Legislature(1997 - 1998)
05/07/1997 03:30 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CSSB 126(FIN) - STATE EMPLOYEES RIP AMENDMENTS Number 345 CHAIRMAN ROKEBERG announced the committee would address CSSB 126(FIN), "An Act relating to the retirement incentive program for state employees; and providing for an effective date." He asked if there was anyone in attendance from the Senate Finance Committee. Number 420 TOM WILLIAMS, Legislative Assistant to Senator Bert Sharp, Alaska State Legislature, read the following statement into the record: "Senate Bill 126 will require state agencies to make better use of the retirement incentive program (RIP) enacted last year. "Soon after the beginning of the legislative session, the Senate Finance Committee took testimony from the Office of Management and Budget (OMB) regarding the Administration's utilization of the RIP program and the savings that had been realized as a result of the implementation. The Administration had chosen a very restrictive and selective approach to implementing RIP program. Consequently, the number of employees who were even offered the opportunity to retire under the plan was small relative to total number of state employees and, therefore, that minimized the potential savings to the state. In other cases, individuals who were offered the opportunity to participate may have chosen to delay their retirement to a later RIP date. "This bill leaves the basic elements of current retirement incentive program in place. However, it adds two principal provisions. First of all, it limits a qualified employee's participation to the first RIP application period for which they qualify; and second, it requires state agencies to offer a RIP plan to all qualified classified state employees during three two-month periods. "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." MR. WILLIAMS said one other main point he would make is although there are a number of proposals that have been put forth to change the tool, this legislation doesn't really change the tool. It just takes steps to ensure that the tool is utilized to the greatest extent possible. It requires the Administration to use the tool to get savings. He encouraged the committee to pass the legislation. Number 849 REPRESENTATIVE GENE KUBINA asked why the legislation only deals with state employees and not school district employees. MR. WILLIAMS explained the idea was basically to look for savings in the Executive Branch. He said that seemed to be where the most concerns were raised about the number of people that were being allowed to participate or even being offered to participate. He noted he has given committee staff information dated March 20, prepared by OMB, titled "Status Report on Approved RIP plans." There is also additional information from the Department of Administration which is an update of the positions in the RIP plan. Mr. Williams indicated he also had additional information, dated May 7, which says that of the 12,000 employees that work for the Executive Branch, 949 were offered to participate in a RIP. He noted this is an improvement from earlier this year as it is up about 50 percent. Previously only 660 employees had actually been offered the opportunity to participate. MR. WILLIAMS said, "If you buy into the assumption that RIP was something good and really would save the state some money, then I think the idea is that RIP ought to be utilized to the greatest extent possible -- and what we weren't seeing, particularly, was a willingness to utilize it to its fullest extent and that was the impetus to this legislation. We are interested in getting some savings and we encourage them to use the tools they've been given." Number 730 REPRESENTATIVE JOE RYAN asked if the program requires the employer to pay the employee's contribution and the employer's contribution into the pension fund for the three-year or four-year period. MR. WILLIAMS informed Mr. Ryan he would have to defer that question to the department. He noted nothing is being changed from last year's RIP plan; it just pushes them to use the plan. Number 783 CHAIRMAN ROKEBERG asked what savings have occurred or should have occurred from the existing program. MR. WILLIAMS said the Administration has not indicated that. He noted there is a fiscal note which says the savings are indeterminate. He suggested that OMB could provide testimony regarding his question. MR. WILLIAMS informed the committee members that there is criteria for offering the RIP to somebody. You have a certain number of years of service, you have to be a certain age and there has to be dollar savings associated with each and every opportunity. Number 908 REPRESENTATIVE BILL HUDSON referred to Representative Ryan's question and said, "If I read this thing correctly, the employer pays the portion of the - I think it's three years, and the employee, essentially, his portion is all (indisc.--coughing) or paid back as a contribution as a part of it by getting a decreased overall retirement plan, so that if he had worked that extra three years and then retired, he'd got his 2 percent times this average of high three at that point in time and it had a certain dollar figure for retirement. By taking the RIP and taking it a little earlier, he ends up with less for the balance of his life." He explained they have a choice to either pay for it or take an actuarial reduced income. There has to be a savings indicated to the state of Alaska over a three-year period of time. Number 1079 CHAIRMAN ROKEBERG brought forth the following amendment: Page 2, following line 7: Insert a new bill section to read: "* SEC. 3. Section 23(c), ch. 4, FSSLA 1996, is amended to read: (c) A proposed retirement incentive plan adopted under this section may not permit an employee who is the governor, the lieutenant governor or a commissioner, deputy commissioner, or assistant commissioner of a principal department of the executive branch to participate in the plan. In the case of each employee who participates in the retirement incentive plan and who is compensated at range 17 or above on the state salary schedule or a comparable level on the salary schedule that applies to the employee, the employing department or agency shall reduce the range for the employee's position by at least one level before hiring a replacement for the employee. For a period of three years after the position became vacant because of the employee's retirement, the state department or agency may not increase the salary range for the position previously held by the retiring employee. The department or agency may only increase the salary range for the position after the three-year period of the increase is recommended by a position classification study." Number 1139 REPRESENTATIVE RYAN moved Amendment 1 for the purpose of discussion. Number 1175 JACK KREINHEDER, Senior Policy Analyst, Office of Management and Budget, Office of the Governor, came before the committee to testify. He stated he wasn't in attendance to testify in support or opposition of the bill. Mr. Kreinheder said he would explain why the Administration took a different approach in the RIP that the legislature enacted last year. Mr. Kreinheder explained that the bill before the committee would convert the RIP currently underway to something that would be virtually identical to the RIPs that were done in 1986, 1987, 1989 and 1990. He said they are generally called across-the-board or blanket RIPs. Anyone who meets the basic age, service requirements and shows a savings could participate under the program. MR. KREINHEDER said, "The main reason the Administration took a different approach with our RIP plan is when they looked at the last program done in 1989-1990, although there were estimates of, I believe, in excess of $6 million of savings by the Division of Legislative Audit, our concern was that only a handful of the positions out of the -- I believe it was 759 state employees that participated in that program -- and only a handful, literally three or four, of those positions were eliminated. So, in our view, while you could calculate savings, it was not used as a downsizing tool, clearly. Virtually, all the positions were refilled. Our Administration's interest was in using the RIP program as a downsizing tool and rather than offering it to all employees and refilling most or all the positions, to use it in the areas of state government that were facing budget reduction or for other reasons, were being downsized. So the idea there is to use an approach which, in our view, is more similar to what most private sector companies would use." Mr. Kreinheder explained that they aren't requiring all positions that participate in the plan to be eliminated. He said they are reviewing the plans carefully and are strongly encouraging departments to look at eliminating positions wherever possible. MR. KREINHEDER referred to projected savings under the current program and asked the committee to look at wording in the information he distributed, "must retire by..." He noted the dates haven't been inserted as a number of the department's have multiple plans. Mr. Kreinheder noted most of the dates in the information haven't occurred yet. That means employees, even those who have applied for the plan, haven't had to retire yet. Experience from the prior plan shows a large number of employees do wait until the last month that they can retire before they elect to go. He noted 247 employees have applied for the program. Mr. Kreinheder said to try and calculate savings at this time is really a stab in the dark. He stated they'll have a much better idea by July 1. Under the bill passed last session, OMB is required to prepare a status report to the legislature by January 15, 1998. Number 1435 REPRESENTATIVE RYAN said in addition to downsizing as much as removing positions, the philosophy behind the program was to take older employees that are at a much higher pay grade and allow them to retire early and fill the position with entry level positions. He asked why the Administration is looking more at eradicating positions than filling them with an entry level position and realizing the savings. MR. KREINHEDER explained the emphasis was on downsizing. He said, "Clearly, we are allowing a majority of the positions to be refilled. One concern is if you look at sort of the paper savings when we review these calculations, you might show somebody being replaced at a lower range saving such and such amount of money. But one thing that's not factored into those calculations is the fact a large number of these employees are already eligible for normal retirement - might retire without the program. So to some extent, those sort of paper savings or projected savings tend to overstate the actual savings from the program and that was a concern when we looked at the savings estimates for the prior program. The estimate that the Division of Legislative Audit did assumed that not a single person who participated in the last program would have retired normally. And they recognized that wasn't really a valid assumption, but they didn't have any means to tell how many of them would have retired without the program so they just ran the numbers as if none would have." Number 1593 REPRESENTATIVE KUBINA asked Chairman Rokeberg if he is ready for a motion on the bill. CHAIRMAN ROKEBERG said he believes there is another witness and noted there is an amendment on the table. MR. KREINHEDER said his office is fully confident that both the current RIP and the proposed change to the program does not in any way jeopardize the funding or the good standing of the PERS or TRS systems. The amount that has to be paid into the retirement system by the both the employer and employee is sufficient when it's invested over time to pay the additional three years of retirement checks or credit that employees would receive under the program. CHAIRMAN ROKEBERG asked Mr. Kreinheder if he has reviewed the amendment. MR. KREINHEDER said he believes he understands the amendment. Number 1684 REPRESENTATIVE KUBINA referred to information the committee members had and said, "The 247 applications they have received, they cut 72 of those - that they're going to delete those positions and 66 of them that they're going to downgrade. I guess my point being here that this Administration has really gone over backwards not to make the mistakes of past RIP bills. They have really looked at trying to make savings, and some people think have gone too far because they haven't (indisc.) people get out of the system. If you compare with what they're doing, it seems like without your amendment they're certainly trying to do that every place that is possible or necessary. Some places, you're amendment might make it where really it's not appropriate to do that - to downgrade." MR. KREINHEDER said the one concern he has with the amendment is that in some cases with the RIP plans they have reviewed, they have run into situations where departments are limited in the extent to which they can downgrade positions. Under the state's classification system, there are restrictions against filling a position or replacing a position at a lower salary if the person filling that position is required to do the same work as the person who left it. He said you can't just pay somebody less if they're doing the same and comparable duties of similar positions in other departments. Mr. Kreinheder suggested checking with the Department of Administration, Division of Personnel. Number 1791 BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits, Department of Administration, came before the committee and apologized for arriving late. He indicated he would try to answer questions. REPRESENTATIVE HUDSON asked Mr. Church if he has any figures showing savings. He also asked who in the Administration is the repository of accumulative savings of a RIP. MR. CHURCH responded, "Certainly as it applies to the overall program, I don't know whether OMB is tracking that or whom. We, within the division, we certainly keep records and we know employer costs. At the end of this week and when the dust settles, we will be able to tell what employer costs were incurred by employees - administrative fees are related to that. So as far as the RIP program itself, we can answer those questions. In actual savings to an individual department, we wouldn't have statistics based on that information." Number 1862 REPRESENTATIVE HUDSON referred to the first RIP and said there were a lot of state employees that took the three years and retired early. The system obviously saved money. He asked, "You haven't had any appreciable effects on the retirement trust funds?" MR. CHURCH responded that is correct. He said all three of the bills have been designed so there is no impact to the retirement funds. The employer cost is designed to compensate the fund for the present value of the additional benefits that someone would receive over their anticipated lifetime. He said this is something that their actuary has been very conscious of over the past two programs and found that they are assuring that there is no effect to the contribution rate of employers. REPRESENTATIVE HUDSON asked how the payments are processed by the various departments. For example, the Department of Administration approves ten individuals to retire. He asked, "What changes hand? Where does the money to pay for that come from? Who to? And ultimately where does it end up?" MR. CHURCH responded, "The departments are billed not for those people that are designated, but only for those individuals who do actually retire on the program. The departments will pay that employer cost. It's paid over three years and the first payment is due by August of the fiscal year following an individual's date of retirement and then one-third until it's paid." Number 2046 REPRESENTATIVE RYAN said the amendment seems to accelerate the process and to bring more people into the system. CHAIRMAN ROKEBERG asked Mr. Williams to come back before the committee and explain his position regarding the amendment. Number 2077 MR. WILLIAMS said he prefers the amendment not be adopted. He explained the reason is that it changes the tool itself. In the Senate Finance Committee there were a number of provisions where people suggested that we change how RIP worked as far as what you and the Administration had to do to qualify. Mr. Williams explained the emphasis of the bill was simply not change the tool, but simply to make sure that the tool was being used. Number 2118 CHAIRMAN ROKEBERG closed the public hearing on CSSB 126(FIN) and asked what the wish is of the committee. REPRESENTATIVE HUDSON said, "Let me just speak for a moment to my perception of Amendment 1. I view this as somewhat attempting to micro mange or to create a set situation that if anybody over the range of 17 has to be hired one grade down and then held static for three years, and the contracts themselves, salary range as well as the statutes, normally provide for the progressive range steps up. I think that by offering this and requiring that they show a savings, without this amendment they'll have the flexibility in some cases of not hiring anybody at all in there and saving the money for the state in that respect -- by getting rid of an employee or perhaps even by combining two positions rather than simply just setting up a sort of a rigid schedule to where if you RIP someone at a 17 or over, you got to drop them a range and then hold them steady. I just think that it's not well thought out is on a long-term basis." Number 2200 CHAIRMAN ROKEBERG said the purpose of the amendment, from his perspective, is that it would provide a tool and mandate that true savings do occur. He said it is his understanding that, historically, that's been one of the difficulties and there has been a true lack of effective savings from the programs. Chairman Rokeberg asked if there was an objection to Amendment 1. REPRESENTATIVE KUBINA and REPRESENTATIVE HUDSON objected. A roll call vote was taken. Representatives Rokeberg and Cowdery voted in favor of the adoption of Amendment 1. Representatives Brice, Kubina, Ryan, Hudson and Sanders voted against the adoption of Amendment 1. So Amendment 1 failed to be adopted. Number 2260 REPRESENTATIVE HUDSON moved and asked unanimous consent to move CSSB 126(FIN), Version F, out of committee with individual recommendations and attached fiscal notes. CHAIRMAN ROKEBERG asked if there was an objection. Hearing none, CSHB 126(FIN) moved out of the House Labor and Commerce Standing Committee.