02/02/2009 03:15 PM House LABOR & COMMERCE

HB 87 - MED BENEFITS OF DISABLED PEACE OFFICERS                                                                               
                                                                                                                                
3:18:55 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced that the first order of business would be                                                                 
HOUSE BILL NO. 87, "An Act  waiving payment of premiums for major                                                               
medical insurance  under the defined benefit  retirement plan for                                                               
public employees  for disabled peace  officers who have  at least                                                               
20 years of credited service as peace officers."                                                                                
                                                                                                                                
3:19:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT, Alaska  State Legislature, introduced her                                                               
staff,  Ryan  Makinster.   She  briefly  explained  HB 87.    She                                                               
                                                       thth                                                                     
offered that if peace officers who are between their 20   and 25                                                                
years of  employment become disabled,  they will not  receive any                                                               
major  medical coverage  until they  reach the  age of  60.   She                                                               
offered her  belief that this  gap was an  unintended consequence                                                               
of legislation that  passed the legislature in  1986 that created                                                               
Tier II and  Tier III state employees.  She  said she anticipates                                                               
that HB 87 will be held  over to allow time to provide additional                                                               
actuarial information.                                                                                                          
                                                                                                                                
3:20:36 PM                                                                                                                    
                                                                                                                                
RYAN  MAKINSTER, Staff  to Representative  Millett, Alaska  State                                                               
Legislature, explained  on behalf of  the prime sponsor,  that HB
  seeks to  make a  change for  a gap  in the  Public Employees                                                               
Retirement System  (PERS) disabled  coverage.  He  explained that                                                               
public safety employees are eligible  to retire after 20 years of                                                               
service, instead  of the 25  years of service required  for other                                                               
state employees.   Thus, the period  of time from 20  to 25 years                                                               
causes a  problem for  the public safety  employees.   He related                                                               
that  under  the  current  statute,  a  person  is  eligible  for                                                               
disabled coverage  for full  major medical  benefits if  they are                                                               
disabled  while  he/she  is  a member.    Retired  public  safety                                                               
employees are  not technically  members of  the plan  during that                                                               
five-year  gap period,  he stated.   He  commented that  the bill                                                               
drafter  also restructured  the  proposed  statute somewhat,  but                                                               
those changes were only technical in nature.                                                                                    
                                                                                                                                
3:22:29 PM                                                                                                                    
                                                                                                                                
MR. MAKINSTER,  in response  to Chair  Olson, explained  that the                                                               
fiscal  note for  fiscal year  (FY)  2010, should  list $12.8  to                                                               
reflect thousands  instead of  millions.   Additionally, one-time                                                               
programming  costs   will  be  incurred  to   add  the  necessary                                                               
requirements  of  HB  87  to   the  Division  of  Retirement  and                                                               
Benefits' computer system.                                                                                                      
                                                                                                                                
3:23:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   COGHILL  asked   whether   it   would  cause   a                                                               
constitutional   issue   if   the   legislature   increased   the                                                               
requirements for  public safety employees retirement  age from 20                                                               
to 25 years of service.                                                                                                         
                                                                                                                                
REPRESENTATIVE  MILLETT  offered  her belief  that  the  benefits                                                               
could not be diminished.  She  explained HB 87 would increase the                                                               
unfunded liability by $567,000, by  lowering the years of service                                                               
eligibility for occupational disability  medical coverage from 25                                                               
to  20  years.   She  elaborated  that  payment amount  would  be                                                               
amortized  over 25  years.   The fiscal  note also  reflects that                                                               
more  employees  will be  added  into  this category  over  time.                                                               
Thus, for  FY 11,  the increase  in annual  employer contribution                                                               
would be $67 thousand.                                                                                                          
                                                                                                                                
REPRESENTATIVE COGHILL inquired as to  whether the gap is for all                                                               
medical  insurance  or if  an  employee  who becomes  a  disabled                                                               
person in  the gap situation  would have any health  insurance at                                                               
all.                                                                                                                            
                                                                                                                                
MR. MAKINSTER answered that the  disabled person would have major                                                               
medical  coverage, but  would be  responsible  for the  premiums,                                                               
which otherwise are paid for by the plan.                                                                                       
                                                                                                                                
MR. MAKINSTER,  in response  to Representative  Coghill, answered                                                               
that he was not sure of the premium amounts.                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL  said it  seemed as  though the  effect of                                                               
the changes  will be to transfer  some of the risk.   He recalled                                                               
several discussions  years ago that  the trade-off for  a 20-year                                                               
retirement,  whose purpose  was  to retain  a  young and  vibrant                                                               
workforce,  was  that  its  members would  not  be  eligible  for                                                               
benefits  until year  25.   He said  he could  not recall  if the                                                               
disability factor was part of the  discussion.  He inquired as to                                                               
whether the  state would pick up  the risk of paying  the premium                                                               
or if it is passed on to the employee.                                                                                          
                                                                                                                                
MR. MAKINSTER offered that he  is researching the original intent                                                               
of  the early  retirement  plan for  public  safety employees  to                                                               
determine  if   provisions  for  disability   were  inadvertently                                                               
omitted.                                                                                                                        
                                                                                                                                
3:27:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN  asked for  the  reason  that the  gap  in                                                               
premium  coverage for  disability  is just  now  surfacing as  an                                                               
issue if the statute changed in 1986.                                                                                           
                                                                                                                                
MR. MAKINSTER answered that until  recently, no employee has been                                                               
affected.  He  offered that some employees  have recently entered                                                               
the  20 to  25 year  window.   He recalled  that a  public safety                                                               
employee Fairbanks was recently affected.                                                                                       
                                                                                                                                
3:28:30 PM                                                                                                                    
                                                                                                                                
MR.  MAKINSTER, in  further  response  to Representative  Neuman,                                                               
explained  that  the  perceived gap  referred  to  the  technical                                                               
definition of "disabled member,"  since eligibility requires that                                                               
the person must  be part of the retirement system.   However, the                                                               
way the statute  has been interpreted, in order to  be a member a                                                               
person  must be  part  of the  defined  benefit membership  plan.                                                               
However,  if an  employee  opted out  of the  plan  at 20  years,                                                               
he/she  is  not considered  eligible.    In further  response  to                                                               
Representative Neuman, Mr. Makinster  reiterated that the sponsor                                                               
is seeking clarification  on the original intent  of the coverage                                                               
for  those employees  who are  eligible for  retirement after  20                                                               
years of service.                                                                                                               
                                                                                                                                
3:30:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL referred to  the fiscal note that mentions                                                               
the total population  affected by HB 87 equals 2,275  Tier II and                                                               
Tier III peace  officer and firefighter members.   He inquired as                                                               
to what the  normal demographic for injuries is by  age group and                                                               
stratification.                                                                                                                 
                                                                                                                                
MR. MAKINSTER offered  that was not certain but  offered that the                                                               
DOA  would be  testifying and  could answer  questions about  the                                                               
actuarial amounts.                                                                                                              
                                                                                                                                
3:33:26 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON,  in response to Representative  Chenault, offered to                                                               
have  someone  from the  consultant  group,  Buck Consultants  of                                                               
Denver, Colorado, participate at the  next hearing to explain the                                                               
cost  estimates  for allowing  paid  medical  benefits for  peace                                                               
officer and firefighter members with  20 years of service instead                                                               
of 25 years of service.                                                                                                         
                                                                                                                                
3:33:49 PM                                                                                                                    
                                                                                                                                
JEFF  BRIGGS,  Alaska   Professional  Fire  Fighters  Association                                                               
(APFFA), explained  that his  association, the  Professional Fire                                                               
Fighters  Association (APFFA)  first  learned  about the  medical                                                               
coverage gap last winter.  He  related that the issue is referred                                                               
to by  the PFFA  as the  "PERS gap".   He related  that Anchorage                                                               
members  belong to  a  municipal retirement  system  so the  only                                                               
firefighter in his  department that is currently  affected by the                                                               
PERS  gap  is  someone  who  transferred  in  from  another  fire                                                               
department.    He  surmised that  most  of  their  organization's                                                               
members are in PERS, with 14  years employment tenure.  Thus, his                                                               
department's employees are still 6 or  7 years away from the PERS                                                               
gap.   However,  he offered  his understanding  that quite  a few                                                               
firefighter members in Fairbanks and  a few members in Juneau are                                                               
affected by the PERS  gap.  One of the concerns  the APFFA has is                                                               
that  an employee  who  is injured  with 10  years  plus a  day's                                                               
service will  receive more  benefits than  someone with  25 years                                                               
employment.   Thus, once  an employee is  injured at  the 20-year                                                               
service  mark,  he/she  is  penalized.    He  recalled  that  the                                                               
Anchorage Fire  Department suffered  a large exodus  of retirees,                                                               
who   were  then   rehired  as   contractors  to   train  younger                                                               
firefighters.   In  his experience,  the injury  rate for  senior                                                               
firefighters has not been an  issue since the senior firefighters                                                               
have substantial training and experience,  and are less likely to                                                               
be injured on the job, he opined.                                                                                               
                                                                                                                                
MR. BRIGGS related his understanding  that the reason for the 20-                                                               
year  retirement was  to entice  peace  officers and  firefighter                                                               
members to  stay on the job  longer to seek an  early retirement.                                                               
He offered his belief that his  department has not been harmed by                                                               
the PERS gap to date.   However, as time passes more firefighters                                                               
could be  affected, he noted.   He related that  firefighters are                                                               
in the  business of taking  risks, and understand that  any given                                                               
day could  result in their injury  or death.  He  related his own                                                               
experience, noting that a few weeks  ago he had to dive through a                                                               
window into a  burning house with limited visibility  in order to                                                               
perform a rescue.  He  opined that firefighters continually weigh                                                               
risks   versus  benefits.     He   concluded   by  stating   that                                                               
firefighters should  not have  to worry  about whether  they have                                                               
medical coverage in the event that  they are injured while on the                                                               
job attempting to rescue or save someone.                                                                                       
                                                                                                                                
3:37:46 PM                                                                                                                    
                                                                                                                                
KEVIN BROOKS,  Deputy Commissioner,  Office of  the Commissioner,                                                               
Department  of Administration  (DOA), explained  that the  DOA is                                                               
aware  of  the unfunded  status  of  Public Employees  Retirement                                                               
System (PERS)  and Teacher Retirement  System (TRS).   He related                                                               
that  HB 87  would  add  over $500,000  to  the unfunded  status.                                                               
Therefore, the DOA is concerned since  this bill would add to the                                                               
unfunded  status.    He  explained  that  the  DOA  is  currently                                                               
investigating the history of the PERS  gap.  He stated that based                                                               
on prior testimony, the issue arose  in 1986, with the passage of                                                               
enabling  legislation for  Tier  II implementation.   He  offered                                                               
that a  few years ago the  DOA undertook an exhaustive  review of                                                               
all pension  plans when Senate  Bill 141 passed  the legislature.                                                               
The Department  of Law is  also assisting the DOA  in researching                                                               
the legislative history on this "gap" issue, he advised.                                                                        
                                                                                                                                
3:39:11 PM                                                                                                                    
                                                                                                                                
MR. BROOKS, in  response to Chair Olson, stated that  the DOA has                                                               
asked  the actuaries  some questions  about the  unfunded status.                                                               
Additionally,  the DOA  is also  considering  impacts that  other                                                               
legislation  may have  that could  make changes  to the  tiers or                                                               
defined benefit plans.   He said he hopes to  receive an analysis                                                               
in  a few  weeks  from  the actuaries.    He  offered to  provide                                                               
commentary and  written comments  at that time.   He  welcomed to                                                               
present  any  additional  questions   by  the  committee  to  the                                                               
actuaries.  However, he highlighted  that the DOA is charged fees                                                               
for any services  the actuaries provide.  Thus, he  said that the                                                               
DOA    carefully   prepares    concise   questions    for   their                                                               
consideration.   In further response  to Chair Olson,  Mr. Brooks                                                               
answered  that  the  DOA  is  neutral on  HB  87  at  this  time.                                                               
However,  once additional  information  is acquired,  he said  he                                                               
thought that the DOA's position would probably broaden.                                                                         
                                                                                                                                
3:41:18 PM                                                                                                                    
                                                                                                                                
MR. BROOKS,  in response to Representative  Neuman, answered that                                                               
the bill as written is specifically  defined.  He said he did not                                                               
perceive that  HB 87,  in and  of itself  would open  dialogue on                                                               
defined benefits and defined contributions.                                                                                     
                                                                                                                                
REPRESENTATIVE  COGHILL  stated  his interest  in  reviewing  new                                                               
figures on the  fiscal note, since it will make  a big difference                                                               
whether  the projected  costs are  $567,000 or  $10 billion.   He                                                               
surmised that the  committee will need to make  a policy decision                                                               
on the  cost to keep work  force employed.   He   inquired  as to                                                               
whether  members still  contribute  to the  retirement system  if                                                               
they  are  employed  during  the   20  -  25  year  time  period.                                                               
Additionally, he inquired as to  whether members make co-payments                                                               
on their medical claims.                                                                                                        
                                                                                                                                
3:43:44 PM                                                                                                                    
                                                                                                                                
PAT  SHIER,   Director,  Division   of  Retirement   &  Benefits,                                                               
Department  of  Administration  (DOA), answered  yes,  if  public                                                               
safety employees remain employed,  both the employer and employee                                                               
make  contributions into  the employee's  retirement system.   In                                                               
further response to Representative  Coghill, Mr. Shier noted that                                                               
employees can pay  the amount of the premium.   He clarified that                                                               
the cost  is not really  a premium to  health plan, but  would be                                                               
paid from  the retirement  health trust  unless the  employee was                                                               
disabled.   In that instance,  the disabled employee  would incur                                                               
the cost  of the premiums, he  related.  He provided  the current                                                               
amount of  the premium for  an employee who was  disabled between                                                               
the 20 -  25 years of service  as $590 per month.   The amount of                                                               
the premium  would vary, he  noted.   Thus, the coverage  for the                                                               
retiree  and a  child would  be $833;  for a  retiree and  spouse                                                               
would be  $1179; and for  the retiree  and family would  be $1423                                                               
per month.  He offered that  a disabled retiree might seek to get                                                               
coverage  elsewhere if  they could,  but  would need  to pay  the                                                               
premium  costs if  he/she wanted  to  stay in  the current  state                                                               
health plan.                                                                                                                    
                                                                                                                                
3:46:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL  reiterated his belief that  the committee                                                               
will need  to make a  policy decision  on the benefits  and costs                                                               
necessary to keep the public safety work force employed.                                                                        
                                                                                                                                
MR. BROOKS,  in response  to a  prior question  by Representative                                                               
Chenault, clarified that $567,000 estimate  is an estimate of the                                                               
change in the  present value of the future  benefits.  Therefore,                                                               
paying the cost over time could result in a greater cash stream.                                                                
                                                                                                                                
3:47:51 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed  public testimony  on HB 87.   He  announced that                                                               
HB 87 would be held over.