BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 519
Lou Correa, Chair Hearing date: September 10, 2009
SB 519 (Ashburn) as amended 9/02/09 FISCAL: YES
STATE BARGAINING UNIT 5 (CHP): MOU ADDENDUM RELATING TO
INITIATING AN "OPEB FUND" IN LIEU OF A SCHEDULED PAY RAISE
AND
PERS: ELIMINATE SUNSET ON 5TH LEVEL OF 1959 SURVIVOR BENEFIT
HISTORY :
Sponsor: California Association of Highway Patrolmen
(CAHP)
Department of Personnel Administration (DPA)
Prior legislation: SB 621 (Speier)
Chapter 499 of 2005
ASSEMBLY VOTES :
PER & SS 5-0 9/03/09
Assembly Floor 73-2 9/09/09
SUMMARY :
Would:
a) as amended September 2, 2009 , approve 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 relating
to the initiation of a trust fund account to fund BU 5
retiree health care, and
b) eliminate the January 1, 2010 sunset on the 5th level
1959 Survivor Benefit for certain state and school
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employees covered under the California Public Employees
Retirement System (PERS) who do not participate in the
Social Security program.
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BACKGROUND AND ANALYSIS :
I. September 2, 2009 amendments implement a State Bargaining
Unit 5 MOU Addendum to initiate a new trust fund in PERS to
help fund Unit 5 retiree health care in lieu of scheduled pay
raises
1) Existing law
Pursuant to Chapter 499 of 2005 , DPA is required 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.
2) This bill would:
a) approve 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,
b) require 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,
c) 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%,
d) 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,
e) require 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 effective
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date of this bill and provides that this contribution does
not reduce the base salary of patrol members under the
salary setting methodology,
f) require 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,
g) allow the contribution made by the state to be used in
the salary setting methodology if agreed to in a MOU,
h) require 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
PERS,
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i) prohibit any contributions made by or on behalf of
patrol members pursuant to this agreement from being
refunded under any circumstances, and
j) prohibit any amount used to prefund retiree health
benefits from being included in any benefit calculation
using final compensation.
II. Original bill related to extension of the 5th level of
benefits in the PERS 1959 Survivor Benefit program
1) Existing law :
a) provides that the 1959 Survivor Benefit was created in
as a substitute for Social Security for survivors of state
and school employees who die prior to retirement,
b) provides that the benefit is paid to the survivors of a
group of state employees that includes Highway Patrol
officers, all peace officers and firefighters, and safety
employees working in correctional institutions and in
support of law enforcement,
c) states that the 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 PERS "Special Death Benefit," which
cannot be paid in conjunction with the 1959 Survivor
Benefit),
d) provides, 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,
e) provides that 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,
f) provides that the benefit has evolved over the years,
and there are several monetary levels of benefits,
g) provides that the original 1st level of benefits and
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the 2nd level, which was established in 1975, are closed
and no longer available to PERS contracting agencies,
h) provides that the 3rd, 4th, and "Indexed" levels are
available to PERS contracting agencies, which may contract
for whichever levels they choose,
i) provides that survivors of state and school employee
members are eligible for the 5th level of benefits,
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j) provides that the 1959 Survivor Benefit is paid to
dependents of the deceased employee in a specified order,
that 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, and
k) provides that, when there is no eligible spouse or
child, the 1959 Survivor Benefit can also be paid to
parents who were financially dependent on the deceased
employee.
2) 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 not
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 or
health benefits.
FISCAL EFFECT :
1) Bargaining Unit 5 MOU Addendum
According to the Assembly Appropriations Committee:
a) 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,
b) increase in special fund expenditures about $13 million
(special fund) in 2012-13, increasing modestly in
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subsequent years, due to new state match of employee
contributions for prefunding retiree health care,
c) 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,
d) 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 care costs in the future, and
e) 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.
2) Original bill relating to extension of the 5th level of
1959 Survivor Benefit
According to the Assembly Appropriations Committee:
a) DPA indicates that, relative to current law, this 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,
b) 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, and
c) 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.
COMMENTS :
1) Arguments in support of the September 2, 2009, amendment
The committee is advised, with regard to the addendum
provisions of this bill , that DPA states:
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"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.
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."
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2) Arguments in support of the original provisions of this
bill , relating to the PERS 1959 Survivor Benefit:
The committee is advised by the sponsor, DPA:
"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% 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."
3) OPPOSITION :
None to date
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