Legislature(1997 - 1998)
03/21/1997 09:03 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
Testimony was heard from TOM WILLIAMS, BILL DONALDSON, BRUCE LUDWIG, BILL CHURCH, KEN GRIFFIN, ANNALEE MCCONNELL and NANCY SLAGLE. SB 126 was HELD for further consideration. SENATE BILL NO. 126 "An Act relating to the retirement incentive program for state employees; and providing for an effective date." TOM WILLIAMS, Staff to Senate Finance Cochair Sharp, read the Sponsor Statement relating to SB 126 (copy on file). Following is an excerpt: "SB 126 leaves the basic elements of current Retirement Incentive Program in place. However, it adds two principal provisions. It  limits a qualified employee's participation to the first RIP application period for which they qualify (section 3); and  requires state agencies to offer a RIP plan to all qualified classified state employees during three two month application periods (section 1). This legislation will not only increase RIP participation, it will accelerate when employees are required to retire under this program. Both elements should increase savings to the state, the principal impetus to passing the RIP legislation last year." SENATOR ADAMS asked about showing a greater savings over a longer average, instead of three years to possibly four or five so more people could participate. MR. WILLIAMS responded that the purpose of SB 126 was simply to address the two items mentioned. The primary impetus was to insure that people jump at their first opportunity rather than wait for a later time, and to make it available. SENATOR ADAMS suggested there were other areas that needed to be looked at besides the two in the bill. He had no objection to the bill. SENATOR TORGERSON brought up a proposed amendment in the committee files. MR. WILLIAMS responded that it was drafted in discussion with the Division of Retirement and Benefits. They noted a technical reference that needed to be made that insures that the provisions in the bill for the mandated openings are the same rules that are required by the current program. It specifically says that if an employee is offered RIP, they have to go forward with it within six months, which is consistent with the current provision of the discretionary plan. SENATOR ADAMS asked to hear from the administration regarding the technical amendment. VICE-CHAIR PHILLIPS stated his intent to hear from people testifying on teleconference first. BILL DONALDSON, testifying via teleconference from Kodiak, stated that if the point of SB 126 was to reduce the operating budget through personnel reduction, why wasn't the RIP offered to people who showed a cost savings based on a three-year time period and replacement at a B step. He pointed out that within the Department of Fish and Game a narrow focus was chosen. He didn't believe SB 126 went far enough and that offering the RIP to those who qualified and showed a cost savings should be mandatory. MR. WILLIAMS responded that the impetus to passing the RIP legislation last year was for downsizing and to provide cost-savings. SB 126 does go a long way toward encouraging a more active offering of the RIP. A substantial additional number of individuals could take advantage of it as a result. He acknowledged there were other provisions that might be added that would extend the RIP further, but could not say whether it was advisable. SENATOR TORGERSON asked what impact SB 126 would have on local governments tied to the Department of Education, such as AVTECH or Mt. Edgecumbe. MR. WILLIAMS responded that SB 126 would apply only to state government. BRUCE LUDWIG, Business Manager, Alaska Public Employees Association, Alaska Federation of Teachers, and Secretary- Treasurer of the state AFL-CIO, testified next. He was appreciative of the bill and wanted to offer improvements to the concept. There have been complaints from union members throughout the state in the way the RIP has been implemented. Some employees partially funded by the federal government are being denied the opportunity because they are told the federal government won't participate. With a powerful congressional delegation, it was his belief that pressure could be brought to bear that would help save state and federal dollars. He supported an earlier suggestion by Senator Adams to extend the three years to five years in the cost-savings portion. He gave an example of up-front training costs for hiring new employees in the Departments of Corrections and Public Safety. Those jobs are 20-year retirement system jobs that retain people for a long period of time. In a normal situation it is amortized over the life of the employee. Here, the department is required to come up with savings within three years to pay for that training. By going to five years, it is easier to qualify people for the RIP. There is an eight-year cost savings when a correctional officer in longevity is replaced, but the cost has to be recouped in three years. By moving it to five years, there would still be three more years of savings that wouldn't be accounted for in the RIP. MR. LUDWIG proposed draft language (copy on file). He explained that a significant part of savings that is not being accounted for by the administration, is that employees hired prior to 1986 cost around 14 percent to the employer. Changes made in 1986 and last year brought the figure down to between 7.5 and 8 percent. There would be substantial cost savings by replacing a pre-1986 employee with someone hired after July 1, 1996. None of that is being counted as savings. He suggested the bill be amended to include savings from different retirement tiers. Division budgets wouldn't be directly impacted, but the state as a whole would be impacted because an actuary looks at the actual work force in determining what the employer contribution will be in the future. Another suggestion offered by MR. LUDWIG related to Section 3 which requires the employee to leave the first time they were eligible. He believed it could create some real problems. A number of programs were added to government with the increase of oil money. Entire programs or divisions came on at once, including the hiring of employees, and there was concern that an entire hierarchy within a certain program could be lost. If allowed to phase in over a three-year period that impact could be alleviated. BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits, Department of Administration, stated his availability to speak to the technical amendment or any questions the committee had. SENATOR ADAMS asked him to speak to the technical amendment. MR. CHURCH said he did not represent the administration and deferred to Ms. McConnell to speak of their position. SENATOR TORGERSON asked if there was another area of concern. MR. CHURCH confirmed that his concern was with Section 3, line 12, which references application of the retirement incentive credit under 22(f) of the enabling legislation. That section outlines how the three years will be applied. It is first applied to allow someone to meet eligibility for normal retirement, it allows someone to be eligible for early retirement, then allows someone who is under the age eligibility for early retirement to meet that eligibility. SB 126 only allows individuals who meet eligibility for normal retirement. He suggested that line 12 only include (f)(1), which would allow eligibility for normal retirement only. It ties everything together. KEN GRIFFIN, Biologist, Department of Fish and Game, expressed that his concern with the present RIP was similar to that of Mr. Donaldson. He stated he was one of the federally funded employees, but only for the last four years. Prior to that, he spent seventeen years in a state funded position. He asked whether the Department of Fish and Game, under the present RIP, could pick and choose, through the process of downgrade or elimination of positions only, the people that got to participate in the RIP. He didn't believe that was the intent, but that was what happened in his department. There were many that would like to retire, but there was no incentive in the present program. VICE-CHAIR PHILLIPS asked Ms. McConnell to address the committee. ANNALEE MCCONNELL, Director, Office of Management and Budget, testified that as they considered the RIP proposals over the last two years, it was clear that the direction of the legislature was not to have an across-the-board RIP as had been offered in the past. It was consistent with the governor's strategic RIPs. She acknowledged legislative concern and difference of opinion regarding whether the savings were as large, and followed legislative direction. An area of concern was the issue of federal funded positions, a particularly large problem in DOT&PF from a financial standpoint. They were not being allowed by the Federal Highway Administration to use federal funds to pay for the RIP, which meant they had to use general funds. She noted that Nancy Slagle (DOT&PF) had run some numbers on the impact (copy on file). MS. MCCONNELL agreed with the idea of not having the "take it or leave it" provision apply only to classified employees. She questioned the intent regarding efforts to downsize. If RIP were offered to all employees, there was no way to responsibly say they would have a large percentage of vacancies in those areas. They would need to deal with that issue. In addition, the legislative expectation about how many positions would be refilled would have to change considerably. MS. MCCONNELL handed out an update of all RIP plans approved to date (copy on file) and explained. 221 have applied to date, but they may not all retire. 6,200 of the total number of employees were eligible from all departments. MS. MCCONNELL next spoke about why Tier 3 was not used. One reason was because many of the people who filled the positions had prior experience before state government. Another was because of non-Tier 3 people within a department who fill the position. SENATOR ADAMS asked if Ms. McConnell had seen a proposed technical amendment. MS. MCCONNELL did not see a problem with it. SENATOR TORGERSON asked her to speak to Mr. Church's proposal to go to 22(f)(1) instead of 22(f)(2). MS. MCCONNELL said there would need to be a technical correction there. She did not object to that, as it was separate from the overall policy question. End SFC-97 #65, Side 1 Begin SFC-97 #65, Side 2 In response to a question posed by SENATOR TORGERSON, MS. MCCONNELL stated there had not been a consistent policy from federal agencies. Some have allowed their grantees, including the state, to use federal funds for RIP. The same issue was faced when local governments asked the state if they were allowed to use state money to pay RIP costs. The state believed if they were asking the feds to do that, they needed to apply it to local governments. An exception was that sometimes federal money was restricted, so that if it were passed on to the state, the restriction could not be lifted. DOT&PF had the largest negative impact by the feds. SENATOR TORGERSON asked that Nancy Slagle address the committee. NANCY SLAGLE, Director, Administrative Services, Department of Transportation and Public Facilities, informed the committee that she had run some numbers to figure out where they were on federal funded positions. She explained that they offered the RIP to employees, but to qualify for participation, there needed to be a non-federal savings for them. The Federal Highways Administration, citing Title 23, the guiding laws for state funding, would not participate in the RIP. So all RIP costs would have to be absorbed by the department's general fund. Discussions are continuing with the FHA. For FY 97, there were 96 people who could potentially qualify with a savings of about $1 million, but the state would have to absorb $2.9 million in RIP costs, taking into account that only a portion of the savings are general fund based on the 90/10 split of federal and general funds. MS. SLAGLE estimated that about 30 percent of those 96 people would participate, but they could not absorb such a substantial cost in their budget. VICE-CHAIR PHILLIPS called for further testimony or questions regarding SB 126. There being none, he announced SB 126 would be HELD for further consideration. SENATOR ADAMS directed staff to provide the technical amendment regarding 22(f)(1). VICE-CHAIR PHILLIPS brought up SB 109 next.