Legislature(1997 - 1998)
03/21/1997 09:03 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
Testimony was heard from TOM WILLIAMS, BILL DONALDSON,
BRUCE LUDWIG, BILL CHURCH, KEN GRIFFIN, ANNALEE
MCCONNELL and NANCY SLAGLE. SB 126 was HELD for
further consideration.
SENATE BILL NO. 126
"An Act relating to the retirement incentive program for
state employees; and providing for an effective date."
TOM WILLIAMS, Staff to Senate Finance Cochair Sharp, read
the Sponsor Statement relating to SB 126 (copy on file).
Following is an excerpt:
"SB 126 leaves the basic elements of current Retirement
Incentive Program in place. However, it adds two
principal provisions. It [1] limits a qualified
employee's participation to the first RIP application
period for which they qualify (section 3); and [2]
requires state agencies to offer a RIP plan to all
qualified classified state employees during three two
month application periods (section 1). This
legislation will not only increase RIP participation,
it will accelerate when employees are required to
retire under this program. Both elements should
increase savings to the state, the principal impetus to
passing the RIP legislation last year."
SENATOR ADAMS asked about showing a greater savings over a
longer average, instead of three years to possibly four or
five so more people could participate. MR. WILLIAMS
responded that the purpose of SB 126 was simply to address
the two items mentioned. The primary impetus was to insure
that people jump at their first opportunity rather than wait
for a later time, and to make it available.
SENATOR ADAMS suggested there were other areas that needed
to be looked at besides the two in the bill. He had no
objection to the bill.
SENATOR TORGERSON brought up a proposed amendment in the
committee files. MR. WILLIAMS responded that it was drafted
in discussion with the Division of Retirement and Benefits.
They noted a technical reference that needed to be made that
insures that the provisions in the bill for the mandated
openings are the same rules that are required by the current
program. It specifically says that if an employee is
offered RIP, they have to go forward with it within six
months, which is consistent with the current provision of
the discretionary plan.
SENATOR ADAMS asked to hear from the administration
regarding the technical amendment. VICE-CHAIR PHILLIPS
stated his intent to hear from people testifying on
teleconference first.
BILL DONALDSON, testifying via teleconference from Kodiak,
stated that if the point of SB 126 was to reduce the
operating budget through personnel reduction, why wasn't the
RIP offered to people who showed a cost savings based on a
three-year time period and replacement at a B step. He
pointed out that within the Department of Fish and Game a
narrow focus was chosen. He didn't believe SB 126 went far
enough and that offering the RIP to those who qualified and
showed a cost savings should be mandatory.
MR. WILLIAMS responded that the impetus to passing the RIP
legislation last year was for downsizing and to provide
cost-savings. SB 126 does go a long way toward encouraging
a more active offering of the RIP. A substantial additional
number of individuals could take advantage of it as a
result. He acknowledged there were other provisions that
might be added that would extend the RIP further, but could
not say whether it was advisable.
SENATOR TORGERSON asked what impact SB 126 would have on
local governments tied to the Department of Education, such
as AVTECH or Mt. Edgecumbe. MR. WILLIAMS responded that SB
126 would apply only to state government.
BRUCE LUDWIG, Business Manager, Alaska Public Employees
Association, Alaska Federation of Teachers, and Secretary-
Treasurer of the state AFL-CIO, testified next. He was
appreciative of the bill and wanted to offer improvements to
the concept. There have been complaints from union members
throughout the state in the way the RIP has been
implemented. Some employees partially funded by the federal
government are being denied the opportunity because they are
told the federal government won't participate. With a
powerful congressional delegation, it was his belief that
pressure could be brought to bear that would help save state
and federal dollars. He supported an earlier suggestion by
Senator Adams to extend the three years to five years in the
cost-savings portion. He gave an example of up-front
training costs for hiring new employees in the Departments
of Corrections and Public Safety. Those jobs are 20-year
retirement system jobs that retain people for a long period
of time. In a normal situation it is amortized over the
life of the employee. Here, the department is required to
come up with savings within three years to pay for that
training. By going to five years, it is easier to qualify
people for the RIP. There is an eight-year cost savings
when a correctional officer in longevity is replaced, but
the cost has to be recouped in three years. By moving it to
five years, there would still be three more years of savings
that wouldn't be accounted for in the RIP.
MR. LUDWIG proposed draft language (copy on file). He
explained that a significant part of savings that is not
being accounted for by the administration, is that employees
hired prior to 1986 cost around 14 percent to the employer.
Changes made in 1986 and last year brought the figure down
to between 7.5 and 8 percent. There would be substantial
cost savings by replacing a pre-1986 employee with someone
hired after July 1, 1996. None of that is being counted as
savings. He suggested the bill be amended to include
savings from different retirement tiers. Division budgets
wouldn't be directly impacted, but the state as a whole
would be impacted because an actuary looks at the actual
work force in determining what the employer contribution
will be in the future.
Another suggestion offered by MR. LUDWIG related to Section
3 which requires the employee to leave the first time they
were eligible. He believed it could create some real
problems. A number of programs were added to government
with the increase of oil money. Entire programs or
divisions came on at once, including the hiring of
employees, and there was concern that an entire hierarchy
within a certain program could be lost. If allowed to phase
in over a three-year period that impact could be alleviated.
BILL CHURCH, Retirement Supervisor, Division of Retirement
and Benefits, Department of Administration, stated his
availability to speak to the technical amendment or any
questions the committee had.
SENATOR ADAMS asked him to speak to the technical amendment.
MR. CHURCH said he did not represent the administration and
deferred to Ms. McConnell to speak of their position.
SENATOR TORGERSON asked if there was another area of
concern. MR. CHURCH confirmed that his concern was with
Section 3, line 12, which references application of the
retirement incentive credit under 22(f) of the enabling
legislation. That section outlines how the three years will
be applied. It is first applied to allow someone to meet
eligibility for normal retirement, it allows someone to be
eligible for early retirement, then allows someone who is
under the age eligibility for early retirement to meet that
eligibility. SB 126 only allows individuals who meet
eligibility for normal retirement. He suggested that line
12 only include (f)(1), which would allow eligibility for
normal retirement only. It ties everything together.
KEN GRIFFIN, Biologist, Department of Fish and Game,
expressed that his concern with the present RIP was similar
to that of Mr. Donaldson. He stated he was one of the
federally funded employees, but only for the last four
years. Prior to that, he spent seventeen years in a state
funded position. He asked whether the Department of Fish
and Game, under the present RIP, could pick and choose,
through the process of downgrade or elimination of positions
only, the people that got to participate in the RIP. He
didn't believe that was the intent, but that was what
happened in his department. There were many that would like
to retire, but there was no incentive in the present
program.
VICE-CHAIR PHILLIPS asked Ms. McConnell to address the
committee.
ANNALEE MCCONNELL, Director, Office of Management and
Budget, testified that as they considered the RIP proposals
over the last two years, it was clear that the direction of
the legislature was not to have an across-the-board RIP as
had been offered in the past. It was consistent with the
governor's strategic RIPs. She acknowledged legislative
concern and difference of opinion regarding whether the
savings were as large, and followed legislative direction.
An area of concern was the issue of federal funded
positions, a particularly large problem in DOT&PF from a
financial standpoint. They were not being allowed by the
Federal Highway Administration to use federal funds to pay
for the RIP, which meant they had to use general funds. She
noted that Nancy Slagle (DOT&PF) had run some numbers on the
impact (copy on file). MS. MCCONNELL agreed with the idea
of not having the "take it or leave it" provision apply only
to classified employees. She questioned the intent
regarding efforts to downsize. If RIP were offered to all
employees, there was no way to responsibly say they would
have a large percentage of vacancies in those areas. They
would need to deal with that issue. In addition, the
legislative expectation about how many positions would be
refilled would have to change considerably. MS. MCCONNELL
handed out an update of all RIP plans approved to date (copy
on file) and explained. 221 have applied to date, but they
may not all retire. 6,200 of the total number of employees
were eligible from all departments. MS. MCCONNELL next
spoke about why Tier 3 was not used. One reason was because
many of the people who filled the positions had prior
experience before state government. Another was because of
non-Tier 3 people within a department who fill the position.
SENATOR ADAMS asked if Ms. McConnell had seen a proposed
technical amendment. MS. MCCONNELL did not see a problem
with it. SENATOR TORGERSON asked her to speak to Mr.
Church's proposal to go to 22(f)(1) instead of 22(f)(2).
MS. MCCONNELL said there would need to be a technical
correction there. She did not object to that, as it was
separate from the overall policy question.
End SFC-97 #65, Side 1
Begin SFC-97 #65, Side 2
In response to a question posed by SENATOR TORGERSON, MS.
MCCONNELL stated there had not been a consistent policy from
federal agencies. Some have allowed their grantees,
including the state, to use federal funds for RIP. The same
issue was faced when local governments asked the state if
they were allowed to use state money to pay RIP costs. The
state believed if they were asking the feds to do that, they
needed to apply it to local governments. An exception was
that sometimes federal money was restricted, so that if it
were passed on to the state, the restriction could not be
lifted. DOT&PF had the largest negative impact by the feds.
SENATOR TORGERSON asked that Nancy Slagle address the
committee.
NANCY SLAGLE, Director, Administrative Services, Department
of Transportation and Public Facilities, informed the
committee that she had run some numbers to figure out where
they were on federal funded positions. She explained that
they offered the RIP to employees, but to qualify for
participation, there needed to be a non-federal savings for
them. The Federal Highways Administration, citing Title 23,
the guiding laws for state funding, would not participate in
the RIP. So all RIP costs would have to be absorbed by the
department's general fund. Discussions are continuing with
the FHA. For FY 97, there were 96 people who could
potentially qualify with a savings of about $1 million, but
the state would have to absorb $2.9 million in RIP costs,
taking into account that only a portion of the savings are
general fund based on the 90/10 split of federal and general
funds. MS. SLAGLE estimated that about 30 percent of those
96 people would participate, but they could not absorb such
a substantial cost in their budget.
VICE-CHAIR PHILLIPS called for further testimony or
questions regarding SB 126. There being none, he announced
SB 126 would be HELD for further consideration. SENATOR
ADAMS directed staff to provide the technical amendment
regarding 22(f)(1). VICE-CHAIR PHILLIPS brought up SB 109
next.
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