This bill mandates that the state and employees in specified state bargaining units prefund retiree health care (other postemployment benefits, or OPEB) with the objective of reaching a 50-percent employer/employee split of actuarially determined normal costs. It does so by imposing unit-specific employee contribution schedules expressed as percentages of pensionable compensation, and requires matching employer contributions.
Beyond fixed ramps, the bill builds in recurring actuarial adjustments to keep employer and employee shares at roughly 50 percent, caps annual rate changes at 0.5 percentage points, and creates targeted temporary suspensions of employee or employer contributions for specific fiscal years. Contributions are deposited into the Annuitants' Health Care Coverage Fund and are irrevocable; memoranda of understanding can override these provisions only under narrow, budget-contingent rules.
At a Glance
What It Does
The bill requires employees in multiple state bargaining units to begin withholding specified percentages of pensionable compensation to prefund retiree health, with the state matching those amounts. It also mandates periodic, actuarially driven adjustments to both employer and employee rates to preserve a 50/50 split of normal costs, subject to a 0.5 percentage-point annual cap.
Who It Affects
State employees in the listed bargaining units (including Units 1–21 as specified), state budget officers and payroll administrators, and current and future retirees who receive state health benefits. Unions and negotiators will need to implement ratification-triggered changes for several units.
Why It Matters
This shifts OPEB financing from pay-as-you-go toward prefunding across large employee cohorts, altering near-term payroll costs and long-term state liabilities. The mix of suspensions, ratification triggers, and caps creates implementation and fiscal-timing trade-offs that matter for budgets, bargaining, and retirement security.
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What This Bill Actually Does
The bill establishes a framework to prefund retiree health benefits for most state bargaining units by requiring employee contributions expressed as percentages of pensionable compensation and requiring the state to match those contributions. Each bargaining unit has its own contribution ramp (different initial percentages and step-ups in 2017–2020 in the text) that together are intended to produce a 50/50 split of actuarially determined normal costs between employer and employees.
Once initial ramps are in place, the bill ties future contribution changes for both sides to actuarial valuations: if the actuarially determined total normal cost moves by more than 0.5 percentage points from the baseline, the state and employees must adjust contribution percentages to restore roughly equal cost sharing. Year-to-year changes are constrained so that no employer or employee share can change by more than 0.5 percentage points in a single fiscal year.
Some units include additional timing rules — for example, certain adjustments begin on the first pay period following ratification between the parties, and a few units allow the Director of Finance or Director of the Department of Human Resources to set amounts based on valuations.The bill also contains temporary suspensions of contributions for specific fiscal years and units: most units have a suspension of employee contributions for the 2020–21 fiscal year, and several provisions suspend employer contributions in 2025–26 and 2026–27 (or vice versa) for particular units. For one bargaining unit (Unit 5) the statute redirects a statutory 3.4 percent increase in compensation to prefund OPEB and phases in a distinctive schedule that aims at a combined 6.8 percent total contribution split between employees and employer over a multi-year sequence tied to ratification and specified calendar dates.All contributions collected under the statute must be deposited into the Annuitants’ Health Care Coverage Fund and are nonrefundable.
The bill preserves memoranda of understanding (MOUs) reached under collective bargaining: where the statute conflicts with an MOU or addenda negotiated under Section 3517.5, the MOU controls — but any MOU provision that requires new expenditures does not take effect unless the Legislature approves it in the annual Budget Act. The Director of the Department of Human Resources receives limited authority to set contribution percentages as percentages of pensionable compensation for certain excluded or non-unit employees, and the section applies to employees who are eligible for health benefits, including permanent intermittent employees.
The Five Things You Need to Know
The statute expresses a uniform policy goal: reach 50-percent employer/employee sharing of actuarially determined normal OPEB costs for the listed units, with unit-specific ramps to achieve that target.
Contribution adjustments trigger when actuarial total normal costs change by more than 0.5 percentage points, and any increase or decrease to employer or employee shares is capped at 0.5 percentage points per fiscal year.
Many units have a one-year suspension of employee contributions for the 2020–21 fiscal year, while some employer contributions are suspended for the 2025–26 and 2026–27 fiscal years for specified units.
Unit 5 gets special treatment: a 3.4 percent statutory compensation redirection counts toward employee contribution, parties must incorporate that share into the salary survey, and Unit 5 follows a distinct multi-year schedule to reach a total 6.8 percent contribution split.
All contributions are deposited into the Annuitants’ Health Care Coverage Fund and are irrevocable; negotiated MOUs can override the statute but only become effective if the Legislature approves any resulting expenditures in the Budget Act.
Section-by-Section Breakdown
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Scope and 50/50 prefunding objective
Subdivision (a) lists the bargaining units and sets the statute’s shared objective: the state and listed employees should prefund retiree health care so that both employer and employee each pay 50 percent of actuarially determined normal costs by specified target dates. The provision is a directional statutory goal that frames the later unit-specific contribution schedules; it is the reference point for the actuarial adjustments that follow.
Unit-specific initial contribution ramps and temporary suspensions
These paragraphs lay out the concrete percentage steps for several units (for example, Unit 9 ramps to 2.0 percent employee contributions, Unit 10 to 2.8 percent, Unit 6 to 4.0 percent, and judicial employees to up to 3.0 percent depending on Director of Finance determinations). They also describe temporary suspensions: many employee contributions are suspended for the 2020–21 fiscal year, while certain employer contributions are suspended in later fiscal years (notably 2025–26 and 2026–27 for some units). Practically, this creates a pathway to prefunding that includes near-term relief measures but preserves longer-term obligations.
Unit 12, Units 1/3/4/11/14/15/17/20/21, and Units with ongoing actuarial adjustment rules
Unit 12 has a multi-step employee ramp that reaches 4.6 percent before moving to an actuarial-adjustment regime tied to ratification and periodic rebalancing; Units 1, 3, 4, 11, 14, 15, 17, 20, and 21 follow a separate three-step ramp with a later automatic adjustment mechanism beginning in 2024. Several other units (such as Units 13 and 18) include provisions that commence automatic employer/employee adjustments on a specified earlier date. For these provisions the mechanics are the same: tie subsequent changes to actuarial valuations but cap annual movement at 0.5 percentage points and generally require both sides to move to keep sharing at approximately 50 percent.
Unit 8 reductions and annual actuarial adjustments
Unit 8 is notable for an explicit post-ramp reduction: after reaching a 4.4 percent employee contribution, the statute directs a 1.0 percentage-point decrease to 3.4 percent no sooner than November 1, 2022, followed by actuarial adjustments beginning July 1, 2023. The clause illustrates the bill’s flexibility to reduce employee rates after initial prefunding increases, but also to resume dynamic adjustments tied to actuarial results.
Unit 5 special regime and the 3.4 percent redirection
Unit 5 departs from the standard ramp model: effective July 1, 2020, the statute redirects a 3.4 percent statutory increase (described elsewhere in law) to prefund OPEB, and then phases in employee and employer shares so that total contributions equal 6.8 percent of pensionable compensation on specified dates tied to ratification. The provision requires the parties to fold the 3.4 percent into the salary survey and makes the schedule conditional on ratification and Budget Act approval where expenditures are required.
Eligibility, fund rules, and labor agreement precedence
Subdivision (c) clarifies that the rules apply to employees eligible for health benefits, including permanent intermittent employees. Subdivision (d) mandates that contributions be deposited in the Annuitants’ Health Care Coverage Fund and declares them nonrefundable under any circumstances. Subdivision (e) preserves negotiated MOUs and addenda as controlling when they conflict with the statute, but limits their effect if they require new expenditures unless the Legislature approves funding in the Budget Act.
Exceptions, Director authority, and non-unit employees
These sections extend the statute to certain excluded or non-unit state employees by authorizing the Director of the Department of Human Resources to set employee contribution percentages as a share of pensionable compensation. Subdivision (g) explicitly authorizes the Director to set contribution percentages for officers or employees not in the civil service, aiming to align non-unit personnel with the prefunding regime and the 50/50 target.
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Explore Employment in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Future retirees who receive state health benefits — the prefunding reduces the risk that promised health benefits will be underfinanced long-term, improving the security of retiree coverage.
- State budget and long-term fiscal planners — moving toward prefunding can reduce unfunded OPEB liabilities on the state’s balance sheet over time and stabilize future employer cost volatility.
- Bargaining units that negotiated ratification-driven schedules (e.g., Unit 5) — the statutory framing preserves negotiated tradeoffs (like redirecting the 3.4 percent) and locks in certain employer matches once ratified.
Who Bears the Cost
- Current employees in the covered bargaining units — the statute requires payroll withholdings (employee contributions) equal to specified percentages of pensionable compensation and potentially higher ongoing payments if actuarial costs rise.
- The State as employer and taxpayers — the state must match employee contributions and, in years without suspension, fund substantial employer contributions that increase near-term budgetary outlays.
- Payroll and benefits administrators across state departments — they must implement unit-specific schedules, manage suspensions and ratification-tied effective dates, and ensure timely deposits into the Annuitants’ Health Care Coverage Fund, increasing administrative complexity.
Key Issues
The Core Tension
The central tension is between providing immediate budgetary or employee cashflow relief through temporary suspensions and negotiated redirects, and the policy goal of sustainably prefunding OPEB to reduce long-term liabilities; short-term pauses ease present pressures but shift the burden and risk into future actuarial adjustments and budget years.
The statute mixes firm contribution ramps with temporary suspensions and ratification triggers, producing a fiscal design that provides short-term relief at the cost of added long-term complexity. Suspending employee or employer contributions for one or two fiscal years defers funding but does not eliminate the underlying actuarial obligation; the later actuarial-adjustment mechanism may shift heavier increments into subsequent years, especially given the 0.5 percentage-point annual cap on changes.
That cap smooths budgetary impact but risks undercorrecting when valuations require rapid increases.
Several implementation questions are unresolved in the text. The statute relies on actuarial valuations as triggers and baselines but does not prescribe discount rates, amortization methods, or valuation timing; those choices materially affect the size and frequency of required adjustments.
The nonrefundable rule protects the fund but can produce perceived unfairness for employees who leave service before vesting in retiree health or who experience changing career paths. The MOU supremacy clause preserves collective bargaining outcomes but injects budgetary uncertainty because MOUs requiring expenditures cannot take effect without Budget Act approval, creating a two-step implementation path that can delay or alter negotiated commitments.
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