BILL ANALYSIS
AB 2510
Page 1
ASSEMBLY THIRD READING
AB 2510 (Fletcher)
As Amended April 27, 2010
Majority vote
PUBLIC EMPLOYEES 6-0 APPROPRIATIONS 16-0
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|Ayes:|Torrico, Harkey, |Ayes:|Fuentes, Conway, Ammiano, |
| |Furutani, Hernandez, Ma, | |Bradford, Coto, Davis, |
| |Nestande | |Hill, Hall, Harkey, |
| | | |Miller, Nielsen, Norby, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
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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; and,
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
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and any additional information they require.
5)Specifies that the bill only applies to members of the San
Diego Police Officers Association or unclassified or
unrepresented employees of the city.
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:
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 : According to the Assembly Appropriations
Committee:
1)Cost-neutral to CalPERS, as premiums and administrative costs
are paid by the contracting agency.
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2)Reduction in costs to San Diego, to the extent that CalPERS'
negotiated rates with providers and administrative costs are
lower than the city's.
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
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 Assembly Public Employees, Retirement and Social Security
Committee is informed that the San Diego Police Officers
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Association and the City recently agreed, through collective
bargaining, to participate in PEMHCA if the change proposed in
this bill is signed into law.
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
post-retirement health benefit coverage under PEMHCA.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0004379