BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1142
Gloria Negrete McLeod, Chair
Hearing date: April 18, 2012
SB 1142 (Walters) as amended 4/09/12 FISCAL: YES
PUBLIC EMPLOYERS: MANDATORY PREFUNDING OF RETIREE HEALTH
CARE OBLIGATIONS
HISTORY :
Sponsor: Author
Prior legislation: SB 1141 (Walters), 2012
also before this committee
SB 1143 (Walters), 2012
also before this committee
SUMMARY :
SB 1142 requires, using generally accepted accounting
principles, that all public employers actuarially prefund
postemployment health care benefits provided to their public
employees, and allows public employers to incrementally
implement these requirements over 5 years' time, as
specified, and prohibits an employer from providing retiree
health care to any employee hired on or after January 1, 2013
unless those benefits are fully funded.
BACKGROUND AND ANALYSIS :
1) Existing law :
a) establishes the Public Employees Medical and Hospital
Care Act (PEMHCA), administered by the Public Employees'
Retirement System (CalPERS), which creates a statutory
framework for state employee and retiree health care
benefits and allows local public agencies to voluntarily
contract with CalPERS for health care coverage for their
employees and retirees.
b) requires an employer who contracts for PEMHCA coverage
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Date: 4/12/12 Page 1
for active employees to also provide PEMHCA coverage for
retirees.
c) allows an employer to voluntarily prefund the
actuarially determined liability for providing retiree
health care benefits for its retirees by depositing money
into the Annuitant's Health Care Coverage Fund,
administered by CalPERS, or into some other investment
fund.
d) specifies that contributions to the Annuitant's Health
Care Coverage Fund by an employer are the property of the
employer and that contributing to prefund retiree health
care costs does not, in and of itself, create, change, or
vest the obligations of the employer to provide benefits
for employees or annuitants.
2) This bill :
a) prohibits a public employer from providing retiree
health care for any employee hired after January 1, 2013
unless that employee's health care has been fully funded,
as determined by an actuary.
b) requires a public employer to actuarially fund retiree
health care benefits for its employees in accordance with
generally accepted accounting principles for governments
under the following conditions:
i. unfunded liabilities must be amortized over periods
that do not exceed the remaining service lives of
employees;
ii. employers may incrementally increase contributions
over 5 years in equally increasing installments; and
iii. employers may suspend contribution increases in any
fiscal year in which total revenues have declined.
c) defines public employer to include the three branches
of state government, the California State University, the
University of California, and any political subdivision
of the state, including a charter city.
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Date: 4/12/12 Page 2
COMMENTS :
1) Argument in Support :
According to the author:
"Rising health care premiums and an increasing number of
retirees has contributed to greater state costs in
providing Other Post-Employment Benefits such as retiree
health benefits." "Under the current pay-as-you-go funding
mechanism, no assets are set aside in advance to offset the
growing unfunded liability for retiree health care."
"According to the most recent figures from the OPEB
Actuarial Valuation Report released by the Controller,
California's Unfunded Actuarial Accrued Liability was $62.1
billion as of June 30, 2011, more than two thirds of our
annual state budget."
2) Arguments in Opposition :
SEIU Local 1000 notes that "many agencies will use this bill
to eliminate this benefit. Public employees should not have
to worry about whether they will have the funds for food or
medicine when they retire. Health care is not a privilege;
it is a necessity."
As stated by the American Federation of State, County and
Municipal Employees, SB 1142 "infringes on the rights of
public employees and obstructs their ability to obtain needed
health care benefits after employment."
A coalition of the opposition states: "SB 1142 would not
only hurt employees, but also government employers who would
have difficulty hiring and retaining quality employees if
unable to provide postemployment health care benefits.
Efforts to eradicate the collective bargaining process and
hamper the ability of government employers to offer
competitive benefit packages hurt both workers and
employers."
3) OPPOSITION :
American Federation of State, County and Municipal
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Employees (AFSCME), AFL-CIO
Association for Los Angeles Deputy Sheriffs (ALADS)
California Association of Professional Scientists (CAPS)
California Correctional Peace Officers Association (CCPOA)
California Labor Federation (CLF)
California Public Defenders Association
California School Employees Association (CSEA), AFL-CIO
California Statewide Law Enforcement Association (CSLEA)
California Teachers Association (CTA)
Glendale City Employees Association (GCEA)
Laborers' Locals 777 & 792
Los Angeles Probation Officers' Union, AFSCME, Local 685
Organization of SMUD Employees (OSE)
Peace Officers Research Association of California (PORAC)
Professional Engineers in California Government (PECG)
Riverside Sheriffs' Association
San Bernardino Public Employees Association (SBPEA)
San Diego County Court Employees Association
San Luis Obispo County Employees Association (SLOCEA)
Santa Rosa City Employees Association (SRCEA)
Service Employees International Union, Local 1000 (SEIU
Local 1000)
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Date: 4/12/12 Page 4