BILL ANALYSIS
SB 519
Page 1
SENATE THIRD READING
SB 519 (Ashburn)
As Amended September 2, 2009
Majority vote
SENATE VOTE : 36-0
PUBLIC EMPLOYEES 6-0 APPROPRIATIONS 17-0
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|Ayes:|Hernandez, Furutani, |Ayes:|De Leon, Conway, Ammiano, |
| |Beall, Conway, Nestande, | | |
| |Torrico | |Charles Calderon, Coto, |
| | | |Davis, |
| | | |Fuentes, Hall, Harkey, |
| | | |Miller, |
| | | |Nielsen, John A. Perez, |
| | | |Skinner, |
| | | |Solorio, Audra |
| | | |Strickland, Torlakson, |
| | | |Hill |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Eliminates the January 1, 2010 sunset on the 5th level
1959 Survivor Benefit for certain state and school employees
covered under the California Public Employees' Retirement System
(CalPERS) who do not participate in the Social Security program
and approves the addendum to the memorandum of understanding
(MOU) entered into by the state and State Bargaining Unit (BU) 5
(Highway Patrol), represented exclusively by the California
Association of Highway Patrolmen (CAHP) and makes the statutory
changes needed to implement the provisions of the addendum.
Specifically, this bill :
1)Eliminates the January 1, 2010 sunset on the 5th level 1959
Survivor Benefit for certain state and school employees
covered under CalPERS who do not participate in the Social
Security program. Prevents an increase in age eligibility and
a decrease in benefits that would coincide with the sunset.
2)Approves the addendum to the MOU entered into by the state and
BU 5 and makes the following statutory changes needed to
implement the provisions of the addendum:
SB 519
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a) Requires the compensation increases provided under the
current BU 5 MOU, the 0.5% increase effective July 1, 2009,
and the as yet to be determined increase effective July 1,
2010, be used to prefund retiree health care benefits for
patrol members;
b) Specifies that the amount used to prefund retiree health
care benefits relative to the required compensation
increases effective July 1, 2010, will be capped at 2%;
c) Specifies that the amounts that would have been
otherwise paid as salary increases in 2009 and 2010 will
apply toward the state's credit in calculating future
increases as required by the statutory salary setting
methodology;
d) Requires patrol members to contribute an additional 0.5%
of base pay toward prefunding retiree health care benefits
beginning the first of the month following the affective
date of this bill. This contribution does not reduce the
base salary of patrol members under the salary setting
methodology;
e) Requires the state, beginning on July 1, 2012, to
contribute toward prefunding retiree health benefits, on a
prospective basis, an amount at least equal to the
contribution rate established for patrol members in 2009
and 2010;
f) Allows the contribution made by the state to be used in
the salary setting methodology if agreed to in a MOU;
g) Requires that the contributions made pursuant to this
agreement be used exclusively to pay for the cost of
providing retiree health care to eligible patrol members of
the CalPERS and their beneficiaries and survivors;
h) Prohibits any contributions made by or on behalf of
patrol members pursuant to this agreement from being
refunded under any circumstances; and,
i) Prohibits any amount used to prefund retiree health
benefits from being included in any benefit calculation
using final compensation.
SB 519
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EXISTING LAW :
1)Provides that the 1959 Survivor Benefit was created in 1959 as
a substitute for Social Security for survivors of state and
school employees who die prior to retirement. The benefit is
paid for employees who are not included in Social Security and
who die while in active service prior to retirement. In regard
to the state, this group includes Highway Patrol officers, all
peace officers and firefighters, and safety employees working
in correctional institutions and in support of law
enforcement.
2)States that he 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. In the case of
state and school employers, employees pay a portion of the
cost of ensuring for the benefit via payroll deduction, and
the State or school district pays any remaining costs. The
cost for employees is $2 per month unless the monthly premium
exceeds $4, in which case the premium is shared equally
between employee and employer. Some school districts are
coordinated with Social Security, and would therefore not be
subject to this 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
CalPERS contracting agencies. The 3rd, 4th, and "Indexed"
levels are available to CalPERS 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.
The benefit is paid to dependents of the deceased employee in a
specified order. 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). The benefit then
ceases until the surviving spouse reaches age 60, at which
time the spouse receives a lifetime benefit. When there is no
eligible spouse or child, the benefit can also be paid to
parents who were financially dependent on the deceased
employee.
SB 519
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3)Requires DPA to provide the Joint Legislative Budget Committee
(JLBC) with each side letter, appendix, or other addendum to a
ratified MOU that requires the expenditure of $250,000 or more
and is not included in the Budget Act. The JLBC has 30 days
to determine if the addendum presents substantial additions
that are not reasonably within the parameters of the original
MOU and, therefore, require legislative ratification. [SB 621
(Speier), Chapter 499, Statutes of 2005].
FISCAL EFFECT : According to the Assembly Appropriations
Committee, with regard to the 1959 Survivor Benefit provisions
of the bill:
1)The Department of Personnel Administration (DPA) indicates
that, relative to current law, the bill will result in a loss
of employer contribution savings that would otherwise occur as
a result of the scheduled benefit reduction on January 1,
2010. The loss of savings would be $2.3 million in 2009-10
($1.5 million General Fund) and $4.6 million ($3 million
General Fund) thereafter.
2)According to DPA, there would be no cost relative to the
2009-10 Budget, since the budget assumes employer
contributions at the current level for the full year.
According to the Assembly Appropriations Committee, with regard
to the BU 5 addendum provisions of the bill:
1)No impact on state costs in 2009-10 through 2011-12, as the
bill merely redirects a portion of California Highway Patrol
(CHP) patrol members' compensation to contributions toward
prefunding of retiree health care costs.
2)Increase in special fund expenditures about $13 million
(special fund) in 2012-13, increasing modestly in subsequent
years, due to new state match of employee contributions for
prefunding retiree health care. Actual costs will depend on
survey-based compensation increases required by current law as
well as the extent to which future BU 5 agreements enable the
state match to be credited toward the survey-based
compensation increases.
3)Long-term savings in state CHP retiree health care costs
(special fund), to the extent that investment earnings on
prefunded contributions are used to pay for retiree health
SB 519
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care costs in the future.
4)Potential modest reduction in unfunded liability for CHP
member retirement pension fund, which occurs because the
redirection of compensation to employee contributions reduces
the amount of base pay subject to pension benefit
calculations.
COMMENTS : According to DPA, the sponsor of the bill, "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 50 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 to
school districts.
"Departments already are funded for this benefit in their
current budgets, so continuing the benefit creates no new costs.
And while 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
would be felt profoundly.
"Compared to the costs saved by the State by not paying for
Social Security for these employees (at 6.2 percent of payroll),
the 5th level survivor benefit provides a highly cost effective
safety net that our classified school employees, CHP officers,
firefighters, peace officers, safety personnel and their
families have come to rely upon. Social Security survivor
benefits, on average, are already higher than the 5th Level 1959
Survivor benefit, and Social Security benefits receive cost of
living increases. Allowing survivors to fall back to a lower
benefit than they currently receive would be unfair to the
employees who put their health and safety on the line everyday
in service to the public."
With regard to the addendum provisions of this bill, DPA states,
"This Addendum to the 2006-2010 MOU between the State and CAHP
addresses the importance of beginning to prefund liabilities for
retiree health benefits as a shared responsibility. The amended
MOU makes the California Highway Patrol Officer union the first
union to start pre-funding their retiree health benefits.
SB 519
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"The amended contract does not represent an increased cost for
the state as the state would otherwise be increasing officer
pay. The 09/10 budget already includes the 0.5 percent
compensation increase that would otherwise be due to patrol
officers as a pay increase.
"The revised contract ensures that pay raises in 2009 and 2010
that would have otherwise been required by law to maintain pay
parity with local law enforcement will instead be used to
prefund retiree health costs.
"The Governor's Public Employee Post-Employment Benefits
Commission made recommendations regarding the need to prefund
retiree health care obligations. This agreement represents a
first step toward achieving that goal."
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0002794