Legislature(2007 - 2008)CAPITOL 106
03/29/2007 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB171 | |
| HB179 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 179 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 171 | TELECONFERENCED | |
HB 179-PUBLIC EMPLOYEE/TEACHER RETIREM'T SYSTEMS 9:02:00 AM CHAIR LYNN announced that the last order of business was HOUSE BILL NO. 179, "An Act relating to insurance for public employees, teachers, and certain retired public employees and teachers and to supplemental employee benefits; relating to teachers' and public employees' defined benefit retirement plans, to teachers' and public employees' defined contribution retirement plans, to employee and employer contributions to the teachers' retirement system and the public employees' retirement system, and to the administration of the Public Employees' Retirement System of Alaska and the deferred compensation program for state employees; establishing in the Department of Revenue the teachers' retirement system past service cost liability account and the public employees' retirement system past service cost liability account; relating to benefits of, references to federal law in, and investments in the teachers' retirement system and the public employees' retirement system; modifying the jurisdiction of the independent office of administrative hearings as related to retirement and related personnel benefits; and providing for an effective date." 9:02:30 AM REPRESENTATIVE MIKE KELLY, Alaska State Legislature, introduced HB 179 as prime sponsor. He paraphrased his sponsor statement, which read as follows [original punctuation provided]: The State of Alaska's retirement system unfunded liability is approaching $10 billion. PERS is currently 65% funded and TRS is 60% funded. HB 179 would implement a comprehensive plan to return the State's crippled retirement system to soundness. It establishes a cost-sharing plan to eliminate the unfunded liability in the defined benefit plans. It obligates the state to pay 80% of the unfunded liability. The other employers would come to the table with 20%. Included in the bill is a plan to raise contribution rates for active legislators, Governors, commissioners, judges, police officers, firefighters, teachers, equipment operators, clerks, accountants, etc ... in the defined benefit plans 5% above current levels. Employee contributions would go towards the cost of providing employee benefits in the current period. This three-way partnership ensures that everyone has skin in the game and actively participates in the sacrifice involved in funding the defined benefit plans and returning them to financial soundness. It also makes required technical changes to the state's defined contribution plan. The Alaska Retirement Management Board recently adopted employer average contribution rates of 54% of wages for TRS and 39% for PERS for FY '08. These employer contribution rates required to eliminate the unfunded liability are simply unsustainable. Bankruptcies and elimination of critical services in our communities will be averted by implementing HB 179. If the state agrees to pick up 80% of the tab, these rates will level off at a high, but sustainable level. HB 179 sets up the accounts necessary to receive payments to extinguish the unfunded liability. It would also accommodate infusions of cash or lump- sum payments at any time the parties choose to use these methods to take advantage of temporary surpluses or debt instruments. In wrap up, it is important to understand what this bill does and what it does not pretend to do. It does not look back to how we got in this mess. It does not create a single dollar to pay down the $10 billion unfunded liability. What it does provide is a cost- sharing mechanism for completing the tough task of restoring health to our defined benefit plans. You may argue it is too high for the state at 80%. You may argue that it will upset the active plan members that are covered. I would argue that when the all-in cost of providing benefits in the old defined benefit plans have tripled since 1999, the legislature would be derelict in our duties if we did not look to all parties to assist us, including the beneficiaries who enjoy the benefits of the old systems which have proven over-rich and unsustainable. 9:11:36 AM REPRESENTATIVE KELLY said there are Legislative Legal and Research Services and AG opinions related to this issue. He noted that he wrote a letter to Attorney General Talis Colberg [dated March 28, 2007, included in the committee packet], in which he asks for the AG's feedback. He said the proposed legislation is but one suggestion. If that doesn't work, tougher measures can be taken, for example: wage freezes, wage reductions, an end to contract increases, and potential layoffs. He said no legislator would challenge the statement that the State of Alaska is going into a 10-year deficit. He said the state will stay in that deficit until it gets a gas line. He noted that the governor has a related bill in both the House and Senate. He stated, "This bill includes those components on the technical fix, as well." 9:15:19 AM REPRESENTATIVE KELLY said new advancements made in the field of medicine and increased life expectancy have increased the cost of covering benefits to retirees, but the [contribution] rates have not been increased. He continued: I think that we are derelict if we do not step up to the plate. And I hope we do not hide behind the worry that we can't do this because of the supreme court, because there are other ways than the rate. I hope we don't have to go there; I hope there's a way to do it through the rate. ... This proposal, at 3-4 percent after ... taxes, is ... a bargain .... REPRESENTATIVE KELLY mentioned other bills moving through committees. He said HB 179 is an omnibus approach that has "an added component." 9:16:57 AM CHAIR LYNN asked if it would have been good for the legislature to have "done" HB 179 before passing Senate Bill 141. REPRESENTATIVE KELLY said the two bills are virtually unrelated. He explained that Senate Bill 141 was set up to halt further growth of the unfunded liability, while HB 179 would reduce the existing liability. CHAIR LYNN clarified that he wants to know if it would have been helpful to have passed HB 179 in order to whittle down the unfunded liability, whether or not Senate Bill 141 was passed. REPRESENTATIVE KELLY replied that that could have been done, but he stated that he doesn't think anyone was ready to support that idea then. 9:19:12 AM CHAIR LYNN asked for an example of how much would come out of employees' pockets at three different salary ranges. 9:19:30 AM REPRESENTATIVE KELLY said he could get that information to the committee. CHAIR LYNN remarked that people are concerned about what it will cost out of their own pockets. 9:20:17 AM REPRESENTATIVE ROSES directed attention to page 2 of the handout in the committee packet entitled, "HB 179 Walkthrough," which shows [a current Teachers' Retirement System (TRS) employer rate total of] 54.03 percent. He asked if that is the proposed Alaska Retirement Management (ARM) Board rate for fiscal year 2008 (FY 08) to meet the actuarial responsibilities. REPRESENTATIVE KELLY answered yes and confirmed that that rate has not yet been implemented. In response to a follow-up question from Representative Roses, he said the current FY 07 rate that was passed last year is in the low, 20 percent range. 9:22:16 AM REPRESENTATIVE ROSES, regarding an 80/20 percent split, said if the actuaries were to revise their calculation of the unfunded liability a year from now from, for example, $12 million to $28 million, [the employers] would still have to pick up 20 percent of the difference in that amount. 9:22:47 AM REPRESENTATIVE KELLY confirmed that Representative Roses' example is correct. He said Representative Roses is referring to the volatility of system. 9:23:40 AM REPRESENTATIVE ROSES observed that the 5 percent employee contribution rate would be deducted from the wages of everybody currently employed under any Public Employees' Retirement System (PERS) or TRS tier. REPRESENTATIVE KELLY confirmed that is correct for those currently under the defined benefit plan. REPRESENTATIVE ROSES asked Representative Kelly for the number of people currently collecting retirement benefits versus the number of active employees. REPRESENTATIVE KELLY said he can make that information available to the committee. REPRESENTATIVE ROSES remarked that it sounds as though the state is asking those currently working to support those already in retirement. 9:25:14 AM REPRESENTATIVE DOLL asked if the 5 percent would increase with medical costs or is set. REPRESENTATIVE KELLY answered that HB 179 would make that 5 percent a set amount. He explained, "If you were 7 percent now, that would go to 12 [percent]; and although the volatility in the system could move it up and down for the employer for the beneficiary, that would be set." 9:25:40 AM REPRESENTATIVE ROSES expressed concern regarding looking at adjustments solely to the contribution rate when so much of the unfunded liability is created because of the unpredictability of medical costs. He reviewed that in the past, the state tried to adjust retirees' benefits, a law suit ensued, and a decision was made by the court that that could not be done. He recalled the court's decision was that the state cannot diminish the quality of the benefits it has provided, but he said he does not know of any language forbidding cost containment measures, such as setting up a system of preferred providers or contractual obligations. He said other states have established strict protocols as to when a procedure would be necessary or when a further test would be recommended, and those protocols have shown considerable medical cost savings for those states. REPRESENTATIVE ROSES said he appreciates Representative Kelly's plan to create a level playing field; however, he said addressing the money and not the cause is like going to a doctor who treats the symptoms without addressing the cause. He said he thinks there is more work to do than just adjusting the rates. He recollected that when PERS and TRS were established, there were three contribution levels: the state's, the employers', and the employees'. At some point in time, he said, the actuaries reported that the state was over 100 percent funded and oil was at $8 a barrel, and the administration quit paying into PERS and TRS and made no more contributions until money was added to the foundation formula. That gap in payments by the state, he said, is part of the cause of the unfunded liability. He relayed that he appreciates that under HB 179, the state would "pick up 80 percent"; however, he questioned whether that would be enough. He stated, "At some point in time, if the municipalities and small school districts become insolvent, the state's going to eat 100 percent of it, not just 81 percent. And so, I think we need to look for something that's going to hold everybody harmless, [and] let's ... move this to where we need to be. And if I knew what the magic numbers were I'd have helped you write the bill." 9:29:37 AM REPRESENTATIVE KELLY said he would cosponsor [legislation related to] each of the cost containment ideas mentioned by Representative Roses. He talked about converting some defined benefits to defined contributions, using employee parking as an example. He talked about the ease of adding benefits versus the constraints in taking them away, because they effect so many groups. He stated that HB 179 is a step [toward improvement]. He added that Representative Rose's points are well taken. 9:33:13 AM REPRESENTATIVE ROSES shared an anecdote illustrating the difficulty he once experienced in attempting to opt out of some of his own coverage. He said it is an absurdity that needs to be fixed. REPRESENTATIVE KELLY said he does not disagree. 9:35:18 AM REPRESENTATIVE KELLY, in response to a question from Representative Johnson, confirmed that the legislature can choose to raise contribution levels, because it controls benefits. 9:36:12 AM DEREK MILLER, Staff to Representative Mike Kelly, Alaska State Legislature, on behalf of Representative Kelly, prime sponsor of HB 179, reviewed the sectional analysis [included in the committee packet]. Regarding Section 4, he explained, "If you were a Tier II employee, and you retire tomorrow, and you cash out all of your contributions, if you rehire after July 1, 2010, you're in the defined contribution (DC) plan." Regarding Section 6, he explained that "hybrid plan" means there are defined benefit components in the TRS DC plan, including medical benefits, death and disability components, and survivor's pension. Regarding Section 9, Mr. Miller offered his understanding that currently there are 10 separate investment options for an employee to make. 9:39:04 AM MR. MILLER noted that Section 14 can be found on page 7 of the bill. Regarding Section 20, he indicated that because the fixed benefits under the DC plan of TRS are defined by statute, they would not be "encumbered under the nonguarantee clause." Mr. Miller suggested that representatives from the Department of Administration could further explain Section 21. He noted that Section 25 is a cost-sharing component of the bill that is divided into three sections. He said "This is getting into the 80/20 cost-sharing that we had mentioned before." He pointed out that Section 34, which relates to PERS, is similar to Section 1, which relates to TRS. MR. MILLER related that Sections 35 and 36 "team up." He explained: This is where we ... try to get the PERS employer rates to be one consolidated, cost-sharing rate as the TRS employer rate is currently set. Right now [there are] 160 different employers in the PERS system and they all each pay a different rate, and ... both Sections 35 and 36 change that to a cost-sharing rate. MR. MILLER said Section 37 is similar to Section 4, and he said there are people available who are better suited to explain the differences between Sections 37 and 38. Regarding Section 40, he noted that the administrator of the plan also is responsible for adopting regulations. During his review of Section 44 in the sectional analysis, he reiterated that some of the technical fixes are "replicated across both PERS and TRS." For example, he said Section 49 is similar to Section 13. 9:48:18 AM MR. MILLER also noted that Section 54 is similar to Section 18. 9:53:04 AM REPRESENTATIVE ROSES said he would like to know what percentage of schools are not under a unified borough or municipality "where they contribute to the system and there [are] just straight funds coming from the state." He said he would also like to know the percentage of retirees receiving benefits as compared to the percentage of people currently employed in Tiers I, II, and III. Finally, he said he would like to know how many of the employers under the PERS umbrella are state government employees. He asked, "Have you broken them out by departments or is the state just considered one of the 160? Because it doesn't matter what you do with the 5 percent there, the state picks up the whole tab anyway." He said having those numbers would help in perpetuating the discussion. [HB 179 was heard and held.]
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