Legislature(2021 - 2022)BUTROVICH 205

03/15/2021 09:00 AM EDUCATION

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Heard & Held
-- Testimony <Invitation Only> --
Heard & Held
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**Streamed live on AKL.tv**
            SB   6-RIP FOR PUBLIC EMPLOYEES/TEACHERS                                                                        
9:46:58 AM                                                                                                                    
CHAIR   HOLLAND  reconvened   the  meeting   and  announced   the                                                               
consideration  of  SENATE   BILL  NO.  6  "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                                                               
He invited Joe Hayes to present the bill.                                                                                       
9:47:18 AM                                                                                                                    
JOE   HAYES,  Staff,   Senator  Scott   Kawasaki,  Alaska   State                                                               
Legislature, Juneau,  Alaska, read  the sponsor statement  for SB
     Senate  Bill  6  would   implement  a  temporary,  voluntary                                                               
     Retirement Incentive  Program to  increase state  savings by                                                               
     allowing  public  employees  to  retire up  to  three  years                                                               
     early. Long-serving  public employees are among  the highest                                                               
     paid in the state. In  many cases, pensions paid to retiring                                                               
     employees  would  cost  the  state  less  money  than  their                                                               
     current  salaries.  Providing  high-salaried  employees  the                                                               
     option  to  retire early  would  save  Alaska money  through                                                               
     lower personnel costs.                                                                                                     
     SB 6  could also help  prevent layoffs. The bill  presents a                                                               
     method  of   cost-cutting  and  payroll   reduction  without                                                               
     forcing anyone  out of the  workforce before they  are ready                                                               
     to retire.  This gives the  State of Alaska  the opportunity                                                               
     to reduce  operating costs by opening  vacancies that enable                                                               
     the   placement  of   more   junior  employees.   Retirement                                                               
     incentive programs are regularly  used in the private sector                                                               
     to  efficiently  control   personnel  costs  through  market                                                               
     incentives rather than heavy-handed layoffs.                                                                               
     Retirement Incentive Programs have  been used on a temporary                                                               
     basis three times in Alaska's  history and was last proposed                                                               
     in 2004.  In 1986, Senator  Jim Duncan estimated  savings at                                                               
     approximately $25  million. A Legislative Audit  of the 1989                                                               
     Retirement  Incentive  Program  demonstrated  a  savings  of                                                               
     $22.9 million with nearly  1,764 individual participants. In                                                               
     1996, Rep.  McGuire calculated the state  gained $41 million                                                               
     in savings through identical legislation.                                                                                  
     Senate  Bill 6  is  an innovative  policy  option for  state                                                               
     agencies,  municipalities and  school districts  to consider                                                               
     as a means to reduce payroll costs without layoff                                                                          
9:49:13 AM                                                                                                                    
MR. HAYES presented the sectional analysis for SB 6:                                                                            
     Section 1:                                                                                                               
     Defines  the purpose  and intent  of the  bill to  make                                                                    
     Retirement   Incentive   Programs   (RIP)   temporarily                                                                    
     available to state  agencies, municipalities and school                                                                    
     districts.  Includes  intent  for state  agencies  that                                                                    
     adopt authorized  RIPs to adopt an  accompanying policy                                                                    
     to prohibit hiring of new employees.                                                                                       
     Section 2:                                                                                                               
     Allows  public employers,  including the  University of                                                                    
     Alaska, to  elect to  adopt a RIP  under the  bill. The                                                                    
     employer may limit the  program to specific components,                                                                    
     job   classifications,   geographic  locations   or   a                                                                    
     combination of the three.                                                                                                  
     Specifies  the commissioner  of  administration or  the                                                                    
     commissioner's designee ("administrator")  has the sole                                                                    
     authority  to   approve  or  deny  an   employee's  RIP                                                                    
     An employer  adopting a RIP  shall propose  the program                                                                    
     to  the  administrator  to  approve  if  it  meets  the                                                                    
     requirements set forth under sec. 9 of this bill.                                                                          
     Establishes the requirements for  any RIP proposed by a                                                                    
     public employer:                                                                                                           
          (1)  Designate  job classifications  and  specific                                                                    
          budget and administrative  components of employees                                                                    
          eligible to participate; and                                                                                          
          (2) For each  participating employee, the employer                                                                    
          must  reimburse  the  defined  benefit  retirement                                                                    
          plan  within  three years  after  the  end of  the                                                                    
          fiscal year  in which  the employee  retires. This                                                                    
          reimbursement must  be equal to an  amount that is                                                                    
          the  difference  between   the  benefits  the  RIP                                                                    
          participant  receives  after  the credit  and  the                                                                    
          benefits  the  participant   would  have  received                                                                    
          without   the   credit,   less  the   amount   the                                                                    
          participant has paid  on the indebtedness provided                                                                    
          later   in   this   section.   The   reimbursement                                                                    
          agreement  requires  the employer's  contributions                                                                    
          must  be  given   priority  over  other  financial                                                                    
9:51:01 AM                                                                                                                    
     An   employer   adopting   a  RIP   may   request   the                                                                    
     administrator  to  establish  one or  more  application                                                                    
     periods  open to  at least  one eligible  employee. The                                                                    
     RIP application period must be  at least 30 days and at                                                                    
     most 60  days in duration. RIP  application periods may                                                                    
     only be  established between 30 days  after the program                                                                    
     is established and no later than June 30, 2024.                                                                            
     An administrator may allow an  employee to retire early                                                                    
     under a  RIP no  later than six  months after  the last                                                                    
     day of  the application  period, or a  date set  by the                                                                    
     RIP  as  the  date  employees are  eligible  to  retire                                                                    
     earlywhichever is earlier.                                                                                                 
     Establishes   RIP  eligibility   requirements  for   an                                                                    
          (1) The  employee is vested  in a  defined benefit                                                                    
          retirement plan in PERS or TRS;                                                                                       
          (2)  The employee  has  credit  for service  under                                                                    
          Tiers 1, 2 or 3;                                                                                                      
          (3) The employee is at  least 50 years old and has                                                                    
          at least 17  years of credited service  as a peace                                                                    
          officer or  firefighter, or at  least 20  years of                                                                    
          credited service in any other public agency;                                                                          
          (4)  The employee  is  qualified  to retire  under                                                                    
          their defined  benefit plan  after receipt  of the                                                                    
          approved early retirement credit;                                                                                     
          (5) An  employee of a  state agency  satisfies the                                                                    
          requirements under sec. 3; and                                                                                        
          (6)  The savings  in personal  services costs  for                                                                    
          the participating employee's  position will exceed                                                                    
          the  cost  to  the   employer  for  that  vacating                                                                    
          position within three years  after the employee is                                                                    
          appointed to retirement.                                                                                              
     Sets the  level of  indebtedness for  RIP participants.                                                                    
     For TRS members, participants pay  25.95 percent of the                                                                    
     year's annual compensation for the  school year, or the                                                                    
     calculated  school year  compensation  if  they work  a                                                                    
     partial  year,  plus  a  share  of  the  administrative                                                                    
     costs.   The  indebtedness   for  peace   officers  and                                                                    
     firefighters is 22.5 percent and  20.25 percent for all                                                                    
     other PERS members.                                                                                                        
     For any RIP participants,  annual or personal leave may                                                                    
     be applied toward  indebtedness. Pension benefits shall                                                                    
     be   reduced  by   an  actuarial   adjustment  if   the                                                                    
     participant has  not paid the indebtedness  at the time                                                                    
     of retirement.                                                                                                             
9:53:18 AM                                                                                                                    
     Provides  a credit  of  three years  of  service to  be                                                                    
     given to an employee  participating in the program. The                                                                    
     three  years credit  must  be applied  in  an order  of                                                                    
     priority until  the credit is  met: to meet the  age or                                                                    
     service required for  normal retirement eligibility; to                                                                    
     meet the  age required for early  retirement; to reduce                                                                    
     the   actuarial    adjustment   required    for   early                                                                    
     retirement;   as   years   of  credited   service   for                                                                    
     calculating benefits.                                                                                                      
     Section 3:                                                                                                               
     Requires  interested eligible  state employees  must be                                                                    
     employed for  at least 12  months prior  to application                                                                    
     to an approved RIP.                                                                                                        
     Prohibits    the    governor,   lieutenant    governor,                                                                    
     commissioners,   deputy   commissioners  or   assistant                                                                    
     commissioners from participating in a RIP.                                                                                 
     Section  4: Authorizes  University of  Alaska employees                                                                  
     who are  members of  PERS or TRS  may participate  in a                                                                    
     RIP  under  the   appropriate  requirements  for  their                                                                    
     defined  benefit retirement  program established  under                                                                    
     this bill.                                                                                                                 
     Section  5: Allows  PERS or  TRS members  to receive  a                                                                  
     credit  for service  while employed  in a  political or                                                                    
     public  organization   prior  to   that  organization's                                                                    
     participation in  PERS or  TRS. The  credit may  not be                                                                    
     applied to determine the  amount of retirement benefits                                                                    
     that employee receives.                                                                                                    
     Section  6: Allows  the commissioner  of administration                                                                  
     to  recover  a delinquency  owed  to  the state  by  an                                                                    
     employer. Provides  a delinquency  may be  recovered by                                                                    
     withholding  money owed  to the  employer  equal to  or                                                                    
     less  than  the  amount  of  the  delinquency,  and  by                                                                    
     bringing action against the employer.                                                                                      
     Section 7: Allows an administrator  to close an adopted                                                                  
     RIP to  new applicants if  it has been  determined that                                                                    
     an increase in  the number of participants  will have a                                                                    
     significant negative effect  on the actuarial soundness                                                                    
     of PERS or TRS.                                                                                                            
9:55:08 AM                                                                                                                    
     Section 8:  Requires an employee who  participated in a                                                                  
     RIP  that  is  reemployed  under PERS  or  TRS  or  the                                                                    
     judicial  retirement system  to  forfeit the  incentive                                                                    
     credits received  or due as  established under  sec. 2.                                                                    
     That employee  must also incur  an indebtedness  to the                                                                    
     reemploying defined benefit plan  at 110 percent of the                                                                    
     amount received solely as a  result in participating in                                                                    
     a RIP, including health insurance premium costs.                                                                           
     The administrator  shall apply the amount  the employee                                                                    
     paid in  indebtedness under sec.  2 as a  credit toward                                                                    
     the  member's  reemployment indebtedness.  Interest  on                                                                    
     the reemployment indebtedness accrues  from the date of                                                                    
     reemployment   until  the   date   the  individual   is                                                                    
     appointed  to  retirement   and  accepts  an  actuarial                                                                    
     adjustment to  future benefits,  or until  the employee                                                                    
     repays the  indebtedness in full. The  rate of interest                                                                    
     is  established  by  the Alaska  Retirement  Management                                                                    
     Prohibits a  state agency or  the University  of Alaska                                                                    
     from  employing   or  contracting  an   individual  who                                                                    
     retired  under  a RIP  for  a  period of  three  years.                                                                    
     Establishes  several exceptions  for the  University of                                                                    
     Alaska, school districts and the legislative branch.                                                                       
9:56:19 AM                                                                                                                    
     Section  9:  Requires the  director  of  the Office  of                                                                  
     Management and  Budget (OMB) to  determine if  each RIP                                                                    
     adopted will  reduce net operating costs  for the state                                                                    
     agency for  a five-year  period beginning July  1, 2021                                                                    
     and   report  the   outcome  of   the  review   to  the                                                                    
     Prohibits  the  administrator   from  approving  a  RIP                                                                    
     unless the  OMB determines  the program is  expected to                                                                    
     reduce  the agency's  net  operation  costs. The  state                                                                    
     agency adopting a RIP shall  cooperate with and provide                                                                    
     information to the  OMB to aid with  the preparation of                                                                    
     the  review  and the  annual  report  submitted to  the                                                                    
9:56:58 AM                                                                                                                    
     Requires  the   OMB  to  submit  to   both  legislative                                                                    
     chambers   an  annual   report   of  established   RIPs                                                                    
     beginning January  15, 2022, through January  15, 2025.                                                                    
     Sets the requirements for those  annual reports so that                                                                    
     the legislature  can evaluate  the RIPs,  their impacts                                                                    
     on  PERS   and  TRS,  and  their   economic  impact  to                                                                    
     employing agencies.                                                                                                        
9:57:19 AM                                                                                                                    
     Section 10: Provides  that an employee does  not have a                                                                  
     vested  or contractual  right to  a benefit  under this                                                                    
     bill   until  an   agreement  is   executed  with   the                                                                    
     administrator   that   authorizes   the   employee   to                                                                    
     participate  in  the  RIP. Allows  the  legislature  to                                                                    
     change a  RIP as  it relates to  employees for  whom an                                                                    
     agreement has not been executed.                                                                                           
     Section   11:   Allows   the  commissioner   to   adopt                                                                  
     regulations to implement and interpret the Act.                                                                            
     Section  12:  Provides  definitions  of  administrator,                                                                  
     employer,  OMB,  PERS,  TRS,  public  organization  and                                                                    
     state agency for purposes of  the Act established under                                                                    
     this bill.                                                                                                                 
     Section 13: Prohibits sections  1-12 from impairing the                                                                  
     benefits  of a  person  appointed  to retirement  under                                                                    
     PERS or TRS before the effective date of this bill.                                                                        
     Section 14:  Sections 1-12 apply  to contracts  made on                                                                  
     or after the effective date.                                                                                               
     Section 15: Repeals sections 1-12 on July 1, 2024.                                                                       
     Section  16:  Enacts  the  bill  immediately  under  AS                                                                  
9:58:29 AM                                                                                                                    
SENATOR BEGICH noted that in Section 10, Mr. Hayes said, "for                                                                   
whom an agreement has been executed." He thinks Mr. Hayes meant                                                                 
to say "for whom an agreement has not been executed                                                                             
MR. HAYES agreed.                                                                                                               
SENATOR BEGICH said that Section 8 is to keep people from taking                                                                
advantage of the system and coming back immediately after                                                                       
executing an  RIP. He asked  if that  was correct, and  Mr. Hayes                                                               
affirmed it was correct.                                                                                                        
9:59:45 AM                                                                                                                    
SENATOR  HUGHES referenced  a bill  allowing retired  teachers to                                                               
come  back. She  understands what  Senator Begich  is saying  but                                                               
wonders  if that  would make  sense if  there is  a shortage.  In                                                               
Section 2,  an employee could be  50 years old. If  this is truly                                                               
something  where  there   could  be  a  net   cost  savings,  she                                                               
questioned the  reason for an  age limit. Someone could  meet the                                                               
minimum years of credited service at a younger age.                                                                             
MR. HAYES responded that he is  not sure how many state employees                                                               
would be hired at 18 without a degree, but he will review that.                                                                 
SENATOR HUGHES said someone could start  at age 25 and still meet                                                               
that requirement before age 50.                                                                                                 
SENATOR  BEGICH  said Senator  Micciche's  bill  that became  law                                                               
excluded teachers  from coming back  into the  retirement system.                                                               
There  are exceptions  in Section  8 for  things like  substitute                                                               
teaching. The retirement incentive bill  would not be affected by                                                               
10:02:41 AM                                                                                                                   
SENATOR MICCICHE  said the financial  benefits to the  state have                                                               
been questionable with the RIPs passed  in the past. The state is                                                               
in a perfect  storm of not being able to  fill teacher positions,                                                               
which is why  the legislature passed the retiree  rehire bill. He                                                               
is  struggling.  The  economic  benefits  are  questionable.  The                                                               
Legislative  Research Services  report  had  mixed reviews.  With                                                               
some  calculations there  actually was  a cost  to the  state. He                                                               
understands the  economic value of  giving an  economic incentive                                                               
to  replace a  highly  compensated 30-year  teacher with  another                                                               
teacher at  a lower  cost, but  right now, the  state is  in dire                                                               
straits in  keeping teaching positions filled.  That worries him.                                                               
He appreciates  the idea.  Maybe at  some point  it will  be more                                                               
beneficial, but right now he is worried about it.                                                                               
MR.  HAYES responded  that Senator  Kawasaki views  this bill  as                                                               
win-win.  It   is  an  opt-in   rather  an  opt-out   bill.  Each                                                               
governmental agency  decides if it  works for them. The  state is                                                               
not saying that  anyone has to do  an RIP, but if  there are cost                                                               
savings, agencies could  proceed. It is a  morale booster because                                                               
of  the amounts  of layoffs  coming from  the state  with reduced                                                               
budgets. This is  a better way for folks to  walk away and retain                                                               
morale in certain segments of the state.                                                                                        
CHAIR HOLLAND called on invited testimony.                                                                                      
10:05:26 AM                                                                                                                   
DOUG  WOOLIVER,  Deputy  Administrative  Director,  Alaska  Court                                                               
System,  Anchorage, Alaska,  said the  court has  no position  on                                                               
this bill,  but he was asked  to testify about a  RIP program the                                                               
court  developed  in  2016.  The  court  was  looking  to  reduce                                                               
personnel costs.  It had long-time  employees who cost  more than                                                               
newer  employees. The  court had  no authority  to have  an early                                                               
retirement program such as this.  It could only incentivize those                                                               
who  were already  eligible for  retirement to  retire. With  the                                                               
court program,  employees must have  been eligible to  retire for                                                               
at least  three years, must  have been  an employee of  the court                                                               
system for  at least 10 years,  and agree to retire  by August 31                                                               
of 2016.  Only 28 people  were eligible and  16 of them  opted to                                                               
retire. The  incentive was three  months salary. The  net savings                                                               
was $680,000  a year, which is  not big relative to  PERS (Public                                                               
Employee Retirement  System) or TRS (Teacher  Retirement System),                                                               
but for the court system budget,  $680,000 was a real help at the                                                               
time. It was a morale booster.  The court was able to say goodbye                                                               
to people on good  terms and saved a lot of  money by the court's                                                               
standards. It is  a different kind of program, but  it worked for                                                               
the court system.                                                                                                               
10:07:54 AM                                                                                                                   
SENATOR MICCICHE  said he  is only  looking at  the bill  from an                                                               
education standpoint  because it  is in the  Education Committee.                                                               
He feels differently about the bill  as far as TRS vs. PERS. With                                                               
PERS he  sees some practical  benefit. The ageism aspect  of this                                                               
has been  challenged in the past.  The court system was  based on                                                               
years  of service  or something  not  related to  age. This  bill                                                               
seems  more  age directed.  He  asked  if  Mr. Wooliver  had  any                                                               
concerns about  that or would  he rather  not speak to  the legal                                                               
aspects of the bill.                                                                                                            
MR.  WOOLIVER  replied   that  it  would  be  best   to  turn  to                                                               
Legislative Legal for that, but  retirement incentives are common                                                               
across the country.  He would guess that whatever the  law is, it                                                               
is well established.                                                                                                            
SENATOR  HUGHES said  that  to  veer off  education  a bit,  from                                                               
reading the  Legislative Research  information, the  1989 program                                                               
was to mitigate the social  hardships of layoffs. Those positions                                                               
were not  replaced. As lawmakers  they need to think  about that.                                                               
They have seen  that per capita the number of  state employees is                                                               
high. Alaska  is a unique state  and provides a lot  of services,                                                               
so it is  not comparable. It might be something  to consider if a                                                               
position  would remain  vacant  sooner under  this  if the  state                                                               
decides to  downsize. She is  just throwing that out.  That could                                                               
be of benefit to the state.                                                                                                     
10:10:18 AM                                                                                                                   
JIM  PUCKETT,   Deputy  Director,  Division  of   Retirement  and                                                               
Benefits,  Department of  Administration  (DOA), Juneau,  Alaska,                                                               
said he was available for questions.                                                                                            
CAROLINE SCHULTZ, Chief Policy Analyst,  Office of Management and                                                               
Budget,  Office of  the Governor,  Juneau, Alaska,  said she  was                                                               
available to answer questions.                                                                                                  
SENATOR MICCICHE  asked Mr.  Puckett about  the legal  ability to                                                               
remove the TRS  section of the bill and let  it move forward with                                                               
PERS. He is just curious about  that. This would not work for TRS                                                               
right now. He asked  if it would be legal to  have an RIP without                                                               
a TRS option.                                                                                                                   
MR. PUCKETT  answered they are  two separate  retirement systems,                                                               
so there  could be  a bill  that is  only for  PERS and  not TRS.                                                               
There would be nothing wrong about that legally.                                                                                
MR.  HAYES said,  unfortunately,  the  superintendent from  Sitka                                                               
could not  be present. Sitka is  doing an RIP. He  would like him                                                               
to testify at some point.                                                                                                       
10:12:47 AM                                                                                                                   
CHAIR HOLLAND held SB 6 in committee.                                                                                           

Document Name Date/Time Subjects
01_SB020_TeacherCert_Reciprocity_Sponsor-Statement.pdf SEDC 3/15/2021 9:00:00 AM
SFIN 3/29/2021 9:00:00 AM
SB 20
02_SB020_TeacherCert_Reciprocity_BillText_version A.pdf SEDC 3/15/2021 9:00:00 AM
SB 20
03_SB020_TeacherCert_Reciprocity_Sectional_version A.pdf SEDC 3/15/2021 9:00:00 AM
SB 20
04_SB020_TeacherCert_Reciprocity_Research_Dept.Defense_Military-Spouses.pdf SEDC 3/15/2021 9:00:00 AM
SFIN 3/29/2021 9:00:00 AM
SB 20