BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 774
Jim Beall, Chair HEARING DATE: April 22, 2013
SB 774 (Walters) as amended 4/15/2013 FISCAL: YES
PUBLIC EMPLOYEES' MEDICAL AND HOSPITAL ACT: LONGER VESTING
AND PREFUNDING OF STATE RETIREE BENEFITS
HISTORY :
Sponsor: Author
Other legislation: SB 1141 (Walters), 2012
Died in Senate PE&R Committee
SB 1142 (Walters), 2012
Died in Senate PE&R Committee
SB 1143 (Walters), 2012
Died in Senate PE&R Committee
SUMMARY :
SB 774 amends the Public Employees' Medical and Hospital Care
Act (PEMHCA) to do the following:
a) requires 15 to 25 years of state employment to vest
for lifetime state retiree health benefits for all state
employees of the executive branch who are subject to
collective bargaining and are who first hired on or
after January 1, 2015.
b) requires all employers that provide PEMHCA health
care coverage to retirees, and their employees first
hired after January 1, 2015, to share equally in
prefunding the normal actuarial costs of retiree health
benefits.
c) prohibits the State from providing retiree health
benefits for employees first hired on or after January
1, 2015, unless it fully funds those benefits.
BACKGROUND AND ANALYSIS :
1) Existing law :
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a) defines, in the Ralph C. Dills Act for the purposes
of collective bargaining, which state employees are
subject to bargaining and which state employees are
excluded, including employees who are managerial,
appointed, elected, and employed in various state
departments whose employees are not subject to
bargaining.
b) establishes PEMHCA, which is administered by CalPERS
and provides health care coverage for active state
employees and retirees, including the executive,
legislative and judicial branches, and the California
State University.
c) provides, for most state employees first hired after
January 1, 1989, PEMHCA coverage following retirement
with a maximum employer contribution equal to 100% of
the weighted average cost of the 4 most highly utilized
PEMHCA health plans, for the retiree, and 90% of that
weighted average cost for the retiree's dependent
(referred to as the 100/90 formula).
d) requires state employees to meet the following
vesting requirements to receive all or a portion of the
employer contribution for retiree health care:
i) The employee must have 10 years of state employment
service to receive an employer contribution equal to
50% of the 100/90 formula.
ii) The employer contribution increases by 5% per year
of service between 10 and 20 years of service. At 20
years of service, the employee is entitled to the full
100/90 formula.
iii) For a member of State Bargaining Unit 12 first hired
into state employment after January 1, 2011, 50%
vesting occurs after 15 years, increasing by 5% per
year up to 100% vesting at 25 years.
a) allows local public employers to voluntarily contract
with CalPERS for PEMHCA coverage for their active and
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retired employees. Local employers may choose among
several vesting and cost-sharing options.
b) requires state and local employers to pay employer
contributions for retiree health care benefits on a
pay-as-you-go basis, but allows the state or any local
employer to voluntarily prefund actuarially determined
retiree health care costs, at any level of funding
desired by the employer, by contributing to the
employer's account in the Annuitants' Health Care
Coverage Fund, administered by CalPERS.
c) requires the state and local public employers and
official representatives of state and local public
employees to collectively bargain over issues related to
wages and working conditions.
d) in some cases, requires that if a statute and the
provisions of a memorandum of understanding (MOU) are in
conflict, the MOU shall be controlling.
2) This bill :
a) prohibits the state employer from entering into a MOU
to provide an employer contribution for retiree health
care benefits for a state employee first hired on or
after January 1, 2015, unless each of those employees
will pay at least 50 percent of the actuarially required
contributions to fund the retiree health care benefits.
i) specifies that if there is a MOU in effect that
is contrary to this requirement, the MOU shall be
controlling until it expires, and thereafter the
prefunding requirement shall be in effect and may not
be superseded by a subsequent MOU.
ii) for purposes of this section defines "state
employee" to mean officers and employees of the state,
including those elected and appointed, and "state
employer" to include all state entities except for the
University of California.
a) prohibits a new state employee of the executive
branch, defined as one who is subject to collective
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bargaining, first hired on or after January 1, 2015,
from receiving an employee contribution for retiree
health care unless he or she is credited with a minimum
of 15 years of state employment at retirement to vest
for 50% of the 100/90 formula, increasing annually by 5%
for each year of service until the employee vests for
the full 100/90 formula after 25 years.
b) with regard to a local agency that contracts for
PEMHCA, requires that the contribution formulas for
contributors be subject to the same prefunding
requirement as would be required for state employees and
the state employer (i.e., for employees to pay at least
50% of the actuarially required contributions).
c) prohibits any state employer from providing retiree
health care for a new state employee first hired after
January 1, 2015, unless the state employer fully funds
those benefits, as determined by an actuary.
BACKGROUND:
According to the State of California Retiree Health Benefits
Program: GASB NOS. 43 and 45 Actuarial Valuation Report,
issued by the State Controller, dated June 30, 2012:
The State of California currently finances retiree
healthcare benefits on a pay-as-you-go basis; however,
the California Highway Patrol recently bargained for a
modest level of pre-funding. As of June 30, 2012, there
is approximately $8.3 million in assets available to pay
future retiree healthcare benefits currently invested in
the CalPERS California Employers' Retiree Benefit Trust.
Bargaining Units 12 and 16 have bargained for a modest
level of prefunding which will commence in fiscal year
2013.
COMMENTS :
1) Argument in Support :
According to the author, "under the current 'pay-as-you-go'
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funding policy, no assets are set aside in advance to offset
the cost of retiree health care." "Rather than funding
retiree health benefits on a 'pay-as-you-go' basis, a sound
pre-funding policy for new employees could greatly improve
the way California funds" it's retiree health care
obligations.
Furthermore, the author states the following:
As retiree health care costs rise faster than the rate
of growth of tax revenues, a growing percentage of
government revenues must be devoted to providing these
benefits and fewer revenues are available for other
critical state functions, such as, public safety,
education and infrastructure.
According to the most recent figures from the OPEB
Actuarial Valuation Report released by the Controller,
California's unfunded actuarial accrued liability was
$63.85 billion (more than two thirds of our annual state
budget) as of June 30, 2012 with an expected Net OPEB
Obligation of $16.09 billion at fiscal year end June 30,
2013.
2) Argument in Opposition :
Many organizations representing public employees support
the policy of prefunding actuarial obligations for retiree
health care benefits, but believe that employees should be
able to exercise their statutory rights to negotiate over
their wages.
According to the California Correctional Peace Officers
Association:
CCPOA supports the concept that postretirement health
care should be prefunded, just like retirement, on an
actuarially sound basis. However, the details of how
these benefits would be funded should not be imposed by
legislation, but rather through the negotiation process
pursuant to the Ralph C. Dills Act, as the funding for
such a provision would be allocated from an active State
employee's total compensation.
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A joint letter from Glendale City Employees Association,
Organization of SMUD Employees, San Bernardino Public
Employees Association, San Luis Obispo County Employees
Association, and Santa Rosa City Employees Association
notes that local employers have the ability to voluntarily
prefund retiree health care costs and state the following
with regard to mandating full prefunding:
If this bill were to be enacted, it seems likely that
many public agencies would eliminate retiree health
benefits completely. We believe public employees should
not have to worry about whether they will have the funds
for food or medicine when they retire. Health care is
not a privilege; it is a necessity. SB 774 would not
only hurt employees, but also government employers who
would have difficulty hiring and retaining quality
employees if unable to provide postemployment health
care benefits. Efforts to eradicate the collective
bargaining process and hamper the ability of government
employers to offer competitive benefit packages hurt
both workers and employers. This bill infringes on the
rights of public employees and obstructs their ability
to obtain needed health care benefits after employment.
3) OPPOSITION :
American Federation of State, County and Municipal
Employees, AFL-CIO (AFSCME)
California Association of Professional Scientists (CAPS)
California Attorneys, Administrative Law Judges and Hearing
Officers in State Employment (CASE)
California Correctional Peace Officers Association (CCPOA)
California Professional Firefighters (CPF)
California School Employees Association (CSEA), AFL-CIO
California Teachers Association (CTA)
California Statewide Law Enforcement Association (CSLEA)
Glendale City Employees Association (GCEA)
Laborers International Union of North America (LIUNA),
Locals 777 & 792
Organization of SMUD Employees (OSE)
Professional Engineers in California Government (PECG)
San Bernardino Public Employees Association (SBPEA)
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San Luis Obispo County Employees Association (SLOCEA)
Santa Rosa City Employees Association (SRCEA)
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