Legislature(2013 - 2014)BARNES 124

04/05/2013 03:15 PM LABOR & COMMERCE


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03:20:31 PM Start
03:21:13 PM Confirmation Hearings|| Regulatory Commission of Alaska|| Board of Marine Pilots|| Board of Pharmacy|| Alaska Workers' Compensation Board
03:35:37 PM HB32
03:46:35 PM HB150
04:08:27 PM SB52
04:21:03 PM HB121
04:36:18 PM HB152
05:00:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearings: TELECONFERENCED
- Board of Marine Pilots
- Board of Pharmacy
- Alaska Workers' Compensation Board
- Regulatory Commission of Alaska
<Above Item Rescheduled from 3/29/13>
+= HB 32 LINES OF BUSINESS ON BUSINESS LICENSE TELECONFERENCED
Moved CSHB 32(L&C) Out of Committee
*+ HB 150 TECHNICAL/VOCATIONAL EDUCATION PROGRAM TELECONFERENCED
Moved CSHB 150(L&C) Out of Committee
+ SB 52 PORTABLE ELECTRONICS INSURANCE TELECONFERENCED
Moved HCS CSSB 52(L&C) Out of Committee
*+ HB 169 RCA REGULATION OF TELEPHONE DIRECTORIES TELECONFERENCED
<Bill Hearing Canceled>
*+ HB 121 COMMERCIAL FISHING & AGRICULTURE BANK TELECONFERENCED
Moved Out of Committee
*+ HB 152 PERS TERMINATION COSTS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 HB 152-PERS TERMINATION COSTS                                                                              
                                                                                                                                
4:36:18 PM                                                                                                                    
                                                                                                                                
VICE CHAIR  REINBOLD announced that  the final order  of business                                                               
would be HOUSE BILL NO.  152, "An Act requiring certain employers                                                               
who  terminate participation  in the  defined benefit  retirement                                                               
plan or  the defined contribution  retirement plan of  the Public                                                               
Employees'  Retirement System  to make  contributions related  to                                                               
past  service liability  and pay  termination costs;  repealing a                                                               
requirement  that employers  who terminate  participation in  the                                                               
defined  contribution  retirement  plan or  the  defined  benefit                                                               
retirement plan  of the Public  Employees' Retirement  System pay                                                               
for  a termination  cost study;  and providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
4:36:33 PM                                                                                                                    
                                                                                                                                
JANE PIERSON, Staff, Representative  Steve Thompson, Alaska State                                                               
Legislature,  speaking  on  behalf  of the  sponsor  of  HB  152,                                                               
Representative  Thompson, said  the state's  termination studies,                                                               
laws, and  regulations make it  difficult and more  expensive for                                                               
municipal  employers to  deliver their  programs and  services by                                                               
requiring  an   employer  that  terminates  participation   of  a                                                               
department group  or other  classification of  employee to  pay a                                                               
series of  actuarially-determined costs.  The  municipalities are                                                               
working toward modernizing  and standardizing job classifications                                                               
and although  that may  result in  fewer job  classifications, it                                                               
may  not necessarily  result  in fewer  employees.   Current  law                                                               
unnecessarily  requires termination  studies and  costs for  such                                                               
actions.     The  municipalities  really  need   the  operational                                                               
flexibility  to  effectively  manage  and  deliver  programs  and                                                               
services while  continuing to contribute toward  paying off their                                                               
debts  associated with  the Public  Employees' Retirement  System                                                               
(PERS).   Paying off  the unfunded  PERS liability  is predicated                                                               
upon  a stable  and reasonably  growing system-wide  salary base.                                                               
System-wide  salaries  for   defined  contributions  and  defined                                                               
benefits have increased by $325  million or 18.6 percent over the                                                               
base salary floor,  which was established in 2008  by Senate Bill                                                               
125 in the 25th legislature.   As a result, contributions for the                                                               
unfunded  liability have  increased at  a rate  greater than  the                                                               
actuarially assumed annual  growth rate of 4 percent.   This bill                                                               
would maintain  the PERS contribution floor  while employers must                                                               
pay whichever  is greater, 22  percent of their  current combined                                                               
defined  benefit  and  defined  contribution salary  base  or  an                                                               
amount based  on their total  payroll for the period  ending June                                                               
30, 2008.                                                                                                                       
                                                                                                                                
4:39:28 PM                                                                                                                    
                                                                                                                                
MS.  PIERSON  said  HB  152 would  replace  the  requirement  for                                                               
termination  studies  with  formula  driven  partial  termination                                                               
cost, as  follows:   20 percent  flexibility for  employers whose                                                               
total payroll is greater than  $5,000,000, which is 93 percent of                                                               
employers in  FY 12; 50  percent flexibility for  employers whose                                                               
total payroll  is between $1-$5  million, which was 6  percent of                                                               
employers in  FY 12; and  the study  would not be  applicable for                                                               
employers whose total payroll is  less than $1,000,000, which was                                                               
1 percent of employers in FY 12.   Using the data that is readily                                                               
available, the amount by which  an employer's terminated salaries                                                               
are  calculated to  exceed the  20-50 percent  threshold would be                                                               
applied to the  current past service contribution  rate, which is                                                               
currently 24.19  percent, and would  then be paid  annually until                                                               
the unfunded PERS liability is paid off.                                                                                        
                                                                                                                                
4:40:24 PM                                                                                                                    
                                                                                                                                
MS.  PIERSON provided  a brief  sectional analysis  of the  bill.                                                               
Section 1 would  retain the minimum requirement  for employers to                                                               
make contributions  based on 22  percent of the greater  of their                                                               
current  salary  base   or  the  salary  base   as  of  6/30/2008                                                               
regardless of termination participation  from the defined benefit                                                               
plan.   Section  2 would  place the  requirement for  termination                                                               
costs  studies performed  by the  actuary with  termination costs                                                               
determined  via   formula  as   follows:     partial  termination                                                               
thresholds,  based  on  20  percent  for  employers  whose  total                                                               
payroll is greater  than $5,000,000 and 50  percent for employers                                                               
whose total  payroll is greater  than $1-5  million; [termination                                                               
costs] are  not applicable for  employers whose total  payroll is                                                               
under  $1 million.    Section 2  would  establish a  rolling-tier                                                               
period  for  which  costs  from  partial  terminations  would  be                                                               
determined, it  use readily available  data, and  establishes the                                                               
formula for  determining termination costs.   Thus any terminated                                                               
salary beyond the threshold of  20-50 percent would be applied to                                                               
the current past  service contribution rate and  be paid annually                                                               
until the  past service liability is  paid in full.   The formula                                                               
is  simple  and  does  not  require  any  consultant  fee.    She                                                               
explained it  would be  an amount by  which an  employer's salary                                                               
base  exceeds its  salary  base  from two  years  prior by  20-50                                                               
percent, depending  on the current  salary base  level multiplied                                                               
by the  past service  contribution rate  multiplied by  the total                                                               
years to  pay down  the total unfunded  liability.   For example,                                                               
$100,000   multiplied  by   24  would   equal  $24,000   annually                                                               
multiplied by 30 years would equal $720,000, she said.                                                                          
                                                                                                                                
4:42:18 PM                                                                                                                    
                                                                                                                                
MS.  PIERSON related  that  Sections  3, 4,  and  5 correlate  to                                                               
Section  2,  but  pertain  to   the  defined  contribution  plan.                                                               
Section  6 would  repeal language  requiring a  termination study                                                               
for  an   employer  that  requests  termination   from  the  plan                                                               
altogether, but  such an employer  would still be subject  to the                                                               
base floor.   This  would also annul  the regulation  that covers                                                               
the calculation  of termination cost  studies.  Sections 8  and 9                                                               
would  add  applicability  retroactively to  allow  employers  to                                                               
discontinue any payments  after the effective date of  the act in                                                               
which an  employer would  not have  had to pay  if a  new formula                                                               
were in  place after June  30, 2008.   The last  section, Section                                                               
10, would add the effective date.                                                                                               
                                                                                                                                
4:43:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked for  clarification on  the amount                                                               
of the fiscal note.                                                                                                             
                                                                                                                                
MS. PIERSON answered that the  fiscal impact is $6,772,000 for FY                                                               
14  and continues  to FY  19 in  the amount  of $7,462,000.   She                                                               
acknowledged this bill has quite a hefty fiscal note.                                                                           
                                                                                                                                
4:44:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked  whether   the  fiscal  note  is                                                               
indefinite until the terminated employees are deceased.                                                                         
                                                                                                                                
MS. PIERSON answered  that it would be indefinite  until PERS and                                                               
the Teachers Retirement  System (TRS) of $11  billion in unfunded                                                               
liability is paid off.                                                                                                          
                                                                                                                                
4:44:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked whether this  would add to the $11                                                               
billion.                                                                                                                        
                                                                                                                                
MS. PIERSON  clarified that it would  not add to the  $11 billion                                                               
but  rather would  be a  shift  away from  municipalities to  the                                                               
state.                                                                                                                          
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked whether some  municipalities have                                                               
instituted  plans  to stay  on  top  of these  obligations  while                                                               
others have not.                                                                                                                
                                                                                                                                
MS. PIERSON related her understanding  that every municipality is                                                               
now required to adhere to same  standards, but some have not been                                                               
able to pay their portion of the unfunded liability.                                                                            
                                                                                                                                
4:45:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  noted that he  filed a bill  that would                                                               
increase   revenue  sharing   to   municipalities;  however,   he                                                               
expressed  concern.    He  recalled  that in  2008  or  2010  the                                                               
legislature  devised a  plan that  was curative  and supposed  to                                                               
solve this problem.                                                                                                             
                                                                                                                                
MS.  PIERSON  replied that  in  2008,  the state  discovered  the                                                               
actuarial figures  were not accurate.   At  the time a  base rate                                                               
was  put  on  all  municipalities and  termination  studies  were                                                               
required when an  employee is terminated.   However, she recalled                                                               
a  scenario   in  which  the  Municipality   of  Anchorage  (MOA)                                                               
transferred its weatherization  department to another [municipal]                                                               
agency and  although no employees  were actually  terminated, the                                                               
MOA still had to pay termination costs and studies.                                                                             
                                                                                                                                
4:47:15 PM                                                                                                                    
                                                                                                                                
LUCINDA  MAHONEY, Chief  Fiscal  Officer  (CFO), Municipality  of                                                               
Anchorage  (MOA), stated  at the  time  termination studies  were                                                               
implemented in  2008, there  was a  concern that  employers might                                                               
contract out  municipal positions  to avoid  the 22  percent PERS                                                               
cost,  thus  shrinking  the  PERS  base needed  to  pay  off  the                                                               
unfunded  liability.   As  Ms.  Pierson  indicated this  has  not                                                               
happened,  she said.    In  fact, since  2008,  on a  system-wide                                                               
basis, the salaries  have increased by $325 million,  which is at                                                               
a rate which is higher than  what the actuary uses in determining                                                               
and calculating  the unfunded  liability.   In essence,  the fear                                                               
that  initiated   the  change   in  statute   in  2008   has  not                                                               
materialized.   As the CFO of  the largest city in  Alaska, it is                                                               
important the MOA  has flexibility to manage its  workforce.  For                                                               
example, the  MOA may not receive  a state or federal  grant, and                                                               
if so,  may need to lay  off employees when the  federal grant is                                                               
not  received.   Additionally,  the  MOA  may transfer  employees                                                               
within  job  classifications  and  a job  classification  may  no                                                               
longer be  used, which  would also  trigger a  termination study;                                                               
however,  the  MOA  has  been   standardizing  many  of  its  job                                                               
classifications,  which may  not result  in fewer  employees, but                                                               
may   result   in   fewer  classifications.      Therefore,   the                                                               
aforementioned could  trigger a  termination study and  cause the                                                               
MOA to unnecessarily pay into the  program.  She asked members to                                                               
consider  this bill  since municipalities,  such as  the MOA  and                                                               
very small  cities, are being punished  for creating efficiencies                                                               
to modernize the workforce.                                                                                                     
                                                                                                                                
4:51:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  questioned  whether  this  legislation                                                               
would  be necessary,  if the  administration  had not  introduced                                                               
Administrative Order (AO) 37 in early February.                                                                                 
                                                                                                                                
MS. MAHONEY answered that the bill has no effect on AO 37.                                                                      
                                                                                                                                
REPRESENTATIVE JOSEPHSON  questioned whether the MOA  would still                                                               
need  to  cover  some of  the  prior  PERS  if  some of  the  MOA                                                               
municipal workforce  is privatized as  the MOA will not  have the                                                               
salary base.                                                                                                                    
                                                                                                                                
MS.  MAHONEY answered  that  if  the MOA  were  to privatize  any                                                               
portion of  workforce, the bill  would look to the  sliding scale                                                               
proposed.   For example, the  MOA would consider the  average two                                                               
years' worth  of salaries and  if the  change is greater  than 20                                                               
percent,  the  MOA would  pay  for  that  component of  the  PERS                                                               
termination study  and would  pay the liability  until 2030.   In                                                               
brief,  this  bill  recognizes  the  goal  of  municipalities  to                                                               
continue  to   contribute  to  help   bring  down   the  unfunded                                                               
liability.  However, the MOA has  suggested a sharing of the cost                                                               
depending on triggers and the size of the community.                                                                            
                                                                                                                                
4:53:20 PM                                                                                                                    
                                                                                                                                
LUKE  HOPKINS,  Mayor,  Fairbanks   North  Star  Borough  (FNSB),                                                               
offered the FNSB's support for HB  152.  He acknowledged that the                                                               
unfunded  liability needs  to be  paid off  and agrees  to fairly                                                               
sharing  these obligations.   However,  in  considering the  PERS                                                               
termination aspect based  on the number of  employees, the salary                                                               
floor  is  important.    He  pointed  out  that  the  salary  has                                                               
increased about  19 percent and  the termination study,  law, and                                                               
regulations   have   created   unintended   consequences,   which                                                               
adversely  impact municipalities  with regard  to managing  their                                                               
workforce.   He  offered  his  belief that  this  bill, with  its                                                               
sliding scale, would  be a fair and equitable  method to continue                                                               
to pay the FNSB's  portion of the debt as it  has done each year.                                                               
He reiterated support for HB 152.                                                                                               
                                                                                                                                
4:54:57 PM                                                                                                                    
                                                                                                                                
SALLIE STUVEK,  Director, Human  Resources, Fairbanks  North Star                                                               
Borough  (FNSB), stated  that  HB  152 is  a  positive bill  that                                                               
addresses serious  concerns with  the existing  statutes relating                                                               
to  the  triggering  of  termination   studies.    Management  of                                                               
municipal employees  is dynamic  and fluctuates based  on service                                                               
needs.    She  said  that  flexibility  is  necessary,  based  on                                                               
programs and  services that are  offered.  For example,  the FNSB                                                               
might need to hire additional  librarians based on public demand,                                                               
but  may  need  fewer  lifeguards   this  year.    This  type  of                                                               
flexibility is critical for efficient  delivery of services.  She                                                               
offered her  belief that tying  the need for a  termination study                                                               
to  the  base salary  makes  more  sense  than  tying it  to  the                                                               
classification,  department,   or  division.    As   Ms.  Mahoney                                                               
testified  earlier, the  FNSB shares  concern about  the lack  of                                                               
flexibility.  She thanked members for consideration of HB 152.                                                                  
                                                                                                                                
4:56:14 PM                                                                                                                    
                                                                                                                                
KATHIE  WASSERMAN, Executive  Director,  Alaska Municipal  League                                                               
(AML), stated  the AML is in  support of HB 152.   She emphasized                                                               
the main thing is  to get this topic on the  table.  She reminded                                                               
the committee that  the AML represents all  162 municipalities in                                                               
the  state  who  feel  the   repercussions  from  this  statutory                                                               
structure.   Accordingly, the  biggest outcome  is municipalities                                                               
cannot manage their personnel.   For example, [termination costs]                                                               
affect  small municipalities,  such  that if  a municipality  has                                                               
four  employees  and the  population  decreases  or finances  are                                                               
reduced  and one  person  is  placed in  layoff  status, it  will                                                               
trigger  a termination  study.   Under AS  39.35, this  means the                                                               
municipality must pay termination costs  over the long term until                                                               
the liability is  paid off.  This  could take up to  25 years and                                                               
represents  a huge  expense  for  a small  community.   For  this                                                               
reason,  the state  needs to  find a  solution to  work with  the                                                               
municipalities to resolve this issue.   She acknowledged this may                                                               
not  be easy,  since  the unfunded  liability  represents an  $11                                                               
billion  shortfall;  however,  the  termination  study  provision                                                               
adversely  impacts   all  communities  and  prevents   them  from                                                               
managing  their personnel.   In  fact,  some municipalities  have                                                               
decided  not to  lay off  employees since  they can't  afford the                                                               
outcome, which seems  backwards.  She remarked that  it has taken                                                               
her many  years to get to  the point of fully  understanding this                                                               
issue since it is complicated.                                                                                                  
                                                                                                                                
4:58:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON understood this  bill raises two issues.                                                               
First, it  raises the  issue of the  cost of  termination studies                                                               
and  second, it  raises the  issue of  the even  greater cost  of                                                               
funding vested liability for those employees not on payroll.                                                                    
                                                                                                                                
MS. WASSERMAN  answered yes.   In further response, she  said the                                                               
obligation is  not based on  the individual, but on  the position                                                               
that  no longer  exists.   For example,  this first  came to  the                                                               
AML's attention when a municipal  fire chief position was changed                                                               
to an  emergency medical  services director,  but the  person was                                                               
retained  by  the  municipality,   yet  the  change  triggered  a                                                               
termination study since the position was dissolved.                                                                             
                                                                                                                                
[HB 152 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB121 ver A.pdf HL&C 4/5/2013 3:15:00 PM
HB 121
HB121 Sponsor Statement.pdf HL&C 4/5/2013 3:15:00 PM
HB 121
HB121 Sectional Analysis.pdf HL&C 4/5/2013 3:15:00 PM
HB 121
HB121 Fiscal Note-DCCED-DBS-03-29-13.pdf HL&C 4/5/2013 3:15:00 PM
HB 121
HB121 Supporting Documents-Statutes CFAB AS 44.pdf HL&C 4/5/2013 3:15:00 PM
HB 121
SB52 ver C.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Sponsor Statement.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Sectional Analysis.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Fiscal Note-DCCED-DOI 03-19-13.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Draft Proposed CS ver O(L&C) .PDF HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Supporting Documents Article Colorado Springs Gazette 4-6-2012.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Supporting Documents Article Ezine Articles.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Supporting Documents Article The Street Personal Finance 2-13-2013.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Supporting Documents Legislation Summary.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Supporting Documents Letter ATT 2-22-2013.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
SB52 Supporting Documents States_with_Similar_Legislation.pdf HL&C 4/5/2013 3:15:00 PM
SB 52
HB150 ver U.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Sponsor Statement.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Fiscal Note-DOLWD-CO-3-29-13.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Fiscal Note-EED-TLS-4-2-13.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Fiscal Note-UA-SYSBRA-4-02-13.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Draft Proposed CS ver N.PDF HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Supporting Documents-Alaska Training Program Performance 2012.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Supporting Documents-Assorted Letters.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Supporting Documents-Distribution History.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Supporting Documents-Distribution History-CORRECTED 4-3-13.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Supporting Documents-DOLWD TVEP Helped Fund.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Supporting Documents-Fund Source Report.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB150 Supporting Documents-Unemployment Rates.pdf HL&C 4/5/2013 3:15:00 PM
HB 150
HB152 Fiscal Note-DOA-DRB-4-03-13.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Ver C.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Sponsor Statement ver. C.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Sectional Analysis.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-PERS Employer Salaries FY08 vs. FY12.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152