03/21/2008

In this Alert:

… INCREASING BUDGET DEFICIT

… NEWLY INTRODUCED RETIREMENT-RELATED BILLS

… REPORT EXAMINES STATE HEALTHCARE POOL FOR SCHOOL EMPLOYEES

… INCREASING BUDGET DEFICIT

The legislature’s fixation on the increasing budget deficit means it will likely be a quiet year on the public employee retirement bill front.  There are several new bills related to implementing recommendations of the Governor’s Public Employee Post Employment Benefits Commission, which released a report and legislative recommendations in January (detailed in last Alert).

So far, the Legislature and Governor have approved about $2 billion in service reductions in special sessions. However, according to the state's chief budget analyst, California's budget shortfall is now estimated at $16 billion - up from the original $14.5 billion projected in January.  The newest estimate of the deficit amount erases 75% of the emergency spending cuts lawmakers have made so far in their effort to bring the budget into balance. 

... UPDATE ON RETIREMENT-RELATED BILLS

In the February Legislative Alert we reported on key bills introduced during 2007 that are still alive this session.  The following list reviews the new bills introduced by the bill-filing deadline in late February 2008.  

NEW BILLS

AB 1761 (Fuller) Certificated Employees: Probationary Period.

This bill would authorize the governing board of a school district to establish a probationary term of no less than 2, but no more than 4 years for certificated employees whose probationary period begins during or after the 2009-10 fiscal year before the employee is eligible to become a permanent employee.

AB 1844 (Hernandez) Public Employee Benefits: Fraud

AB 1844 would make it a crime for a person to make or present false material statements and representations in connection with retirement systems' benefits and applications or to aid or abet someone in this regard. The bill would also make it a crime for a person to knowingly accept a payment from any of those retirement systems with the knowledge that he or she was not entitled to the benefit.

AB 1908 (Wolk) Use of Restricted Funds by Educational Agencies

The bill would, for the 2007-08 fiscal year, authorize local educational agencies to encumber and expend any unencumbered balances of restricted accounts in their general fund (excluding capital outlay funds, federal funds, the proceeds of bonds issued by the agency, or sinking funds) for the repayment of funds borrowed through the issuance of bonds by that agency, including OPEB bonds.

AB 1936 (Emmerson) PERS: Nonprofit Mutual Water Companies

This bill would permit a nonprofit mutual water company meeting certain requirements related to operating as a governmental entity to enter into a contract to participate in PERS.

AB 1963 (Carter) Same Service Credit for 2 Retirement Systems

This bill would broaden the exception to the prohibition on receiving credit for the same service in two retirement systems to permit concurrent participation and credit for service in: a defined benefit plan supported by public funds provided by systems other than PERS; and a supplemental defined benefit plan offered by the employer.

AB 2024 (Houston) PERS Disability Retirement

This bill provides that if a recipient of a PERS disability retirement allowance who is over the minimum age for voluntary retirement for service and who has been receiving a disability retirement allowance for less than 36 months, refuses to submit to a medical examination, the pension portions of his or her allowance may be discontinued until the withdrawal of the refusal.

AB 2202 (Caballero) PERS Part-time, Seasonal, Temporary Employee

AB 2202 would require every state agency, school employer, or contracting agency of PERS to provide information to the PERS board regarding the service and compensation earned by its part-time, seasonal, or temporary employees who do not meet the requirements for mandatory coverage by the system.

AB 2350 (Garrick) Pre-funding Employee Benefits

This bill makes a Legislative declaration that the State of California shall: establish pre-funding of retiree health care benefits as a policy and a budget priority;  make public a plan for pre-funding retiree health care benefits; and begin to implement this plan. The bill would also state the intent of the Legislature to enact legislation to pre-fund both the pensions and the other post-employment benefits, including retiree health care benefits, of its employees.

AB 2390 (Karnette) STRS Post-retirement Earnings

This bill extends the post-retirement earnings limits of STRS members until June 30, 2009, but in some cases only for those who retired prior to January 1, 2007.

AB 2673 (Feuer) ’37 Act Counties: Death Benefits

The County Employees Retirement Law of 1937 provides that any death benefits, optional retirement allowances, or survivor allowances accorded to a spouse may be accorded to a domestic partner. This bill would make that provision inapplicable to any member whose death occurs on or after January 1, 2009.

SB 1095 (Vincent) STRS Retiree Health Information

SB 1095 expresses the intent of the Legislature to enact legislation requiring the STRS board to provide information to the Legislature regarding school districts that do not provide health benefits for retired teachers.

SB 1123 (Wiggins) Retiree Health Benefits and California Actuarial Advisory Panel

SB 1123 would include other post retirement benefits (OPEB) within the subject matter of the State’s enrolled actuary's statement provided before the Legislature or a local legislative body authorizing an increase in benefits. The bill would also require the future annual costs of OPEB benefits to be made public at a public meeting at least 2 weeks prior to adoption. A school district or a county office of education would be exempt from these provisions. The bill would also create the California Actuarial Advisory Panel, which would be required to provide impartial and independent information on pensions, other post-employment benefits, and best practices to the Legislature, the Governor, public retirement systems, and public agencies.

SB 1488 (Calderon) STRS Golden Handshake

This bill provides that a STRS member who was granted an additional 2 years retirement service credit under STRS Golden Handshake would not forfeit his or her additional credit for service if he or she is, on or after January 1, 2004, re-employed within 5 years after retirement as a substitute teacher by a school district from which he or she retired.

SB 1514 (Margett) Public Employee Post-retirement Benefits

This bill would include other post-retirement benefits within the subject matter of the actuarial statement provided to the Legislature or a local legislative body before they may authorize any increase in benefits. The bill would also require that the future annual costs of other post-employment benefits be made public at a public meeting at least 2 weeks prior to adoption.

… REPORT EXAMINES STATE HEALTHCARE POOL FOR SCHOOL EMPLOYEES

A tentative report has been issued by the Mercer Consulting firm hired by PERS to study the feasibility and cost-effectiveness of establishing a single statewide healthcare pool covering all public school employees.  In 2005 the Legislature passed a bill that was signed by the Governor, requiring PERS to conduct the study.  Focusing on the objectives listed in the legislation, the study looked at all active and retired employees and their dependents and how to improve access to healthcare coverage for school employees who are current without it.

The study included an analysis of the costs and savings and pros and cons of creating a statewide health pool level versus expanding existing coverage under current PERS programs.  An examination of plan design options was also conducted.  The report also outlines potential employee pools, considering a separate pool for district employees and one that is a combination of district and other PERS employees and what clout such pools would have in terms of leveraging costs.

According to the report, aggregating all school district employees, both actives and retirees, into a single risk pool, would create a pool of roughly 720,000 employees. Currently PERS covers nearly 576,000 employees and 660,000 dependents, insuring 1.2 million members. The report estimates that combining PERS members with district employees and their dependents would create a combined pool of around 2.6 million participants, establishing greater leverage in California’s healthcare market.

The study recommends that participation in a statewide school employee health pool that would include multiple PPO and HMO plan options should also be mandatory.  But the study went on to note that such a mandatory purchasing pool would: 

• Be expansive enough to drive market change and demand better quality and service, 
• Be able to implement consistent best practices due to its size and leverage, and 
• Provide increased cost savings over a voluntary approach.

The study also identified some potential obstacles to implementing a single health care pool, including disruption to the current system, less local control and input into major coverage decisions, constraints on joining or leaving the pool and the costs associated with those decisions, and limits on choices that some members may have relative to their existing plans. 

The report will soon be submitted to the Legislature for consideration. Implementation of the recommendations of this study will likely become fiscal issues for schools.

Feel free to contact PARS with any question or requests for further information. Additional news and an archive of past Legislative Alerts is available on the PARS website at www.pars.org.

Thank you,

Maureen Toal
Vice President, Public Affairs
Public Agency Retirement Services (PARS)
mtoal@pars.org
(800) 540-6369 ext. 135

SINCE 1983, PARS HAS DESIGNED CUSTOMIZED RETIREMENT INCENTIVES TO HELP AGENCIES REDUCE LABOR COSTS AND REORGANIZE DURING FISCAL DOWNTURNS.

PARS HAS ESTABLISHED TWO INNOVATIVE MULTIPLE-EMPLOYER TRUSTS TO ASSIST PUBLIC AGENCIES WITH PRE-FUNDING THEIR OPEB (POST RETIREMENT HEALTH CARE) OBLIGATIONS UNDER GASB 45.

FOR MORE INFORMATION, CONTACT:

MAUREEN TOAL
(800) 540-6369 EXT. 135
MTOAL@PARS.ORG

The contents of this publication reflect PARS’ understanding of the facts. Before taking any action based on this information, consult professional advisors regarding your agency’s specific objectives and circumstances. For further information, contact PARS.

Thank you,
Maureen Toal
Vice President, Public Affairs
Public Agency Retirement Services (PARS)
mtoal@pars.org
(800) 540-6369 ext. 135

The contents of this publication reflect PARS’ understanding of the facts. Before taking any action based on this information, consult professional advisors regarding your agency’s specific objectives and circumstances. For further information, contact PARS.