Legislature(2001 - 2002)
04/11/2002 03:40 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 254-STATE RETIREMENT SYSTEMS/WARRANTS
BARBARA COTTING, staff to Representative Jeannette James,
introduced the legislation to keep the State of Alaska retirement
system in compliance with Internal Revenue Service (IRS) code
changes. It allows buy-ins with pre-tax dollars. The fiscal note
is zero. It is a technical bill that is not intended to and does
not enhance benefits in any way.
CHAIRMAN THERRIAULT asked Mr. Bell to comment on whether the bill
addressed this single issue.
GUY BELL, Director of the Division of Retirement and Benefits,
explained that everything else in the legislation is confirmation
of current practice. The only substantial change is the allowance
of pre-tax payment of indebtedness in the retirement system for
public employees and teachers. The new language needs to be put
into state law to comply with provisions of the IRS code to
ensure continued tax qualification.
CHAIRMAN THERRIAULT called for teleconferenced testimony.
CHIEF MONEGAN from the Anchorage Police Department said he wanted
to speak to Senator Halford's proposed amendment.
CHAIRMAN THERRIAULT made a motion to adopt amendment #1 for the
purpose of discussion.
CHIEF MONEGAN said the amendment would provide local option for
local governments to enhance or offer a series of enhancements to
existing public employee retirement systems (PERS). The Anchorage
Police Department is experiencing difficulty recruiting and
retaining personnel because people are looking elsewhere for
retirement and benefits packages. Other departments are similarly
affected. The amendment would allow local municipalities to
bargain individually and bear the cost for their own enhancements
to the basic state retirement package. The fiscal impact to the
state would be nominal.
CHAIRMAN THERRIAULT questioned why this needs to be incorporated
into the state system. Why couldn't a municipality just as easily
offer an attractive option that is controlled and operated
entirely at the local governmental level?
CHIEF MONEGAN replied they may end up bargaining no increase, but
they need this kind of legislation before they can even get to
the table. They haven't found any options that would be as
attractive as this one.
CHAIRMAN THERRIAULT questioned the statement that there would
only be minimal administrative costs to the state. If the
municipality isn't able to make it work separately, it sounds as
though there would be reliance on the overall state system and
probably have associated costs.
CHIEF MONEGAN said there was none they could tell. Their police
union contacted Mr. Bell and they thought they received a
favorable response from him initially. When they were in Juneau
the previous week to explore this further, Mr. Bell was somewhat
cool. He indicated there might be a more complicated
bookkeeping/administrative situation than they originally
thought.
The Anchorage mayor was also supportive of the legislation.
SERGEANT ROD HUEN, President of the Anchorage Police Department
Employees Association, said he shares the same concerns that
Chief Monegan has regarding recruitment and retention. It is a
statewide problem.
Amendment 1 addresses the issue of the legality of when an
officer is moved from an area with an enhanced PERS program to an
area without an enhanced PERS program by increasing the employer
contribution. The amendment makes it clear there would be no
expectation of any enhanced benefits. The goal is to have the
local government bear the burden of any enhancement that is on
top of the basic PERS program through employer contribution. This
could become a piece to a long-term recruitment and retention
program, which is the goal. They want to work with the state, but
place the burden and control at the local level.
WILL AITCHISON said the difficulty with doing this as a
supplemental program at the local level is that when going to a
local option some governmental bodies that might want to take
advantage of this might have existing retirement systems while
others might not and would be solely reliant of PERS. Anchorage
falls into a category in which there are retirement systems in
place that are closed. The possibility of doing this at the local
level is too complicated with the variety of retirement systems.
Even those with a retirement system that could potentially handle
supplemental benefits would find it difficult to administer only
supplemental benefits. The types of benefits range from the
calculation of basic retirement benefits to the administration of
death benefits and occupational disability benefits. Setting up a
system like that at the local level rather than changing the
benefit level as an optional plan under PERS would be far too
expensive. When put into PERS it is a matter of no new benefit
being added rather different benefit levels are being offered.
Put into PERS, the additional cost would be the minimal
administrative costs associated with keeping track of the
optional benefits and doing the initial actuarial assessment to
determine what the employer would pay.
CHAIRMAN THERRIAULT noted Senator Halford handed out a copy of a
memo that suggested additional language to the amendment to deal
with the concern.
He ran through a brief description of the current system and
noted that adding additional governmental bodies could result in
a very cumbersome system. While there may be little impact or
cost individually, collectively it could be burdensome.
MR. AITCHISON replied it is not at all unusual to see retirement
systems with a variety of different options. One of the purposes
of this legislation is to meet a challenge that large city police
departments are facing because of the existence of such a local
option in California. On a jurisdiction-by-jurisdiction basis,
the agencies in California are able to elect a 3 percent benefit
and 50 years of age. This sort of optional benefit, is a
relatively common feature of state retirement systems and is
manageable within the context of those retirement systems. He has
not heard any complaints about administration difficulties from
PERS type administrators that have gone to this sort of
supplemental retirement benefit.
SENATOR STEVENS asked how many agencies in Alaska employ peace
officers that could be eligible for this option.
DELL SMITH, Deputy Commissioner of the Department of Public
Safety, replied there are probably about 35 municipal police
departments.
SENATOR STEVENS asked whether there would be any that would not
be eligible to participate.
MR. SMITH replied this is an option for municipalities so state
troopers, fish and wildlife protection officers, airport security
police and village public safety officers wouldn't be eligible.
It appears to be for municipal firefighters and police officers
only.
CHAIRMAN THERRIAULT said he has heard that the state has
retention problems and frequently loses troopers to the Anchorage
Police Department.
MR. SMITH said some have transferred over but his experience is
that there are transfers both ways. Within the last six months,
three Alaska State Trooper transferred to the Anchorage Police
Department.
SENATOR STEVENS asked whether there are individual negotiations
for each employee's benefit package.
CHIEF MONEGAN said there is one bargaining unit and they would
negotiate for the enhanced benefit for all police officers
covered under that contract.
SENATOR STEVENS asked whether passage would make the benefit
packages for municipal officers and state officers similar or
would one be more enticing.
SERGEANT HUEN said anyone in Anchorage who was hired after 1994
is in PERS Tier III. Anyone hired before 1994 is in the local and
closed retirement plan. Those in PERS Public Safety Plan III who
were hired in Anchorage after 1994 reflect the people who have
been hired on to the troopers.
SENATOR STEVENS said the trooper plan and municipal plan after
1994 are the same.
SERGEANT HUEN said they are as far as the retirement plan is
concerned.
SENATOR STEVENS asked if this would allow municipalities to offer
incentives and make the plan more attractive than the state
incentives.
SERGEANT HUEN said this language doesn't exclude, it simply says
"employer" so it would be up to the state. The intent was to
localize the control of the work force.
SENATOR STEVENS asked if the money would come from a local
revenue source and that is why it wouldn't be a cost to the
state.
SERGEANT HUEN said that's correct. The retirement contribution by
the employer would cover that cost and that would vary with the
employer. Employer contributions range from six percent in Long
Beach, California to 12 or 13 percent in Eugene, Oregon.
Anchorage is now at seven percent.
SENATOR STEVENS asked if he would object to the statement that if
the same option were available to state law enforcement it would
be an expense to the state.
SERGEANT HUEN said if the state chose to do that for their law
enforcement personnel it would incur whatever the relative
employer contribution would be to ensure those enhancements were
funded.
CHAIRMAN THERRIAULT asked Mr. Smith whether the department had
taken a position on the concept. What would the department do if
local systems became more enticing than the state system?
MR. SMITH said he became aware of this very recently but he does
have concerns and believes it would put the state at a
disadvantage. In fact, they are already at a disadvantage to some
degree.
CHIEF MONEGAN said they don't currently have the Supplemental
Benefits System (SBS) so the troopers actually have a better
system than they have. They believe this legislation would bring
some parity.
CHAIRMAN THERRIAULT replied SBS is similar to a 401K and APD
could add that rather easily.
SENATOR PHILLIPS noted the state replaced social security with
SBS about 20 years ago.
CHAIRMAN THERRIAULT asked Chief Monegan whether local officers
got social security benefits.
CHIEF MONEGAN replied some do; those that were in the police and
fire departments were told they were no longer eligible, but the
new hires under PERS Tier III do pay in and will receive social
security.
SENATOR DAVIS thought the federal government determined SBS was
no longer an option and everyone was going to eventually have to
return to the Social Security System. She asked if there was
anyone present that could tell her whether or not that was
correct.
GUY BELL, Director of the Division of Retirement and Benefits,
explained that SBS is closed to other options, but there are
other options such as 401K available to local governments. The
federal government is making more pension options available to
government than in the past through reform legislation that was
recently enacted. Although he isn't an expert on all the options,
he can provide information on other options that might be
available other than social security and SBS.
He noted the state contributes 6.13 percent to SBS while the
social security contribution is 6.2 percent so the state saves a
bit through SBS.
CHAIRMAN THERRIAULT asked whether it would be available for the
state to take advantage of since the bill says "employer."
GUY BELL said it is placed in AS 39.35.655, which is under the
political subdivision and public organization portion of statute.
It is Article 7 of the PERS statute, which doesn't include the
State of Alaska. This could be changed but, as written, they
interpret it to exclude the state.
CHAIRMAN THERRIAULT asked whether he had seen the memo to Mr.
Bravo (ph).
MR. BELL had not seen the memo and was given a copy to read.
SENATOR PHILLIPS asked whether he had an opinion from the
Attorney General's office.
GUY BELL replied it would probably help clarify that one issue.
The question is if you're in a higher tier area and are with an
employer that opted for higher tier benefits then move to a lower
tier employer, are you entitled to the higher tier benefits with
that new employer? The language says you cannot take that higher
level of benefits with you. However, this is just a legal
opinion, it has not been litigated. "In the benefits/entitlement
world we do have a constitutional prohibition against the
diminution of retirement benefits and that's being tested all the
time." Currently there are three separate lawsuits relating to
retirement and benefits and he couldn't be sure this wouldn't be
tested at some time in the future. This is a cafeteria plan for
retirement benefits that can shift between employers and under
(c) of the amendment the optional benefits could change each
year. That might mean that newly hired employees may be entitled
to less after a certain point in the year than employees that
were hired in the previous year. An employer would have different
benefits for employees depending on their year of hire. There is
a great deal of variety and complexity as currently drafted. The
three-tier system is difficult to administer now and this would
more than double the number of tiers because of the number of
choices an employer could make.
There was no further testimony.
CHAIRMAN THERRIAULT announced he would hold HB 254 in committee
while they reviewed the wording of the amendment.
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