Legislature(2001 - 2002)
04/17/2001 08:05 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 date." 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 years. 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 differential." 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 now?" 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 assumptions. 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 gavel. 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 income. 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.