03/18/1998 01:45 PM House FIN

HOUSE BILL NO. 467                                                             
                                                                               
"An Act relating to employees of the legislature who                           
are employed under a personal services contract."                              
                                                                               
Jim Hornaday, Staff, Representative Kott spoke in support of                   
the legislation.  He observed that the purpose of the bill                     
is to add the option of hiring legislative employees using a                   
personal services contract and eliminate the Public                            
Employees Retirement System (PERS) membership requirement                      
for the employment under the contract.                                         
                                                                               
Mr. Hornaday explained that most State agencies have the                       
ability to hire temporary or nonpermanent employees who do                     
not receive retirement benefit credit while they are                           
employed.  Temporary or nonpermanent employees are short                       
term, often paid on an hourly basis, and may not receive                       
other benefits such as medical insurance, or leave benefits.                   
However, because of language in the PERS statute (AS 39.35)                    
the Legislature does not have the same ability as other                        
State of Alaska Agencies to hire temporary employees during                    
a legislative session unless the employee participates in                      
the retirement system.                                                         
                                                                               
Mr. Hornaday noted that for short-term temporary employment                    
this requirement results in a needless cost to the                             
Legislature and a tax disadvantage to the employee.  For                       
example, the summer tour guides in the Capitol, most of who                    
are students earning money for school must be placed in the                    
retirement system.  Money is deducted from their paychecks                     
for retirement which they may withdraw after leaving                           
employment, but because it was tax deferred, they must not                     
only pay the tax, but they also must pay a penalty for early                   
withdrawal.  This is a waste of time and money.  This same                     
situation applies to the laborers who work to load and                         
unload the moving vans, and these people generally only work                   
a few days at a time.                                                          
                                                                               
Mr. Hornaday pointed out that the same retirement issue                        
caused an even more significant problem when the Legislative                   
Affairs Agency needed to fill the Chief of Security position                   
for the 1998 session.  In this case, the stringent                             
qualifications for the position almost dictate that the only                   
qualified applicants be former Alaska law enforcement                          
officers who are retired under PERS.  Individuals who are                      
retired under PERS cannot accept a position covered by the                     
retirement system without terminating their retirement.                        
Because of the short-term nature of the position,                              
terminating retirement is generally an unacceptable option.                    
                                                                               
Mr. Hornaday observed that in the past "professional                           
services" contracts have been utilized to hire individuals                     
for certain jobs to avoid the retirement problem.  However,                    
this solution has become less and less of an option because                    
of IRS rules on contractor versus employee relationships.                      
Under the IRS guidelines the duties and responsibilities of                    
the Chief of Security, as well as the tour guides and                          
laborers, make them clearly an employee.  Using a "personal                    
services" contract clearly classifies the individuals as an                    
employee in order to satisfy IRS requirements and this bill                    
eliminates the conflict with PERS requirements.                                
                                                                               
Mr. Hornaday observed that the bill does not adversely                         
affect any current employees.  The current PERS law protects                   
the rights of legislative staff and employees by recognizing                   
that they work in a different environment than most state                      
employees.  This bill will not change that language.  House                    
Bill 467 only adds an additional option in those cases when                    
participation in the retirement plan is too restrictive or                     
not appropriate.  It gives the Legislature the same                            
flexibility afforded to other State Agencies.                                  
                                                                               
PAM VARNI, EXECUTIVE DIRECTOR, LEGISLATIVE AFFAIRS AGENCY                      
spoke in support of HB 467.  She observed that the                             
legislation would provide the Agency flexibility to hire                       
temporary or non-permanent employees.  She explained that                      
the problem dates to the 1970's when the Legislature had                       
daily paid employees.  At that time, the Legislature began                     
to provide retirement and health benefits.  There were                         
inequities between daily paid and monthly paid employees.                      
Retirement legislation was passed to end these inequities.                     
The way the legislation was written removed the flexibility                    
to hire temporary employees.  She observed that professional                   
contracts have been used, but have created problems                            
regarding worker's compensation and the employee/employer                      
relationship.  She pointed out that the legislation would                      
save money.  No current legislative employees would be                         
affected.                                                                      
                                                                               
GUY BELL, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,                       
DEPARTMENT OF ADMINISTRATION spoke in support of the                           
legislation.  He stated that there would be no impact to the                   
Public Employees Retirement System.                                            
                                                                               
Representative Foster MOVED to report HB 467 out of                            
Committee with the accompanying fiscal notes.  There being                     
NO OBJECTION, it was so ordered.                                               
                                                                               
HB 467 was REPORTED out of Committee with a "do pass"                          
recommendation and with a fiscal impact note by the                            
Legislative Affairs Agency and a zero fiscal note by the                       
Department of Administration.