BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 2582 (Bonta) - San Francisco Bay Area Rapid Transit District
Amended: June 11, 2014 Policy Vote: PE&R 5-0
Urgency: No Mandate: No
Hearing Date: June 23, 2014
Consultant: Maureen Ortiz
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 2582 authorizes the San Francisco Bay Area
Rapid Transit District (BART) to establish a vesting schedule
for post-retirement health benefits coverage that is different
than what is allowed under current law for agencies that
contract with the California Public Employees Retirement System
(CalPERS). The new schedule will apply to employees who are
hired after January 1, 2014.
Fiscal Impact:
Minor administrative costs to CalPERS (Special Fund)
Potentially significant future savings to BART (Local Fund)
Background: Existing law allows schools and local governmental
agencies to contract with CalPERS to provide health benefits to
employees and retirees through the Public Employees' Medical and
Hospital Care Act (PEMHCA). If a contracting agency elects to
cover its employees for health care under PEMHCA, it has the
following options to choose from in determining contribution
amounts for annuitants:
1) A contracting agency can opt to make the employer
contribution amount equal for both active employees and
annuitants. Under this option, an employee who retires and
meets the definition of annuitant becomes 100% vested and
receives an employer contribution amount equal to
what the active employees receive.
2) A contracting agency that joins PEMHCA on or after January
1, 1986, has the option to pay a lesser employer contribution
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amount for annuitants than for active employees as long as the
agency increases its contribution for annuitants each year
until it equals the agency's contributions for active
employees. Based on this formula, it may take 20 years for the
lesser annuitant contribution amount to equal the active
employee contribution amount. Under this option, an employee
who retires and meets the definition of annuitant becomes 100%
vested and receives an employer contribution amount equal to the
lesser contribution amount.
3) A contracting agency has the option to be subject to a
pre-set vesting schedule of specific percentages based on an
employee's credited years of service to determine the employer
contribution amount for annuitants. Under this option, an
employee must work at least 10 years to qualify for an employer
contribution of 50% toward retiree healthcare. This amount
increases by 5 percent for each year of service, until the
employee is 100 percent vested at 20 years of service.
Effective July 1, 1993, BART elected to be subject to PEMHCA
with respect to the following groups: AFSCME Local 3993, Police
Officers Association, Police Management Association, Amalgamated
Transit Union, SEIU Local 790, and Non-Represented Employees.
The BART health benefit contract with CalPERS allows them to
designate a different contribution for each group.
Pursuant to their former collective bargaining agreements, BART
currently provides equal employer contributions for both active
employees and annuitants.
Proposed Law: AB 2582 will authorize BART to implement a new
vesting schedule for post-retirement health benefits per a
recently negotiated contract. The health insurance employer
contribution for annuitants with 10 years of credited service
would be 50% of that provided to active employees. The employer
contribution would increase incrementally by 10% for each
credited year of service, reaching 100% if the annuitant
attained 15 years of credit service. Annuitants who retire for
disability and have at least 5 years of BART service would
receive 100% of BART's employer contribution for active
employees.
Staff Comments: AB 2582 is the latest of approximately a dozen
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bills introduced in recent years to provide exceptions to the
vesting and contribution provisions in PEMHCA. This situation is
an example of a broader issue for many contracting agencies that
have found the existing PEMHCA vesting options to be static and
not flexible to negotiation. The alternative vesting schedules
negotiated by these agencies and their employees' exclusive
bargaining representatives have resulted in minimal
administrative costs to CalPERS, but generally provide cost
savings to these agencies' future annuitant healthcare.
AB 2053 (Allen, 2012) would have authorized BART to implement an
alternate vesting schedule for post-retirement health benefits
similar to those contained in this measure. AB 2053 was vetoed
by the Governor who indicated that the benefit should be part of
contract negotiations.
AB 2582 authorizes implementation of new labor contract
provisions related to vesting of health care benefits for BART
retirees that were negotiated in the collective bargaining
agreement between BART labor and management representatives in
the fall of 2013 and have since been ratified by all parties.
It is estimated to save BART approximately $13.8 million over
the next 30 years.