Legislature(1999 - 2000)
04/11/2000 08:05 AM House STA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 85-CREDITED SERVICE FOR TEMP EMPLOYEES:PERS Number 0099 CHAIR JAMES announced the first order of business is CS FOR SENATE BILL NO. 85(RLS), "An Act relating to credited service in the public employees' retirement system for temporary employment." JEAN SMITH, Legislative Administrative Assistant to Senator Jerry Mackie, Alaska State Legislature, presented the sponsor statement for SB 85 on behalf of Senator Mackie. She said SB 85 is a familiar piece of legislation that has actually been around several times since 1992; it became more important as departments tried to minimize impact of downsizing because it is a simple mechanism to cut personnel costs. She explained that currently temporary employees in the Public Employees' Retirement System (PERS) can buy back their temporary time; however, it does not count toward their minimum service needed for retirement. She stated that SB 85 amends the statutes that would allow employees to buy up their temporary time and have it credited. MS. SMITH commented that SB 85 also amends the statutes by adding a public service benefit that entitles a person to a retirement benefit if he/she had at least two years of paid-up PERS service and a total of at least five years of combined PERS and Teachers Retirement System (TRS) service. When the Department of Education switched from PERS to TRS years ago, the employees that were in PERS were not able to count that time toward their retirement, so they got caught in the middle. Temporary service under the retirement system provides that the full actuarial cost of using this temporary service be paid by the employee, and there are absolutely no general funds involved in the proposal. She informed the committee that there is a $4,000 designated PERS fund source for computer modification, and the legislation will allow the state to realize immediate cost savings by enabling employees to meet retirement eligibility thresholds sooner. Employees prone to use SB 85 are in the Tier I system, and employees replacing Tier I employees generally would be Tier II and III. She acknowledged that not only are their steps lower, but the supplemental benefits cost to the state is substantially lower too. MS. SMITH remarked that SB 85 was introduced at the request of several Kodiak constituents, has received support from several Alaskan workers, has many support letters, and has letters from the AFL-CIO and the Teamsters Union. She reminded the committee that SB 85 is a responsible piece of the puzzle in the development of Alaska's long-term budget system and it is an easy, simple remedy. She added that SB 85 is a responsible economic tool that can be used to minimize the impact of downsizing state government. Number 0417 EARL CLARK said he was recruited late in his career to come to the University of Alaska to help develop the University of Alaska Juneau. He explained that after five and one half years, he left the University and sought a career at the state level. He had a little difficulty getting jobs for one reason or another. He has about three and one half years of part-time service and three years, four months of full-time, permanent service with the state. He has approximately 11 years of service to the state but does not qualify for a retirement program; SB 85 will assist him in qualifying for a retirement which he would like to have. He is a good example of how a person can get caught in the middle between two retirement systems, and SB 85 would attempt to rectify that. CLARKE DAMON indicated that in 1972 he accepted a position at the Department of Education. Besides having various training positions, he was the Veterans' Affairs (VA) recruiting officer for the Veterans' Administration. A number of committee members had asked him if he knew the rules of retirement, why did he not stick around. The way the question is phrased means that the government program is probably more of a disincentive than an incentive for people to progress and work with the state. He understood that the state has six different retirement programs, and transferability between programs is quite impossible in many cases. He had left the Department of Education after three and one half years because at that point the department was reorganized, and the manpower training function was moved to the Department of Community and Regional Affairs. He said that the VA recruiter's responsibilities were moved to the new Postsecondary Commission. Before the move, two employees were doing the student financing under VA approval; shortly after the Postsecondary Commission was established, it had 20 people doing what two people had done before. He explained that is an example of reorganization. Number 0823 MR. DAMON commented that then he took a position with the Department of Highways as a training officer, and during that phase the Department of Public Facilities and the Department of Highways merged. As training officer, he had the responsibility of 135 state employees, and thus witnessed retirement programs in action. He indicated that a number of people had many years in service, and they had to stick it out so to speak because they could not afford to make a move. He recalled that production probably could have been greater. When he realized that the state was exempt from the U.S. Employment Retirement Income Security Act (ERISA), which requires the private sector to vest employees within five years [it was too late for him to make adjustments]. He had assumed that [ERISA] would apply to the state too so he did not think about it. He informed the committee that in his lifetime, he had managed to get involved in six different retirement programs, and Section 39.35.375 of SB 85 seems to affect him. MR. DAMON said that in a study that he had conducted, he analyzed and researched the contributions that he and the state had made. He had researched the fund earnings over the 20 some years and compounded these contributions through fund earnings until 1997 when he would have been eligible for retirement. He assumed that he was to receive a $606 benefit each month, which consists of $348 of health benefits and $258 cash. He projected that figure into the future, assuming the funds would have eight percent earnings, and found that his contributions would pay 217 months of his benefit at which time he would be switching over to the state contribution, and that value was over $500,000 earning about $4,000 each month. MR. DAMON noted that he went a step further as a result of discussion with legislative staff people who had asked why did he not stick it out. He explained that he had decided to assume what would have happened if he had invested his [retirement contribution] money in the same way as the state. He explained that if he had not taken a pension and had left the money to be invested his heirs would have had $1 million if he had died at 250 months as projected by mortality tables. If SB 85 passes, he would receive a benefit of about $151,000. If that is the case when he passes away, the [state retirement] fund still would have approximately three quarters of a million dollars left over based on contributions made on his behalf. MR. DAMON had evaluated retirement programs after the fact, and he should have done so when he first interviewed. When he interviewed for his job, he had been told how great the retirement program was in Alaska compared with any place else, but now he is finding out that is not the case. As he evaluates his experience with school districts' and state departments' retirement programs, he notes that there are numerous disincentives built right into the programs. Mr. Clark had alluded to the fact that he had a little less than 13 years' experience with the state and still does not receive benefits. Mr. Damon emphasized that he believes that if other retirement programs were to be compared, a person could work an entire state career and still probably have nothing. MR. DAMON gave an example of how disincentives are built into the retirement system. He asked the committee to assume that there is a teachers' aide who has less than five year's experience in the aide job [covered by PERS] but then acquires a teaching degree and has the opportunity to take a teaching position [covered by TRS]. He asked the committee if it would suggest that the teachers' aide move into the profession under TRS, wherein two or three years' probation is required and another eight years to reach vesting, or would it recommend that the teachers' aide stay as a teachers' aide for another year just so that he/she can get that magical five years of retirement. MR. DAMON said that as a taxpayer, the example is a disincentive that stifles personal goals, ambitions, training, development, improvement, and experience because people are locked into a retirement system by official barriers. Number 1227 VERNON MARSHALL, Executive Director, National Education Association-Alaska (NEA), spoke in support of SB 85. GUY BELL, Director, Division of Retirement & Benefits, Department of Administration, said that SB 85 allows employees to use their temporary service toward either 20- or 30-year-out depending upon which branch of service they contributed toward. He explained that SB 85 also has to do with legislative employees who worked temporary service before 1979 but have not yet claimed that service, and it allows them to claim that service toward a conditional retirement benefit by paying the full cost. A very small number of former employees were affected by SB 85, and their inclusion was the result of an addition that the Senate had made to SB 85. Further, SB 85 deals with the public service benefit which Mr. Clarke and Mr. Damon have discussed. The public service benefit would allow a person with at least two years of paid-up PERS service to add that with TRS service to get to the five-year vesting requirement in PERS to receive a benefit. He indicated that SB 85 is basically made up of those three components, and there is a very small fiscal note which has to do with some relatively modest computer modifications funded with non general fund retirement system money. Number 1348 REPRESENTATIVE OGAN informed the committee that he is amazed at how many people the committee has seen this year regarding retirement benefits. He asked if Mr. Bell was getting concerned that the retirement system was experiencing a run and setting a precedent. He asked if it does not cost anything, why not just allow people to make a choice of whether they want to retire at 20 or 30 years of work with the state. He acknowledged that people pay more [to opt out at 20], so why not retire them out earlier. He continues to be amazed at the benevolence of state government in caring for people from cradle to grave. He asked Mr. Bell to comment about that. MR. BELL replied he would categorize the legislation this year in two or three pieces. The Division of Retirement & Benefits did submit a retirement system clean-up bill that just had to do with administering efficiencies of the system, and that bill had been waiting for a long time. The other aspect of it is the ability of certain categories of employees to pay to go from a "30 and out" to a "20 and out" program. He recognized that the "20 and out" category would include police dispatchers, non-certificated correctional officers, and some other categories. The "20 and out" program requires employees to pay full actuarial cost; so from the retirement system's perspective, there is no cost to the retirement system whether the employees are city or state employees. There is no cost to the system because it is up to the employee to pay the full cost, either by paying up front or by paying over time through reduction in their benefits. Those are the two general types of legislation, whereas SB 85 is slightly different, but the only section that would have a fiscal impact has been addressed by requiring the employee to pay full cost. He noted that temporary service is certainly service for the employer whether it be the state or another employer in the PERS, and the employee has worked 20 or 30 years, but it just happens that part of that time was temporary. He explained that SB 85 allows employees to pay the costs to attribute that temporary time toward "20 and out" or "30 and out" and the employees have certainly put in the years. Number 1528 REPRESENTATIVE OGAN commented that he is concerned from a policy level that the committee is getting "easy." One of the testifiers had made a decision to change careers, and now the testifier is asking the committee to retroactively vest him in his first retirement. He asked Mr. Bell if that was a fair characterization. MR. BELL replied that it was a fair characterization. REPRESENTATIVE OGAN inquired if Mr. Bell had any idea how many people SB 85 could affect, because there have to be more people who maybe made career decisions early on and worked for one outfit in TRS and then switched over to the PERS later on. MR. BELL indicated that his division did do a count by accessing the division's computer system in order to review records of people with paid-up service in PERS who had less than five years and who also had TRS service but with combined service had a total of five years. The division had counted 22 people out of 70,000 members in the system. Number 1729 CHAIR JAMES reminded Representative Ogan that Mr. Damon had taken his own retirement contributions and the matching state contributions and projected those contributions to ascertain what the contributions on deposit would have earned. She added that Mr. Damon's and the state's contributions would have earned a huge amount of money, and the retirement kept that money of what she considers was his money if he is not able to use it for retirement. Maybe the state wants to keep people's money, but she has a little problem with the whole procedure if people do not remain on the job long enough, all the money the people paid in goes away. MR. BELL stated that Mr. Damon could have had his retirement contribution refunded, but he chose not to do so because he feels that he would get a much more valuable benefit through passage of SB 85. If SB 85 passes, then Mr. Damon would get the benefit of a defined benefit formula, which is funded not only by his contribution but also by employer contributions. CHAIR JAMES asked if it was true that part of the contributions that the employer makes is considered to be part of the employee's wages. MR. BELL replied that the employee contribution is a deduction from the employee's salary. Number 1749 REPRESENTATIVE WHITAKER asked if it was correct that employer contributions would stay in the system if the employee chose to take the employee contribution plus interest out. MR. BELL answered in the affirmative. REPRESENTATIVE WHITAKER said that benevolence has an inherent notion of cost associated with it, and he thinks that the word "benevolence" may be inappropriately used here because it appears to him that there is no cost to the system or state. He asked Mr. Bell to please clarify that point. Number 1801 MR. BELL noted that SB 85 is a public service benefit. When a person leaves early and cashes out, then the system gains from those contributions that the employee made. Those gains are used to fund benefits of other people who are vested in a benefit, so it is like a windfall. If the windfall increases investments greater than anticipated, the windfall can bring employer rates down, and that is to the benefit of employers. He indicated that SB 85 is reducing the windfall by a small amount because these people are going to get a benefit who otherwise would not have received one. He agreed that a portion of the windfall will be wiped out by passage of SB 85. REPRESENTATIVE WHITAKER inquired if there was an estimate as to the amount of the windfall reduction as it relates to the 22 people. MR. BELL replied that the fiscal note does provide an estimate, and the division had reviewed it between the PERS and the TRS because the division would draw money from both PERS and TRS. The division had measured the windfall reduction at less than $700,000. He recognized that $700,000 might sound like a lot, but it is taken out of a fund asset liability of $12 billion so the windfall reduction is 7/1000ths of one percent. He acknowledged that yes, there is a very small cost, but it has no impact on the funding status of the system or on employer rates because it is such a small portion of the total fund. Number 1893 REPRESENTATIVE WHITAKER inquired as to the percentage of the benevolence cost. MR. BELL answered 7/1000ths of one percent. REPRESENTATIVE HUDSON remarked that the trigger in the PERS and TRS programs is the period of vesting, and both employer and employee contribute to the investment portfolio. When an employee leaves prematurely, he/she has an opportunity to withdraw his/her funds plus interest accrued, thus no longer being affiliated with the trust fund. He asked Mr. Bell what happens to the employers' contribution at that point. Number 2042 MR. BELL answered that the contributions made by each employer (there are 100 and some employers in the retirement system) go through the employer's separate account in the PERS, and those contributions stay with that employer's account. REPRESENTATIVE HUDSON asked if the contributions offset the employer's contributions. MR. BELL replied that over time the division actuaries compare the assets (how much money has built up) of the employer with its expected liabilities and that comparison results in a rate for that employer. Employee contributions are credited to the appropriate employer's account to be used for future benefits, and obviously the employer's contribution for the employee is not the employee's money, but is used for some other employee who in the future will receive retirement benefits. REPRESENTATIVE HUDSON stated that the committee will be establishing a precedent wherein any future employee fitting into the same category as described in SB 85 will benefit from SB 85 if the committee passes SB 85. The precedent applies to 22 people today, but it does mean that from here on out anybody else who falls under the SB 85 category will have legal recourse to benefit from SB 85. He asked Mr. Bell if that was a correct understanding. Number 2113 MR. BELL answered in the affirmative because there is no sunset clause in SB 85, so SB 85 would be permanent. He said that in the past some people did not know the impact of the decisions that they had made on their potential benefit, or they thought they might come back into PERS and gain the five years. He noted that now people can make their plans based on SB 85 because it would become a permanent part of the law. REPRESENTATIVE HUDSON explained that he had pointed out the precedent because it is a policy question beyond the people who are in it right now since SB 85 will be effective from here on out. Number 2149 CHAIR JAMES agreed with Representative Hudson's point about precedent and commented she has been thinking that if the people are not vested they can take their money out while the rest of the money remains in the fund. The time required for vesting is to encourage people to stay. If they do not stay, then they do not get the benefit. She reiterated that vesting is like a carrot to encourage people to stay because if they stay long enough, they will be vested. MR. BELL indicated that Chair James was correct in her explanation. Another issue is that if immediate vesting were offered in a system, it would be very costly because a person could stick around for one day and then show up at age 65 to collect benefits. REPRESENTATIVE OGAN asked Mr. Bell if he thought it was the state's responsibility to retroactively vest an employee who worked for the state but was not vested. MR. BELL replied that the theory behind SB 85 is that if a person has five years or more total paid-up service combined between PERS and TRS, sufficient money has been contributed to the system by the employee and the employer to provide a deserved benefit for the employee. It should be called a public service benefit because it is a benefit that is paid for by both systems. Having worked for five years, the person should be entitled to receive some benefit, and that is the policy question raised in SB 85. Number 2277 REPRESENTATIVE OGAN said that he is looking at people who did not make a decision to move on to a higher paid job in a different bureaucracy but did not get vested for some reason. He remarked that he thinks there is an issue of fairness here. He added that maybe a person took a job in the private sector. Again, he asked if the state is going to go back and retroactively pick up five years for that person. He supposed that the state could do that so then the person would be vested in the system. He reiterated that he just sees this trend coming where everybody will [try to get in], and he thinks the committee is heading down a real slippery slope. Number 2345 REPRESENTATIVE WHITAKER agreed that SB 85 is a question of fairness and acknowledged that these individual employees have contributed, employers have contributed on their behalf, and the system is receiving a windfall rather than the individual accruing the benefit. He emphasized that it truly is a question of fairness and these individuals deserve fairness. He stated he supports SB 85 and would like to see it move. REPRESENTATIVE OGAN said that people who work for a PERS or TRS employer and do not stay five years also contribute to retirement, but they never get their money. He asked Mr. Bell if that also was a windfall. MR. BELL inquired if Representative Ogan was talking about people in TRS who just stay in the system for less than the vesting period. REPRESENTATIVE OGAN replied yes or he said PERS too. He noted that his wife had worked for the state for three years and contributed. He commented that she has about $12,000 in the retirement system, but she is not vested because she does not continue to work for the state. He asked if she could get her money and is her money a windfall. CHAIR JAMES inquired if Representative Ogan's wife had received her contributed money back. REPRESENTATIVE OGAN explained that his wife did take her money out of the supplemental benefits system (SBS) but not PERS. Number 2419 MR. BELL mentioned that Representative Ogan's wife could withdraw her PERS contribution at any time, or she could return to a PERS position and eventually become vested and be eligible for benefits. He indicated that there is the future "carrot" if a person returns to a PERS position and becomes vested. REPRESENTATIVE OGAN reiterated that the state [employer] contribution becomes a windfall to the PERS. Number 2438 MR. BELL replied yes, because of all those people who do not reach the vesting requirement and that factor is built in to the funding of the system. The division expects that some people will leave state employment [before reaching vesting] and that will reduce overall costs to the benefit of everyone else. REPRESENTATIVE OGAN asked if one of the testifiers could have taken his contribution out of PERS at any time. MR. BELL answered yes. REPRESENTATIVE OGAN remarked that the testifier chose not to. MR. BELL answered yes. MS. SMITH reminded the committee that this whole thing started back in 1980 when the Blue Ribbon Commission on Personnel did a report and made the decision that the state was ripping off its employees. She added that the Blue Ribbon Commission demanded equity. She asked the committee to remember back to legislature days when some legislative employees were temporary [range] 19s and 15s and permanent 21s and 15s. She recognized that there was no fairness because an employee could work all year and still be temporary. She acknowledged that management did allow employees to be temporary all year so that people could get a paycheck and more people could keep working. She reiterated that it was the Blue Ribbon Commission that originally recommended this change. Number 2518 REPRESENTATIVE HUDSON inquired where in SB 85 the inequity is corrected. MS. SMITH answered that it is partially there where employees are allowed to buy back their temporary time, but in the past, employees were not allowed to use that time to count toward retirement eligibility. She explained that the buy-back part had been the part that was fixed originally. Number 2518 REPRESENTATIVE HUDSON asked if there was something in SB 85 that takes care of the temporary service. MS. SMITH replied that the whole intent behind SB 85 is the next layer after the first layer was already laid. She said the first layer was allowing employees to buy back their benefits whereas SB 85 allows them to buy back their eligibility threshold. CHAIR JAMES noted that it also allows employees to put PERS and TRS together. MS. SMITH agreed that combining PERS and TRS was another increment. She had researched the history of what is now SB 85 and found that it is a downsizing tool being used all across the country. She commented that SB 85 is a way to minimize the impact [of downsizing] and many personnel systems are doing what SB 85 does. Number 2617 JEFF BARNHART testified via teleconference from Kodiak in support of SB 85. In 1999 the legislature had asked the people of Alaska to bring forth ideas that would provide cost savings for the state, and SB 85 does exactly that. He had one and a half years of temporary time that he had worked in the 70s, and this bill would allow him to claim that temporary time toward his retirement eligibility. The administration also has determined there are no costs associated with SB 85, and it does in fact provide a cost savings to the state. He urged the committee to support SB 85 and pass it out of committee today due to the shortness of the legislative session. In the words of the bill's sponsor, Jerry Mackie, "It is the right thing to do." JOE DINNOCENZO testified via teleconference from Kodiak in support of SB 85. He is a state employee and works in Kodiak. He said he is not sure if SB 85 would benefit him or not, but it definitely will provide an incentive for some long-time employees to retire early with an increased retirement benefit which they have already paid. He reiterated that he thinks that SB 85 is the right thing to do morally, and it will save the state money. The legislature has been looking for ideas to save money, and he thinks SB 85 is a good positive way to do it. He urged the committee to get SB 85 passed this year. Number 2710 LOUIS BENCARDINO testified via teleconference from Seward in support of SB 85. He explained that back in 1975 and 1976 the city of Seward had chosen to become a member of PERS but the city did not include temporary employees' back time even though the employees had worked 40 hours a week. He commented that the city of Seward has five employees that have temporary time ranging from three months to two years still hanging out there. He really would like to have a way to pick up those employees' back time in SB 85. CHAIR JAMES asked Ms. Smith if SB 85 would affect the people Mr. Bencardino is talking about. MS. SMITH answered yes and indicated that there are a couple of vendors that are cities and municipalities who are under the PERS. She informed the committee that SB 85 is not just for state employees but is also a mechanism for municipalities to realize savings in city budgets by letting some of their long term employees retire. Number 2792 CHAIR JAMES said that she believes that when people are around longer they are better at what they do, and other people benefit from the older workers. She acknowledged that it is the general trend to get more expensive workers to quit and hire in some less expensive people under a different, not-so-generous tier of retirement. This trend does generate cost savings although that cost savings cannot be measured in relation to the cost of training new employees. Training costs are not recognized, but she is not going to oppose SB 85 for that reason. She does not necessarily agree that getting rid of expensive employees and hiring cheaper ones is a savings. Number 2845 MS. SMITH stated that it is up to the employee to make the decision, since SB 85 is not a mechanism that forces the employee to retire. MICHAEL DEAN, Alaska Department of Fish and Game, testified via teleconference from Anchorage in support of SB 85. He has been a state employee for over 23 years. He explained that SB 85 would allow him to take two years of temporary time that he had bought back in the early 80s and use it to reach his eligibility threshold for retirement. He urged the committee to expedite SB 85 as quickly as possible to get it through the House. REPRESENTATIVE HUDSON commented that he had reviewed all of the fiscal implications and found that there is no cost to the employer. One policy in SB 85, Section 1, that he really appreciates, which the Senate had added, is the application to all temporary credited service. He indicated that temporary credited service is an area where jobs are taken by dedicated people. He recognized that those employees could get a refund from PERS, but they could never use the time put in on those jobs as an accrual toward retirement. From a policy perspective, since SB 85 has a very limited application, he has some sympathy toward the 22 people who are in between two systems. He noted that those people had contributed money and time to both PERS and TRS. REPRESENTATIVE HUDSON stated that he is inclined to support SB 85 because it takes care of temporary employees by allowing them to accrue retirement benefits. If SB 85 becomes law, the legislature is setting in motion an opportunity for employees for the next 50 years. He acknowledged that for people who are already in PERS, SB 85 is great and he can support that, although he might have preferred to have a sunset date on SB 85. With a sunset date all employees now caught betwixt and between would be taken care of and future employees would be advised that they had to choose one or the other. However, he will not hold it up for that reason. TAPE 00-31, SIDE B Number 2907 REPRESENTATIVE HUDSON made a motion to move CSSB 85(RLS) out of committee with individual recommendations and the attached fiscal note; he asked unanimous consent. There being no objection, CSSB 85(RLS) moved from the House State Affairs Standing Committee.
| Document Name | Date/Time | Subjects |
|---|