

 

22889.1.  

The Legislature finds and declares:

(a) The purpose of this article is to reform the way the State of
California funds and offers other postemployment benefits,
including retiree health care, to new state employees hired on or
after January 1, 2015.

(b) If the state wants to offer lifetime retiree health benefits to
new employees, it will be necessary to prefund those benefits
actuarially, similar to how pensions are funded.

(c) State employees should have options for the use of the
contributions made by the employer and employee for
postemployment health benefits.

22889.2.  

(a) The Board of Administration of the Public
Employees’ Retirement System (board) shall develop a
comprehensive plan to restructure health and other postretirement
benefits, exclusive of pension benefits, for new state employees
hired on or after January 1, 2015, that incorporates the following
concepts:

(1) A method for the state to prefund, as that term is defined in
Section 22781, postemployment benefits for new state employees.

(2) A method for determining, using actuarial methods, the
value of a new state employee’s health care benefits at any given
point during the employee’s working years.

(3) The state shall be required to contribute 50 percent of the
normal cost rate for these benefits during the new state employee’s
working years.

(4) A new state employee shall be required to have 20 years of
credited state service to be eligible for lifetime health care benefits.

(5) A new state employee who does not have 20 years of state
service credit prior to retiring shall have the total of all
contributions made by the employer and the employee, together
with interest accrued, placed in a retiree health care savings account
upon the employee’s retirement, for the benefit of the employee.

(6) The state shall create and the board shall administer, a system
of retiree health care savings accounts for those new state
employees subject to this article that do not receive lifetime health
benefits.

(7) A new state employee shall have the following options:

(A) Receive lifetime retiree health benefits, upon 20 years of
state service credit, if they contribute 50 percent of the normal cost
rate during their working years.

(B) Not to contribute to a state-sponsored health care benefits
plan and to elect instead to be placed in a defined contribution plan
under which the state contributes a percentage of the employee’s
compensation into a retiree health savings account during the
employee’s working years, which will be available for the
employee when he or she retires and the use of which is regulated
by federal law.

(C) Opt out of contributing to or receiving postemployment
health care benefits entirely in exchange for slightly higher
compensation, as is allowed in current law.

(b) The board shall submit to the Legislature, by September 1,
2014, a report containing the comprehensive plan required by this
section. This report shall not be subject to the requirements of
Section 9795.

end delete