Legislature(2005 - 2006)

05/02/2005 02:33 PM House FIN


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* first hearing in first committee of referral
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CS FOR SENATE BILL NO. 141(FIN)                                                                                               
                                                                                                                                
     "An Act relating to the teachers'  and public employees'                                                                   
     retirement  systems  and creating  defined  contribution                                                                   
     and  health  reimbursement  plans  for  members  of  the                                                                   
     teachers'  retirement system  and the public  employees'                                                                   
     retirement  system who  are  first hired  after July  1,                                                                   
     2005;  relating   to  university  retirement   programs;                                                                   
     establishing the  Alaska Retirement Management  Board to                                                                   
     replace the  Alaska State Pension Investment  Board, the                                                                   
     Alaska  Teachers'  Retirement   Board,  and  the  Public                                                                   
     Employees'  Retirement  Board;  adding  appeals  of  the                                                                   
     decisions  of the  administrator  of  the teachers'  and                                                                   
     public    employees'   retirement    systems   to    the                                                                   
     jurisdiction of  the office of administrative  hearings;                                                                   
     providing  for   nonvested  members  of   the  teachers'                                                                   
     retirement  system  defined  benefit plans  to  transfer                                                                   
     into   the    teachers'   retirement    system   defined                                                                   
     contribution  plan  and  for nonvested  members  of  the                                                                   
     public  employees'  retirement  system  defined  benefit                                                                   
     plans to transfer into the  public employees' retirement                                                                   
     system   defined   contribution  plan;   providing   for                                                                   
     political  subdivisions   and  public  organizations  to                                                                   
     request to participate in  the public employees' defined                                                                   
     contribution  retirement  plan;  and  providing  for  an                                                                   
     effective date."                                                                                                           
                                                                                                                                
Co-Chair  Meyer noted  that the Committee  would discuss  the                                                                   
fiscal  impact of  the  amendments  to SB  141  later in  the                                                                   
meeting.                                                                                                                        
                                                                                                                                
Representative   Croft   asked  for   an   analysis  of   the                                                                   
Committee's previous action and  suggested that the Committee                                                                   
check to  be sure that  the pensions  are not over  or under-                                                                   
funded.                                                                                                                         
                                                                                                                                
SB 141 was held till later in the meeting.                                                                                      
CS FOR SENATE BILL NO. 141(FIN)                                                                                               
                                                                                                                                
     "An Act relating to the teachers'  and public employees'                                                                   
     retirement  systems  and creating  defined  contribution                                                                   
     and  health  reimbursement  plans  for  members  of  the                                                                   
     teachers'  retirement system  and the public  employees'                                                                   
     retirement  system who  are  first hired  after July  1,                                                                   
     2005;  relating   to  university  retirement   programs;                                                                   
     establishing the  Alaska Retirement Management  Board to                                                                   
     replace the  Alaska State Pension Investment  Board, the                                                                   
     Alaska  Teachers'  Retirement   Board,  and  the  Public                                                                   
     Employees'  Retirement  Board;  adding  appeals  of  the                                                                   
     decisions  of the  administrator  of  the teachers'  and                                                                   
     public    employees'   retirement    systems   to    the                                                                   
     jurisdiction of  the office of administrative  hearings;                                                                   
     providing  for   nonvested  members  of   the  teachers'                                                                   
     retirement  system  defined  benefit plans  to  transfer                                                                   
     into   the    teachers'   retirement    system   defined                                                                   
     contribution  plan  and  for nonvested  members  of  the                                                                   
     public  employees'  retirement  system  defined  benefit                                                                   
     plans to transfer into the  public employees' retirement                                                                   
     system   defined   contribution  plan;   providing   for                                                                   
     political  subdivisions   and  public  organizations  to                                                                   
     request to participate in  the public employees' defined                                                                   
     contribution  retirement  plan;  and  providing  for  an                                                                   
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
CO-CHAIR CHENAULT MOVED to ADOPT revised fiscal note #10.                                                                       
                                                                                                                                
Representative Joule OBJECTED for discussion purposes.                                                                          
                                                                                                                                
5:16:27 PM                                                                                                                    
                                                                                                                                
MELANIE  MILLHORN,  DIRECTOR,   DIVISION  OF  RETIREMENT  AND                                                                   
BENEFITS,  DEPARTMENT OF ADMINISTRATION,  explained  that the                                                                   
fiscal  note represents  the fiscal costs  that the  division                                                                   
anticipates  will  accompany  the  new  defined  contribution                                                                   
plan. The state  of Alaska's tax attorney indicated  that all                                                                   
costs associated  with the defined contribution  plan must be                                                                   
separated and  accounted for in  various funds,  according to                                                                   
their components.  Assets and  accounting must be  separated.                                                                   
She explained  that the  fiscal note  separates the  start-up                                                                   
costs.                                                                                                                          
                                                                                                                                
5:18:03 PM                                                                                                                    
                                                                                                                                
Representative Croft  asked if the statutory  required backup                                                                   
for SB 141 was being compiled. Co-Chair Meyer confirmed.                                                                        
                                                                                                                                
5:18:42 PM                                                                                                                    
                                                                                                                                
Representative Croft  asked if the 5 percent  being set aside                                                                   
for the  defined contribution  plan would  be sufficient  for                                                                   
individuals to  retire on. Ms. Millhorn referred  to modeling                                                                   
in  the  plan contained  in  slide  74.  Slide 74  shows  the                                                                   
accrual of non-medical benefits.  The modeling is based on an                                                                   
individual that comes  into the system at age  40. The design                                                                   
looked  at  a defined  benefit  component  with  an  employer                                                                   
contribution  of 3.5  percent. The  current version  is at  5                                                                   
percent.  An individual,  who  enters the  system  at age  40                                                                   
under alternative  2, which was  based on was a  DB component                                                                   
of 3.5 percent,  would have a higher benefit  the the current                                                                   
Tier 2 TRS component until age  55 compared. Graphing for a 5                                                                   
percent contribution was not available.  Mercer would have to                                                                   
run the caluculations.  The average years of  service for TRS                                                                   
is  10 years.  She  maintained  that for  80  percent of  the                                                                   
population the benefit would be a higher under TRS.                                                                             
                                                                                                                                
5:23:06 PM                                                                                                                    
                                                                                                                                
Representative Croft asked how  the wages are broken down for                                                                   
low paid employees vs. high. Ms.  Millhorn replied that the 5                                                                   
percent is  based on their  salaries. She explained  that the                                                                   
graph is based on one individual  at age 40 based on a salary                                                                   
of $35,000, which is lower than  the average salary for PERS.                                                                   
                                                                                                                                
5:25:31 PM                                                                                                                    
                                                                                                                                
Representative  Croft asked the  cost and funding  source for                                                                   
the  disability benefit  allowance. Ms.  Millhorn noted  that                                                                   
the benefit is currently unfunded.  The contribution would be                                                                   
placed   in  the   medical   component,   with  an   employer                                                                   
contribution  of  between 2.5  and  3.75 percent.  The  added                                                                   
death and disability benefit would  be included on top of the                                                                   
medical costs. Ms.  Millhorn had not had a chance  to get the                                                                   
cost estimates from Mercer.                                                                                                     
                                                                                                                                
5:28:29 PM                                                                                                                    
                                                                                                                                
Representative  Croft asked  about the  death and  disability                                                                   
benefit. He  gave an  example of  firefighters and  asked who                                                                   
would pay  the benefit, the state  or the city.  Ms. Millhorn                                                                   
noted that  the proposal by  Representative Kelly  would have                                                                   
been  a fixed  amount paid  by  the employer.  Representative                                                                   
Croft noted that the proposed  amendment in the House Finance                                                                   
Committee  version would also  be paid  by the employer.  Ms.                                                                   
Millhorn agreed and  added that the funding  source and costs                                                                   
were unknown.                                                                                                                   
                                                                                                                                
5:31:30 PM                                                                                                                    
                                                                                                                                
Representative  Joule  WITHDREW his  objection  to ADOPT  the                                                                   
fiscal  note. There  being NO  further OBJECTION,  it was  so                                                                   
ordered.                                                                                                                        
                                                                                                                                
Co-Chair Chenault MOVED to report  HCSSB 141 out of Committee                                                                   
with  individual recommendations  and  with the  accompanying                                                                   
fiscal notes.                                                                                                                   
                                                                                                                                
Representative Croft  OBJECTED. He argued that  the Committee                                                                   
cannot estimate  within a million  dollars the  obligation to                                                                   
the state or the funding mechanism.                                                                                             
                                                                                                                                
5:34:27 PM                                                                                                                    
                                                                                                                                
Representative  Holm pointed  out  that  the Committee  deals                                                                   
daily with issues that are unknown.                                                                                             
                                                                                                                                
5:35:17 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer  noted that  bills are  often passed  out with                                                                   
indeterminate fiscal notes.                                                                                                     
                                                                                                                                
5:35:35 PM                                                                                                                    
                                                                                                                                
Representative  Kelly  explained  that  the  current  version                                                                   
maintains  the   status  quo   [in  relation  to   death  and                                                                   
disability benefits  for certain  employees]. He  argued that                                                                   
the  Mercer  letter clarifies  that  under  the DC  plan  the                                                                   
action is positive and it puts the amendment in context.                                                                        
                                                                                                                                
5:36:40 PM                                                                                                                    
                                                                                                                                
Representative Croft  emphasized that no one  would be paying                                                                   
into the DB  system for the death and disability  benefit. He                                                                   
questioned  how it  would  be funded.  He  opined that  there                                                                   
would be an  additional fiscal impact. He suggested  that the                                                                   
law is being violated.                                                                                                          
                                                                                                                                
5:38:28 PM                                                                                                                    
                                                                                                                                
Representative Hawker expressed  concern that the Committee's                                                                   
action  was out  of compliance  with AS  24.08.036. He  spoke                                                                   
against the legislation.                                                                                                        
                                                                                                                                
5:39:40 PM                                                                                                                    
                                                                                                                                
Representative  Kelly related  that  the dying  rate and  the                                                                   
costs  are  known  and  can be  managed.  He  felt  that  the                                                                   
Committee responded to the actuarial request.                                                                                   
                                                                                                                                
Representative Croft MAINTAINED his OBJECTION.                                                                                  
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Holm,  Kelly,   Moses,  Stoltze,   Foster,  Hawker,                                                                   
Meyer, Chenault                                                                                                                 
OPPOSED: Joule, Croft                                                                                                           
                                                                                                                                
The MOTION PASSED (8-2).                                                                                                        
                                                                                                                                
HCSSB  141 (FIN) was  REPORTED  out of Committee  with  a "no                                                                   
recommendation"  with the following  fiscal impact  notes: #1                                                                   
ADM, #3 REV, #4 REV, #5 REV, #6 REV, #7 REV, #9 FIN.                                                                            
                                                                                                                                

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