Legislature(2001 - 2002)

04/17/2001 08:05 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 242 - TRS & PERS REEMPLOY & MED BENEFITS; COLA                                                                             
Number 0661                                                                                                                     
ACTING  CHAIR FATE  announced  that the  next  order of  business                                                               
before  the  committee would  be  HOUSE  BILL  NO. 242,  "An  Act                                                               
relating  to reemployment  of and  medical  benefits for  retired                                                               
members of the teachers' retirement  system and public employees'                                                               
retirement system;  relating to  the inclusion  of cost-of-living                                                               
differentials  on  compensation  and benefits  under  the  public                                                               
employees'  retirement system;  and  providing  for an  effective                                                               
Number 0740                                                                                                                     
ROGER WORTMAN,  Staff to Representative  Pete Kott,  Alaska State                                                               
Legislature, came forward to introduce  the bill on behalf of the                                                               
sponsor.   He  noted that  baby boomers  are about  to retire  en                                                               
masse in  the years 2008-2009,  leaving a  big void in  the state                                                               
work force.   Some of those  shortages will be critical,  such as                                                               
in  education and  law enforcement.    He explained  that HB  242                                                               
"provides a carrot"  to retain employees after  they are eligible                                                               
for retirement.                                                                                                                 
REPRESENTATIVE STEVENS  said he thinks  it is  a great idea.   He                                                               
asked what the cost would be.                                                                                                   
MR.  WORTMAN  deferred the  question  to  Mr. Bell,  Director  of                                                               
Retirement, and Benefits.                                                                                                       
Number 0965                                                                                                                     
ACTING CHAIR  FATE mentioned that  there was little  meeting time                                                               
remaining, and  that it was  his intent to  move the bill  out of                                                               
committee if there were not too many questions.                                                                                 
GUY  BELL,   Director,  Division  of  Retirement   and  Benefits,                                                               
Department  of  Administration,  explained  that  HB  242  was  a                                                               
component of  a workforce development  initiative that  the state                                                               
and a number  of other employers have undertaken in  an effort to                                                               
address  workforce  shortages.    The bill  was  developed  by  a                                                               
working group  made up of  employers and  employee organizations,                                                               
and it  has been  endorsed by the  Public Employees  and Teachers                                                               
Retirement boards.                                                                                                              
MR. BELL said Sections  1 and 2 of HB 242  relate to the Teachers                                                               
Retirement System (TRS).   As an incentive to  bring back retired                                                               
teachers, it  would allow them  to continue  receiving retirement                                                               
benefits  in addition  to earning  a  salary.   Currently on  re-                                                               
employing in a permanent full-time  capacity, a retired teacher's                                                               
retirement benefits  stop, but  that teacher  begins to  accrue a                                                               
second retirement benefit.  House  Bill 242 gives the teacher the                                                               
choice  of  accruing that  additional  benefit  or continuing  to                                                               
receive a  retirement check.   There is  no fiscal impact  on the                                                               
retirement system.                                                                                                              
Number 1107                                                                                                                     
REPRESENTATIVE JAMES asked about  the geographic pay differential                                                               
in relation to retirement benefits.                                                                                             
MR. BELL  referred to  Section 7  of the  bill.   He said  HB 242                                                               
does not  change the geographic  pay differential.  In  1986, the                                                               
law was changed  by adding two provisions to  the calculation, he                                                               
explained.    One is  that  a  person  must  have worked  in  the                                                               
geographic  differential area  for at  least half  of his  or her                                                               
career.    The second  one  is  to  be included  [in  calculating                                                               
retirement benefits],  the differential  must be in  a comparable                                                               
amount or of  at least as many steps when  compared to the entire                                                               
pay differential service.  "That  second piece is the clause that                                                               
is confusing to us  and to members in terms of  how it applies in                                                               
the  calculation of  retirement benefits,  and that's  the clause                                                               
that we're trying to address," he said.                                                                                         
REPRESENTATIVE JAMES said she was  thinking about state troopers,                                                               
who move  around the  state.   If a trooper  was in  a geographic                                                               
differential area  for more than half  of his or her  career, how                                                               
would that affect that person's retirement benefit.                                                                             
MR. BELL explained that under  the current law, those calculating                                                               
retirement benefits  find the midpoint  salary in  the geographic                                                               
differential  years and  apply the  higher  salary to  retirement                                                               
income  only  for  those  years  in  which  income  exceeded  the                                                               
midpoint.   The problem with  that is  that it is  very difficult                                                               
from  a  career  planning  perspective for  people  to  know  the                                                               
impact, he added.  State  Troopers are transferred throughout the                                                               
state  throughout  their  careers,  and  they  [as  well  as  the                                                               
retirement people] think this provision addresses that concern.                                                                 
MR.  BELL  explained  that  there  is,  for  Tier  3  members,  a                                                               
requirement  that  the  final   average  salary  for  calculating                                                               
benefits  be  three  consecutive  years, and  the  final  average                                                               
salary for Tier  2 [people hired after 1996]  is five consecutive                                                               
REPRESENTATIVE  JAMES  asked   if  a  person  being   paid  at  a                                                               
geographic  differential  is  paying  more  into  the  retirement                                                               
system based on that higher salary.                                                                                             
MR. BELL said that is correct.                                                                                                  
REPRESENTATIVE  JAMES  asked,  "Isn't your  retirement  based  on                                                               
whatever your salary is at the end?"                                                                                            
MR. BELL explained that the  calculation of a person's retirement                                                               
benefit is based  on that person's three  highest years, whenever                                                               
those occur.                                                                                                                    
REPRESENTATIVE JAMES asked how HB 242 would change that.                                                                        
MR. BELL explained, "If you spend  50 percent of your career in a                                                               
geographic  differential area,  at  least 50  percent, your  high                                                               
final  average   salary  calculations  will   include  geographic                                                               
REPRESENTATIVE JAMES inquired, "Average  over the full time would                                                               
include that higher rate?"                                                                                                      
MR. BELL  replied, "Exactly.   Your high  three will  include the                                                               
geographic differential you received."                                                                                          
REPRESENTATIVE JAMES  asked, "And  that's not  the way  it's done                                                               
MR. BELL said no.  "First we  have to use the 50 percent criteria                                                               
and  then we  go  to  comparable amount  of  at  least that  many                                                               
steps," he explained.                                                                                                           
Number 1556                                                                                                                     
REPRESENTATIVE  STEVENS  said  in  general  he  thinks  it  is  a                                                               
tremendous idea to  try to retain good people and  keep them from                                                               
leaving  the  state.   He  asked  what  the  costs would  be  for                                                               
sections of HB 242 other than  Section 1.  He wondered whether it                                                               
might be advisable to allow for a local option.                                                                                 
MR. BELL said:                                                                                                                  
     In the Teachers Retirement  System, a person can retire                                                                    
     after  20 years  of service.    What this  would do  is                                                                    
     provide medical  benefits if a  person stays  25 years.                                                                    
     Right now, that person  wouldn't be entitled to medical                                                                    
     benefits until age  60, at which point it  pays half or                                                                    
     age 65  when they  get the  same benefits  as a  Tier 1                                                                    
     member.   So  what we're  trying to  look at  with this                                                                    
     section is  a retention  incentive to keep  teachers on                                                                    
     an additional  five years by  offering full  medical --                                                                    
     retirement  system-provided medical  coverage after  25                                                                    
     years of  teaching; and similar language  for Section 6                                                                    
     for public employees.                                                                                                      
     There is  a cost to  this.  It's  a modest cost.   It's                                                                    
     .17 percent of salary, which  on a per teacher basis is                                                                    
     something less  that $60  a year.   So  if you  boil it                                                                    
     down to  individual employee cost, it's  modest, but we                                                                    
     think you  get a  large gain in  terms of  retention of                                                                    
     long-service employees.                                                                                                    
Number 1700                                                                                                                     
REPRESENTATIVE  JAMES commented  that the  committee in  the past                                                               
had struggled with the Reduction  In Force (RIP) program to allow                                                               
higher-paid people  to leave  early and  be replaced  with people                                                               
who  cost  less.    That  was a  very  controversial  issue,  she                                                               
recalled.    "I really  like  the  idea  of letting  people  stay                                                               
longer,"  she said.  She noticed  that there  was a  small fiscal                                                               
note related to  counseling these people, "but if  they choose to                                                               
take the retirement  and then [return to] work  without us paying                                                               
the retirement, what is the  savings that would be achieved ...?"                                                               
she asked.                                                                                                                      
MR.  BELL said  he  did  not think  the  retirement system  could                                                               
calculate a savings,  although it would be possible  to make some                                                               
Number 1878                                                                                                                     
REPRESENTATIVE   JAMES  asked   if  a   teacher  returning   from                                                               
retirement would be  paid the same amount, or did  Mr. Bell think                                                               
those people would be willing to work for less?                                                                                 
MR. BELL  said the  school district would  save 11-12  percent of                                                               
the  teacher's salary  as  a result  of not  having  to pay  that                                                               
amount  into the  retirement system.    He said  the amount  they                                                               
would  be  paid  would  be subject  to  negotiation  between  the                                                               
employer and  the employee.   There would have  to be a  break in                                                               
service, he added.                                                                                                              
REPRESENTATIVE JAMES  emphasized that it would  give the employer                                                               
the  opportunity to  offer less.    Moreover, a  teacher who  was                                                               
already receiving retirement income might  be willing to take it,                                                               
thereby  creating more  savings  while [the  employer retains]  a                                                               
good employee.                                                                                                                  
ACTING  CHAIR FATE  welcomed Chair  Coghill and  turned over  the                                                               
REPRESENTATIVE STEVENS  said it  would be  a tremendous  asset to                                                               
every district to be able  to re-hire experienced teachers who he                                                               
thought might very well be  willing to come back, especially part                                                               
time,  at  a lower  pay  rate  in  addition to  their  retirement                                                               
MR. BELL told the committee that  as of June 30, 1999, there were                                                               
1,300 retired teachers between the ages of 45 and 54.                                                                           
REPRESENTATIVE JAMES said she was ready to move the bill.                                                                       
Number 2091                                                                                                                     
VERNON   MARSHALL,   Executive   Director,   National   Education                                                               
Association - Alaska, came forward  to testify.  He commended the                                                               
sponsor of  HB 242 and  expressed appreciation  to Representative                                                               
Stevens  for introducing  HB 240,  calling those  "two pieces  of                                                               
legislation designed to attract  and retain qualified workers ...                                                               
during this  period of shortage."   He said HB 242  would have an                                                               
immediate  impact,  serving as  a  powerful  recruiting tool  and                                                               
aiding in  retention.   He said  he has  heard that  teachers are                                                               
staying  for an  average of  just under  23 years.   To  offer an                                                               
incentive to  stay two or three  more years in exchange  for full                                                               
medical benefits is commendable, he said.                                                                                       
MR. MARSHALL then  called attention to Sections 4, 5,  and 6, all                                                               
dealing  with PERS.   He  emphasized  that he  deals with  school                                                               
employees, roughly 11,000  members, including the noncertificated                                                               
school employees  such as aides, secretaries,  cooks, custodians,                                                               
and assistants.   Most of  those people  work nine months  of the                                                               
year.   He said they  get 75 percent  of a year's  service credit                                                               
toward retirement,  which means it  takes them 6 years,  5 months                                                               
to become  vested and 13  years to qualify health  insurance, and                                                               
39 years [instead  of 30] to retire.  He  expressed hope that the                                                               
"30 and out" or "age 60 and out" policy to these PERS employees.                                                                
CHAIR COGHILL suggested  that Mr. Marshall discuss  that with the                                                               
sponsor of HB 242.                                                                                                              
Number 2409                                                                                                                     
REPRESENTATIVE  JAMES  expressed  concern  about  the  nine-month                                                               
issue, but  thought it  was a  different one  from the  one being                                                               
addressed in  HB 242.   She  said she would  be happy  to address                                                               
that in  separate legislation, but  was not in favor  of amending                                                               
this bill to include it.                                                                                                        
REPRESENTATIVE  HAYES said  his former  boss and  current senator                                                               
had introduced legislation related to that concern.                                                                             
MR. MARSHALL said nine-month employees  now could pay a surcharge                                                               
in order to  buy a full year of service  credit, however, most of                                                               
those positions are  not paid enough for the  employees to afford                                                               
the  surcharge.    He  noted  the desire  to  provide  a  similar                                                               
incentive for noncertificated employees.                                                                                        
BRUCE JOHNSON,  Deputy Commissioner  of Education,  Department of                                                               
Education and  Early Development,  came forward  to testify.   He                                                               
said the  department supports HB  242.   He noted that  Alaska in                                                               
recent years has needed to  recruit 12,000 to 13,000 new teachers                                                               
each year.   At the largest job fair, which  recently took place,                                                               
there were  fewer than 300  applicants.   He said he  thinks many                                                               
teachers who  retire would  feel re-energized  and ready  to come                                                               
back for  a few more  years, but he did  not think they  would be                                                               
willing to give up their retirement benefits to do so.                                                                          
CHAIR   COGHILL  asked   if  he   thought   the  geographic   pay                                                               
differential was helpful in recruiting.                                                                                         
MR.  JOHNSON  said  that  is  not an  issue  for  teachers.    He                                                               
explained that  school districts receive  that money and  can use                                                               
it to increase teachers' salaries or for other purposes.                                                                        
REPRESENTATIVE STEVENS said  the cost of HB 242  seems minimal to                                                               
him and wondered if school districts would support it.                                                                          
MR. JOHNSON said he could not  speak for all districts, but based                                                               
on what  he had hear  from superintendents, he thought  few would                                                               
hesitate to support having this tool available to them.                                                                         
REPRESENTATIVE  CRAWFORD  said  he   felt  like  he  was  missing                                                               
something,  as a  short time  ago, legislators  were offering  an                                                               
incentive  to   get  employees  to   leave  and  now   they  were                                                               
considering offering them an incentive to come back.                                                                            
Number 2757                                                                                                                     
MR. JOHNSON said  he thought the recent reduction in  force had a                                                               
lot to do with the fact  that inflation was eating away at school                                                               
districts'  purchasing  power  and  they  could  not  afford  the                                                               
employees they  had.   [At  that time] the school  districts were                                                               
confident they could recruit lower  paid employees to replace the                                                               
veterans.   The issue  then had  more to  do with  staying afloat                                                               
financially, he said.   However, some school  districts could see                                                               
this problem coming  and opted not to participate in  all or part                                                               
of the RIF programs.                                                                                                            
REPRESENTATIVE   JAMES   turned  to   Representative   Crawford's                                                               
concern.  She recalled [that  the legislature] resisted [the RIF]                                                               
very  hard,  but that  the  school  districts prevailed  for  the                                                               
reasons Mr. Johnson had explained.                                                                                              
REPRESENTATIVE WILSON asked if some  of the teachers who received                                                               
financial incentives  for retiring now would  receive bonuses for                                                               
coming back.                                                                                                                    
MR. BELL said that problem was  anticipated for both the PERS and                                                               
TERS  retirement  programs  and  thus the  RIF  participants  are                                                               
excluded from the return provision.                                                                                             
REPRESENTATIVE  CRAWFORD asked  if  there is  more  money in  the                                                               
system today so that school districts can hire teachers back.                                                                   
MR. JOHNSON  said there is  a shortage of teachers  that requires                                                               
action.    Last school  year  began  with 86  unfilled  positions                                                               
statewide and many  of those remained unfilled for  months or for                                                               
the  whole year.   There  is  no new  money, but  there are  some                                                               
potential savings  in HB 242.   Most important, he said,  is that                                                               
there are well  qualified people available to fill  that void for                                                               
Alaska's children.                                                                                                              
REPRESENTATIVE JAMES said the RIF  allowed people who were within                                                               
a few years of retirement to  "buy their way out" by contributing                                                               
to the retirement  system the amount that would  qualify them for                                                               
full retirement pay.                                                                                                            
TAPE 01-41, SIDE B                                                                                                              
REPRESENTATIVE  STEVENS  voiced  his  opinion that  "RIF  was  an                                                               
absolute disaster; I  hope that we will never  consider it again.                                                               
There  were  entire  departments  of  the  university  that  were                                                               
devastated.   School districts  wound up getting  rid of  some of                                                               
the finest  teachers and  I do believe  that teachers  get better                                                               
the longer they teach."   He asked Mr. Bell if  PERS and TERS are                                                               
financially  healthy  because he  wanted  assurance  that HB  242                                                               
would, in no way, be detrimental to either of those systems.                                                                    
MR. BELL said the system is very  healthy right now and HB 242 is                                                               
"of minimal to no cost," and would have no impact on them.                                                                      
Number 2900                                                                                                                     
CHAIR COGHILL  asked what the  impact of HB  242 might be  on the                                                               
supplemental Benefits System (SBS).                                                                                             
MR. BELL  said SBS  affects state employees  and employees  of 13                                                               
political subdivisions.  It was  to some extent a replacement for                                                               
Social  Security,  he explained.    "On  re-employment, a  person                                                               
would continue to  contribute and so would their  employer to the                                                               
Supplemental Benefits System, so  anyone who re-employed with ...                                                               
either the  state or  one of  those political  subdivisions would                                                               
continue  to  contribute and  then  ultimately  benefit from  the                                                               
Supplemental Benefits System," he said.                                                                                         
Number 2870                                                                                                                     
REPRESENTATIVE  JAMES moved  to report  HB 242  out of  committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.   There  being no  objection, HB  242 was  moved from  the                                                               
House State Affairs Standing Committee.                                                                                         

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