BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 519
Lou Correa, Chair Hearing date: April 20, 2009
SB 519 (Ashburn) as introduced 2/26/09 FISCAL: YES
PERS: 1959 SURVIVOR BENEFIT: ELMINATE SUNSET ON 5TH LEVEL
OF BENEFITS
HISTORY :
Sponsor: Department of Personnel Administration
Prior legislation: none
SUMMARY :
Would:
a) eliminate the sunset date (January 1, 2010) on the 5th
level 1959 Survivor Benefit for state employee member of
the Public Employees Retirement System (PERS) who do not
receive Social Security,
b) apply to PERS classified school employees that do
participate in federal Social Security, and
c) provide that by eliminating the sunset date, current
5th level 1959 Survivor Benefit level recipient survivors
will not lose a significant amount of monthly income
(moreover, as explained below, some of them would lose
their benefits entirely for up to two years) or health
benefits.
BACKGROUND :
1) What is the PERS 1959 Survivor Benefit ?
The PERS 1959 Survivor Benefit, which is paid monthly, was
created in 1959 as a substitute for Social Security for
survivors of active state and school employees who die prior
to retirement and who are not included in Social Security.
David Felderstein
Date: 4/9/09 PageA
2) Which state employees who are covered by the 1959
Survivor Benefit ?
Highway Patrol officers, all peace officers, and safety
employees working in correctional institutions and in support
of law enforcement are covered by the 1959 benefit.
The 1959 benefit is only paid when the employee dies due to
non-work related causes.
(If the safety employee dies due to injury or illness
incurred on the job, he or she is subject to the "Special
Death Benefit," which cannot be paid in conjunction with the
1959 Survivor Benefit.)
3) Who pays for the 1959 Survivor Benefit ?
Employees pay a portion of the cost of the 1959 benefit via
payroll deduction, and the State or school district pays any
remaining costs.
4) Who receives the monthly payments provided by the 1959
Survivor Benefit ?
The monthly benefit is paid to dependents of the deceased
employee in a specified order:
a) in the majority of cases, a spouse who has the care of
dependent children receives a benefit until the children
are 22 (or longer if the child is incapacitated due to
disability occurring prior to age 22),
b) the benefit then ceases until the surviving spouse
reaches age 60, at which time the spouse receives a
lifetime benefit, and
c) when there is no eligible spouse or child, the benefit
can also be paid to parents who were financially dependent
on the deceased employee.
5) What is the employee's cost of the 1959 Survivor Benefit ?
Employees pay $2 per month unless the monthly premium exceeds
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Date: 4/9/09 PageB
$4, in which case the premium is shared equally between
employee and employer.
5) What are the different benefit levels offered under the
PERS 1959 Survivor Benefit ?
The benefit has evolved over the years, and there are several
monetary levels of benefits.
The original 1st level of benefits and the 2nd level, which
was established in 1975, are closed and no longer available
to PERS contracting agencies.
The 3rd, 4th, and "Indexed" levels are available to PERS
contracting agencies, which may contract for whichever levels
they choose.
Survivors of state and school employee members are eligible
for the 5th level of benefits.
6) What is the monthly payment under the different levels of
1959 Survivor Benefits ?
The levels are summarized in the following chart:
----------------------------------------------------------------------
|Level and Type of Survivor |Amount of Benefit |
|---------------------------+------------------------------------------|
|3rd Level |With 1 child: $700 |
|Local Members |With 2 or more children: $840 |
| |Spouse only at age 62: $350 |
|---------------------------+------------------------------------------|
|4th Level |With 1 child: $950 |
|Local Members |With 2 or more children: $1900 |
| |Spouse only at age 62: $950 |
|---------------------------+------------------------------------------|
|5th level |With 1 child: $1500 |
|State and School Members |With 2 or more children: $1800 |
| |Spouse only at age 60: $750 |
|---------------------------+------------------------------------------|
|Indexed Level |Payment amounts in 2008: |
|Local Members |With 1 child: |
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Date: 4/9/09 PageC
|Increases by 2 percent per |$1148.70 |
|year. |With 2 or more children: $1723.05 |
| |Spouse only at age 60: $574.35 |
----------------------------------------------------------------------
7) What about the health benefits of deceased employee's
survivors ?
Whenever a survivor is receiving the 1959 Survivor Benefit,
that individual is also eligible for the employer's retiree
health care benefit.
The health benefit of survivor of state employees is only
paid out while the survivor is receiving a monthly 1959
Survivor Benefit. So, for example, a surviving spouse and
children may receive the 1959 Survivor Benefit and health
benefit while the children are dependents. Then, upon the
youngest child reaching age 22, all benefits would cease
until the spouse reaches age 60 , at which time the spouse's
benefit and health care coverage would resume.
8) How do 1959 Survivor Benefit payment levels compare to
federal Social Security death benefits ?
The 5th Level 1959 Survivor Benefit is approximately $250 to
$400 higher than the Social Security Survivor Benefit paid
for low income earners (based on $25,000 annually). The 5th
Level is lower by $300 to $800 than the Social Security
Survivor Benefit for average earners (based $50,000
annually). The 3rd Level benefit is approximately of the
Social Security Survivor Benefit paid for low income earners.
Social Security benefits normally receive annual
cost-of-living increases. The 1959 Survivor Benefit does
not.
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Date: 4/9/09 PageD
9) How does the cost of the 1959 Survivor Benefit compare to
federal Social Security ?
The cost for the State to provide Social Security coverage
for employees is 6.2% of gross pay.
For example, an employee making $5,000 per month in gross pay
would cost the State approximately $300 per month for Social
Security inclusion vs. $5.20 per month for the 1959 Survivor
Benefit.
The employee also pays 6.2% of pay for Social Security,
bringing the total cost to 12.4% of pay.
10) How many state employees are covered by the 1959
Survivor Benefit ?
As of the PERS June 30, 2007 valuation, there were
approximately 77,000 state employees in the State Patrol,
Peace Officer/Firefighter, and State Safety classes covered
by the 1959 5th Level benefit. In the past 10 years,
non-industrial, pre-retirement deaths have been averaging
approximately 60 per year, or slightly less than 1% of
participants. The state cost per employee in FY 07/08 was
$5.20 per month. The cost of the program is fairly stable.
Annual rate fluctuations are typically in the range of 10-20
cents per month.
ANALYSIS :
1) This bill would:
a) eliminate the sunset date (January 1, 2010) on the 5th
level 1959 Survivor Benefit for state employee member of
the Public Employees Retirement System (PERS) who do not
receive Social Security,
b) apply to PERS classified school employees that do
participate in federal Social Security, and
c) provide that by eliminating the sunset date, current
5th level 1959 Survivor Benefit level recipient survivors
David Felderstein
Date: 4/9/09 PageE
will not lose a significant amount of monthly income
(moreover, as explained below, some of them would lose
their benefits entirely for up to two years) or health
benefits.
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Date: 4/9/09 PageF
FISCAL IMPACT :
1) State Employees
---------------------------------------------------------------
|State Cost Summary for 1959 Survivor Benefit: 5th vs. 3rd |
|Levels: Various Returns on PERF |
---------------------------------------------------------------
|---------+--------+--------+--------+-------+---------+--------|
|Return |-30% |-20% |-10% |0% |7.75% |10% |
|on |Return |Return |Return |Return |Return |Return |
|PERF<1> | | | | | | |
|---------+--------+--------+--------+-------+---------+--------|
|State |$6.1m |$5.9m |$5.4m |$4.8m |$4.6m |$4.5m |
|Cost 5th | | | | | | |
|Level | | | | | | |
|---------+--------+--------+--------+-------+---------+--------|
|State |$2.1m |$1.1m |$179k |$0 |$0 |$0 |
|Cost 3rd | | | | | | |
|Level | | | | | | |
---------------------------------------------------------------
---------------------------------------------------------------
| |
---------------------------------------------------------------
---------------------------------------------------------------
|Total |$4.3m |$4.8m |$5.2m |$4.8m |$4.6m |$4.5m |
|Cost of | | | | | | |
|Permanent| | | | | | |
| 5th | | | | | | |
|Level | | | | | | |
---------------------------------------------------------------
The committee is advised that state departmental budgets are
already authorized to pay for this benefit. This benefit
would not add to budgets currently in place.
2) School Employees
The pool for school employees is currently "super funded."
There is no cost to employers under any of the above
scenarios.
--------------------------
<1>
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Date: 4/9/09 PageG
The committee is advised that the funding pool would still be
331% funded even under the -30% return scenario. It would be
379% funded under a -20% return; 428% funded under a -10%
return; 476% funded under a 0% return; 513% funded under a
7.75% return; and 524% funded under a 10% return.
COMMENTS :
1) What is the impact of Sunset Date on Survivors?
The committee is advised that, since 2000, state safety
personnel and school employees who do not receive Social
Security have been subject to the 5th level of benefits.
This benefit is paid to surviving spouses at age 60.
If the sunset date is not extended or eliminated, the
survivors now receiving the 5th level benefit will drop back
to the 3rd level benefit. Survivors with children will lose
$800 to $960 per month. Survivors age 62 or older will lose
$400 per month.
Survivors between the ages of 60 and 62 will lose $750 per
month and health care coverage until benefits resume at age
62, at which time benefits will resume at the rate of $350
per month with health care coverage.
2) What is the justification for the elimination of the
sunset on the 5th level of benefits ?
According to DPA, the sponsor of this bill :
"The committee is advised that CHP officers, firefighters,
peace officers, and school classified employees who die
unexpectedly in their prime earning years do not have
Social Security coverage for their surviving dependent
children and spouses.
The 1959 Survivor Benefit Program, in effect for 60 years,
provides an extremely valuable safety net for these
employees and their families, at a little over $5 per
employee per month in state costs and at no cost currently
David Felderstein
Date: 4/9/09 PageH
to school districts.
The elimination of this benefit will hurt these survivors
significantly, and at very small cost savings to the State.
In fact, departments already are funded for this benefit in
their current budgets, so continuing the benefit creates no
new costs. Any savings achieved by reducing benefits for
these survivors would create negligible costs savings for
the state, the cost to the individual survivors of these
safety members will be felt profoundly.
Considering the costs saved by the State by not
coordinating these employees with Social Security (at 6.2
percent of payroll), the 5th level of benefits is an
inexpensive safety net that our classified school
employees, CHP officers, firefighters, peace officers, and
their families have come to rely upon.
Allowing survivors to fall back to a lower benefit at a
time when costs are rising for essentials such as food,
gasoline, and prescription drugs, and other assets, such as
homes and retirement savings, are losing value, would be
unfair to the employees who put their health and safety on
the line everyday in public service."
3) SUPPORT :
California Statewide Law Enforcement Association
California School Employees Association
California State Employees Association
California Teachers Association
Peace Officers Research Association of California
David Felderstein
Date: 4/9/09 PageI
(PORAC)
4) OPPOSITION :
None to date
#####
David Felderstein
Date: 4/9/09 PageJ