BILL ANALYSIS
AB 2510
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Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Alberto Torrico, Chair
AB 2510 (Fletcher) - As Amended: April 8, 2010
SUBJECT : Public employees' retirement: contracting agencies:
postretirement health coverage.
SUMMARY : Provides the City of San Diego (City) with the
ability to establish a vesting requirement for post-retirement
health benefits coverage that is different than what is allowed
under current law for contracting agencies. Specifically, this
bill :
1)Allows the City, together with the employees' exclusive
representative and unrepresented employees, to agree to an
employer contribution for retiree healthcare subject to the
following requirements:
a) The number of years of service the employee has with the
City.
b) Mutually agreed to through a memorandum of understanding
(MOU). However, this issue would be specifically excluded
from being subject to the impasse procedures contained in
existing collective bargaining laws.
2)Specifies that this provision does not apply to any employee
who retired prior to the effective date of the MOU.
3)Prohibits any agreement reached from providing an employer
contribution for retiree healthcare for employees with less
than 10 years of service with the City.
4)Requires the City to provide the California Public Employees'
Retirement System (CalPERS) with notification of the agreement
and any additional information they require.
EXISTING LAW establishes the Public Employees' Medical and
Hospital Care Act (PEMHCA) under the administration of CalPERS.
If a contracting agency elects to cover their employees for
health care under PEMHCA, they have the following options to
choose from in determining contribution amount for annuitants:
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1)A contracting agency could opt to make the employer
contribution amount equal 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.
2)A contracting agency that joins PEMHCA on or after January 1,
1986, has 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. Based on the formula, it may take 20 years for the
lesser contribution amount to equal the active employee
contribution amount. Under this option, an employee who
retires and meets the definition of annuitant becomes 100%
vested and receives an employer contribution amount equal to
the lesser contribution amount.
3)A contracting agency has the option to establish a pre-set
"vesting schedule" of specific percentages based on an
employee's credited years of service to determine the employer
contribution amount for annuitants. Under this option, an
employee would have to work at least 10 years to qualify for
an employee contribution and would have to work 20 years to
become 100% vested.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, "The City of San Diego
currently provides healthcare to its employees and retired
annuitants through its own local system. The city pays for the
cost of employees and their dependents and covers only the
healthcare cost of the retired annuitant; the vested benefit
plan requires out of pocket payment by the retiree for any
dependents they wish to cover. Currently, the outstanding
retiree healthcare liability for retirees in San Diego is $157
million - the city pays $28.5 million annually to fund retiree
healthcare.
"Cost to provide healthcare are more expensive through the San
Diego-only systems versus through the state's PEMHCA system for
a number of reasons: 1. the larger state pool spreads risk and
lowers cost, 2. San Diego's system is geographically limited so
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retirees located elsewhere in the state or country must procure
more expensive coverage whereas, the state's system is a broader
nationwide system and 3. the administrative costs to run the
city's system average 3-5% of premiums; CalPERS overhead costs
are 0.45%. For example, a city retiree enrolled in Kaiser who
wishes to purchase coverage for one dependent will pay $657
monthly and $1,314 for two or more dependents. In contrast, if
that same employee were enrolled in PERS Kaiser he would pay
only $455 per month for one dependent and $910 for two or more.
In a study performed by Roeder Financial, the city's estimated
annual expenses would drop from $28.5 million to $21.5 million
and the outstanding healthcare liability for retirees would drop
from $157 million to $121 million."
The author concludes that the provision in current law that
requires a local agency electing to participate in PEMHCA to
provide at least 90% of the cost of dependent coverage is cost
prohibitive to many local agencies, including the City of San
Diego. This bill would allow the City of San Diego to
participate in PEMHCA without having to provide contributions
for dependents of retired annuitants.
The Committee is informed that the San Diego Police Officers
Association and the City of San Diego recently agreed, through
collective bargaining, to participate in PEMHCA if the change
proposed in this bill is signed into law.
The California Professional Firefighters have taken an "oppose
unless amended" position on the bill, stating, "It's our
understanding that the bill is intended to effectuate a locally
negotiated agreement between the City of San Diego and the
city's Police Officers Association (POA) on post-retirement
health by changing the PEMHCA rules to allow the City to join
the CalPERS' health program under their specified terms.
However, as drafted, the bill would apply much more broadly and
in fact, include not just the local POA, but all bargaining
units in San Diego who enter into an agreement that subjects
them to the terms of this bill. We believe that the bill should
be narrowed to apply only to the intended beneficiary of the
negotiated agreement, in this case, the local POA only."
This bill is similar to AB 1506 (Kuehl), Chapter 326, Statutes
of 1995, which authorized the Santa Monica Community College
District and the Mt. San Antonio Community College Districts to
establish their own schedule of employer contributions for
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post-retirement health benefit coverage under PEMHCA.
REGISTERED SUPPORT / OPPOSITION :
Support
City of San Diego (Sponsor)
Opposition
California Professional Firefighters (unless amended)
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957