BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 919
Lou Correa, Chair Hearing date: May 10, 2010
SB 919 (Hollingsworth) as amended 4/21/10
FISCAL: YES
CALPERS: INCREASES EMPLOYEE CONTRIBUTIONS AND REDUCES
RETIREMENT BENEFITS; INCREASES VESTING FOR RETIREE HEALTH
HISTORY :
Sponsor: Author
Prior legislation: SB 400 (Ortiz)
Chapter 555, Statutes of 1999
SB 183 (Burton)
Chapter 56, Statutes of 2002
SUMMARY :
1) Would make changes to the Public Employees' Retirement
Law (PERL) to do the following:
a) reclassify certain state safety positions as
miscellaneous positions for employees hired after the
effective date of the legislation;
b) make changes to final compensation periods for
certain state employees;
c) increase employee contribution rates for state,
judicial, legislative, and California State University
(CSU) employees;
d) increase retirement ages and decrease benefit levels
for state, judicial, legislative, CSU, and school
employees;
e) provide that health benefits administration may be
performed by an entity other than CalPERS;
f) reduce retiree health benefit employer contributions
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Date: 5/05/10 Page 1
and increase the required vesting period to receive full
benefits;
g) allow local contracting employers to offer retire
health plans that differ from those currently authorized
by law; and
h) this is an URGENCY BILL .
BACKGROUND AND ANALYSIS :
1) Existing law :
a) the Ralph C. Dills Act, requires the Governor or
his representative to meet and confer in good faith with
recognized employee representatives regarding wages and
working conditions, and otherwise establishes the
collective bargaining process for state civil service
employees.
b) the Ralph C. Dills Act, requires that the provisions
of an expired memorandum of understanding (MOU) between
the State and a state bargaining unit (BU) shall remain
in effect as long as the parties continue to bargain in
good faith. With the exception of BU 5 (Highway
Patrol), all state bargaining units are currently
operating under provisions of expired contracts.
c) vests the Board of the California Public Employees'
Retirement System (CalPERS) with the oversight and
administration of state employee retirement and health
benefits.
d) defines certain membership categories in CalPERS to
include:
state miscellaneous (includes miscellaneous
state executive, legislative, and judicial branch
employees, and miscellaneous CSU employees);
industrial (employees in correctional
settings with little or no inmate exposure, same
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Date: 5/05/10 Page 2
benefit program as state miscellaneous);
state safety (primarily employees with
regular exposure to inmates in correctional
settings or BU 7 employees who work in support of
law enforcement);
peace officer/firefighter (includes peace
officers and firefighters of the state executive,
legislative, and judicial branches, and the CSU);
patrol (officers of the California Highway Patrol);
and
school (classified school employees).
2) This bill :
a) makes changes to the state safety classification,
final compensation periods, employee contribution rates,
retirement ages and benefit levels, health benefits
administration, and health benefit contributions and
vesting.
b) does not make these changes subject to collective
bargaining, but instead makes these changes effective
for employees first hired on or after the effective date
of the bill, with the exception of BU 5 (Highway
Patrol), which changes are effective for employees first
hired on and after July 3, 2010.
c) specifies that any provision of an expired MOU may
not supersede these changes.
State Safety Members in State BU 7
3) Existing law requires employees represented by BU 7, who
work in certain positions in support of law enforcement, to
be classified as state safety members in CalPERS.
4) This bill requires that new BU 7 employees shall instead
be classified as state miscellaneous members of CalPERS.
Final Compensation: Excluded Employees and State BUs 5, 6,
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7, 8, and 9
5) Existing law :
a) defines final compensation in CalPERS as the average
pay during an employees highest-paid 12 or 36 month
period of employment. In 2006, most miscellaneous and
industrial state bargaining units agreed to benefits
based on 36-month final compensation for new hires.
b) requires that excluded and exempt state employees and
employees represented by State BUs 5 (Highway Patrol), 6
and 7 (peace officers), 8 (firefighters), and 9
(engineers) receive a retirement allowance based on the
highest-paid, 12-month period of employment.
6) This bill :
a) requires that new excluded and exempt state
employees and new employees represented by state BUs 6
and 7, 8, and 9 shall instead receive a retirement
allowance based on the highest paid 36-month period of
employment.
b) requires that state Highway Patrol officers first
hired on or after July 3, 2010, shall receive a
retirement allowance based on the highest paid 36-month
period of employment (BU 5's MOU remains in effect until
July 2, 2010).
c) requires that any of these employees who were
hired at an earlier date than specified, and who were
already subject to a 36-month final compensation period
prior to becoming excluded or represented by BUs 5, 6,
7, 8, and 9, shall also be subject to 36-month final
compensation period for the new service.
Employee Contributions and Offsets
7) Existing law :
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a) requires CalPERS contribution rates and offsets from
state miscellaneous (including judicial and legislative
employees) and California State University (CSU)
employees, as follows:
----------------------------------------------------------------
|Member |Contribution: |Contribution: Service |
|Classification |Service |Non-coordinated with |
| |Coordinated with |Social Security |
| |Social Security | |
|-------------------+------------------+-------------------------|
|State |5% in excess of |6% in excess of the |
|Miscellaneous |the first $513 |first $317 |
|(includes | | |
|judicial, | | |
|legislative, and | | |
|CSU miscellaneous) | | |
|and Industrial | | |
|-------------------+------------------+-------------------------|
|BU 2 Miscellaneous |6% in excess of |7% percent in excess of |
| |the first $513 |the first $317 |
| | | |
|-------------------+------------------+-------------------------|
|State Safety |6% in excess of |6% in excess of the |
| |the first $513 |first $317 |
| | | |
|-------------------+------------------+-------------------------|
|BU 2 State Safety |N/A |7% in excess of the |
| | |first $317 |
| | | |
|-------------------+------------------+-------------------------|
|Patrol |N/A |1.5% in excess of the |
| | |first $863 |
|-------------------+------------------+-------------------------|
|Peace Officers and |N/A |8% in excess of the |
|Firefighters | |first $238 |
| | | |
|-------------------+------------------+-------------------------|
|Peace Officer |N/A |8% in excess of the |
|Supervisors in | |first $863 |
|Departments of | | |
|Corrections and | | |
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|Mental Health | | |
----------------------------------------------------------------
b) makes these contribution rates and offsets
subject to collective bargaining. MOUs that contain
different requirements for represented employees are
controlling over these statutes; therefore, some
employee groups have different contributions and offsets
than those specified in statute and depicted on this
chart.
c) reserves the right of the Legislature to
increase or adjust active member contribution rates to
CalPERS.
8) This bill :
a) removes the offsets from all of these
contribution rates, requiring each group to pay its
respective percentage on all compensation.
b) makes changes to the contribution offsets
effective upon passage of the bill for all bargaining
units operating under expired contracts, and effective
for BU 5 on July 3, 2010, unless an MOU agreed to after
those dates supersedes these provisions.
Retirement Formulas: Second Tier for State Miscellaneous and
Industrial
9) Existing law :
a) allows state miscellaneous and industrial employees
to elect to participate in a second tier retirement
benefit program.
b) provides a second tier defined benefit of .5% of
final compensation per year of service at age 50,
increasing to 1.25% per year at age 65.
10) This bill requires new state employees who elect the
second tier program to be subject to a different second
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Date: 5/05/10 Page 6
tier formula: .5% of final compensation for each year of
service at age 65, with actuarial reductions taken for
ages 50 to 65.
Retirement Formulas
11) Existing law provides state, school, CSU, judicial
branch, and legislative employees with defined retirement
benefits based on final compensation, multiplied by years
of service, multiplied by percentage age factors.
12) This bill changes the age factors for new employees, as
follows:
-------------------------------------------------------------
|Member Class |Current Age |SB 919 Age Factor |
| |Factor | |
|------------------+------------------+-----------------------|
|State |2% at age 55 |2% @ 65 with actuarial |
|Miscellaneous |increasing to |reductions for ages |
|(includes |2.5% at age 63 |between 50 and 65 |
|legislative and | | |
|judicial branch | | |
|miscellaneous), | | |
|Industrial, | | |
|School | | |
|------------------+------------------+-----------------------|
|State Patrol and |3% at age 50 |2.7% at age 57 with |
|Civil Service | |actuarial reductions |
|Peace Officers | |for ages between 50 |
|and Firefighters | |and 57 |
|------------------+------------------+-----------------------|
|CSU Peace |3% at age 50 |2.5% at age 57 with |
|Officers and | |actuarial reductions |
|Firefighters | |for ages between 50 |
| | |and 57 |
|------------------+------------------+-----------------------|
|Legislative and |3% at age 55 |2.5% at age 57 with |
|Judicial Branch | |actuarial reductions |
|Peace Officers | |for ages between 50 |
| | |and 57 |
|------------------+------------------+-----------------------|
|State Safety |2.5% at age 55 |2% at age 62 with |
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Date: 5/05/10 Page 7
| | |actuarial reductions |
| | |for ages between 50 |
| | |and 62 |
| | | |
-------------------------------------------------------------
Public Employees' Medical and Hospital Care Act (PEMHCA)
13) Existing law :
a) establishes PEMHCA, administered by the CalPERS
Board, for the benefit of state, CSU, legislative, and
judicial employees and retirees, and for employees and
retirees of participating contracting public agencies
and school districts.
b) establishes the contribution rates for employers,
which for the state employer is 80 to 85% for active
employees.
c) establishes the vesting schedule and employer
contribution for retiree health benefits, which for most
state retirees requires 10 years of service for a 50%
employer contribution, increasing annually to a 100%
employer contribution after 20 years. CSU employees are
vested to receive a 100% employer contribution after 5
years.
14) This bill :
a) authorizes another, undefined entity of the State to
act as the Board in administering PEMHCA.
b) authorizes the Board to provide self-funded health
plans and to offer health plans that vary in premium and
plan design in different areas of the State.
c) requires that a state, CSU, or judicial employee
first hired after the effective date of this bill shall
be required to complete 25 years of service prior to
being eligible for any amount of employer contribution
to retiree health care.
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Date: 5/05/10 Page 8
d) requires that the employer contribution for a state,
judicial, legislative, or CSU retiree who was first
hired on or after the effective date of this bill shall
be no greater than the highest contribution paid for
active state employees.
e) allows a local contracting agency to agree in an MOU
with an employee group to provide a different
employer/employee contribution schedule that what is
currently allowed by law, effective for new employees
hired after the date of the agreement, and prohibits
making the issue a subject of labor negotiation impasse
proceedings.
f) specifies that any such agreement may not require the
employer to provide a retiree contribution for less than
5 years of service.
COMMENTS :
1) Employer Rates in CalPERS
a) The author cites a rise in employer contribution
rates for state employees of 2000% over the past ten
years and states that the "unprecedented fiscal crisis
and record-high unemployment" require the state to
"bring state employee retirement pension and health care
costs under control."
b) CalPERS provides the following information regarding
the historical levels of state employer contribution
rates as a percentage payroll over the prior 30 year
period:
---------------------------------------------------------------
|Fisca| State | State |State | State |Californi|School|
| l |Miscellaneous|Industri| | Peace | a | s |
|Year | | al |Safety| Officers | Highway | |
| | | | | and | Patrol | |
| | | | |Firefighte| | |
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Date: 5/05/10 Page 9
| | | | | rs | | |
---------------------------------------------------------------
|-----+------+------+--------+------+----------+---------+------|
| | Tier | Tier | | | | | |
| | 1 | 2 | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1979-|19.188| | 20.040 |20.106| | 31.373 |12.515|
| 80 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1980-|19.247| | 20.047 |20.145| | 31.440 |13.119|
| 81 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1981-|19.563| | 20.263 |20.409| | 31.995 |13.020|
| 82 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1982-|13.559| | 15.013 |16.381| | 19.555 |12.045|
| 83 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1983-|18.262| | 18.884 |20.615| | 24.306 |12.378|
| 84 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1984-|17.604|17.604| 19.976 |20.518| | 25.292 |12.378|
| 85 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1985-|17.604|17.604| 19.749 |20.518| 24.310 | 24.868 |11.969|
| 86 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1986-|15.450|15.450| 16.638 |22.522| 20.578 | 22.150 |11.015|
| 87 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1987-|15.202|15.038| 15.332 |19.229| 17.171 | 20.859 |9.718 |
| 88 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1988-|13.464|13.413| 16.626 |17.296| 16.431 | 18.453 |8.454 |
| 89 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1989-|13.224|13.218| 16.783 |17.424| 16.200 | 18.318 |8.210 |
| 90 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1990-|12.878|6.975 | 16.720 |17.916| 15.702 | 18.090 |7.282 |
| 91 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1991-|11.804|3.986 | 13.399 |17.376| 17.386 | 21.721 |8.162 |
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| 92 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1992-|10.266|3.391 | 11.995 |15.698| 15.560 | 17.074 |7.273 |
| 93 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1993-|9.939 |5.005 | 11.765 |15.485| 15.202 | 16.940 |7.066 |
| 94 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1994-|9.934 |5.947 | 10.597 |13.927| 12.817 | 15.552 |3.849 |
| 95 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1995-|12.350|8.326 | 8.981 |14.228| 14.350 | 14.778 |6.979 |
| 96 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1996-|13.106|9.345 | 9.260 |14.656| 15.401 | 15.851 |7.787 |
| 97 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1997-|12.721|9.822 | 9.048 |13.754| 15.270 | 15.515 |6.172 |
| 98 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1998-|8.541 |6.437 | 4.583 |9.440 | 9.591 | 13.541 |0.000 |
| 99 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|1999-|1.491 |0.000 | 0.026 |7.487 | 0.000 | 13.345 |0.000 |
| 00 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2000-|0.000 |0.000 | 0.026 |6.808 | 2.729 | 13.711 |0.000 |
| 01 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2001-|4.166 |0.036 | 0.350 |12.923| 9.638 | 16.897 |0.000 |
| 02 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2002-|7.413 |2.813 | 2.858 |17.055| 13.925 | 23.076 |2.894 |
| 03 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2003-|14.843|10.265| 11.099 |21.930| 20.325 | 32.653 |10.420|
| 04 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2004-|17.022|13.216| 16.386 |20.773| 23.841 | 33.434 |9.952 |
| 05 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2005-|15.942|15.890| 17.147 |19.026| 23.563 | 26.396 |9.116 |
| 06 | | | | | | | |
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|-----+------+------+--------+------+----------+---------+------|
|2006-|16.997|16.778| 17.861 |19.294| 24.505 | 31.463 |9.124 |
| 07 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2007-|16.633|16.565| 17.345 |18.835| 25.552 | 32.212 |9.306 |
| 08 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2008-|16.574|16.470| 17.236 |18.411| 26.064 | 32.149 |9.428 |
| 09 | | | | | | | |
|-----+------+------+--------+------+----------+---------+------|
|2009-|16.917|16.737| 17.251 |18.099| 25.848 | 28.438 |9.709 |
| 10 | | | | | | | |
---------------------------------------------------------------
*All figures, excluding fiscal years, are percentages.
2) Arguments in Support
The author notes the increased employer costs for CalPERS
benefits occurring over the past 10 years and states:
The state significantly expanded benefit levels in 1999
and again in 2002, enhancing average monthly
compensation formulas, providing cost of living
retirement allowance increases for state and school
retirees who retired prior to 1998, and expanding the
definition of the State Safety retirement category to
include many non-safety classifications.
SB 919 seeks to realign public employee benefits so they
are closer to their private sector counterparts. This
comprehensive reform package would apply to new
employees hired following enactment of the bill and is
estimated to save $110 billion in reduced pension
payouts over 30 years.
The California Foundation for Fiscal Responsibility states
that "formulas contained in SB 919, combined with social
security benefits, provide attractive, guaranteed, secure
retirement benefits for career state workers, reduce
pension spiking, and put public sector workers'
compensation more in line with what is offered in the
private sector."
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3) Arguments in Opposition
The Labor Coalition states:
The retirement and health benefit cuts contained in SB
919 are negotiable issues and should be dealt with at
the collective bargaining table. In is inappropriate to
cut or eliminate benefits unilaterally, through
legislation that were gained through the give and take
of collective bargaining. The vast majority of
retirement benefit increases were provided only after
concessions were made on other compensation, such as
salaries, benefits and leaves.
The Retired Public Employees Association notes that measuring
CalPERS' funded status by comparing employer rates at the top
of the stock market to rates at the bottom of the market
"creates a distorted and inaccurate snapshot of the financial
situation at CalPERS."
Moreover, "California's system of providing retirement
security and healthcare for our hard working pubic employees
has worked for years-and is working now. It is a well
managed system that allows us to recruit and retain good
public employees, while keeping the promise made to them for
secure, fair, and well earned retirement."
And from the California School Employees Association:
"Looking back 30 years, the facts show that CalPERS is better
funded, employers are paying less and benefits are better
than they were 30 years ago." "In 1980 the funded status of
CalPERS was 55%. Today it is funded at over 80%." Finally,
"Based on actual rates of return, benefits and employer
contributions may actually be lower, on the average, than
thirty years ago."
Finally, the California Professional Scientists notes, in
reference to provisions that change contribution rates for
existing members, "The State Supreme Court has held that
where the employee's contribution rate is a fixed element of
Pamela Schneider
Date: 5/05/10 Page 13
the pension system, the rate may not be increased unless the
employee receives comparable new advantages for the increased
contribution." Moreover, the existing employee contribution
rate is a vested pension right for employees, and increasing
it "would therefore unconstitutionally alter the pension
obligations of the state."
4) SUPPORT :
California Foundation for Fiscal Responsibility
5) OPPOSITION :
Association of California State Supervisors (ACSS)
Association for Los Angeles Deputy Sheriffs (ALADS)
California Association of Highway Patrolmen (CAHP)
California Correctional Peace Officers Association
(CCPOA)
California State Employees Association (CSEA), Retirees,
Inc.
California State University Employees Union (CSUEU)
California Teachers Association (CTA)
Labor Coalition, including;
American Federation of State, County and Municipal
Employees (AFSCME), AFL-CIO
California Association of Professional Scientists
(CAPS)
California Association of Psychiatric Technicians
California Federation of Teachers (CFT)
California Faculty Association (CFA)
California-Nevada Conference of Operating Engineers
California Professional Firefighters (CPF)
California State Firefighters Association (CSFA)
California School Employees Association
California State Employees Association (CSEA)
CDF Firefighters
Faculty Association of California Community Colleges
(FACCC)
Glendale City Employees Association
Orange County Employees Association (OCEA)
Organization of SMUD Employees
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Date: 5/05/10 Page 14
Peace Officers Research Association of California
(PORAC)
Professional Engineers in California Government
(PECG)
San Bernardino Public Employees Association (SBPEA)
San Diego County Court Employees Association (SDCCEA)
San Luis Obispo County Employees Association (SLOCEA)
Santa Rosa City Employees Association (SRCEA)
Service Employees International Union (SEIU), Local
1000
Service Employees International Union, California
State Council
Union of American Physicians and Dentists (UAPD)
Laborers' International Union of North America, Local
777
Laborers' International Union of North America, Local
792
Los Angeles Probation Officers Union, AFSCME, Local 685
Retired Public Employees Association (RPEA)
Riverside Sheriffs' Association
#####
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