Cost sharing has become a very valuable tool for employers seeking to cut the cost of retirement benefits. It is where the employee pays part of the employer’s required contribution to the retirement system and therefore, results in an immediate reduction in employer costs. Prior to passage of the Public Employees’ Pension Reform Act of 2013 (“PEPRA”) cost sharing was limited in scope. For CalPERS agencies, cost sharing could not exceed the cost of optional benefits provided since 1979, which not only limited the amount of cost sharing possible, but also made it difficult to even determine what the cost sharing limit was. Another major restriction on cost sharing is that it must be the result of a collectively bargained agreement. Cost sharing could not be imposed.
Fast forward to 2013, and PEPRA immediately eliminated the caps on the amount of cost sharing allowed. The parties to a collectively bargained agreement can now agree that employees pay up to 100% of the employer contribution. Again, no imposition is allowed. However, PEPRA also enacted Government Code section 20516.5, which provided changes to cost sharing beginning in what then seemed to be the distant future: 2018. In 2018, employers for the first time had the ability to impose a limited amount of cost sharing on Classic PERS members. (A similar cost sharing statute, Government Code section 31631.5, applies to ’37 Act agencies). Since employers are starting to negotiate agreements that extend into 2018, it is important to know what Government Code 20516.5 provides:
1. Section 20516.5 does NOT compel any action. It is not mandatory and is merely a cost saving tool that employers may choose to utilize.
2. Section 20516.5 allows an employer to impose upon represented Classic members that they pay up to 50% of normal cost, or the following amounts as employee contributions, whichever is LOWER:
- Local miscellaneous or school members: 8%
- Local police, local fire or County peace officers: 12%
- All other local safety: 11%
- (Since new members already pay 50% of normal cost, this statute does not apply to them.)
3. All meet and confer obligations, including impasse procedures, must be exhausted.
4. Section 20516.5 does not apply if the parties have already agreed to a cost sharing arrangement under section 20516 that has employees paying 50% or more of their normal cost.
The possibility of imposing cost sharing, even in the limited amounts allowed by section 20516.5, should be considered when negotiating agreements. For example, will it result in more employee groups agreeing to cost sharing under section 20516? Maybe. Do you need a reopener in 2018 to address this issue in any long-term contract negotiated today? Possibly, but the mere fact that section 20516.5 is on the horizon might help reach cost saving agreements that do not require imposition. It may prove to be a valuable tool even if never used.