BILL ANALYSIS �
SB 350
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Date of Hearing: July 6, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 350 (Negrete McLeod) - As Introduced: February 15, 2011
Policy Committee: PERSS Vote:4-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill raises the oldest and lowest level pre-retirement
death benefits in CalPERS' 1959 Survivor Benefit Program for
local contracting agencies by merging the two original pools
into the third level pool. Specifically, the bill:
1)Merges, beginning on July 1, 2012, the assets and liabilities
of the survivor benefit programs in the first level and second
level pools into the third level pool.
2)Increases the benefits for participants in the 1st and 2nd
benefit levels to those of the 3rd level.
3)Authorizes CalPERS to suspend the $2 monthly employee premium
if the CalPERS board determines that the combined pool
contains surplus funds.
FISCAL EFFECT
1)No direct costs to employers or employees of CalPERs
contracting agencies. There will be a decrease in a projected
actuarial surplus in the survivor benefit program, due to the
increased benefits for survivors in the first two benefit
levels. However, the projected surplus for the combined pool
would remain about 300% of projected benefits according to
CalPERS.
2)Administrative costs to CalPERs to merge the survivor benefit
pools are minor and absorbable.
COMMENTS
SB 350
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1)Purpose . This bill is sponsored by CalPERS for the purpose of
using surpluses in the first and second level pools to raise
benefits to more realistic levels and to provide more
stability to the level 3 pool. Merging the pools and paying
the third-level survivor benefit would provide a needed
cost-of-living increase to participants in the first and
second level pools, and provide added stability to the
combined pool. CalPERS notes that surplus assets in the
Survivor Benefit program can only be used for the benefit of
its members.
2)Background . The 1959 Survivor Benefit was created as a
substitute for Social Security for survivors of state and
school employees who die prior to retirement. The benefit is
paid to survivors of employees who do not participate in
Social Security and who die while in active service prior to
retirement. The benefit is only paid when the employee dies
due to non-work related causes, as workers that die from
employment-related causes are covered through other programs.
The benefits are set in statute and do not rise over time with
inflation. Instead, the state has created higher tiers of
benefits over the years. Currently there are five benefit
levels. As an example of the differences in benefit levels, a
surviving spouse with two children would receive $430 per
month under the first level benefit, $538 per month under the
second level benefit, $840 per month under the third level
benefit, and $1,500 per month under levels four and five. The
first two levels have a combined total of 13,000 participants
and have been closed to new employees since 1994. The third
level has 46,000 participants and has been closed since 2001
when it was replaced by the fourth and fifth levels.
An actuarial valuation of the program showed that the first
two level pools have large surpluses - despite the recent
market downturn. In the case of the first level benefit,
projected assets in the pool are more than 10 times the amount
needed to cover projected payments.
3)Previous legislation . This bill is similar to AB 1821 (Ma) of
last year which would have used the excess reserves from the
CalPERS 1959 Survivor Benefit Program to merge the 1st, 2nd
and 3rd benefit levels into a single contracting agency pool
paying the current level 3 survivor benefit. The bill was
vetoed by Governor Schwarzenegger. In his veto message, the
SB 350
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Governor stated:
"This bill results in arbitrarily increasing the level
of benefits being paid out to those beneficiaries that
did not contribute towards this increased level of
benefit. While I recognize that surplus funds are not
being utilized in the specified 1959 Survivor Benefit
Program funds, it does not make sense to increase the
benefit amounts to even the small number of
participants that would be affected by this measure.
That is a policy that runs counter to the overall
pension reform direction I believe the state should be
adopting."
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081