Legislature(2017 - 2018)GRUENBERG 120
04/20/2017 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB235 | |
| HB11 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 11 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 235 | TELECONFERENCED | |
| += | HB 125 | TELECONFERENCED | |
HB 11-RIP FOR PUBLIC EMPLOYEES/TEACHERS
3:24:17 PM
CHAIR KREISS-TOMKINS announced that the final order of business
would be HB 11, HOUSE BILL NO. 11, "An Act relating to
retirement incentives for members of the defined benefit
retirement plan of the teachers' retirement system and the
defined benefit retirement plan of the Public Employees'
Retirement System of Alaska; and providing for an effective
date."
3:24:41 PM
REPRESENTATIVE SCOTT KOWASAKI, Alaska State Legislature, as
prime sponsor of HB 11, stated that HB 11 would implement an
early Retirement Incentive Program (RIP) for employees in the
defined benefit plans of the Public Employees Retirement System
(PERS) and the Teachers Retirement System (TRS). The RIP would
be temporary and voluntary. He maintained that the state needs
to find ways to alleviate the budget concerns. He relayed that
the early retirement program is a simple concept used in both
the public and private sector around the world; it currently is
being considered in 22 other states.
REPRESENTATIVE KAWASAKI explained the typical early RIP. As an
employee accrues more working years, he/she earns a higher
salary through wage, step, and merit increases. He said that
people who are near or beyond retirement age are considered
"expensive" employees. If the person at the top of the wage
scale can be encouraged to retire, a younger person can assume
the position at a lower salary range.
REPRESENTATIVE KAWASAKI relayed that in 1986, it was estimated
that the state could save an estimated $25 million through a
RIP. A legislative audit of the 1989 RIP demonstrated a savings
of over $23 million with nearly 1,764 individual participants.
In 1996, former Representative Lesil McGuire introduced a RIP
which could have saved the state over $41 million.
REPRESENTATIVE KAWASAKI mentioned that the court system, which
is not subject to the [Alaska] Executive Branch Ethics Act or
the legislative body, implemented its own early RIP: [28]
employees were eligible for the program; 14 employees did use
the program; and the net savings for fiscal year 2018 (FY 18)
will be approximately $680,000.
3:28:28 PM
REPRESENTATIVE JOSEPHSON asked if the court system has the
authority to implement a RIP administratively.
REPRESENTATIVE KAWASAKI answered yes. He related that the court
system may do that because it is an autonomous agency. The
University of Alaska (UA) is under the Executive Branch Ethics
Act and would need enabling legislation to accomplish that;
therefore, it has been included in the proposed legislation.
REPRESENTATIVE JOSEPHSON asked if persons interested in the RIP
are counseled about the pros and cons of participation, since
they would receive less of a defined benefit throughout the span
of their lives.
REPRESENTATIVE KAWASAKI opined that people near retirement age
"know exactly what they are doing" regarding retirement. He
maintained that there are Division of Retirement and Benefits
(DRB) [Department of Administration (DOA)] staff who can help
people nearing the age of retirement with their decisions. He
said that he doesn't foresee a problem of people signing up for
this voluntary program and not understanding its full effect on
their retirement.
REPRESENTATIVE JOSEPHSON suggested that it would be difficult to
measure the impact to the state of losing so many talented
people and gaining another group of people who are "moving up
the totem pole."
REPRESENTATIVE KAWASAKI conceded that was a valid point; there
is a considerable group of senior level employees that would be
missed. He maintained that under the proposed legislation,
there are structures in place to prevent an entire division from
retiring en masse. He offered that there are many who are ready
to retire; and others who are young, ambitious, and eager to
become supervisors and managers. He asserted that the issue is
very complex; other states have considered various iterations of
early RIPs; and he offered that examining the issue and options
in a subcommittee would be welcome by many legislators.
3:32:31 PM
REPRESENTATIVE BIRCH referred to the sponsor statement, which
read, "A Legislative Audit of the 1989 Retirement Incentive
Program demonstrated a savings of $22.9 million with nearly
1,764 individual participants." He pointed out that it
calculates to about $13,000 per person. He asked if the $22.9
million is per year or a one-time net present value of the
change in cost over time.
3:33:18 PM
MERCEDES COLBERT, Staff, Representative Scott Kawasaki, Alaska
State Legislature, responded that the amounts mentioned in the
sponsor statement are net savings after accounting for
administrative costs and which have not been adjusted for
inflation.
REPRESENTATIVE BIRCH asked for confirmation that it is a one-
time net present value discounted rate over time.
MS. COLBERT responded that her understanding is that it
represents the savings throughout the course of the program
being in place.
REPRESENTATIVE BIRCH asked about the potential or the merits of
vacating a position once the employee retires and transitioning
to a contract position or otherwise. He gave as example the
Alyeska Pipeline Service Company (APSC): there is a declining
throughput; at one time APSC had 2,200 employees and 800
contractors; and now the numbers are "flipped" with about 800
direct employees and 2,200 contractors. He offered that
contractors provide significant latitude. He asked if there are
RIPs with an inducement to not "backfill" a position that is
unnecessary.
MS. COLBERT answered that there are provisions in the proposed
legislation that address reemployment and that offer limitations
to reemployment. She asked for clarification of Representative
Birch's question: Is it concerning the risk of a retiree being
rehired on contract or is it concerning backfilling the position
with another known person?
REPRESENTATIVE BIRCH gave an example: The Anchorage School
District (ASD) could probably save $10-15 million per year by
contracting for custodial building maintenance, food service,
security, and other services, but it is challenging to do so
with employees occupying those positions. If a person were to
retire under a RIP, that position could be filled by someone
costing ASD 70 percent of the cost of maintaining an employee.
He asked if the proposed legislation recognizes that option or
offers an inducement to fill a position with a less costly
alternative for entities that are financially challenged such as
ASD.
MS. COLBERT replied that the proposed legislation is not quite
that specific, but there are some similar provisions.
3:36:54 PM
KELI MCGEE, Chief Human Resources Officer, University of Alaska
(UA), testified that there are long time loyal employees [with
UA] that are very eager to retire and have offered to retire a
few years early and make room for someone less costly. She
maintained that UA is unable to accommodate them without
legislation. She maintained that UA is experiencing financially
difficult times, and the proposed legislation would give it
flexibility to fill the positions while allowing employees to
move on to retirement.
3:38:37 PM
ERIKA VAN FLEIN, Director of Benefits, University of Alaska
(UA), testified that she appreciates the intent of the proposed
legislation. She expressed her belief that UA would benefit by
having a tool to accommodate employees who are ready to retire
but not ready to do so under the current retirement plan. She
maintained that some are ready to move on to something else, and
others wish to leave because their positions are being
restructured or eliminated.
MS. VAN FLEIN pointed out changes that UA would like to see in
the proposed legislation. She suggested that UA be added to the
intent language in HB 11. She requested that Section 7 be
amended to reflect that the UA optional retirement plan is a
defined contribution plan, not a defined benefit plan. She
added that the effectiveness of HB 11 for UA may be limited,
because so many employees are in the defined contribution plan.
MS. VAN FLEIN pointed out that the intent language in Section 1
states that the positions affected by the RIP would be
eliminated or not filled. She asked that the proposed
legislation reflect that some of the positions for which the
program would be offered are critical and would need to be
refilled.
MS. VAN FLEIN also pointed out that under HB 11, the
administrator of the program would be the only person who can
approve or deny applications for RIP. She maintained that UA
experienced a severe loss of key talent in its faculty ranks
during the most recent RIP, which was in 1999. This loss left
UA in rebuild mode for many years and led to the rehiring of
many of these faculty on a temporary or adjunct basis to keep
the programs moving forward. She suggested that HB 11 include
an administrative authority at the UA level to approve or deny
applications.
MS. VAN FLEIN stated that for positions vacated, a salary survey
may show that the salaries for those positions are under market
value. If it is determined that the positions need to be
refilled, UA could be faced with refilling them at a higher
rate.
MS. VAN FLEIN referred to AS 39.35.255 to point out the effect
that reducing UA's PERS population would have on the PERS 2008
Salary Floor requirement, as follows: The UA would be required
to pay the PERS employer contribution of 22 percent on the
salary base in effect at the end of FY 08. Currently UA is
$18.9 million under that level, requiring an additional payment
of $4.1 million for the FY 16 plan year. She conceded that
while the RIP is an alternative to layoff if some of the
university departments had to be restructured or eliminated, the
understanding is that UA's PERS base could decrease in either
case. She maintained that through a RIP, which is intended to
replace higher paid employees with lower paid employees, the
legislature would be "feeding into the shortfall from FY 08."
3:43:55 PM
NANCY MEADE, General Counsel, Central Office, Office of the
Administrative Director, Alaska Court System (ACS), testified
that ACS implemented a RIP that was very effective. She relayed
that the RIP did not involve early retirement but was only an
incentive program for retirement. She stated that ACS employees
are non-covered employees [for PERS, health insurance, and other
fringe benefits], and ACS is much smaller than the executive
branch; therefore, the process was streamlined and easier. She
said that ACS identified employees for the RIP who were already
eligible to retire and had been eligible for at least three
years; therefore, had at least 33 years of PERS service; were
age 58 and in the TIER I retirement system; or were age 63 and
in the TIER II-IV retirement system. She added that the
employees eligible for RIP had to have worked for ACS for ten
years. She maintained that these individuals were hesitant to
participate; therefore, ASC offered them incentive pay, which
was three months' salary. She stated that the RIP was
independent of PERS; no PERS credit was earned; and there was no
"buying in" or bonding thereafter. The employees taking
advantage of the RIP had to agree do so in 2016, because 2016
funds were being used, and they had to retire by the end of
August 2016.
MS. MEADE offered that the intent was to save money because the
employees that retired were higher paid through years of
service; the counter was that these employees are often
extremely valuable employees because of their experience. She
stated that there were 28 individuals who were eligible under
the conditions of the RIP; of them 14 decided to take advantage
of the RIP; and ACS saved $680,000 per year, which is an ongoing
savings. She asserted that ACS did not have any restrictions on
the disposition of the positions; some became vacant and
remained vacant with the work being absorbed by other employees;
for some, the person came back at reduced hours; and for others,
ACS was able to hire someone at an entry level salary. She
stated that it was a success in reducing operating costs, and it
was a one-time only plan.
3:48:02 PM
REPRESENTATIVE JOSEPHSON referred to the State of the Judiciary
speech by Chief Justice [Craig] Stowers of the Alaska Supreme
Court [2/8/17] and asked if the ASC RIP was one of the means of
achieving the 4 percent cut that he mentioned.
MS. MEADE responded that the ACS budget has decreased 3.5
percent each year for the last 3 years. One way ACS achieved
the overall budget cut was through the RIP; the other way was
through a 4 percent pay cut to all ACS employees except judges.
The pay cut was accomplished by closing the courts Friday
afternoon and increasing hours by one half hour the other four
days of the week, which resulted in a loss of 2.5 hours of work
per employee per week, or a 4 percent cut in employee pay.
CHAIR KREISS-TOMKINS announced that HB 11 would be held over.