Legislature(2015 - 2016)HOUSE FINANCE 519
03/31/2015 01:30 PM FINANCE
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HOUSE BILL NO. 135 "An Act establishing a Roth contribution program for the public employees' deferred compensation program; and providing for an effective date." 3:29:50 PM ANDY MILLS, LEGISLATIVE LIAISON, DEPARTMENT OF ADMINISTRATION, explained that the Deputy Commissioner could not be present for the current meeting. He reviewed HB 135. He related that the bill was a way for employees to control the timing of taxation of their deferred contributions. Currently the deferred compensation plan was a pre-tax option. Taxes would be paid at the time of retirement. The bill allowed for another deferred compensation option that was a post-tax plan. Taxes would not be paid in the future. Employees could then have a mix of pre-tax and post-tax options in their retirement portfolios. He furthered that current Alaska statutes only allowed for tax deferred contributions into the plan and was passed in 1973. In 2011, Congress passed legislation that enabled state governments to provide the Roth 457 option. He deduced that the Roth 457 was another option for public employees to diversify their retirement portfolio and merely offered another deferred compensation option. Co-Chair Thompson asked whether the post-tax contribution earnings were taxable. KATHY LEA, CHIEF PENSION OFFICER, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, explained that the objective of a designated ROTH contribution was that the earnings were not taxed upon distribution if they met the qualification rules. The qualification rules required that the Roth account was intact for five tax years, and the member's age was 59 and a half. Representative Guttenberg asked what the benefit for the employee was by opening the Roth through the state. Ms. Lea explained that the designated Roth contribution differed from the private sector Roth IRA because it took on the characteristics of a deferred compensation plan. Therefore, the total contribution was greater than what was allowed in the private sector Roth accounts. In addition. there was not an income requirement to participate in the plan. Representative Guttenberg asked what the maximum contribution was. Ms. Lea responded that the maximum contribution for deferred compensation was $18 thousand per year. She continued that the employee could elect a pre or post tax plan or contribute to both options. The state was required to account for both options differently. 3:35:05 PM Representative Guttenberg asked whether there was an expected rate of return. Ms. Lea stated that Roth 457 was not an investment option it was a taxation option. She indicated that the investment vehicles in the deferred compensation plan remained the same and the rate of return depended upon the investment plans the employee chose. Co-Chair Thompson asked whether the $18 thousand limit on deferred compensation contributions applied to both pre and post tax options. Ms. Lea answered that the limit applied to both options and was the total limit if the employee chose a combination. Co-Chair Neuman wondered why the deferred compensation plan was not set up with both options when the plan was implemented. Ms. Lea explained that the Roth option only became available on January 1, 2011. Representative Pruitt expressed concerns with the state taking on the additional role of financial advisor. He wondered how the state could convey the information to the employees in a way that they could relay the proper information to their personal financial advisor or correctly manage their retirement accounts on their own. Ms. Lea reported that a contribution to the state ROTH 457 would not prohibit an employee from also contributing to a private sector Roth IRA. The plan also provided some optional financial education and advice to employees. Representative Pruitt misunderstood the plan and thought that $18 thousand limit was the full contribution an employee could make in both the state and private plans. 3:40:08 PM Mr. Mills commented that retirement investments were highly personalized and noted the probable benefits of a post-tax option. He thought that the additional plan "empowered employees with options." Vice-Chair Saddler stated that the Roth 457 was simply a different vehicle to manage deferred compensation. 3:41:19 PM HB 135 was HEARD and HELD in committee for further consideration.