BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 775
Jim Beall, Chair HEARING DATE: April 22, 2013
SB 775 (Walters) as amended 4/15/13 FISCAL: YES
STATE CONTROLLER: RETIREMENT SYSTEMS ANNUAL REPORT
HISTORY :
Sponsor: Author
Other legislation: AB 1844 (Hernandez)
Chapter 369, Statutes of 2008
SUMMARY :
Requires the State Controller, in his annual report on the
financial status of the state's public retirement systems and
using data collected for that report, to evaluate the
actuarial feasibility and associated costs of a statewide
buyout of current state employees' vested retiree health care
benefits.
BACKGROUND AND ANALYSIS :
1) Existing law, with regard to all state and local public
retirement systems :
a) requires each retirement system to annually submit an
audited financial report, prepared in accordance with
generally accepted accounting principles, to the State
Controller within 6 months of the close of the fiscal
year.
b) requires the State Controller to compile and publish
an annual report on the financial condition of all
retirement systems within 12 months of receiving the
information but not more 18 months after the end of the
fiscal year upon which the information in the report is
based, and requires the Controller to give particular
consideration to the adequacy of the funding of each
system.
c) requires, for state employees, retiree health care
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coverage under the Public Employees' Medical and
Hospital Care Act (PEMHCA) 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 vest for the 100/90
formula based on years of state employment. For most
executive branch state employees first hired after
January 1, 1989, the formula is paid at 50% after 10
years of service and increases by 5% per year up to the
full 100/90 formula after 20 years of service. (State
Bargaining Unit 12 has 15 to 25 year vesting for the
100/90 formula).
2) This bill :
a) requires the Controller, in the 2015 report, to
include an extra section in the report, utilizing data
collected for the report, to evaluate the actuarial
feasibility and associated costs of a statewide buyout
of current state employees' defined retiree health care
benefits.
COMMENTS :
1) Argument in Support :
According to the author:
Currently, under GASB [i.e., Governmental Accounting
Standards Board] reporting requirements, retiree health
care, or OPEB, costs are required to be systematically
identified, valued, and reported on a public agency's
balance sheet. The State Controller's Office (the
Controller) releases an annual OPEB Actuarial Valuation
Report for California in line with GASB standards.
While formulas and benefits can be changed for new
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employees, current employees cannot have their promised
OPEB altered in any way. However, the City of Beverly
Hills came up with a creative and innovative solution to
bring down OPEB liabilities without threatening the
benefits of current employees: Give public employees
more options for their retirement by offering a buyout
of the current actuarial value of their future benefits
with either a lump sum of cash (subject to taxes), some
form of deferred compensation (subject to taxes), a
transfer of the funds to a Retiree Health Savings
account (tax-free), or some combination of those three
options. The buyout will reduce the city's unfunded
liability by more than $60 million over the next 40
years.
A similar buyout could be offered to state employees for
a limited time and greatly reduce California's OPEB
unfunded liability by tens of billions of dollars over
the long term. It would not create new debt, but would
instead shift unpredictable health care liabilities into
predictable principal/interest payments. It also would
not change or threaten a public employee's current
benefits, but would simply offer another option to those
who would like to take advantage of it.
2) OPPOSITION :
American Federation of State, County and Municipal
Employees, AFL-CIO (AFSCME)
California Association of Professional Scientists (CAPS)
Professional Engineers in California Government (PECG)
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