Legislature(2007 - 2008)
04/04/2007 07:08 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB204 | |
| HB206 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 206-PERS CONTRIBUTIONS; UNFUNDED LIABILITY 8:29:34 AM CHAIR HAWKER announced that the next order of business would be HOUSE BILL NO. 206, "An Act relating to the accounting and payment of contributions under the defined benefit plan of the Public Employees' Retirement System of Alaska, to calculations of contributions under that defined benefit plan, and to participation in, and termination of and amendments to participation in, that defined benefit plan; making conforming amendments; and providing for an effective date." 8:30:27 AM COMMISSIONER DESIGNEE KREITZER referred to a document titled "House Ways and Means committee Questions and Reponses House Bill 206," dated April 3, 2007. She explained that a "hold harmless" clause covers the difference between an employer's individual fiscal year (FY) 2007 liability and the FY 08 estimated contributions. It is intended to apply only to the increase between FY 07 and 08. CHAIR HAWKER clarified that the administration's intent is to hold employers harmless from cost increases for one year only. REPRESENTATIVE WILSON asked how the hold harmless clause will work. COMMISSIONER DESIGNEE KREITZER said that under the hold harmless approach proposed by the administration, the state will pay the increase that employers would have to pay in FY 08 and the amount necessary to do that is $82 million. She reminded the committee that at present there are few defined contribution employees, so their salaries do not have much of an effect on the calculations done to compile the Cost Share Exhibits, a copy of which was provided the committee. She also referred to a document which lists employers who have not submitted their payroll records along with the mandatory contributions due. REPRESENTATIVE FAIRCLOUGH asked about the effect on an individual employee's retirement benefits when an employer fails to submit payroll records. MS. LEA replied that when no payroll is received, there is no accumulation of service and no salary posted for that employee. She went on to explain that the employee's annual statement will show that employee has not received any service credit. 8:37:51 AM REPRESENTATIVE FAIRCLOUGH referred to a letter from Mayor Steven Thompson and dated April 3, 2007 which she said clarifies some prior erroneous information regarding the City of Fairbanks. She paraphrased that a prior utility sale accounting issue caused a perception that the City of Fairbanks was not paying its required employer contributions, however the letter indicates that the City of Fairbanks has been making its payments in a timely manner. In response to a question, she said that it appears there was a difference of opinion as to whether Fairbanks would receive a $16 million credit related to the sale of a city utility, and it may have resulted in a greater unfunded liability than expected. 8:41:10 AM CHAIR HAWKER clarified that the City of Fairbanks, a separate entity from the Fairbanks North Star Borough, has made its required contributions to the retirement system and its unfunded portion exists due to circumstances it could not control. This clarification does not change the result of the Cost Share Exhibits prepared by DOA and previously provided to the committee. He noted that this issue was only to clarify the record, not to examine the details of the Fairbanks's utility sale in detail. 8:45:03 AM MICHAEL E. LAMB, CPA, CGFM, Chief Financial Officer, Fairbanks North Star Borough, Co-Chair Finance committee, Alaska Municipal League (AML), paraphrased from written testimony as follows [original punctuation provided]: 1. Credit needs to be given to the Department of Administration for its work on the PERS issues addressed in this bill, and I am happy to endorse that part of HB 206 that recognizes that legislative language needs to move forward such that our statutes reflect the reality that the State operates PERS as a consolidated blended system. 2. Section 5 contains language that essentially says one rate, which is the combined total of the normal and past service cost rates, should be applied to both DB and DC salaries. I concur with this provision, to do otherwise would at some point lead to discriminatory hiring practices. 3. Section 7, the 65/35 percent allocation of the unfunded liability is a significant disappointment. It is a disastrous proposition that sets future rates at levels that cannot be paid by school districts, the university system, cities, or by boroughs. ... Quoting from a recent AML letter: Any legislation which leaves communities having to pay unaffordable rates for an unfunded liability which was not of our making, and which risks bankrupting communities, is not a concept we can accept. This 65/35 proposal is just that kind of legislation and instead of providing for future predictability, stability, or affordability, it is a call to fiscally incapacitate member employers in the future and can't be supported. 4. After rates get set at levels that can't be paid by member employers in this bill, we get to section 9, a poison pill provision that essentially says that even if a member employer has a legitimate reason not to make a payment, or maybe simply can not because they just don't have the money, the Administrator of the plan will simply go and take funds from any agency of the state or political subdivision that has in its possession funds of the employer that couldn't pay its bill. So, this bill sets rates that will cripple employers and then any life blood funding available can be summarily taken with no due process? I understand the Administration needs a tool to collect from employers that will not pay a legitimate bill. This is the wrong tool. This is instead a heavy handed tool that will only accelerate the bankrupting of employers, then who will be left to pick up their piece of the bar tab that they can no longer pay, in the end it'll be the State. 5. Sections 10 through 15 deals with terminations, scrutiny needs to be given to this language. First off it allows for unlimited termination cost charges, that can then be extracted from an employer using the section 9 language. Scrutiny also needs to be given to the section 15 language that says you only have 90 days after receipt of notice to decide if you want to add or terminate coverage of a department, group, or other classification of employees. First off, 90 days in a public process environment isn't even enough time to deal with an issue as significant as what is contemplated in this section. Secondly, who can predict what makes sense in the future? Why would we want to preclude future changes that may help the system? Though there will be an attrition factor, is it the intent of this language that all existing school board members, council members, or assembly members would have to stay in the system because they couldn't elect out because a 90 day period was missed? This makes no sense. If the administration is trying to fix an abuse, then prevent the abuse, but don't preclude all changes, both good and bad. If the consolidation and the DB/DC language from HB 206 could used in conjunction with components of other PERS language in other bills, I think we would be getting very close to a shared solution that municipalities could live with and support. It is clear, and AML has consistently communicated, that its members firmly believe that an 85/15 splitting of the unfunded liability is about as fair as it is going to get. What is critical in this split is that they ended up, using the most current complete set of numbers available, with a rate that was affordable. Let me be clear, I am not saying it isn't a rate that hurts, but at least no member employer would go broke, and though different communities felt the State was responsible for an even higher percentage, the AML member employers agreed as a group to the rate that an 85/15 splitting of the unfunded liability generated, which was an 18.27% rate. It was always known and understood that the unfunded obligation would be going up, and accordingly, the 18.27% rate for FY '08 would likely go up in future years to 19 point something or 20 point something percentage, and then level off. It is I believe a number that everyone is equally unhappy about, but not so unhappy about that they'd seek relief from it. For the Borough, who had a 22 year average rate of 4.17%, this is a huge 400 to 500% increase, but one the Mayor and Assembly were willing to accept to avoid a confrontation with the State. Mr. Chairman, members of the committee, I sought to be direct and transparent, and to offend no one today, and I most graciously apologize if I did. Many have worked hard on the legislation before this body today, and on the other PERS legislation not specifically discussed today, and I most respectfully acknowledge those efforts, and that work, and I say thank you. But at the end of the day, all of that work will have been for naught if even one member employer ends up fiscally incapacitated because we, and I mean collectively we, failed to get the final legislation right. For my part, I will have failed to have spoken the words necessary to convey not only the Borough's message, but other municipality's message to this body, and put simply, in the end: its about the rate, it's about the rate, and it is about the rate. No one, and I mean no one, is better off if 28 terminated or inactive employers turns into 30, 35, 40, who knows what 28 could grow to. I therefore, respectfully, request that HB 206 be moved forward such that the components of 206 that are good, and supportable, can be made to work in conjunction with the good components of HB 179, the House Committee Substitute for HB 95/96, and HB 13. ... 8:51:20 AM MR. LAMB explained that he appreciates the clarification regarding the City of Fairbanks and stated that in trying to move forward on the issue of unfunded pension liabilities, it is important not to be waylaid by unsubstantiated and incorrect understandings. CHAIR HAWKER set forth that he has had requests from committee members to further study HB 206 and that he would like those committee members to work with the DOA on their concerns so that the bill can be considered again. COMMISSIONER DESIGNEE KREITZER opined that the issue of the amount of unfunded liabilities to be borne by the state will likely be determined in the House and Senate Standing Finance Committees. She stated concern for financial well-being of the state's communities as something being considered in conjunction with HB 206. CHAIR HAWKER announced that HB 206 would be held in committee, and hoped it would move from this committee at its next hearing. REPRESENTATIVE FAIRCLOUGH agreed that further debate on HB 206 would occur in the House and Senate Standing Finance Committees.
| Document Name | Date/Time | Subjects |
|---|