Legislature(1999 - 2000)
03/09/1999 01:41 PM Senate L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 9-PERS CREDIT FOR NONCERTIFICATED EMPLOYEES
CHAIRMAN MACKIE called the Senate Labor and Commerce Committee
meeting to order at 1:41 p.m. Present were Senator Donley, Senator
Kelly, and CHAIRMAN MACKIE.
CHAIRMAN MACKIE announced SB 9 to be up for consideration.
SENATOR WILKEN, sponsor, said SB 9 is not a new issue. It gives
noncertificated employees in the school district, such as janitors
and secretaries, the ability to participate in a 12 month
retirement system rather than a nine by allowing them to pay into
the plan with their own money during the summer months. After they
work for 30 years, they have 30 years of retirement. Now they
cannot contribute in the summer months and the net effect of the
cost to the State and the retirement program is zero. There is a
small fiscal note of $72,000 to get the system set up, relating to
computer programing.
SENATOR WILKEN said his school district in Fairbanks supports this
bill, as well as the Anchorage school district. Over 200 POMs and
other letters from around the State indicate support.
SENATOR DONLEY remarked that participants would have to pay in
quite a bit of money for three months of retirement.
SENATOR WILKEN responded that currently the State pays in roughly
6.5 percent and the employees pay 4.5 percent of a monthly salary.
For the three months they are not working, the employee will be
paying in 11.5 percent.
CHAIRMAN MACKIE asked about a $316,500 fiscal note for SB 9,
because the companion bill in the House was $70,000.
SENATOR WILKEN said there was some confusion and it had started out
at $140,000, but the most current fiscal note is $72,000.
MR. GUY BELL, Director, Division of Retirement and Benefits,
clarified that the $116,000 fiscal note was his staff's clerical
error and should have been $72,000. He said that currently in
PERS, employees are required to provide 6.75 percent of their
salary to the retirement system. This bill would allow an employee
to elect this option which would effectively transfer them to the
Teacher's Retirement Fund schedule for accredited services only.
This would allow an employee to get a full year credit for each
school year that they work.
The additional cost to the employee who would elect this would be
4.33 percent which would raise their rate on salary to just over 11
percent to pay into PERS per month.
SENATOR KELLY asked why anyone would want to pay more money.
MR. BELL explained if a person chose to do this and started working
at age 20, after 30 years they would receive a retirement benefit
at 50 years of age. Without this change, that person would not be
eligible to receive a benefit until age 60, because they are
getting nine months of credit for each year they work. He added
that means the system would be paying benefits for those additional
10 years. The system needs to recoup that cost in advance and that
is why the additional rate is being paid by the employee.
SENATOR KELLY asked if a participant would be paying both the
employer and employee rate.
MR. BELL replied that the additional rate reflects the additional
cost of this change. The employer's contribution doesn't change.
SENATOR KELLY asked if this bill is retroactive.
MR. BELL said it is not.
SENATOR KELLY asked if it was for new employees only.
MR. BELL said no and explained that a new employee entering the
system has 90 days to make an election, which is irrevocable, to
use the definition of "years of service" under AS 14.25.220
(Teachers Retirement schedule). A noncertificated employee of a
boarding school who is an active member of the system on the
effective date of this act, may within 180 days after the effective
date of the act, make the irrevocable election. Language on page 2,
line 19 says, "The election applies to the employee's service
earned for the school year in which the election is accepted by the
administrator and applies to all subsequent employment as an
employee..." Mr. Bell said. That means the election year and all
subsequent years. An employee can't go back and buy the last ten
years.
SENATOR KELLY asked if the employee contribution would be prorated
throughout the year.
MR. BELL replied that it would be an additional payroll deduction
of 4.33 percent for nine months.
SENATOR KELLY asked if this had anything to do with "20-and-out."
MR. BELL responded this does not give them "20-and-out."
CHAIRMAN MACKIE asked if it would be "30-and-out."
MR. BELL answered yes; if a person entered the system and made that
election at age 20, they could leave after 30 school years and
receive a normal retirement benefit.
SENATOR DONLEY wanted to clarify who participated financially.
MR. BELL explained that it's an action between an employer, not
necessarily the State, and an employee. Sometimes the school
district is the employer. The object of the legislation is to hold
the employer harmless from the employee election. This is a net
zero cost to the employer.
SENATOR DONLEY asked if the costs the employer would have paid into
the retirement system for a year-round position was incorporated
into the 4.3 percent increase the employee is going to pay during
the months they are working.
MR. CHURCH explained that the employee will be paying the share
the employer would have had to pay if he worked year-round. If the
cost was shared across the board with 6,600 employees, the total
rate would be approximately 3.95 percent. However, it is an
election by the employee, so that is not the case. The collective
cost of the whole program will be borne by each employee.
SENATOR DONLEY asked if the 4.3 percent was just an estimate.
MR. CHURCH answered that their actuaries asked what it took to
provide these benefits and calculated it out at 4.33 percent.
SENATOR KELLY asked if an existing employee with 25 years in and of
service elects this program for five more years and then retires.
Would he only get full credit for the five years and not the first
25.
MR. CHURCH said that was correct.
SENATOR KELLY noted that they wouldn't retire with a full 30 years
even then.
MR. CHURCH answered if they had 25 years of credited service, they
would retire with 30 years. If they had worked 25 years, it would
be nine months times the five years.
SENATOR KELLY asked what the employer pays per nine months.
MR. CHURCH answered that it varies by school district.
SENATOR KELLY asked if we could use 6.75 percent as one example.
MR. BELL answered that the average employee is around 9 percent, so
the employee contribution is 6.75 percent.
SENATOR KELLY asked if it was correct that the employee would have
to pay another 4.5 percent for a total of 11.08 percent and only
receives credit for the 12-month year on the years that he's
paying prospectively.
MR. BELL said that was correct.
Number 280
MS. BARBARA HUFF TUCKNESS, Teamsters Local 959, supported SB 9.
She explained that the people who would opt for this program would
have 15 - 20 years of work, not necessarily credited years, who
want to retire. This would be an opportunity to retire within five
years instead of ten years, under those circumstances.
Number 302
MS. BETH DAVIS, testifying via teleconference from Fairbanks, said
she is a lead custodian and is representing their Education Support
Staff Association (ESSA). She supported SB 9 saying that it is only
fair to treat classified staff in the school district the same as
certified staff when it comes to accumulating years of service
credit for retirement. The bill means that classified staff could
be vested in five years and education support personnel could
retire after 30 years instead of having to wait almost 40 years to
receive credit for 30 years of service.
MS. SANDY PEVAN, representing Mat-Su employees, said she is a good
example of why someone would want to pay the extra 4.33 percent.
She is currently an employee in the Mat-Su Valley, has been working
in the school district for 21 years, but has only 14 years in
retirement. She is also 53 years old. She'll have to work until
she is 65 or 67 until she can retire. Of the 550 employees in the
Mat-Su Valley that she represents, approximately 100 are 12-month
employees, 300 are nine-month employees, and approximately 150 are
part-time employees with 75 of those not even able to receive any
type of retirement.
MS. PEVAN said from the beginning employees have agreed to pay the
4.33 increase, because it will directly impact their retirement.
SENATOR KELLY asked if there was language saying a temporary
employee has to work at least nine months to be able to this or
could they work three weeks a year.
MR. CHURCH answered that temporary employment is not covered under
the retirement system. Under the teachers credited service
schedule, to receive a full year of credited service, an individual
has to complete at least 172 days or more of employment.
SENATOR KELLY said that was less than half a year.
MR. CHURCH explained a full school year is 188 contracted days.
SENATOR KELLY said that theoretically a person could work for years
part-time and his concern is that they are not even requiring nine-
month people to do this.
MR. CHURCH answered they are requiring someone who wants a full
year of service credit to work at least 172 days of the school
year, equating to nine months.
SENATOR KELLY asked, for instance, if a janitor who works four
hours a day, 172 days per year would be eligible for this program.
MR. CHURCH answered that they are eligible, but he didn't know if
it would be to their advantage. For part-time work under the
teacher's retirement schedule, you receive half credit. Someone
who worked 180 days is actually going to get half credit. Under
the Public Employees Retirement System, part-time credit is based
on the hours worked and he didn't know if an employee would benefit
more by receiving the PERS credit or by opting for the TRS option.
MR. CHURCH said under SB 9 someone who starts at age 20, assuming
full-time employment for at least 172 days in each of 30 school
years, can retire at age 50. Someone under the current program who
is hired today would have to work until age 60; however, 60 is also
the normal retirement age. The double advantage under the TRS
credited service option is receiving the full year of credit and
being able to retire at an earlier age. The questions of advantage
will be different for each person. It could depend on how long
they work each year and if it is advantageous to pay that
additional required surcharge.
SENATOR KELLY asked if the PERS supported this legislation.
MR. BELL said they don't have a problem with it, but he couldn't
give their formal position.
MR. CHURCH added that they have no objection to the legislation; he
could get an official position statement from the Governor.
CHAIRMAN MACKIE closed the public testimony.
MR. JOHN CYR, President of NEA Alaska, said he represents 11,000
education employees, about 3,000 of whom would be impacted by this
legislation. They are in favor of this bill, having worked on it
for the past 10 years. SB 85 is benign to the system because the
employees carry the entire fiscal weight. He said he represents all
the folks who work in schools to make them run every day, other
than teachers, and it's an equity issue.
SENATOR KELLY asked if he represented the Anchorage school
district.
MR. CYR answered that he didn't.
SENATOR DONLEY moved to pass SB 9 with the accompanying fiscal note
and with individual recommendations. There were no objections and
it was so ordered.
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